<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 1995
FILE NO. 811-8108
FILE NO. 33-70984
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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. 2 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 / /
AMENDMENT NO. 3 /X/
PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT
(Exact Name of Registrant)
PROTECTIVE LIFE INSURANCE COMPANY
(Name of Depositor)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: (205) 879-9230
------------------------
LIZABETH R. NICHOLS, 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
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 April 7, 1995 pursuant to paragraph (b) of Rule 485;
/ / 60 days after filing pursuant to paragraph (a) of Rule 485;
/ / on (date) 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.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
registrant has previously registered an indefinite amount of securities under
the Securities Act of 1933. The registrant filed a Rule 24f-2 Notice for the
fiscal year ended December 31, 1994, on or about February 28, 1995.
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<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULES 481(A) AND 495(A)
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required by Form N-4.
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ------------------------------------------- -----------------------------------
PART A
1. Cover Page.............................. Cover Page
2. Definitions............................. Definitions
3. Synopsis................................ Expense Tables; Summary
4. Condensed Financial Information......... Condensed Financial Information;
Yields and Total Returns
5. General Description of Registrant,
Depositor and Portfolio Companies...... The Company, Variable Account and
Funds
a. Depositor.......................... The Company, Variable Account and
Funds -- Protective Life Insurance
Company
b. Registrant......................... The Company, Variable Account and
Funds -- The Protective Variable
Annuity Separate Account
c. Portfolio Company.................. The Company, Variable Account and
Funds -- The Funds
d. Fund Prospectus.................... The Company, Variable Account and
Funds -- The Funds
e. Voting Rights...................... The Company, Variable Account and
Funds -- Voting Rights
f. Administrators..................... The Company, Variable Account and
Funds --
6. Deductions and Expenses................. Charges and Deductions
a. General............................ Charges and Deductions
b. Sales Load %....................... Charges and Deductions -- Surrender
Charge
c. Special Purchase Plan.............. Surrenders; Transfers
d. Commissions........................ Distribution of Contracts
e. Expenses -- Registrant............. Charges and Deductions
f. Fund Expenses...................... Charges and Deductions -- Other
Charges Including Investment
Management Fees of the Funds
g. Organizational Expenses............ N/A
7. General Description of Variable Annuity
Contracts.............................. Description of Variable Annuity
Contracts
a. (i) Allocation of Purchase Purchase Payments, Allocation of
Payments.......................... Purchase Payments
(ii) Transfers..................... Description of Variable Annuity
Contract -- Transfers; Payments
b. Changes............................ Description of Variable Annuity
Contract -- Modification
c. Inquiries.......................... Description of Variable Annuity
Contract -- Inquiries
8. Annuity Options......................... Annuity Options
9. Death Benefit........................... Description of Variable Annuity
Contract -- Death Benefit Before
Annuity Commencement Date; Payment
<PAGE>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ------------------------------------------- -----------------------------------
10. Purchases and Contract Value............ Description of Variable Annuity
Contract
a. Purchases.......................... Description of Variable Annuity
Contract -- Purchase Payments
b. Valuation.......................... Description of Variable Annuity
Contract -- Variable Account Value
c. Daily Calculation.................. Description of Variable Annuity
Contract -- Variable Account Value
d. Underwriter........................ Distribution of Contracts
11. Redemptions............................. Description of Variable Annuity
Contract
a. -- By Owners....................... Description of Variable Annuity
Contract -- Surrenders and Partial
Surrenders; Payments
-- By Annuitant.................... Description of Variable Annuity
Contract -- proceeds on Annuity
Commencement Date; Annuity Options
b. Delay in Payment................... Description of Variable Annuity
Contract -- Suspension or Delay in
Payments
c. Lapse.............................. Description of Variable Annuity
Contract -- Annuity Options
d. Free Look Period................... Description of Variable Annuity
Contract -- Free Look Period
12. Taxes................................... Federal Tax Matters
13. Legal Proceedings....................... Legal Proceedings
APPENDIX
14. Table of Contents in the Statement of
Additional Information................. Statements of Additional
Information Table of Contents
PART B
15. Cover Page.............................. Cover Page
16. Table of Contents....................... Statement of Additional Information
Table of Contents
17. General Information and History......... See Prospectus -- The Company,
Variable Account and Funds
18. Services
a. Fees and Expenses of Registrant.... N/A
b. Management Contract................ See Prospectus -- The Company,
Variable Account and Funds
c. Custodian and Independent Public Safekeeping of Account Assets;
Accountant........................ Experts
d. Assets of Registrants.............. Safekeeping of Accounts Assets
e. Affiliated Persons................. N/A
f. Principal Underwriter.............. See Prospectus -- Distribution of
Contracts
19. Purchase of Securities Being Offered.... See Prospectus -- Distribution of
Contracts
20. Underwriter............................. See Prospectus -- Distribution of
Contracts
21. Calculation of Performance Data......... Calculation of Yields and Total
Returns
22. Annuity Options......................... See Prospectus -- Annuity Options
23. Financial Statements.................... Financial Statements
<PAGE>
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE>
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE AND FIXED ANNUITY CONTRACT
ISSUED BY
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone: 1-800-866-3555
This Prospectus describes the individual flexible premium deferred variable
and fixed annuity contract (the "Contract") offered by Protective Life Insurance
Company ("Protective Life"). The Contract may be sold for use with retirement
plans receiving special federal income tax treatment under the Internal Revenue
Code such as pension and profit sharing plans, annuity purchase plans of public
school systems and universities and certain other tax-exempt organizations,
individual retirement accounts, and individual retirement annuities.
Purchase Payments will be allocated, as designated by the Owner(s), to one
or more of the Sub-Accounts of the Protective Variable Annuity Separate Account
(the "Variable Account"), or the Fixed Account (which is part of Protective
Life's General Account) or both. The assets of each Sub-Account will be invested
solely in a corresponding investment portfolio (each, a "Fund") of Protective
Investment Company. These Funds are:
Protective Money Market Fund Protective International Equity Fund
Protective Select Equity Fund Protective Growth and Income Fund
Protective Small Cap Equity Fund Protective Global Income Fund
The Contract Value prior to the Annuity Commencement Date, except for
amounts in the Fixed Account, will vary according to the investment performance
of the Funds in which the selected Sub-Accounts are invested. The Owner(s) bear
the investment risk of amounts allocated to the Variable Account.
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 Page 31
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.
PLEASE READ THIS PROSPECTUS CAREFULLY. INVESTORS SHOULD KEEP A COPY FOR
FUTURE REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS
FOR THE FUNDS.
AN INVESTMENT IN THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, NOR IS THE CONTRACT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THE CONTRACT INVOLVES CERTAIN RISKS, INCLUDING THE LOSS OF PURCHASE PAYMENTS
(PRINCIPAL).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 7, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Definitions............................................................................................... 1
Expense Tables............................................................................................ 3
Summary................................................................................................... 5
Condensed Financial Information........................................................................... 6
The Company, Variable Account and Funds................................................................... 7
Protective Life Insurance Company....................................................................... 7
Protective Variable Annuity Separate Account............................................................ 7
Administration.......................................................................................... 7
The Funds............................................................................................... 7
Other Investors in the Funds............................................................................ 8
Addition, Deletion or Substitution of Investments....................................................... 9
Description of the Contracts.............................................................................. 9
Issuance of a Contract.................................................................................. 9
Purchase Payments....................................................................................... 10
Free Look Period........................................................................................ 10
Allocation of Purchase Payments......................................................................... 10
Variable Account Value.................................................................................. 10
Transfers............................................................................................... 11
Surrenders and Partial Surrenders....................................................................... 12
Loan Privilege.......................................................................................... 14
The Fixed Account......................................................................................... 15
Death Benefit............................................................................................. 15
Suspension or Delay in Payments........................................................................... 16
Charges and Deductions.................................................................................... 16
Surrender Charge (Contingent Deferred Sales Charge)..................................................... 17
Administrative Charges.................................................................................. 18
Transfer Fee............................................................................................ 18
Mortality and Expense Risk Charge....................................................................... 18
Contract Maintenance Fee................................................................................ 18
Fund Expenses........................................................................................... 19
Premium Taxes........................................................................................... 19
Other Taxes............................................................................................. 19
Annuity Options........................................................................................... 19
Annuity Payment......................................................................................... 20
Death of Annuitant or Owner After Annuity Commencement Date............................................. 20
Yields and Total Returns.................................................................................. 20
Exchange Offer............................................................................................ 22
Federal Tax Matters....................................................................................... 23
Introduction............................................................................................ 23
The Company's Tax Status................................................................................ 23
Taxation of Annuities in General.......................................................................... 24
Tax Deferral During Accumulation Period................................................................. 24
Taxation of Partial and Full Surrenders................................................................. 25
Taxation of Annuity Payments............................................................................ 25
Taxation of Death Benefit Proceeds...................................................................... 26
Assignments, Pledges, and Gratuitous Transfers.......................................................... 26
Penalty Tax on Premature Distributions.................................................................. 26
Aggregation of Contracts................................................................................ 26
Qualified Retirement Plans................................................................................ 27
In General.............................................................................................. 27
Direct Rollovers........................................................................................ 28
Federal Income Tax Withholding............................................................................ 29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
General Matters........................................................................................... 29
Modification............................................................................................ 29
Reports................................................................................................. 29
Inquiries............................................................................................... 29
Distribution of the Contracts............................................................................. 29
Legal Proceedings......................................................................................... 30
Voting Rights............................................................................................. 30
Financial Statements...................................................................................... 30
Statement of Additional Information Table of Contents..................................................... 32
</TABLE>
<PAGE>
DEFINITIONS
"We", "Us", "Our", "Protective Life", and "Company" refer to Protective Life
Insurance Company. "You" and "Your" refer to the person(s) who has been issued a
Contract.
ACCUMULATION UNIT: A unit of measurement used to calculate the Sub-Account
Value.
AGE: The age on the birthday immediately prior to any date for which age is
to be determined.
ANNUITANT: The person on whose life annuity payments are based. Annuity
payments will be made to the Annuitant unless otherwise requested by the Owner.
ANNUITY OPTION: The benefit payout option selected by the Owner(s) for
annuity payments made by the Company.
BENEFICIARY: The person entitled to receive the Death Benefit upon the
death of any Owner prior to the Annuity Commencement Date.
Primary: Where a Primary Beneficiary is living, such person is the
Beneficiary. The Primary Beneficiary is the surviving Owner, if any. If
there is no surviving Owner, the Primary Beneficiary is the person named as
the "Primary Beneficiary" in the Contract application.
Contingent: Where no Primary Beneficiary is living, the "Contingent
Beneficiary", as named in the Contract application, is the Beneficiary.
Irrevocable: An Irrevocable Beneficiary is one whose consent is
necessary to change the Beneficiary or exercise certain other rights.
CODE: The Internal Revenue Code of 1986, as amended.
CONTRACT ANNIVERSARY: The same month and day as the Effective Date in each
subsequent year of the Contract.
CONTRACT VALUE: The sum of: (1) the Variable Account Value; and (2) the
Fixed Account Value at any time.
CONTRACT YEAR: Any period of 12 months commencing with the Effective Date
and each Contract Anniversary thereafter.
DEATH BENEFIT: The amount payable to the Beneficiary upon the death of any
Owner prior to the Annuity Commencement Date. Only one Death Benefit is payable
under this Contract, even though the Contract may, in some circumstances,
continue beyond the time of any Owner's death.
EFFECTIVE DATE: The date shown on the Contract Specifications page and on
which this Contract takes effect. Contract Years are measured from the Effective
Date.
FIXED ACCOUNT: The Fixed Account is part of our General Account and is not
part of nor dependent upon the investment performance of the Variable Account.
FIXED ACCOUNT VALUE: Prior to the Annuity Commencement Date, the total
amount equal to that part of any Purchase Payment(s) allocated to the Fixed
Account, increased by any amount transferred to the Fixed Account and any
credited interest and decreased by partial surrenders (including any surrender
charges and any applicable premium tax) and any amounts transferred out of the
Fixed Account.
FUND: A separate investment portfolio in which a Sub-Account of the
Variable Account invests.
HOME OFFICE: 2801 Highway 280 South, Birmingham, Alabama 35223.
NET ASSET VALUE PER SHARE: The value per share of any Fund as computed on
any Valuation Day as described in the Fund Prospectus.
NON-QUALIFIED CONTRACTS: Contracts which are not qualified contracts.
1
<PAGE>
OWNER: The owner(s) of the Contract. Herein referred to as "you" or "your".
PIC: Protective Investment Company.
PURCHASE PAYMENT(S): The amount(s) deposited under this Contract.
QUALIFIED CONTRACTS: Contracts issued in connection with retirement plans
that receive favorable tax treatment under Sections 401,403,408 or 457 of the
Code.
QUALIFIED PLANS: Retirement plans that receive favorable tax treatment
under Sections 401, 403, 408, or 457 of the Code.
SUB-ACCOUNT: A separate division of the Variable Account. Each Sub-Account
invests in a corresponding Fund.
SUB-ACCOUNT VALUE: Prior to the Annuity Commencement Date, the total amount
equal to that part of any Purchase Payment(s) allocated to the Sub-Account, and
any amount transferred to a Sub-Account, adjusted by any interest income,
dividends, net capital gains or losses, realized or unrealized, and decreased by
partial surrenders (including any surrender charges and any applicable premium
tax) and any amounts transferred out of the Sub-Account.
SURRENDER VALUE: The amount available for a partial or full surrender which
shall equal the Fixed Account Value plus the Variable Account Value less any
applicable surrender charge, contract maintenance fee and any applicable premium
tax.
VALUATION DAY: Each day on which the New York Stock Exchange is open for
business.
VALUATION PERIOD: The period commencing at the close of regular trading on
the New York Stock Exchange on any Valuation Day and ending at the close of
regular trading on the next succeeding Valuation Day.
VARIABLE ACCOUNT: Protective Variable Annuity Separate Account; a separate
investment account of the Company into which Purchase Payment(s) may be
allocated.
VARIABLE ACCOUNT VALUE: The sum of all Sub-Account Values.
2
<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 Premiums...................................... None
Maximum Surrender Charge (contingent deferred sales charge)........... 7%
Transfer Processing Fee............................................... None*
ANNUAL CONTRACT MAINTENANCE FEE......................................... $35
ANNUAL ACCOUNT EXPENSES
(as a percentage of net assets)
Mortality and Expense Risk Charge..................................... 1.25%
Administration Charge................................................. 00.15%
------
Total Account Expenses................................................ 1.40%
ANNUAL FUND EXPENSES
(as percentage of average net assets)
<CAPTION>
MONEY
MARKET
FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 0.60%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 0.60%
<CAPTION>
SELECT
EQUITY
FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 0.80%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 0.80%
<CAPTION>
SMALL CAP
EQUITY FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 0.80%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 0.80%
<CAPTION>
INTERNATIONAL
EQUITY FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 1.10%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 1.10%
<CAPTION>
GROWTH AND
INCOME FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 0.80%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 0.80%
<CAPTION>
GLOBAL
INCOME
FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 1.10%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 1.10%
<FN>
- ------------------------
*The Company reserves the right to charge a Transfer Fee in the future. (See
"Charges and Deductions".)
</TABLE>
3
<PAGE>
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 March 14, 1994 to
December 31, 1994. For a more complete description of the various costs and
expenses see "Charges and Deductions" and the prospectus for the Funds which
accompanies this prospectus. IN ADDITION TO THE EXPENSES LISTED ABOVE, PREMIUM
TAXES VARYING FROM 0 TO 3.5% MAY BE APPLICABLE IN CERTAIN STATES.
The annual expenses listed for all of the Funds of the Company are net of
certain reimbursements by PIC's investment manager. (See "The Funds".) Absent
the reimbursements, the Funds' total expenses for the period March 14, 1994 to
December 31, 1994 were: Money Market Fund 2.24%, Select Equity Fund 1.81%, Small
Cap Equity Fund 1.62%, International Equity Fund 2.24%, Growth and Income Fund
1.31%, and Global Income Fund 2.12%. 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.
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
- --------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Growth and Income...................................................................... $100 $132
International Equity................................................................... 103 142
Global Income.......................................................................... 103 142
Select Equity.......................................................................... 100 132
Small Cap Equity....................................................................... 100 132
Money Market........................................................................... 98 125
</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
- --------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Growth and Income...................................................................... $26 $82
International Equity................................................................... 29 92
Global Income.......................................................................... 29 92
Select Equity.......................................................................... 26 82
Small Cap Equity....................................................................... 26 82
Money Market........................................................................... 24 75
<FN>
- ------------------------
* A surrender charge will be applied to the Contract Value upon annuitization if
the annuity option selected is for a certain period of less than five years.
(See "Charges and Deductions".)
</TABLE>
The examples assume that no transfer fee or premium taxes have been
assessed. The examples assume that the contract maintenance fee is $35 and that
the Contract Value per contract is $2,000, which translates the contract
maintenance fee into an asset charge at an assumed annual rate of 1.75% 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.
4
<PAGE>
SUMMARY
THE CONTRACT
HOW IS A CONTRACT ISSUED? The Contract, an individual flexible premium
deferred variable and fixed annuity will be issued by Protective Life upon
receipt of completed application information and an initial Purchase Payment of
at least $2,000. (See "Issuance of Contract".)
WHAT ARE THE PURCHASE PAYMENTS? The minimum amount which Protective Life
will accept as an initial Purchase Payment is $2,000. Subsequent Purchase
Payments may be made at any time except for contracts issued in the State of
Oregon. The minimum subsequent Purchase Payment(s) that we will accept is (1)
$100 for Non-Qualified Contracts; and (2) $50 for Qualified Contracts. The
maximum aggregate Purchase Payments we will accept without Home Office approval
is $1,000,000. (See "Purchase Payments".)
CAN I CANCEL THE CONTRACT? You have the right to return the Contract within
a certain number of days (which varies by state and is never less than ten days)
after you receive it. The returned Contract will be treated as if it were never
issued. Protective Life will refund the Contract Value in states where
permitted. This amount may be more or less than the Purchase Payments. Where
required, we will refund Purchase Payments. (See "Free Look Period".)
CAN I TRANSFER AMOUNTS IN THE CONTRACT? Prior to the Annuity Commencement
Date, you may request transfers from one Sub-Account to another Sub-Account or
the Fixed Account. At least $100 must be transferred. The maximum amount which
may be transferred from the Fixed Account is the greater of (a) $2,500; or (b)
25% of the Fixed Account Value 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 at the Home Office before
the Annuity Commencement Date, you may surrender the Contract and receive its
Surrender Value. (See "Surrenders and Partial Surrenders".)
IS THERE A GUARANTEED DEATH BENEFIT PAYABLE? If any Owner dies prior to the
Annuity Commencement Date, a guaranteed Death Benefit will be payable. The
guaranteed Death Benefit will be determined as of the end of the Valuation
Period next following the date due proof of death is provided to us. The
guaranteed Death Benefit is equal to the sum of: (1) the Fixed Account Value;
plus (2) the greater of: (a) the Variable Account Value; or (b) the total
Purchase Payment(s) allocated to the Variable Account less previous transfers
from the Variable Account, partial surrenders, and any applicable Surrender
Charge(s) and Contract Maintenance Fees, increased by amounts transferred to the
Variable Account and interest at a compounded annual effective interest rate of
5% credited as of each Contract Anniversary up to any Owner's 80th birthday.
(See "Death Benefit".)
ARE THERE CHARGES AND DEDUCTIONS FROM MY CONTRACT? The following charges
and deductions are made in connection with the Contract:
SURRENDER CHARGES. The amount of any full or partial surrender is 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 total Purchase Payments. The surrender charge is
calculated using the assumption that the Contract Value in excess of total
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 CHARGE. We will deduct a mortality and expense
risk charge to compensate us for assuming certain mortality and expense risks.
The charge is equal, on an annual basis, to 1.25% of the daily net asset value
of each Sub-Account (approximately .50% for mortality risk and .75% for expense
risk.)
5
<PAGE>
ADMINISTRATION CHARGE. We will deduct an administration charge equal, on an
annual basis, to .15% of the daily net asset value of each Sub-Account.
CONTRACT MAINTENANCE FEE. A contract maintenance fee of $35 is deducted
from the Variable Account 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. (See "Contract Maintenance Fee".)
PREMIUM TAXES. If applicable, premium taxes will be deducted from the
Purchase Payment(s) when received, on full or partial surrender or from the
amount applied under an Annuity Option. Premium taxes imposed by the states
currently range up to 3.5%. (See "Premium Taxes".)
INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES OF THE FUNDS. The net assets
of each Sub-Account of the Variable Account will reflect the investment
management fee incurred by the corresponding Fund as well as other operating
expenses of that Fund. For each Fund, the investment manager is paid a daily fee
for its investment management services. The management fees are based on the
average daily net assets of the Fund. (See "Funds Expenses" and the Funds'
Prospectuses.)
WHAT ANNUITY OPTIONS ARE AVAILABLE? On the Annuity Commencement Date, the
Contract Value (less applicable premium tax) will be applied under an Annuity
Option, unless you choose to receive the Surrender Value in a lump sum.
The Annuity Options include: Payment for a Fixed Period; Life Income with
Payment for a Guaranteed Period; and Payments for a Fixed Amount. The amounts
payable under these Annuity Options do NOT vary with the investment experience
of the Variable Account. (See "Annuity Options".)
IS THE CONTRACT AVAILABLE FOR QUALIFIED RETIREMENT PLANS? The Contract may
be issued for use with retirement plans receiving special federal income tax
treatment under the Internal Revenue Code such as pension and profit sharing
plans, annuity purchase plans of public school systems and universities and
certain other tax-exempt organizations, individual retirement accounts, and
individual retirement annuities. (See "Federal Tax Matters".)
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
At December 31, 1994, net assets of the Variable Account were represented by
the following accumulation unit values and accumulation units. The accumulation
unit values shown for the beginning of the period are as of March 14, 1994 (date
of inception). This information should be read in conjunction with the Variable
Account's financial statements and related notes included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION ACCUMULATION
UNIT VALUE* UNIT VALUE* UNITS**
------------- --------------- ------------
<S> <C> <C> <C>
BEGINNING OF END OF END OF
PERIOD PERIOD PERIOD
Money Market Sub-Account.............................................. 1.00 1.02 3,034,056
Growth and Income Sub-Account......................................... 10.00 9.71 4,260,743
International Equity Sub-Account...................................... 10.00 9.48 2,588,605
Global Income Sub-Account............................................. 10.00 9.82 1,457,712
Small Cap Equity Sub-Account.......................................... 10.00 8.91 2,347,968
Select Equity Sub-Account............................................. 10.00 9.94 1,682,927
<FN>
- ------------------------
* Accumulation unit values are rounded to the nearest tenth of a cent.
** Accumulation units are rounded to the nearest unit.
</TABLE>
6
<PAGE>
THE COMPANY, VARIABLE ACCOUNT AND FUNDS
PROTECTIVE LIFE INSURANCE COMPANY
The Contracts are issued by Protective Life. Founded in 1907, Protective
Life provides individual life and health insurance, annuities, group life and
health insurance, and guaranteed investment contracts. Protective Life is
currently licensed to transact life insurance business in 49 states and the
District of Columbia. As of December 31, 1994, Protective Life had total assets
of approximately $6.1 billion. Protective Life is the principal operating
subsidiary of Protective Life Corporation ("PLC"), an insurance holding company
whose stock is traded on the New York Stock Exchange. PLC, a Delaware
corporation, had total assets of approximately $6.1 billion at December 31,
1994.
PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
The Protective Variable Annuity Separate Account is a separate investment
account of Protective Life. The Variable Account was established under Tennessee
law by the Board of Directors of Protective Life on October 11, 1993. 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. 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 of the Variable Account which exceed
the reserves and the Contract liabilities of the Variable Account (which will
always be at least equal to the aggregate Variable Account Value under the
Contracts). 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 or losses, whether or not realized, from the assets of
each Sub-Account of the Variable Account are credited to or charged against that
Sub-Account without regard to any other income, gains or losses of Protective
Life. The Variable Account currently has six Sub-Accounts: Growth and Income
Sub-Account; International Equity Sub-Account; Global Income Sub-Account; Select
Equity Sub-Account; Small Capital Equity Sub-Account; and Money Market
Sub-Account. The assets of each Sub-Account are invested exclusively in shares
of a corresponding Fund.
ADMINISTRATION
Protective Life Insurance Company performs the Contract administration at
its Home Office at 2801 Highway 280 South, Birmingham, Alabama 35223. Contract
administration includes processing applications for the Contracts and processing
Purchase Payments, transfers, surrenders and Death Benefit claims as well as
performing record maintenance and paying annuity benefits.
THE FUNDS
Each Sub-Account invests in shares of PIC, a "series" type of investment
company registered with the SEC as an open-end management investment company.
PlC currently issues six classes or "series" of stock, each of which represents
an interest in a separate investment portfolio or Fund. New Funds, which may or
may not be available as investments under the Contracts, may be established in
the future. Each Fund has its own investment objective(s) and the income and
losses of each are determined separately. The investment objective(s) of Funds
are briefly summarized below.
MONEY MARKET FUND. This Fund seeks to maximize current income to the extent
consistent with the preservation of capital and maintenance of liquidity. This
Fund will pursue its objective by
7
<PAGE>
investing exclusively in high quality money market instruments. An investment in
the Money Market Fund is neither insured nor guaranteed by the U.S. Government
and the Fund cannot assure that it will be able to maintain a stable net asset
value of $1 per share.
SELECT EQUITY FUND. This Fund seeks a total return consisting of capital
appreciation plus dividend income.
SMALL CAP EQUITY FUND. This Fund seeks long-term capital growth. This Fund
will pursue its objective 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.
INTERNATIONAL EQUITY FUND. This Fund seeks long-term capital appreciation.
This Fund will pursue its objective by investing, primarily 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.
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 growth.
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 in high quality
fixed-income securities of U.S. and foreign issuers and through foreign currency
transactions.
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 PROSPECTUS FOR THE FUNDS WHICH ACCOMPANIES THIS PROSPECTUS AND THE
CURRENT STATEMENT OF ADDITIONAL INFORMATION FOR THE FUNDS. THE FUNDS' PROSPECTUS
SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING THE ALLOCATION
OF PURCHASE PAYMENTS OR TRANSFERS AMONG THE SUB-ACCOUNTS.
OTHER INVESTORS IN THE FUNDS
PIC currently sells shares only to the Variable Account or directly to the
Company. PIC may in the future sell shares to other separate accounts of the
Company or its life insurance company affiliates supporting other variable
annuity contracts or variable life insurance contracts. In addition, upon
obtaining regulatory approval, PIC may sell shares to certain retirement plans
qualifying under Section 401 of the Code. The Company currently does not foresee
any disadvantages to Owners that would arise from the possible sale of shares to
support its variable life insurance contracts 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 contracts 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 the Company believes that the
PIC's response to any such conflicts insufficiently protects Owners, it will
take appropriate action on its own, including withdrawing the Account's
investment in the Fund. (See the Fund Prospectus for more detail.)
Investment Distributors Advisory Services, Inc. ("IDASI") serves as the
investment manager of the Funds. IDASI, in turn, has retained Goldman Sachs
Asset Management as the investment adviser of Protective Money Market Fund,
Protective Select Equity Fund, Protective Small Cap Equity Fund and Protective
Growth and Income Fund. IDASI has retained Goldman Sachs Asset Management
International as the investment adviser of Protective International Equity Fund
and Protective
8
<PAGE>
Global Income Fund. Goldman Sachs Asset Management is a separate operating
division of Goldman, Sachs & Co. and Goldman Sachs Asset Management
International is an affiliate of Goldman, Sachs & Co.
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 prior approval of the SEC and state insurance authorities, to the
extent required by the 1940 Act or other applicable law.
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 or in shares of another investment company having a specific investment
objective. 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. Any new Sub-Accounts may be made available to existing
Owner(s) on a basis to be determined by Protective Life.
If any of these substitutions or changes are made, 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 may be required under applicable
law, the Variable Account may be operated as a management company under the 1940
Act, it may be de-registered under that Act if registration is no longer
required, or it may be combined with other Protective Life separate accounts.
Protective Life reserves the right to make any changes to the Variable Account
required by the 1940 Act or other applicable law or regulation.
DESCRIPTION OF THE CONTRACTS
ISSUANCE OF A CONTRACT
To purchase a Contract, certain application information and an initial
Purchase Payment must be submitted 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 $2,000. 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 Code. The maximum age for Owners on the Effective
Date is 85.
If the necessary application information for a Contract is accompanied by
the initial Purchase Payment, the initial Purchase Payment (less any applicable
premium tax) will be allocated to the Sub-Accounts or the Fixed Account as
provided for in the application within two business days of receipt of such
Purchase Payment at the Home Office. If the necessary application information is
not received, the Company 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, the Company will inform
the applicant of the reason for the delay and the initial Purchase Payment will
be returned immediately unless the applicant specifically consents to the
Company retaining it until the information is complete. Once the information is
complete, the initial Purchase Payment will be allocated to the appropriate
Sub-Accounts and/or the Fixed Account within two business days.
9
<PAGE>
Information necessary to complete an application may be transmitted to the
Company by telephone, facsimile, or electronic media.
PURCHASE PAYMENTS
Subsequent Purchase Payment(s) will be accepted by the Company except on
contracts issued in the State of Oregon, where a single Purchase Payment only
will be accepted. Protective Life retains the right to limit the maximum
Purchase Payment that can be made without Home Office approval. This amount is
currently $1,000,000. The minimum subsequent Purchase Payment that will be
accepted is (1) $100 for Non-Qualified Contracts; and (2) $50 for Qualified
Contracts.
Under an Automatic Purchase Payment plan, the Owner can select a monthly,
quarterly, semi-annual or annual payment schedule pursuant to which Purchase
Payments will be automatically deducted from a bank account. The minimum size of
such a monthly, quarterly, semi-annual, or annual payment must be equivalent to
a minimum of $100 per month.
FREE LOOK PERIOD
You have the right to return the Contract within a certain number of days
after you receive it by returning it to the Home Office or the sales
representative who sold it along with a written cancellation request. The number
of days is determined by state law (and is at least ten days) in the state in
which the Owner resides and is shown on your Contract. Return of the Contract by
mail is effective on being received by Us. We will treat the returned Contract
as if it had never been issued. However, Protective Life will refund the
Contract Value in states where permitted. This amount may be more or less than
the aggregate amount of your Purchase Payments up to that time. Where required,
we will refund the Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
Owners must indicate in the application how Purchase Payments are to be
allocated to the Sub-Accounts and/or the Fixed Account. These allocation
instructions apply to both initial and subsequent Purchase Payments. Owners may
change the allocation instructions in effect at any time by written request to
the Company. If such instructions are indicated by percentages, whole
percentages must be used. The minimum percentage that can be allocated to any
Sub-Account or the Fixed Account is 10% of a Purchase Payment.
For Contracts issued in states where, upon cancellation during the free look
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 Money Market Sub-Account until the
expiration of the number of days in the free look period starting from the date
the Contract is mailed from the Home Office. Thereafter, all Purchase Payments
will be allocated according to your allocation instructions then in effect.
VARIABLE ACCOUNT VALUE
The Variable Account Value reflects the investment experience of the
Sub-Accounts to which it is allocated, any Purchase Payments allocated to the
Sub-Accounts, transfers in or out of the Sub-Accounts, or any partial surrenders
of Variable Account Value. There is no guaranteed minimum Variable Account
Value. The Contract's Variable Account Value therefore depends upon a number of
factors. The Variable Account Value for a Contract at any time is the sum of the
Sub-Account Values for the Contract on the Valuation Day most recently
completed.
DETERMINATION OF ACCUMULATION UNITS. For each Sub-Account, the Purchase
Payment(s) or transferred amounts are converted into Accumulation Units. The
number of Accumulation Units credited is determined by dividing the dollar
amount directed to each Sub-Account by the value of the Accumulation Unit for
that Sub-Account for the Valuation Day on which the Purchase Payment(s) or
transferred amount is invested in the Sub-Account. Therefore, 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.
10
<PAGE>
Certain events will reduce the number of Accumulation Units of a Sub-Account
credited to a Contract. Partial surrenders or transfers from a Sub-Account will
result in the cancellation of the appropriate number of Accumulation Units of
that Sub-Account as will: notice of surrender; death of any Owner; the Annuity
Commencement Date; and the deduction of the annual Contract Maintenance Fee.
Accumulation Units will be cancelled as of the end of the Valuation Period in
which the Company received notice of or instructions regarding the event.
DETERMINATION OF ACCUMULATION UNIT VALUE. The Accumulation Unit value for
each Sub-Account was arbitrarily set initially at $10 when the Sub-Account began
operations. Thereafter, the Accumulation Unit value 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, as described below. The
Sub-Account Value for a Contract is 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.
NET INVESTMENT FACTOR. The net investment factor is an index that measures
the investment performance of a Sub-Account from one Valuation Period to the
next. 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 daily factor representing the Mortality and Expense Risk Charge and the
Administration Charge deducted from the Sub-Account.
TRANSFERS
Upon our receipt of your written notice at any time prior to the Annuity
Commencement Date, you may transfer amounts in a Sub-Account to another
Sub-Account and/or the Fixed Account or, subject to certain restrictions,
amounts from the Fixed Account to a Sub-Account. The minimum amount that may be
transferred is the lesser of $100 or the entire amount in any Sub-Account or the
Fixed Account from which the transfer is to be made. After the transfer, if the
amount remaining in the Sub-Account(s) and/or Fixed Account from which the
transfer is made would be less than $100, then we will transfer the entire
amount instead of the requested amount. Transfers from the Fixed Account are
subject to a maximum amount which may be transferred. The maximum amount which
may be transferred from the Fixed Account is the greater of (a) $2,500; or (b)
25% of the Fixed Account Value per Contract Year calculated as of the previous
Contract Anniversary. We reserve the right to limit transfers to no more than 12
per year. For each additional transfer over 12 during each Contract Year, we
reserve the right to charge a Transfer Fee. The Transfer Fee, if any, will be
deducted from the amount being transferred. (See "Charges and Deductions --
Transfer Fee".)
11
<PAGE>
TELEPHONE TRANSFERS. Transfers may be made based upon instructions given by
telephone, provided the appropriate election has been made on the application or
written authorization is provided.
We will send you a confirmation of all instructions communicated by
telephone to determine if they are genuine. For telephone transfers we will
require a form of personal identification prior to acting on instructions
received by telephone. We will also make a tape-recording of the instructions
given by telephone. If we follow these procedures we will not be liable for any
losses due to unauthorized or fraudulent instructions. We reserve the right to
suspend telephone transfer privileges at any time for any class of contracts.
RESERVATION OF RIGHTS. We reserve the right without prior notice to modify,
restrict, suspend or eliminate the transfer privileges (including telephone
transfers) at any time, for any class of Contracts, for any reason. In
particular, we 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
simultaneous transfers on behalf of the Owners of two or more Contracts.
DOLLAR COST AVERAGING. If you elect at the time of application or at any
time thereafter by written notice to the Company, you may systematically and
automatically transfer, on a monthly or quarterly basis, specified dollar
amounts from the Fixed Account and to or from any Sub-Account(s). This is known
as the dollar cost averaging method of investment. By transferring on a
regularly scheduled basis as opposed to allocating the total amount at one
particular time, an Owner may be less susceptible to the impact of market
fluctuations in 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.
You may elect dollar cost averaging for periods of at least 12 months or
greater. At least $100 must be transferred each month or $300 each quarter. The
amount required to be allocated to the Fixed Account and/or Sub-Accounts from
which the transfers will be made can be made by an initial or subsequent
investment or by transferring amounts into such accounts. Such transfers are
subject to the transfer restrictions described above (except the maximum amount
restriction) which otherwise apply to transfers from the Fixed Account.
If elected, transfers will commence on any day of the month following the
end of the Free Look Period, except the 29th, 30, or 31st.
We will process dollar cost averaging transfers until the earlier of the
following (i) the number of designated transfers have been completed; or (ii)
until the Contract Value from the Fixed Account and/ or Sub-Account(s) from
which the transfers are being made is less than the amount selected; or (iii)
the Owner instructs Protective Life in writing to cancel the automatic
transfers.
Automatic transfers made to facilitate the dollar cost averaging will not
count toward the twelve transfers permitted each Contract Year if the Company
elects to limit transfers. We reserve the right to discontinue offering the
automatic transfers upon 30 days' written notice to the Owner.
SURRENDERS AND PARTIAL SURRENDERS
PARTIAL SURRENDERS. At any time before the Annuity Commencement Date, an
Owner may make a partial surrender of the Contract Value. The Company will
withdraw the amount requested from the Contract Value as of the business day on
or next following the day written notice requesting the partial surrender is
received. Any applicable surrender charge will be deducted from the amount
requested. (See "Surrender Charge".)
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.
The Owner may specify the amount of the partial surrender to be made from
any Sub-Account or the Fixed Account. If the Owner does not so specify, or if
the amount in the designated Sub-Accounts
12
<PAGE>
or the Fixed Account is inadequate to comply with the request, the partial
surrender will be made from each Sub-Account and the Fixed Account based on the
proportion that such Sub-Account Value bears to the total Contract Value on the
Valuation Day immediately prior to the partial surrender.
A partial surrender will have federal income tax consequences. (See
"Taxation of Partial and Full Surrenders".)
SURRENDER. At any time before the Annuity Commencement Date, the Owner may
request a surrender of the Contract for its Surrender Value. The Surrender Value
will be determined as of the Valuation Day on or next following the date written
notice requesting surrender and the Contract are received at the Home Office.
The Surrender Value will be paid in a lump sum unless the Owner requests payment
under a payment option. A surrender will have federal income tax consequences.
(See "Taxation of Partial and Full Surrenders".)
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 Code Section 403(b) retirement plans. Section 403(b) (11)
of the 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 in such years on amounts held as of the last year beginning
before January 1, 1989. 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.
SYSTEMATIC WITHDRAWALS. You may elect at the time of application or at a
later date by properly completing an election form, to participate in the
systematic withdrawal plan. This plan allows you to pre-authorize periodic
partial surrenders prior to the Annuity Commencement Date. In order to
participate in the plan you must have: (1) made an initial Purchase Payment of
at least $12,000; or (2) a Contract Value as of the previous Contract
Anniversary equal to $12,000 or greater after deduction of surrender charges and
premium taxes. 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 systematic withdrawal plan.
When you elect systematic withdrawals, you will instruct Protective Life to
withdraw a level dollar amount from the Contract on a monthly or quarterly
basis. The minimum distribution requested must be at least $100 monthly. The
maximum amount which can be withdrawn under the plan each year is the greater of
(1) 10% of all Purchase Payments made, as of the date of the request, or (2)
cumulative earnings calculated as of each Contract Anniversary. Unless you
instruct Us to reduce the monthly withdrawal amount so that the annual amount
would not exceed the above limits, Protective Life will continue to process
withdrawals for the designated monthly amount. Once the amount of the
withdrawals exceeds the above limits, we reserve the right to deduct a Surrender
Charge, if otherwise applicable, from the remaining payments made during that
Contract Year (See "Surrender Charge".)
We will pay you the amount requested each month or quarter as applicable and
cancel Accumulation Units equal to that amount in accordance with the allocation
schedule in effect. If the amount to be withdrawn exceeds the Sub-Account's
Value, we will cease processing the systematic withdrawals.
Normally, systematic withdrawals are not subject to a Surrender Charge.
However, if you request a partial surrender that is not part of the systematic
withdrawal plan in a year when the systematic withdrawal plan has been utilized,
that partial surrender will be subject to any applicable Surrender Charge. (See
"Surrender Charge".) Systematic withdrawals will terminate in the event that a
non-systematic withdrawal plan partial surrender is made from a Contract
participating in the plan and the Contract Value after the partial surrender
does not equal or exceed $12,000.
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<PAGE>
Systematic withdrawals may be discontinued by the Owner at any time upon
written request. We reserve the right to discontinue offering systematic
withdrawals upon written notice to you.
LOAN PRIVILEGE
The Company offers a loan privilege to Owners of section 403(b) Contracts
that are not subject to Title 1 of ERISA. Owners of such Contracts may obtain
loans using the Contract as the only security for the loan. Loans are subject to
provisions of the Code and to applicable retirement program rules. Tax advisors
and retirement plan advisors should be consulted prior to exercising loan
privileges.
The amount available for a loan at any given time is the lesser of (1) 80%
of the Contract Value less any outstanding debt under the Contract (including
any accrued interest thereon), or (2) the amount permitted as a loan under
federal tax law. The minimum loan amount is $1,000. The maximum amount permitted
as a loan under federal tax law generally equals the amount which, when added to
existing debt under the Contract, does not exceed the lesser of (1) $50,000
(reduced by any excess of the highest outstanding debt during the one year
period ending on the day before the date on which the current loan is made, over
the outstanding debt on the date the current loan is made), or (2) $10,000 or,
if greater, one-half of the Contract Value. For purposes of determining the
amount permitted as a loan under the federal tax law, certain employer plans
must be aggregated. A tax advisor should be consulted for purposes of
determining the maximum amount which may be taken and treated as a loan, rather
than as a taxable distribution, for federal income tax purposes.
Loans will be made only upon written request of the Owner. The Company will
make loans within seven days of receiving a properly completed loan application,
subject to postponement under the same circumstances that payment of surrenders
may be postponed. (See "Suspension or Delay in Payments".) When an Owner
requests a loan, the Company will reduce the Owner's Contract Value (on a pro
rata basis among investments in the Sub-Accounts and the Fixed Account, unless
the Owner requests otherwise) by the amount of the loan and transfer that amount
to the loan account, which is part of the Company's general account. Amounts in
the loan account will not participate in the investment experience of any
Sub-Account. Loans must be repaid within five years, repayments must be made at
least quarterly, and repayments must be made in substantially equal amounts.
However, the repayment period of a loan may be longer than five years if the
purpose of the loan is to acquire a principal residence for the Owner. The Owner
may prepay the loan, in whole or in part, at any time while the Contract is in
force. Failure to make timely loan repayments may give rise to taxable income.
When the loan is repaid, the amount of the repayment will be transferred
from the loan account back into the Variable and Fixed Accounts. The Owner may
designate the manner in which a repayment is to be allocated. Otherwise,
repayments will be allocated in accordance with the Owner's most recent
instructions for allocations. On each Contract Anniversary, the Company will
transfer from the Contract Value (from the Sub-Accounts and Fixed Account, in
the same manner as described above) to the loan account the amount by which the
debt on the Contract exceeds the balance in the loan account.
The Company charges interest of 6% per year on Contract loans. Loan interest
is payable on amounts in arrears and, unless paid in cash, the accrued loan
interest is added to the amount of the debt and bears interest at 6% as well.
The Company credits interest with respect to amounts held in the loan account at
a rate of 4% per year. Consequently, the net cost of loans under the Contract is
2%. If on any date debt under a Contract exceeds the Contract Value, the
Contract will be in default. In such case, an Owner will receive a notice
indicating the payment needed to bring the Contract out of default and will have
a thirty-one (31) day grace period within which to pay the default amount. If
the required payment is not made within the grace period, the Contract may be
terminated without value.
The amount of any debt will be deducted from the death benefit. In addition,
debt, whether or not repaid, will have a permanent effect on the Contract Value
because the investment results of the Fixed and Variable Accounts will apply
only to the unborrowed portion of the Contract Value. The longer debt is
outstanding, the greater the effect is likely to be.
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<PAGE>
THE FIXED ACCOUNT
An Owner may allocate some or all of Purchase Payments and transfer some or
all of the Contract Value to the Fixed Account, which is part of the Company's
general account. The assets of the Company's general account support its
insurance and annuity obligations and are subject to the Company's general
liabilities from business operations. Since the Fixed Account is part of the
general account, the Company assumes the risk of investment gain or loss on this
amount. Under the Contracts the Fixed Account Value is credited with rates of
interest, as described below.
The Fixed Account has not been, and is not required to be, registered with
the SEC under the Securities Act of 1933, and neither the Fixed Account nor the
Company's general account has been registered as an investment company under the
1940 Act. Therefore, neither the Company's general account, the Fixed Account,
nor any interests therein are generally subject to regulation under the 1933 Act
or the 1940 Act. The disclosures relating to the general account and the Fixed
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 Company guarantees that the interest credited during the first Contract
Year to the initial Purchase Payment allocated to the Fixed Account will not be
less than the rate shown in the Contract. The interest rate credited to
subsequent Purchase Payment(s) allocated to or amounts transferred to the Fixed
Account will be the annual effective interest rate in effect on the date the
Purchase Payment(s) is received by us or the date the transfer is made. The
interest rate is guaranteed to apply to such amounts for a twelve month period
which begins on the date the Purchase Payment(s) is allocated or the date the
transfer is made.
After an interest rate guarantee expires as to a Purchase Payment or amount
transferred, (I.E., 12 months after the Purchase Payment(s) or transfer is
placed in the Fixed Account) we will credit interest on the Fixed Account Value
at the current interest rate in effect. New current interest rates are effective
for the Fixed Account Value for 12 months from the time they are first applied.
We, in our sole discretion, may declare a new current interest rate from time to
time but in no event more frequently than once per year. The initial annual
effective interest rate and the current interest rates the Company will credit
are annual effective interest rates of not less than 3.00%. For purposes of
crediting interest, amounts deducted, transferred or withdrawn from the Fixed
Account will be accounted for on a "first-in, first-out" (FIFO) basis.
FIXED ACCOUNT VALUE. The value of the Fixed Account at any time is equal
to: (a) the Purchase Payment(s) allocated to the Fixed Account; plus (b) amounts
transferred to the Fixed Account; plus (c) interest credited to the Fixed
Account; less (d) any partial surrenders, or transfers from the Fixed Account
and any Surrender Charges or premium taxes deducted in connection with partial
surrenders from the Fixed Account. Because Protective Life, at its sole
discretion, anticipates changing the current interest rate from time to time,
different allocations and transfers to and from the Fixed Account will be
credited with different current interest rates.
DEATH BENEFIT
If any Owner dies before the Annuity Commencement Date, a guaranteed Death
Benefit will be paid to the Beneficiary. In the case of certain Qualified
Contracts, regulations promulgated by the Treasury Department prescribe certain
limitations on the designation of a Beneficiary.
The guaranteed Death Benefit will be determined as of the end of the
Valuation Period next following the date due proof of death is received by us.
The guaranteed Death Benefit at any age will be equal to the sum of: (1) the
Fixed Account Value; plus (2) the greater of: (a) the Variable Account Value; or
(b) the total Purchase Payment(s) allocated to the Variable Account less
previous transfers from the Variable Account, partial surrenders, and any
applicable Surrender Charge(s) and Contract Maintenance Fees, increased by
amounts transferred to the Variable Account (this subtotal is called
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"Death Benefit Account Value") and interest at a compounded annual effective
interest rate of 5% credited to the Death Benefit Account Value as of each
Contract Anniversary, on or before any Owner's 80th birthday.
The Death Benefit may be taken in one sum immediately as a full surrender of
the Contract. If the Death Benefit is not taken in one sum immediately the
Contract will be continued with the Death Benefit becoming the new current
Contract Value. Any increase in the Contract Value will be allocated to and
among the Fixed Account and Sub-Accounts in proportion to their values
immediately prior to the Owner's death. If the Death Benefit is not taken in one
sum immediately, the entire interest in the Contract must be distributed within
five years of the Owner's death unless:
(a) the entire interest in the Contract is distributed over the life of the
Beneficiary with distributions beginning within one year of the Owner's
death; or
(b) the entire interest in the Contract is distributed over a period not
extending beyond the life expectancy of the Beneficiary with
distributions beginning within one year of the Owner's death; or
(c) the Beneficiary is the deceased Owner's spouse and elects to continue
the Contract and become the new Owner.
If the deceased Owner's spouse is the Beneficiary and elects to continue the
Contract and become the new Owner, upon such spouse's death, the entire interest
in the Contract is payable to the new Beneficiary (determined at the time of the
spouse's death) and must be distributed within five years of the spouse's death.
If any Owner is not a natural person, the death of the Annuitant will be
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
practicable; or (b) it is not reasonably practicable 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.
Protective Life further reserves the right to delay payment of a partial or
full surrender of the Fixed Account Value for up to six months in those states
where applicable law requires the Company to reserve such right.
CHARGES AND DEDUCTIONS
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
GENERAL. No charge for sales expenses is deducted from Purchase Payments at
the time Purchase Payments are paid. However, within certain time limits
described below, a surrender charge (contingent deferred sales charge) is
deducted from the Contract Value if a partial surrender or
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surrender is made before the Annuity Commencement Date. Also, a surrender charge
may, in certain circumstances, be deducted from amounts applied to Annuity
Options 3 and 4. (See "Annuity Options".)
In the event surrender charges are not sufficient to cover sales expenses,
the loss will be borne by the Company; 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.
CHARGE FOR PARTIAL WITHDRAWAL OR SURRENDER. The surrender charge is equal
to the percentage of each Purchase Payment surrendered as specified in the table
below. The surrender charge is separately calculated and applied to each
Purchase Payment at any time that the Purchase Payment is surrendered. No such
surrender charge applies to the Contract Value in excess of aggregate Purchase
Payments. The surrender charge is calculated using the assumption that all
Contract Value in excess of 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 FULL YEARS
ELAPSED SURRENDER CHARGE AS A
BETWEEN THE DATE OF RECEIPT PERCENTAGE
OF PURCHASE PAYMENT(S) & OF PURCHASE PAYMENT WITHDRAWN
DATE OF SURRENDER IN A FULL YEAR
- --------------------------- -------------------------------
<S> <C>
Less than 1 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
</TABLE>
In addition, this surrender charge is never applied to the payment of a
Death Benefit at the death of any Owner or to most systematic withdrawals. (See
"Death Benefits" and "Systematic Withdrawals.")
Surrenders will result in the cancellation of Accumulation Units from each
applicable Sub-Account(s) and/or in a reduction of the Fixed Account Value.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE. Surrender Charges may be
decreased or waived 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. The entitlement to such a reduction in
Surrender Charge will be determined by the Company.
In addition, Surrender Charges are waived for: a full or partial surrender
of a Contract Value on Contracts issued to employees and registered
representatives of any member of the selling group and their spouses and minor
children, or to officers, directors, trustees or bona-fide full time employees
of Protective Life or Goldman, Sachs & Co. or their affiliated companies (based
upon the Owner's status at the time the Contract is purchased).
WAIVER OF SURRENDER CHARGES. The Company will waive Surrender Charges in
the event you, at any time after the first Contract Year, (1) enter for a period
of at least ninety (90) days a facility which is licensed by the State and
qualifies as a skilled nursing home facility under Medicare or Medicaid; or (2)
you are first diagnosed as having a terminal illness by a physician that is not
related to you or the Annuitant. The term "terminal illness" is defined in the
Contract. Written proof of a terminal illness
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satisfactory to the Company must be submitted. The Company reserves the right to
require an examination by a physician of its choice. The Waiver of Surrender
Charges provision is not available in all states due to applicable insurance
laws in effect in various states.
ADMINISTRATIVE CHARGES
We will deduct an Administration Charge equal, on an annual basis, to .15%
of the daily net asset value of each Sub-Account in the Variable Account. This
deduction is made to reimburse the Company 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 Company does not
expect to make a profit on this charge.
TRANSFER FEE
Currently, there is no charge for transfers. The Company 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 Sub-Accounts or the
Fixed Account affected by the transfer in one day. The fee would be deducted
from the amount being transferred. The Company does not expect a profit from
this charge in the event that it is taken.
MORTALITY AND EXPENSE RISK CHARGE
To compensate the Company for assuming mortality and expense risks, the
Company deducts a daily mortality and expense risk charge equal on an annual
basis, to 1.25% (daily rate of 0.0034035%) of the average annual daily net
assets of the Variable Account, (approximately 0.50% for mortality risk and
0.75% for expense risk).
The mortality risk the Company 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 the Company assumes also includes a guarantee to pay a death benefit
if the Owner dies before the Annuity Commencement Date. The expense risk that
the Company assumes is the risk that the administration charge, contract
maintenance fee and transfer fees may be insufficient to cover actual future
expenses.
If the mortality and expense risk charge is insufficient to cover the actual
cost of the mortality and expense risks undertaken by the Company, the Company
will bear the shortfall. Conversely, if the charge proves more than sufficient,
the excess will be profit to the Company and will be available for any proper
corporate purpose including, among other things, payment of distribution
expenses.
CONTRACT MAINTENANCE FEE
The contract maintenance fee is $35 and is deducted from the Variable
Account Value on each Contract Anniversary, and on any day that the Contract is
surrendered, if such surrender occurs on any day other than the Contract
Anniversary. The contract maintenance fee deduction will be allocated to the
Sub-Accounts in the same proportion as the Sub-Account Values in the Variable
Account. The contract maintenance fee will be waived by the Company in the event
the Contract Value equals or exceeds $50,000 on the date(s) the contract
maintenance fee is to be deducted. The Company does not expect to make a profit
from this charge.
In addition, the contract maintenance fee may be reduced or waived for
Contracts issued to employees and registered representatives of any member of
the selling group and their spouses and minor children, or to officers,
directors, trustees, or bona-fide full time employees of Protective Life or
Goldman, Sachs & Co. or their affiliated companies (based upon the Owner's
status at the time the Contract is purchased). Such waiver or reduction will
only be made to the extent that the Company estimates that it will incur lower
administrative expenses or perform fewer administrative services.
The Company reserves the right to waive the Contract Maintenance Fee for
Contracts issued to a trustee of a 401 plan or to employers purchasing Contracts
in connection with plans qualifying under Section 403(b) of the Code.
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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 prospectus for PIC which accompanies this Prospectus.)
PREMIUM TAXES
Premium taxes (including any related retaliatory taxes, if any) will be
deducted, if applicable. On any Contract subject to premium taxes, the tax will
be deducted, as provided under applicable law, either from the Purchase
Payment(s) when received, upon full or partial surrenders, or from the amount
applied to effect an annuity at the time annuity payments commence. (Where
applicable, the rate of these taxes currently ranges up to 3.50%.)
OTHER TAXES
Currently, no charge will be made against the Variable Account for federal,
state or local taxes other than premium taxes. Protective Life may, however,
make such a charge in the future if income or gains within the Variable Account
will result in any federal income tax liability to Protective Life. Charges for
other taxes attributable to the Variable Account, if any, may also be made.
ANNUITY OPTIONS
Upon application for a Contract you select an Annuity Commencement Date. The
Annuity Commencement Date may not be later than the Annuitant's 85th birthday
unless approved by the Company. You may change the Annuity Commencement Date and
the Annuity Option selected from time to time, but any such change must be made
in writing and received at the Home Office within 30 days prior to the scheduled
Annuity Commencement Date. On the Annuity Commencement Date, the Contract Value
will be applied under any one of the following Annuity Options. In the absence
of such an election, the Contract Value will be applied on the Annuity
Commencement Date under Option 2 -- Life Income with Payments for a 10 Year
Guaranteed Period.
The Annuity Options are fixed, which means that each Annuity Option has a
fixed and guaranteed amount to be paid during the annuity period that is not in
any way dependent upon the investment experience of the Variable Account.
The following Annuity Options may be elected. For Qualified Contracts,
certain restrictions apply.
OPTION 1 -- PAYMENT FOR A FIXED PERIOD. Equal monthly payments will be made
for any period of not less than 5 nor more than 30 years. The amount of each
payment depends on the total amount applied, the period selected and the monthly
payment rates we are using when the first payment is due.
OPTION 2 -- LIFE INCOME WITH PAYMENTS FOR A GUARANTEED PERIOD. Equal
monthly payments are based on the life of the named Annuitant. Payments will
continue for the lifetime of the Annuitant with payments guaranteed for 10 or 20
years. Payments stop at the end of the selected guaranteed period or when the
named person dies, whichever is later.
OPTION 3 -- PAYMENTS FOR A FIXED AMOUNT. Equal monthly payments will be
made of an agreed fixed amount. The amount of each payment may not be less than
$10 for each $1,000 applied. Interest will be credited each month on the unpaid
balance and added to it. This interest will be at a rate set by us, but not less
than an effective rate of 3% per year. Payments continue until the amount we
hold runs out. The last payment will be for the balance only.
OPTION 4 -- The total amount applied may be used to purchase an annuity of
any kind issued by us on the date this option is elected.
A surrender charge will not be applied to the Contract Value when the
Contract Value is applied to an Annuity Option on the Annuity Commencement Date
provided that annuity payments are made
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<PAGE>
for the lifetime of the Annuitant or for a period certain of at least 5 years.
In certain circumstances, therefore, application of Contract Value to Annuity
Options 3 and 4 could result in the imposition of a surrender charge.
After the death of the Annuitant, any remaining payments shall be payable to
the Beneficiary unless you specified otherwise before the Annuitant's death.
MINIMUM AMOUNTS. We reserve the right to pay the total amount of this
Contract in one lump sum, if less than $5,000. If monthly payments are less than
$100, we may make payments quarterly, semi-annually, or annually at our option.
If we have available at the time an Annuity Option is elected, options or
rates on a more favorable basis than those guaranteed, the higher benefits shall
apply.
ANNUITY PAYMENT
The first payment under any Annuity Option will be made one month following
the Annuity Commencement Date. Subsequent payments will be made in accordance
with the manner of payment selected.
The Annuity Option elected must result in a payment of an amount at least
equal to the minimum payment amount according to Protective Life's rules then in
effect. If at any time payments are less than the minimum payment amount, we
have the right to change the frequency to an interval resulting in a payment at
least equal to the minimum. If any amount due is less than the minimum per year,
we may make other arrangements that are equitable to the Annuitant.
Once annuity payments have commenced, no surrender of the annuity benefit
can be made.
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 the 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.
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. The Company 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. More detailed
information as to the calculation of performance information, as well as
comparisons with unmanaged market indices, 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.)
The yield of the Money Market 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.
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<PAGE>
The yield of a Sub-Account (except the Money Market 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.
The 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 return refers to total return
quotations that are annualized based on an average return over various periods
of time.
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 (including any Surrender Charge that would apply
if an Owner terminated the Contract at the end of each period indicated, but
excluding any deductions for premium taxes). When a Sub-Account other than the
Money Market 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.
In addition to the standard version of average annual total return described
above, total return performance information computed on two different
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 surrender charge. 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.
Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.
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")
and the Variable Annuity Research Data Service ("VARDS") 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 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 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
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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.
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.
EXCHANGE OFFER
The Company is offering to owners of certain modified guaranteed annuity
contracts issued by it the opportunity to exchange such a contract for a
Contract. Owners of ProSaver Modified Guaranteed Annuity Contracts ("ProSaver
MGA Contracts") may, any time prior to the annuity commencement date under such
contracts, exchange their ProSaver MGA Contract for this Contract. Owners of
ProSaver MGA Contracts may also make a partial or full surrender from their
contract and use the proceeds to purchase this Contract. Contracts are offered
to owners of ProSaver MGA Contracts on the same basis as Contracts are offered
to any other purchaser. In particular, all charges and deductions described in
this prospectus are equally applicable to Contracts received in an exchange or
purchased by ProSaver MGA Contract owners and to Contracts sold to other
purchasers. In addition, applicable surrender charges and market value
adjustments will be assessed under a ProSaver MGA Contract in connection with an
exchange, surrender, or partial surrender of a ProSaver MGA Contract.
The Contracts differ from the ProSaver MGA Contracts in many significant
respects. Most importantly, Contract Value under the Contracts may consist,
entirely or in part, of Variable Account Value which fluctuates in response to
the net investment return of the Variable Account. In contrast, account value
under the ProSaver MGA Contracts reflects interest credited by the Company at
rates guaranteed for certain guaranteed periods of time. Even when credited
interest is not guaranteed, such as when a surrender, partial surrender or
transfer between sub-accounts occurs prior to the expiration of a guaranteed
period, account value under the ProSaver MGA Contracts reflects changing current
interest rates and does not vary with the investment performance of a separate
account. Furthermore, Fixed Account Value under the Contracts is computed and
credited on a basis substantially different from that of the ProSaver MGA
Contracts. In particular, unlike a ProSaver MGA Contract, a surrender, partial
surrender or transfer of Fixed Account Value under a Contract is never subject
to a market value adjustment. In contrast, account value under a ProSaver MGA
Contract is reduced or increased by, among other things, a market value
adjustment when surrenders, partial surrenders or transfers are made from a
sub-account prior to the expiration of a guaranteed period. In addition,
interest rates applicable to fixed account values under the Contracts are
guaranteed for one year periods whereas rates applicable to the ProSaver MGA
Contracts may be guaranteed for periods of one to fifteen years.
Other significant differences between the Contracts and the ProSaver MGA
Contracts include: (1) additional charges applicable under the Contracts such as
the mortality and expense risk charge, the administration charge and annual
contract maintenance fee that are not found in the ProSaver MGA Contracts, (2) a
contract loan provision under the Contracts, when used in connection with
certain Qualified Plans, that is not available under the ProSaver MGA Contracts,
(3) different surrender charges, (4) different death benefits, (5) different
annuity option purchase rates, and (6) differences in federal and state laws and
regulations applicable to each of the types of contracts. Owners of ProSaver MGA
Contracts should refer to their contract forms and to their prospectus for such
contracts for a complete description of the ProSaver MGA Contract. Copies of the
most recent ProSaver MGA Contract prospectus are available free of charge from
the Company at its home office.
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Owners of ProSaver MGA Contracts should carefully consider whether it will
be advantageous to replace such a contract with a Contract. IT MAY NOT BE
ADVANTAGEOUS TO EXCHANGE A PROSAVER MGA CONTRACT FOR A CONTRACT (OR TO SURRENDER
IN FULL OR IN PART A PROSAVER MGA CONTRACT AND USE THE SURRENDER OR PARTIAL
SURRENDER PROCEEDS TO PURCHASE A CONTRACT) EXCEPT AT THE EXPIRATION OF ALL
GUARANTEED PERIODS IN ORDER TO AVOID APPLICATION OF A MARKET VALUE ADJUSTMENT
AND A SURRENDER CHARGE.
Sales representatives offering the Contracts to ProSaver MGA Contract owners
will receive a sales commission. In most cases, this sales commission will be
somewhat less than that paid in connection with sales of the Contracts to other
purchasers. The maximum sales commission that may be paid is 7% of Purchase
Payments. (See "Distribution of the Contracts".)
TAX CONSIDERATIONS. The Company believes that an exchange of a
non-qualified ProSaver MGA Contract for a Contract generally should be treated
as a nontaxable exchange of annuity contracts within the meaning of Section 1035
of the Code. A Contract received in exchange will generally be treated as a
newly issued contract as of the effective date of the Contract. This could have
various tax consequences, E.G., aggregation with other annuity contracts issued
during the same calendar year as the exchange. (See "Federal Tax Matters".)
IF YOU SURRENDER YOUR NON-QUALIFIED PROSAVER MGA CONTRACT IN WHOLE OR IN
PART AND AFTER RECEIPT OF THE PROCEEDS YOU USE THE SURRENDER PROCEEDS OR PARTIAL
SURRENDER PROCEEDS TO PURCHASE A CONTRACT IT WILL NOT BE TREATED AS A TAX-FREE
EXCHANGE. THE SURRENDER PROCEEDS WILL GENERALLY BE INCLUDIBLE IN INCOME (TO THE
EXTENT OF ANY INCOME IN THE PROSAVER MGA CONTRACT) AND A 10% PENALTY TAX MAY
APPLY IF THE SURRENDER IS MADE BEFORE THE TAXPAYER REACHES AGE 59 1/2.
Special tax considerations apply to exchanges of, or transfers of amounts
from , a ProSaver MGA Contract issued in connection with a Qualified Plan to a
Contract.
Owners of ProSaver MGA Contracts should consult their tax advisors before
exchanging a ProSaver MGA Contract for this Contract, or before surrendering in
whole or in part their ProSaver MGA Contract and using the proceeds to purchase
this Contract.
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 a qualified tax adviser should always be consulted
with regard to the application of law to individual circumstances. This
discussion is based on 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, THE COMPANY 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
The Company is taxed as a life insurance company under Subchapter L of the
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 Subchapter M of the 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 to increase
reserves under a Contract. Since, under the Contracts, investment income and
realized capital gains of the Variable Account attributable to contract
obligations are automatically applied to increase reserves, the Company does not
anticipate that it will incur any federal income tax liability in the Variable
Account attributable to
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contract obligations, and therefore the Company does not intend to make
provision for any such taxes. If the Company is taxed on investment income or
capital gains of the Variable Account, then the Company 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 Code, except as described below, any
increase in an Owner's Contract Value is generally not taxable to the Owner or
Annuitant 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.
DIVERSIFICATION REQUIREMENTS. The 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 income on the
Contract (as defined in the tax law) for the period or periods of
non-diversification. The Company expects that the Variable Account, through the
Funds, will comply with the diversification requirements prescribed by the 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 includible 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 guidance would be issued 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, no such guidance has been issued.
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. 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. The Company
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.
NON-NATURAL OWNER. As a general rule, Contracts held by "non-natural
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
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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.
In addition, exceptions to the general rule for non-natural 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.
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 received generally are
includible in income to the extent the Owner's Contract Value before the
surrender exceeds his or her "investment in the contract." In the case of a full
surrender, amounts received are includible 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 federal income tax withholding requirements. (See Federal Income
Tax Withholding.) In addition, in the case of partial and full surrenders from
certain Qualified Plans, 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
distributed may not be subject to Surrender Charges if the Owner has a terminal
illness or if the Owner 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 some portion of those charges could be
treated for federal tax purposes as a partial surrender of the Contract.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity 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, adjusted for any period certain or refund
feature, to the total expected amount of annuity payments for the term of the
Contract (determined under Treasury Department regulations). Annuity payments
may be subject to federal income tax withholding requirements. (See Federal
Income Tax Withholding.) In addition, in the case of annuity payments from
certain Qualified Plans, mandatory withholding requirements may apply, unless a
"direct rollover" of such annuity payments is made. (See Direct Rollovers.)
Once the total amount of the investment in the contract is excluded using
this ratio, annuity payments will be fully taxable. If annuity 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 to the Annuitant in his or her last taxable year.
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There may be special income tax issues present in situations where the Owner
and the Annuitant are not the same person or are not married. For example, where
the Owner and the Annuitant are not the same person and are not married, the
Owner may be taxed on the Annuity Commencement Date on the difference between
the Contract Value and the investment in the contract. A tax advisor should be
consulted in those situations.
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 includible 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 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 includible
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 payments thereafter are
fully includible 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 Plans, 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 Contracts issued in connection with certain
Qualified Plans (which generally cannot be assigned or pledged), any assignment
or pledge (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 includible 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 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 Annuitant or the joint lives (or joint life
expectancies) of the Annuitant and a designated beneficiary, 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 apply in the case of certain Contracts issued in
connection with Qualified Plans.)
AGGREGATION OF CONTRACTS
In certain circumstances, the IRS may determine the amount of an annuity
payment or a surrender from a Contract that is includible in income by combining
some or all of the annuity
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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, 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
includible in income. The effects of such aggregation are not clear; however, it
could affect the time when income is taxable and the amount which might be
subject to the 10% penalty tax described above.
QUALIFIED RETIREMENT PLANS
IN GENERAL
The Contracts are also designed for use in connection with certain types of
qualified retirement plans which receive favorable treatment under the Code.
Numerous special tax rules apply to the Owners under Qualified Plans and to the
Contracts used in connection with Qualified Plans. These tax rules vary
according to the type of plan and the terms and conditions of the plan itself.
For example, for both surrenders and annuity payments under certain Contracts
issued in connection with Qualified Plans, there may be no "investment in the
contract" and the total amount received may be taxable. Also, special rules
apply to the time at which distributions must commence and the form in which the
distributions must be paid. Therefore, no attempt is made to provide more than
general information about the use of Contracts with the various types of
Qualified Plans.
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 Code
permits eligible individuals to contribute to an individual retirement program
known as an "Individual Retirement Account" or an "Individual Retirement
Annuity" ("IRAs"). IRAs are subject to limits on the amounts that may be
contributed, 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.
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.
SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRAS). Section 408(k) of the Code allows
employers to establish simplified employee pension plans for their employees,
using the employees' IRAs for such purposes, if certain criteria are met. Under
these plans the employer may, within specified limits, make deductible
contributions on behalf of the employees to IRAs. Employers intending to use the
Contract in connection with such plans should seek competent advice.
In particular, employers should consider that 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
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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.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND
PROFIT-SHARING PLANS. Sections 401(a) and 403(a) of the 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 such Death Benefit
could be characterized 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. Employers intending to use the
Contract in connection with such plans should seek competent advice.
SECTION 403(B) POLICIES. Section 403(b) of the Code permits public school
employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code to 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
such Death Benefit could be characterized 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 Death Benefit under the Contract were characterized as an incidental
death benefit, it 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.
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 in such years on amounts held as of the last year beginning before
January 1, 1989. 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 Code permits employees of state and local
governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. To the extent the Contract is used in
connection with an eligible plan, employees are considered general creditors of
the employer and the employer as Owner of the Contract has the sole right to the
proceeds of the Contract. 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. Those who intend to use the Contracts
in connection with such plans should seek competent advice.
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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 Code, or is a
Section 403(b) Policy, any "eligible rollover distribution" from the Contract
will be subject to the new direct rollover and mandatory withholding
requirements enacted by Congress in 1992. An eligible rollover distribution
generally is any taxable distribution from a qualified pension plan under
section 401(a) of the Code, qualified annuity plan under section 403(a) of the
Code, or section 403(b) annuity or custodial account, excluding certain amounts
(such as minimum distributions required under section 401(a)(9) of the 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 new 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
The Company 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 the Company at or before the time of the distribution that
he or she elects not to have any amounts withheld. In certain circumstances, the
Company may be required to withhold tax, as explained above. 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, the withholding rate applicable to
the taxable portion of non-periodic payments (including surrenders prior to the
Annuity Commencement Date) is 10%. Even if 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
MODIFICATION
No change or waiver of the terms of this Contract is valid unless made by
us, in writing, and approved by our President, Vice President or Secretary. We
reserve the right to change the provisions of this Contract to conform to any
applicable laws, or applicable regulations or rulings issued by a government
agency.
REPORTS
Once per calendar quarter, Protective Life will send to each Owner, at the
Owner's last known address, a report showing the Contract Value, Sub-Account
Values, and Fixed Account Value along with information regarding current
investment allocations as well as any other information required by law.
INQUIRIES
Inquiries regarding a Contract may be made by writing to Protective Life at
its Home Office.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be offered on a continuous basis and the Company does not
anticipate discontinuing the offering of the Contracts. Nevertheless, the
Company reserves the right to discontinue the offering at any time. Investment
Distributors, Inc. serves as principal underwriter (as
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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 the
Company. 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 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 will pay is 7.0% of the Purchase
Payments for the sale of a Contract.
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 PIC
or 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 which are 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 the Variable Account
Value is allocated. The Owner only has voting interest prior to the Annuity
Commencement Date.
The number of votes which are available to the Owner will be determined as
of the date coincident with the date established by PIC for determining
shareholders eligible to vote at the relevant meeting of each Fund. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by PIC.
Shares as to which no timely instructions are received and shares held by
Protective Life in a Sub-Account as to which no Owner has a beneficial interest
will be voted in proportion to the voting instructions which are received with
respect to all Contracts participating in that Sub-Account. Voting instructions
to abstain on any item to be voted upon will be applied to reduce the votes
eligible to be cast on that item.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports, and other material relating to the appropriate Fund.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities of The Protective Variable
Annuity Separate Account (comprised of six sub-accounts) as of December 31, 1994
and the related statements of
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operations and changes in net assets for the period from March 14, 1994 (date of
inception) through December 31, 1994 as well as the Report of Independent
Accountants are contained in the Statement of Additional Information.
The audited consolidated balance sheets for Protective Life as of December
31, 1994 and 1993 and the related consolidated statements of income,
stockholders' equity, and cash flows for the three years in the period ended
December 31, 1994 and the related financial schedules as well as the Report of
Independent Accountants are contained in the Statement of Additional
Information.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
ADDITIONAL CONTRACT PROVISIONS............................................................................ 3
The Contract............................................................................................ 3
Error in Age or Sex..................................................................................... 3
Incontestability........................................................................................ 3
Non-Participation....................................................................................... 3
Assignment.............................................................................................. 3
CALCULATION OF YIELDS AND TOTAL RETURNS................................................................... 3
Money Market Sub-Account Yield.......................................................................... 3
Other Sub-Account Yields................................................................................ 4
Average Annual Total Returns............................................................................ 5
Other Total Returns..................................................................................... 6
Effect of the Contract Maintenance Fee on Performance Data.............................................. 6
SAFEKEEPING OF ACCOUNT ASSETS............................................................................. 6
STATE REGULATION.......................................................................................... 7
RECORDS AND REPORTS....................................................................................... 7
LEGAL MATTERS............................................................................................. 7
EXPERTS................................................................................................... 7
OTHER INFORMATION......................................................................................... 7
FINANCIAL STATEMENTS...................................................................................... 8
</TABLE>
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APPENDIX
SURRENDER CHARGE EXAMPLES
EXAMPLES: (1) An Owner makes a $5,000 initial Purchase Payment and 10
months later has a Contract Value of $5,250. If at that time the Owner makes a
partial surrender of any amount or a full surrender, he or she will pay a
surrender charge equal to 7% of the amount surrendered; (2) An Owner makes a
$5,000 initial Purchase Payment and no subsequent Purchase Payments and 30
months later (i.e., in the third Contract Year) has a Contract Value of $5,750.
If at that time the Owner makes a full surrender, he or she would not pay any
surrender charge on the $750 of earnings under the Contract (which is considered
to be surrendered before Purchase Payments) but would pay a surrender charge
equal to 5% of $5,000, or $250. Likewise, if the Owner makes a partial surrender
of $2,500 at that time, he or she would pay no surrender charge on the $750 of
earnings but would pay a surrender charge equal to 5% of $1,750, or $87.50; (3)
The same Owner does not make a surrender after 30 months but instead makes
another Purchase Payment of $2,000 at that time and after 52 months (i.e., in
the fifth Contract Year) the Contract Value is $9,000 ($7,000 of Purchase
Payments and $2,000 of earnings). If at that time the Owner makes a partial
surrender of any amount or a full surrender, he or she would only pay a
surrender charge on the amount surrendered in excess of $2,000 and would pay a
surrender charge equal to 2% of the next $5,000 surrendered and 5% of any amount
surrendered in excess of $7,000.
A-1
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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: (205) 879-9230
STATEMENT OF ADDITIONAL INFORMATION
PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
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 individual flexible premium
deferred variable and fixed annuity contract (the "Contract") offered by
Protective Life 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 Protective Investment Company. 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 APRIL 7, 1995
1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
ADDITIONAL CONTRACT PROVISIONS............................................................................ 3
The Contract............................................................................................ 3
Error in Age or Sex..................................................................................... 3
Incontestability........................................................................................ 3
Non-Participation....................................................................................... 3
Assignment.............................................................................................. 3
CALCULATION OF YIELDS AND TOTAL RETURNS................................................................... 3
Money Market Sub-Account Yield.......................................................................... 4
Other Sub-Account Yields................................................................................ 5
Average Annual Total Returns............................................................................ 6
Other Total Returns..................................................................................... 6
Effect of the Contract Maintenance Fee on Performance Data.............................................. 6
SAFEKEEPING OF ACCOUNT ASSETS............................................................................. 7
STATE REGULATION.......................................................................................... 7
RECORDS AND REPORTS....................................................................................... 7
LEGAL MATTERS............................................................................................. 7
EXPERTS................................................................................................... 7
OTHER INFORMATION......................................................................................... 7
FINANCIAL STATEMENTS...................................................................................... 8
</TABLE>
2
<PAGE>
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
This Contract, any riders and/or endorsements attached as well as the
Application, constitute the entire contract. All statements in the application
shall be deemed representations and not warranties.
ERROR IN AGE OR SEX
Questions in the Application concern the Annuitant's and Owner(s)' date of
birth and sex. If the dates of birth or sex given are not correct, the benefits
under this Contract will be adjusted to the amount which would have been payable
at the correct age and sex. If we made any underpayments on account of any
misstatement, the amount of any underpayment shall be immediately paid in one
sum. Any overpayments made shall be deducted from the current or succeeding
payments due under this Contract.
INCONTESTABILITY
The Contract shall not be contestable by us.
NON-PARTICIPATION
The Contract is not eligible for dividends and will not participate in
Protective Life's surplus or profits.
ASSIGNMENT
By written notice to us, an Owner may assign his or her rights under a
Contract. The assignment must be filed with the Home Office. We assume no
responsibility for the validity of any assignment and any claim under any
assignment is subject to proof of interest and the extent of the assignment.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, Protective Life 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.
MONEY MARKET SUB-ACCOUNT YIELD
From time to time, advertisements and sales literature may quote the current
annualized yield of the Money Market 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 Money Market 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 Money Market 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 Money Market Fund attributable to the hypothetical account;
and 2) charges and deductions imposed under the Contract attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the hypothetical account for: 1) the Annual Contract Maintenance Fee; 2)
Administration Charge; and 3) the Mortality and
3
<PAGE>
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)
<TABLE>
<S> <C>
Where:
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 on the first day of the seven-day period.
</TABLE>
The effective yield of the Money Market 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
<TABLE>
<S> <C>
Where:
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 for the first day of the seven-day period.
</TABLE>
Because of the charges and deductions imposed under the Contract, the
current and effective yields for the Money Market Sub-Account will be lower than
such yields for the Money Market Fund.
The current and effective yields on amounts held in the 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 Money Market Sub-Account's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the Money Market Fund, the types of quality of portfolio
securities held by the Money Market Fund and the Money Market Fund's operating
expenses. Yields on amounts held in the Money Market 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 Money Market
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
<PAGE>
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 $35 per year per Contract deducted at the end of each
Contract Year. For purposes of calculating the 3(1-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]
<TABLE>
<S> <C>
Where:
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 at the close (highest) of the last day in the 30 day
or one month period.
</TABLE>
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.
Yield calculations do not take into Account the Surrender Charge under the
Contract equal to 2% to 7% of premiums paid during the six years prior to the
surrender (including the year in which the surrender is made) on amounts
surrendered under the Contract.
AVERAGE ANNUAL 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 the Sub-Accounts began operations. When a Sub-Account has
been in operation for 1, 5, and 10 years, respectively, the standard 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 be for the most recent month-end practicable considering the type
and media of the communication and will be stated in the communication.
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 average annual total return
calculation also assumes that the Contract Maintenance Fee is $35 per year per
contract deducted at the end of each Contract Year. For purposes of calculating
standard average annual total return, an average per dollar Contract Maintenance
fee attributable to the hypothetical account for
5
<PAGE>
the period for the quotation standard average annual total returns will
therefore reflect a deduction of the Surrender Charge for any period less than
eight years. The total return will then be calculated according to the following
formula:
TR = (ERV/P)1/N - 1
<TABLE>
<S> <C> <C>
Where:
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>
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the Surrender Charge. These 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 any charges on amounts surrendered.
Protective Life may 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
<TABLE>
<S> <C> <C>
Where:
CTR = The cumulative total return net of Sub-Account recurring charges for the
period.
ERV = The ending redeemable value of the hypothetical investment at the end of
the period.
P = A hypothetical single Purchase Payment of $1,000.
</TABLE>
EFFECT OF THE CONTRACT MAINTENANCE FEE ON PERFORMANCE DATA
The Contract provides for a $35 Annual Contract Maintenance Fee to be
deducted annually at the end of each Contract Year, from the Sub-Accounts and
the Fixed Account based on the proportion that the value of each such account
bears to the total Contract Account 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
Contract 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 $15 million dollars. The bond
insures against dishonest and fraudulent acts of officers and employees.
6
<PAGE>
STATE REGULATION
Protective Life is subject to regulation and supervision by the Department
of Insurance of the State of Tennessee 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.
LEGAL MATTERS
Sutherland, Asbill & Brennan 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 Protective Variable Annuity
Separate Account (comprised of six sub-accounts) as of December 31, 1994 and the
related statements of operations and changes in net assets for the period from
March 14, 1994 (date of inception) through December 31, 1994 included in this
Statement of Additional Information and in the registration statement have been
included herein in reliance on the report of Coopers and Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheets of Protective Life as of December 31, 1994
and 1993 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, 1994
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, which includes an explanatory paragraph with
respect to changes in the Company's methods of accounting for certain
investments in debt and equity securities in 1993 and postretirement benefits
other than pensions in 1992, of Coopers & Lybrand L.L.P., 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, DC 20549.
7
<PAGE>
FINANCIAL STATEMENTS
The audited statement of assets and liabilities of The Protective Variable
Annuity Separate Account (comprised of six sub-accounts) as of December 31, 1994
and the related statements of operations and changes in net assets for the
period from March 14, 1994 (date of inception) through December 31, 1994 as well
as the Report of Independent Accountants are contained herein.
The audited consolidated balance sheets for Protective Life as of December
31, 1994 and 1993 and the related consolidated statements of income,
stockholder's equity, and cash flows for the years ended December 31, 1994, 1993
and 1992 as well as the Report of Independent Accountants are contained herein.
8
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
Report of Independent Accountants.................................................... F-2
Statement of Assets and Liabilities as of December 31, 1994.......................... F-3
Statement of Operations for the period from March 14, 1994 (date of inception)
through December 31, 1994........................................................... F-4
Statement of Changes in Net Assets for the period from March 14, 1994 (date of
inception) through December 31, 1994................................................ F-5
Notes to Financial Statements........................................................ F-6
PROTECTIVE LIFE INSURANCE COMPANY
Report of Independent Accountants.................................................... F-9
Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992.................................................... F-10
Consolidated Balance Sheets as of December 31, 1994 and 1993......................... F-11
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1994, 1993 and 1992.................................................... F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992.................................................... F-13
Notes to Consolidated Financial Statements........................................... F-14
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contractowners and Board of Directors
of Protective Life Insurance Company
We have audited the financial statements of The Protective Variable Annuity
Separate Account (comprised of six sub-accounts) included on pages F-3 through
F-8 of this registration statement on Form N-4. These financial statements are
the responsibility of the management of The Protective Variable Annuity Separate
Account. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1994, with the transfer agent,
State Street Bank and Trust. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Protective Variable
Annuity Separate Account as of December 31, 1994, the results of its operations,
and the changes in its net assets for the period from March 14, 1994 (date of
inception) through December 31, 1994, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
March 20, 1995
F-2
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
GROWTH AND INTERNATIONAL SMALL CAP SELECT
MONEY MARKET INCOME EQUITY GLOBAL INCOME EQUITY EQUITY
SUB-ACOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in Protective
Investment Company at market
value.......................... $ 3,618,491 4$2,305,118 $27,385,061 $17,281,472 2$1,812,746 $17,717,449
Receivable from Protective Life
Insurance Company.............. 37,849 30,375 7,945 27,495 19,269
------------- ----------- ------------ ------------- ----------- ------------
Total Assets................ 3,618,491 42,342,967 27,415,436 17,289,417 21,840,241 17,736,718
------------- ----------- ------------ ------------- ----------- ------------
LIABILITIES
Payable to Protective Life
Insurance Company.............. 5,978
------------- ----------- ------------ ------------- ----------- ------------
NET ASSETS...................... $ 3,612,513 4$2,342,967 $27,415,436 $17,289,417 2$1,840,241 $17,736,718
------------- ----------- ------------ ------------- ----------- ------------
------------- ----------- ------------ ------------- ----------- ------------
Held for the benefit of
contractowners................. $ 3,096,831 4$1,361,603 $24,540,983 $14,311,514 2$0,938,899 $16,731,419
Attributable to Protective Life
Insurance Company.............. 515,682 981,364 2,874,453 2,977,903 901,342 1,005,299
------------- ----------- ------------ ------------- ----------- ------------
$ 3,612,513 4$2,342,967 $27,415,436 $17,289,417 2$1,840,241 $17,736,718
------------- ----------- ------------ ------------- ----------- ------------
------------- ----------- ------------ ------------- ----------- ------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 14, 1994 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
MONEY GROWTH AND INTERNATIONAL SMALL CAP SELECT
MARKET INCOME EQUITY GLOBAL INCOME EQUITY EQUITY
SUB-ACOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................... $ 115,674 $ 331,204 $ 451,353 $ 92,044 $ 163,171
EXPENSE
Mortality and expense risk and
administrative charges......... 34,654 198,917 $ 121,605 79,910 110,199 82,649
----------- ----------- ------------ ------------- ----------- ------------
Net investment income (loss).... 81,020 132,287 (121,605) 371,443 (18,155) 80,522
----------- ----------- ------------ ------------- ----------- ------------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain (loss) from
redemption of investment shares.. (76) 1,016 11 125 488
Capital gain distribution......... 245 169,877 57,869 215,029
----------- ----------- ------------ ------------- ----------- ------------
Net realized gain on
investments...................... 245 169,801 1,016 11 57,994 215,517
----------- ----------- ------------ ------------- ----------- ------------
Net unrealized appreciation
(depreciation) on investments
during the period................ (849,702) (379,600) (378,711) (1,657,883) (339,157)
----------- ----------- ------------ ------------- ----------- ------------
Net realized and unrealized gain
(loss) on investments............ 245 (679,901) (378,584) (378,700) (1,599,889) (123,640)
----------- ----------- ------------ ------------- ----------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS....................... $ 81,265 $(547,614) $ (500,189) $ (7,257) ($1,618,044) $ (43,118)
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM MARCH 14, 1994 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
GROWTH AND INTERNATIONAL SMALL CAP SELECT
MONEY MARKET INCOME EQUITY GLOBAL INCOME EQUITY EQUITY
SUB-ACOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- ----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)... $ 81,020 $ 132,287 $ (121,605) $ 371,443 $ (18,155) $ 80,522
Net realized gain on
investments................... 245 169,801 1,016 11 57,994 215,517
Net unrealized depreciation of
investments during the
period........................ (849,702) (379,600) (378,711) (1,657,883) (339,157)
--------------- ----------- ------------ ------------- ----------- ------------
Net increase (decrease) in net
assets resulting from
operations.................... 81,265 (547,614) (500,189) (7,257) (1,618,044) (43,118)
--------------- ----------- ------------ ------------- ----------- ------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractowners' net payments... 28,046,929 27,903,691 16,918,013 10,479,690 15,055,748 12,022,234
Surrenders..................... (3,351) (146,706) (76,797) (107,387) (89,199) (75,829)
Death benefits................. (71,630) (16,626) (14,803) (16,728) (22,661)
Transfer (to) from other
portfolios.................... (25,006,354) 14,167,377 8,061,390 3,931,230 7,481,651 4,836,824
--------------- ----------- ------------ ------------- ----------- ------------
Net increase in net assets
resulting from variable
annuity contract
transactions.................. 3,037,224 41,852,732 24,885,980 14,288,730 22,431,472 16,760,568
--------------- ----------- ------------ ------------- ----------- ------------
Capital contribution from
Protective Life Insurance
Company....................... 494,024 1,037,849 3,029,645 3,007,944 1,026,813 1,019,268
--------------- ----------- ------------ ------------- ----------- ------------
Total increase in net assets... 3,612,513 42,342,967 27,415,436 17,289,417 21,840,241 17,736,718
NET ASSETS
Beginning of Year..............
--------------- ----------- ------------ ------------- ----------- ------------
$ 3,612,513 4$2,342,967 $27,415,436 $17,289,417 2$1,840,241 $17,736,718
--------------- ----------- ------------ ------------- ----------- ------------
--------------- ----------- ------------ ------------- ----------- ------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
The Protective Variable Annuity Separate Account (Separate Account) was
established by Protective Life Insurance Company (Protective Life) under the
provisions of Tennessee law and commenced operations on March 14, 1994. 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.
Protective Life has structured the Separate Account into unit investment
trust form registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
six sub-accounts: Money Market, Growth and Income, International Equity, Global
Income, Small Cap Equity, and Select Equity. Funds are transferred to Protective
Investment Company (the Fund) in exchange for shares of the corresponding
portfolio of the Fund.
Net premiums from the Contracts are allocated to the sub-accounts in
accordance with contractowner 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 Protective Life.
Contractowners may allocate some or all of net premiums or transfer some or
all of the contract value to the fixed account, which is 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.
Transfers, included in the statement of changes in net assets, are transfers
between the individual sub-accounts and the sub-accounts and the fixed account.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION:__Investments are made in shares and are valued at the
net asset values of the respective portfolios. Transactions 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.
FEDERAL INCOME TAXES:__The operation of the Separate Account is included in
the Federal income tax return of Protective Life. Under the provisions of the
Contracts, Protective Life 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, 1994, the investments by the respective sub-accounts were as
follows:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
----------- -------------- --------------
<S> <C> <C> <C>
Money Market............................................. 3,618,488 $ 3,618,491 $ 3,618,491
Growth and Income........................................ 4,378,864 $ 43,154,820 $ 42,305,118
International Equity..................................... 2,858,191 $ 27,764,661 $ 27,385,061
Global Income............................................ 1,808,152 $ 17,660,183 $ 17,281,472
Small Cap Equity......................................... 2,436,839 $ 23,470,629 $ 21,812,746
Select Equity............................................ 1,800,828 $ 18,056,606 $ 17,717,449
</TABLE>
F-6
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS_(CONTINUED)
During the period from March 14, 1994 (date of inception) through December
31, 1994, transactions in shares were as follows:
<TABLE>
<CAPTION>
GROWTH AND INTERNATIONAL GLOBAL SMALL CAP SELECT
MONEY MARKET INCOME EQUITY INCOME EQUITY EQUITY
------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Seed money shares................... 500,000 100,000 300,000 300,000 100,000 100,000
Shares purchased.................... 18,924,377 4,260,890 2,608,596 1,659,913 2,349,252 1,700,986
Shares received from reinvestment of
dividends.......................... 115,976 51,337 46,869 16,747 38,440
------------ ----------- ------------ ----------- ----------- -----------
Total shares acquired............... 19,540,353 4,412,227 2,908,596 2,006,782 2,465,999 1,839,426
Shares redeemed..................... (15,921,865) (33,363) (50,405) (198,630) (29,160) (38,598)
------------ ----------- ------------ ----------- ----------- -----------
Net increase in shares owned........ 3,618,488 4,378,864 2,858,191 1,808,152 2,436,839 1,800,828
Shares owned, beginning of the
period.............................
------------ ----------- ------------ ----------- ----------- -----------
Shares owned, end of period......... 3,618,488 4,378,864 2,858,191 1,808,152 2,436,839 1,800,828
Cost of shares acquired............. $ 19,540,356 $43,489,003 $28,249,119 $19,580,664 $23,751,674 $18,447,968
Cost of shares redeemed............. $ 15,921,865 $ 334,183 $ 484,458 $ 1,920,481 $ 281,045 $ 391,362
</TABLE>
4. RELATED PARTY TRANSACTIONS
Certain deductions are made from the sub-accounts by Protective Life. These
deductions may include surrender charges, administrative charges, transfer fees,
mortality and expense risk charges, contract maintenance fees, fund expenses,
premium taxes, and other taxes.
There are no sales expenses deducted from premiums at the time the premiums
are paid. If a Contract has not been in force for six years, upon surrender or
for certain withdrawals, a surrender charge is deducted from the proceeds.
Surrender charges may be decreased or waived on Contracts meeting certain
restrictions as determined by Protective Life. Surrender charges of $8,958 were
assessed on surrenders of $499,269 during 1994.
An administrative charge is assessed on an annual basis equal to .15% of the
daily net asset value of each sub-account in the Separate Account.
There is currently no charge for transfers of amounts in the sub-accounts.
However, Protective Life has reserved the right to charge $25 for each transfer
after the first twelve transfers in any contract year. No transfer fees were
assessed in 1994.
The Separate Account is charged a daily mortality and expense risk charge at
an annual rate of 1.25%. The mortality risk Protective Life assumes is that
annuitants may live for a longer period of time than estimated when the
guarantees in the Contract were established. The mortality risk that Protective
Life assumes also includes a guarantee to pay a death benefit if the
contractowner dies before the annuity commencement date. The guaranteed death
benefit is equal to the sum of: (1) the fixed account value; plus (2) the
greater of: (a) the Separate Account value, or (b) the total net premiums
allocated to the Separate Account less previous transfers from the Separate
Account, partial surrenders, and any applicable surrender charges and contract
maintenance fees, increased by amounts transferred to the Separate Account and
interest at a compounded annual effective interest rate of 5% credited as of
each contract anniversary up to any contractowners' 80th birthday. The expense
risk that Protective Life assumes is the risk that administrative charges,
contract maintenance fees, and transfer fees may be insufficient to cover actual
future expenses.
F-7
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS_(CONTINUED)
A contract maintenance fee of $35 is deducted on each contract anniversary
date, and on any day that the contract is surrendered, if such surrender occurs
on any day other than the contract anniversary date. The contract fee may be
waived under certain circumstances. There were no contract maintenance fees
assessed during 1994.
The net assets of each sub-account of the Separate Account reflect the
investment management fees and other operating expenses incurred by the Funds.
Premium taxes, when applicable, will be deducted, as provided under
applicable law, either from premiums when received, upon full or partial
surrenders of the contract or from the amount applied to effect an annuity at
the time annuity payments commence. There were no premium taxes assessed during
1994.
Protective Life offers a loan privilege to contractowners of section 403(b)
policies that are not subject to Title 1 of ERISA. Such contractowners 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, 1994.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholder
Protective Life Insurance Company
Birmingham, Alabama
We have audited the consolidated financial statements and the financial
statement schedules of Protective Life Insurance Company and subsidiaries,
included on pages F-10 through F-32 and S-1 through S-3, respectively, of this
registration statement on Form N-4. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Protective Life
Insurance Company and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As discussed in Note A to the Consolidated Financial Statements, the Company
changed its method of accounting for certain investments in debt and equity
securities in 1993. Also, as discussed in Note L, the Company changed its method
of accounting for postretirement benefits other than pensions in 1992.
/s/ COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
February 13, 1995
F-9
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded: 1994 - $172,575; 1993
- $126,912; 1992 - $109,355)............................................ $ 402,772 $ 351,423 $ 323,136
Net investment income.................................................... 408,933 354,165 274,991
Realized investment gains (losses)....................................... 6,298 5,054 (154)
Other income............................................................. 11,977 4,756 10,675
----------- ----------- -----------
829,980 715,398 608,648
----------- ----------- -----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: 1994 -
$112,922; 1993 - $84,949; 1992 - $67,436)............................... 517,110 461,636 409,557
Amortization of deferred policy acquisition costs........................ 88,089 73,335 48,403
Other operating expenses (net of reinsurance ceded: 1994 - $14,326; 1993
- $10,759; 1992 - $7,468)............................................... 119,203 94,315 91,925
----------- ----------- -----------
724,402 629,286 549,885
----------- ----------- -----------
INCOME BEFORE INCOME TAX................................................... 105,578 86,112 58,763
INCOME TAX EXPENSE
Current.................................................................. 37,586 33,039 19,475
Deferred................................................................. (4,731) (3,082) (2,082)
----------- ----------- -----------
32,855 29,957 17,393
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST............................................ 72,723 56,155 41,370
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARIES............... 90
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.......... 72,723 56,155 41,280
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (NET OF INCOME TAX:
$542)..................................................................... 1,053
----------- ----------- -----------
NET INCOME................................................................. $ 72,723 $ 56,155 $ 40,227
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1994-$3,698,370;
1993-$2,985,670)............................................................. $3,493,646 $3,051,292
Equity securities, at market (cost: 1994-$45,958; 1993-$33,331)............... 45,005 40,596
Mortgage loans on real estate................................................. 1,488,495 1,408,444
Investment real estate, net of accumulated depreciation (1994-$695;
1993-$3,126)................................................................. 20,170 21,928
Policy loans.................................................................. 147,608 141,136
Other long-term investments................................................... 50,751 22,760
Short-term investments........................................................ 54,683 79,772
---------- ----------
Total investments........................................................... 5,300,358 4,765,928
Cash............................................................................ 23,951
Accrued investment income....................................................... 55,630 51,330
Accounts and premiums receivable, net of allowance for uncollectible
amounts (1994-$2,464; 1993-$5,024)............................................. 28,928 20,473
Reinsurance receivables......................................................... 122,175 102,559
Deferred policy acquisition costs............................................... 434,200 299,307
Property and equipment, net..................................................... 33,185 33,046
Receivables from related parties................................................ 281 382
Other assets.................................................................... 11,802 7,473
Assets related to separate accounts............................................. 124,145 3,400
---------- ----------
$6,110,704 $5,307,849
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims............................................. $1,694,295 $1,380,845
Unearned premiums............................................................. 103,479 88,785
---------- ----------
1,797,774 1,469,630
Guaranteed investment contract deposits......................................... 2,281,673 2,015,075
Annuity deposits................................................................ 1,251,318 1,005,742
Other policyholders' funds...................................................... 144,461 141,975
Other liabilities............................................................... 94,181 74,375
Accrued income taxes............................................................ (4,699) 7,483
Deferred income taxes........................................................... (14,667) 69,118
Short-term debt................................................................. -- 20
Long-term debt.................................................................. -- 98
Indebtedness to related parties................................................. 39,443 48,943
Liabilities related to separate accounts........................................ 124,145 3,400
---------- ----------
Total liabilities......................................................... 5,713,629 4,835,859
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
REDEEMABLE PREFERRED STOCK, $1.00 par value, at redemption value
Shares authorized and issued: 2,000............................................ 2,000 2,000
---------- ----------
STOCKHOLDER'S EQUITY
Common Stock, $1.00 par value................................................... 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital...................................................... 126,494 126,494
Net unrealized gains on investments (Net of income tax: 1994-$(57,902);
1993-$19,774).................................................................. (107,532) 39,284
Retained earnings............................................................... 377,049 305,176
Note receivable from PLC Employee Stock Ownership Plan.......................... (5,936) (5,964)
---------- ----------
Total stockholder's equity................................................ 395,075 469,990
---------- ----------
$6,110,704 $5,307,849
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET NOTE
ADDITIONAL UNREALIZED RECEIVABLE TOTAL
COMMON PAID-IN GAINS (LOSSES) RETAINED FROM PLC STOCKHOLDER'S
STOCK CAPITAL ON INVESTMENTS EARNINGS ESOP EQUITY
------ ---------- --------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991................... $5,000 $ 84,737 $ 3,981 $211,013 $ (6,263) $ 298,468
Net income for 1992........................ 40,227 40,227
Common dividends ($.38 per share).......... (1,904) (1,904)
Preferred dividends ($675 per share)....... (1,350) (1,350)
Decrease in net unrealized gains on
investments............................... (825) (825)
Sale of PLC Stock to PLC
ESOP (728 shares)......................... 16 16
Sale of PLC Stock to PLC (39,688 shares)... 643 643
Transfer of assets from PLC................ 98 98
Decrease in note receivable from PLC
ESOP...................................... 143 143
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1992................... 5,000 85,494 3,156 247,986 (6,120) 335,516
Net income for 1993........................ 56,155 56,155
Preferred dividends ($750 per share)....... (1,500) (1,500)
Transfer of Southeast Health Plan, Inc.
common stock to PLC....................... 2,535 2,535
Increase in net unrealized gains on
investments............................... 36,128 36,128
Capital contribution from PLC.............. 41,000 41,000
Decrease in note receivable from PLC
ESOP...................................... 156 156
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1993................... 5,000 126,494 39,284 305,176 (5,964) 469,990
Net income for 1994........................ 72,723 72,723
Preferred dividends ($425 per share)....... (850) (850)
Decrease in net unrealized gains on
investments............................... (146,816) (146,816)
Decrease in note receivable from PLC
ESOP...................................... 28 28
------ ---------- --------------- -------- ---------- -------------
$5,000 $ 126,494 $ (107,532) $377,049 $ (5,936) $ 395,075
------ ---------- --------------- -------- ---------- -------------
------ ---------- --------------- -------- ---------- -------------
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... $ 72,723 $ 56,155 $ 40,227
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition
costs............................................. 88,089 73,335 48,403
Capitalization of deferred policy acquisition
costs............................................. (127,566) (92,935) (81,160)
Depreciation expense............................... 4,280 2,660 2,974
Deferred income taxes.............................. (4,731) 16,987 (3,280)
Accrued income taxes............................... (12,182) 5,040 2,368
Interest credited to universal life and investment
products.......................................... 260,081 220,772 173,658
Policy fees assessed on universal life and
investment products............................... (85,532) (67,314) (46,383)
Change in accrued investment income and other
receivables....................................... (32,242) (91,864) (2,135)
Change in policy liabilities and other policyholder
funds of traditional life and health products..... 61,322 47,212 4,307
Change in other liabilities........................ 18,564 11,970 6,230
Other (net)........................................ (1,475) 10,517 (3,377)
---------- ---------- ----------
Net cash provided by operating activities.............. 241,331 192,535 141,832
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments:
Investments available for sale..................... 386,498
Other.............................................. 153,945 1,319,590 881,795
Sale of investments:
Investment available for sale...................... 630,095
Other.............................................. 59,550 244,683 338,850
Cost of investments acquired:
Investments available for sale..................... (1,807,658)
Other.............................................. (220,839) (2,320,628) (1,997,470)
Acquisitions and bulk reinsurance assumptions........ 106,435 14,170 23,274
Principal payments on subordinated debenture of
PLC................................................. 3,678
Purchase of property and equipment................... (4,889) (3,451) (2,679)
Sale of property and equipment....................... 470 1,817 181
---------- ---------- ----------
Net cash used in investing activities.................. (696,393) (743,819) (752,371)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing under line of credit
arrangements and long-term debt..................... 572,586 574,423 297,300
Proceeds from borrowing from PLC..................... 4,700
Proceeds from surplus note to PLC.................... 35,000 15,000
Capital contribution from PLC........................ 41,000
Principal payments on line of credit arrangements and
long-term debt...................................... (572,704) (577,767) (297,331)
Principal payment on surplus note to PLC............. (9,500) (22,500) (4,500)
Dividends to stockholder............................. (850) (1,500) (3,254)
Investment product deposits and change in universal
life deposits....................................... 1,417,980 1,198,263 871,251
Investment product withdrawals....................... (976,401) (683,251) (263,530)
---------- ---------- ----------
Net cash provided by financing activities.............. 431,111 563,668 619,636
---------- ---------- ----------
INCREASE(DECREASE) IN CASH............................. (23,951) 12,384 9,097
CASH AT BEGINNING OF YEAR.............................. 23,951 11,567 2,470
---------- ---------- ----------
CASH AT END OF YEAR.................................... $ 0 $ 23,951 $ 11,567
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on notes and mortgages payable............ $ 5,029 $ 3,803 $ 326
Income taxes....................................... $ 49,765 $ 27,432 $ 17,278
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Minority interest in consolidated subsidiary......... $ (1,311) $ 90
Sale of PLC stock to PLC............................. $ 643
Sale of PLC stock to ESOP............................ $ 16
Reduction of principal on note from ESOP............. $ 28 $ 156 $ 143
Acquisitions and bulk reinsurance assumptions
Assets acquired.................................... $ 117,349 $ 423,140 $ 103,557
Liabilities assumed................................ (166,595) (429,580) (130,008)
---------- ---------- ----------
Net................................................ $ (49,246) $ (6,440) $ (26,451)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life
Insurance Company and subsidiaries ("Protective") 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.)
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its
wholly-owned subsidiaries including Wisconsin National Life Insurance Company
("Wisconsin National") and American Foundation Life Insurance Company ("American
Foundation"). Protective is a wholly-owned subsidiary of Protective Life
Corporation ("PLC"), an insurance holding company.
Additionally, the financial statements include the accounts of
majority-owned subsidiaries. The ownership interest of the other stockholders of
these subsidiaries is called a minority interest and is reported as a liability
of Protective and as an adjustment to income.
PLC has from time to time merged other life insurance companies it has
acquired (or formed) into Protective. Acquisitions have been accounted for as
purchases by PLC. The results of such mergers have been included in the
accompanying financial statements as if the mergers into Protective had occurred
on the dates the merged companies were acquired (or formed) by PLC. Such mergers
into Protective have been accounted for in a manner similar to that in
pooling-of-interests accounting.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1992, Protective adopted Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS No. 106 was accounted for as a change in accounting principle
with the cumulative effect reported as a reduction to income.
Protective adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," at December 31, 1993, which requires Protective to carry
its investment in fixed maturities and certain other securities at market value
instead of amortized cost. As prescribed by SFAS No. 115, these investments are
recorded at their market values with the resulting unrealized gains and losses,
net of income tax, reported as a component of stockholder's equity reduced by a
related adjustment to deferred policy acquisition costs. 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 Protective's operations,
its reported stockholder's equity will fluctuate significantly as interest rates
change.
In 1994, Protective adopted SFAS No. 119 "Disclosure about Derivative
Financial Instruments and Fair Values of Financial Instruments," which requires
additional disclosures related to derivative financial instruments. Also, in
1994, Protective adopted new disclosure requirements required by Statement of
Position 94-4 of the Accounting Standards Division of the American Institute of
Certified Public Accountants concerning disclosures related to Protective's
liability for unpaid claims. The adoption of these accounting standards had no
effect on Protective's financial statements.
INVESTMENTS
For purposes of adopting SFAS No. 115 Protective has classified all of its
investments in fixed maturities, equity securities, and short-term investments
as "available for sale."
F-14
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments are reported on the following bases less allowances for
uncollectible amounts on investments, if applicable:
- Fixed maturities (bonds, bank loan participations, and redeemable
preferred stocks) -- at current market value.
- Equity securities (common and nonredeemable 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.
- 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.
- Other long-term investments -- at a variety of methods similar to those
listed above, as deemed appropriate for the specific investment.
- 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 and include approximately $9.7 million in bank
deposits voluntarily restricted as to withdrawal.
Protective'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>
1994 1993
------------- -------------
<S> <C> <C>
Total investments............................................... $ 5,499,511 $ 4,693,041
Deferred policy acquisition costs............................... 400,480 311,757
All other assets................................................ 376,146 242,614
------------- -------------
$ 6,276,137 $ 5,247,412
------------- -------------
------------- -------------
Deferred income taxes........................................... $ 43,235 $ 47,965
All other liabilities........................................... 5,728,296 4,766,741
------------- -------------
5,771,531 4,814,706
Redeemable preferred stock...................................... 2,000 2,000
Stockholder's equity............................................ 502,606 430,706
------------- -------------
$ 6,276,137 $ 5,247,412
------------- -------------
------------- -------------
</TABLE>
Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.
DERIVATIVE FINANCIAL INSTRUMENTS
Protective does not use derivative financial instruments for trading
purposes.
Combinations of futures contracts and options on treasury notes are
currently being used as hedges for asset/liability management of certain
investments, primarily mortgage loans on real estate, and liabilities arising
from interest-sensitive products such as guaranteed investment contracts and
F-15
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
individual annuities. Realized investment gains and losses on such contracts are
deferred and amortized over the life of the hedged asset. Net realized gains of
$7.9 million were deferred in 1994. At December 31, 1994, open futures contracts
with a notional amount of $137.5 million were in a $0.4 million net unrealized
loss position.
Protective uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1994, related open
interest rate swap contracts with a notional amount of $230.0 million were in an
$8.9 million net unrealized loss position. At December 31, 1993, related open
interest rate swap contracts with a notional amount of $245.0 million were in a
$9.0 million net unrealized gain position.
CASH
Cash includes all demand deposits reduced by the amount of outstanding
checks and drafts.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost. Protective uses both
accelerated and straight-line methods of depreciation based upon the estimated
useful lives of the assets. Major repairs or improvements are capitalized and
depreciated over the estimated useful lives of the assets. Other repairs are
expensed as incurred. The cost and related accumulated depreciation of property
and equipment sold or retired are removed from the accounts, and resulting gains
or losses are included in income.
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Home office building................................................... $ 35,321 $ 35,284
Other, principally furniture and equipment............................. 25,687 21,576
--------- ---------
61,008 56,860
Accumulated depreciation............................................... 27,823 23,814
--------- ---------
$ 33,185 $ 33,046
--------- ---------
--------- ---------
</TABLE>
SEPARATE ACCOUNTS
Protective operates separate accounts, some in which Protective bears the
investment risk and others in which the investments risk rests with the
contractholder. The assets and liabilities related to separate accounts in which
Protective does not bear the investment risk are valued at market and reported
separately as assets and liabilities related to separate accounts in the
accompanying consolidated financial statements.
REVENUES, BENEFITS, CLAIMS, AND EXPENSES
- 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 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.
F-16
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Protective'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 Protective 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>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Balance beginning of year.............................. $ 77,191 $ 68,203 $ 49,851
Less reinsurance..................................... 3,973 3,809 3,685
----------- ----------- -----------
Net balance beginning of year.......................... 73,218 64,394 46,166
----------- ----------- -----------
Incurred related to:
Current year........................................... 203,453 194,394 178,604
Prior year............................................. (6,683) (5,123) 5,753
----------- ----------- -----------
Total incurred..................................... 196,770 189,271 184,357
----------- ----------- -----------
Paid related to:
Current year........................................... 148,548 141,361 127,859
Prior year............................................. 47,002 39,086 38,270
----------- ----------- -----------
Total paid......................................... 195,550 180,447 166,129
----------- ----------- -----------
Net balance end of year................................ 74,438 73,218 64,394
Plus reinsurance..................................... 5,024 3,973 3,809
----------- ----------- -----------
Balance end of year.................................... $ 79,462 $ 77,191 $ 68,203
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, guaranteed investment
contracts, 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 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 3.0% to 9.4%
in 1994.
At December 31, 1994, Protective estimates the fair value of its
guaranteed investment contracts to be $2,200 million using discounted cash
flows. The surrender value of Protective's annuities which approximates
fair value was $1,221 million.
- 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
F-17
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
insurance acquisition costs are 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 being amortized over the lives
of the policies in relation to the present value of estimated gross
profits from surrender charges and investment, mortality, and expense
margins. Additionally, relating to SFAS No. 115, these costs have been
adjusted by an amount equal to the amortization that would have been
recorded if unrealized gains or losses on investments associated with
Protective's universal life and investment products had been realized.
At the time it adopted 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," Protective made certain assumptions
regarding the mortality, persistency, expenses, and interest rates it
expected to experience in future periods. Under SFAS No. 97, these
assumptions are to be best estimates and are to be periodically updated
whenever actual experience and/or expectations for the future change from
initial assumptions. Accordingly, Protective has substituted its actual
experience to date for that previously 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, discounted at interest rates averaging 15%. For
acquisitions occurring after 1988, Protective amortizes the present value
of future profits over the premium payment period including accrued
interest at 8%. The unamortized present value of future profits for such
acquisitions was approximately $84.4 million and $39.4 million at December
31, 1994 and 1993, respectively. During 1994 $56.0 million of present
value of future profits on acquisitions made during the year was
capitalized, and $11.0 million was amortized. The unamortized present
value of future profits for all acquisitions was $110.3 million at
December 31, 1994 and $69.9 million at December 31, 1993.
PARTICIPATING POLICIES
Participating business comprises approximately 4% of the individual life
insurance in force and 4% of the individual life insurance premium income.
Policyholder dividends totaled $2.6 million in 1994, 1993, and 1992.
INCOME TAXES
Protective 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 income determined for financial
reporting purposes and 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 reclassifications 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 stockholder's equity.
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principals ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by
F-18
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES (CONTINUED)
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 stockholder's equity, (e) furniture and equipment,
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.
F-19
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES (CONTINUED)
The reconciliations of net income and stockholder's equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<TABLE>
<CAPTION>
NET INCOME STOCKHOLDER'S EQUITY
------------------------------- -----------------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory reporting
practices:
Protective Life Insurance Company........ $ 54,812 $ 41,471 $ 25,138 $ 304,858 $ 263,075 $ 206,476
Wisconsin National Life Insurance
Company................................. 10,132 9,591 57,268 50,885
American Foundation Life Insurance
Company................................. 3,072 1,415 2,155 20,327 18,290 18,394
Capital Investors Life Insurance
Company................................. 170 207 1,125 824
Empire General Life Assurance
Corporation............................. 690 408 (201) 21,270 10,588 5,178
National Deposit Life Insurance
Company1................................ 5,386
Protective Life Insurance Acquisition
Corporation2............................ 22
Protective Life Insurance Corporation of
Alabama................................. 69 16 2,133 2,064
Consolidation elimination................ 30 (74) (100,123) (80,651) (21,572)
--------- --------- --------- ----------- ---------- ----------
68,945 53,138 32,426 306,858 265,075 208,476
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net of
amortization............................ 41,718 25,686 33,476 434,200 299,307 274,923
Policy liabilities and accruals.......... (34,632) (15,586) (26,486) (140,298) (69,844) (45,583)
Deferred income tax...................... 4,731 3,081 2,082 14,667 (69,118) (51,842)
Asset Valuation Reserve.................. 24,925 43,398 25,341
Interest Maintenance Reserve............. (1,716) (1,432) (93) 3,583 10,489 1,634
Nonadmitted items........................ 21,445 7,742 (10,178)
Timing differences on mortgage loans on
real estate and fixed maturity
investments............................. (961) 1,645 1,296 6,877 7,350 (11,608)
Net unrealized gains and losses on
investments, net of income tax.......... (107,532) 39,284 3,156
Realized investment losses............... (6,664) (7,860) (2,565)
Noninsurance affiliates.................. (12) 934 31 (2,535)
Consolidation elimination................ (4,415) (2,107) (5,310) (162,835) (65,620) (53,450)
Minority interest in consolidated
subsidiaries............................ (90) (1,311)
Other adjustments, net................... 5,717 (398) 4,557 (4,815) 1,896 (1,507)
--------- --------- --------- ----------- ---------- ----------
In conformity with generally accepted
accounting principles................... $ 72,723 $ 56,155 $ 40,227 $ 397,075 $ 469,990 $ 335,516
--------- --------- --------- ----------- ---------- ----------
--------- --------- --------- ----------- ---------- ----------
<FN>
- --------------------------
(1) Merged into Protective in September 1992.
(2) Formed to facilitate Protective's acquisition of Employers National Life
Insurance Company. See Note F.
</TABLE>
F-20
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturities....................................... $ 237,264 $ 211,566 $ 174,051
Equity securities...................................... 2,435 1,519 939
Mortgage loans on real estate.......................... 141,751 130,262 108,128
Investment real estate................................. 1,950 2,119 1,848
Policy loans........................................... 8,397 7,558 6,781
Other, principally short-term investments.............. 35,062 18,779 3,799
----------- ----------- -----------
426,859 371,803 295,546
Investment expenses.................................... 17,926 17,638 20,555
----------- ----------- -----------
$ 408,933 $ 354,165 $ 274,991
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- ---------- ---------
<S> <C> <C> <C>
Fixed maturities.......................................... $ (8,646) $ 10,508 $ 8,163
Equity securities......................................... 7,735 2,230 3,688
Mortgage loans and other investments...................... 7,209 (7,684) (12,005)
--------- ---------- ---------
$ 6,298 $ 5,054 $ (154)
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $35.2 million at December 31, 1994 and 1993.
Additions to the allowance are included in realized investment losses. Without
such additions, Protective had realized investment gains of $6.3 million, $13.8
million, and $9.5 million in 1994, 1993, and 1992, respectively.
In 1994, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $15.2 million and
gross losses were $16.4 million. In 1993, gross gains were $8.3 million and
gross losses were less than $0.4 million. In 1992, gross gains on the sale of
fixed maturities were $12.8 million and gross losses were $1.7 million.
F-21
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of Protective's investments
classified as available for sale at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
1994 COST GAINS LOSSES MARKET VALUES
- -------------------------------------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities........ $ 2,002,842 $ 7,538 $ 112,059 $ 1,898,321
United States Government and
authorities...................... 90,468 290 8,877 81,881
States, municipalities, and
political subdivisions........... 10,902 5 1,230 9,677
Public utilities.................. 414,011 1,091 36,982 378,120
Convertibles and bonds with
warrants......................... 687 0 302 385
All other corporate bonds......... 927,779 3,437 56,788 874,428
Bank loan participations............ 244,881 0 0 244,881
Redeemable preferred stocks......... 6,800 37 884 5,953
------------- ---------- ---------- -------------
3,698,370 12,398 217,122 3,493,646
Equity securities..................... 45,958 3,994 4,947 45,005
Short-term investments................ 54,683 0 0 54,683
------------- ---------- ---------- -------------
$ 3,799,011 $ 16,392 $ 222,069 $ 3,593,334
------------- ---------- ---------- -------------
------------- ---------- ---------- -------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
1993 COST GAINS LOSSES MARKET VALUES
- --------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities......... $ 1,531,012 $ 31,532 $ 957 $ 1,561,587
United States Government and
authorities....................... 89,372 2,818 0 92,190
States, municipalities, and
political subdivisions............ 15,024 133 2 15,155
Public utilities................... 339,613 4,262 252 343,623
Convertibles and bonds with
warrants.......................... 1,421 0 167 1,254
All other corporate bonds.......... 822,505 28,799 688 850,616
Bank loan participations............. 151,278 0 0 151,278
Redeemable preferred stocks.......... 35,445 226 82 35,589
------------- ----------- ----------- -------------
2,985,670 67,770 2,148 3,051,292
Equity securities...................... 33,331 8,560 1,295 40,596
Short-term investments................. 79,772 0 0 79,772
------------- ----------- ----------- -------------
$ 3,098,773 $ 76,330 $ 3,443 $ 3,171,660
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
F-22
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
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
COST MARKET VALUES
------------- -------------
<S> <C> <C>
1994
- ---------------------------------------------------------------------
Due in one year or less............................................ $ 577,146 $ 540,223
Due after one year through five years.............................. 1,351,435 1,299,248
Due after five years through ten years............................. 994,994 929,764
Due after ten years................................................ 774,795 724,411
------------- -------------
$ 3,698,370 $ 3,493,646
------------- -------------
------------- -------------
1993
- ---------------------------------------------------------------------
Due in one year or less............................................ $ 517,179 $ 524,100
Due after one year through five years.............................. 1,118,089 1,142,613
Due after five years through ten years............................. 777,058 797,093
Due after ten years................................................ 573,344 587,486
------------- -------------
$ 2,985,670 $ 3,051,292
------------- -------------
------------- -------------
</TABLE>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1994 1993
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
AAA......................................................... 57.6% 52.5%
AA.......................................................... 5.5 7.8
A........................................................... 12.5 15.1
BBB
Bonds..................................................... 14.9 16.2
Bank loan participations.................................. 1.4 1.0
BB or Less
Bonds..................................................... 2.3 2.2
Bank loan participations.................................. 5.6 4.0
Redeemable preferred stocks................................. 0.2 1.2
------ ------
100.0% 100.0%
------ ------
------ ------
</TABLE>
At December 31, 1994 and 1993, Protective had bonds which were rated less
than investment grade of $82.5 million and $67.3 million, respectively, having
an amortized cost of $89.4 million and $66.7 million, respectively.
Additionally, Protective had bank loan participations which were rated less than
investment grade of $195.1 million and $121.7 million, respectively, having an
amortized cost of $195.1 million and $121.7 million, respectively.
F-23
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The change in unrealized gains (losses), net of income tax, on fixed
maturity and equity securities for the years ended December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------ --------- ---------
<S> <C> <C> <C>
Fixed maturities............................................. $ (175,723) $ 1,198 $ 76
Equity securities............................................ $ (5,342) $ 1,565 $ (825)
</TABLE>
At December 31, 1994, all of Protective's mortgage loans were commercial
loans of which 79% were retail, 8% were warehouses, and 7% were office
buildings. Protective 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 5% of mortgage loans. Approximately 84% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: Alabama, South Carolina, Tennessee, Texas,
Georgia, North Carolina, Florida, Mississippi, Virginia, California, Colorado,
Louisiana, Illinois, Ohio, Kentucky, and Indiana.
Many of the mortgage loans have call provisions after five to seven years.
Assuming the loans are called at their next call dates, approximately $107.9
million would become due in 1995, $478.0 million in 1996 to 1999, and $233.9
million in 2000 to 2004.
At December 31, 1994, the average mortgage loan was $1.5 million, and the
weighted average interest rate was 9.6%. The largest single mortgage loan was
$11.9 million. While Protective's mortgage loans do not have quoted market
values, at December 31, 1994 and 1993, Protective estimates the market value of
its mortgage loans to be $1,535.3 million and $1,524.2 million, respectively,
using discounted cash flows from the next call date.
At December 31, 1994 and 1993, Protective's problem mortgage loans and
foreclosed properties totaled $24.0 million and $27.1 million, respectively.
Protective expects no significant loss of principal.
Certain investments, principally real estate, with a carrying value of $6.7
million were nonincome producing for the twelve months ended December 31, 1994.
Mortgage loans to Fletcher Bright and Edens & Avant, totaling $99.4 million
and $65.6 million, respectively, exceeded ten percent of stockholder's equity at
December 31, 1994.
Mortgage-backed securities consist primarily of sequential and planned
amortization class (PAC) securities. Mortgage-backed securities issued by
Independent National Mortgage Corporation totaling $54.9 million exceeded ten
percent of stockholder's equity at December 31, 1994.
Protective 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. Policy loan interest rates generally
range from 4.5% to 8.0%. The fair values of Protective's other long-term
investments approximate cost.
F-24
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax
income..................................................... 35.0% 35.0% 34.0%
Amortization of nondeductible goodwill...................... 0.4
Dividends received deduction and tax-exempt interest........ (0.4) (0.5) (1.0)
Low-income housing credit................................... (0.7)
Tax benefits arising from prior acquisitions and other
adjustments................................................ (2.8) (1.1) (3.8)
------ ------ ------
Effective income tax rate................................... 31.1% 33.4% 29.6%
------ ------ ------
------ ------ ------
</TABLE>
In August 1993, the corporate income tax rate was increased from 34% to 35%
which resulted in a one-time increase to income tax expense of $1.2 million due
to a recalculation of Protective's deferred income tax liability. The effective
income tax rate for 1993 of 33.4% excludes the one-time increase.
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>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs......................... $ 34,561 $ 8,861 $ 7,351
Benefit and other policy liability changes................ (52,288) (10,416) (9,005)
Temporary differences of investment income................ 15,524 336
Other items............................................... (2,528) (1,527) (764)
---------- ---------- ---------
$ (4,731) $ (3,082) $ (2,082)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
----------- ---------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves......................... $ 116,326 $ 25,123
Unrealized loss on investments..................................... 23,485
Other.............................................................. 4,484
----------- ---------
139,811 29,607
----------- ---------
Deferred income tax liabilities:
Deferred policy acquisition costs.................................. 113,760 79,199
Unrealized gain on investments..................................... 19,526
Other.............................................................. 11,384
----------- ---------
125,144 98,725
----------- ---------
Net deferred income tax liability.................................. $ (14,667) $ 69,118
----------- ---------
----------- ---------
</TABLE>
F-25
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
Under pre-1984 life insurance company income tax laws, a portion of
Protective's gain from operations which was not subject to current income
taxation was accumulated for income tax purposes in a memorandum account
designated as Policyholders' Surplus. The aggregate accumulation in this account
at December 31, 1994 was approximately $50.7 million. Should the accumulation in
the Policyholders' Surplus account exceed certain stated maximums, or should
distributions including cash dividends be made to PLC in excess of approximately
$248 million, such excess would be subject to federal income taxes at rates then
effective. Deferred income taxes have not been provided on amounts designated as
Policyholders' Surplus. Protective does not anticipate involuntarily paying
income tax on amounts in the Policyholders' Surplus accounts.
At December 31, 1994 Protective has no material unused income tax loss
carryforwards.
Protective'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.
NOTE E -- DEBT
Short-term and long-term debt at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Short-term debt:
Current portion of mortgage and other notes payable................................... None $ 20
--------- ---
--------- ---
Long-term debt:
Mortgage and other notes payable less current portion................................. None $ 98
--------- ---
--------- ---
</TABLE>
At December 31, 1994, PLC had borrowed under a term note that contains,
among other provisions, requirements for maintaining certain financial ratios,
and restrictions on indebtedness incurred by PLC's subsidiaries including
Protective. Additionally, PLC, on a consolidated basis, cannot incur debt in
excess of 50% of its total capital.
Included in indebtedness to related parties are three surplus debentures
issued by Protective to PLC. At December 31, 1994, the balance of the three
surplus debentures combined was $39.4 million.
Interest expense totaled $5.0 million, $5.0 million, and $3.3 million, in
1994, 1993, and 1992, respectively.
NOTE F -- ACQUISITIONS
In July 1993, Protective acquired Wisconsin National Life Insurance Company
("Wisconsin National"). Also in 1993, Protective acquired through reinsurance a
block of universal life policies.
In April 1994, Protective acquired through reinsurance a block of payroll
deduction policies. In October 1994, Protective acquired through reinsurance a
block of individual life insurance policies.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.
Summarized below are the consolidated results of operations for 1993 and
1992, on an unaudited pro forma basis, as if the Wisconsin National acquisition
had occurred as of January 1, 1992. The pro forma information is based on
Protective's consolidated results of operations for 1993 and 1992 and on data
provided by Wisconsin National, after giving effect to certain pro forma
adjustments. The pro
F-26
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE F -- ACQUISITIONS (CONTINUED)
forma financial information does not purport to be indicative of results of
operations that would have occurred had the transaction occurred on the basis
assumed above nor are they indicative of results of the future operations of the
combined enterprises.
<TABLE>
<CAPTION>
1993 1992
----------- -----------
(UNAUDITED)
<S> <C> <C>
Total revenues................................................................ $ 747,157 $ 676,572
Net income.................................................................... $ 58,033 $ 44,109
</TABLE>
NOTE G -- 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. Protective 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 life and health
insurers in the jurisdictions in which Protective does business involving the
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. Some of the lawsuits have resulted in the
award of substantial judgments against the insurer, including material amounts
of punitive damages. In some states, juries have substantial discretion in
awarding punitive damages in these circumstances. Protective and its
subsidiaries, like other life and health insurers, from time to time are
involved in such litigation. To date, no such lawsuit has resulted in the award
of any significant amount of damages against Protective. Among the litigation
currently pending is a class action filed in the state of Alabama concerning the
sale of credit insurance for which a proposed settlement agreement has been
filed with the supervising court for approval. Although the outcome of any
litigation cannot be predicted with certainty, Protective believes that such
litigation will not have a material adverse effect on the financial position of
Protective.
NOTE H -- STOCKHOLDER'S EQUITY AND RESTRICTIONS
At December 31, 1994, approximately $321 million of consolidated
stockholder's equity excluding net unrealized gains and losses represented net
assets of Protective that cannot be transferred in the form of dividends, loans,
or advances to PLC. Generally, the net assets of Protective available for
transfer to PLC are limited to the amounts that Protective's net assets, as
determined in accordance with statutory accounting practices, exceed certain
minimum amounts. However, payments of such amounts as dividends may be subject
to approval by regulatory authorities.
NOTE I -- REDEEMABLE PREFERRED STOCK
PLC owns all of the 2,000 shares of redeemable preferred stock issued by
Protective's subsidiary, American Foundation. The entire issue was reissued in
1991 and will be redeemed September 30, 1996 for $1 thousand per share, or $2
million. The stock pays, when and if declared, annual minimum cumulative
dividends of $50 per share, and noncumulative participating dividends to the
extent American Foundation's statutory earnings for the immediately preceding
fiscal year exceed $1 million. Dividends of $0.9 million, $1.5 million, and $1.4
million were paid to PLC in 1994, 1993, and 1992, respectively.
NOTE J -- RELATED PARTY MATTERS
Receivables from related parties consisted of receivables from affiliates
under control of PLC in the amounts of $0.3 million and $0.4 million at December
31, 1994 and 1993, respectively. Protective
F-27
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE J -- RELATED PARTY MATTERS (CONTINUED)
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.
On August 6, 1990, PLC announced that its Board of Directors approved the
formation of an Employee Stock Ownership Plan ("ESOP"). On December 1, 1990,
Protective transferred to the ESOP 520,000 shares of PLC's common stock held by
it in exchange for a note. The outstanding balance of the note, $5.9 million at
December 31, 1994, is accounted for as a reduction to stockholder's equity. The
stock will be used to match employee contributions to PLC's existing 401(k)
Plan. The ESOP shares are dividend paying. Dividends on the shares are used to
pay the ESOP's note to Protective.
Protective leases furnished office space and computers to affiliates. Lease
revenues were $2.8 million in 1994, $2.8 million in 1993, and $2.6 million in
1992. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $29.8 million, $20.4
million, and $27.5 million in 1994, 1993, and 1992, respectively. Commissions
paid to affiliated marketing organizations of $10.1 million, $5.8 million, and
$4.8 million in 1994, 1993, and 1992, respectively, were included in deferred
policy acquisition costs.
Certain corporations with which PLC's directors were affiliated paid
Protective premiums and policy fees for various types of group insurance. Such
premiums and policy fees amounted to $21.1 million, $10.3 million, and $10.9
million in 1994, 1993, and 1992, respectively.
For a discussion of indebtedness to related parties, see Note E.
NOTE K -- BUSINESS SEGMENTS
Protective operates predominantly in the life and accident and health
insurance industry. The following table sets forth total revenues, income before
income tax, and identifiable assets of Protective's business segments. The
primary components of revenues are premiums and policy fees, net investment
income, and realized investment gains and losses. Premiums and policy fees are
attributed directly to each business segment. Net investment income is allocated
based on directly related assets required for transacting that segment of
business.
Realized investment gains (losses) and 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.
F-28
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- BUSINESS SEGMENTS (CONTINUED)
There are no significant intersegment transactions.
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
TOTAL REVENUES
Acquisitions............................................... $ 170,659 $ 123,855 $ 93,634
Financial Institutions..................................... 107,194 96,443 63,041
Group...................................................... 148,313 143,423 129,778
Guaranteed Investment Contracts............................ 183,591 167,233 138,617
Individual Life............................................ 122,248 111,497 90,516
Investment Products........................................ 79,773 69,550 47,678
Corporate and Other........................................ 12,936 1,521 46,973
Unallocated Realized Investment Gains (Losses)............. 5,266 1,876 (1,589)
------------- ------------- -------------
$ 829,980 $ 715,398 $ 608,648
------------- ------------- -------------
------------- ------------- -------------
Acquisitions............................................... 20.6% 17.3% 15.4%
Financial Institutions..................................... 12.9 13.5 10.4
Group...................................................... 17.9 20.0 21.3
Guaranteed Investment Contracts............................ 22.1 23.4 22.8
Individual Life............................................ 14.7 15.6 14.9
Investment Products........................................ 9.6 9.7 7.8
Corporate and Other........................................ 1.6 0.2 7.7
Unallocated Realized Investment Gains (Losses)............. 0.6 0.3 (0.3)
------------- ------------- -------------
100.0% 100.0% 100.0%
------------- ------------- -------------
------------- ------------- -------------
INCOME BEFORE INCOME TAX
Acquisitions............................................... $ 39,176 $ 29,845 $ 20,031
Financial Institutions..................................... 8,176 7,220 4,669
Group...................................................... 11,169 10,435 7,762
Guaranteed Investment Contracts............................ 33,197 27,218 18,266
Individual Life............................................ 17,223 20,324 12,976
Investment Products........................................ 107 3,402 4,191
Corporate and Other*....................................... (8,736) (14,208) (7,543)
Unallocated Realized Investment Gains (Losses)............. 5,266 1,876 (1,589)
------------- ------------- -------------
$ 105,578 $ 86,112 $ 58,763
------------- ------------- -------------
------------- ------------- -------------
Acquisitions............................................... 37.1% 34.6% 34.1%
Financial Institutions..................................... 7.7 8.4 7.9
Group...................................................... 10.6 12.1 13.2
Guaranteed Investment Contracts............................ 31.5 31.6 31.1
Individual Life............................................ 16.3 23.6 22.1
Investment Products........................................ 0.1 4.0 7.1
Corporate and Other........................................ (8.3) (16.5) (12.8)
Unallocated Realized Investment Gains (Losses)............. 5.0 2.2 (2.7)
------------- ------------- -------------
100.0% 100.0% 100.0%
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-29
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Acquisitions............................................... $ 1,282,478 $ 1,145,357 $ 599,022
Financial Institutions..................................... 211,652 189,943 145,014
Group...................................................... 215,904 208,790 161,445
Guaranteed Investment Contracts............................ 2,211,079 2,041,463 1,696,786
Individual Life............................................ 752,168 641,992 507,449
Investment Products........................................ 1,160,041 876,691 683,450
Corporate and Other........................................ 277,382 203,613 206,991
------------- ------------- -------------
$ 6,110,704 $ 5,307,849 $ 4,000,157
------------- ------------- -------------
------------- ------------- -------------
Acquisitions............................................... 21.0% 21.6% 15.0%
Financial Institutions..................................... 3.5 3.6 3.6
Group...................................................... 3.5 3.9 4.0
Guaranteed Investment Contracts............................ 36.2 38.5 42.4
Individual Life............................................ 12.3 12.1 12.7
Investment Products........................................ 19.0 16.5 17.1
Corporate and Other........................................ 4.5 3.8 5.2
------------- ------------- -------------
100.0% 100.0% 100.0%
------------- ------------- -------------
------------- ------------- -------------
<FN>
- ------------------------
* Income before income tax for the Corporate and Other segment has not been
reduced by pretax minority interest of $90 in 1992.
</TABLE>
NOTE L -- EMPLOYEE BENEFIT PLANS
PLC has a defined benefit pension plan covering substantially all of its
employees. The plan is not separable by affiliates participating in the plan.
However, approximately 80% of the participants in the plan are employees of
Protective. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. PLC's funding policy is
to contribute amounts to the plan sufficient to meet the minimum funding
requirements of ERISA plus such additional amounts as PLC may determine to be
appropriate from time to time. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future.
The actuarial present value of benefit obligations and the funded status of
the plan taken as a whole at December 31 is as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $11,992 in 1994 and
$12,406 in 1993................................................................. $ 12,348 $ 12,692
--------- ---------
Projected benefit obligation for service rendered to date........................ $ 20,302 $ 20,480
Plan assets at fair value (group annuity contract with Protective)............... 15,679 15,217
--------- ---------
Plan assets less than the projected benefit obligation........................... (4,623) (5,263)
Unrecognized net loss from past experience different from that assumed........... 2,400 2,244
Unrecognized prior service cost.................................................. 905 2,069
Unrecognized net transition asset................................................ (101) (118)
--------- ---------
Net pension liability recognized in balance sheet................................ $ (1,419) $ (1,068)
--------- ---------
--------- ---------
</TABLE>
F-30
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Net pension cost includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year.............. $ 1,433 $ 1,191 $ 970
Interest cost on projected benefit obligation................ 1,520 1,396 1,257
Actual return on plan assets................................. (1,333) (1,270) (1,172)
Net amortization and deferral................................ 210 704 130
--------- --------- ---------
Net pension cost............................................. $ 1,830 $ 2,021 $ 1,185
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective's share of the net pension cost was $1.2 million, $1.5 million,
and $0.8 million, in 1994, 1993, and 1992, respectively.
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate....................................... 8.0% 7.5% 8.0%
Rates of increase in compensation level.............................. 6.0% 5.5% 6.0%
Expected long-term rate of return on assets.......................... 8.5% 8.5% 8.5%
</TABLE>
Assets of the pension plan are included in the general assets of Protective.
Upon retirement, the amount of pension plan assets vested in the retiree is used
to purchase a single premium annuity from Protective in the retiree's name.
Therefore, amounts presented above as plan assets exclude assets relating to
retirees.
PLC also sponsors an unfunded Excess Benefits Plan, which is a nonqualified
plan that provides defined pension benefits in excess of limits imposed by
federal income tax law. At December 31, 1994, the projected benefit obligation
of this plan totaled $4.7 million.
In addition to pension benefits, PLC provides limited health care benefits
to eligible retired employees until age 65. At January 1, 1992, PLC recognized a
$1.6 million accumulated postretirement benefit obligation, of which $0.9
million relates to current retirees and $0.7 million relates to active
employees. The $1.6 million (representing Protective's entire liability for such
benefits), net of $0.5 million tax, was accounted for as a cumulative effect of
a change in accounting principle and shown as a reduction to income. The
postretirement benefit is provided by an unfunded plan. At December 31, 1994,
the liability for such benefits totaled $1.6 million. The expense recorded by
Protective was $0.2 million in 1994, 1993 and 1992. PLC's obligation is not
materially affected by a 1% change in the health care cost trend assumptions
used in the calculation of the obligation.
Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation. This plan is partially funded at a maximum of $50,000 face amount
of insurance.
In 1990, PLC established an Employee Stock Ownership Plan to match employee
contributions to PLC's existing 401(k) Plan. Previously, PLC matched employee
contributions in cash. In 1994, a stock bonus was added to the 401(k) Plan for
employees who are not otherwise under a bonus plan. Expense related to the ESOP
consists of the cost of the shares allocated to participating employees plus the
interest expense on the ESOP's note payable to Protective less dividends on
shares held by the ESOP. At December 31, 1994, PLC had committed 33,250 shares
to be released to fund employee benefits. The expense recorded by PLC for this
employee benefit was $0.6 million, $0.2 million and $0.4 million in 1994, 1993,
and 1992, respectively.
F-31
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE M -- REINSURANCE
Protective 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. While the amount retained on an individual life
will vary based upon age and mortality prospects of the risk, Protective will
not carry more than $500,000 individual life insurance on a single risk.
Protective has reinsured approximately $8.6 billion, $7.5 billion, and $7.0
billion in face amount of life insurance risks with other insurers representing
$46.0 million, $37.9 million, and $34.8 million of premium income for 1994,
1993, and 1992, respectively. Protective has also reinsured accident and health
risks representing $126.5 million, $88.9 million, and $74.6 million of premium
income for 1994, 1993, and 1992, respectively. In 1994 and 1993, policy and
claim reserves relating to insurance ceded of $120.0 million and $97.8 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 Protective. At December 31, 1994 and 1993,
Protective had paid $5.4 million and $4.8 million, respectively, of ceded
benefits which are recoverable from reinsurers.
NOTE N -- ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated market values of Protective's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities................................... $ 3,493,646 $ 3,493,646 $ 3,051,292 $ 3,051,292
Equity securities.................................. 45,005 45,005 40,596 40,596
Mortgage loans on real estate...................... 1,488,495 1,535,300 1,408,444 1,524,200
Short-term investments............................. 54,683 54,683 79,772 79,772
Cash................................................. 23,951 23,951
Other (see Note A):
Futures contracts.................................... (416)
Interest rate swaps.................................. (8,952) 9,038
</TABLE>
F-32
<PAGE>
SCHEDULE I -- SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- -----------------------------------------------------------------------------------------------------------------
AMOUNT AT
WHICH SHOWN
IN BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
- ------------------------------------------------------------------ ------------- ------------- ---------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities.................................... $ 2,002,842 $ 1,898,321 $ 1,898,321
United States Government and government agencies and
authorities.................................................. 90,468 81,881 81,881
States, municipalities, and political subdivisions............ 10,902 9,677 9,677
Public utilities.............................................. 414,011 378,120 378,120
Convertibles and bonds with warrants attached................. 687 385 385
All other corporate bonds..................................... 927,779 874,428 874,428
Bank loan participations........................................ 244,881 244,881 244,881
Redeemable preferred stocks..................................... 6,800 5,953 5,953
------------- ------------- ---------------
TOTAL FIXED MATURITIES...................................... 3,698,370 3,493,646 3,493,646
------------- ------------- ---------------
Equity securities:
Common stocks -- Industrial, miscellaneous, and all other....... 22,768 24,797 24,797
Nonredeemable preferred stocks.................................. 23,190 20,208 20,208
------------- ------------- ---------------
TOTAL EQUITY SECURITIES..................................... 45,958 45,005 45,005
------------- ------------- ---------------
Mortgage loans on real estate..................................... 1,488,495 1,488,495
Investment real estate............................................ 20,170 20,170
Policy loans...................................................... 147,608 147,608
Other long-term investments....................................... 50,751 50,751
Short-term investments............................................ 54,683 54,683
------------- ---------------
TOTAL INVESTMENTS........................................... $ 5,506,035 $ 5,300,358
------------- ---------------
------------- ---------------
</TABLE>
S-1
<PAGE>
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------- -----------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H COL. I
- --------------------------------------------------------------------------------
GIC AND -----------------------------------------------
FUTURE ANNUITY AMORTIZATION
DEFERRED POLICY DEPOSITS PREMIUMS REALIZED BENEFITS OF DEFERRED
POLICY BENEFITS AND OTHER AND NET INVESTMENT AND POLICY
ACQUISITION AND UNEARNED POLICYHOLDERS' POLICY INVESTMENT GAINS SETTLEMENT ACQUISITION
SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES INCOME (1) (LOSSES) EXPENSES COSTS
- -------------------- ----------- ---------- --------- -------------- -------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994:
Acquisitions...... $110,203 $ 856,889 $ 381 $ 266,828 $86,376 $ 83,750 $ 532 $ 97,649 $14,460
Financial
Institutions..... 68,060 43,198 99,798 2,758 98,027 9,164 46,360 36,592
Group............. 22,685 116,324 2,905 84,689 131,096 14,381 98,930 2,724
Guaranteed
Investment
Contracts........ 996 0 0 2,281,674 0 180,591 3,000 147,383 892
Individual Life... 162,186 571,070 320 13,713 84,925 37,319 67,451 18,771
Investment
Products......... 70,053 102,705 0 1,027,527 1,635 80,759 (2,500) 58,424 14,647
Corporate and
Other............ 17 4,109 75 263 713 2,969 913 3
Unallocated
Realized
Investment Gains
(Losses)......... 0 0 0 0 0 0 5,266 0 0
----------- ---------- --------- -------------- -------- ---------- --------- ---------- ------------
TOTAL........... $434,200 $1,694,295 $103,479 $3,677,452 $402,772 $408,933 $6,298 $517,110 $88,089
----------- ---------- --------- -------------- -------- ---------- --------- ---------- ------------
----------- ---------- --------- -------------- -------- ---------- --------- ---------- ------------
Year Ended
December 31, 1993:
Acquisitions...... $ 69,942 $ 705,487 $ 501 $ 259,513 $58,562 $ 65,290 $ 73,463 $ 7,831
Financial
Institutions..... 59,163 39,508 85,042 2,913 87,355 8,921 42,840 31,202
Group............. 20,520 99,412 2,786 83,522 126,027 14,522 101,266 2,272
Guaranteed
Investment
Contracts........ 1,464 0 0 2,015,075 0 166,058 $1,175 137,380 1,170
Individual Life... 129,265 483,604 368 11,762 77,338 34,153 55,972 18,069
Investment
Products......... 18,934 52,516 0 789,668 856 66,691 2,003 49,569 12,788
Corporate and
Other............ 19 318 88 339 1,285 (1,470) 1,146 3
Unallocated
Realized
Investment Gains
(Losses)......... 0 0 0 0 0 0 1,876 0 0
----------- ---------- --------- -------------- -------- ---------- --------- ---------- ------------
TOTAL........... $299,307 $1,380,845 $ 88,785 $3,162,792 $351,423 $354,165 $5,054 $461,636 $73,335
----------- ---------- --------- -------------- -------- ---------- --------- ---------- ------------
----------- ---------- --------- -------------- -------- ---------- --------- ---------- ------------
Year Ended
December 31, 1992:
Acquisitions...... $ 65,868 $ 428,991 $ 655 $ 80,458 $48,068 $ 45,543 $ 56,901 $ 7,404
Financial
Institutions..... 49,684 20,207 71,878 3,246 56,990 6,051 25,342 21,605
Group............. 14,801 66,551 2,422 77,671 112,985 12,620 93,380 1,664
Guaranteed
Investment
Contracts........ 2,256 0 0 1,694,530 0 137,654 $ 962 117,321 1,267
Individual Life... 110,408 382,025 2 8,847 62,776 27,723 49,755 11,493
Investment
Products......... 30,228 27,051 0 626,171 586 46,618 473 37,021 4,485
Corporate and
Other............ 1,678 4,767 220 439 41,731 (1,218) 29,837 485
Unallocated
Realized
Investment Gains
(Losses)......... 0 0 0 0 0 0 (1,589) 0 0
----------- ---------- --------- -------------- -------- ---------- --------- ---------- ------------
TOTAL........... $274,923 $ 929,592 $ 75,177 $2,491,362 $323,136 $274,991 $ (154) $409,557 $48,403
----------- ---------- --------- -------------- -------- ---------- --------- ---------- ------------
----------- ---------- --------- -------------- -------- ---------- --------- ---------- ------------
<CAPTION>
- --------------------
COL. A COL. J
- --------------------
OTHER
OPERATING
SEGMENT EXPENSES (1)
- -------------------- -------------
<S> <C>
Year Ended
December 31, 1994:
Acquisitions...... $ 19,374
Financial
Institutions..... 16,065
Group............. 35,490
Guaranteed
Investment
Contracts........ 2,119
Individual Life... 18,803
Investment
Products......... 6,595
Corporate and
Other............ 20,757
Unallocated
Realized
Investment Gains
(Losses)......... 0
-------------
TOTAL........... $119,203
-------------
-------------
Year Ended
December 31, 1993:
Acquisitions...... $ 12,715
Financial
Institutions..... 15,181
Group............. 29,450
Guaranteed
Investment
Contracts........ 1,466
Individual Life... 17,133
Investment
Products......... 3,790
Corporate and
Other............ 14,580
Unallocated
Realized
Investment Gains
(Losses)......... 0
-------------
TOTAL........... $ 94,315
-------------
-------------
Year Ended
December 31, 1992:
Acquisitions...... $ 9,299
Financial
Institutions..... 11,426
Group............. 26,972
Guaranteed
Investment
Contracts........ 1,763
Individual Life... 16,292
Investment
Products......... 1,980
Corporate and
Other............ 24,193
Unallocated
Realized
Investment Gains
(Losses)......... 0
-------------
TOTAL........... $ 91,925
-------------
-------------
<FN>
- ------------------------------
(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.
</TABLE>
S-2
<PAGE>
SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<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
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Life insurance in force............. $ 40,909,454 $ 8,639,272 $ 8,968,166 $ 41,238,348 21.7%
-------------- ------------- ------------- -------------- ---
-------------- ------------- ------------- -------------- ---
Premiums and policy fees:
Life insurance.................... $ 256,840 $ 46,029 $ 31,032 $ 241,843 12.8%
Accident/health insurance......... 283,883 126,545 3,591 160,929 2.2%
-------------- ------------- ------------- --------------
TOTAL........................... $ 540,723 $ 172,574 $ 34,623 $ 402,772
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Year Ended December 31, 1993:
Life insurance in force............. $ 40,149,017 $ 7,484,566 $ 2,301,577 $ 34,966,028 6.6%
-------------- ------------- ------------- -------------- ---
-------------- ------------- ------------- -------------- ---
Premiums and policy fees:
Life insurance.................... $ 230,706 $ 37,995 $ 8,329 $ 201,040 4.1%
Accident/health insurance......... 254,672 88,917 3,963 169,718 2.3%
-------------- ------------- ------------- --------------
TOTAL........................... $ 485,378 $ 126,912 $ 12,292 $ 370,758
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Year Ended December 31, 1992:
Life insurance in force............. $ 33,811,280 $ 6,982,127 $ 665,733 $ 27,494,886 2.4%
-------------- ------------- ------------- -------------- ---
-------------- ------------- ------------- -------------- ---
Premiums and policy fees:
Life insurance.................... $ 180,018 $ 34,824 $ 16,092 $ 161,286 10.0%
Accident/health insurance......... 228,192 74,531 8,189 161,850 5.1%
-------------- ------------- ------------- --------------
TOTAL........................... $ 408,210 $ 109,355 $ 24,281 $ 323,136
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
</TABLE>
S-3
<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> <C>
1. Resolution of the Board of Directors of Protective Life Insurance
Company authorizing establishment of the Protective Life Variable
Annuity Separate Account**
2. Not applicable
3. (a) Form of Underwriting Agreement among Protective Life
Insurance Company, Investment Distributors, Inc. and the
Protective Life Variable Annuity Separate Account**
(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) Endorsement**
(c) Qualified Retirement Plan Endorsement**
(d) Individual Retirement Annuity Endorsement**
(e) Tax Sheltered Annuity Endorsement**
(f) ERISA Tax-Sheltered Annuity Endorsement**
(g) Section 457 Deferred Compensation Plan Endorsement**
5. Form of Contract Applications**
6. (a) Charter of Protective Life Insurance Company.*
(b) By-Laws of Protective Life Insurance Company.*
7. Not applicable
8. (a) Participation/Distribution Agreement**
9. (a) Opinion and Consent of Lizabeth R. Nichols, Esq.**
10. (a) Consent of Sutherland, Asbill & Brennan
(b) Consent of Coopers & Lybrand L.L.P.
11. No financial statements will be omitted from Item 23
12. Not applicable
13. Not applicable
14. Powers of Attorneys*
</TABLE>
- ------------------------
* Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement, (File No. 33-70984) filed with the Commission on
October 28, 1993.
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement, (File No. 33-70984) filed with the
Commission on February 23, 1994.
C-1
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF DEPOSITOR.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH DEPOSITOR
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Drayton Nabers, Jr. President
John D. Johns Executive Vice President and Chief Financial Officer
R. Stephen Briggs Executive Vice President
Ormond L. Bentley Senior Vice President, Group
Deborah J. Long Senior Vice President and General Counsel
Jim E. Massengale Senior Vice President
Steven A. Schultz Senior Vice President, Financial Institutions
Wayne E. Stuenkel Senior Vice President and Chief Actuary
A.S. Williams, III Senior Vice President, Investments and Treasurer
Judy Wilson Senior Vice President, Guaranteed Investment Contracts
J. Russell Bailey, Jr. Vice President, Group Actuary
Michael B. Ballard Vice President, Individual Life Marketing
Harvey S. Benjamin Vice President, Operations, Investment Products
Danny L. Bentley Vice President, Group Marketing
Richard J. Bielen Vice President, Investments
Linda C. Cleveland Vice President, Acquisition Administration
Chris Calos Vice President, Group Sales
Jerry W. DeFoor Vice President and Controller and Chief Accounting
Officer
James D. Dondero Vice President, Investments
Kenneth A. Eaise Vice President and Chief Underwriter
Brent E. Fritz Vice President, Individual Life, Product Development
James T. Helton III Vice President and Product Actuary
Lawrence G. Merrill Vice President, Investment Products Marketing
Eric A. Miller Vice President, Information Services, Investment
Products
Charles M. Prior Vice President, Investments
T. Michael Presley Vice President and Actuary
Charles H. Wagner Vice President, Financial Institutions
Alan E. Watson Vice President, Individual Life
Thomas W. Willingham Vice President, Individual Life Operations
John K. Wright Vice President, Senior Associate Counsel and Secretary
<FN>
- ------------------------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama 35223.
</TABLE>
C-2
<PAGE>
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 the owners of their common stock (where
applicable), are set forth in the following
See organization chart on following page
C-3
<PAGE>
PROTECTIVE LIFE CORPORATION
ORGANIZATIONAL CHART*
PROTECTIVE LIFE CORPORATION
(Ultimate Controlling Person)
Delaware Corporation
TIN 95-2492236
INVESTMENT DISTRIBUTORS, INC. (TENNESSEE)
Parent Company Owns 100% of Stock TIN 63-1100710
INVESTMENT DISTRIBUTORS ADVISORY SERVICES, INC. (TENNESSEE)
Parent Company Owns 100% of Stock TIN 63-1100711
PES OF MARYLAND, INC. (MARYLAND)
Parent Company Owns 100% of Stock TIN 52-1841605
PES OF OHIO, INC. (OHIO)
Parent Company Owns 100% of Stock TIN 34-1749375
FIRST PROTECTIVE INSURANCE GROUP, INC. (ALABAMA)
Parent Company Owns 100% of Stock TIN 63-0846761
HOTEL DEVELOPMENT COMPANY, INC. (ALABAMA)
Parent Company Owns 100% of Stock TIN 63-0938078
PROTECTIVE EQUITY SERVICES, INC. (ALABAMA)
Parent Company Owns 100% of Stock TIN 63-0879387
PROTECTIVE BENEFITS COMMUNICATIONS INC. (MISSOURI)
Parent Company Owns 100% of Stock TIN 43-1199343
PROTECTIVE LIFE INSURANCE COMPANY (TENNESSEE)
Parent Company Owns 100% of Stock TIN 63-0169720 NAIC CO 68136
WISCONSIN NATIONAL LIFE INSURANCE COMPANY (WISCONSIN)
PLIC owns 100% of Stock TIN 39-0714280 NAIC CO 70580
PROTECTIVE LIFE INSURANCE CORPORATION OF ALABAMA (ALABAMA)
PLIC owns 100% of Stock TIN 63-1088714 NAIC CO 62868
EMPIRE GENERAL LIFE ASSURANCE CORPORATION (FORMERLY, NATIONAL OLD LINE
INSURANCE COMPANY (TENNESSEE)
PLIC owns 100% of Stock TIN 63-1073929 NAIC CO 94285
AMERICAN FOUNDATION LIFE INSURANCE COMPANY (ALABAMA)
PLIC owns 100% Voting Stock PLC Owns 100% of Non-Voting Preferred Stock TIN
63-0761690 NAIC CO 88536
PROTECTIVE ASSIGNED BENEFITS COMPANY (FORMERLY) PFC AGENCY OF TEXAS, INC.
(TEXAS)
PLIC owns 100% of Stock TIN 75-2366969
CAPITAL INVESTORS LIFE INSURANCE COMPANY (ARIZONA)
PLIC owns 100% of Stock TIN 56-1407737 NAIC CO 62456
PROTECTIVE INVESTMENT COMPANY (MARYLAND)
PLIC Separate Account will own 100% of Stock TIN 52-1854793
FINANCIAL PROTECTION MARKETING, INC FORMERLY, R. L. HERNDON & ASSOCIATES,
INC. (INDIANA)
Parent Company Owns 100% of Stock TIN 34-1349213
VOLUNTARY BENEFITS INTERNATIONAL, INC. (ALABAMA)
Parent Company Owns 100% of Stock TIN 63-0984208
CENTRAL FINANCIAL CENTER, INC. (LOUISIANA)
Parent Company Owns 100% of Stock TIN 72-1183399
IPD MARKETING SERVICES, INC. (ALABAMA)
Parent Company Owns 100% of Stock TIN 63-1062369
PRODUCT RESOURCE GROUP, INC. (ALABAMA)
Parent Company Owns 100% of Stock TIN 63-1087298
SPECIALTY ASSET MANAGEMENT CORPORATION (DELAWARE)
Parent Company Owns 100% of Stock TIN 52-1836315
PROTECTIVE ASSET MANAGEMENT COMPANY
(Delaware General Partnership) SAMCO has 60% interest
PROTECTIVE LLC HOLDING, INC.
Parent Company Owns 100% of Stock TIN 63-1114345
PLC CAPITAL L.L.C
(Delaware Limited Liability Company) Class A Interest Owned by PLC Class B
Interest Owned by Protective LLC Holding, Inc. TIN 63-1114346
LIPPO PROTECTIVE LIFE INSURANCE COMPANY LIMITED
Parent Company Owns 50% of Stock
C-4
<PAGE>
Item 27. NUMBER OF CONTRACTOWNERS.
As of the date of this filing, there were 5,105 individual flexible premium
deferred variable and fixed annuity contracts that have been issued.
Item 28. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XI of the By-laws of Protective Life provides, in substance, that
any of Protective Life'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 Protective Life, by reason of the fact that he is or was an
officer or director, shall be indemnified by Protective Life 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 Protective
Life 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 Protective Life to procure a judgment in its favor,
such person shall be indemnified by Protective Life 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
Protective Life, 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 Protective
Life 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
Protective Life 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
Protective Life 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-5
<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 Protective Life Variable
Separate Account.
(b)The following information is furnished with respect to the officers and
directors of Investment Distributors, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* POSITION AND OFFICES WITH REGISTRANT
- -------------------------------- ----------------------- ---------------------------------------
<S> <C> <C>
Briggs, Robert Stephen Director Executive Vice President, Director
Wright, John King Director, Secretary Vice President, Senior Associate
Counsel, and Secretary
Nichols, Lizabeth Reynolds Director, Chief Vice President and Senior Associate
Compliance Officer, Counsel
Assistant Secretary
Milligan, Doretta President/CEO, Director None
Bielen, Richard J. Vice President Vice President, Investments
Ballard, Michael B. Director Vice President, Individual Life
Marketing
Merrill, Lawrence G. Director None
Ardrey, J. Kelly Treasurer None
<FN>
- ------------------------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama, 35223.
</TABLE>
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 either 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.
(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
C-6
<PAGE>
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.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Protective Variable Annuity
Separate Account, certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has duly caused
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
3, 1995.
PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT
By: /s/ DRAYTON NABERS, JR.
--------------------------------------
Its: President
PROTECTIVE LIFE INSURANCE COMPANY
By: /s/ DRAYTON NABERS, JR.
--------------------------------------
Drayton Nabers, Jr.
Its: President
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------------------------------- ----------------------------------- ----------------
<S> <C> <C> <C>
(i) Principal Executive Officer
/s/ DRAYTON NABERS, JR.
------------------------------------- President April 3, 1995
Drayton Nabers, Jr.
(ii) Principal Financial Officer
/s/ JOHN D. JOHNS
------------------------------------- Executive Vice President and Chief April 3, 1995
John D. Johns Financial Officer
(iii) Principal Accounting Officer
/s/ JERRY W. DEFOOR
------------------------------------- Vice President and Controller, and April 3, 1995
Jerry W. DeFoor Chief Accounting Officer
(iv) Board of Directors:
/s/ DRAYTON NABERS, JR.
------------------------------------- Director April 3, 1995
Drayton Nabers, Jr.
/s/ JOHN D. JOHNS
------------------------------------- Director April 3, 1995
John D. Johns
*
------------------------------------- Director April 3, 1995
Ormond L. Bentley
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------------------------------- ----------------------------------- ----------------
<S> <C> <C> <C>
*
------------------------------------- Director April 3, 1995
R. Stephen Briggs
*
------------------------------------- Director April 3, 1995
Jim E. Massengale
*
------------------------------------- Director April 3, 1995
Wayne E. Stuenkel
*
------------------------------------- Director April 3, 1995
A. S. Williams III
*
------------------------------------- Director April 3, 1995
Steven A. Schultz
*
------------------------------------- Director April 3, 1995
Deborah A. Long
*By: /s/ LIZABETH R. NICHOLS
-------------------------------------
Lizabeth R. Nichols
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
FILE NO. 33-70484
FILE NO. 811-8108
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
PROTECTIVE LIFE INSURANCE COMPANY
EXHIBITS
TO
NO. 2
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
(10)(a) Consent of Sutherland, Asbill & Brennan
(10)(b) Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE>
EXHIBIT 10(A)
<PAGE>
SUTHERLAND, ASBILL & BRENNAN
Tel: (202) 383-0100 1275 PENNSYLVANIA AVENUE, N.W. ATLANTA
Fax: (202) 637-3593 WASHINGTON, D.C. 20004-2404 AUSTIN
NEW YORK
WASHINGTON
David S. Goldstein
Direct Line: (202) 383-0606
April 3, 1995
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 2 to the Registration Statement on Form N-4
filed by Protective Life Insurance Company and Protective Variable Annuity
Account 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
By: /s/ Stephen E. Roth
-------------------------
Stephen E. Roth
<PAGE>
EXHIBIT 10(B)
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this Post-Effective Amendment No. 2 to the
Registration Statement under the Investment Company Act of 1940, as amended,
filed on Form N-4 of our report dated February 13, 1995, which includes an
explanatory paragraph with respect to changes in Protective Life Insurance
Company's methods of accounting for certain investments in debt and equity
securities in 1993 and postretirement benefits other than pensions in 1992, on
our audits of the financial statements and financial statement schedules of
Protective Life Insurance Company and subsidiaries. We also consent to the
inclusion of our report dated March 20, 1995 on our audit of the financial
statements of the Protective Variable Annuity Separate Account. We also consent
to the reference to our Firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
April 3, 1995
