AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1998
FILE NO. 333-
FILE NO. 811-8108
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 9 [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)
(205) 879-9230
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------
STEVE M. CALLAWAY, ESQUIRE
PROTECTIVE LIFE INSURANCE COMPANY
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA, 35223
(NAME AND ADDRESS OF AGENT FOR SERVICES)
COPY TO:
STEPHEN E. ROTH, ESQUIRE
SUTHERLAND, ASBILL & BRENNAN
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 383-0158
---------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the registration statement.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A),
SHALL DETERMINE.
TITLE OF SECURITIES BEING REGISTERED: INTERESTS IN A SEPARATE
ACCOUNT ISSUED THROUGH VARIABLE ANNUITY CONTRACTS.
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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.
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
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<S> <C> <C>
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 ............................... Voting Rights
f. Administrators .............................. The Company, Variable Account and Funds
6. Deductions and Expenses ........................ Charges and Deductions
a. General ..................................... N/A
b. Sales Load % ................................ Charges and Deductions
c. Special Purchase Plan ....................... Charges and Deductions
d. Commissions ................................. Distribution of Contracts
e. Fund Expenses ............................... Charges and Deductions -- Fund Expenses
f. Expenses -- Registrant ...................... Charges and Deductions -- Administration Charges
7. General Description of Variable Annuity
Contracts ...................................... The Company, Variable Account and Funds
(i) Allocation of Purchase Payments ............ Description of the Contract
a. Purchase Payments ........................... Description of the Contract
(ii) Transfers ................................. Description of the Contract -- Transfers; Purchase Payments
b. Changes ..................................... The Company, Variable Account and Funds; General Matters
c. Inquiries ................................... Distribution of the Contracts
8. Annuity Options ................................ Annuitization
9. Death Benefit .................................. Death Benefit
10. Purchases and Contract Value ................... Description of the Contract
a. Purchases ................................... Description of the Contract -- Purchase Payments
b. Valuation ................................... Description of the Contract -- Variable Account Value
c. Daily Calculation ........................... Description of the Contract -- Variable Account Value
d. Underwriter ................................. Distribution of Contracts
11. Redemptions .................................... Description of the Contract
a. -- By Owners ................................ Description of the Contract -- Surrenders and Partial Surrenders;
Purchase Payments
-- By Annuitant ............................... Description of the Contract Annuitization Proceeds on Annuity
Commencement Date; Annuity Options
b. Delay in Payment ............................ Description of the Contract -- Suspension or Delay in Payments
c. Lapse ....................................... N/A
d. Free Look Period ............................ Description of the Contract -- Free Look Period
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
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<S> <C> <C>
12. Taxes .................................... Federal Tax Matters
13. Legal Proceedings ........................ Legal Proceedings
APPENDIX
14. Table of Contents in the Statement of
Additional Information ................... Statement 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
Accountant ............................... Safekeeping of Account Assets; 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
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE>
[REDHERRING APPEARS ON LEFT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL, AND IT IS NOT SOLICITING
OFFERS TO BUY, THE SECURITIES DESCRIBED HEREIN. A REGISTRATION STATEMENT
RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THE INFORMATION IN THIS PRELIMINARY PROSPECTUS WILL BE
AMENDED OR COMPLETED BEFORE THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
PRELIMINARY PROSPECTUS DATED DECEMBER 8, 1998.
[ELEMENTS ACCESS LOGO APPEARS HERE]
ISSUED BY
PROTECTIVE LIFE
INSURANCE COMPANY
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
TELEPHONE: 1-800-866-3555
This Prospectus describes the Elements(SM) Access Contract, a group and
individual flexible premium deferred variable and fixed annuity contract
offered by Protective Life Insurance Company. The Contract is designed for
investors who desire to accumulate capital on a tax deferred basis for
retirement or other long term investment purpose. It may be purchased on a
non-qualified basis or for use with certain retirement plans.
You may allocate your Purchase Payments to one or more of the Sub-Accounts
of the Protective Variable Annuity Separate Account, the Guaranteed Account, or
both. The assets of each Sub-Account will be invested solely in a corresponding
Fund of Protective Investment Company, Oppenheimer Variable Account Funds,
MFS(R) Variable Insurance Trust, Calvert Variable Series, Inc., and Van Eck
Worldwide Insurance Trust. The Funds are:
PROTECTIVE INVESTMENT COMPANY OPPENHEIMER VARIABLE ACCOUNT FUNDS
INTERNATIONAL EQUITY FUND AGGRESSIVE GROWTH FUND
SMALL CAP VALUE FUND GLOBAL SECURITIES FUND
CAPITAL GROWTH FUND GROWTH FUND
CORE U.S. EQUITY FUND GROWTH & INCOME FUND
GROWTH AND INCOME FUND HIGH INCOME FUND
GLOBAL INCOME FUND STRATEGIC BOND FUND
MONEY MARKET FUND
MFS VARIABLE INSURANCE TRUST CALVERT VARIABLE SERIES, INC.
NEW DISCOVERY SERIES SOCIAL SMALL CAP GROWTH
EMERGING GROWTH SERIES PORTFOLIO
RESEARCH SERIES SOCIAL BALANCED PORTFOLIO
GROWTH WITH INCOME SERIES
UTILITIES SERIES VAN ECK WORLDWIDE INSURANCE TRUST
TOTAL RETURN SERIES WORLDWIDE HARD ASSETS FUND
WORLDWIDE REAL ESTATE FUND
The value of your Contract, except amounts you allocate to the Guaranteed
Account, will vary according to the investment performance of the Funds in
which the selected Sub-Accounts are invested. You bear the investment risk on
amounts you allocate to the Sub-Accounts.
This Prospectus sets forth basic information about the Contract and the
Variable Account that a prospective investor should know before investing.
Additional information about the Contract and the Variable Account is contained
in the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information is
dated the same date as this Prospectus and is incorporated herein by reference.
The Table of Contents for the Statement of Additional Information is on the
last page of this Prospectus. You may obtain a copy of the Statement of
Additional Information free of charge by writing or calling Protective Life at
the address or telephone number shown above.
PLEASE READ THIS PROSPECTUS CAREFULLY. INVESTORS SHOULD KEEP A COPY FOR
FUTURE REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS
FOR EACH OF THE FUNDS.
THE ELEMENTS(SM) ACCESS CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED BY, ANY BANK OR FINANCIAL INSTITUTION. IT IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY, AND IT IS
SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS ............................................. 3
EXPENSE TABLES .......................................... 4
Examples .............................................. 6
SUMMARY ................................................. 8
The Contract .......................................... 8
Federal Tax Status .................................... 10
CONDENSED FINANCIAL INFORMATION ......................... 10
THE COMPANY, VARIABLE ACCOUNT AND
FUNDS ................................................. 12
Protective Life Insurance Company ..................... 12
Protective Variable Annuity Separate Account .......... 12
Administration ........................................ 12
The Funds ............................................. 12
PIC Funds ............................................. 13
MFS Funds ............................................. 13
Oppenheimer Funds ..................................... 13
Calvert Funds ......................................... 14
Van Eck Funds ......................................... 14
Other Investors in the Funds .......................... 15
Addition, Deletion or Substitution of
Investments ........................................ 15
PIC Money Market Fund Replacement ..................... 16
DESCRIPTION OF THE CONTRACT ............................. 16
The Contract .......................................... 16
Parties to the Contract ............................... 16
Issuance of a Contract ................................ 17
Purchase Payments ..................................... 17
Free Look Period ...................................... 18
Allocation of Purchase Payments ....................... 18
Variable Account Value ................................ 18
Transfers ............................................. 19
Surrenders and Partial Surrenders ..................... 21
THE GUARANTEED ACCOUNT .................................. 22
DEATH BENEFIT ........................................... 22
Standard Death Benefit ................................ 23
Optional Benefit Packages ............................. 23
SUSPENSION OR DELAY IN PAYMENTS ......................... 24
CHARGES AND DEDUCTIONS .................................. 24
Mortality and Expense Risk Charge ..................... 24
Administration Charges ................................ 24
Transfer Fee .......................................... 25
Contract Maintenance Fee .............................. 25
Fund Expenses ......................................... 25
Premium Taxes ......................................... 25
Other Taxes ........................................... 25
PAGE
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ANNUITIZATION ........................................... 25
Annuity Commencement Date ............................. 25
Fixed Income Payments ................................. 26
Variable Income Payments .............................. 26
Annuity Options ....................................... 27
Minimum Amounts ....................................... 27
Death of Annuitant or Owner After Annuity
Commencement Date .................................. 27
YIELDS AND TOTAL RETURNS ................................ 27
FEDERAL TAX MATTERS ..................................... 29
Introduction .......................................... 29
The Company's Tax Status .............................. 29
TAXATION OF ANNUITIES IN GENERAL ........................ 29
Tax Deferral During Accumulation Period ............... 29
Taxation of Partial and Full Surrenders ............... 30
Taxation of Annuity Payments .......................... 30
Taxation of Death Benefit Proceeds .................... 31
Assignments, Pledges, and Gratuitous Transfers 31
Penalty Tax on Premature Distributions ................ 31
Aggregation of Contracts .............................. 31
Loss of Interest Deduction Where Contract Is
Held By or For the Benefit of Certain
Non-Natural Persons ................................ 32
QUALIFIED RETIREMENT PLANS .............................. 32
In General ............................................ 32
Direct Rollovers ...................................... 34
FEDERAL INCOME TAX WITHHOLDING .......................... 35
GENERAL MATTERS ......................................... 35
The Contract .......................................... 35
Error in Age or Gender ................................ 35
Incontestability ...................................... 35
Non-Participation ..................................... 35
Assignment ............................................ 35
Notice ................................................ 35
Modification .......................................... 36
Reports ............................................... 36
Settlement ............................................ 36
Receipt of Payment .................................... 36
Protection of Proceeds ................................ 36
Minimum Values ........................................ 36
Application of Law .................................... 36
No Default ............................................ 36
DISTRIBUTION OF THE CONTRACTS ........................... 36
Inquiries ............................................. 37
PREPARATION FOR YEAR 2000 ............................... 37
LEGAL PROCEEDINGS ....................................... 37
VOTING RIGHTS ........................................... 37
FINANCIAL STATEMENTS .................................... 38
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF CONTENTS
</TABLE>
2
<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 measure used to calculate the value of a
Sub-Account prior to the Annuity Commencement Date.
ALLOCATION OPTION: Any account to which you may allocate Purchase Payments
or transfer Contract Value under this Contract.
ANNUITY COMMENCEMENT DATE: The date as of which the Contract Value, less
applicable premium tax, is applied to an Annuity Option.
ANNUITY OPTION: The payout option under which the Company makes annuity
income payments.
ANNUITY UNIT: A unit of measure used to calculate the amount of the
variable income payments.
ASSUMED INVESTMENT RETURN: The assumed annual rate of return used to
calculate the amount of the variable income payments.
CONTRACT: The Elements(SM) Access Contract.
CONTRACT ANNIVERSARY: The same month and day as the Effective Date in each
subsequent year of the Contract.
CONTRACT VALUE: Prior to the Annuity Commencement Date, the sum of the
Variable Account value and the Guaranteed Account value.
CONTRACT YEAR: Any period of 12 months commencing with the Effective Date
or any Contract Anniversary.
DCA: Dollar cost averaging.
DCA FIXED ACCOUNTS: The DCA Fixed Accounts are part of the Company's
general account and are not part of or dependent upon the investment
performance of the Variable Account.
EFFECTIVE DATE: The date as of which the initial Purchase Payment is
credited to the Contract and the date the Contract takes effect.
FIXED ACCOUNT: The Fixed Account is part of the Company's general account
and is not part of or dependent upon the investment performance of the Variable
Account.
FUND: Any investment portfolio in which a corresponding Sub-Account
invests.
GUARANTEED ACCOUNT: The Fixed Account, DCA Fixed Accounts, and any other
Allocation Option we may offer with interest rate guarantees.
PURCHASE PAYMENT: The amount(s) paid by the Owner and accepted by the
Company as consideration for this Contract.
QUALIFIED CONTRACTS: Contracts issued in connection with retirement plans
that receive favorable tax treatment under Sections 401, 403, 408, 408A or 457
of the Internal Revenue Code.
SUB-ACCOUNT: A separate division of the Variable Account.
SURRENDER VALUE: The amount available for a full surrender. It is equal to
the Contract Value minus any applicable contract maintenance fee and premium
tax.
VALUATION DAY: Each day on which the New York Stock Exchange is open for
business.
VALUATION PERIOD: The period which begins at the close of regular trading
on the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the next Valuation Day.
VARIABLE ACCOUNT: The Protective Variable Annuity Separate Account, a
separate investment account of Protective Life.
WRITTEN NOTICE: A notice or request submitted in writing in a form
satisfactory to the Company that is received at the administrative office.
3
<PAGE>
EXPENSE TABLES
The following expense information assumes that the entire Contract Value
is Variable Account Value.
<TABLE>
<CAPTION>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchase Payments .............. None
Surrender Charge Imposed on Amount Surrendered ......... None
Transfer Processing Fee ................................ None*
ANNUAL CONTRACT MAINTENANCE FEE ......................... $ 30**
</TABLE>
<TABLE>
<CAPTION>
WITH STANDARD WITH OPTIONAL
BENEFITS BENEFITS
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<S> <C> <C>
ANNUAL ACCOUNT EXPENSES (as a percentage of net assets)
Mortality and Expense Risk Charge .................... 1.25% 1.40%
Administration Charge ................................ 0.15% 0.15%
Total Account Expenses ............................... 1.40% 1.55%
</TABLE>
ANNUAL FUND EXPENSES
(AS PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
(ADVISORY) EXPENSES AFTER FUND EXPENSES
FEES REIMBURSEMENT (AFTER REIMBURSEMENTS)
------------ ---------------- -----------------------
<S> <C> <C> <C>
PIC FUNDS (1)
International Equity Fund ..................... 1.10% 0.00% 1.10%
Small Cap Value Fund .......................... 0.80% 0.00% 0.80%
Capital Growth Fund ........................... 0.80% 0.00% 0.80%
CORE U.S. Equity Fund ......................... 0.80% 0.00% 0.80%
Growth & Income Fund .......................... 0.80% 0.00% 0.80%
Global Income Fund ............................ 1.10% 0.00% 1.10%
Money Market Fund ............................. 0.60% 0.00% 0.60%
MFS INVESTMENT MANAGEMENT(R) (MFS) FUNDS (2)
New Discovery Series .......................... 0.90% 0.25% 1.15%
Emerging Growth Series ........................ 0.75% 0.12% 0.87%
Research Series ............................... 0.75% 0.13% 0.88%
Growth With Income Series ..................... 0.75% 0.25% 1.00%
Utilities Series .............................. 0.75% 0.25% 1.00%
Total Return Series ........................... 0.75% 0.25% 1.00%
OPPENHEIMERFUNDS
Aggressive Growth Fund ........................ 0.71% 0.02% 0.73%
Global Securities Fund ........................ 0.70% 0.06% 0.76%
Growth Fund ................................... 0.73% 0.02% 0.75%
Growth & Income Fund .......................... 0.75% 0.08% 0.83%
High Income Fund .............................. 0.75% 0.07% 0.82%
Strategic Bond Fund ........................... 0.75% 0.08% 0.83%
CALVERT FUNDS(4)
Social Small Cap Growth Portfolio ............. 1.00% 0.20% 1.20%
Social Balanced Portfolio ..................... 0.69% 0.12% 0.81%
VAN ECK FUNDS (5)
Worldwide Hard Assets Fund .................... 1.00% 0.17% 1.17%
Worldwide Real Estate Fund .................... 0.00% 0.00% 0.00%
- ------------------------------------------------ ---- ---- ----
</TABLE>
* Protective Life reserves the right to charge a Transfer Fee in the future.
(See "Charges and Deductions".)
** The contract maintenance fee may not apply. (See "Charges and Deductions".)
4
<PAGE>
(1) The annual expenses listed for all of the PIC Funds are net of certain
reimbursements by PIC's investment manager. (See "The Funds".) Absent the
reimbursements, total expenses for the period ended December 31, 1997 were:
Money Market Fund 1.42%, CORE U.S. Equity Fund 0.86%, Small Cap Value Fund
0.89%, International Equity Fund 1.37%, Growth and Income Fund 0.85%,
Capital Growth Fund 0.97%, and Global Income Fund 1.32%. PIC's investment
manager has voluntarily agreed to reimburse certain of each Fund's expenses
in excess of its management fees. Although this reimbursement may be ended
on 120 days notice to PIC, the investment manager has no present intention
of doing so.
(2) The annual expenses for the MFS funds are net of certain adjustments made
to reflect the effects of the 1.00% expense cap for the current and prior
periods. Absent the adjustments, the Fund expenses for the period ending
December 31, 1997 were: MFS Research Fund 0.88%, MFS Emerging Growth Fund
0.87%, MFS Growth with Income Fund 1.10%, and MFS Total Return Fund 1.02%.
(3) Each Series has an expense offset arrangement which reduces the Series'
custodian based fee based on the amount of cash maintained by the Series
with its custodian and dividend disbursing agent, and may enter into other
such arrangements and directed brokerage arrangements (which would also
have the effect of reducing the Series' expenses). Any such fee reductions
are not reflected under "Other Expenses."
(4) The figures have been restated to reflect an increase in transfer agency
expenses of 0.01% for each portfolio expected to be incurred in 1998.
Management Fees includes for Calvert Social Balanced a performance
adjustment, which depending on performance, could cause the fee to be as
high as 0.85% or as low as 0.55%. The Calvert Social Small Cap Growth
expenses have been restated to reflect the lower advisory fee and
administrative services fee. "Other Expenses" reflect an indirect fee. Net
fund operating expenses after reductions for fees paid indirectly (again,
restated) would be 0.78% for Calvert Social Balanced, and 0.89% for Calvert
Social Small Cap Growth. Management Fees for Calvert Social Small Cap
Growth include an administrative service fee of 0.10% paid to the Advisor's
affiliate.
(5) The annual expenses listed for both of the Van Eck Funds are net of certain
arrangements. The gross expense ratio for the Worldwide Hard Assets Fund
for the year ended December 31, 1997 was 1.18% which reflects an expense
offset arrangement that reduces the custodian based fee based on amounts
left on deposit with the custodian. The gross annualized expense ratio for
the Worldwide Real Estate Fund for the period June 23, 1997 (commencement
of operations) through December 31, 1997 was 4.92%. Van Eck Associates
Corp. (the "Adviser") agreed to assume all expenses, excluding brokerage
commissions, and foreign tax and interest expenses, for the fiscal year of
1997. The Adviser also agreed to assume all expenses for the period January
1, 1998 through February 28, 1998, excluding brokerage commissions, and
foreign tax and interest expenses. For the period March 1, 1998 through
December 31, 1998 the Adviser agreed to assume expenses exceeding 1% of
average daily net assets, excluding brokerage commissions, and foreign tax
and interest expenses.
The above tables are intended to assist the owner in understanding the
costs and expenses that he or she will bear directly or indirectly. The tables
reflect the expenses for the Account and reflect the investment management fees
and other expenses and total expenses for each Fund for the period January 1,
1997 to December 31, 1997. For a more complete description of the various costs
and expenses see "Charges and Deductions" and the prospectuses for each of the
Funds, which accompany this prospectus. In addition to the expenses listed
above, premium taxes currently varying from 0 to 3.5% may be applicable in
certain states.
5
<PAGE>
EXAMPLES
At the end of the applicable time period, you would pay the following
expenses on a $1,000 investment, assuming selection of the standard death
benefit and a 5% annual return on assets:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
PIC International Equity .................... $26 $79 $135 $288
PIC Small Cap Value ......................... 23 70 120 258
PIC Capital Growth .......................... 23 70 120 258
PIC CORE U. S. Equity ....................... 23 70 120 258
PIC Growth & Income ......................... 23 70 120 258
PIC Global Income ........................... 26 79 135 288
PIC Money Market ............................ 21 64 110 237
MFS New Discovery ........................... 26 81 138 293
MFS Emerging Growth ......................... 24 73 125 268
MFS Research ................................ 24 73 124 266
MFS Growth With Income ...................... 25 76 130 278
MFS Utilities ............................... 25 76 130 278
MFS Total Return ............................ 25 76 130 278
OppenheimerFunds Aggressive Growth .......... 22 68 117 251
OppenheimerFunds Global Securities .......... 22 69 118 254
OppenheimerFunds Growth ..................... 22 69 118 253
OppenheimerFunds Growth & Income ............ 23 71 122 261
OppenheimerFunds High Income ................ 23 71 121 260
OppenheimerFunds Strategic Bond ............. 23 71 122 261
Calvert Social Small Cap Growth ............. 27 82 140 298
Calvert Social Balanced ..................... 23 70 121 259
Van Eck Worldwide Hard Assets ............... 26 81 139 295
Van Eck Worldwide Real Estate ............... 15 46 79 173
</TABLE>
6
<PAGE>
At the end of the applicable time period, you would pay the following
expenses on a $1,000 investment, assuming selection of an optional benefit
package and a 5% annual return on assets:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
PIC International Equity .................... $27 $84 $143 $302
PIC Small Cap Value ......................... 24 75 128 273
PIC Capital Growth .......................... 24 75 128 273
PIC CORE U. S. Equity ....................... 24 75 128 273
PIC Growth & Income ......................... 24 75 128 273
PIC Global Income ........................... 27 84 143 302
PIC Money Market ............................ 22 69 118 253
MFS New Discovery ........................... 28 85 145 307
MFS Emerging Growth ......................... 25 78 133 283
MFS Research ................................ 25 77 132 281
MFS Growth With Income ...................... 26 81 138 293
MFS Utilities ............................... 26 81 138 293
MFS Total Return ............................ 26 81 138 293
OppenheimerFunds Aggressive Growth .......... 24 73 124 266
OppenheimerFunds Global Securities .......... 24 73 126 269
OppenheimerFunds Growth ..................... 24 73 125 268
OppenheimerFunds Growth & Income ............ 25 76 129 276
OppenheimerFunds High Income ................ 24 75 129 275
OppenheimerFunds Strategic Bond ............. 25 76 129 276
Calvert Social Small Cap Growth ............. 28 87 148 312
Calvert Social Balanced ..................... 24 75 128 274
Van Eck Worldwide Hard Assets ............... 28 86 146 309
Van Eck Worldwide Real Estate ............... 16 50 87 189
</TABLE>
The examples assume that no transfer fee or premium taxes have been
assessed. The examples assume that the contract maintenance fee is $30, and at
the anticipated Contract size of $70,000 is equivalent to 0.043%.
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
5% ANNUAL RETURN ASSUMED IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED AMOUNT.
7
<PAGE>
SUMMARY
THE CONTRACT
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WHAT IS THE ELEMENTS(SM) ACCESS CONTRACT? The Elements(SM) Access Contract is a flexible premium deferred variable
and fixed annuity contract issued by Protective Life. (See "The
Contract".) In certain states the Contract is offered as a group contract
to eligible persons.
HOW IS A CONTRACT ISSUED? Protective Life will issue the Contract when it receives and accepts your
complete application information and an initial Purchase Payment. (SEE
"Issuance of a Contract.")
WHAT ARE THE PURCHASE PAYMENTS? The minimum amount which Protective Life will accept as an initial
Purchase Payment is $25,000. Subsequent Purchase Payments may be
made at any time prior to the earlier of: (1) the oldest Owner's 85th
birthday; or (2) the Annuitant's 85th birthday. No Purchase Payment will
be accepted within 5 years of the Annuity Commencement Date then in
effect. In certain states, more restrictive age conditions may apply. The
minimum subsequent Purchase Payment we will accept is $100. The
maximum aggregate Purchase Payment(s) we will accept without prior
administrative office approval is $1,000,000. We reserve the right not to
accept any Purchase Payment. (See "Purchase Payments".)
CAN I CANCEL THE CONTRACT? You have the right to return the Contract within 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 Allocation Option to another. No transfers may be made into a
DCA Fixed Account. At least $100 must be transferred. Protective Life
reserves the right to limit the maximum amount that may be transferred
from the Fixed Account to the greater of (a) $2,500; or (b) 25% of the
value of the Fixed Account per Contract Year. The Company reserves
the right to charge a transfer fee of $25 for each transfer after the 12th
transfer during such Contract Year. (See "Transfers".)
CAN I SURRENDER THE CONTRACT? Upon Written Notice before the Annuity Commencement Date, you may
surrender the Contract and receive its surrender value. (See "Surrenders
and Partial Surrenders".)
IS THERE A DEATH BENEFIT? If any Owner dies prior to the Annuity Commencement Date and while
this Contract is in force, a death benefit, less any applicable premium
tax, will be payable to the Beneficiary. The death benefit is determined
as of the end of the Valuation Period during which we receive due proof
of death. The death benefit will equal the greater of: (1) the Contract
Value; or (2) aggregate Purchase Payments less aggregate amounts
surrendered. Only one death benefit is payable under this Contract, even
though the Contract may, in some circumstances, continue beyond the
time of an Owner's death. (See "Death Benefit".)
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The Owner may purchase an optional benefit package that may provide
a death benefit which is greater than the standard death benefit provided
under the contract. Currently, two optional benefit packages are
available. (See "Optional Benefit Packages".)
ARE THERE CHARGES AND DEDUCTIONS FROM MY The following charges and deductions are made in connection with the
CONTRACT? Contract:
MORTALITY AND EXPENSE RISK CHARGE. We will deduct a mortality and expense risk charge to compensate us for
assuming certain mortality and expense risks. For Contracts issued with
the standard death benefit, the charge equals, on an annual basis, 1.25%
of the average daily net assets of the Variable Account value attributable
to the Contracts. For Contracts issued with an optional benefit package,
the charge equals 1.40% of such assets prior to the Annuity
Commencement Date. (See "Optional Benefit Packages".) On and after
the Annuity Commencement Date, the charge equals 1.25% of such
assets. (See "Mortality and Expense Risk Charge".)
ADMINISTRATION CHARGE. We will deduct an administration charge equal, on an annual basis, to
.15% of the average daily net assets of the Variable Account value
supporting the Contracts. (See "Administration Charge".)
CONTRACT MAINTENANCE FEE. Prior to the Annuity Commencement Date a contract maintenance fee of
$30 is deducted from the Contract Value on each Contract Anniversary,
and on any day that the Contract is surrendered, if the surrender occurs
on any day other than the Contract Anniversary. Under certain
circumstances, this fee may be waived. (See "Contract Maintenance
Fee".)
TAXES. Some states impose premium taxes at rates currently ranging up to
3.5%. If premium taxes apply to your Contract, we will deduct them
from the Purchase Payment(s) when accepted or from the Contract
Value upon a full or partial surrender, death or annuitization. The
Company reserves the right to impose a charge for other taxes
attributable to the Variable Account. (See "Charges and Deductions".)
INVESTMENT MANAGEMENT FEES AND The net assets of each Sub-Account of the Variable Account will reflect
OTHER EXPENSES OF THE FUNDS. 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 "Fund Expenses" and the funds' prospectuses.)
WHAT ANNUITY OPTIONS ARE AVAILABLE? Currently, we apply the Contract Value, less any applicable premium
tax, to an Annuity Option on the Annuity Commencement Date, unless
you choose to receive the surrender value in a lump sum. Annuity
Options include: payments for a certain period, and life income with or
without payments for a certain period. Some Annuity Options are
available on either a fixed or variable payment basis. (See
"Annuitization".)
IS THE CONTRACT AVAILABLE FOR QUALIFIED The Contract may be issued for use with retirement plans receiving
RETIREMENT PLANS? special federal income tax treatment under the Code such as pension and
profit sharing plans (including H.R. 10 plans), individual retirement
accounts, and individual retirement annuities. (See "Federal Tax
Matters".)
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FEDERAL TAX STATUS
Generally, a distribution from the Contract, which includes a full or
partial surrender or payment of a death benefit, will result in taxable income
if there has been an increase in the Contract Value. In certain circumstances,
a 10% penalty tax may also apply. (See "Federal Tax Matters".)
CONDENSED FINANCIAL INFORMATION
The date of inception of each of the sub-accounts is as follows:
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March 14, 1994 -- PIC International Equity
PIC Small Cap Value
PIC CORE U.S. Equity
PIC Growth & Income
PIC Global Income
PIC Money Market
June 13, 1995 -- PIC Capital Growth
July 1, 1997 -- MFS Emerging Growth
MFS Research
MFS Growth with Income
MFS Total Return
OppenheimerFunds Aggressive Growth
OppenheimerFunds Growth
OppenheimerFunds Growth & Income
OppenheimerFunds Strategic Bond
Calvert Social Small Cap Growth
Calvert Social Balanced
November 5, 1998 -- MFS New Discovery
MFS Utilities
OppenheimerFunds Global Securities
OppenheimerFunds High Income
Van Eck Worldwide Hard Assets
Van Eck Worldwide Real Estate
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At December 31, 1994, 1995, 1996 and 1997, net assets of the Variable
Account were represented by the following Accumulation Unit values and
Accumulation Units. The Accumulation Unit values shown below are for a Contract
issued with the standard death benefit, which has a total mortality and expense
risk charge and administration charge of 1.40%. For Contracts issued with an
optional benefit package, the total mortality and expense risk charge and
administration charge is 1.55%, and the Accumulation Unit values would be lower
than those shown below. This information should be read in conjunction with the
Variable Account's financial statements and related notes included in the
Statement of Additional Information.
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(DECEMBER 31, (DECEMBER 31, (DECEMBER 31, (DECEMBER 31,
1994) 1995) 1996) 1997)
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PIC International Equity Sub-Account ............... 9.48 11.18 13.12 13.51
PIC Small Cap Value Sub-Account .................... 8.91 9.35 11.09 14.46
PIC Capital Growth Sub-Account ..................... -- 10.36 12.48 16.56
PIC CORE U.S. Equity Sub-Account ................... 9.94 13.40 16.12 20.81
PIC Growth and Income Sub-Account .................. 9.71 12.66 15.83 20.27
PIC Global Income Sub-Account ...................... 9.82 11.32 12.22 13.25
PIC Money Market Sub-Account ....................... 1.02 1.05 1.09 1.13
MFS New Discovery Sub-Account ...................... -- -- -- --
MFS Emerging Growth Sub-Account .................... -- -- -- 11.36
MFS Research Sub-Account ........................... -- -- -- 10.89
MFS Growth With Income Sub-Account ................. -- -- -- 11.40
MFS Utilities Sub-Account .......................... -- -- -- --
MFS Total Return Sub-Account ....................... -- -- -- 11.10
OppenheimerFunds Aggressive Growth Sub-Account ..... -- -- -- 10.97
OppenheimerFunds Global Securities Sub-Account ..... -- -- -- --
OppenheimerFunds Growth Sub-Account ................ -- -- -- 11.22
OppenheimerFunds Growth & Income Sub-Account ....... -- -- -- 11.83
OppenheimerFunds High Income Sub-Account ........... -- -- -- --
OppenheimerFunds Strategic Bond Sub-Account ........ -- -- -- 10.33
Calvert Social Small Cap Growth Sub-Account ........ -- -- -- 11.04
Calvert Social Balanced Sub-Account ................ -- -- -- 11.14
Van Eck Worldwide Hard Assets Sub-Account .......... -- -- -- --
Van Eck Worldwide Real Estate Sub-Account .......... -- -- -- --
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The number of Accumulation Units shown below assume a Contract with the
standard benefit. No Accumulation Units were associated with Contracts with an
optional benefit package on or before December 31, 1997.
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(DECEMBER 31, (DECEMBER 31, (DECEMBER 31, (DECEMBER 31,
1994) 1995) 1996) 1997)
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PIC International Equity Sub-Account ............... 2,588,605 4,954,564 7,363,767 9,722,696
PIC Small Cap Value Sub-Account .................... 2,347,968 4,579,808 5,797,119 7,429,530
PIC Capital Growth Sub-Account ..................... -- 930,249 2,419,601 4,493,710
PIC CORE U.S. Equity Sub-Account ................... 1,682,927 4,128,798 6,300,382 8,495,067
PIC Growth and Income Sub-Account .................. 4,260,743 10,012,351 13,291,398 17,539,696
PIC Global Income Sub-Account ...................... 1,457,712 2,438,238 3,081,317 3,677,919
PIC Money Market Sub-Account ....................... 3,034,056 4,273,270 5,577,080 3,151,349
MFS New Discovery Sub-Account ...................... -- -- -- --
MFS Emerging Growth Sub-Account .................... -- -- -- 292,318
MFS Research Sub-Account ........................... -- -- -- 577,212
MFS Growth With Income Sub-Account ................. -- -- -- 234,240
MFS Utilities Sub-Account .......................... -- -- -- --
MFS Total Return Sub-Account ....................... -- -- -- 157,430
OppenheimerFunds Aggressive Growth Sub-Account ..... -- -- -- 238,172
OppenheimerFunds Global Securities Sub-Account ..... -- -- -- --
OppenheimerFunds Growth Sub-Account ................ -- -- -- 321,669
OppenheimerFunds Growth & Income Sub-Account ....... -- -- -- 247,774
OppenheimerFunds High Income Sub-Account ........... -- -- -- --
OppenheimerFunds Strategic Bond Sub-Account ........ -- -- -- 284,169
Calvert Social Small Cap Growth Sub-Account ........ -- -- -- 12,376
Calvert Social Balanced Sub-Account ................ -- -- -- 94,365
Van Eck Worldwide Hard Assets Sub-Account .......... -- -- -- --
Van Eck Worldwide Real Estate Sub-Account .......... -- -- -- --
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* Accumulation unit values are rounded to the nearest whole cent.
** Accumulation units are rounded to the nearest unit.
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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 insurance, annuities, group dental 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, 1997, Protective Life had total assets of approximately $10.1
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 $10.5 billion at December 31, 1997.
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. The portion of the assets of the Variable Account equal to the
reserves or other contract liabilities of the Variable Account will not be
charged with liabilities that arise from any other business Protective Life
conducts. Protective Life may transfer to its general account any assets which
exceed the reserves and other contract liabilities of the Variable Account.
Protective Life may accumulate in the Variable Account the charge for mortality
and expense risks and investment results applicable to those assets that are in
excess of the net assets supporting the contracts. The income, gains and
losses, both realized and unrealized, from the assets of the Variable Account
are credited to or charged against the Variable Account without regard to any
other income, gains or losses of Protective Life. The obligations under the
Contracts are obligations of Protective Life.
Currently, twenty-three Sub-Accounts of the Variable Account are available
under this Contract: PIC International Equity; PIC Small Cap Value; PIC Capital
Growth; PIC CORE U.S. Equity; PIC Growth and Income; PIC Global Income; PIC
Money Market; MFS New Discovery; MFS Emerging Growth; MFS Research; MFS Growth
With Income; MFS Utilities; MFS Total Return; OppenheimerFunds Aggressive
Growth; OppenheimerFunds Global Securities; OppenheimerFunds Growth;
OppenheimerFunds Growth & Income; OppenheimerFunds High Income;
OppenheimerFunds Strategic Bond; Calvert Social Small Cap Growth; Calvert
Social Balanced; Van Eck Worldwide Hard Assets; and Van Eck Worldwide Real
Estate. Each Sub-Account invests in shares of a corresponding Fund. Therefore,
the investment experience of your Contract depends on the experience of the
Sub-Accounts that you select. Other contracts issued by Protective Life may
offer some or all of the Sub-Accounts of the Variable Account.
ADMINISTRATION
Protective Life Insurance Company performs the Contract administration at
its administrative office at 2801 Highway 280 South, Birmingham, Alabama 35223.
Contract administration includes processing applications for the Contracts and
subsequent Owner requests; processing Purchase Payments, transfers, surrenders
and death benefit claims as well as performing record maintenance and
disbursing annuity income payments.
THE FUNDS
Each Sub-Account invests in a corresponding Fund. Each Fund is an
investment portfolio of one of the following investment companies: Protective
Investment Company ("PIC Funds") managed by Protective Investment Advisors,
Inc. (formerly Investment Distributors Advisory Services, Inc.), and subadvised
by Goldman Sachs Asset Management or Goldman Sachs Asset Management
International; Oppenheimer Variable Account Funds ("OppenheimerFunds") managed
by OppenheimerFunds, Inc.; MFS Variable Insurance Trust ("MFS Funds") managed
by MFS Investment Management; Calvert Variable Series, Inc. ("Calvert Funds")
managed by Calvert Asset Management Company, Inc.; or Van Eck Worldwide
Insurance Trust ("Van Eck Funds") managed by Van Eck Associates Corporation.
Shares of these Funds are offered only to: (1) the Variable Account, (2) other
separate accounts of Protective Life and its affiliates supporting variable
annuity contracts or variable life insurance policies, (3) separate accounts of
other life insurance companies supporting variable annuity contracts or
variable life
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insurance policies, and (4) certain qualified retirement plans. Such shares are
not offered directly to investors but are available only through the purchase
of such contracts or policies or through such plans. See the prospectus for
each Fund for details about that Fund.
There is no guarantee that any Fund will meet its investment objectives.
Please refer to the prospectus for each of the Funds you are considering for
more information.
PIC FUNDS
PIC INTERNATIONAL EQUITY FUND. This Fund seeks long-term capital
appreciation. This Fund will pursue its objective by investing, substantially
all, and at least 65% of total assets in equity and equity-related securities
of companies that are organized outside the United States or whose securities
are primarily traded outside the United States.
PIC SMALL CAP VALUE 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.
PIC CAPITAL GROWTH FUND This Fund seeks long-term capital growth. The Fund
will pursue its objective by investing, under normal circumstances, at least
90% of its total assets in a diversified portfolio of equity securities having
long-term capital appreciation potential.
PIC CORE U.S. EQUITY FUND. This Fund seeks a total return consisting of
capital appreciation plus dividend income. This Fund will pursue its objective
by investing, under normal circumstances, at least 90% of its total assets in
equity securities selected using both fundamental research and a variety of
quantitative techniques in seeking to maximize the Fund's expected return,
while maintaining risk, style, capitalization and industry characteristics
similar to the S&P 500 Index.
PIC GROWTH AND INCOME FUND. This Fund seeks long-term growth of capital
and growth of income. This Fund will pursue its objectives by investing, under
normal circumstances, at least 65% of its total assets in equity securities
having favorable prospects of capital appreciation and/or dividend paying
ability.
PIC GLOBAL INCOME FUND. This Fund seeks high total return, emphasizing
current income and, to a lesser extent, providing opportunities for capital
appreciation. This Fund will pursue its objectives by investing primarily in
high quality fixed-income securities of U.S. and foreign issuers and through
foreign currency transactions.
PIC 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 investing exclusively in high
quality money market instruments. AN INVESTMENT IN THE MONEY MARKET FUND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE
FUND. (SEE "PIC MONEY MARKET FUND REPLACEMENT", PAGE 17.)
MFS FUNDS
MFS NEW DISCOVERY SERIES. This Fund seeks to provide capital appreciation.
MFS EMERGING GROWTH SERIES. This Fund seeks to provide long-term growth of
capital.
MFS RESEARCH SERIES. This Fund seeks to provide long-term growth of
capital and future income.
MFS GROWTH WITH INCOME SERIES. This Fund seeks to provide reasonable
current income and long-term growth of capital and income.
MFS UTILITIES SERIES. This Fund seeks to provide capital growth and
current income.
MFS TOTAL RETURN SERIES. This Fund seeks primarily to provide
above-average income (compared to a portfolio invested entirely in equity
securities) consistent with the prudent employment of capital and secondarily
to provide a reasonable opportunity for growth of capital and income.
OPPENHEIMERFUNDS
AGGRESSIVE GROWTH FUND. This Fund seeks to achieve capital appreciation by
investing in "growth-type" companies.
GLOBAL SECURITIES FUND. This Fund seeks long-term capital appreciation by
investing in securities of foreign issuers, "growth-type" companies and
cyclical industries.
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GROWTH FUND. This Fund seeks to achieve capital appreciation by investing
in securities of well-known established companies.
GROWTH & INCOME FUND. This Fund seeks a high total return (which includes
growth in the value of its shares as well as current income) from equity and
debt securities. From time to time this Fund may focus on small to medium
capitalization common stocks, bonds and convertible securities.
HIGH INCOME FUND. This Fund seeks a high level of current income from
investment in high yield fixed-income securities.
STRATEGIC BOND FUND. This Fund seeks a high level of current income
principally derived from interest on debt securities and seeks to enhance such
income by writing covered call options on debt securities.
CALVERT FUNDS
SOCIAL SMALL CAP GROWTH PORTFOLIO. This Fund seeks maximum long-term
growth through investments primarily in the equity securities of small
capitalized growth companies that have historically exhibited exceptional
growth characteristics, and that, in the Advisor's opinion, have strong
earnings potential relative to the U.S. market as a whole. The Fund is designed
to provide long-term growth of capital by investing in enterprises that make a
significant contribution to society through their products and services and
through the way they do business.
SOCIAL BALANCED PORTFOLIO. This Fund seeks to achieve a total return above
the rate of inflation through an actively managed, non-diversified portfolio of
common and preferred stocks, bonds, and money market instruments that offer
income and capital growth opportunity and that satisfy the social concern
criteria established for the Fund.
VAN ECK FUNDS
WORLDWIDE HARD ASSETS FUND. This Fund seeks long-term capital appreciation
by investing globally, primarily in "Hard Asset Securities". Hard Asset
Securities include equity securities of "Hard Asset Companies" and securities,
including structured notes, whose value is linked to the price of a Hard Asset
commodity or a commodity index. "Hard Asset Companies" includes companies that
are directly or indirectly (whether through supplier relationships, servicing
agreements or otherwise) engaged to a significant extent in the exploration,
development, production or distribution of one or more of the following
(together "Hard Assets"): (i) precious metals, (ii) ferrous and non-ferrous
metals, (iii) gas, petroleum, petrochemicals or other hydrocarbons, (iv) forest
products, (v) real estate and (vi) other basic non-agricultural commodities.
WORLDWIDE REAL ESTATE FUND. This Fund seeks to maximize total return by
investing primarily in equity securities of domestic and foreign companies
which are principally engaged in the real estate industry or which own
significant real estate assets.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF
THE FUNDS WILL BE ACHIEVED. MORE DETAILED INFORMATION CONCERNING THE INVESTMENT
OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUNDS, THE EXPENSES OF THE FUNDS,
THE RISKS ATTENDANT TO INVESTING IN THE FUNDS AND OTHER ASPECTS OF THEIR
OPERATIONS CAN BE FOUND IN THE CURRENT PROSPECTUSES FOR THE FUNDS, WHICH
ACCOMPANY THIS PROSPECTUS, AND THE CURRENT STATEMENT OF ADDITIONAL INFORMATION
FOR EACH OF THE FUNDS. THE FUNDS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE
ANY DECISION IS MADE CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS OR
TRANSFERS AMONG THE SUB-ACCOUNTS.
Each Fund sells its shares to the Variable Account in accordance with the
terms of a participation agreement between the appropriate investment company
and Protective Life. The termination provisions of these agreements vary.
Should a participation agreement relating to a Fund terminate, the Variable
Account may not be able to purchase additional shares of that Fund. In that
event, Owners may no longer be able to allocate Variable Account value or
Purchase Payments to Sub-Accounts investing in that Fund. In certain
circumstances, it is also possible that a Fund may refuse to sell its shares to
the Variable Account despite the fact that the participation agreement relating
to that Fund has not been terminated. Should a Fund decide to discontinue
selling its shares to the Variable Account, Protective Life would not be able
to honor requests from Owners to allocate Purchase Payments or transfer Account
Value to the Sub-Account investing in shares of that Fund.
Protective Life has entered into agreements with the investment managers
or advisers of the Funds pursuant to which each such investment manager or
adviser pays Protective Life a servicing fee based upon an annual percentage of
the average daily net assets invested by the Variable Account (and other
separate accounts of Protective Life and its affiliates) in the Funds managed
by that manager or adviser. These fees are in consideration for administrative
services provided to the Funds
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by Protective Life and its affiliates. Payments of fees under these agreements
by managers or advisers do not increase the fees or expenses paid by the Funds
or their shareholders.
OTHER INVESTORS IN THE FUNDS
PIC currently sells shares of its Funds only to Protective Life as the
underlying investment for the Variable Account as well as for variable life
insurance contracts issued through Protective Life, and to American Foundation
Life Insurance Company, a Protective Life affiliate, as the underlying
investment for variable annuity contracts issued by American Foundation Life.
PIC may in the future sell shares of its Funds to other separate accounts of
Protective Life or its life insurance company affiliates supporting other
variable annuity contracts or variable life insurance contracts. In addition,
upon obtaining regulatory approval, PIC may sell shares to certain retirement
plans qualifying under Section 401 of the Internal Revenue Code of 1986.
Protective Life currently does not foresee any disadvantages to Owners that
would arise from the possible sale of shares to support its variable annuity
and 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 Protective Life believes
that 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 PIC Prospectus for more detail.)
Shares of the OppenheimerFunds, MFS, Calvert and Van Eck Funds are sold to
separate accounts of insurance companies, which may or may not be affiliated
with Protective Life or each other, a practice known as "shared funding." They
may also be sold to separate accounts to serve as the underlying investment for
both variable annuity contracts and variable life insurance policies, a
practice known as "mixed funding." As a result, there is a possibility that a
material conflict may arise between the interests of Owners of Protective
Life's Contracts, whose Contract Values are allocated to the Variable Account,
and of owners of other contracts whose contract values are allocated to one or
more other separate accounts investing in any one of the Funds. Shares of some
of these Funds may also be sold to certain qualified pension and retirement
plans. As a result, there is a possibility that a material conflict may arise
between the interests of Contract Owners generally or certain classes of
Contract Owners, and such retirement plans or participants in such retirement
plans. In the event of any such material conflicts, Protective Life will
consider what action may be appropriate, including removing the Fund from the
Variable Account or replacing the Fund with another fund. As is the case with
PIC, the boards of directors (or trustees) of the OppenheimerFunds, MFS,
Calvert and Van Eck Funds monitor events related to their Funds to identify
possible material irreconcilable conflicts among and between the interests of
the Fund's various investors. There are certain risks associated with mixed and
shared funding and with the sale of shares to qualified pension and retirement
plans, as disclosed in each Fund's prospectus.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Protective Life reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Variable Account or that the Variable Account may purchase. If the shares
of a Fund are no longer available for investment or if in Protective Life's
judgment further investment in any Fund should become inappropriate in view of
the purposes of the Variable Account, Protective Life may redeem the shares, if
any, of that Fund and substitute shares of another registered open-end
management company or unit investment trust. Protective Life will not
substitute any shares attributable to a Contract's interest in the Variable
Account without notice and any necessary approval of the Securities and
Exchange Commission and state insurance authorities.
Protective Life also reserves the right to establish additional
Sub-Accounts of the Variable Account, each of which would invest in shares
corresponding to a new Fund. Subject to applicable law and any required SEC
approval, Protective Life may, in its sole discretion, establish new
Sub-Accounts or eliminate one or more Sub-Accounts if marketing needs, tax
considerations or investment conditions warrant. 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.
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PIC MONEY MARKET FUND REPLACEMENT
Protective Life proposes to replace PIC Money Market Fund with Oppenheimer
Money Fund as an investment option under the Contracts described in this
prospectus. On or about October 28, 1998, Protective Life and several other
applicants filed an application with the Securities and Exchange Commission
seeking an order approving the substitution of shares of Oppenheimer Variable
Account Funds' Money Fund for shares of Protective Investment Company's Money
Market Fund currently held by the PIC Money Market subaccount of Protective
Variable Annuity Separate Account. Protective Life will also obtain approvals
of state insurance regulators in any state where such approval is required by
state law. The substitution will not be made until all necessary approvals are
obtained.
Oppenheimer Money Fund seeks the maximum current income from investments
in "money market" securities consistent with low capital risk and the
maintenance of liquidity. Owners and prospective purchasers should carefully
read the prospectus for Oppenheimer Variable Account Funds, which accompanied
this prospectus.
Protective Life will not exercise any rights reserved under any Contract
to impose additional restrictions on transfers from the PIC Money Market
subaccount to another subaccount or a fixed account until at least thirty (30)
days after the proposed substitution. If the proposed substitution is carried
out, Protective Life will send each Owner affected by the substitution a
written notice that the substitution was carried out and that he or she may,
within thirty (30) days after the substitution, make one transfer of all
Contract Value invested in the Oppenheimer Money Fund subaccount on the date of
the notice to another subaccount or a fixed account without that transfer
counting as a "free" transfer permitted under a Contract.
DESCRIPTION OF THE CONTRACT
THE CONTRACT
The Elements(SM) Access Contract is a flexible premium deferred variable
and fixed annuity contract issue by Protective Life. In certain states the
Contract is offered as a group contract to eligible persons who have established
accounts with certain broker-dealers that have entered into a distribution
agreement with Protective Life to offer the Contract. In those states the
Contract may also be offered to members of other eligible groups. In all other
states, the Contract is offered as an individual contract. If you purchase an
interest in a group contract, you will receive a certificate evidencing your
ownership interest in the group contract. Otherwise, you will receive an
individual Contract.
You may purchase the Contract on a non-qualified basis. You may also
purchase it for use with certain qualified retirement plans that receive
special federal income tax treatment under the Internal Revenue Code, such as
pension and profit sharing plans (including H.R. 10 Plans), tax sheltered
annuity plans, individual retirement accounts, and individual retirement
annuities.
PARTIES TO THE CONTRACT
OWNER. The Owner is the person or persons who own the Contract and are
entitled to exercise all rights and privileges provided in the Contract. In
those states where the Contract is issued as a group contract, the term "Owner"
refers to the holder of the certificate evidencing an interest in the group
contract. Two persons may own the Contract together; they are designated as the
Owner and the Joint Owner. Individuals as well as non-natural persons, such as
corporations or trusts, may be Owners. The Company will only issue a Contract
prior to each Owner's 85th birthday. In certain states, more restrictive age
conditions may apply.
The Owner of this Contract may be changed by Written Notice provided (1)
each new Owner's 85th birthday is after the Effective Date, and (2) each new
Owner's 90th birthday is on or after the Annuity Commencement Date. In certain
states, more restrictive age conditions may apply. For a period of 1 year after
any change of ownership involving a natural person, the death benefit will
equal the Contract Value. The change of Owner may result in a tax liability.
(See "Taxation of Annuities in General: Assignments, Pledges, and Gratuitous
Transfers.")
BENEFICIARY. The Beneficiary is the person or persons who may receive the
benefits of this Contract upon the death of any Owner.
PRIMARY -- The Primary Beneficiary is the surviving Joint Owner, if any. If
there is no surviving Joint Owner, the Primary Beneficiary is the person or
persons designated by the Owner and named in our records.
CONTINGENT -- The Contingent Beneficiary is the person or persons
designated by the Owner and named in our records to be Beneficiary if the
Primary Beneficiary is not living.
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If no Beneficiary designation is in effect or if no Beneficiary is living
at the time of an Owner's death, the Beneficiary will be the estate of the
deceased Owner. If any Owner dies on or after the Annuity Commencement Date,
the Beneficiary will become the new Owner.
Unless designated irrevocably, the Owner may change the Beneficiary by
Written Notice prior to the death of any Owner. An irrevocable Beneficiary is
one whose written consent is needed before the Owner can change the Beneficiary
designation or exercise certain other rights.
ANNUITANT. The Annuitant is the person on whose life annuity income
payments may be based. The Owner is the Annuitant unless the Owner designates
another person as the Annuitant. The Contract must be issued prior to the
Annuitant's 80th birthday. If the Annuitant is not an Owner and dies prior to
the Annuity Commencement Date, the Owner will become the new Annuitant unless
the Owner designates otherwise.
The Owner may change the Annuitant by Written Notice prior to the Annuity
Commencement Date. However, if any Owner is not an individual the Annuitant may
not be changed. The new Annuitant's 90th birthday may not be earlier than the
Annuity Commencement Date in effect when the change of Annuitant is requested.
PAYEE. The Payee is the person or persons designated by the Owner to
receive the annuity income payments under the Contract. The Annuitant is the
Payee unless the Owner designates another party as the Payee. The Owner may
change the Payee at any time.
ISSUANCE OF A CONTRACT
To purchase a Contract, 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 $25,000. 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.
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 Allocation Option as directed in the
application within two business days of receipt of such Purchase Payment at the
administrative office. If the necessary application information is not
received, Protective Life will retain the Purchase Payment for up to five
business days while it attempts to complete the information. If the necessary
application information is not complete after five days, Protective Life will
inform the applicant of the reason for the delay and the initial Purchase
Payment will be returned immediately unless the applicant specifically consents
to Protective Life retaining it until the information is complete. Once the
information is complete, the initial Purchase Payment will be allocated to the
appropriate Allocation Options within two business days.
Information necessary to complete an application may be transmitted to the
Company by telephone, facsimile, or electronic media.
PURCHASE PAYMENTS
The Company will only accept Purchase Payments prior to the earlier of the
oldest Owner's 85th birthday, or the Annuitant's 85th birthday. No Purchase
Payment will be accepted within 5 years of the Annuity Commencement Date then
in effect. The minimum subsequent Purchase Payment we will accept is $100. We
reserve the right not to accept any Purchase Payment.
Purchase Payments are payable at our administrative office. They may be
made by check payable to Protective Life Insurance Company or by any other
method we deem acceptable. Protective Life retains the right to limit the
maximum aggregate Purchase Payment that can be made without prior
administrative office approval. This amount is currently $1,000,000.
Under the current automatic purchase payment plan, you may select a
monthly or quarterly payment schedule pursuant to which Purchase Payments will
be automatically deducted from a bank account. Automatic Purchase Payments may
be accepted on the 1st through the 28th day of each month. Each automatic
purchase payment must be at least $100. Payments made through the automatic
purchase payment plan may not be allocated to any DCA Fixed Account. The
automatic purchase payment plan and the partial automatic withdrawal plan may
not be elected simultaneously. (See "Surrenders and Partial Surrenders".) Upon
notification of the death of any Owner the Company will terminate deductions
under the automatic purchase payment plan. (See "Allocation of Purchase
Payments".)
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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 our administrative office or the sales
representative who sold it along with a written cancellation request. The
number of days, which is at least ten, is determined by state law in the state
where the Contract is delivered. Return of the Contract by mail is effective on
being post-marked, properly addressed and postage pre-paid. We will treat the
returned Contract as if it had never been issued. Where permitted, Protective
Life will refund the Contract Value plus any charges deducted from either
Purchase Payments or Contract Value. This amount may be more or less than the
aggregate amount of your Purchase Payments up to that time. Where required, we
will refund the Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
The allocation of your Purchase Payment among the Allocation Options you
have selected will be at the next price determined after your Purchase Payment
is accepted by us. Owners must indicate in the application how their initial
and subsequent Purchase Payments are to be allocated among the Allocation
Options. If such instructions are indicated by percentages, whole percentages
must be used. Subsequent Purchase Payments made through the automatic purchase
payment plan may not be allocated to any DCA Fixed Account.
For Individual Retirement Annuities and Contracts issued in states where,
upon cancellation during the 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 PIC
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 our
administrative office. Thereafter, all Purchase Payments will be allocated
according to your allocation instructions then in effect.
Owners may change allocation instructions by Written Notice at any time.
Owners may also change instructions by telephone, facsimile transmission or
automated telephone system. For non-written instructions regarding allocations,
we will require a form of personal identification prior to acting on
instructions and we will record any telephone voice instructions. If we follow
these procedures, we will not be liable for any losses due to unauthorized or
fraudulent instructions. The Company reserves the right to limit or eliminate
any of these non-written communication methods for any Contract or class of
Contracts at any time for any reason.
VARIABLE ACCOUNT VALUE
SUB-ACCOUNT VALUE. A Contract's Variable Account value at any time is the
sum of the Sub-Account values and therefore reflects the investment experience
of the Sub-Accounts to which it is allocated. There is no guaranteed minimum
Variable Account value. The Sub-Account value for any Sub-Account as of the
Effective Date is equal to the amount of the initial Purchase Payment allocated
to that Sub-Account. On subsequent Valuation Days prior to the Annuity
Commencement Date, the Sub-Account value is equal to that part of any Purchase
Payment allocated to the Sub-Account and any Contract Value transferred to the
Sub-Account, adjusted by interest income, dividends, net capital gains or
losses (realized or unrealized), decreased by partial surrenders (including any
applicable premium tax), Contract Value transferred out of the Sub-Account and
fees deducted from the Sub-Account.
DETERMINATION OF ACCUMULATION UNITS. Purchase Payments allocated to and
Contract Value transferred to a Sub-Account are converted into Accumulation
Units. The number of Accumulation Units is determined by dividing the dollar
amount directed to the Sub-Account by the value of the Accumulation Unit for
that Sub-Account for the Valuation Day as of which the allocation or transfer
occurs. Purchase Payments allocated to or amounts transferred to a Sub-Account
under a Contract increase the number of Accumulation Units of that Sub-Account
credited to the Contract. The Company executes such allocations and transfers
as of the end of the Valuation Period in which it receives a Purchase Payment
or Written Notice or other instruction requesting a transfer.
Certain events reduce the number of Accumulation Units of a Sub-Account
credited to a Contract. Partial surrenders, partial automatic withdrawals, and
transfers from a Sub-Account result in the cancellation of the appropriate
number of Accumulation Units of that Sub-Account as do payments resulting from
the following events: a surrender, a death benefit claim, application of the
Contract Value to an Annuity Option, and deduction of the annual contract
maintenance fee. Accumulation Units are canceled as of the end of the Valuation
Period in which the Company receives Written Notice of or other instructions
regarding the event.
DETERMINATION OF ACCUMULATION UNIT VALUE. The Accumulation Unit value for
each Sub-Account at the end of every Valuation Day is the Accumulation Unit
value at the end of the previous Valuation Day times the net investment factor.
The
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Sub-Account value for a Contract may be determined on any day by multiplying
the number of Accumulation Units attributable to the Contract in that
Sub-Account by the Accumulation Unit value for that Sub-Account on that day.
NET INVESTMENT FACTOR. The net investment factor measures the investment
performance of a Sub-Account from one Valuation Period to the next. For each
Sub-Account, the net investment factor reflects the investment performance of
the Fund in which the Sub-Account invests and the charges assessed against that
Sub-Account for a Valuation Period. Each Sub-Account has a net investment
factor for each Valuation Period which may be greater or less than one.
Therefore, the value of an Accumulation Unit may increase or decrease. The net
investment factor for any Sub-Account for any Valuation Period is determined by
dividing (1) by (2) and subtracting (3) from the result, where:
(1) is the result of:
a. the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions made
by the Fund to the Sub-Account, if the "ex-dividend" date occurs during
the current Valuation Period; plus or minus
c. a per share charge or credit for any taxes reserved for, which is
determined by the Company to have resulted from the investment
operations of the Sub-Account.
(2) is the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the last prior Valuation Period.
(3) is a factor representing the Mortality and Expense Risk Charge and the
Administration Charge for the number of days in the Valuation Period.
TRANSFERS
Prior to the Annuity Commencement Date, you may instruct us to transfer
Contract Value between and among the Allocation Options. When we receive your
transfer instructions, we will allocate the Contract Value you transfer at the
next price determined for the Allocation Options you indicate.
You must transfer at least $100, or if less, the entire amount in the
Allocation Option each time you make a transfer. If after the transfer, the
Contract Value remaining in any Allocation Option from which a transfer is made
would be less than $100, then we may transfer the entire Contract Value in that
Allocation Option instead of the requested amount. We reserve the right to
limit the number of transfers to no more than 12 per Contract Year. For each
additional transfer over 12 during each Contract Year, we reserve the right to
charge a Transfer Fee which will not exceed $25. The Transfer Fee, if any, will
be deducted from the amount being transferred. (See "Charges and Deductions --
Transfer Fee".)
Transfers involving a Guaranteed Account are subject to additional
restrictions. The maximum amount that may be transferred from the Fixed Account
during a Contract Year is the greater of: (1) $2,500, or (2) 25% of the
Contract Value in the Fixed Account value. Transfers into the DCA Fixed Account
are not permitted.
Owners may request transfers by Written Notice at any time. Owners also
may request transfers by telephone, facsimile transmission, or automated
telephone system. We will require a form of personal identification prior to
acting on non-written requests and we will record telephone requests. We will
send you a confirmation of all transfer requests communicated to us. If we
follow these procedures we will not be liable for any losses due to
unauthorized or fraudulent transfer requests.
RESERVATION OF RIGHTS. We reserve the right to limit amounts transferred
into any account within the Guaranteed Account. We reserve the right to modify,
limit, suspend or eliminate the transfer privileges (including acceptance of
non-written instructions) without prior notice for any Contract or class of
Contracts at any time for any reason. We also reserve the right to not honor
transfers requested by a third party holding a power of attorney from an Owner
where that third party requests transfers during a single Valuation Period on
behalf of the Owners of two or more Contracts.
After the Annuity Commencement Date, when Variable Income Payments are
selected, transfers are allowed between Sub-Accounts, but limited to one
transfer per month. Dollar cost averaging and portfolio rebalancing are not
allowed. No transfers are allowed within the Guaranteed Account or between the
Guaranteed Account and any Sub-Account.
DOLLAR COST AVERAGING. Prior to the Annuity Commencement Date, you may
instruct us by Written Notice to systematically and automatically transfer, on
a monthly or quarterly basis, specified dollar amounts from a DCA Fixed Account
(or any other Allocation Option) to any Allocation Option, except that no
transfers may be made into a DCA Fixed Account.
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This is known as the "dollar-cost averaging" method of investment. By
transferring equal amounts of Contract Value on a regularly scheduled basis, as
opposed to allocating a larger amount at one particular time, an Owner may be
less susceptible to the impact of market fluctuations in the value of
Sub-Account Accumulation Units. Protective Life, however, makes no guarantee
that the dollar cost averaging method will result in a profit or protection
against loss.
Dollar cost averaging transfers may be made on the 1st through the 28th
day of each month. If no day is selected, transfers will occur on the same day
of the month as your Contract Anniversary, or on the 28th day of the month if
your Contract Anniversary occurs on the 29th, 30th, or 31st day of the month.
In states where, upon cancellation during the free look period, we are required
to return your Purchase Payment, we reserve the right to delay commencement of
dollar cost averaging transfers until the expiration of the free look period.
The DCA Fixed Accounts are available only for Purchase Payments designated
for dollar cost averaging. Purchase Payments may not be allocated into any DCA
Fixed Account when that DCA Fixed Account value is greater than $0, and all
funds must be transferred from a DCA Fixed Account prior to allocating a
Purchase Payment to that DCA Fixed Account. Where we agree, under current
administrative procedures, to allocate a Purchase Payment to any DCA Fixed
Account in installments from more than one source, we will credit each
installment with the rate applied to the first installment we receive. Any
Purchase Payment allocated to a DCA Fixed Account must include instructions
regarding the number and frequency of the dollar cost averaging transfers, and
the Allocation Option(s) into which the transfers are to be made. If transfers
from a DCA Fixed Account are terminated, we will transfer any amount remaining
in that DCA Fixed Account into the Fixed Account unless you have otherwise
instructed us how to allocate the remaining amount.
Currently, the maximum period for dollar cost averaging from DCA Fixed
Account 1 is six months and from DCA Fixed Account 2 is twelve months. From
time to time, we may offer different maximum periods for dollar cost averaging
amounts from a DCA Fixed Account.
The periodic amount transferred from a DCA Fixed Account will be equal to
the Purchase Payment allocated to the DCA Fixed Account divided by the number
of dollar cost averaging transfers to be made. The minimum amount per transfer
is $100. Interest credited will be transferred from the DCA Fixed Account after
the last dollar cost averaging transfer. We will process dollar cost averaging
transfers until the earlier of the following: (1) the designated number of
transfers have been completed, or (2) the Owner instructs us by Written Notice
to cancel the automatic transfers. Any time dollar cost averaging transfers
end, all Contract Value remaining in a DCA Fixed Account will be transferred to
the Fixed Account. Upon the death of any Owner, dollar cost averaging transfers
will continue until canceled by the Beneficiary(s).
There is no charge for dollar cost averaging. Automatic transfers made to
facilitate dollar cost averaging will not count toward the 12 transfers
permitted each Contract Year if Protective Life elects to limit transfers, or
the designated number of free transfers in any Contract Year if the Company
elects to charge for transfers in excess of that number in any Contract Year.
We reserve the right to discontinue offering the automatic transfers upon 30
days' written notice to the Owner.
PORTFOLIO REBALANCING. Prior to the Annuity Commencement Date, you may
instruct Protective Life by Written Notice to periodically transfer your
Variable Account value among specified Sub-Accounts to achieve a particular
percentage allocation of Variable Account value among such Sub-Accounts
("portfolio rebalancing"). The portfolio rebalancing percentages must be in
whole numbers and must allocate amounts only among the Sub-Accounts. No
Contract Value may be transferred to the Guaranteed Account as part of
portfolio rebalancing. Unless you instruct otherwise, portfolio rebalancing is
based on your Purchase Payment allocation instructions in effect at the time of
each rebalancing transfer. Portfolio rebalancing instructions from you that
differ from your current Purchase Payment allocation instructions are deemed to
be a request to change your Purchase Payment allocation.
Portfolio rebalancing may be elected to occur on the 1st through 28th day
of a month on either a quarterly, semi-annual or annual basis. You may change
or terminate portfolio rebalancing by Written Notice, or by other non-written
communication methods acceptable for transfer requests. Upon the death of any
Owner portfolio rebalancing will continue until canceled by the Beneficiary(s).
There is no charge for portfolio rebalancing. Automatic transfers made to
facilitate portfolio rebalancing will not count toward the 12 transfers
permitted each Contract Year if Protective Life elects to limit transfers, or
the designated number of free transfers in any Contract Year if the Company
elects to charge for transfers in excess of that number in any Contract Year.
We reserve the right to discontinue portfolio rebalancing upon 30 days' written
notice to the Owner.
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SURRENDERS AND PARTIAL 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 end of the Valuation Day on which Written
Notice requesting surrender and the Contract are received at our administrative
office. (See "Surrender Charge".) The surrender value will be paid in a lump
sum unless the Owner requests payment under a payment option. A surrender may
have federal income tax consequences. (See "Taxation of Partial and Full
Surrenders".) Under certain Annuity Options, a surrender value may be
available. (See "Annuitization".)
PARTIAL SURRENDERS. At any time before the Annuity Commencement Date, an
Owner may make a partial surrender of the Contract Value provided the Contract
Value remaining after the surrender is at least $25,000. The Company will
withdraw the amount requested from the Contract Value as of the Valuation
Period during which Written Notice requesting the partial surrender is
received.
The Owner may specify the amount of the partial surrender to be made from
any Allocation Option. If the Owner does not so specify, or if the amount in
the designated account(s) is inadequate to comply with the request, the partial
surrender will be made from each Allocation Option based on the proportion that
the value of each Allocation Option bears to the total Contract Value.
A partial surrender may have federal income tax consequences. (See
"Taxation of Partial and Full Surrenders".)
CANCELLATION OF ACCUMULATION UNITS. Surrenders and partial surrenders will
result in the cancellation of Accumulation Units from each applicable
Sub-Account(s) and/or in a reduction of the Guaranteed Account Value.
SURRENDER AND PARTIAL SURRENDER RESTRICTIONS. The Owner's right to make
surrenders and partial surrenders is subject to any restrictions imposed by
applicable law or employee benefit plan.
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS. There are
certain restrictions on surrenders and partial surrenders of Contracts used as
funding vehicles for 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 after December 31, 1988 on amounts attributable to salary
reduction contributions held as of December 31, 1988. Distributions of those
amounts may only occur upon the death of the employee, attainment of age
59 1/2, separation from service, disability, or hardship. In addition, income
attributable to salary reduction contributions may not be distributed in the
case of hardship.
In the case of certain Qualified Plans, federal tax law imposes
restrictions on the form and manner in which benefits may be paid. For example,
spousal consent may be needed in certain instances before a distribution may be
made.
PARTIAL AUTOMATIC WITHDRAWALS. Currently, the Company offers a partial
automatic withdrawal plan. This plan allows you to pre-authorize periodic
partial surrenders prior to the Annuity Commencement Date. You may elect to
participate in this plan at the time of application or at a later date by
properly completing an election form. In order to participate in the plan you
must have: (1) made an initial Purchase Payment of at least $40,000, or (2) a
Contract Value as of the previous Contract Anniversary equal to $40,000. The
partial automatic withdrawal plan and the automatic purchase payment plan may
not be elected simultaneously. (See "Purchase Payments".) There are federal
income tax consequences to partial automatic withdrawals from the Contract and
the Owner should, therefore, consult with his or her tax advisor before
participating in any withdrawal program. (See "Taxation of Partial and Full
Surrenders".)
When you elect the partial automatic withdrawal plan, you will instruct
Protective Life to withdraw a level dollar amount from the Contract on a
monthly or quarterly basis. Partial automatic withdrawals may be made on the
1st through the 28th day of each month. The amount requested must be at least
$100 per withdrawal. We will process withdrawals for the designated amount
until you instruct us otherwise. Partial automatic withdrawals will be taken
pro-rata from the Allocations Options in proportion to the value each
Allocation Option bears to the total Contract Value and will be made only by an
electronic fund transfer. We will pay you the amount requested each month or
quarter as applicable and cancel the applicable Accumulation Units.
If any partial automatic withdrawal transaction would result in a Contract
Value of less than $25,000 after the withdrawal, the transaction will not be
completed and the partial automatic withdrawal plan will terminate. The partial
automatic withdrawal plan will also terminate in the event that a non-automated
partial surrender is made from a Contract participating in the plan, except on
a partial surrender taken as a minimum required distribution from a Qualified
Plan. (See "Qualified Retirement Plans".) Upon notification of the death of any
Owner the Company will terminate the partial automatic withdrawal plan. The
partial automatic withdrawal plan may be discontinued by the Owner at any time
by Written Notice.
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There is no charge for the partial automatic withdrawal plan. We reserve
the right to discontinue the partial automatic withdrawal plan upon written
notice to you.
THE GUARANTEED ACCOUNT
The Guaranteed Account has not been, and is not required to be, registered
with the SEC under the Securities Act of 1933, and neither these accounts nor
the Company's general account have been registered as an investment company
under the 1940 Act. Therefore, neither the Guaranteed Account, the Company's
general account, nor any interests therein are generally subject to regulation
under the 1933 Act or the 1940 Act. The disclosures relating to the Guaranteed
Account included in this prospectus are for the Owner's information and have
not been reviewed by the SEC. However, such disclosures may be subject to
certain generally applicable provisions of federal securities law relating to
the accuracy and completeness of statements made in prospectuses.
The Guaranteed Account currently includes the Fixed Account and two DCA
Fixed Accounts. The Fixed Account and the DCA Fixed Accounts are part of
Protective Life's general account. The assets of Protective Life's general
account support its insurance and annuity obligations and are subject to
Protective Life's general liabilities from business operations. Since the Fixed
Account and the DCA Fixed Accounts are part of the general account, Protective
Life assumes the risk of investment gain or loss on this amount.
Except for certain Contracts issued in certain states, you may allocate
some or all of your Purchase Payments and may transfer some or all of your
Contract Value to an account within the Guaranteed Account, except that
transfers may not be made into any DCA Fixed Account, and Purchase Payments may
not be allocated to any DCA Fixed Account when that DCA Fixed Account value is
greater than $0. All previously allocated funds must be transferred out of a
DCA Fixed Account prior to allocating a subsequent Purchase Payment to that DCA
Fixed Account. Amounts allocated or transferred to an account within the
Guaranteed Account earn interest from the date the funds are credited to the
account.
The interest rate we apply to Purchase Payments and transfers into the
Fixed Account is guaranteed for one year from the date the Purchase Payment or
transfer is credited to the account. When an interest rate guarantee expires,
we will set a new interest rate, which may not be the same as the interest rate
then in effect for Purchase Payments or transfers allocated to the Fixed
Account. The new interest rate is also guaranteed for one year.
DCA Fixed Accounts are designed to systematically transfer amounts to
other Allocation Options over a designated period. The interest rate we apply
to Purchase Payments allocated to a DCA Fixed Account is guaranteed for the
period over which transfers are allowed from that DCA Fixed Account.
From time to time, we may offer Fixed Accounts or DCA Fixed Accounts with
different interest guaranteed periods. We, in our sole discretion, establish
the interest rates for each account in the Guaranteed Account. We will not
declare a rate that is less than an annual effective interest rate of 3.00%.
Because these rates vary from time to time, allocations made to the same
account within the Guaranteed Account at different times may earn interest at
different rates.
GUARANTEED ACCOUNT VALUE. Any time prior to the Annuity Commencement Date,
the Guaranteed Account value is equal to the sum of: (1) Purchase Payments
allocated to the Guaranteed Account; plus (2) amounts transferred into the
Guaranteed Account; plus (3) interest credited to the Guaranteed Account; minus
(4) amounts transferred out of the Guaranteed Account; minus (5) the amount of
any surrenders removed from the Guaranteed Account, including any applicable
premium tax; minus (6) fees deducted from the Guaranteed Account. For the
purposes of interest crediting, amounts deducted, transferred or withdrawn from
accounts within the Guaranteed Account will be separately accounted for on a
"first-in, first-out" (FIFO) basis.
DEATH BENEFIT
If any Owner dies before the Annuity Commencement Date and while this
Contract is in force, the Company will pay a death benefit, less any applicable
premium tax, to the Beneficiary. The death benefit will be determined as of the
end of the Valuation Period during which we receive due proof of death. Only
one death benefit is payable under this Contract, even though the Contract may,
in some circumstances, continue beyond the time of an Owner's death. If any
Owner is not a natural person, the death of the Annuitant is treated as the
death of an Owner. In the case of certain Qualified Contracts, regulations
promulgated by the Treasury Department prescribe certain limitations on the
designation of a Beneficiary.
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The death benefit may be taken in one sum immediately, in which event the
Contract will terminate. If the death benefit is not taken in one sum
immediately, the death benefit will become the new Contract Value as of the end
of the Valuation Period during which we receive due proof of death and the
entire interest in the Contract must be distributed under one of the following
options:
(1) the entire interest must be distributed over the life of the
Beneficiary, or over a period not extending beyond the life expectancy of
the Beneficiary, with distribution beginning within one year of the Owner's
death; or,
(2) the entire interest must be distributed within 5 years of the Owner's
death.
If the Beneficiary is the deceased Owner's spouse, the surviving spouse
may elect, in lieu of receiving a death benefit, to continue the Contract and
become the new Owner, provided the deceased Owner's spouse's 85th birthday is
after the Effective Date and the 90th birthday is after the Annuity
Commencement Date then in effect. In certain states, more restrictive age
conditions may apply. The surviving spouse may select a new Beneficiary. Upon
this spouse's death, the death benefit may be taken in one sum immediately and
the Contract will terminate. If the death benefit is not taken in one sum
immediately, the death benefit will become the new Contract Value as of the end
of the Valuation Period during which we receive due proof of death and must be
distributed to the new Beneficiary according to paragraph (1) or (2), above.
If there is more than one Beneficiary, the foregoing provisions apply to
each Beneficiary individually.
For a period of one year after any change of ownership involving a natural
person, the death benefit will equal the Contract Value regardless of whether
the standard or optional death benefit was selected.
The death benefit provisions of this Contract shall be interpreted to
comply with the requirements of ss.72(s) of the Internal Revenue Code. We
reserve the right to endorse this Contract, as necessary, to conform with
regulatory requirements. We will send you a copy of any endorsement containing
such Contract modifications.
STANDARD DEATH BENEFIT
The standard death benefit will equal the greater of: (1) the Contract
Value; or (2) aggregate Purchase Payments less aggregate amounts surrendered.
OPTIONAL BENEFIT PACKAGES
At the time of application, the Owner may purchase an optional benefit
package that may provide a death benefit which is greater than the standard
death benefit provided under the Contract. A death benefit available under an
optional benefit package must be distributed according to the rules in the
"Death Benefit" section above.
Currently, two optional benefit packages are available in most states. If
the Owner purchases one of these packages, the mortality and expense risk
expense charge will increase by 0.15% to 1.40%, for total mortality and expense
risk and administration charges of 1.55%. (See "Charges and Deductions".) Once
an optional benefit package is selected, the option may not be canceled or
changed. If any Owner is not a natural person, we will treat references to the
Owner's birthday as references to the Annuitant's birthday.
ANNUAL RESET DEATH BENEFIT PACKAGE. We will determine an annual reset
anniversary value on each Contract Anniversary occurring before the earlier of
the deceased Owner's 80th birthday or the deceased Owner's date of death. Each
annual reset anniversary value is equal to the sum of: the Contract Value on
that Contract Anniversary; plus all Purchase Payments since that Contract
Anniversary; minus all amounts surrendered since that Contract Anniversary.
The death benefit will equal the greatest of: (1) the Contract Value; or
(2) aggregate Purchase Payments less aggregate surrenders; or (3) the greatest
annual reset anniversary value attained.
COMPOUND AND 3-YEAR RESET DEATH BENEFIT PACKAGE. We will determine a
compound anniversary value on the most recent Contract Anniversary before the
earlier of the deceased Owner's 80th birthday or the deceased Owner's date of
death.
The compound anniversary value is equal to the sum of:
(a) the accumulation to the Contract Anniversary of all Purchase Payments
prior to that Contract Anniversary, minus the accumulation of amounts
surrendered prior to that Contract Anniversary; plus,
(b) any Purchase Payments on or since that Contract Anniversary, minus
any amounts surrendered on or since that Contract Anniversary.
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If the Effective Date is before the deceased Owner's 71st birthday, the
amounts in (a) will accumulate at an annual effective interest rate of 4.00%.
If the Effective Date is on or after the deceased Owner's 71st birthday, the
amounts in (a) will accumulate at an annual effective interest rate of 3.00%.
We will determine a 3-year reset anniversary value every 3rd Contract
Anniversary occurring before the earlier of the deceased Owner's 80th birthday
or the deceased Owner's date of death. Each 3-year reset anniversary value is
equal the sum of: the Contract Value on that Contract Anniversary; plus all
Purchase Payments since that Contract Anniversary; minus all amounts
surrendered since that Contract Anniversary.
The death benefit will equal the greatest of: (1) the Contract Value; or
(2) aggregate Purchase Payments less aggregate surrenders; or (3) the compound
anniversary value; or (4) the greatest 3-year reset anniversary value attained.
Refer to Appendix A for an example of the calculation of each death
benefit.
SUSPENSION OR DELAY IN PAYMENTS
Payments of a partial or full surrender of the Variable Account Value or
death benefit are usually made within seven (7) calendar days. However, the
Company may delay such payment of a partial or full surrender of the Variable
Account Value or death benefit for any period in the following circumstances:
1) when the New York Stock Exchange is closed; or
2) when trading on the New York Stock Exchange is restricted; or
3) when an emergency exists (as determined by the SEC as a result of
which (a) the disposal of securities in the Variable Account is not
reasonably practical; or (b) it is not reasonably practical to determine
fairly the value of the net assets of the Variable Account); or
4) when the SEC, by order, so permits for the protection of security
holders.
The Company may delay payment of a partial or full surrender from the
Guaranteed Account for up to six months where permitted.
CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE
To compensate Protective Life for assuming mortality and expense risks, we
deduct a daily mortality and expense risk charge. Prior to the Annuity
Commencement Date, for Contracts issued with the standard death benefit the
charge is equal, on an annual basis, to 1.25% of the average daily net assets
of the Variable Account attributable to such Contracts. If you select one of
the optional benefit packages, the mortality and expense risk expense charge
will increase by 0.15% for a total mortality and expense risk charge of 1.40%
of the average annual daily net assets of the Variable Account attributable to
your Contract. (See "Optional Benefit Packages".) On, and after the Annuity
Commencement Date, the mortality and expense risk charge is equal to 1.25% of
the average annual daily net assets of the Variable Account attributable to a
Contract.
The mortality risk Protective Life assumes is that Annuitant(s) may live
for a longer period of time than estimated when the guarantees in the Contract
were established. Because of these guarantees, each Payee is assured that
longevity will not have an adverse effect on the annuity payments received. The
mortality risk that Protective Life assumes also includes a guarantee to pay a
death benefit if the Owner dies before the Annuity Commencement Date. The
expense risk that Protective Life assumes is the risk that the administration
charge, contract maintenance fee and transfer fees may be insufficient to cover
actual future expenses. It is possible that the mortality and expense risk
charge (or a portion of it) could be treated as a distribution for tax
purposes. (See "Federal Tax Matters.")
ADMINISTRATION CHARGES
We will deduct an administration charge equal, on an annual basis, to
0.15% of the daily net asset value of each Sub-Account in the Variable Account.
This deduction is made to reimburse Protective Life for expenses incurred in
the administration of the Contract and the Variable Account. The administration
charge is deducted only from the Variable Account value. The Variable Account
is not responsible for any other operating expenses.
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TRANSFER FEE
Currently, there is no charge for transfers. Protective Life reserves the
right, however, to charge $25 for each transfer after the first 12 transfers in
any Contract Year. For the purpose of assessing the fee, each request would be
considered to be one transfer, regardless of the number of Allocation Options
affected by the transfer in one day. The fee would be deducted from the amount
being transferred.
CONTRACT MAINTENANCE FEE
Prior to the Annuity Commencement Date, the contract maintenance fee is
$30 and is deducted from the Contract Value on each Contract Anniversary, and
on any day that the Contract is surrendered other than the Contract
Anniversary. The contract maintenance fee will be deducted from the Allocation
Options in the same proportion as their values are to the Contract Value. The
contract maintenance fee will be waived by the Company in the event the
Contract Value or the aggregate Purchase Payments reduced by surrenders equals
or exceeds $50,000 on the date the contract maintenance fee is to be deducted.
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 the
investment advisers of any of the Funds 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 Protective Life estimates that
it will incur lower administrative expenses or perform fewer administrative
services.
FUND EXPENSES
The net assets of each Sub-Account of the Variable Account will reflect
the investment management fees and other operating expenses incurred by the
Funds. For each Fund, an investment manager is paid a daily fee for its
services. (See the prospectuses for the Funds, which accompany this
Prospectus.)
PREMIUM TAXES
Some states impose premium taxes at rates currently ranging up to 3.5%. If
premium taxes apply to your Contract, we will deduct them from the Purchase
Payment(s) when accepted or from the Contract Value upon a full or partial
surrender, death or annuitization.
OTHER TAXES
Currently, no charge will be made against the Variable Account for
federal, state or local taxes other than premium taxes. We reserve the right,
however, to deduct a charge for taxes attributable to the operation of the
Variable Account.
ANNUITIZATION
ANNUITY COMMENCEMENT DATE
On the Effective Date, the Annuity Commencement Date is the earlier of any
Owner's 90th birthday or the Annuitant's 90th birthday. The Owner may change
the Annuity Commencement Date by Written Notice. The proposed Annuity
Commencement Date must be at least 30 days after the date the written request
is received by the Company, and at least 5 years after the most recent Purchase
Payment. The new Annuity Commencement Date may not be later than the earlier of
the oldest Owner's 90th birthday or the Annuitant's 90th birthday. In certain
states, more restrictive age conditions may apply. Annuity Commencement Dates
that represent an advanced age for the Annuitant (E.G., past age 85), may in
certain circumstances have adverse income tax consequences. (See "Federal
Income Tax Matters".) Distributions from Qualified Contracts may be required
before the Annuity Commencement Date.
On the Annuity Commencement Date, we will apply your Contract Value, less
any applicable charges and premium tax, to the Annuity Option you have selected
to determine an annuity income payment. You may elect to receive a fixed income
payment, a variable income payment, or a combination of both using the same
Annuity Option and certain period.
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FIXED INCOME PAYMENTS
Fixed income payments are periodic payments from the Company to the
designated Payee, the amount of which is fixed and guaranteed by the Company.
Fixed income payments are not in any way dependent upon the investment
experience of the Variable Account. Once fixed income payments have begun, they
may not be surrendered.
VARIABLE INCOME PAYMENTS
Variable income payments are periodic payments from the Company to the
designated Payee, the amount of which varies from one payment to the next as a
reflection of the net investment experience of the Sub-Account(s) you select to
support the payments.
ANNUITY UNITS. On the Annuity Commencement Date, we will apply the
Contract Value you have allocated to variable income payments (less applicable
charges and premium taxes) to the variable Annuity Option you have selected.
Using an interest assumption of 5%, we will determine the dollar amount that
would equal a variable income payment if a payment were made on that date. (No
payment is actually made on that date.) We will then allocate that dollar
amount among the Sub-Accounts you selected to support your variable income
payments, and we will determine the number of Annuity Units in each of those
Sub-Accounts that is credited to your Contract. We will make this determination
based on the Annuity Unit values established at the close of regular trading on
the New York Stock Exchange on the Annuity Commencement Date. If the Annuity
Commencement Date is a day on which the New York Stock Exchange is closed, we
will determine the number of Annuity Units on the next day on which the New
York Stock Exchange is open. The number of Annuity Units attributable to each
Sub-Account under a Contract remains constant unless there is an exchange of
Annuity Units between Sub-Accounts.
VARIABLE INCOME PAYMENTS. We will determine the amount of your variable
income payment no earlier than five Valuation Days before the date on which a
payment is due, using values established at the close of regular trading on the
New York Stock Exchange that day.
The dollar amount of each variable income payment attributable to each
Sub-Account is determined by multiplying the number of Annuity Units of that
Sub-Account credited to your Contract by the Annuity Unit value (described
below) for that Sub-Account on the Valuation Period during which the payment is
determined. The dollar value of each variable income payment is the sum of the
variable income payment attributable to each Sub-Account.
The Annuity Unit value of each Sub-Account for any Valuation Period is
equal to (a) multiplied by (b) divided by (c) where:
(a) is the Net Investment Factor for the Valuation Period for which the
Annuity Unit value is being calculated;
(b) is the Annuity Unit value for the preceding Valuation Period; and
(c) is a daily Assumed Investment Return (AIR) factor adjusted for the
number of days in the Valuation Period.
The AIR is equal to 5%, and the AIR factor is equal to one plus the AIR,
or 1.05. The annual factor can be translated into a daily factor of 1.00013368.
If the net investment return of the Sub-Account for a variable income
payment period is equal to the AIR during that period, the variable income
payment attributable to that Sub-Account for that period will equal the payment
for the prior period. To the extent that such net investment return exceeds the
AIR for that period, the payment for that period will be greater than the
payment for the prior period; to the extent that such net investment return
falls short of the AIR for that period, the payment for that period will be
less than the payment for the prior period.
Refer to Appendix B for an explanation of the variable annuitization
calculation.
EXCHANGE OF ANNUITY UNITS. After the Annuity Commencement Date, you may
exchange the dollar amount of a designated number of Annuity Units of a
particular Sub-Account for an equivalent dollar amount of Annuity Units of
another Sub-Account. On the date of the exchange, the dollar amount of a
variable income payment generated from the Annuity Units of either Sub-Account
would be the same. Only one exchange between Sub-Accounts is allowed in any
calendar month, and no exchanges are allowed between the Guaranteed Account and
the Variable Account.
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ANNUITY OPTIONS.
You may select an Annuity Option, or change your selection by Written
Notice received by the Company not later than 30 days before the Annuity
Commencement Date. If you have not selected an Annuity Option within 30 days of
the Annuity Commencement Date, we will apply your Contract Value to Option B --
Life Income with Payments for a 10 Year Certain Period, with the Variable
Account value used to purchase variable income payments and the Guaranteed
Account value used to purchase fixed income payments.
You may select from among the following Annuity Options:
OPTION A -- PAYMENTS FOR A CERTAIN PERIOD: Payments will be made for the
period you select. No certain period may be longer than 30 years. Payments
under this Annuity Option do not depend on the life of an Annuitant. The
Contract may be surrendered for its commuted value while variable income
payments under Option A are being made.
OPTION B -- LIFE INCOME WITH OR WITHOUT A CERTAIN PERIOD: Payments are
based on the life of an Annuitant. If you elect to include a certain period,
payments will be made for the lifetime of the Annuitant(s), with payments
guaranteed for the certain period you select. No certain period may be longer
than 30 years. Payments stop at the end of the selected certain period or when
the Annuitant(s) dies, whichever is later. We reserve the right to demand proof
that the Annuitant(s) is living prior to making any payment after completion of
the certain period. IF NO CERTAIN PERIOD IS SELECTED, PAYMENTS WILL STOP UPON
THE DEATH OF THE ANNUITANT(S), NO MATTER HOW FEW OR HOW MANY PAYMENTS HAVE BEEN
MADE. The Contract may not be surrendered while variable income payments under
Option B are being made.
ADDITIONAL OPTION: The Contract Value, less applicable premium tax, may be
used to purchase any annuity contract that we offer on the date this option is
elected.
MINIMUM AMOUNTS.
If your Contract Value is less than $5,000 on the Annuity Commencement
Date, we reserve the right to pay the Contract Value in one lump sum. If at any
time your annuity income payments are less than the minimum payment amount
according to the Company's rules then in effect, we reserve the right to change
the frequency to an interval that will result in a payment at least equal to
the minimum.
DEATH OF ANNUITANT OR OWNER AFTER ANNUITY COMMENCEMENT DATE
In the event of the death of any Owner on or after the Annuity
Commencement Date, the Beneficiary will become the new Owner. If any Owner or
Annuitant dies on or after the Annuity Commencement Date and before all
benefits under the Annuity Option selected have been paid, any remaining
portion of such benefits will be paid out at least as fast as under the Annuity
Option being used when the Owner or Annuitant died. After the death of the
Annuitant, any remaining payments shall be payable to the Beneficiary unless
you specified otherwise before the Annuitant's death.
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. Certain Funds have been in existence prior to the
commencement of the offering of the Contract described in this prospectus, and
prior to the investment by the Sub-Accounts in such Funds. The Variable Account
may advertise the performance of the Sub-Accounts that invest in these Funds
for these prior periods. The performance information of any period prior to the
commencement of the offering of the Contract and the investments by the
Sub-Accounts is calculated as if the Contract had been offered during those
periods and the Sub-Account had invested in those Funds during those periods,
using current charges and expenses. Protective Life may, from time to time,
advertise or include in sales literature Sub-Account performance relative to
certain performance rankings and indices compiled by independent organizations.
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 PIC 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.
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The effective yield is calculated similarly but when annualized the income
earned by an investment in the Sub-Account is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
The yield of a Sub-Account (except the PIC 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 cumulative total return of a Sub-Account refers to return quotations
assuming an investment under a Contract has been held in the Sub-Account for
various periods of time including, but not limited to, a period measured from
the date the Sub-Account commenced operations. Average annual total return
refers to total return quotations that are annualized based on an average
return over various periods of time.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which the quotations are provided. Average annual
total return information shows the average percentage change in the value of an
investment in the Sub-Account from the beginning date of the measuring period
to the end of that period. This standardized version of average annual total
return reflects all historical investment results, less all charges and
deductions applied against the Sub-Account (excluding any deductions for
premium taxes). When a Sub-Account other than the PIC 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 non-standard
bases may be used in advertisements or sales literature. Average annual total
return information may be presented, computed on the same basis as the standard
version except deductions will not include the contract maintenance fee. In
addition, Protective Life may from time to time disclose average annual total
return in other non-standard formats and cumulative total return for Contracts
funded by the Sub-Accounts.
Protective Life may, from time to time, also disclose yield, standard
average annual total returns, and non-standard total returns for the Funds.
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"), the Variable Annuity Research Data Service ("VARDS"), and
Morningstar Inc. ("Morningstar") are independent services which monitor and
rank the performance of variable annuity issuers in each of the major
categories of investment objectives on an industry-wide basis.
Lipper and Morningstar rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS rankings compare only variable annuity
issuers. The performance analyses prepared by Lipper, Morningstar and VARDS
each rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption fees, or certain
expense deductions at the separate account level into consideration. In
addition, VARDS prepares risk adjusted rankings, which consider the effects of
market risk on total return performance. This type of ranking provides data as
to which funds provide the highest total return within various categories of
funds defined by the degree of risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Sub-Account to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and
indices may also be used as a source of performance comparison.
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.
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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, PROTECTIVE LIFE
MAKES NO GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF
ANY CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
Protective Life is taxed as a life insurance company under the Code. Since
the operations of the Variable Account are a part of, and are taxed with, the
operations of the Company, the Variable Account is not separately taxed as a
"regulated investment company" under the Code. Under existing federal income
tax laws, investment income and capital gains of the Variable Account are not
taxed to the extent they are applied under a Contract. Protective Life does not
anticipate that it will incur any federal income tax liability attributable to
such income and gains of the Variable Account, and therefore does not intend to
make provision for any such taxes. If Protective Life is taxed on investment
income or capital gains of the Variable Account, then Protective Life may
impose a charge against the Variable Account in order to make provision for
such taxes.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in an Owner's Contract Value is generally not taxable to the Owner
until received, either in the form of annuity payments as contemplated by the
Contracts, or in some other form of distribution. However, this rule applies
only if (1) the investments of the Variable Account are "adequately
diversified" in accordance with Treasury Department regulations, (2) the
Company, rather than the Owner, is considered the owner of the assets of the
Variable Account for federal income tax purposes, and (3) the Owner is an
individual (or an individual is treated as the Owner for tax purposes).
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 excess of
the Contact Value over the premiums paid for the Contact. Protective Life
expects that the Variable Account, through the Funds, will comply with the
diversification requirements prescribed by the Code and Treasury Department
regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable annuity contract
owners may be considered the owners, for federal income tax purposes, of the
assets of a segregated asset account, such as the Variable Account, used to
support their contracts. In those circumstances, income and gains from the
segregated asset account would be includable in the contract owners' gross
income. The Internal Revenue Service (the "IRS") has stated in published
rulings that a variable contract owner will be considered the owner of the
assets of a segregated asset account if the owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. In addition, the Treasury Department announced, in connection
with the issuance of regulations concerning investment diversification, that
those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor, rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also stated that
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.
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These differences could result in the Owner being treated as the owner of the
assets of the Variable Account and thus subject to current taxation on the
income and gains from those assets. In addition, the Company does not know what
standards will be set forth in the regulations or rulings which the Treasury
Department has stated it expects to issue. Protective Life therefore reserves
the right to modify the Contract as necessary to attempt to prevent Contract
Owners from being considered the owners of the assets of the Variable Account.
However, there is no assurance such efforts would be successful.
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 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.
DELAYED ANNUITY COMMENCEMENT DATES. If the Contract's Annuity Commencement
Date occurs (or is scheduled to occur) at a time when the Annuitant has reached
an advanced age (E.G., past age 85), it is possible that the Contract would not
be treated as an annuity for federal income tax purposes. In that event, the
income and gains under the Contract could be currently includable in the
Owner's income.
The remainder of this discussion assumes that the Contract will be treated
as an annuity contract for federal income tax purposes.
TAXATION OF PARTIAL AND FULL SURRENDERS
In the case of a partial surrender, amounts received generally are
includable 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 includable in income to the extent they
exceed the "investment in the contract." For these purposes, the investment in
the contract at any time equals the total of the Purchase Payments made under
the Contract to that time (to the extent such payments were neither deductible
when made nor excludable from income as, for example, in the case of certain
contributions to Qualified Contracts) less any amounts previously received from
the Contract which were not included in income. Partial and full surrenders may
be subject to a 10% penalty tax. (See "Penalty Tax on Premature
Distributions.") Partial and full surrenders may also be subject to federal
income tax withholding requirements. (See "Federal Income Tax Withholding.") In
addition, in the case of partial and full surrenders from certain Qualified
Plans, mandatory withholding requirements may apply, unless a "direct rollover"
of the amount surrendered is made. (See "Direct Rollovers".)
The Contract provides a death benefit that in certain circumstances may
exceed the greater of the Purchase Payments and the Contract Value. As
described elsewhere in this Prospectus, the Company imposes certain charges
with respect to the death benefit. It is possible that these charges (or some
portion thereof) could be treated for federal tax purposes as a partial
surrender of the Contract.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity income payment taxable as ordinary
income is equal to the excess of the payment over the exclusion amount. In the
case of variable income payments, the exclusion amount is the "investment in
the contract" (defined above) allocated to the variable Annuity Option,
adjusted for any period certain or refund feature, when payments begin to be
made divided by the number of payments expected to be made (determined by
Treasury Department regulations which take into account the annuitant's life
expectancy and the form of annuity benefit selected). In the case of fixed
income payments, the exclusion amount is the amount determined by multiplying
(1) the payment by (2) the ratio of the investment in the contract allocated to
the fixed Annuity Option, adjusted for any period certain or refund feature, to
the total expected amount of annuity income payments for the term of the
Contract (determined under Treasury Department regulations). Annuity income
payments may be subject to federal income tax withholding requirements. (See
"Federal
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Income Tax Income Withholding".) In addition, in the case of annuity income
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 income payments
cease because of the death of the Annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction.
There may be special income tax issues present in situations where the
Owner and the Annuitant are not the same person and are not married to one
another. A tax advisor should be consulted in those situations.
TAXATION OF DEATH BENEFIT PROCEEDS
Prior to the Annuity Commencement Date, amounts may be distributed from a
Contract because of the death of an Owner or, in certain circumstances, the
death of the Annuitant. Such death benefit proceeds are includable in income as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender, as described above, or (2) if distributed under an Annuity
Option, they are taxed in the same manner as annuity income payments, as
described above.
After the Annuity Commencement Date, where a guaranteed period exists
under an Annuity Option, and the Annuitant dies before the end of that period,
payments made to the Beneficiary for the remainder of that period are
includable in income as follows: (1) if received in a lump sum, they are
included in income to the extent that they exceed the unrecovered investment in
the contract at that time, or (2) if distributed in accordance with the
existing Annuity Option selected, they are fully excluded from income until the
remaining investment in the contract is deemed to be recovered, and all annuity
income payments thereafter are fully includable in income.
Proceeds payable on death may be subject to federal income tax withholding
requirements. (See "Federal Income Tax Withholding".) In addition, in the case
of such proceeds from certain Qualified 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 includable
as income with respect to such assignment or pledge, though it is not affected
by any other aspect of the assignment or pledge (including its release). If an
Owner transfers a Contract without adequate consideration to a person other
than the Owner's spouse (or to a former spouse incident to divorce), the Owner
will be taxed on the difference between his or her Contract Value and the
investment in the contract at the time of transfer. In such case, the
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 (as defined in
the tax law), or (e) made under a Contract purchased with a single Purchase
Payment when the annuity starting date is no later than a year from purchase of
the Contract and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period. (Similar rules, discussed
below, apply in the case of certain Contracts issued in connection with
Qualified Plans.)
AGGREGATION OF CONTRACTS
In certain circumstances, the amount of an annuity income payment or a
surrender from a Contract that is includable in income may be determined by
combining some or all of the annuity contracts owned by an individual not
issued in connection with Qualified Plans. For example, if a person purchases a
Contract offered by this Prospectus and also purchases at approximately the
same time an immediate annuity issued by Protective Life, the IRS may treat the
two contracts as one contract. In addition, if a person purchases two or more
deferred annuity contracts from the same insurance company (or its
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affiliates) during any calendar year, all such contracts will be treated as one
contract for purposes of determining whether any payment not received as an
annuity (including surrenders prior to the Annuity Commencement Date) is
includable in income. The effects of such aggregation are not clear; however,
it could affect the amount of a withdrawal or an annuity payment that is
taxable and the amount which might be subject to the 10% penalty tax described
above.
LOSS OF INTEREST DEDUCTION WHERE CONTRACT IS HELD BY OR FOR THE BENEFIT OF
CERTAIN NON-NATURAL PERSONS
In the case of Contracts issued after June 8, 1997 to a non-natural
taxpayer (such as a corporation or a trust), or held for the benefit of such an
entity, recent changes in the tax law may result in otherwise deductible
interest no longer being deductible by the entity, regardless of whether the
interest relates to debt used to purchase or carry the Contract. However, this
interest deduction disallowance does not affect Contracts where the income on
such Contracts is treated as ordinary income that is received or accrued by the
Owner during the taxable year. Entities that are considering purchasing the
Contract, or entities that will be Beneficiaries under a Contract, should
consult a tax adviser.
QUALIFIED RETIREMENT PLANS
IN GENERAL
The Contracts are also designed for use in connection with certain types
of retirement plans which receive favorable treatment under the Code. Numerous
special tax rules apply to the participants in Qualified Plans and to Contracts
used in connection with Qualified Plans. Therefore, no attempt is made in this
Prospectus to provide more than general information about use of the Contract
with the various types of Qualified Plans.
The tax rules applicable to Qualified Plans vary according to the type of
plan and the terms and conditions of the plan itself. For example, both the
amount of the contribution that may be made, and the tax deduction or exclusion
that the Owner may claim for such contribution, are limited under Qualified
Plans and vary with the type of plan. Also, for full surrenders, partial
surrenders, and annuity income payments under Qualified Contracts, there may be
no "investment in the contract" and the total amount received may be taxable.
Similarly, loans from Qualified Contracts, where available, are subject to a
variety of limitations, including restrictions as to the amount that may be
borrowed, the duration of the loan, and the manner in which the loan must be
repaid. (Owners should always consult their tax advisors and retirement plan
fiduciaries prior to exercising any loan privileges that are available.) Both
the amount of the contribution that may be made, and the tax deduction or
exclusion that the Owner may claim for such contribution, are limited under
Qualified Plans. Those who are considering the purchase of a Contract in
connection with a Qualified Plan should consider, in evaluating the suitability
of the Contract, that the Contract requires a minimum initial Purchase Payment
of $25,000.
If this Contract is used in connection with a Qualified Plan, the Owner
and Annuitant must be the same individual. In addition, special rules apply to
the time at which distributions must commence and the form in which the
distributions must be paid. For example, the length of any guarantee period may
be limited in some circumstances to satisfy certain minimum distribution
requirements under the Code. Furthermore, failure to comply with minimum
distribution requirements applicable to Qualified Plans will result in the
imposition of an excise tax. This excise tax generally equals 50% of the amount
by which a minimum required distribution exceeds the actual distribution from
the Qualified Plan. In the case of Individual Retirement Accounts or Annuities
("IRAs"), distributions of minimum amounts (as specified in the tax law) must
generally commence by April 1 of the calendar year following the calendar year
in which the Owner attains age 70 1/2. In the case of certain other Qualified
Plans, distributions of such minimum amounts must generally commence by the
later of this date or April 1 of the calendar year following the calendar year
in which the employee retires.
There may be a 10% penalty tax on the taxable amount of payments from
certain Qualified Contracts. There are exceptions to this penalty tax which
vary depending on the type of Qualified Plan. In the case of an IRA, exceptions
provide that the penalty tax does not apply to a payment (a) received on or
after the Owner reaches age 59 1/2, (b) received on or after the Owner's death
or because of the Owner's disability (as defined in the tax law), or (c) made
as a series of substantially equal periodic payments (not less frequently than
annually) for the life (or life expectancy) of the Owner or for the joint lives
(or joint life expectancies) of the Owner and his designated beneficiary (as
defined in the tax law). These exceptions, as well as certain others not
described herein, generally apply to taxable distributions from other Qualified
Plans (although, in the case of plans qualified under sections 401 and 403,
exception "c" above for substantially equal periodic payments applies only if
the Owner has separated from service). In addition, the penalty tax does not
apply to certain distributions from IRAs taken after December 31, 1997 which
are used for qualified first time home purchases or for higher education
expenses. Special conditions must be met for these two exceptions to the
penalty tax. Those wishing to take a distribution from an IRA for these
purposes should consult their tax advisor.
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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 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.
The Contract may not, however, be used in connection with an "Education
IRA" under Section 530 of the Code, a "Simplified Employee Pension" under
Section 408(k) of the Code, or a "Simple IRA" under Section 408(p) of the Code.
IRAs generally may not invest in life insurance contracts, but an annuity
that is purchased by, or used as, an IRA may provide a death benefit that
equals the greater of the premiums paid and the contract's cash value. The
Contract provides a death benefit that in certain circumstances may exceed the
greater of the Purchase Payments and the Contract Value. It is possible that
the death benefit could be viewed as violating the prohibition on investment in
life insurance contracts with the result that the Contract would not be viewed
as satisfying the requirements of an IRA.
ROTH IRAS. Recently enacted Section 408A of the Code permits eligible
individuals to contribute to a type of IRA known as a "Roth IRA." Roth IRAs
differ from other IRAs in several respects. Among the differences is that,
although contributions to a Roth IRA are not deductible, "qualified
distributions" from a Roth IRA will be excludable from income. The eligibility
and mandatory distribution requirements for Roth IRAs also differ from non-Roth
IRAs. Furthermore, a rollover may be made to a Roth IRA only if it is a
"qualified rollover contribution." A "qualified rollover contribution" is a
rollover contribution to a Roth IRA from another Roth IRA or from a non-Roth
IRA, but only if such rollover contribution meets the rollover requirements for
IRAs under section 408(d)(3) of the Code. In the case of a qualified rollover
contribution or a transfer from a non-Roth IRA to a Roth IRA, any portion of
the amount rolled over which would be includable in gross income were it not
part of a qualified rollover contribution or a nontaxable transfer will be
includible in gross income. However, the 10 percent penalty tax on premature
distributions generally will not apply to such amounts.
All or part of amounts in a non-Roth IRA may be converted into a Roth IRA.
Such a conversion can be made without taking an actual distribution from the
IRA. For example, an individual may make a conversion by notifying the IRA
issuer or trustee, whichever is applicable. The conversion of an IRA to a Roth
IRA is a special type of qualified rollover distribution. Hence, the IRA
participant must be eligible to make a qualified rollover distribution in order
to convert an IRA to a Roth IRA. A conversion typically will result in the
inclusion of some or all of the IRA value in gross income, as described above.
Persons with adjusted gross incomes in excess of $100,000 or who are married
and file a separate return are not eligible to make a qualified rollover
contribution or a transfer in a taxable year from a non-Roth IRA to a Roth IRA.
Any "qualified distribution" from a Roth IRA is excludable from gross
income. A "qualified distribution" is a payment or distribution which satisfies
two requirements. First, the payment or distribution must be (a) made after the
Owner attains age 59 1/2, (b) made after the Owner's death, (c) attributable to
the Owner being disabled, or (d) a qualified first-time home buyer distribution
within the meaning of section 72(t)(2)(F) of the Code. Second, the payment or
distribution must be made in a taxable year that is at least five years after
(a) the first taxable year for which a contribution was made to any Roth IRA
established for the Owner, or (b) in the case of a payment or distribution
properly allocable to a qualified rollover contribution from a non-Roth IRA (or
income allocable thereto), the taxable year in which the rollover contribution
was made. A distribution from a Roth IRA which is not a qualified distribution
is generally taxed in the same manner as a distribution from non-Roth IRAs.
Distributions from a Roth IRA need not commence at age 70 1/2.
As described above (see "Individual Retirement Annuities"), there is some
uncertainty regarding the proper characterization of the Contract's death
benefit for purposes of the tax rules governing IRAs (which include Roth IRAs).
Persons intending to use the Contract in connection with a Roth IRA should seek
competent advice.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND
PROFIT-SHARING PLANS. Sections 401(a) and 403(a) of the 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
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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. In addition, corporate
and self-employed pension and profit sharing plans are subject to
nondiscrimination rules. The nondiscrimination rules generally require that
benefits, rights or features of the plan not discriminate in favor of highly
compensated employees. Violation of these rules can cause loss of the plan's
tax favored status under the Code. 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) plans are subject to nondiscrimination rules. The
nondiscrimination rules generally require that benefits, rights or features of
the plan not discriminate in favor of highly compensated employees. Violation
of these nondiscrimination rules can cause loss of the plan's tax favored
status under the Code. Employers intending to use the Contract in connection
with such plans should seek competent advice.
Section 403(b) Policies contain restrictions on withdrawals of (i)
contributions made pursuant to a salary reduction agreement in years beginning
after December 31, 1988, (ii) earnings on those contributions, and (iii)
earnings after December 31, 1988 on amounts attributable to salary reduction
contributions held as of December 31, 1988. These amounts can be paid only if
the employee has reached age 59 1/2, separated from service, died, become
disabled, or in the case of hardship. Amounts permitted to be distributed in
the event of hardship are limited to actual contributions; earnings thereon can
not be distributed on account of hardship. (These limitations on withdrawals do
not apply to the extent the Company is directed to transfer some or all of the
Contract Value to the issuer of another Section 403(b) Policy or into a Section
403(b)(7) custodial account.)
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Section 457 of the 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. 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.
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 direct rollover and mandatory withholding requirements. An
eligible rollover distribution generally is any taxable distribution from a
qualified pension plan under section 401(a) of the 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 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
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apply if, instead of receiving the eligible rollover distribution, you elect to
have it directly transferred to certain Qualified Plans. Prior to receiving an
eligible rollover distribution, you will receive a notice (from the plan
administrator or the Company) explaining generally the direct rollover and
mandatory withholding requirements and how to avoid the 20% withholding by
electing a direct transfer.
FEDERAL INCOME TAX WITHHOLDING
Protective Life will withhold and remit to the federal government a part
of the taxable portion of each distribution made under a Contract unless the
distributee notifies Protective Life at or before the time of the distribution
that he or she elects not to have any amounts withheld. In certain
circumstances, Protective Life may be required to withhold tax. The withholding
rates applicable to the taxable portion of periodic annuity payments (other
than eligible rollover distributions) are the same as the withholding rates
generally applicable to payments of wages. In addition, the withholding rate
applicable to the taxable portion of non-periodic payments (including
surrenders prior to the Annuity Commencement Date) and conversions of, or
rollovers from, non-Roth IRAs to Roth IRAs is 10%. Regardless of whether you
elect not to have federal income tax withheld, you are still liable for payment
of federal income tax on the taxable portion of the payment. As discussed
above, the withholding rate applicable to eligible rollover distributions is
20%.
GENERAL MATTERS
THE CONTRACT
The Contract and its attachments, including the copy of your application
and any endorsements, riders and amendments, constitute the entire agreement
between you and us. All statements in the application shall be considered
representations and not warranties. The terms and provisions of this Contract
are to be interpreted in accordance with the Internal Revenue Code of 1986, as
amended (the "Code") and applicable regulations.
ERROR IN AGE OR GENDER
When a benefit of the Contract is contingent upon any person's age or
gender, we may require proof of such. We may suspend payments until proof is
provided. When we receive satisfactory proof, we will make the payments which
were due during the period of suspension. Where the use of unisex mortality
rates is required, we will not determine or adjust benefits based upon gender.
If after proof of age and gender (where applicable) is provided, it is
determined that the information you furnished was not correct, we will adjust
any benefit under this Contract to that which would be payable based upon the
correct information. If we have underpaid a benefit because of the error, we
will make up the underpayment in a lump sum. If the error resulted in an
overpayment, we will deduct the amount of the overpayment from any current or
future payment due under the Contract. We will deduct up to the full amount of
any current or future payment until the overpayment has been fully repaid.
Underpayments and overpayments will bear interest at an annual effective
interest rate of 3%.
INCONTESTABILITY
We will not contest the Contract.
NON-PARTICIPATION
The Contract is not eligible for dividends and will not participate in
Protective Life's surplus or profits.
ASSIGNMENT
You have the right to assign the Contract if it is a Non-Qualified
Contract. We do not assume responsibility for the assignment. Any claim made
under an assignment is subject to proof of the nature and extent of the
assignee's interest prior to payment by us. Assignments have federal income tax
consequences. (See "Assignments, Pledges and Gratuitous Transfers" in the
prospectus.)
NOTICE
All instructions and requests to change or assign the Contract must be in
writing in a form acceptable to us, signed by the Owner(s), and received at our
administrative office. The instruction, change or assignment will relate back
to and take
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effect on the date it was signed, except we will not be responsible for
following any instruction or making any change or assignment before we receive
it.
MODIFICATION
No one is authorized to modify or waive any term or provision of this
Contract unless we agree to the modification or waiver in writing and it is
signed by our President, Vice-President or Secretary. We reserve the right to
change or modify the provisions of this Contract to conform to any applicable
laws, rules or regulations issued by a government agency, or to assure
continued qualification of the Contract as an annuity contract under the
Internal Revenue Code. We will send you a copy of the endorsement that modifies
the Contract, and where required we will obtain all necessary approvals,
including that of the Owner(s).
REPORTS
At least annually prior to the Annuity Commencement Date, we will send to
you at the address contained in our records a report showing the current
Contract Value and any other information required by law.
SETTLEMENT
Benefits due under this Contract are payable from our administrative
office. The Owner may apply the settlement proceeds to any payout option we
offer for such payments at the time the election is made. Unless directed
otherwise in writing, we will make payments according to the Owner's
instructions as contained in our records at the time the payment is made. We
shall be discharged from all liability for payment to the extent of any
payments we make.
RECEIPT OF PAYMENT
If any Owner, Annuitant, Beneficiary or Payee is incapable of giving a
valid receipt for any payment, we may make such payment to whomever has legally
assumed his or her care and principal support. Any such payment shall fully
discharge us to the extent of that payment.
PROTECTION OF PROCEEDS
To the extent permitted by law and except as provided by an assignment, no
benefits payable under this Contract will be subject to the claims of
creditors.
MINIMUM VALUES
The values available under the Contract are at least equal to the minimum
values required in the state where the Contract is delivered.
APPLICATION OF LAW
The provisions of the Contract are to be interpreted in accordance with
the laws of the state where the Contract is delivered, with the Internal
Revenue Code and with applicable regulations.
NO DEFAULT
The Contract will not be in default if subsequent Purchase Payments are
not made.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be offered on a continuous basis and Protective Life
does not anticipate discontinuing the offering of the Contracts. Nevertheless,
Protective Life reserves the right to discontinue the offering at any time.
Investment Distributors, Inc. serves as principal underwriter (as defined in
the 1940 Act) for the Contracts. Investment Distributors, Inc. has agreed to
use its best efforts to sell the Contracts. Investment Distributors, Inc. is a
wholly-owned subsidiary of PLC and has the same address as Protective Life.
Applications for Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell Protective Life's Contracts and
who are also registered representatives of broker/ dealers having a
distribution agreement with Investment Distributors, Inc. or broker/dealers
having a distribution agreement with such broker/dealer. Investment
Distributors, Inc. is an affiliate of Protective Life 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
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the National Association of Securities Dealers, Inc. The maximum commission
Protective Life will pay is 2% of the Purchase Payments for the sale of a
Contract, not including subsequent asset-based commissions.
INQUIRIES
Inquiries regarding a Contract may be made by writing to Protective Life
at its administrative office.
PREPARATION FOR YEAR 2000
Older computer hardware and software often denote the year using two
digits rather than four; for example, the year 1997 often is denoted by such
hardware and software as "97." It is probable that such hardware and software
will malfunction when calculations involving the year 2000 are attempted
because the hardware and/or software will interpret "00" as representing the
year 1900 rather than the year 2000. This "Year 2000" issue potentially affects
all individuals and companies (including Protective, its customers, business
partners, suppliers, banks, custodians and administrators) who rely on
computers or devices containing computer chips.
Protective Life has developed and is implementing a Year 2000 transition
plan intended to identify and modify or replace primary hardware and/or
software systems on which it relies that have a Year 2000 issue. Protective
Life is also developing and implementing a plan to identify and modify or
replace secondary hardware and/or software systems on which it relies that have
a Year 2000 issue. Substantial resources are being devoted to this effort;
however the costs to develop and implement these plans are not expected to be
material. Protective Life is also confirming that its service providers are
implementing plans to identify and modify or replace their systems that have a
Year 2000 issue.
Protective Life currently anticipates that its systems will be able to
process transactions dated beyond 1999 on or before December 31, 1999. There
can be no assurance, however, that Protective Life's efforts will be
successful, that interaction with other service providers with Year 2000 issues
will not impair Protective Life's operations, or that the Year 2000 issue will
not otherwise adversely affect Protective Life or contract owners.
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Variable Account is
a party or the assets of the Variable Account are subject. Protective Life is
involved in pending and threatened proceedings in which claims for monetary
damages or penalties may be asserted. Management, after consultation with legal
counsel, does not believe that such proceedings are material, nor does it
anticipate the ultimate liability arising from any such proceeding would be
material, to Protective Life in relation to its total assets. Such proceedings
are not related to the Variable Account.
VOTING RIGHTS
In accordance with its view of applicable law, Protective Life will vote
the Fund shares held in the Variable Account at special shareholder meetings of
the Funds in accordance with instructions received from persons having voting
interests in the corresponding Sub-Accounts. If, however, the 1940 Act or any
regulation thereunder should be amended, or if the present interpretation
thereof should change, or Protective Life determines that it is allowed to vote
such shares in its own right, it may elect to do so.
The number of votes available to an Owner will be calculated separately
for each Sub-Account of the Variable Account, and may include fractional votes.
The number of votes attributable to a Sub-Account will be determined by
applying an Owner's percentage interest, if any, in a particular Sub-Account to
the total number of votes attributable to that Sub-Account. An Owner holds a
voting interest in each Sub-Account to which that Owner has allocated
Accumulation Units or Annuity Units. Before the Annuity Commencement Date, the
Owner's percentage interest, if any, will be percentage of the dollar value of
Accumulation Units allocated for his or her Contract to the total dollar value
of that Sub-Account. On or after the Annuity Commencement Date, the Owner's
percentage interest, if any, will be percentage of the dollar value of the
liability for future variable income payments to be paid from the Sub-Account
to the total dollar value of that Sub-Account. The liability for future
payments is calculated on the basis of the mortality assumptions, (if any), the
Assumed Investment Return and the Annuity Unit Value of that Sub-Account.
Generally, as variable income payments are made to the payee, the liability for
future payments decreases as does the number of votes.
37
<PAGE>
The number of votes which are available to the Owner will be determined as
of the date coincident with the date established by the Fund for determining
shareholders eligible to vote at the relevant meeting of that Fund. Voting
instructions will be solicited by written communication prior to such meeting
in accordance with procedures established by the Fund.
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 seventeen sub-accounts as of December
31, 1997) as of December 31, 1997 and 1996 and the related statements of
operations and changes in net assets for the years ended December 31, 1997 and
1996 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, 1997 and 1996 and the related consolidated statements of income,
stockholder's equity, and cash flows for the three years in the period ended
December 31, 1997 and the related financial statement schedules as well as the
Report of Independent Accountants are contained in the Statement of Additional
Information.
38
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CALCULATION OF YIELDS AND TOTAL RETURNS .............................. 2
PIC Money Market Sub-Account Yield .................................. 2
Other Sub-Account Yields ............................................ 3
Total Returns ....................................................... 3
Effect of the Contract Maintenance Fee on Performance Data .......... 4
SAFEKEEPING OF ACCOUNT ASSETS ........................................ 4
STATE REGULATION ..................................................... 4
RECORDS AND REPORTS .................................................. 5
LEGAL MATTERS ........................................................ 5
EXPERTS .............................................................. 5
OTHER INFORMATION .................................................... 5
FINANCIAL STATEMENTS ................................................. 5
</TABLE>
<PAGE>
APPENDIX A
EXAMPLE OF DEATH BENEFIT CALCULATIONS
Assume an Owner is 55 on the Effective Date, 1/1/yy. The following
transactions occur prior to the Owner's death on 7/1(yy+5) when the Contract
Value is $185,000. For purposes of this example, also assume that proof of
death was provided immediately, and no premium tax is applicable.
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
- --------------------- ------------------- -----------
<S> <C> <C>
1/1/yy Purchase Payment $100,000
4/1/(yy+2) Partial Surrender $ 25,000
10/1(yy+4) Purchase Payment $ 80,000
</TABLE>
The Contract Values on each Contract Anniversary are shown below.
<TABLE>
<CAPTION>
ANNIVERSARY DATE CONTRACT VALUE
- -------------------- ---------------
<S> <C>
1/1(yy+1) $120,000
1/1(yy+2) $130,000
1/1(yy+3) $105,000
1/1(yy+4) $110,000
1/1(yy+5) $180,000
</TABLE>
STANDARD DEATH BENEFIT
Under the Standard Death Benefit, the death benefit payable is the greater
of:
(1) Contract Value of $185,000 or,
(2) aggregate Purchase Payments less aggregate surrenders, or $180,000
less $25,000 equals $155,000.
The death benefit payable is then $185,000.
ANNUAL RESET DEATH BENEFIT OPTION
The Annual Reset Death Benefit is equal to the greatest annual reset
anniversary value attained, where an annual reset anniversary value equals the
Contract Value on the Contract Anniversary plus all subsequent Purchase
Payments minus all subsequent amounts surrendered, as shown below.
ANNIVERSARY
<TABLE>
<CAPTION>
ANNIVERSARY
DATE ANNIVERSARY VALUE
- --------------------- ------------------------------------------------------
<S> <C>
1/1/(yy+1) $120,000 minus $25,000 plus $80,000 equals $175,000
1/1/(yy+2) $130,000 minus $25,000 plus $80,000 equals $185,000
1/1/(yy+3) $105,000 plus $80,000 equals $185,000
1/1/(yy+4) $110,000 plus $80,000 equals $190,000
1/1/(yy+5) $180,000
</TABLE>
The Annual Reset Death Benefit is the greatest annual reset anniversary
value attained, or $190,000.
Under the Annual Reset Death Benefit option, the death benefit payable is
the greater of:
(1) the Standard Death Benefit of $185,000; or
(2) the Annual Reset Death Benefit of $190,000.
The death benefit payable is then $190,000.
COMPOUND AND 3-YEAR RESET DEATH BENEFIT OPTION
The Compound Death Benefit is equal to the accumulation to the most recent
Contract Anniversary of all prior Purchase Payments less all prior amounts
surrendered, using an annual effective interest rate of 4%, plus all Purchase
Payments on or since that Contract Anniversary less all amounts surrendered
since that Contract Anniversary.
A-1
<PAGE>
An accumulation interest rate of 3% would have been applicable if the
Effective Date of the Contract had been on or after the deceased Owner's 71st
birthday.
For ease of understanding, this example assumes an equal number of days in
each quarterly period. In practice, the actual number of days in each period
will be taken into account.
The Compound Death Benefit is:
Purchase Payment of $100,000 times (1.045) equals $121,665.29; minus
Surrender of $25,000 times (1.042.75) equals $27,847.21; plus
Purchase Payment of $80,000 times (1.040.25) equals $80,788.27;
equals $174,606.35.
The 3-Year Reset Death Benefit is equal to the greatest 3-year reset
anniversary value attained, where a 3-year reset anniversary value equals the
Contract Value on that Contract Anniversary plus all subsequent Purchase
Payments minus all subsequent amounts surrendered, as shown below.
The only 3-year reset anniversary was on 1/1/(yy+3), where the anniversary
value was $105,000 plus $80,000 equals $185,000.
The 3-Year Reset Death Benefit is the greatest 3-year reset anniversary
value attained, or $185,000.
Under the Compound and 3-Year Reset Death Benefit option, the death
benefit payable is the greatest of:
(1) the standard Death Benefit of $185,000; and
(2) the Compound Death Benefit, of $174,606.35
(3) the 3-Year Reset Death Benefit, of $185,000.
The death benefit payable is then $185,000.
A-2
<PAGE>
APPENDIX B
EXPLANATION OF THE VARIABLE ANNUITIZATION CALCULATION
Assuming a Contract Value (less applicable charges and premium taxes) of
$100,000 on the Annuity Commencement Date and annual variable income payments
selected under Option A with a 5 year certain period, the dollar amount of the
payment determined, but not paid, on the Annuity Commencement Date is
calculated using an interest assumption of 5%, as shown below.
There are 5 annual payments scheduled. Assuming an interest rate of 5%,
the applied Contract Value is then assumed to have a balance of $0 after the
last payment is made at the end of the 5th year. The amount of the payment
determined on the Annuity Commencement Date is the amount necessary to force
this balance to $0.
<TABLE>
<CAPTION>
INTEREST CONTRACT CONTRACT
EARNED VALUE VALUE
DURING YEAR BEFORE PAYMENT AFTER
DATE AT 5% PAYMENT MADE PAYMENT
- ------------------------------- ------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Annuity Commencement Date $ 100,000.00 $ 0.00 $ 100,000.00
End of 1st year ............. $ 5,000.00 $ 105,000.00 $ 23,097.48 $ 81,902.52
End of 2nd year ............. $ 4,095.13 $ 85,997.65 $ 23,097.48 $ 62,900.17
End of 3rd year ............. $ 3,145.01 $ 66,045.17 $ 23,097.48 $ 42,947.69
End of 4th year ............. $ 2,147.38 $ 45,095.08 $ 23,097.48 $ 21,997.60
End of 5th year ............. $ 1,099.88 $ 23,097.48 $ 23,097.48 $ 0.00
</TABLE>
Assuming an interest rate of 5%, a payment of $23,097.48 is determined,
but not paid, on the Annuity Commencement Date.
The actual variable income payment made at the end of the 1st year will
equal $23,097.48 only if the net investment return during the 1st year equals
5%. If the net investment return exceeds 5%, then the 1st payment will exceed
$23,097.48. If the net investment return is less than 5%, then the 1st payment
will be less than $23,097.48.
Subsequent variable payments will vary based on the net investment return
during the year in which the payment is scheduled to be made. A payment will
equal the payment made at the end of the prior year only if the net investment
return equals 5%. If the net investment return exceeds 5%, then the payment
will exceed the prior payment. If the net investment return is less than 5%,
then the payment will be less than the prior payment.
B-1
<PAGE>
PLEASE TEAR OFF, COMPLETE AND RETURN THIS FORM TO ORDER A FREE STATEMENT
OF ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS.
ADDRESS THE FORM TO PROTECTIVE LIFE'S INVESTMENT PRODUCTS DIVISION, CUSTOMER
SERVICE CENTER AT THE ADDRESS SHOWN ON THE COVER.
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
THE ELEMENTS(SM) ACCESS VARIABLE
ANNUITY.
- --------------------------------------------------------------------------------
Name Social Security No.
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, Zip
- --------------------------------------------------------------------------------
Daytime Telephone Number
<PAGE>
PART B
INFORMATION REQUIRED TO BE IN
THE STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone: 1-800-866-3555
STATEMENT OF ADDITIONAL INFORMATION
PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
ELEMENTS(SM) ACCESS VARIABLE ANNUITY
A 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 Elements(SM) Access
Variable Annuity, a group and 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
the Funds. The Prospectus is dated the same as this Statement of Additional
Information. You may obtain a copy of the Prospectus by writing or calling us
at our address or phone number shown above.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS .
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CALCULATION OF YIELDS AND TOTAL RETURNS .............................. 3
PIC Money Market Sub-Account Yield .................................. 3
Other Sub-Account Yields ............................................ 4
Total Returns ....................................................... 4
Effect of the Contract Maintenance Fee on Performance Data .......... 5
SAFEKEEPING OF ACCOUNT ASSETS ........................................ 5
STATE REGULATION ..................................................... 5
RECORDS AND REPORTS .................................................. 6
LEGAL MATTERS ........................................................ 6
EXPERTS .............................................................. 6
OTHER INFORMATION .................................................... 6
FINANCIAL STATEMENTS ................................................. 6
</TABLE>
<PAGE>
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.
PIC MONEY MARKET SUB-ACCOUNT YIELD
From time to time, advertisements and sales literature may quote the
current annualized yield of the PIC 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 PIC 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 PIC 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 PIC 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 reflect the per unit charges for the hypothetical account for: 1)
the Annual Contract Maintenance Fee; 2) Administration Charge; and 3) the
Mortality and Expense Risk Charge. For purposes of calculating current yields
for a Contract, an average per unit Contract Maintenance Fee is used based on
the $30 Contract Maintenance Fee deducted at the end of each Contract Year.
Current Yield will be calculated according to the following formula:
Current Yield = ((NCS-ES)/UV) x (365/7)
Where:
<TABLE>
<S> <C>
NCS the net change in the value of the Fund (exclusive of unrealized gains or losses on the sale of securities and
unrealized appreciation and depreciation) for the seven-day period attributable to a hypothetical Account having
a balance of 1 Sub-Account Accumulation Unit.
ES per unit expenses attributable to the hypothetical account for the seven-day period.
UV The Accumulation Unit value as of the end of the last day of the prior seven-day period.
</TABLE>
The effective yield of the PIC 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
Where:
<TABLE>
<S> <C>
NCS the net change in the value of the portfolio (exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) for the seven-day period attributable to a hypothetical account having
a balance of 1 Sub-Account Accumulation Unit.
ES per Accumulation Unit expenses attributable to the hypothetical account for the seven-day period.
UV the Accumulation Unit value as of the end of the last day of the prior seven-day period.
</TABLE>
Because of the charges and deductions imposed under the Contract, the
current and effective yields for the PIC Money Market Sub-Account will be lower
than such yields for the PIC Money Market Fund.
The current and effective yields on amounts held in the PIC Money Market
Sub-Account normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF
FUTURE YIELDS OR RATES OF RETURN. The PIC Money Market Sub-Account's actual
yield is affected by changes in interest rates on money market securities,
average portfolio maturity of the PIC Money Market Fund, the types of quality
of portfolio securities held by
3
<PAGE>
the PIC Money Market Fund and the PIC Money Market Fund's operating expenses.
Yields on amounts held in the PIC 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 PIC
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) multiplying that result by 2. Expenses attributable to the
Sub-Account include the Annual Contract Maintenance Fee, the Administration
Charge and the Mortality and Expense Risk Charge. The yield calculation assumes
an Contract Maintenance Fee of $30 per year per Contract deducted at the end of
each Contract Year. For purposes of calculating the 31-day or one-month yield,
an average administration fee per dollar of Contract value in the Variable
Account is used to determine the amount of the charge attributable to the
Sub-Account for the 30-day or one-month period. The 30 day or one month yield
is calculated according to the following formula:
Yield = 2 x [(((N1-ES)/ (U x UV))+1)6 - 1]
Where:
<TABLE>
<S> <C>
N1 net income of the Fund for the 30 day or one month period attributable to the Sub-Account Accumulation
Units.
ES expenses of the Sub-Account for the 30 day or one month period.
U the average number of Accumulation Units outstanding.
UV the Accumulation Unit value as of the end of the last day in the 30 day or one month period.
</TABLE>
Because of the charges and deductions imposed under the Contracts, the
yield for the Sub-Account will be lower than the yield for the corresponding
Fund.
The yield on the amounts held in the Sub-Accounts normally will fluctuate
over time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
Sub-Account's actual yield is affected by the types and quality of portfolio
securities held by the corresponding Fund and its operating expenses.
TOTAL RETURNS
From time to time, sales literature or advertisements may also quote total
returns for one or more of the Sub-Accounts for various periods of time.
Until a Sub-Account has been in operation for 10 years, Protective Life
will always include quotes of standard average annual total return for the
period measured from the date that Sub-Account began operations. When a
Sub-Account has been in operation for 1, 5, and 10 years, respectively, the
standard average annual total return for these periods will be provided.
Average annual total returns for other periods of time may, from time to time,
also be disclosed.
Average annual total returns represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Contract to
the redemption value of that investment as of the last day of each of the
periods. The ending date of each period for which total return quotations are
provided will generally be for the most recent month-end practicable
considering the type and media of the communication and will be stated in the
communication.
All average annual total returns will be calculated using Sub-Account unit
values computed on each Valuation Day based on the performance of the
Sub-Account's underlying Fund, the deductions for the mortality and expense
risk charge and the administration charge.
4
<PAGE>
The standard average annual total return calculation assumes that the
contract maintenance fee is $30 per year per contract, expressed as a
percentage of the average Contract Value. The standard average annual total
return will be calculated according to the following formula:
TR = (ERV/P)(1/N) - 1
Where:
<TABLE>
<S> <C>
TR = the average annual total return net of Sub-Account recurring charges.
ERV = the ending redeemable value (net of any applicable charges) of the hypothetical account at the end of the
period.
P = a hypothetical single Purchase Payment of $1,000.
N = the number of years in the period.
</TABLE>
In addition to standard average annual total returns, sales literature or
advertisements may from time to time also quote nonstandard average annual
total returns that do not reflect the Contract maintenance fee. These
nonstandard average annual total returns are calculated in exactly the same way
as standard average annual total returns described above, except that the
ending redeemable value of the hypothetical account for the period is replaced
with an ending value for the period that does not take into account the
Contract maintenance fee.
Protective Life may also disclose cumulative total returns in conjunction
with the formats described above. The cumulative total returns will be
calculated using the following formula:
CTR = (EV/P) - 1
Where:
<TABLE>
<S> <C>
CTR = The cumulative total return net of Sub-Account recurring charges for the period.
EV = The ending value of the hypothetical investment at the end of the period that does not take into account the
Contract maintenance fee.
P = A hypothetical single Purchase Payment of $1,000.
</TABLE>
EFFECT OF THE CONTRACT MAINTENANCE FEE ON PERFORMANCE DATA
The Contract provides for a $30 annual contract maintenance Fee to be
deducted at the end of each Contract Year from the Allocation Options based on
the proportion that the value of each Allocation Options bears to the total
Contract Value. For purposes of reflecting the contract maintenance fee in
yield and total return quotations, the annual charge is converted into a
per-dollar per-day charge based on the average 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 $20 million dollars. The bond
insures against dishonest and fraudulent acts of officers and employees.
STATE REGULATION
Protective Life is subject to regulation and supervision by the Department
of Insurance of the State of 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.
5
<PAGE>
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 LLP of Washington, D. C. has provided advice
on certain matters relating to the federal securities laws.
EXPERTS
The statement of assets and liabilities of The Protective Variable Annuity
Separate Account (comprised of seventeen sub-accounts as of December 31, 1997)
as of December 31, 1997 and 1996 and the related statements of operations and
changes in net assets for the years ended December 31, 1997 and 1996 and the
consolidated balance sheets of Protective Life as of December 31, 1997 and 1996
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, 1997
and the related financial statement schedules included in this Statement of
Additional Information and in the registration statement have been included
herein in reliance on the report of PricewaterhouseCoopers LLP (formerly
Coopers & Lybrand LLP) of Birmingham, AL, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this
Statement of Additional Information concerning the content of the Contracts and
other legal instruments are intended to be summaries. For a complete statement
of the terms of these documents, reference should be made to the instruments
filed with the SEC at 450 Fifth Street, N. W., Washington, D.C. 20549.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities of The Protective Variable
Annuity Separate Account (comprised of seventeen sub-accounts as of December
31, 1997) as of December 31, 1997 and 1996 and the related statements of
operations and changes in net assets for the years ended December 31, 1997 and
1996 as well as the Report of Independent Accountants are contained herein.
The audited consolidated balance sheets for Protective Life as of December
31, 1997 and 1996 and the related consolidated statements of income,
stockholder's equity, and cash flows for the years ended December 31, 1997,
1996 and 1995 as well as the Report of Independent Accountants are contained
herein.
Financial Statements follow this page.
6
<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, 1997 .............................. F-3
Statement of Assets and Liabilities as of December 31, 1996 .............................. F-5
Statement of Operations for the period ended December 31, 1997 ........................... F-6
Statement of Operations for the period ended December 31, 1996 ........................... F-8
Statement of Changes in Net Assets for the period ended December 31, 1997 ................ F-9
Statement of Changes in Net Assets for the period ended December 31, 1996 ................ F-11
Notes to Financial Statements ............................................................ F-12
PROTECTIVE LIFE INSURANCE COMPANY
Report of Independent Accountants ........................................................ F-18
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 ... F-19
Consolidated Balance Sheets as of December 31, 1997 and 1996 ............................. F-20
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1997, F-21
1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and F-22
1995
Notes to Consolidated Financial Statements ............................................... F-23
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information ...................................... S-1
Schedule IV -- Reinsurance ............................................................... S-2
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the 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 seventeen subaccounts) included on pages
F-3 through F-16 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 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. Our
procedures included confirmation of shares owned as of December 31, 1997 and
1996, by correspondence with the transfer agents. 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 financial position of The Protective Variable
Annuity Separate Account as of December 31, 1997 and 1996, the results of its
operations, and the changes in its net assets for the years then ended, in
conformity with generally accepted accounting principles.
Birmingham, Alabama
March 5, 1998
F-2
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC
MONEY GROWTH & INTERNAT'L GLOBAL
MARKET INCOME EQUITY INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investment in
sub-accounts at
market value .............. $3,571,053 $355,505,039 $131,344,810 $48,720,463
Receivable from
Protective Life
Insurance Company ......... 17,327 49,074 479
---------- ------------ ------------
Total Assets ............. 3,588,380 355,554,113 131,345,289 48,720,463
---------- ------------ ------------ -----------
LIABILITIES
Payable to Protective
Life Insurance
Company ................... 14
-----------
NET ASSETS ................. $3,588,380 $355,554,113 $131,345,289 $48,720,449
========== ============ ============ ===========
<CAPTION>
ACACIA
CAPITAL ACACIA
CORPORATION CAPITAL
PIC PIC PIC CRI CORPORATION
SMALL CAP CORE US CAPITAL SMALL CAP CRI
EQUITY EQUITY GROWTH GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in
sub-accounts at
market value .............. $107,421,163 $176,791,623 $74,411,193 $136,679 $1,050,736
Receivable from
Protective Life
Insurance Company ......... 6,003 155
------------ ----------
Total Assets ............. 107,427,166 176,791,623 74,411,193 136,679 1,050,891
------------ ------------ ----------- -------- ----------
LIABILITIES
Payable to Protective
Life Insurance
Company ................... 2,581 12
------------ -----------
NET ASSETS ................. $107,427,166 $176,789,042 $74,411,181 $136,679 $1,050,891
============ ============ =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS
EMERGING MFS GROWTH
GROWTH RESEARCH W/INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Investment in sub-accounts
at market value ........... $3,320,856 $6,285,782 $2,671,278
Receivable from Protective
Life Insurance Company.....
Total Assets ............. 3,320,856 6,285,782 2,671,278
---------- ---------- ----------
LIABILITIES
Payable to Protective Life
Insurance Company ......... 1
----------
NET ASSETS ................. $3,320,856 $6,285,782 $2,671,277
========== ========== ==========
<CAPTION>
MFS OPPENHEIMER OPPENHEIMER OPPENHEIMER
TOTAL CAP OPPENHEIMER GROWTH STRATEGIC
RETURN APPRECIATION GROWTH & INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts
at market value ........... $1,747,276 $2,613,453 $3,609,636 $2,931,384 $2,935,255
Receivable from Protective
Life Insurance Company..... 728
----------
Total Assets ............. 1,747,276 2,613,453 3,609,636 2,932,112 2,935,255
---------- ---------- ---------- ---------- ----------
LIABILITIES
Payable to Protective Life
Insurance Company ......... 1,092 14,633
---------- ----------
NET ASSETS ................. $1,747,276 $2,613,453 $3,608,544 $2,932,112 $2,920,622
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY GROWTH AND INTERNATIONAL
MARKET INCOME EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Investment in Protective
Investment Company at
market value ................. $6,106,516 $210,437,396 $96,613,499
Receivable from Protective Life
Insurance Company ............ 67 32
------------ -----------
Total Assets ................ 6,106,516 210,437,463 96,613,531
---------- ------------ -----------
LIABILITIES
Payable to Protective Life
Insurance Company ............ 2
----------
NET ASSETS .................... $6,106,514 $210,437,463 $96,613,531
========== ============ ===========
<CAPTION>
GLOBAL SELECT CAPITAL
INCOME SMALL CAP EQUITY EQUITY GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------------ --------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investment in Protective
Investment Company at
market value ................. $37,653,564 $64,304,118 $101,547,462 $30,194,123
Receivable from Protective Life
Insurance Company ............ 1 17 2
----------- ------------ -----------
Total Assets ................ 37,653,565 64,304,118 101,547,479 30,194,125
----------- ----------- ------------ -----------
LIABILITIES
Payable to Protective Life
Insurance Company ............ 1,837
-----------
NET ASSETS .................... $37,653,565 $64,302,281 $101,547,479 $30,194,125
=========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC
MONEY GROWTH & INTERNAT'L GLOBAL
MARKET INCOME EQUITY INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends ........................ $216,131 $ 2,530,403 $ 2,328,793 $3,987,063
EXPENSE
Mortality and expense
risk and administrative
charges ......................... 62,875 4,093,470 1,668,076 601,492
-------- ----------- ------------- ----------
Net investment income
(loss) .......................... 153,256 (1,563,067) 660,717 3,385,571
-------- ----------- ------------- ----------
NET REALIZED AND
UNREALIZED GAINS ON
INVESTMENTS
Net realized gain from
redemption of investment
shares ........................... 0 3,109 5,500 1,401
Capital gain distribution ......... 0 47,260,910 7,212,859 603,653
-------- ----------- ------------- ----------
Net realized gain on
investments ...................... 0 47,264,019 7,218,359 605,054
Net unrealized appreciation
on investments during
the period ....................... 1 19,421,926 (5,637,373) (450,116)
-------- ----------- ------------- ----------
Net realized and unrealized
gain on investments .............. 1 66,685,945 1,580,986 154,938
-------- ----------- ------------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS ....................... $153,257 $65,122,878 $ 2,241,703 $3,540,509
======== =========== ============= ==========
<CAPTION>
ACACIA
CAPITAL ACACIA
CORPORATION CAPITAL
PIC PIC PIC CRI CORPORATION
SMALL CAP CORE US CAPITAL SMALL CAP CRI
EQUITY EQUITY GROWTH GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends ........................ $ 311,079 $ 1,442,006 $ 451,531 $ 0 $ 23,016
EXPENSE
Mortality and expense
risk and administrative
charges ......................... 1,213,746 1,983,808 711,311 408 2,454
----------- ----------- ----------- ---------- ----------
Net investment income
(loss) .......................... (902,667) (541,802) (259,780) (408) 20,562
----------- ----------- ----------- ---------- ----------
NET REALIZED AND
UNREALIZED GAINS ON
INVESTMENTS
Net realized gain from
redemption of investment
shares ........................... 17,568 553 (554) (12) 76
Capital gain distribution ......... 11,826,478 13,990,186 4,665,040 12,282 49,926
----------- ----------- ----------- ---------- ----------
Net realized gain on
investments ...................... 11,844,046 13,990,739 4,664,486 12,270 50,002
Net unrealized appreciation
on investments during
the period ....................... 10,752,598 20,604,003 8,959,175 (12,845) (53,486)
----------- ----------- ----------- ---------- ----------
Net realized and unrealized
gain on investments .............. 22,596,644 34,594,742 13,623,661 (575) (3,484)
----------- ----------- ----------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS ....................... $21,693,977 $34,052,940 $13,363,881 $ (983) $ 17,078
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS
EMERGING MFS GROWTH
GROWTH RESEARCH W/INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends ............................... $ 0 $ 0 $10,479
EXPENSE
Mortality and expense risk and
administrative charges ................. 11,765 19,515 7,836
--------- --------- -------
Net investment income (loss) ............ (11,765) (19,515) 2,643
--------- --------- -------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS
Net realized gain from redemption
of investment shares .................... 2,267 7 92
Capital gain distribution ................ 0 0 49,017
--------- --------- -------
Net realized gain on investments ......... 2,267 7 49,109
Net unrealized appreciation on
investments during the period ........... 2,208 13,033 41,478
--------- --------- -------
Net realized and unrealized gain
on investments .......................... 4,475 13,040 90,587
--------- --------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............... $ (7,290) $ (6,475) $93,230
========= ========= =======
<CAPTION>
MFS OPPENHEIMER OPPENHEIMER OPPENHEIMER
TOTAL CAP OPPENHEIMER GROWTH & STRATEGIC
RETURN APPRECIATION GROWTH INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends ............................... $ 0 $ 0 $ 0 $ 8,008 $73,276
EXPENSE
Mortality and expense risk and
administrative charges ................. 4,785 7,974 11,176 8,503 9,293
-------- --------- --------- -------- -------
Net investment income (loss) ............ (4,785) (7,974) (11,176) (495) 63,983
-------- --------- --------- -------- -------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS
Net realized gain from redemption
of investment shares .................... 202 11 19 118 21
Capital gain distribution ................ 0 0 0 0 0
-------- --------- --------- -------- -------
Net realized gain on investments ......... 202 11 19 118 21
Net unrealized appreciation on
investments during the period ........... 48,443 (56,978) (9,267) 109,900 (22,462)
-------- --------- --------- -------- -------
Net realized and unrealized gain
on investments .......................... 48,645 (56,967) (9,248) 110,018 (22,441)
-------- --------- --------- -------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............... $ 43,860 $ (64,941) $ (20,424) $109,523 $41,542
======== ========= ========= ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY GROWTH AND INTERNATIONAL
MARKET INCOME EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends ............................... $248,305 $ 3,507,449 $ 38,511
EXPENSE
Mortality and expense risk and
administrative charges ................ 71,685 2,340,504 1,098,610
-------- ----------- -----------
Net investment income (loss) ............ 176,620 1,166,945 (1,060,099)
-------- ----------- -----------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS
Net realized gain from redemption
of investment shares .................... 281,848 708,750
Capital gain distribution ................ 13,670,980 1,981,161
----------- -----------
Net realized gain on investments ......... 13,952,828 2,689,911
Net unrealized appreciation on
investments during the period ........... 24,330,426 10,642,866
----------- -----------
Net realized and unrealized gain on
investments ............................. 38,283,254 13,332,777
----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............... $176,620 $39,450,199 $12,272,678
======== =========== ===========
<CAPTION>
GLOBAL SMALL CAP SELECT CAPITAL
INCOME EQUITY EQUITY GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends ............................... $2,275,316 $ 169,888 $ 1,160,405 $ 315,147
EXPENSE
Mortality and expense risk and
administrative charges ................ 461,193 785,356 1,112,352 280,793
---------- ---------- ----------- ----------
Net investment income (loss) ............ 1,814,123 (615,468) 48,053 34,354
---------- ---------- ----------- ----------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS
Net realized gain from redemption
of investment shares .................... 87,277 88,867 395,474 143,094
Capital gain distribution ................ 594,633 6,634,413 2,376,286 399,865
---------- ---------- ----------- ----------
Net realized gain on investments ......... 681,910 6,723,280 2,771,760 542,959
Net unrealized appreciation on
investments during the period ........... 244,006 2,301,054 11,947,834 3,490,010
---------- ---------- ----------- ----------
Net realized and unrealized gain on
investments ............................. 925,916 9,024,334 14,719,594 4,032,969
---------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............... $2,740,039 $8,408,866 $14,767,647 $4,067,323
========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC
MONEY GROWTH & INTERNAT'L GLOBAL
MARKET INCOME EQUITY INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss) ........................ $ 153,256 $ (1,563,067) $ 660,717 $ 3,385,571
Net realized gain on
investments ................... 47,264,019 7,218,359 605,054
Net unrealized
appreciation of
investments during
the period .................... 1 19,421,926 (5,637,373) (450,116)
------------- ------------ ------------ -----------
Net increase in net
assets resulting from
operations .................... 153,257 65,122,878 2,241,703 3,540,509
------------- ------------ ------------ -----------
FROM VARIABLE ANNUITY
CONTRACT
TRANSACTIONS
Contractowners' net
payments ...................... 4,550,506 70,285,404 27,497,729 8,832,118
Contract maintenance
fees .......................... (1,861) (119,996) (53,643) (15,577)
Surrenders ..................... (2,124,233) (10,448,724) (4,248,152) (1,859,370)
Death benefits ................. (90,244) (2,020,758) (806,371) (432,617)
Transfer (to) from other
portfolios .................... (5,005,559) 22,297,846 10,100,492 1,001,821
------------- ------------ ------------ -----------
Net increase in net
assets resulting from
variable annuity
contract transactions ......... (2,671,391) 79,993,772 32,490,055 7,526,375
------------- ------------ ------------ -----------
Total increase in net
assets ........................ (2,518,134) 145,116,650 34,731,758 11,066,884
NET ASSETS
Beginning of Year .............. 6,106,514 210,437,463 96,613,531 37,653,565
------------- ------------ ------------ -----------
End of Year .................... $ 3,588,380 $355,554,113 $131,345,289 $48,720,449
============= ============ ============ ===========
<CAPTION>
ACACIA ACACIA
CAPITAL CAPITAL
PIC PIC PIC CORPORATION CORPORATION
SMALL CAP CORE CAPITAL CRI SMALL CRI
EQUITY US EQUITY GROWTH CAP GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------- ---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss) ........................ $ (902,667) $ (541,802) $ (259,780) $ (408) $ 20,562
Net realized gain on
investments ................... 11,844,046 13,990,739 4,664,486 12,270 50,002
Net unrealized
appreciation of
investments during
the period .................... 10,752,598 20,604,003 8,959,175 (12,845) (53,486)
------------ ------------ ----------- --------- ----------
Net increase in net
assets resulting from
operations .................... 21,693,977 34,052,940 13,363,881 (983) 17,078
------------ ------------ ----------- --------- ----------
FROM VARIABLE ANNUITY
CONTRACT
TRANSACTIONS
Contractowners' net
payments ...................... 17,115,594 33,348,489 23,501,411 107,775 954,698
Contract maintenance
fees .......................... (40,747) (57,679) (19,980) 7 (21)
Surrenders ..................... (3,563,235) (5,804,052) (1,542,873) (544) (9,883)
Death benefits ................. (383,402) (952,669) (290,376)
Transfer (to) from other
portfolios .................... 8,302,698 14,654,534 9,204,993 30,424 89,019
------------ ------------ ----------- --------- ----------
Net increase in net
assets resulting from
variable annuity
contract transactions ......... 21,430,908 41,188,623 30,853,175 137,662 1,033,813
------------ ------------ ----------- --------- ----------
Total increase in net
assets ........................ 43,124,885 75,241,563 44,217,056 136,679 1,050,891
NET ASSETS
Beginning of Year .............. 64,302,281 101,547,479 30,194,125
------------ ------------ -----------
End of Year .................... $107,427,166 $176,789,042 $74,411,181 $ 136,679 $1,050,891
============ ============ =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS MFS
EMERGING MFS GROWTH TOTAL
GROWTH RESEARCH W/INCOME RETURN
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss) .......................... $ (11,765) $ (19,515) $ 2,643 $ (4,785)
Net realized gain on
investments ..................... 2,267 7 49,109 202
Net unrealized appreciation
of investments during the
period .......................... 2,208 13,033 41,478 48,443
---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations........ (7,290) (6,475) 93,230 43,860
---------- ---------- ---------- ----------
FROM VARIABLE ANNUITY
CONTRACT TRANSACTIONS
Contractowners' net
payments ........................ 2,503,454 4,920,127 2,051,786 1,145,999
Contract maintenance fees ........ 307 (56) 40 (55)
Surrenders ....................... (8,914) (32,833) (7,709) (3,032)
Death benefits ................... (4,375)
Transfer (to) from other
portfolios ...................... 833,299 1,405,019 538,305 560,504
---------- ---------- ---------- ----------
Net increase in net assets
resulting from variable
annuity contract
transactions .................... 3,328,146 6,292,257 2,578,047 1,703,416
---------- ---------- ---------- ----------
Total increase in net assets ..... 3,320,856 6,285,782 2,671,277 1,747,276
NET ASSETS
Beginning of Year ................
End of Year ...................... $3,320,856 $6,285,782 $2,671,277 $1,747,276
========== ========== ========== ==========
<CAPTION>
OPPENHEIMER OPPENHEIMER OPPENHEIMER
CAP OPPENHEIMER GROWTH & STRATEGIC
APPRECIATION GROWTH INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss) .......................... $ (7,974) $ (11,176) $ (495) $ 63,983
Net realized gain on
investments ..................... 11 19 118 21
Net unrealized appreciation
of investments during the
period .......................... (56,978) (9,267) 109,900 (22,462)
---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations........ (64,941) (20,424) 109,523 41,542
---------- ---------- ---------- ----------
FROM VARIABLE ANNUITY
CONTRACT TRANSACTIONS
Contractowners' net
payments ........................ 2,107,943 2,994,586 2,158,105 1,948,790
Contract maintenance fees ........ (370) (22) (21) 429
Surrenders ....................... (19,335) (7,756) (13,263) (13,822)
Death benefits ................... (4,472)
Transfer (to) from other
portfolios ...................... 590,156 646,632 677,768 943,683
---------- ---------- ---------- ----------
Net increase in net assets
resulting from variable
annuity contract
transactions .................... 2,678,394 3,628,968 2,822,589 2,879,080
---------- ---------- ---------- ----------
Total increase in net assets ..... 2,613,453 3,608,544 2,932,112 2,920,622
NET ASSETS
Beginning of Year ................
End of Year ...................... $2,613,453 $3,608,544 $2,932,112 $2,920,622
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY GROWTH AND INTERNATIONAL
MARKET INCOME EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- ---------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) ........ $ 176,620 $ 1,166,945 $ (1,060,099)
Net realized gain on investments 13,952,828 2,689,911
Net unrealized appreciation of
investments during the period 24,330,426 10,642,866
------------ ------------
Net increase in net assets
resulting from operations .......... 176,620 39,450,199 12,272,678
------------- ------------ ------------
FROM VARIABLE ANNUITY
CONTRACT TRANSACTIONS
Contractowners' net payments ........ 3,253,963 32,897,893 21,531,594
Contract maintenance fees ........... (1,848) (97,514) (44,293)
Surrenders .......................... (1,685,935) (4,734,273) (2,001,419)
Death benefits ...................... (23,760) (1,013,995) (524,985)
Transfer (to) from other
portfolios ......................... (130,107) 17,202,066 10,331,059
------------- ------------ ------------
Net increase in net assets
resulting from variable annuity
contract transactions .............. 1,412,313 44,254,177 29,291,956
------------- ------------ ------------
Capital withdrawal by Protective
Life Insurance Company ............. (552,800) (1,356,579) (3,832,052)
------------- ------------ ------------
Total increase in net assets ........ 1,036,133 82,347,797 37,732,582
NET ASSETS
Beginning of Year ................... 5,070,381 128,089,666 58,880,949
------------- ------------ ------------
End of Year ......................... $ 6,106,514 $210,437,463 $ 96,613,531
============= ============ ============
<CAPTION>
GLOBAL SMALL CAP SELECT CAPITAL
INCOME EQUITY EQUITY GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) ........ $ 1,814,123 $ (615,468) $ 48,053 $ 34,354
Net realized gain on investments 681,910 6,723,280 2,771,760 542,959
Net unrealized appreciation of
investments during the period 244,006 2,301,054 11,947,834 3,490,010
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations .......... 2,740,039 8,408,866 14,767,647 4,067,323
------------ ------------ ------------ ------------
FROM VARIABLE ANNUITY
CONTRACT TRANSACTIONS
Contractowners' net payments ........ 7,193,776 11,302,973 22,772,322 11,385,928
Contract maintenance fees ........... (14,330) (35,324) (41,846) (9,250)
Surrenders .......................... (1,335,682) (1,991,392) (2,341,900) (581,887)
Death benefits ...................... (297,967) (446,636) (382,788) (91,171)
Transfer (to) from other
portfolios ......................... 1,886,745 4,344,711 11,517,266 5,858,727
------------ ------------ ------------ ------------
Net increase in net assets
resulting from variable annuity
contract transactions .............. 7,432,542 13,174,332 31,523,054 16,562,347
------------ ------------ ------------ ------------
Capital withdrawal by Protective
Life Insurance Company ............. (3,604,323) (1,098,162) (1,471,036) (1,151,508)
------------ ------------ ------------ ------------
Total increase in net assets ........ 6,568,258 20,485,036 44,819,665 19,478,162
NET ASSETS
Beginning of Year ................... 31,085,307 43,817,245 56,727,814 10,715,963
------------ ------------ ------------ ------------
End of Year ......................... $ 37,653,565 $ 64,302,281 $101,547,479 $ 30,194,125
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-11
<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 a unit investment
trust form registered with the U.S. Securities and Exchange Commission under
the Investment Company Act of 1940, as amended. The Separate Account is
comprised of seven proprietary sub-accounts and ten independent sub-accounts.
The seven proprietary sub-accounts are the Money Market, Growth and Income,
International Equity, Global Income, Small Cap Equity, CORE US Equity, and
Capital Growth sub-accounts. The Capital Growth sub-account was added June 13,
1995, with sales beginning July 3, 1995. Funds are transferred to Protective
Investment Company (the Fund) in exchange for shares of the corresponding
portfolio of the Fund.
The ten independent sub-accounts are the Acacia Capital Corporation CRI
Small Cap Growth, Acacia Capital Corporation CRI Balanced, MFS Emerging Growth,
MFS Research, MFS Growth with Income, MFS Total Return, Oppenheimer Capital
Appreciation, Oppenheimer Growth, Oppenheimer Growth & Income, and Oppenheimer
Strategic Bond sub-accounts. The Acacia Capital Corporation CRI Small Cap
Growth and Acacia Capital Corporation CRI Balanced subaccounts were added July
1, 1997, with sales beginning July 1, 1997. On January 1, 1998, the Acacia
Capital Corporation CRI Small Cap Growth and Acacia Capital Corporation CRI
Balanced funds were renamed the Calvert Social Small Cap Growth and Calvert
Social Balanced Funds. The MFS Emerging Growth, Research, Growth with Income,
and Total Return subaccounts were added July 1, 1997, with sales beginning July
1, 1997. The Oppenheimer Capital Appreciation, Growth, Growth & Income, and
Strategic Bond subaccounts were added July 1, 1997, with sales beginning July
1, 1997. The Fund invests contractholder's funds in exchange for shares in the
independent funds. The Fund then holds the shares for the contractowners.
Gross 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 gross 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 to/from other portfolios, included in the statement of changes
in net assets, are transfers between the individual sub-accounts and the
sub-accounts and the 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 with the Funds are
recorded on the trade date. Dividend income is recorded on the ex-dividend
date.
REALIZED GAINS AND LOSSES: Realized gains and losses on investments
include gains and losses on redemptions of the Fund's shares (determined on the
last-in-first-out (LIFO) basis) and capital gain distributions from the Fund.
DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS: Dividend income and
capital gain distributions are recorded on the ex-dividend date. Distributions
are from net investment income and net realized gains recorded in the
Investment Company financials.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
various estimates that affect the reported amounts of assets and liabilities,
at the date of the financial statements, as well as the reported amounts of
income and expenses, during the reporting period. Actual results could differ
from those estimates.
F-12
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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.
RECLASSIFICATIONS: Certain reclassifications have been made in 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 previously reported net assets.
3. INVESTMENTS
At December 31, 1997, the investments by the respective sub-accounts were
as follows:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
------------ --------------- ---------------
<S> <C> <C> <C>
Money Market ........................................ 3,571,053 $ 3,571,053 $ 3,571,053
Growth and Income ................................... 22,555,045 $297,181,881 $355,531,568
International Equity ................................ 10,548,201 $120,773,576 $131,344,833
Global Income ....................................... 4,807,861 $ 48,410,709 $ 48,720,458
Small Cap Equity .................................... 9,161,219 $ 94,914,942 $107,422,261
CORE US Equity ...................................... 9,603,792 $135,912,917 $176,791,590
Capital Growth ...................................... 4,703,701 $ 61,781,865 $ 74,411,188
Acacia Capital Corporation CRI Small Cap Equity ..... 11,390 $ 149,525 $ 136,679
Acacia Capital Corporation CRI Balanced ............. 530,139 $ 1,104,222 $ 1,050,736
MFS Emerging Growth ................................. 205,753 $ 3,318,647 $ 3,320,856
MFS Research ........................................ 398,086 $ 6,272,749 $ 6,285,782
MFS Growth With Income .............................. 162,486 $ 2,629,799 $ 2,671,278
MFS Total Return .................................... 105,068 $ 1,698,832 $ 1,747,276
Oppenheimer Capital Appreciation .................... 63,805 $ 2,670,431 $ 2,613,453
Oppenheimer Growth .................................. 111,271 $ 3,618,902 $ 3,609,636
Oppenheimer Growth & Income ......................... 142,438 $ 2,821,485 $ 2,931,384
Oppenheimer Strategic Bond .......................... 573,292 $ 2,957,717 $ 2,935,255
</TABLE>
At December 31, 1996, the investments by the respective sub-accounts were
as follows:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
------------ --------------- ---------------
<S> <C> <C> <C>
Money Market .................. 6,106,516 $ 6,106,516 $ 6,106,516
Growth and Income ............. 14,837,344 $171,509,698 $210,437,396
International Equity .......... 7,509,791 $ 80,404,907 $ 96,613,499
Global Income ................. 3,699,891 $ 36,893,699 $ 37,653,564
Small Cap Equity .............. 6,416,426 $ 62,547,565 $ 64,304,118
Select Equity ................. 6,578,183 $ 81,272,809 $101,547,462
Capital Growth ................ 2,387,531 $ 26,523,976 $ 30,194,123
</TABLE>
F-13
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (Continued)
During the year ended December 31, 1997, transactions in shares were as
follows:
<TABLE>
<CAPTION>
MONEY GROWTH & INTERNATIONAL
MARKET INCOME EQUITY
---------------- ---------------- ---------------
<S> <C> <C> <C>
Shares purchased .......................... 7,384,222 4,568,466 2,382,529
Shares received from reinvestment of
dividends ................................ 216,131 3,243,711 771,149
--------- --------- ---------
Total shares acquired ..................... 7,600,353 7,812,177 3,153,678
Shares redeemed ........................... (10,135,816) (94,476) (115,268)
----------- --------- ---------
Net increase in shares owned .............. (2,535,463) 7,717,701 3,038,410
Shares owned, beginning of the period ..... 6,106,516 14,837,344 7,509,791
----------- ---------- ---------
Shares owned, end of the period ........... 3,571,053 22,555,045 10,548,201
=========== ========== ==========
Cost of shares acquired ................... $ 7,600,353 $127,303,311 $ 41,961,893
============= ============ ============
Cost of shares redeemed ................... $ (10,135,816) $ (1,631,128) $ (1,593,224)
============= ============ ============
<CAPTION>
GLOBAL SMALL CORE US CAPITAL
INCOME CAPITAL EQUITY GROWTH*
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares purchased .......................... 880,418 1,889,641 2,256,497 1,994,733
Shares received from reinvestment of
dividends ................................ 452,653 1,052,027 856,997 330,376
------- --------- --------- ---------
Total shares acquired ..................... 1,333,071 2,941,668 3,113,494 2,325,109
Shares redeemed ........................... (225,101) (196,875) (87,885) (8,939)
--------- --------- --------- ---------
Net increase in shares owned .............. 1,107,970 2,744,793 3,025,609 2,316,170
Shares owned, beginning of the period ..... 3,699,891 6,416,426 6,578,183 2,387,531
--------- --------- --------- ---------
Shares owned, end of the period ........... 4,807,861 9,161,219 9,603,792 4,703,701
========= ========= ========= =========
Cost of shares acquired ................... $ 13,885,758 $ 34,688,924 $ 56,301,000 $35,386,576
============ ============ ============ ===========
Cost of shares redeemed ................... $ (2,368,748) $ (2,321,547) $ (1,660,892) $ (128,687)
============ ============ ============ ===========
</TABLE>
- ---------
* date of inception, June 13, 1995
<TABLE>
<CAPTION>
ACACIA CAPITAL ACACIA CAPITAL MFS
CORPORATION CRI CORPORATION CRI EMERGING
SMALL CAP* BALANCED* GROWTH*
----------------- ----------------- --------------
<S> <C> <C> <C>
Shares purchased ......................... 10,417 496,705 212,328
Shares received from reinvestment of
dividends ............................... 1,023 36,802 0
------ ------- -------
Total shares acquired .................... 11,440 533,507 212,328
Shares redeemed .......................... (60) (3,368) (6,575)
------ ------- -------
Net increase in shares owned ............. 11,380 530,139 205,753
Shares owned, beginning of the period 0 0 0
------ ------- -------
Shares owned, end of the period .......... 11,380 530,139 205,753
====== ======= =======
Cost of shares acquired .................. $150,314 $1,111,207 $3,422,009
======== ========== ==========
Cost of shares redeemed .................. $ (790) $ (6,985) $ (103,362)
======== ========== ==========
<CAPTION>
MFS OPPENHEIMER
MFS GROWTH W/ MFS TOTAL CAPITAL
RESEARCH* INCOME* RETURN* APPREC*
---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares purchased ......................... 398,087 160,174 107,942 63,852
Shares received from reinvestment of
dividends ............................... 0 3,695 0 0
------- ------- ------- ------
Total shares acquired .................... 398,087 163,869 107,942 63,852
Shares redeemed .......................... (1) (1,383) (2,874) (47)
---------- ------- ------- ------
Net increase in shares owned ............. 398,086 162,486 105,068 63,805
Shares owned, beginning of the period 0 0 0 0
--------- ------- ------- ------
Shares owned, end of the period .......... 398,086 162,486 105,068 63,805
========= ======= ======= ======
Cost of shares acquired .................. $6,272,771 $2,652,475 $1,745,363 $2,672,447
=========== ========== ========== ==========
Cost of shares redeemed .................. $ (22) $ (22,676) $ (46,531) $ (2,016)
=========== ========== ========== ==========
</TABLE>
- ---------
* date of inception, July 1, 1997
<TABLE>
<CAPTION>
OPPENHEIMER OPPENHEIMER
OPPENHEIMER GROWTH & STRATEGIC
GROWTH* INCOME* BOND*
-------------- -------------- --------------
<S> <C> <C> <C>
Shares purchased ................................... 111,304 142,438 599,683
Shares received from reinvestment of dividends ..... 0 405 14,325
------- ------- -------
Total shares acquired .............................. 111,304 143,401 614,008
Shares redeemed .................................... (33) (963) (40,716)
------- ------- -------
Net increase in shares owned ....................... 111,271 142,438 573,292
Shares owned, beginning of the period .............. 0 0 0
------- ------- -------
Shares owned, end of the period .................... 111,271 142,438 573,292
======= ======= =======
Cost of shares acquired ............................ $3,619,878 $2,840,522 $3,167,524
========== ========== ==========
Cost of shares redeemed ............................ $ (976) $ (19,037) $ (209,807)
========== ========== ==========
</TABLE>
- ---------
* date of inception, July 1, 1997
F-14
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (Continued)
During the year ended December 31, 1996, transactions in shares were as
follows:
<TABLE>
<CAPTION>
MONEY GROWTH & INTERNATIONAL
MARKET INCOME EQUITY
--------------- ---------------- ---------------
<S> <C> <C> <C>
Shares purchased .......................... 10,013,890 3,458,329 2,374,625
Shares received from reinvestment of
dividends ................................ 247,679 1,220,863 159,071
---------- --------- ---------
Total shares acquired ..................... 10,261,569 4,679,192 2,533,696
Shares redeemed ........................... (9,224,778) (342,748) (351,227)
---------- --------- ---------
Net increase in shares owned .............. 1,036,791 4,336,444 2,182,469
Shares owned, beginning of the period ..... 5,069,725 10,500,900 5,327,322
---------- ---------- ---------
Shares owned, end of the period ........... 6,106,516 14,837,344 7,509,791
========== ========== =========
Cost of shares acquired ................... $ 10,260,885 $ 62,406,535 $ 30,711,029
============ ============ ============
Cost of shares redeemed ................... $ (9,224,094) $ (4,375,417) $ (3,583,069)
============ ============ ============
<CAPTION>
GLOBAL SMALL CAP SELECT CAPITAL
INCOME EQUITY EQUITY GROWTH*
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares purchased .......................... 866,789 1,384,189 2,173,261 1,447,658
Shares received from reinvestment of
dividends ................................ 282,658 689,037 225,031 56,182
------- --------- --------- ---------
Total shares acquired ..................... 1,149,447 2,073,226 2,398,292 1,503,840
Shares redeemed ........................... (535,106) (346,753) (147,137) (126,023)
--------- --------- --------- ---------
Net increase in shares owned .............. 614,341 1,726,473 2,251,155 1,377,817
Shares owned, beginning of the period ..... 3,085,550 4,689,953 4,327,028 1,009,714
--------- --------- --------- ---------
Shares owned, end of the period ........... 3,699,891 6,416,426 6,578,183 2,387,531
========= ========= ========= =========
Cost of shares acquired ................... $ 11,715,743 $ 21,754,619 $ 34,540,135 $ 17,294,534
============ ============ ============ ============
Cost of shares redeemed ................... $ (5,391,516) $ (3,583,202) $ (1,664,451) $ (1,306,385)
============ ============ ============ ============
</TABLE>
- ---------
* date of inception, June 13, 1995
4. RELATED PARTY TRANSACTIONS
Contractowners' net payments represent premiums received from
policyholders less certain deductions made by Protective Life. These deductions
may include (1) premium tax charges, (2) surrender charges, and (3) transfer
fees.
There are no sales expenses deducted from premiums at the time the
premiums are paid.
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.
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 $600,919
and $355,926 were assessed on surrenders of $30,524,253 and $14,672,488 during
1997 and 1996, respectively.
Protective Life has the right to charge $25 for each transfer after the
first twelve transfers in any contract year. No transfer fees were assessed in
1997 or 1996, as no customer has requested more than twelve transfers in a
contract year.
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.
The Separate Account is charged a daily mortality and expense risk charge
at an annual rate of 1.25% of the net asset value of each Sub-Account.
Protective Life assumes mortality risk in that annuitants may live for a longer
period of time than estimated when the guarantees in the Contract were
established. 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. 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 death benefit
payable to the designated beneficiary depends on the age of the deceased owner
on the date of death and the provision for death benefits at the purchase date
of the annuity. If the policy was purchased before May 1, 1996, the guaranteed
death benefit is equal to the sum of : (1) the Fixed Account Value (payable
directly form Protective Life); 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 contractowner's 80th birthday. If the policy was purchased after May 1,
1996, and the owners death is prior to the Owner's 90th birthday, the Death
Benefit is the greater of: (1) the Contract Value; or (2) total Purchase
Payments made under the Contract reduced by any partial surrenders, withdrawals
and associated Surrender Charges ; or (3) the Maximum Anniversary Value. If the
Owner's death occurs after the deceased Owner's 90th birthday, the Death
Benefit is the Contract Value.
F-15
<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. Contract maintenance fees assessed were
$309,245 and $244,405 during 1997 and 1996, respectively.
The net assets of each sub-account of the Separate Account reflect the
investment management fees and other operating expenses incurred by the Funds.
Protective Life offers a loan privilege to contractowners of section
403(b) policies that are not subject to Title I 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. Loans outstanding approximated $395,000
and $289,000 at December 31, 1997 and 1996, respectively.
F-16
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants ........................................................ F-18
Consolidated Statements of Income for the years ended December 31, 1997, 1996, and 1995 .. F-19
Consolidated Balance Sheets as of December 31, 1997 and 1996 ............................. F-20
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1997, F-21
1996, and 1995
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and F-22
1995
Notes to Consolidated Financial Statements ............................................... F-23
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information ..................................... S-1
Schedule IV -- Reinsurance .............................................................. S-2
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-17
<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
listed in the index on page F-17 of this 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, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, 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.
COOPERS & LYBRAND L.L.P.
February 11, 1998
Birmingham, Alabama
F-18
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded:
1997-$334,899; 1996-$308,174; 1995-$333,173)................. $ 480,206 $462,050 $411,682
Net investment income ......................................... 557,488 498,781 458,433
Realized investment gains ..................................... 1,824 5,510 1,951
Other income .................................................. 6,149 5,010 1,355
---------- -------- --------
1,045,667 971,351 873,421
---------- -------- --------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
1997-$180,605; 1996-$215,424; 1995-$247,224)................. 658,872 626,893 553,100
Amortization of deferred policy acquisition costs ............. 107,175 91,001 82,700
Other operating expenses (net of reinsurance ceded:
1997-$90,045; 1996-$81,839; 1995-$84,855).................... 129,870 128,148 119,888
---------- -------- --------
895,917 846,042 755,688
---------- -------- --------
INCOME BEFORE INCOME TAX ....................................... 149,750 125,309 117,733
INCOME TAX EXPENSE (BENEFIT)
Current ....................................................... 66,283 44,908 47,009
Deferred ...................................................... (13,981) (2,142) (6,972)
---------- -------- --------
52,302 42,766 40,037
---------- -------- --------
NET INCOME ..................................................... $ 97,448 $ 82,543 $ 77,696
========== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1997 1996
--------------- -------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1997-$6,221,871; 1996-$4,648,525)........... $ 6,348,252 $4,662,997
Equity securities, at market (cost: 1997-$24,983; 1996-$31,669).......................... 15,006 35,250
Mortgage loans on real estate ........................................................... 1,313,478 1,503,781
Investment real estate, net of accumulated depreciation (1997-$671; 1996-$911)........... 13,469 14,172
Policy loans ............................................................................ 194,109 166,704
Other long-term investments ............................................................. 54,704 29,193
Short-term investments .................................................................. 54,337 101,215
----------- ----------
Total investments ..................................................................... 7,993,355 6,513,312
Cash ..................................................................................... 39,197 114,384
Accrued investment income ................................................................ 94,095 70,541
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1997-$5,292; 1996-$2,525)............................................................... 42,255 43,469
Reinsurance receivables .................................................................. 591,457 332,614
Deferred policy acquisition costs ........................................................ 632,605 488,201
Property and equipment, net .............................................................. 36,407 35,489
Other assets ............................................................................. 14,445 14,636
Assets related to separate accounts ...................................................... 931,465 550,697
----------- ----------
$10,375,281 $8,163,343
=========== ==========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims ....................................................... $ 3,324,294 $2,448,449
Unearned premiums ....................................................................... 396,696 257,553
----------- ----------
3,720,990 2,706,002
Guaranteed investment contract deposits .................................................. 2,684,676 2,474,728
Annuity deposits ......................................................................... 1,511,553 1,331,067
Other policyholders' funds ............................................................... 183,324 142,221
Other liabilities ........................................................................ 246,081 117,847
Accrued income taxes ..................................................................... 941 1,854
Deferred income taxes .................................................................... 49,417 37,722
Indebtedness to related parties .......................................................... 28,055 25,014
Liabilities related to separate accounts ................................................. 931,465 550,697
----------- ----------
Total liabilities ..................................................................... 9,356,502 7,387,152
----------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
STOCKHOLDER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation
preference
$2,000 .................................................................................. 2 2
Common Stock, $1.00 par value
Shares authorized and issued: 5,000,000 ................................................. 5,000 5,000
Additional paid-in capital ............................................................... 327,992 237,992
Note receivable from PLC Employee Stock Ownership Plan ................................... (5,378) (5,579)
Retained earnings ........................................................................ 629,436 532,088
Accumulated other comprehensive income
Net unrealized gains on investments (net of income tax: 1997-$33,238; 1996-$3,601)....... 61,727 6,688
----------- ----------
Total stockholder's equity ............................................................ 1,018,779 776,191
----------- ----------
$10,375,281 $8,163,343
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN
STOCK STOCK CAPITAL
----------- -------- ------------
<S> <C> <C> <C>
Balance, December 31, 1994 ............... $5,000 $126,494
Net income for 1995 .....................
Increase in net unrealized gains on
investments (net of income tax:
$89,742) ..............................
Reclassification adjustment for
amounts included in net income
(net of income tax: $(683)) ...........
Comprehensive income for 1995 ...........
Common dividends ($1.00 per share)
Preferred dividends ($50 per share) .....
Capital contribution from PLC ........... 18,000
Decrease in note receivable from
PLC ESOP ..............................
Balance, December 31, 1995 ............... 5,000 144,494
Net income for 1996 .....................
Decrease in net unrealized gains on
investments (net of income tax:
$(25,627) .............................
Reclassification adjustment for
amounts included in net income
(net of income tax: $(1,928)) .........
Comprehensive income for 1996 ...........
Redemption feature of preferred
stock removed-Note I .................. $2 1,998
Preferred dividends ($50 per share) .....
Capital contribution from PLC ........... 91,500
Decrease in note receivable from
PLC ESOP ..............................
Balance, December 31, 1996 ............... 2 5,000 237,992
Net income for 1997 .....................
Increase in net unrealized gains on
investments (net of income
tax-$30,275) ..........................
Reclassification adjustment for
amounts included in net income
(net of income tax: $(638)) ...........
Comprehensive income for 1997 ...........
Preferred dividends ($50 per share)......
Capital contribution from PLC ........... 90,000
Decrease in note receivable from
PLC ESOP ..............................
Balance, December 31, 1997 ............... $2 $5,000 $327,992
== ====== ========
<CAPTION>
NOTE
RECEIVABLE
FROM NET UNREALIZED TOTAL
PLC RETAINED GAINS (LOSSES) STOCKHOLDER'S
ESOP EARNINGS ON INVESTMENTS EQUITY
----------- ------------ ---------------- --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 ............... $ (5,936) $377,049 $ (107,532) $ 395,075
----------
Net income for 1995 ..................... 77,696 77,696
Increase in net unrealized gains on
investments (net of income tax:
$89,742) .............................. 166,663 166,663
Reclassification adjustment for
amounts included in net income
(net of income tax: $(683)) ........... (1,268) (1,268)
----------
Comprehensive income for 1995 ........... 243,091
----------
Common dividends ($1.00 per share) (5,000) (5,000)
Preferred dividends ($50 per share) ..... (100) (100)
Capital contribution from PLC ........... 18,000
Decrease in note receivable from
PLC ESOP .............................. 171 171
-------- ----------
Balance, December 31, 1995 ............... (5,765) 449,645 57,863 651,237
----------
Net income for 1996 ..................... 82,543 82,543
Decrease in net unrealized gains on
investments (net of income tax:
$(25,627) ............................. (47,593) (47,593)
Reclassification adjustment for
amounts included in net income
(net of income tax: $(1,928)) ......... (3,582) (3,582)
----------
Comprehensive income for 1996 ........... 31,368
----------
Redemption feature of preferred
stock removed-Note I .................. 2,000
Preferred dividends ($50 per share) ..... (100) (100)
Capital contribution from PLC ........... 91,500
Decrease in note receivable from
PLC ESOP .............................. 186 186
-------- ----------
Balance, December 31, 1996 ............... (5,579) 532,088 6,688 776,191
----------
Net income for 1997 ..................... 97,448 97,448
Increase in net unrealized gains on
investments (net of income
tax-$30,275) .......................... 56,225 56,225
Reclassification adjustment for
amounts included in net income
(net of income tax: $(638)) ........... (1,186) (1,186)
----------
Comprehensive income for 1997 ........... 152,487
----------
Preferred dividends ($50 per share)...... (100) (100)
Capital contribution from PLC ........... 90,000
Decrease in note receivable from
PLC ESOP .............................. 201 201
-------- ----------
Balance, December 31, 1997 ............... $ (5,378) $629,436 $ 61,727 $1,018,779
======== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1997
---------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................................................. $ 97,448
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred policy acquisition costs ...................................... 107,175
Capitalization of deferred policy acquisition costs .................................... (135,211)
Depreciation expense ................................................................... 5,124
Deferred income taxes .................................................................. (17,918)
Accrued income taxes ................................................................... (5,558)
Interest credited to universal life and investment products ............................ 299,004
Policy fees assessed on universal life and investment products ......................... (131,582)
Change in accrued investment income and other receivables .............................. (158,798)
Change in policy liabilities and other policyholder funds of traditional life and health
products ............................................................................. 279,522
Change in other liabilities ............................................................ 65,393
Other (net) ............................................................................ (1,133)
-------------
Net cash provided by operating activities ................................................ 403,466
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale ......................................................... 6,462,663
Other .................................................................................. 324,242
Sale of investments:
Investment available for sale .......................................................... 1,108,058
Other .................................................................................. 695,270
Cost of investments acquired:
Investments available for sale ......................................................... (8,428,804)
Other .................................................................................. (718,335)
Acquisitions and bulk reinsurance assumptions ........................................... (169,124)
Purchase of property and equipment ...................................................... (6,087)
Sale of property and equipment .......................................................... 2,681
-------------
Net cash used in investing activities .................................................... (729,436)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt ......................... 1,159,538
Capital contribution from PLC ........................................................... 90,000
Principal payments on line of credit arrangements and long-term debt .................... (1,159,538)
Principal payment on surplus note to PLC ................................................ (4,693)
Dividends to stockholder ................................................................ (100)
Investment product deposits and change in universal life deposits ....................... 910,659
Investment product withdrawals .......................................................... (745,083)
-------------
Net cash provided by financing activities ................................................ 250,783
-------------
INCREASE (DECREASE) IN CASH .............................................................. (75,187)
CASH AT BEGINNING OF YEAR ................................................................ 114,384
-------------
CASH AT END OF YEAR ...................................................................... $ 39,197
=============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt ....................................................................... $ 4,343
Income taxes ........................................................................... $ 57,215
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Reduction of principal on note from ESOP ................................................ $ 201
Acquisitions and bulk reinsurance assumptions
Assets acquired ........................................................................ $ 1,114,832
Liabilities assumed .................................................................... (902,267)
-------------
Net .................................................................................... $ 212,565
=============
<CAPTION>
DECEMBER 31
-------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................................................. $ 82,543 $ 77,696
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred policy acquisition costs ...................................... 91,001 84,501
Capitalization of deferred policy acquisition costs .................................... (77,078) (89,266)
Depreciation expense ................................................................... 5,333 4,317
Deferred income taxes .................................................................. (2,442) (6,971)
Accrued income taxes ................................................................... 893 5,537
Interest credited to universal life and investment products ............................ 280,377 286,710
Policy fees assessed on universal life and investment products ......................... (116,401) (100,840)
Change in accrued investment income and other receivables .............................. (70,987) (161,924)
Change in policy liabilities and other policyholder funds of traditional life and health
products ............................................................................. 133,621 201,353
Change in other liabilities ............................................................ 7,209 (3,270)
Other (net) ............................................................................ (4,281) (6,634)
------------- -------------
Net cash provided by operating activities ................................................ 329,788 291,209
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale ......................................................... 1,327,323 2,014,060
Other .................................................................................. 168,898 78,568
Sale of investments:
Investment available for sale .......................................................... 1,569,119 1,523,454
Other .................................................................................. 568,218 141,184
Cost of investments acquired:
Investments available for sale ......................................................... (3,798,631) (3,626,877)
Other .................................................................................. (400,322) (540,648)
Acquisitions and bulk reinsurance assumptions ........................................... 264,126
Purchase of property and equipment ...................................................... (6,899) (5,629)
Sale of property and equipment .......................................................... 288 286
------------- -------------
Net cash used in investing activities .................................................... (307,880) (415,602)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt ......................... 941,438 1,162,700
Capital contribution from PLC ........................................................... 91,500 18,000
Principal payments on line of credit arrangements and long-term debt .................... (941,438) (1,162,700)
Principal payment on surplus note to PLC ................................................ (10,000) (4,750)
Dividends to stockholder ................................................................ (100) (5,100)
Investment product deposits and change in universal life deposits ....................... 949,122 908,063
Investment product withdrawals .......................................................... (944,244) (785,622)
------------- -------------
Net cash provided by financing activities ................................................ 86,278 130,591
------------- -------------
INCREASE (DECREASE) IN CASH .............................................................. 108,186 6,198
CASH AT BEGINNING OF YEAR ................................................................ 6,198 0
------------- -------------
CASH AT END OF YEAR ...................................................................... $ 114,384 $ 6,198
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt ....................................................................... $ 4,633 $ 6,029
Income taxes ........................................................................... $ 43,478 $ 41,397
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Reduction of principal on note from ESOP ................................................ $ 186 $ 171
Acquisitions and bulk reinsurance assumptions
Assets acquired ........................................................................ $ 296,935 $ 613
Liabilities assumed .................................................................... (364,862) (21,800)
------------- -------------
Net .................................................................................... $ (67,927) $ (21,187)
============= =============
</TABLE>
See notes to consolidated financial statements.
F-22
<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.)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make various estimates
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, as well as the reported amounts of revenues
and expenses.
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its
wholly-owned subsidiaries. Protective is a wholly-owned subsidiary of
Protective Life Corporation ("PLC"), an insurance holding company.
NATURE OF OPERATIONS
Protective produces, distributes, and services a diverse array of life
insurance, specialty insurance and retirement savings and investment products.
Protective markets individual life insurance, dental insurance and managed care
services, credit life and disability insurance, guaranteed investment
contracts, guaranteed funding agreements, and fixed and variable annuities
throughout the United States. Protective also maintains a separate division
devoted exclusively to the acquisition of insurance policies from other
companies.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1996 Protective adopted Statement of Financial Accounting Standards
("SFAS") No. 120, "Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts;" SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of;" and SFAS No.
122, "Accounting for Mortgage Servicing Rights." In 1997 Protective adopted
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities;" SFAS No. 130, "Reporting Comprehensive
Income;" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
SFAS No. 130 requires the presentation of comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Protective has reconfigured the Consolidated
Statements of Stockholder's Equity presented herein in accordance with this
Statement. SFAS No. 131 requires additional disclosures with respect to
Protective's operating segments.
The adoption of these accounting standards did not have a material effect
on Protective's financial statements but has resulted in changed disclosure and
financial statement presentation.
INVESTMENTS
Protective has classified all of its investments in fixed maturities,
equity securities, and short-term investments as "available for sale."
Investments are reported on the following bases less allowances for
uncollectible amounts on investments, if applicable:
o Fixed maturities (bonds, bank loan participations, and redeemable
preferred stocks) -- at current market value.
o Equity securities (common and nonredeemable preferred stocks) -- at
current market value.
F-23
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
o Mortgage loans on real estate -- at unpaid balances, adjusted for loan
origination costs, net of fees, and amortization of premium or discount.
o 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.
o Policy loans -- at unpaid balances.
o Other long-term investments -- at a variety of methods similar to those
listed above, as deemed appropriate for the specific investment.
o 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 $3.1 million in
bank deposits voluntarily restricted as to withdrawal.
As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," certain investments are recorded at their market values
with the resulting unrealized gains and losses reduced by a related adjustment
to deferred policy acquisition costs, net of income tax reported as a component
of stockholder's equity. The market values of fixed maturities increase or
decrease as interest rates fall or rise. Therefore, although the adoption of
SFAS No. 115 does not affect Protective's operations, its reported
stockholder's equity will fluctuate significantly as interest rates change.
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>
1997 1996
------------- -------------
<S> <C> <C>
Total investments .......................... $ 7,876,952 $6,495,259
Deferred policy acquisition costs .......... 654,043 495,965
All other assets ........................... 1,749,321 1,161,830
----------- ----------
$10,280,316 $8,153,054
=========== ==========
Deferred income taxes ...................... $ 16,179 $ 34,121
All other liabilities ...................... 9,307,085 7,349,430
----------- ----------
9,323,264 7,383,551
Stockholder's equity ....................... 957,052 769,503
----------- ----------
$10,280,316 $8,153,054
=========== ==========
</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, mortgage-backed
securities, and liabilities arising from interest-sensitive products such as
guaranteed investment contracts and 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 $1.5 million and net realized losses of
$0.2 million were deferred in 1997 and 1996 respectively. At December 31, 1997
and 1996, options and open futures contracts with notional amounts of $925.0
million and $805.0 million, respectively, had net unrealized losses of $0.4
million and $1.9 million respectively.
Protective uses interest rate swap contracts to convert certain
investments from a variable to a fixed rate of interest. At December 31, 1997,
related open interest rate swap contracts with a notional amount of $95.3
million were in a $0.1 million net unrealized loss position. At December 31,
1996, related open interest rate swap contracts with a notional amount of
$150.3 million were in a $0.7 million net unrealized loss position.
F-24
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
In connection with a commercial mortgage loan securitization, Protective
entered into interest rate swap contracts converting a fixed rate of interest
to a floating rate of interest and converting a floating rate of interest to a
fixed rate of interest with notional amounts at December 31, 1997, of $332.4
million and $200.0 million, respectively. In the aggregate, there were no net
unrealized gains or losses associated with these swap contracts at December 31,
1997.
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 primarily uses the
straight-line method 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>
1997 1996
---------- ----------
<S> <C> <C>
Home office building ................................ $37,459 $36,586
Other, principally furniture and equipment .......... 46,937 35,401
------- -------
84,396 71,987
Accumulated depreciation ............................ 47,989 36,498
------- -------
$36,407 $35,489
======= =======
</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.
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.
F-25
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ ----------
<S> <C> <C> <C>
Balance beginning of year .................... $ 108,159 $ 73,642 $ 79,462
Less reinsurance ............................ 6,423 3,330 5,024
--------- -------- --------
Net balance beginning of year ................ 101,736 70,312 74,438
--------- -------- --------
Incurred related to:
Current year ................................. 258,322 275,524 216,839
Prior year ................................... (14,540) (2,417) (4,038)
--------- -------- --------
Total incurred .............................. 243,782 273,107 212,801
--------- -------- --------
Paid related to:
Current year ................................. 203,381 197,163 164,321
Prior year ................................... 58,104 57,812 48,834
--------- -------- --------
Total paid .................................. 261,485 254,975 213,155
--------- -------- --------
Other changes:
Acquisitions and reserve transfers .......... 3,415 13,292 (3,772)
--------- -------- --------
Net balance end of year ...................... 87,448 101,736 70,312
Plus reinsurance ............................ 18,673 6,423 3,330
--------- -------- --------
Balance end of year .......................... $ 106,121 $108,159 $ 73,642
========= ======== ========
</TABLE>
o 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 1997.
At December 31, 1997, Protective estimates the fair value of its guaranteed
investment contracts to be $2,687.3 mil lion using discounted cash flows.
The surrender value of Protective's annuities which approximates fair value
was $1,494.6 million.
o Policy Acquisition Costs -- Commissions and other costs of acquiring
traditional life and health insurance, universal life insurance, and
investment products that vary with and are primarily related to the
production of new business have been deferred. Traditional life and health
insurance acquisition costs are 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. Under SFAS No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," Protective makes certain assumptions
regarding the mortality, persistency, expenses, and interest rates it
expects to experience in future periods. These assumptions are to be best
estimates and are to be periodically updated whenever actual experience
and/or expectations for the future change from initial assumptions.
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.
F-26
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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. 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 $261.9 million and $149.9
million at December 31, 1997 and 1996, respectively. During 1996 $69.2 million
of present value of future profits on acquisitions made during the year was
capitalized and $21.8 million was amortized. During 1997 $136.2 million of
present value of future profits on acquisitions made during the year was
capitalized, and $24.2 million was amortized. The unamortized present value of
future profits for all acquisitions was $274.9 million at December 31, 1997 and
$167.6 million at December 31, 1996.
PARTICIPATING POLICIES
Participating business comprises approximately 1% of the individual life
insurance in force and 2% of the individual life insurance premium income.
Policyholder dividends totaled $4.6 million in 1997, $4.1 million in 1996, and
$2.6 million in 1995.
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 the bases of assets and
liabilities determined for financial reporting purposes and the bases
determined for income tax purposes. Such temporary differences are principally
related to the deferral of policy acquisition costs and the provision for
future policy benefits and expenses.
RECLASSIFICATIONS
Certain 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 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-27
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
----------------------------------- ---------------------------------------------
1997 1996 1995 1997 1996 1995
----------- ----------- ----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory reporting
practices: (1) .............................. $ 134,417 $ 102,337 $ 115,259 $ 579,111 $ 456,320 $ 324,416
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net of
amortization .............................. 10,310 (2,830) (765) 632,605 488,201 410,183
Deferred income tax ......................... 13,981 2,142 6,972 (49,417) (37,722) (67,420)
Asset Valuation Reserve ..................... 67,369 64,233 105,769
Interest Maintenance Reserve ................ (1,434) (2,142) (1,235) 9,809 17,682 14,412
Nonadmitted items ........................... 30,500 21,610 20,603
Other timing and valuation adjustments ...... (54,494) (11,210) (45,028) (215,448) (197,227) (108,495)
Noninsurance affiliates ..................... 17,530 11,104 (22) (4) 4 (9)
Consolidation elimination ................... (22,862) (16,858) 2,515 (35,746) (36,910) (46,222)
--------- --------- --------- ----------- ---------- -----------
In conformity with generally accepted
accounting principles ....................... $ 97,448 $ 82,543 $ 77,696 $1,018,779 $ 776,191 $ 653,237
========= ========= ========= =========== ========== ===========
</TABLE>
- ---------
(1) Consolidated
NOTE C -- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturities .............................. $396,255 $310,353 $272,942
Equity securities ............................. 1,186 2,124 1,338
Mortgage loans on real estate ................. 161,604 153,463 162,135
Investment real estate ........................ 2,004 1,875 1,855
Policy loans .................................. 11,370 10,378 8,958
Other, principally short-term investments ..... 21,876 51,637 40,348
-------- -------- --------
594,295 529,830 487,576
Investment expenses ........................... 36,807 31,049 29,143
-------- -------- --------
$557,488 $498,781 $458,433
======== ======== ========
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<S> <C> <C> <C>
Fixed maturities .................... $ (8,355) $ (7,101) $ 6,118
Equity securities ................... 5,975 1,733 44
Mortgage loans and other investments 4,204 10,878 (4,211)
---------- ---------- --------
$ 1,824 $ 5,510 $ 1,951
========== ========== ========
</TABLE>
Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $23.0 million at December 31, 1997 and $30.9
million at December 31, 1996. Additions and reductions to the allowance are
included in realized investment gains (losses). Without such
additions/reductions, Protective had net realized investment losses of $6.1
million in 1997, net realized investment gains of $3.7 million in 1996, and net
realized investment losses of $0.5 million in 1995.
F-28
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS -- (Continued)
In 1997, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $21.3 million
and gross losses were $23.5 million. In 1996, gross gains were $6.9 million and
gross losses were $11.8 million. In 1995, gross gains were $18.0 million and
gross losses were $11.8 million.
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 ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1997 COST GAINS LOSSES VALUES
- --------------------------------------------------------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed ............................................ $2,982,266 $ 54,103 $16,577 $3,019,792
United States Government and authorities ................... 160,484 1,366 0 161,850
States, municipalities, and political subdivisions ......... 31,621 532 0 32,153
Public utilities ........................................... 481,679 7,241 0 488,920
Convertibles and bonds with warrants ....................... 694 0 168 526
All other corporate bonds .................................. 2,559,186 80,903 1,019 2,639,070
Redeemable preferred stocks .................................. 5,941 0 0 5,941
---------- -------- ------- ----------
6,221,871 144,145 17,764 6,348,252
Equity securities ............................................. 24,983 300 10,277 15,006
Short-term investments ........................................ 54,337 0 0 54,337
---------- -------- ------- ----------
$6,301,190 $144,445 $28,041 $6,417,595
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1996 COST GAINS LOSSES VALUES
- --------------------------------------------------------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed ............................................ $2,192,978 $29,925 $20,810 $2,202,093
United States Government and authorities ................... 348,318 661 1,377 347,602
States, municipalities, and political subdivisions ......... 5,515 47 9 5,553
Public utilities ........................................... 364,692 2,205 337 366,560
Convertibles and bonds with warrants ....................... 679 0 158 521
All other corporate bonds .................................. 1,679,276 33,879 29,388 1,683,767
Bank loan participations ..................................... 49,829 0 0 49,829
Redeemable preferred stocks .................................. 7,238 60 226 7,072
---------- ------- ------- ----------
4,648,525 66,777 52,305 4,662,997
Equity securities ............................................. 31,669 9,570 5,989 35,250
Short-term investments ........................................ 101,215 0 0 101,215
---------- ------- ------- ----------
$4,781,409 $76,347 $58,294 $4,799,462
========== ======= ======= ==========
</TABLE>
F-29
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS -- (Continued)
The amortized cost and estimated market values of fixed maturities at
December 31, by expected maturity, are shown below. Expected maturities are
derived from rates of prepayment that may differ from actual rates of
prepayment.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1997 COST VALUES
- --------------------------------------------------- ------------- ------------
<S> <C> <C>
Due in one year or less ..................... $ 456,248 $ 460,994
Due after one year through five years ....... 2,774,769 2,815,553
Due after five years through ten years ...... 2,377,989 2,440,193
Due after ten years ......................... 612,865 631,512
---------- ----------
$6,221,871 $6,348,252
========== ==========
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1996 COST VALUES
- --------------------------------------------------- ------------- ------------
<S> <C> <C>
Due in one year or less ..................... $ 417,463 $ 420,774
Due after one year through five years ....... 1,547,805 1,546,278
Due after five years through ten years ...... 2,090,149 2,095,781
Due after ten years ......................... 593,108 600,164
---------- ----------
$4,648,525 $4,662,997
========== ==========
</TABLE>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1997 1996
- ------------------------------------------- ---------- ----------
<S> <C> <C>
AAA .................................. 41.1% 48.3%
AA ................................... 4.8 4.4
A .................................... 29.1 22.6
BBB
Bonds ............................... 21.9 21.1
Bank loan participations ............ 0.1
BB or Less
Bonds ............................... 3.0 2.5
Bank loan participations ............ 0.9
Redeemable preferred stocks .......... 0.1 0.1
----- -----
100.0% 100.0%
===== =====
</TABLE>
At December 31, 1997 and 1996, Protective had bonds which were rated less than
investment grade of $195.2 million and $117.5 million, respectively, having an
amortized cost of $193.6 million and $137.0 million, respectively. At December
31, 1997, approximately $89.6 million of the bonds rates less than investment
grade were securities issued in company-sponsored commercial mortgage loan
securitizations. Additionally, Protective had bank loan participations at
December 31, 1996 which were rated less than investment grade of $43.6 million
having an amortized cost of $43.6 million.
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>
1997 1996 1995
------------ ------------- -----------
<S> <C> <C> <C>
Fixed maturities ........... $ 72,741 $ (56,898) $199,024
Equity securities .......... $ (8,813) $ 207 $ 2,740
</TABLE>
F-30
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS -- (Continued)
At December 31, 1997, all of Protective's mortgage loans were commercial
loans of which 75% were retail, 9% were apartments, 7% were office buildings,
and 7% were warehouses. 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: Florida, Georgia, Texas, North Carolina,
Alabama, Virginia, South Carolina, Tennessee, Kentucky, California, Maryland,
Mississippi, Ohio, Michigan, 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 $76.7
million would become due in 1998, $434.4 million in 1999 to 2002, and $129.7
million in 2003 to 2007.
At December 31, 1997, the average mortgage loan was $1.6 million, and the
weighted average interest rate was 8.8%. The largest single mortgage loan was
$12.8 million. While Protective's mortgage loans do not have quoted market
values, at December 31, 1997 and 1996, Protective estimates the market value of
its mortgage loans to be $1,405.5 million and $1,581.7 million, respectively,
using discounted cash flows from the next call date.
At December 31, 1997 and 1996, Protective's problem mortgage loans and
foreclosed properties totaled $17.7 million and $23.7 million, respectively.
Protective's mortgage loans are collateralized by real estate, any assessment
of impairment is based upon the estimated fair value of the real estate. Based
on Protective's evaluation of its mortgage loan portfolio, Protective does not
expect any material losses on its mortgage loans.
Certain investments, principally real estate, with a carrying value of
$6.7 million were nonincome producing for the twelve months ended December 31,
1997.
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.
NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax income ................ 35.0% 35.0% 35.0%
Dividends received deduction and tax-exempt interest ...................... (0.2) (0.4) (0.5)
Low-income housing credit ................................................. (0.6) (0.6) (0.7)
Tax benefits arising from prior acquisitions and other adjustments ........ 0.7 0.1 0.2
---- ---- ----
Effective income tax rate ................................................. 34.9% 34.1% 34.0%
==== ==== ====
</TABLE>
The provision for federal income tax differs from amounts currently
payable due to certain items reported for financial statement purposes in
periods which differ from those in which they are reported for income tax
purposes.
Details of the deferred income tax provision for the years ended December
31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Deferred policy acquisition costs ................... $ 7,054 $ 15,542 $ (11,606)
Benefit and other policy liability changes .......... (23,564) (16,321) 52,496
Temporary differences of investment income .......... 2,516 (1,163) (34,175)
Other items ......................................... 13 (200) (13,687)
--------- --------- ---------
$ (13,981) $ (2,142) $ (6,972)
========= ========= =========
</TABLE>
F-31
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- FEDERAL INCOME TAXES -- (Continued)
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves ......... $138,701 $ 80,151
Other .............................................. 1,029 2,503
-------- --------
139,730 82,654
======== ========
Deferred income tax liabilities:
Deferred policy acquisition costs .................. 150,895 117,696
Unrealized gain on investments ..................... 38,252 2,680
-------- --------
189,147 120,376
-------- --------
Net deferred income tax liability .................. $ 49,417 $ 37,722
======== ========
</TABLE>
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, 1997 was approximately $73 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 $727 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.
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
At December 31, 1997, PLC had no borrowings outstanding 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.
Protective has arranged sources of credit to temporarily fund scheduled
investment commitments. Protective expects that the rate received on its
investments will equal or exceed its borrowing rate. Protective had no such
temporary borrowings outstanding at December 31, 1997 and 1996.
Included in indebtedness to related parties is a surplus debenture issued
by Protective to PLC. At December 31, 1997, the balance of the surplus
debenture was $20.0 million. The debenture matures in 2003.
Indebtedness to related parties also consists of payables to affiliates
under control of PLC in the amount of $8.1 million at December 31, 1997.
Protective 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.
Interest expense on borrowed money totaled $4.3 million, $4.6 million, and
$6.0 million, in 1997, 1996, and 1995, respectively.
NOTE F -- RECENT ACQUISITIONS
In January 1996 Protective acquired through coinsurance a block of life
insurance policies. In June 1996 Protective acquired through coinsurance a
block of credit life insurance policies. In December 1996 Protective acquired a
small life insurance company and acquired through coinsurance a block of life
insurance policies.
In June 1997, Protective acquired West Coast Life Insurance Company ("West
Coast"). In September 1997, Protective acquired the Western Diversified Group.
In October 1997, Protective coinsured a block of credit policies.
F-32
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- RECENT ACQUISITIONS -- (Continued)
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 of 1997 and
1996, on an unaudited pro forma basis, as if the West Coast and Western
Diversified Group acquisitions had occurred as of January 1, 1996. The pro
forma information is based on Protective's consolidated results of operations
for 1997 and 1996 and on data provided by the respective companies, after
giving effect to certain pro forma adjustments. The pro 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>
1997 1996
------------- -------------
<S> <C> <C>
Total revenues .......... $1,133,962 $1,126,096
Net income .............. $ 100,621 $ 88,774
</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. Increasingly these lawsuits have resulted
in the award of substantial judgments against the insurer that are
disproportionate to the actual damages, including material amounts of punitive
damages. In addition, in some class action and other lawsuits involving
insurers' sales practices, insurers have made material settlement payments. In
some states (including Alabama), juries have substantial discretion in awarding
punitive damages which creates the potential for unpredictable material adverse
judgments in any given punitive damage suit. Protective and its subsidiaries,
like other life and health insurers, in the ordinary course of business, are
involved in such litigation. Although the outcome of any litigation cannot be
predicted with certainty, Protective believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse effect on the financial position, results of operations, or
liquidity of Protective.
NOTE H -- STOCKHOLDER'S EQUITY AND RESTRICTIONS
At December 31, 1997, approximately $483 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. In general, dividends up to specified levels are
considered ordinary and may be paid thirty days after written notice to the
insurance commissioner of the state of domicile unless such commissioner
objects to the dividend prior to the expiration of such period. Dividends in
larger amounts are considered extraordinary and are subject to affirmative
prior approval by such commissioner. The maximum amount that would qualify as
ordinary dividends to PLC by Protective in 1998 is estimated to be $154
million.
NOTE I -- PREFERRED STOCK
PLC owns all of the 2,000 shares of preferred stock issued by Protective's
subsidiary, American Foundation. During 1996, American Foundation's articles of
incorporation were amended such that the preferred stock is redeemable solely
at the discretion of American Foundation. 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 $0.1
million were paid to PLC in 1997, 1996, and 1995.
F-33
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- RELATED PARTY MATTERS
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, $5.4 million at
December 31, 1997, 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 $3.1 million in 1997, $3.7 million in 1996, and $3.1
million in 1995. Protective purchases data processing, legal, investment and
management services from affiliates. The costs of such services were $51.6
million, $50.4 million, and $38.1 million, in 1997, 1996, and 1995,
respectively. Commissions paid to affiliated marketing organizations of $5.2
million, $7.4 million, and $10.9 million, in 1997, 1996, and 1995,
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 $21.4 million, $31.2 million, and $21.2
million, in 1997, 1996, and 1995, respectively. Protective and/or PLC paid
commissions, interest, and service fees to these same corporations totaling
$5.4 million, $5.0 million, and $5.3 million, in 1997, 1996, and 1995,
respectively.
For a discussion of indebtedness to related parties, see Note E.
NOTE K -- OPERATING SEGMENTS
Protective operates seven divisions whose principal strategic focuses can
be grouped into three general categories: Life Insurance, Specialty Insurance
Products, and Retirement Savings and Investment Products. Each division has a
senior officer of Protective responsible for its operations. A division is
generally distinguished by products and/or channels of distribution. A brief
description of each division follows.
LIFE INSURANCE
ACQUISITIONS DIVISION. The Acquisitions Division focuses solely on
acquiring, converting, and servicing business acquired from other companies.
These acquisitions may be accomplished through acquisitions of companies or
through the assumption or reinsurance of life insurance and related policies.
INDIVIDUAL LIFE DIVISION. The Individual Life Division markets universal
life and other life insurance products on a national basis through a network of
independent insurance agents. The Division primarily utilizes a distribution
system based on experienced independent producing general agents who are
recruited by regional sales managers. In addition, the Division distributes
insurance products in the life insurance brokerage market.
WEST COAST DIVISION. The West Coast Division sells universal and
traditional ordinary life products in the life insurance brokerage market and
in the "bank owned life insurance" market. The Division primarily utilizes a
distribution system comprised of brokerage general agencies with a network of
independent life agents.
SPECIALTY INSURANCE PRODUCTS
DENTAL AND CONSUMER BENEFITS DIVISION. The Division (formerly known as the
Group Division) recently exited from the traditional group major medical
business, fulfilling the Division's strategy to focus primarily on dental and
related products. Accordingly, the Division was renamed the Dental and Consumer
Benefits Division. The Division's primary focus is on indemnity dental
products. The Division also markets group life and disability coverages, and
administers an essentially closed block of individual cancer insurance
policies.
FINANCIAL INSTITUTIONS DIVISION. The Financial Institutions Division
specializes in marketing credit life and disability insurance products through
banks, consumer finance companies and automobile dealers. The Division markets
through employee field representatives, independent brokers, and an affiliate.
The Division also includes a small property casualty insurer that sells
automobile extended warranty coverages.
F-34
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- OPERATING SEGMENTS -- (Continued)
RETIREMENT SAVINGS AND INVESTMENT PRODUCTS
GUARANTEED INVESTMENT CONTRACTS DIVISION. The Guaranteed Investment
Contracts ("GIC") Division markets GICs to 401(k) and other qualified
retirement savings plans. The Division also offers related products, including
guaranteed funding agreements offered to the trustees of municipal bond
proceeds, floating rate contracts offered to trust departments, and long-term
annuity contracts offered to fund certain state obligations.
INVESTMENT PRODUCTS DIVISION. The Investment Products Division
manufactures, sells, and supports fixed and variable annuity products. These
products are primarily sold through stockbrokers, but are also sold through
financial institutions and the Individual Life Division's agency sales force.
CORPORATE AND OTHER
Protective has an additional business segment herein referred to as
Corporate and Other. The Corporate and Other segment primarily consists of net
investment income and expenses not attributable to the Divisions above
(including net investment income on capital and interest on substantially all
debt).
Protective uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated net
income and assets. Operating segment income is generally income before income
tax. Premiums and policy fees, other income, benefits and settlement expenses,
and amortization of deferred policy acquisition costs are attributed directly
to each operating segment. Net investment income is allocated based on directly
related assets required for transacting the business of that segment. Realized
investment gains (losses) and other operating expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
F-35
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- OPERATING SEGMENTS -- (Continued)
Operating segment income and assets for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
SPECIALTY INSURANCE
LIFE INSURANCE PRODUCTS
---------------------------------------- -------------------------
DENTAL AND
INDIVIDUAL CONSUMER FINANCIAL
ACQUISITIONS LIFE WEST COAST BENEFITS INSTITUTIONS
-------------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING SEGMENT INCOME
1997
Premiums and policy fees .................................. $ 102,635 $ 127,480 $ 14,122 $151,110 $ 72,263
Net investment income ..................................... 110,155 54,593 30,194 23,810 16,341
Realized investment gains (losses) ........................
Other income .............................................. 10 617 1,278 3,033
---------- ---------- -------- --------
Total revenues ........................................... 212,800 182,690 44,316 176,198 91,637
---------- ---------- ---------- -------- --------
Benefits and settlement expenses .......................... 116,506 114,678 28,304 110,148 27,643
Amortization of deferred policy acquisition costs ......... 16,606 27,354 961 15,711 30,812
Other operating expenses .................................. 23,016 18,178 6,849 38,572 20,165
---------- ---------- ---------- -------- --------
Total benefits and expenses .............................. 156,128 160,210 36,114 164,431 78,620
---------- ---------- ---------- -------- --------
Income before income tax .................................. 56,672 22,480 8,202 11,767 13,017
Income tax expense ........................................
Net income ................................................
1996
Premiums and policy fees .................................. $ 106,543 $ 116,710 $156,530 $ 73,422
Net investment income ..................................... 106,015 48,442 16,249 13,898
Realized investment gains (losses) ........................ 3,098
Other income .............................................. 641 1,056 2,193
---------- ---------- --------
Total revenues ........................................... 213,199 169,306 174,972 87,320
---------- ---------- -------- --------
Benefits and settlement expenses .......................... 118,181 96,404 125,797 42,781
Amortization of deferred policy acquisition costs ......... 17,162 28,393 5,326 24,900
Other operating expenses .................................. 24,292 28,611 43,028 10,673
---------- ---------- -------- --------
Total benefits and expenses .............................. 159,635 153,408 174,151 78,354
---------- ---------- -------- --------
Income before income tax .................................. 53,564 15,898 821 8,966
Income tax expense ........................................
Net income ................................................
1995
Premiums and policy fees .................................. $ 98,501 $ 99,018 $142,483 $ 65,669
Net investment income ..................................... 95,018 40,237 14,329 9,276
Realized investment gains (losses) ........................
Other income .............................................. 25 169 2,451 (2,187)
---------- ---------- -------- --------
Total revenues ........................................... 193,544 139,424 159,263 72,758
---------- ---------- -------- --------
Benefits and settlement expenses .......................... 100,016 80,067 109,447 24,020
Amortization of deferred policy acquisition costs ......... 20,601 20,403 3,052 26,809
Other operating expenses .................................. 22,551 22,748 37,657 14,228
---------- ---------- -------- --------
Total benefits and expenses .............................. 143,168 123,218 150,156 65,057
---------- ---------- -------- --------
Income before income tax .................................. 50,376 16,206 9,107 7,701
Income tax expense ........................................
Net income ................................................
OPERATING SEGMENT ASSETS
1997
Investments and other assets .............................. $1,401,294 $ 960,316 $ 910,030 $208,071 $536,058
Deferred policy acquisition costs ......................... 138,052 252,321 108,126 22,459 52,836
---------- ---------- ---------- -------- --------
Total assets .............................................. $1,539,346 $1,212,637 $1,018,156 $230,530 $588,894
---------- ---------- ---------- -------- --------
1996
Investments and other assets .............................. $1,423,081 $ 814,728 $205,696 $312,826
Deferred policy acquisition costs ......................... 156,172 220,232 27,944 32,040
---------- ---------- -------- --------
Total assets .............................................. $1,579,253 $1,034,960 $233,640 $344,866
---------- ---------- -------- --------
1995
Investments and other assets .............................. $1,131,653 $ 701,431 $215,248 $228,849
Deferred policy acquisition costs ......................... 123,889 186,496 24,974 36,283
---------- ---------- -------- --------
Total assets .............................................. $1,255,542 $ 887,927 $240,222 $265,132
---------- ---------- -------- --------
</TABLE>
F-36
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- OPERATING SEGMENTS -- (Continued)
<TABLE>
<CAPTION>
RETIREMENT SAVINGS AND
INVESTMENT PRODUCTS
-----------------------------
GUARANTEED
INVESTMENT INVESTMENT
CONTRACTS PRODUCTS
OPERATING SEGMENT INCOME -------------- --------------
<S> <C> <C>
1997
Premiums and policy fees ............................... $ 12,367
Net investment income .................................. $ 211,915 105,196
Realized investment gains (losses) ..................... (3,180) 589
Other income ........................................... (192)
----------
Total revenues ........................................ 208,735 117,960
---------- ----------
Benefits and settlement expenses ....................... 179,235 82,019
Amortization of deferred policy acquisition costs ...... 618 15,110
Other operating expenses ............................... 3,945 12,312
---------- ----------
Total benefits and expenses ........................... 183,798 109,441
---------- ----------
Income before income tax ............................... 24,937 8,519
Income tax expense .....................................
Net income .............................................
1996
Premiums and policy fees ............................... $ 8,189
Net investment income .................................. $ 214,369 98,719
Realized investment gains (losses) ..................... (7,963) 3,858
Other income ........................................... 56
----------
Total revenues ........................................ 206,406 110,822
---------- ----------
Benefits and settlement expenses ....................... 169,927 73,093
Amortization of deferred policy acquisition costs ...... 509 14,710
Other operating expenses ............................... 3,840 13,196
---------- ----------
Total benefits and expenses ........................... 174,276 100,999
---------- ----------
Income before income tax ............................... 32,130 9,823
Income tax expense .....................................
Net income .............................................
1995
Premiums and policy fees ............................... $ 4,566
Net investment income .................................. $ 203,376 95,661
Realized investment gains (losses) ..................... (3,908) 4,938
Other income ........................................... (181)
----------
Total revenues ........................................ 199,468 104,984
---------- ----------
Benefits and settlement expenses ....................... 165,963 72,111
Amortization of deferred policy acquisition costs ...... 386 11,446
Other operating expenses ............................... 4,140 10,494
---------- ----------
Total benefits and expenses ........................... 170,489 94,051
---------- ----------
Income before income tax ............................... 28,979 10,933
Income tax expense .....................................
Net income .............................................
OPERATING SEGMENT ASSETS
1997
Investments and other assets ........................... $2,887,732 $2,313,279
Deferred policy acquisition costs ...................... 1,785 56,074
---------- ----------
Total assets ........................................... $2,889,517 $2,369,353
---------- ----------
1996
Investments and other assets ........................... $2,606,873 $1,821,250
Deferred policy acquisition costs ...................... 1,164 50,637
---------- ----------
Total assets ........................................... $2,608,037 $1,871,887
---------- ----------
1995
Investments and other assets ........................... $2,535,946 $1,541,255
Deferred policy acquisition costs ...................... 993 37,534
---------- ----------
Total assets ........................................... $2,536,939 $1,578,789
---------- ----------
<CAPTION>
CORPORATE
AND TOTAL
OTHER ADJUSTMENTS(1) CONSOLIDATED
OPERATING SEGMENT INCOME ------------ ---------------- -------------
<S> <C> <C> <C>
1997
Premiums and policy fees ............................... $ 229 $ 480,206
Net investment income .................................. 5,284 557,488
Realized investment gains (losses) ..................... $ 4,415 1,824
Other income ........................................... 1,403 6,149
-------- -----------
Total revenues ........................................ 6,916 1,045,667
-------- -----------
Benefits and settlement expenses ....................... 339 658,872
Amortization of deferred policy acquisition costs ...... 3 107,175
Other operating expenses ............................... 6,833 129,870
-------- -----------
Total benefits and expenses ........................... 7,175 895,917
-------- -----------
Income before income tax ............................... (259) 149,750
Income tax expense ..................................... 52,302 52,302
------- -----------
Net income ............................................. $ 97,448
-----------
1996
Premiums and policy fees ............................... $ 656 $ 462,050
Net investment income .................................. 1,089 498,781
Realized investment gains (losses) ..................... $ 6,517 5,510
Other income ........................................... 1,064 5,010
-------- -----------
Total revenues ........................................ 2,809 971,351
-------- -----------
Benefits and settlement expenses ....................... 710 626,893
Amortization of deferred policy acquisition costs ...... 1 91,001
Other operating expenses ............................... 4,508 128,148
-------- -----------
Total benefits and expenses ........................... 5,219 846,042
-------- -----------
Income before income tax ............................... (2,410) 125,309
Income tax expense ..................................... 42,766 42,766
------- -----------
Net income ............................................. $ 82,54
-----------
1995
Premiums and policy fees ............................... $ 1,445 $ 411,682
Net investment income .................................. 536 458,433
Realized investment gains (losses) ..................... $ 921 1,951
Other income ........................................... 1,078 1,355
-------- -----------
Total revenues ........................................ 3,059 873,421
-------- -----------
Benefits and settlement expenses ....................... 1,476 553,100
Amortization of deferred policy acquisition costs ...... 3 82,700
Other operating expenses ............................... 8,070 119,888
-------- -----------
Total benefits and expenses ........................... 9,549 755,688
-------- -----------
Income before income tax ............................... (6,490) 117,733
Income tax expense ..................................... 40,037 40,037
------- -----------
Net income ............................................. $ 77,696
-----------
OPERATING SEGMENT ASSETS
1997
Investments and other assets ........................... $525,896 $ 9,742,676
Deferred policy acquisition costs ...................... 952 632,605
-------- -----------
Total assets ........................................... $526,848 $10,375,281
-------- -----------
1996
Investments and other assets ........................... $490,688 $ 7,675,142
Deferred policy acquisition costs ...................... 12 488,201
-------- -----------
Total assets ........................................... $490,700 $ 8,163,343
-------- -----------
1995
Investments and other assets ........................... $414,128 $ 6,768,510
Deferred policy acquisition costs ...................... 14 410,183
-------- -----------
Total assets ........................................... $414,142 $ 7,178,693
-------- -----------
</TABLE>
- ---------
(1) Adjustments represent the inclusion of unallocated realized investment
gains (losses) and the recognition of income tax expense. There are no
asset adjustments.
F-37
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 81% 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 finding
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 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $18,216 in 1997 and
$14,720 in 1996 ................................................................... $ 19,351 $ 15,475
-------- --------
Projected benefit obligation for service rendered to date .......................... $ 30,612 $ 25,196
Plan assets at fair value (group annuity contract with Protective) ................. 21,763 19,779
-------- --------
Plan assets less than the projected benefit obligation ............................. (8,849) (5,417)
Unrecognized net loss from past experience different from that assumed ............. 6,997 3,559
Unrecognized prior service cost .................................................... 605 705
Unrecognized net transition asset .................................................. (51) (67)
-------- --------
Net pension liability recognized in balance sheet .................................. $ (1,298) $ (1,220)
======== ========
</TABLE>
Net pension cost includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost -- benefits earned during the year .......... $ 2,112 $ 1,908 $ 1,540
Interest cost on projected benefit obligation ............ 2,036 1,793 1,636
Actual return on plan assets ............................. (1,624) (1,674) (1,358)
Net amortization and deferral ............................ 66 374 114
-------- -------- --------
Net pension cost ......................................... $ 2,590 $ 2,401 $ 1,932
======== ======== ========
</TABLE>
Protective's share of the net pension cost was $1.8 million, $1.5 million,
and $1.2 million, in 1997, 1996, and 1995, respectively.
Assumptions used to determine the benefit obligations as of December 31
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average discount rate ....................... 7.25% 7.75% 7.25%
Rates of increase in compensation level .............. 5.25% 5.75% 5.25%
Expected long-term rate of return on assets .......... 8.50% 8.50% 8.50%
</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, 1997 and 1996, the projected
benefit obligation of this plan totaled $10.0 million and $7.2 million,
respectively.
In addition to pension benefits, PLC provides limited healthcare benefits
to eligible retired employees until age 65. The postretirement benefit is
provided by an unfunded plan. At December 31, 1997 and 1996, the liability for
such benefits totaled $1.3 million and $1.4 million, respectively. The expense
recorded by PLC was $0.1 million in 1997 and 1996 and
F-38
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS -- (Continued)
$0.2 million in 1995. PLC's obligation is not materially affected by a 1%
change in the healthcare 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.
PLC sponsors a defined contribution plan which covers substantially all
employees. Employee contributions are made on a before-tax basis as provided by
Section 401(k) of the Internal Revenue Code. In 1990, PLC established an
Employee Stock Ownership Plan to match employee contributions to PLC's 401(k)
Plan. 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, 1997, PLC had committed 47,523 shares to be
released to fund employee benefits. The expense recorded by PLC for these
employee benefits was less than $0.1 million, $1.0 million, and $0.7 million,
in 1997, 1996, and 1995, respectively.
NOTE M -- STOCK BASED COMPENSATION
Certain Protective employees participate in PLC's Performance Share Plan
and receive stock appreciation rights (SARs) from PLC.
Since 1973 PLC has had a Performance Share Plan to motivate senior
management to focus on PLC's long-range earnings performance. The criterion for
payment of performance share awards is based upon a comparison of PLC's average
return on average equity over a four year award period (earlier upon the death,
disability or retirement of the executive, or in certain circumstances, of a
change in control of PLC) to that of a comparison group of publicly held life
insurance companies, multiline insurers, and insurance holding companies. If
PLC's results are below the median of the comparison group, no portion of the
award is earned. If PLC's results are at or above the 90th percentile, the
award maximum is earned. Under the plan approved by stockholders in 1992, up to
3,200,000 shares may be issued in payment of awards. The number of shares
granted in 1997, 1996, and 1995 were 49,390, 52,290, and 72,610 shares,
respectively, having an approximate market value on the grant date of $2.0
million, $1.8 million, and $1.6 million, respectively. At December 31, 1997,
outstanding awards measured at target and maximum payouts were 261,318 and
353,385 shares, respectively. The expense recorded by PLC for the Performance
Share Plan was $2.7 million, $3.0 million, and $2.9 million in 1997, 1996, and
1995, respectively.
During 1996, stock appreciation rights (SARs) were granted to certain
executives of PLC to provide long-term incentive compensation based on the
performance of PLC's Common Stock. Under this arrangement PLC will pay (in
shares of PLC Common Stock) an amount equal to the difference between the
specified base price of PLC's Common Stock and the market value at the exercise
date. The SARs are exercisable after five years (earlier upon the death,
disability or retirement of the executive, or in certain circumstances, of a
change in control of PLC) and expire in 2006 or upon termination of employment.
The number of SARs granted during 1996 and outstanding at December 31, 1997 was
337,500. The SARs have a base price of $34.875 per share of PLC Common Stock
(the market price on the grant date was $35.00 per share). The estimated fair
value of the SARs on the grant date was $3.0 million. This estimate was derived
using the Roll-Geske variation of the Black-Sholes option pricing model.
Assumptions used in the pricing model are as follows: expected volatility rate
of 15% (approximately equal to that of the S & P Life Insurance Index), a risk
free interest rate of 6.35%, a dividend yield rate of 1.97%, and an expected
exercise date of August 15, 2002. The expense recorded by PLC for the SARs was
$0.6 million in 1997 and $0.2 million in 1996.
NOTE N -- 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
F-39
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- REINSURANCE -- (Continued)
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, generally, will not carry more than $500,000 individual life
insurance on a single risk. In many cases, the retention is less.
Protective has reinsured approximately $34.1 billion, $18.8 billion, and
$17.5 billion in face amount of life insurance risks with other insurers
representing $147.2 million, $113.5 million, and $116.1 million of premium
income for 1997, 1996, and 1995, respectively. Protective has also reinsured
accident and health risks representing $187.7 million, $194.7 million, and
$217.1 million of premium income for 1997, 1996, and 1995, respectively. In
1997 and 1996, policy and claim reserves relating to insurance ceded of $485.8
million and $325.9 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, 1997 and 1996, Protective had paid $25.6 million
and $6.7 million, respectively, of ceded benefits which are recoverable from
reinsurers. In addition, at December 31, 1997, Protective had receivables of
$80.3 million related to insurance assumed.
A substantial portion of Protective's new credit insurance sales are being
reinsured. Included in the preceding paragraph are credit life and credit
accident and health insurance premiums of $96.7 million, $103.0 million, and
$125.8 million for 1997, 1996 and 1995, respectively, and reserves which were
ceded of $238.8 million and $135.8 million during 1997 and 1996, respectively.
NOTE O -- 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>
1997 1996
----------------------------- -----------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities ................................ $6,348,252 $6,348,252 $4,662,997 $4,662,997
Equity securities ............................... 15,006 15,006 35,250 35,250
Mortgage loans on real estate ................... 1,313,478 1,405,474 1,503,781 1,581,694
Short-term investments .......................... 54,337 54,337 101,215 101,215
Cash ............................................. 39,197 39,197 114,384 114,384
Liabilities (see Notes A and E):
Guaranteed investment contract deposits ......... 2,684,676 2,687,331 2,474,728 2,462,036
Annuity deposits ................................ 1,511,553 1,494,600 1,331,067 1,322,304
Other (see Note A):
Futures contracts ............................... (1,708)
Interest rate swaps ............................. (145) (679)
Options ......................................... 234
</TABLE>
F-40
<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
- ----------------------------------- ------------- ------------- ---------- ----------------
GIC AND
ANNUITY
DEFERRED FUTURE DEPOSITS
POLICY POLICY AND OTHER
ACQUISITION BENEFITS UNEARNED POLICYHOLDERS'
SEGMENT COSTS AND COSTS PREMIUMS FUNDS
- ----------------------------------- ------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Life Insurance
Acquisitions ..................... $138,052 $1,025,340 $ 1,437 $ 311,150
Individual Life .................. 252,321 920,924 356 16,334
West Coast ....................... 108,126 739,463 0 95,495
Specialty Insurance Products
Dental and Consumer Benefits ..... 22,459 120,925 2,536 80,654
Financial Institutions ........... 52,836 159,422 391,085 6,791
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts ....................... 1,785 180,690 0 2,684,676
Investment Products .............. 56,074 177,150 0 1,184,268
Corporate and Other ............... 952 380 1,282 185
Unallocated Realized Investment
Gains (Losses) ................... 0 0 0 0
-------- ---------- -------- ----------
TOTAL ........................... $632,605 $3,324,294 $396,696 $4,379,553
======== ========== ======== ==========
Year Ended December 31, 1996:
Life Insurance
Acquisitions ..................... $156,172 $1,117,159 $ 1,087 $ 251,450
Individual Life .................. 220,232 793,370 685 15,577
Specialty Insurance Products ......
Dental and Consumer Benefits ..... 27,944 119,010 2,572 83,632
Financial Institutions ........... 32,040 119,242 253,154 1,880
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts ....................... 1,164 149,755 0 2,474,728
Investment Products .............. 50,637 149,743 0 1,120,557
Corporate and Other ............... 12 170 55 192
Unallocated Realized Investment
Gains (Losses) ................... 0 0 0 0
-------- ---------- -------- ----------
TOTAL ........................... $488,201 $2,448,449 $257,553 $3,948,016
======== ========== ======== ==========
Year Ended December 31, 1995:
Life Insurance
Acquisitions ..................... $123,889 $ 851,994 $ 590 $ 250,550
Individual Life .................. 186,496 672,569 336 14,709
Specialty Insurance Products
Dental and Consumer Benefits ..... 24,974 123,279 2,806 85,925
Financial Institutions ........... 36,283 84,162 189,973 1,495
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts ....................... 993 68,704 0 2,451,693
Investment Products .............. 37,534 127,104 0 1,061,507
Corporate and Other ............... 14 342 62 263
Unallocated Realized Investment
Gains (Losses) .................. 0 0 0 0
-------- ---------- -------- ----------
TOTAL ........................... $410,183 $1,928,154 $193,767 $3,866,142
======== ========== ======== ==========
<CAPTION>
COL. A COL. F COL. G COL. H COL. I COL. J
- ----------------------------------- ---------- ------------ ------------ ------------- -------------
AMORTIZATION
PREMIUMS REALIZED BENEFITS OF DEFERRED
AND NET INVESTMENT AND POLICY OTHER
POLICY INVESTMENT GAINS SETTLEMENT ACQUISITION OPERATING
SEGMENT FEES INCOME (1) (LOSSES) EXPENSES COSTS EXPENSES (1)
- ----------------------------------- ---------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Life Insurance
Acquisitions ..................... $102,635 $110,155 $ 0 $116,506 $ 16,606 $ 23,016
Individual Life .................. 127,480 54,593 0 114,678 27,354 18,178
West Coast ....................... 14,122 30,194 0 28,304 961 6,849
Specialty Insurance Products
Dental and Consumer Benefits ..... 151,110 23,810 0 110,148 15,711 38,572
Financial Institutions ........... 72,263 16,341 0 27,643 30,812 20,165
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts ....................... 0 211,915 (3,180) 179,235 618 3,945
Investment Products .............. 12,367 105,196 589 82,019 15,110 12,312
Corporate and Other ............... 229 5,284 0 339 3 6,833
Unallocated Realized Investment
Gains (Losses) ................... 0 0 4,415 0 0 0
-------- -------- --------- -------- -------- --------
TOTAL ........................... $480,206 $557,488 $ 1,824 $658,872 $107,175 $129,870
======== ======== ========= ======== ======== ========
Year Ended December 31, 1996:
Life Insurance
Acquisitions ..................... $106,543 $106,015 $ 0 $118,181 $ 17,162 $ 24,292
Individual Life .................. 116,710 48,442 3,098 96,404 28,393 28,611
Specialty Insurance Products ......
Dental and Consumer Benefits ..... 156,530 16,249 0 125,797 5,326 43,027
Financial Institutions ........... 73,422 13,898 0 42,781 24,900 10,673
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts ....................... 0 214,369 (7,963) 169,927 509 3,840
Investment Products .............. 8,189 98,719 3,858 73,093 14,710 13,197
Corporate and Other ............... 656 1,089 0 710 1 4,508
Unallocated Realized Investment
Gains (Losses) ................... 0 0 6,517 0 0 0
-------- -------- --------- -------- -------- --------
TOTAL ........................... $462,050 $498,781 $ 5,510 $626,893 $ 91,001 $128,148
======== ======== ========= ======== ======== ========
Year Ended December 31, 1995:
Life Insurance
Acquisitions ..................... $ 98,501 $ 95,018 $ 0 $100,016 $ 20,601 $ 22,551
Individual Life .................. 99,018 40,237 0 80,067 20,403 22,748
Specialty Insurance Products
Dental and Consumer Benefits ..... 142,483 14,329 0 109,447 3,052 37,657
Financial Institutions ........... 65,669 9,276 0 24,020 26,809 14,229
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts ....................... 0 203,376 (3,908) 165,963 386 4,140
Investment Products .............. 4,566 95,661 4,938 72,111 11,446 10,494
Corporate and Other ............... 1,445 536 0 1,476 3 8,069
Unallocated Realized Investment
Gains (Losses) .................. 0 0 921 0 0 0
-------- -------- --------- -------- -------- --------
TOTAL ........................... $411,682 $458,433 $ 1,951 $553,100 $ 82,700 $119,888
======== ======== ========= ======== ======== ========
</TABLE>
- ---------
(1) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if
different methods were applied.
S-1
<PAGE>
SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE 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, 1997:
Life insurance in force ............ $78,240,282 $34,139,554 $11,013,202 $55,113,930 20.0%
=========== =========== =========== =========== ====
Premiums and policy fees:
Life insurance ..................... $ 387,108 $ 147,184 $ 74,738 $ 314,662 23.8%
Accident and health insurance ...... 336,575 187,715 10,686 159,546 6.7%
Property and liability insurance ... 6,139 176 35 5,998 0.6%
----------- ----------- ----------- -----------
TOTAL .............................. $ 729,822 $ 335,075 $ 85,459 $ 480,206
=========== =========== =========== ===========
Year Ended December 31, 1996:
Life insurance in force ............ $53,052,020 $18,840,221 $16,275,386 $50,487,185 32.2%
=========== =========== =========== =========== ====
Premiums and policy fees:
Life insurance ..................... $ 272,331 $ 113,487 $ 129,717 $ 288,561 45.0%
Accident and health insurance ...... 338,709 194,687 29,467 173,489 17.0%
----------- ----------- ----------- -----------
TOTAL .............................. $ 611,040 $ 308,174 $ 159,184 $ 462,050
=========== =========== =========== ===========
Year Ended December 31, 1995:
Life insurance in force ............ $50,346,719 $17,524,366 $11,537,144 $44,359,497 26.0%
=========== =========== =========== =========== ====
Premiums and policy fees:
Life insurance ..................... $ 308,422 $ 116,091 $ 66,565 $ 258,896 25.7%
Accident and health insurance ...... 356,285 217,082 13,583 152,786 8.9%
----------- ----------- ----------- -----------
TOTAL .............................. $ 664,707 $ 333,173 $ 80,148 $ 411,682
=========== =========== =========== ===========
</TABLE>
S-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
All required financial statements are included in Part A and Part B of
this Registration Statement.
(b) Exhibits:
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) Annual Reset Death Benefit Rider
(c) Compound Death Benefit Rider
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 (Protective Investment
Company)**
(b) Participation Agreement (Oppenheimer Variable Account Funds)***
(c) Participation Agreement (MFS Variable Insurance Trust)***
(d) Participation Agreement (Acacia Capital Corporation)***
(e) Participation Agreement (Van Eck Worldwide Insurance Trust)++
9. Opinion and Consent of Steve M. Callaway, Esq.+
10. (a) Consent of Sutherland, Asbill & Brennan, L.L.P.+
(b) Consent of PricewaterhouseCoopers LLP+
11. No financial statements will be omitted from Item 23
12. Not applicable
13. Not applicable
14. Powers of Attorney+
- ---------
* 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.
*** Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form N-4 Registration Statement, (File No. 33-70984) filed with the
Commission on April 30, 1997.
****Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 333-60149) filed with the Commission on
July 1, 1998.
+ To be filed by amendment.
++ Incorporated herein by reference to Pre-Effective Amendment Number 1 to the
Form N-4 Registration Statement, (File No. 333-60149) filed with the
Commission on October 26, 1998.
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<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. Chairman of the Board
John D. Johns President, and Director
R. Stephen Briggs Executive Vice President, Director
Carolyn King Senior Vice President, Investment Products, and Director
Deborah J. Long Senior Vice President, General Counsel, Secretary, and Director
Jim E. Massengale Executive Vice President, Acquisitions, and Director
Steven A. Schultz Senior Vice President, Financial Institutions, and Director
Wayne E. Stuenkel Senior Vice President and Chief Actuary, and Director
A.S. Williams, III Executive Vice President, Investments, Treasurer, and Director
Judy Wilson Senior Vice President, Guaranteed Investment Contracts
J. Russell Bailey, Jr. Vice President, Dental and Consumer Benefits
Michael B. Ballard Vice President, Individual Life Marketing
Harvey S. Benjamin Vice President, Investment Products Operations
Danny L. Bentley Senior Vice President, Dental and Consumer Benefits, and Director
Richard J. Bielen Senior Vice President, Investments, and Director
Larry Adams Vice President, PPGA Sales
Linda C. Cleveland Vice President, Acquisition Administration
Chris T. Calos Vice President, Marketing, Dental and Consumer Benefits
Tim W. Carney Vice President, MGMD Dental Sales
Jerry W. DeFoor Vice President and Controller and Chief Accounting Officer
John B. Deremo Vice President, Individual Life Sales
Brent E. Fritz Vice President, Individual Life Product Development
Bruce W. Gordon Vice President, Marketing, Individual Life
James T. Helton III Vice President and Actuary, Dental and Consumer Benefits
Charles (T.O.) McDowell Vice President, PPGA Sales
William L. McMullen, Jr. Vice President, Customer Service, Financial Institutions
Lawrence G. Merrill Vice President, Investment Products Marketing
Charles Misasi Vice President, Network Plans
John O'Sullivan Vice President and Actuary, Investment Products
Edmund P. Perry Vice President, Individual Life Sales
Carl E. Price Vice President, Direct Marketing, Dental and Consumer Benefits
Charles M. Prior Vice President, Investments
T. Michael Presley Vice President and Actuary, Financial Institutions
John Sawyer Vice President, Equity Marketing, Individual Life
David C. Stevens Vice President, Operations, Dental and Consumer Benefits
James M. Styne Vice President, Financial Institutions
Carl S. Thigpen Vice President, Investments and Assistant Secretary
Alan E. Watson Vice President, Individual Life Sales
Thomas W. Willingham Vice President, Individual Life Operations and Assistant
Secretary
Banks M. Wood Vice President, Sales and Marketing, Financial Institutions
</TABLE>
- ---------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama 35223.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR AND
REGISTRANT
The registrant is a segregated asset account of the Company and is
therefore owned and controlled by the Company. All of the Company's outstanding
voting common stock is owned by Protective Life Corporation. Protective Life
Corporation is described more fully in the prospectus included in this
registration statement. Various companies and other entities
C-2
<PAGE>
controlled by Protective Life Corporation may therefore be considered to be
under common control with the registrant or the Company. Such other companies
and entities, together with the identity of their controlling persons (where
applicable), are set forth in Exhibit 21 to Form 10-K of Protective Life
Corporation for the fiscal year ended December 31, 1997 (File No. 1-2332) filed
with the Commission on March 27, 1998.
ITEM 27. NUMBER OF CONTRACTOWNERS.
As of the date of this filing, there were 0 contract owners of individual
flexible premium deferred variable and fixed annuity contracts offered by
Registrant.
ITEM 28. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XI of the By-laws of 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.
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.
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<PAGE>
(b) The following information is furnished with respect to the officers and
directors of Investment Distributors, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS* POSITION AND OFFICES POSITION AND OFFICES WITH REGISTRANT
- -------------------------- ---------------------- -------------------------------------
<S> <C> <C>
Briggs, Robert Stephen President, Chief Executive Vice President,
Executive Officer Director
and Director
Ballard, Michael B. Director Vice President, Individual Life
Marketing
Merrill, Lawrence G. Director Vice President, Investment
Products Marketing
King, Carolyn Secretary, Chief Senior Vice President,
Compliance Officer Investment Products
O'Sullivan, John Financial Vice President and Actuary,
Operations Investment Products
Principal, Treasurer
and Director
Callaway, Steve M. Director None
Janet Summey Assistant Secretary Assistant Vice President,
Investment Products
Bonnie Miller Assistant Secretary Assistant Vice President,
Investment Products
</TABLE>
- ---------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama, 35223.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts and records required to be maintained by Section 31(c) of the
Investment Company Act of 1940 and the rules thereunder are maintained by
Protective Life Insurance Company at 2801 Highway 280 South, Birmingham,
Alabama 35223.
ITEM 31. MANAGEMENT SERVICES.
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS.
(a) Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more
than sixteen (16) months old for so long as payments under the variable
annuity contracts may be accepted.
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that
an applicant can check to request a Statement of Additional Information,
or (2) a postcard or similar written communication affixed to or included
in the Prospectus that the applicant can remove to send for a Statement of
Additional Information; and
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available
under this Form promptly upon written or oral request.
(d) The Company represents that in connection with its offering of the
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986, it is
relying on a no-action letter dated November 28, 1988, to the American
Council of Life Insurance (Ref. No. IP-6-88) regarding Sections 22(e),
27(c)(1), and 27(d) of the Investment Company Act of 1940, and that
paragraphs numbered (1) through (4) of that letter will be complied with.
(e) Protective Life hereby represents that the fees and charges deducted
under the Contract, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed by Protective Life.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant of this Registration Statement
has duly caused the amendment to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Birmingham, State of Alabama on December 8, 1998.
PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT
By:
----------------------------------
JOHN D. JOHNS, PRESIDENT
PROTECTIVE LIFE INSURANCE COMPANY
PROTECTIVE LIFE INSURANCE COMPANY
By:
----------------------------------
JOHN D. JOHNS, PRESIDENT
PROTECTIVE LIFE INSURANCE COMPANY
As required by the Securities Act of 1933, the amendment to this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- --------------------------------- -----------------
<S> <C> <C>
Chairman of the Board December 8, 1998
- ------------------------------------ (Principal Executive Officer)
DRAYTON NABERS, JR.
President December 8, 1998
- ------------------------------------ (Principal Financial Officer)
JOHN D. JOHNS
Vice President, Controller, and December 8, 1998
- ------------------------------------ Chief Accounting Officer
(Principal Accounting Officer)
JERRY W. DEFOOR
Director December 8, 1998
- ------------------------------------
DRAYTON NABERS, JR.
Director December 8, 1998
- ------------------------------------
JOHN D. JOHNS
Director December 8, 1998
- ------------------------------------
R. STEPHEN BRIGGS
Director December 8, 1998
- ------------------------------------
JIM E. MASSENGALE
Director December 8, 1998
- ------------------------------------
WAYNE E. STUENKEL
Director December 8, 1998
- ------------------------------------
A.S. WILLIAMS III
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ---------- -----------------
<S> <C> <C>
Director December 8, 1998
- ------------------------------------
STEVEN A. SCHULTZ
Director December 8, 1998
- ------------------------------------
DEBORAH J. LONG
Director December 8, 1998
- ------------------------------------
CAROLYN KING
Director December 8, 1998
- ------------------------------------
RICHARD J. BIELEN
Director December 8, 1998
- ------------------------------------
DANNY L. BENTLEY
</TABLE>
C-6
[PROTECTIVE (R) LOGO APPEARS HERE]
Nashville, Tennessee
(A Stock Insurance Company)
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED FIXED AND VARIABLE ANNUITY CONTRACT
(Non-Participating)
Protective Life Insurance Company agrees to provide the benefits described in
this Contract.
THIS IS A VARIABLE ANNUITY CONTRACT
THE VALUE OF THIS CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE
PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT, IS VARIABLE. NO MINIMUM VALUE IS
GUARANTEED FOR AMOUNTS ALLOCATED TO THE SEPARATE ACCOUNT.
RIGHT TO CANCEL
YOU HAVE THE RIGHT TO RETURN THIS CONTRACT. You may cancel this Contract within
ten days after you receive it by returning the Contract to our administrative
office, or to the agent who sold the Contract, with a written request for
cancellation. Return of this Contract by mail is effective on being post-marked,
properly addressed and postage pre-paid. We will promptly return the Contract
Value. This amount may be more or less than the Purchase Payments.
/s/ JOHN D. JOHNS /s/ DEBORAH J. LONG
John D. Johns Deborah J. Long
President Secretary
THIS IS A LEGAL CONTRACT
READ IT CAREFULLY
Administrative Office:
PROTECTIVE LIFE INSURANCE COMPANY
2801 Highway 280 South
P. O. Box 10648
Birmingham, Alabama 35202-0648
(800) 456-6330
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<PAGE>
This Page Intentionally left blank.
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<PAGE>
SCHEDULE
CONTRACT NUMBER EFFECTIVE DATE
OWNER BIRTH DATE OF OWNER
JOINT OWNER BIRTH DATE OF JOINT OWNER
ANNUITANT BIRTH DATE OF ANNUITANT
BENEFICIARY ANNUITY COMMENCEMENT DATE
As contained in our records
INITIAL PURCHASE PAYMENT:
BENEFIT PACKAGE: {Standard}
CONTRACT MAINTENANCE FEE: {$30}
The contract maintenance fee is deducted prior to the Annuity Commencement Date
on each Contract Anniversary, and on any day that the Contract is surrendered
other than the Contract Anniversary. The contract maintenance fee will be
deducted from the Allocation Options in the same proportion as their values are
to the Contract Value. The contract maintenance fee will be waived by the
Company in the event the Contract Value or the aggregate Purchase Payments
reduced by surrenders equals or exceeds $50,000 on the date the contract
maintenance fee is to be deducted.
MORTALITY AND EXPENSE RISK CHARGE: {1.25%} per annum of the average daily
Variable Account value prior to the Annuity Commencement Date, and {1.25%} per
annum on or after the Annuity Commencement Date.
ADMINISTRATION CHARGE: {0.15%} per annum of the average daily Variable Account
value.
TRANSFER FEE: {$25} per transfer in excess of 12 in any Contract Year.
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<PAGE>
ALLOCATION OPTIONS AVAILABLE ON THE EFFECTIVE DATE
{Protective Life Guaranteed Account}
{Fixed Account}
{DCA Fixed Account 1}
{DCA Fixed Account 2}
{Goldman Sachs/PIC}
{International Equity}
{Small Cap Value}
{Capital Growth}
{CORE U.S. Equity}
{Growth & Income}
{Global Income}
{Money Market}
{Massachusetts Financial Services (MFS)}
{New Discovery}
{Emerging Growth}
{Research}
{Growth with Income}
{Utilities}
{Total Return}
{OppenheimerFunds}
{Aggressive Growth}
{Global Securities}
{Growth}
{Growth & Income}
{High Income}
{Strategic Bond}
{Calvert}
{Social Small Cap Growth}
{Social Balanced}
{Van Eck}
{Worldwide Hard Assets}
{Worldwide Real Estate}
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<PAGE>
TABLE OF CONTENTS
Definitions ............................................................... 7
General Provisions......................................................... 8
Entire Contract............................................................ 8
Modification of the Contract............................................... 8
Incontestability .......................................................... 8
Assignment................................................................. 8
Notice..................................................................... 8
Error in Age or Gender..................................................... 9
Settlement................................................................. 9
Receipt of Payment......................................................... 9
Protection of Proceeds..................................................... 9
Premium Tax ............................................................... 9
Non-Participating ......................................................... 9
Minimum Values............................................................. 9
Application of Law......................................................... 9
Reports.................................................................... 9
Parties to the Contract..................................................... 10
Company..................................................................... 10
Owner....................................................................... 10
Change of Owner............................................................. 10
Beneficiary................................................................. 10
Change of Beneficiary....................................................... 10
Annuitant................................................................... 10
Change of Annuitant......................................................... 10
Payee....................................................................... 10
Purchase Payments .......................................................... 11
Purchase Payment............................................................ 11
Allocation of Purchase Payments............................................. 11
No Default.................................................................. 11
Guaranteed Account ......................................................... 11
Guaranteed Account Value ................................................... 12
Variable Account............................................................ 12
General Description......................................................... 12
Sub-Accounts of the Variable Account........................................ 12
Variable Account Value...................................................... 13
Accumulation Unit Values.................................................... 14
Transfers................................................................... 14
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<PAGE>
Surrenders.................................................................. 15
Suspension or Delay in Payment of Surrender................................. 15
Death Benefit............................................................... 15
Death of an Owner........................................................... 15
Death of the Annuitant...................................................... 15
Death Benefit............................................................... 15
Suspension of Payment....................................................... 16
Annuitization............................................................... 16
Annuity Commencement Date................................................... 16
Annuity Income Payments..................................................... 17
Fixed Income Payments....................................................... 17
Variable Income Payments.................................................... 17
Annuity Unit Values......................................................... 17
Selection of Annuity Options................................................ 18
Annuity Options............................................................. 18
Minimum Amounts............................................................. 18
Guaranteed Purchase Rates................................................... 18
Fixed Annuity Tables........................................................ 19
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<PAGE>
DEFINITIONS
Accumulation Unit: A unit of measure used to calculate the value of a
Sub-Account prior to the Annuity Commencement Date.
Allocation Option: Any account to which Purchase Payments may be allocated or
Contract Value transferred under this Contract.
Annuity Commencement Date: The date as of which the Contract Value, less
applicable premium tax, is applied to an Annuity Option.
Annuity Option: The payout option pursuant to which the Company makes annuity
income payments.
Annuity Unit: A unit of measure used to calculate the amount of the variable
income payments.
Assumed Investment Return: The assumed annual rate of return used to calculate
the amount of the variable income payments.
Contract Anniversary: The same month and day as the Effective Date in each
subsequent year of the Contract.
Contract Value: Prior to the Annuity Commencement Date, the sum of the Variable
Account value and the Guaranteed Account value.
Contract Year: Any period of 12 months commencing with the Effective Date or any
Contract Anniversary.
Effective Date: The date as of which the initial Purchase Payment is credited to
the Contract and the date the Contract takes effect, as shown on the Schedule.
Fund: Any investment portfolio in which a corresponding Sub-Account invests.
Guaranteed Account: Includes any Allocation Option we may offer with interest
rate guarantees.
Purchase Payment: The amount(s) paid by the Owner and accepted by the Company as
consideration for this Contract.
Qualified Contracts: Contracts issued in connection with retirement plans that
receive favorable tax treatment under Sections 401, 403, 408, 408A or 457 of the
Internal Revenue Code.
Sub-Account: A separate division of the Variable Account.
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<PAGE>
Surrender Value: The amount available for a full surrender. It is equal to the
Contract Value minus any applicable contract maintenance fee and premium tax.
Valuation Day: Each day on which the New York Stock Exchange is open for
business.
Valuation Period: The period which begins at the close of regular trading on the
New York Stock Exchange on any Valuation Day and ends at the close of regular
trading on the next Valuation Day.
Variable Account: The Protective Variable Annuity Separate Account, a separate
investment account of Protective Life.
Written Notice: A notice or request submitted in writing in a form satisfactory
to the Company that is received at the administrative office.
GENERAL PROVISIONS
Entire Contract - This Contract and its attachments, including the copy of your
Application and any endorsements and amendments, constitute the entire agreement
between you and us. All statements in the Application shall be considered
representations and not warranties.
Modification of the Contract - No one is authorized to modify or waive any term
or provision of this Contract unless we agree to the modification or waiver in
writing and it is signed by our President, Vice-President or Secretary. We
reserve the right to change or modify the provisions of this Contract to conform
to any applicable laws, rules or regulations issued by a government agency, or
to assure continued qualification of the Contract as an annuity contract under
the Internal Revenue Code. We will send you a copy of the endorsement that
modifies the Contract, and where required we will obtain all necessary
approvals, including that of the Owner(s).
Incontestability - We will not contest this Contract after it is issued.
Assignment - You have the right to assign this Contract. We do not assume
responsibility for the assignment; any claim made under an assignment is subject
to proof of the nature and extent of the assignee's interest prior to payment by
us.
Notice - All instructions under this Contract and requests to change or assign
this Contract must be by Written Notice. The Written Notice is effective as of
the date it was signed, however, the Company is not responsible for following
any instruction or making any change or assignment before our receipt of the
Written Notice.
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<PAGE>
Error in Age or Gender - When a benefit of this Contract is contingent upon any
person's age or gender, we may require proof of such. We may suspend payments
until proof is provided. When we receive satisfactory proof, we will make the
payments that were due during the period of suspension. Where the use of unisex
mortality rates is required, we will not determine or adjust benefits based upon
gender.
If after proof of age and gender (where applicable) is provided, it is
determined that the information you furnished was not correct, we will adjust
any benefit under this Contract to that which would be payable based upon the
correct information. If we have underpaid a benefit because of the error, we
will make up the underpayment in a lump sum. If the error resulted in an
overpayment, we will deduct the amount of the overpayment from any current or
future payment due under the Contract. Underpayments and overpayments will bear
interest at an annual effective interest rate of 3%.
Settlement - Benefits due under this Contract are payable from our
administrative office. The Owner may apply the settlement proceeds to any payout
option we offer for such payments at the time the election is made. Unless
directed otherwise in writing, we will make payments according to the Owner's
instructions as contained in our records at the time the payment is made. We
shall be discharged from all liability for payment to the extent of any payments
we make.
Receipt of Payment - If any Owner, Annuitant, Beneficiary or Payee is incapable
of giving a valid receipt for any payment, we may make such payment to whomever
has legally assumed his or her care and principal support. Any such payment
shall fully discharge us to the extent of that payment.
Protection of Proceeds - To the extent permitted by law and except as provided
by an assignment, no benefits payable under this Contract will be subject to the
claims of creditors.
Premium Tax - Premium tax will be deducted, if applicable. Premium tax may be
deducted from the Purchase Payment(s) when accepted or from the Contract Value
upon a full or partial surrender, death or annuitization.
Non-Participating - This Contract does not share in our surplus or profits, or
pay dividends.
Minimum Values - The values available under the Contract are at least equal to
the minimum values required in the state where the Contract is delivered.
Application of Law - The provisions of the Contract are to be interpreted in
accordance with the laws of the state where the Contract is delivered, with the
Internal Revenue Code and with applicable regulations.
Reports - At least annually prior to the Annuity Commencement Date, we will send
to you at the address contained in our records a report showing the current
Contract Value and any other information required by law.
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<PAGE>
PARTIES TO THE CONTRACT
Company - Protective Life Insurance Company, also referred to as "we", "us" and
"our".
Owner - The person or persons who own the Contract and are entitled to exercise
all rights and privileges provided in the Contract. Two persons may own the
Contract together; they are designated as the Owner and the Joint Owner.
Individuals as well as non-natural persons, such as corporations or trusts, may
be Owners. The Owner is referred to as "you" and "your".
Change of Owner - The Owner of this Contract may be changed by Written Notice
provided (1) any new Owner's 85th birthday is after the Effective Date, and (2)
any new Owner's 90th birthday is on or after the Annuity Commencement Date. For
a period of 1 year after any change of ownership involving a natural person, the
death benefit will equal the Contract Value.
Beneficiary - The person or persons who may receive the benefits of this
Contract upon the death of any Owner.
Primary - The Primary Beneficiary is the surviving Joint Owner, if any. If
there is no surviving Joint Owner, the Primary Beneficiary is the person or
persons designated by the Owner and named in our records.
Contingent - The Contingent Beneficiary is the person or persons designated
by the Owner and named in our records to be Beneficiary if the Primary
Beneficiary is not living.
If no Beneficiary designation is in effect or if no Beneficiary is living at the
time of an Owner's death, the Beneficiary will be the estate of the deceased
Owner. If any Owner dies on or after the Annuity Commencement Date, the
Beneficiary will become the new Owner.
Change of Beneficiary - Unless designated irrevocably, the Owner may change the
Beneficiary by Written Notice prior to the death of any Owner. An irrevocable
Beneficiary is one whose written consent is needed before the Owner can change
the Beneficiary designation or exercise certain other rights.
Annuitant - The person on whose life annuity income payments may be based. The
Owner is the Annuitant unless the Owner designates another person as the
Annuitant.
Change of Annuitant - The Owner may change the Annuitant by Written Notice prior
to the Annuity Commencement Date. However, if any Owner is not an individual the
Annuitant may not be changed. The new Annuitant's 90th birthday may not be
earlier than the Annuity Commencement Date in effect when the change of
Annuitant is requested.
Payee - The person or persons designated by the Owner to receive the annuity
income payments under the Contract. The Annuitant is the Payee unless the Owner
designates another party as the Payee. The Owner may change the Payee at any
time.
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<PAGE>
PURCHASE PAYMENTS
Purchase Payment - Purchase Payments are payable at our administrative office.
They may be made by check payable to Protective Life Insurance Company or by any
other method we deem acceptable. Your initial Purchase Payment is shown on the
Schedule. We reserve the right not to accept any Purchase Payment.
Subsequent Purchase Payments may be accepted by the Company prior to the earlier
of: (1) the oldest Owner's 85th birthday; or (2) the Annuitant's 85th birthday.
No Purchase Payment will be accepted within 5 years of the Annuity Commencement
Date then in effect. The minimum subsequent Purchase Payment we will accept is
$100. The maximum aggregate Purchase Payment(s) we will accept without prior
administrative office approval is $1,000,000.
Allocation of Purchase Payments - We will allocate your Purchase Payments to the
Allocation Options according to your instructions as contained in our records at
the time the Purchase Payment is accepted at our administrative office. Your
initial allocation instructions are on the Application. You may change your
allocation instructions at any time by Written Notice. Allocations must be made
in whole percentages.
No Default - This Contract will not be in default if subsequent Purchase
Payments are not made.
GUARANTEED ACCOUNT
The Guaranteed Account includes the Fixed Account and the DCA Fixed Accounts,
which are each a part of the Company's general account. You may allocate some or
all of your Purchase Payments and may transfer some of your Contract Value to an
account within the Guaranteed Account, except that transfers may not be made
into the DCA Fixed Accounts. Amounts allocated to an account within the
Guaranteed Account earn interest from the date the funds are credited to the
account.
The interest rate we apply to Purchase Payments and transfers into the Fixed
Account is guaranteed for one year from the date the Purchase Payment or
transfer is credited to the account. When an interest rate guarantee expires, we
will set a new interest rate, which may not be the same as the interest rate
then in effect for Purchase Payments or transfers allocated to the Fixed
Account. The new interest rate is also guaranteed for one year.
We will systematically transfer Purchase Payments allocated to the DCA Fixed
Accounts to other Allocation Options in equal amounts over a designated period.
The interest rate we apply to Purchase Payments allocated to a DCA Fixed Account
is guaranteed for the period over which transfers are allowed from that DCA
Fixed Account.
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We, in our sole discretion, establish the interest rates for each account in the
Guaranteed Account. We will not declare a rate that is less than an annual
effective interest rate of 3.00%. Because these rates vary from time to time,
allocations made to the same account within the Guaranteed Account at different
times may earn interest at different rates.
Guaranteed Account Value - Any time prior to the Annuity Commencement Date, the
Guaranteed Account value is equal to: (1) Purchase Payments allocated to the
Guaranteed Account; plus (2) amounts transferred into the Guaranteed Account;
plus (3) interest credited to the Guaranteed Account; minus (4) amounts
transferred out of the Guaranteed Account; minus (5) the amount of any
surrenders removed from the Guaranteed Account, including any applicable premium
tax; minus (6) fees deducted from the Guaranteed Account. For the purposes of
interest crediting, amounts deducted, transferred or withdrawn from accounts
within the Guaranteed Account will be separately accounted for on a "first-in,
first-out" (FIFO) basis.
VARIABLE ACCOUNT
General Description - The variable benefits under the Contract are provided
through the Protective Variable Annuity Separate Account, which is registered
with the Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The portion of the assets of the Variable
Account equal to the reserves and other contract liabilities with respect to the
Variable Account are not chargeable with the liabilities arising out of any
other business we may conduct. The income, gains and losses, both realized and
unrealized, from the assets of the Variable Account shall be credited to or
charged against the Variable Account without regard to any other income, gains
or losses of the Company. We have the right to transfer to our general account
any assets of the Variable Account that are in excess of such reserves and other
liabilities.
Sub-Accounts of the Variable Account - The Variable Account is divided into a
series of Sub- Accounts. The Sub-Accounts available on the Effective Date are
listed on the Schedule. Each Sub- Account invests in shares of a corresponding
Fund. The income, dividends, and gains, if any, distributed from the shares of a
Fund will be reinvested by purchasing additional shares of that Fund at its net
asset value.
When permitted by law, we may:
(1) create new variable accounts;
(2) combine variable accounts, including the Variable Account;
(3) add new Sub-Accounts to, or remove existing Sub-Accounts from the
Variable Account, or combine Sub-Accounts;
(4) make new Sub-Accounts or other Sub-Accounts available to such classes
of the Contracts as we may determine;
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(5) add new Funds, or remove existing Funds;
(6) substitute a different Fund for any existing Fund if shares of a Fund
are no longer available for investment, or if we determine that
investment in a Fund is no longer appropriate in light of the
purposes of the Variable Account;
(7) deregister the Variable Account under the Investment Company Act of
1940 if such registration is no longer required;
(8) operate the Variable Account as a management investment company under
the Investment Company Act of 1940 or as any other form permitted by
law; and
(9) make any changes to the Variable Account or its operations as may be
required by the Investment Company Act of 1940 or other applicable
law or regulations.
The investment policy of the Variable Account will not be changed without
obtaining all necessary regulatory approvals.
The values and benefits of this Contract provided by the Variable Account depend
on the investment performance of the Funds in which the Sub-Accounts invests. We
do not guarantee the investment performance of the Funds. You bear the full
investment risk for amounts allocated or transferred to the Sub-Accounts.
We reserve the right to deduct taxes attributable to the operation of the
Variable Account.
Variable Account Value - At any time prior to the Annuity Commencement Date, the
Variable Account value is equal to: (1) Purchase Payments allocated to the
Variable Account; plus (2) amounts transferred into the Variable Account; plus
or minus (3) investment performance; minus (4) amounts transferred out of the
Variable Account; minus (5) the amount of any surrenders removed from the
Variable Account including any applicable premium tax; minus (6) fees deducted
from the Variable Account. The Variable Account value also equals the total of
the Sub-Account values.
Amounts allocated to the Variable Account, including, but not limited to
Purchase Payments and transfers, are used to purchase Accumulation Units of one
or more Sub-Accounts as directed by the Owner. To calculate the value of a
Sub-Account, we multiply the number of Accumulation Units attributable to each
Sub-Account by the Accumulation Unit value for that Sub-Account as of the
Valuation Period on which the value is being determined.
Events that will result in the cancellation of an appropriate number of
Accumulation Units of a Sub- Account include, but are not limited to: (1)
transfers from a Sub-Account; (2) a full or partial surrender; (3) payment of
the death benefit; (4) annuitization; (5) the deduction of the contract
maintenance fee. Accumulation Units will be canceled as of the end of the
Valuation Period during which the transaction occurs.
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Accumulation Unit Values - The Accumulation Unit value for each Sub-Account on
any Valuation Day is determined by multiplying the Accumulation Unit value on
the prior Valuation Day by the net investment factor for the Valuation Period.
The net investment factor is used to measure the investment performance of a
Sub-Account from one Valuation Period to the next. A net investment factor is
determined for each Sub-Account for each Valuation Period. The net investment
factor may be greater or less than one, so the value of an Accumulation Unit can
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),
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 Funds held in the Sub-Account, if the "ex-dividend" date
occurs during the current Valuation Period.
(2) is the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the most recent prior Valuation Period.
(3) is a factor representing the mortality and expense risk charge and the
administration charge for the number of days in the Valuation Period and a
charge or credit for any taxes attributed to the investment operations of
the Sub-Account, as determined by the Company.
TRANSFERS
Prior to the Annuity Commencement Date, you may instruct us to transfer amounts
among the Allocation Options. You must transfer at least $100 or, if less, the
entire amount in the Allocation Option each time you make a transfer. If after
the transfer the amount remaining in any of the Allocation Options from which
the transfer is made is less than $100, we may transfer the entire amount
instead of the requested amount. We may also limit the number of transfers to no
more than 12 per year. For each additional transfer over 12 during each Contract
Year, we may charge a transfer fee as shown on the Schedule. The transfer fee,
if any, will be deducted from the amount being transferred.
The maximum amount that may be transferred from the Fixed Account in any
Contract Year is the greater of (a) $2,500; or (b) 25% of the Contract Value in
the Fixed Account. Transfers into a DCA Fixed Account are not permitted. The DCA
Fixed Accounts are available only for Purchase Payments designated for dollar
cost averaging. Purchase Payments may not be allocated into any DCA Fixed
Account when that DCA Fixed Account value is greater than $0 and all funds must
be transferred from a DCA Fixed Account prior to allocating a Purchase Payment
to that DCA Fixed Account. Any Purchase Payment allocated to a DCA Fixed Account
must include instructions regarding the number
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and frequency of the dollar cost averaging transfers, and the Allocation
Option(s) into which the transfers are to be made. If transfers from a DCA Fixed
Account are terminated, we will transfer any amount remaining in that DCA Fixed
Account into the Fixed Account unless you have otherwise instructed us how to
allocate the remaining amount.
We reserve the right to limit amounts transferred into any account within the
Guaranteed Account.
SURRENDERS
Full or partial surrenders may be made any time prior to the Annuity
Commencement Date. Partial surrenders may be taken provided the Contract Value
remaining after the surrender is at least $25,000. The amount we will pay upon a
full or partial surrender is equal to the Contract Value surrendered minus any
applicable premium tax and contract maintenance fee.
Suspension or Delay in Payment of Surrender - The Company may suspend or delay
the date of payment of a partial or full surrender from the Variable Account
value for any period:
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 Securities and
Exchange Commission) as a result of which (a) the disposal of
securities in the Variable Account is not reasonably practical; or
(b) it is not reasonably practical to determine fairly the value of
the net assets of the Variable Account; or
4) when the Securities and Exchange Commission, by order, so permits for
the protection of security holders.
The Company may delay payment of a partial or full surrender from the Guaranteed
Account for up to six months where permitted.
DEATH BENEFIT
Death of an Owner - If any Owner dies before the Annuity Commencement Date and
while this Contract is in force, we will pay the death benefit, less any
applicable premium tax, to the Beneficiary. If any Owner dies on or after the
Annuity Commencement Date, the Beneficiary will become the new Owner and
remaining payments must be distributed at least as rapidly as under the Annuity
Option in effect at the time of the Owner's death.
Death of the Annuitant - If the Annuitant is not an Owner and dies prior to the
Annuity Commencement Date, the Owner will become the new Annuitant unless the
Owner designates otherwise. If any Owner is not an individual, the death of the
Annuitant will be treated as the death of an Owner.
Death Benefit - The death benefit will be determined as of the end of the
Valuation Period during which we receive due proof of death. The death benefit
will equal the greater of: (1) the Contract
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Value; or (2) aggregate Purchase Payments less aggregate amounts surrendered.
Only one death benefit is payable under this Contract, even though the Contract
may, in some circumstances, continue beyond the time of an Owner's death.
The death benefit may be taken in one sum immediately and the Contract will
terminate. If the death benefit is not taken in one sum immediately, the death
benefit will become the new Contract Value as of the end of the Valuation Period
during which we receive due proof of death and the entire interest in the
Contract must be distributed under one of the following options:
(1) the entire interest must be distributed over the life of the
Beneficiary, or over a period not extending beyond the life
expectancy of the Beneficiary, with distribution beginning within one
year of the Owner's death; or,
(2) the entire interest must be distributed within 5 years of the Owner's
death.
If the Beneficiary is the deceased Owner's spouse, the surviving spouse may
elect, in lieu of receiving a death benefit, to continue the Contract and become
the new Owner, provided the deceased Owner's spouse's 85th birthday is after the
Effective Date and the 90th birthday is after the Annuity Commencement Date then
in effect. The surviving spouse may select a new Beneficiary. Upon this spouse's
death, the death benefit may be taken in one sum immediately and the Contract
will terminate. If the death benefit is not taken in one sum immediately, the
death benefit will become the new Contract Value as of the end of the Valuation
Period during which we receive due proof of death and must be distributed to the
new Beneficiary according to either paragraph (1) or (2), above.
If there is more than one Beneficiary, the foregoing provisions apply to each
Beneficiary individually.
The death benefit provisions of this Contract shall be interpreted to comply
with the requirements of ss.72(s) of the Internal Revenue Code. We reserve the
right to endorse this Contract, as necessary, to conform with regulatory
requirements. We will send you a copy of any endorsement containing such
Contract modifications.
Suspension of Payment - Payment of the death benefit may be suspended or delayed
under the circumstances described in the provision "Suspension or Delay in
Payment of Surrender".
ANNUITIZATION
Annuity Commencement Date - On the Effective Date, the Annuity Commencement Date
is the earlier of any Owner's 90th birthday or the Annuitant's 90th birthday as
shown on the Schedule. The Owner may change the Annuity Commencement Date by
Written Notice. The proposed Annuity Commencement Date must be at least 30 days
beyond the date the written request is received by the Company, and at least 5
years after the most recent Purchase Payment. The new Annuity Commencement Date
may not be later than the earlier of the oldest Owner's 90th birthday or the
Annuitant's 90th birthday.
On the Annuity Commencement Date, we will apply your Contract Value, less any
applicable premium tax, to the Annuity Option you have selected to determine an
annuity income payment.
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Annuity Income Payments - You may elect to receive a fixed income payment, a
variable income payment, or a combination of both using the same Annuity Option
and certain period.
Fixed Income Payments - Fixed income payments are periodic payments from the
Company to the designated Payee, the amount of which is fixed and guaranteed by
the Company. It is not in any way dependent upon the investment experience of
the Variable Account. Once fixed income payments have begun, they may not be
surrendered.
Variable Income Payments - Variable income payments are periodic payments from
the Company to the designated Payee, the amount of which varies from one payment
to the next as a reflection of the net investment experience of the
Sub-Account(s) you select to support the payments.
Using an Assumed Investment Return of 5%, we determine the dollar amount of the
variable income payment as if a payment were to be made on the Annuity
Commencement Date. However, no payment is actually made on that date. We then
allocate that dollar amount among the Sub-Accounts you selected to support your
variable income payments. Based on the Annuity Unit values of the selected
Sub-Accounts on that date, we determine the number of Annuity Units attributable
to each Sub-Account. The number of Annuity Units attributable to each
Sub-Account remains constant unless there is a transfer of Annuity Units between
Sub-Accounts.
To calculate the amount of each variable income payment, we multiply the number
of Annuity Units attributable to each Sub-Account by the Annuity Unit value for
that Sub-Account as of the Valuation Period on which the payment is being
determined. We then total results of these calculations for each Sub-Account.
Annuity Unit Values - The Annuity Unit value of each Sub-Account for any
Valuation Period is equal to (1) multiplied by (2) divided by (3) where:
(1) is the net investment factor for the Valuation Period for which the
Annuity Unit value is being calculated using the mortality and
expense risk charge and the administration charge shown on the
Schedule.
(2) is the Annuity Unit value for the preceding Valuation Period: and
(3) is a daily Assumed Investment Return factor (1.05) adjusted for the
number of days in the Valuation Period.
You may transfer Annuity Units between Sub-Accounts. This is done by converting
Annuity Units of a Sub-Account into a dollar amount using the Annuity Unit value
for that Sub-Account on the Valuation Period during which the transfer occurs
and reconverting that dollar amount into the appropriate number of Annuity Units
of another Sub-Account using its Annuity Unit value for the same Valuation
Period. Thus, on the date of the transfer, the dollar amount of the portion of a
variable income
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payment generated from the Annuity Units of either Sub-Account would be the
same. Only one transfer between Sub-Accounts is allowed in any calendar month,
and no transfers are allowed involving the Guaranteed Account.
Selection of Annuity Options - You may select an Annuity Option, or change your
selection by Written Notice received by the Company not later than 30 days
before the Annuity Commencement Date. If you have not selected an Annuity Option
within 30 days of the Annuity Commencement Date, we will apply your Contract
Value to Option B - Life Income with Payments for a 10 Year Certain Period, with
the Variable Account value used to purchase variable income payments and the
Guaranteed Account value used to purchase fixed income payments.
Annuity Options - You may select from among the following Annuity Options:
OPTION A - PAYMENTS FOR A CERTAIN PERIOD: Payments will be made for the period
you select. No certain period may be longer than 30 years. Payments under this
Annuity Option do not depend on the life of an Annuitant. Variable income
payments under Option A may be surrendered.
OPTION B - LIFE INCOME WITH OR WITHOUT A CERTAIN PERIOD: Payments are based on
the life of an Annuitant. If you elect to include a certain period, payments
will be made for the lifetime of the Annuitant, with payments guaranteed for the
certain period you select. No certain period may be longer than 30 years.
Payments stop at the end of the selected certain period or when the Annuitant(s)
dies, whichever is later. We reserve the right to demand proof that the
Annuitant(s) is living prior to making any payment after completion of the
certain period. If no certain period is selected, payments will stop upon the
death of the Annuitant(s). Variable income payments under Option B may not be
surrendered.
ADDITIONAL OPTION: The Contract Value, less applicable premium tax, may be used
to purchase any annuity contract that we offer on the date this option is
elected.
Minimum Amounts - If your Contract Value is less than $5,000 on the Annuity
Commencement Date, we reserve the right to pay the Contract Value in one lump
sum. If at any time your annuity income payments are less than the minimum
payment amount according to the Company's rules then in effect, we reserve the
right to change the frequency to an interval that will result in a payment at
least equal to the minimum.
Guaranteed Purchase Rates - The guaranteed interest basis, which is not
applicable to variable income payments, is 3%. The mortality basis is the 1983
Individual Annuitant Mortality Table A projected 14 years. One year will be
deducted from the attained age of the Annuitant for every 3 completed years
beyond the year 1997. Upon request, we will furnish you the guaranteed purchase
rates for ages and periods not shown below. Annuity benefits available under
this Contract will not be less than those provided by the application of an
equivalent amount to the purchase of a single premium immediate annuity contract
offered by us on the Annuity Commencement Date to the same class of Annuitants.
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FIXED ANNUITY TABLES
<TABLE>
<CAPTION>
OPTION A TABLE OPTION B TABLE
-------------- --------------
Payments for a Life Income
Certain Period with or without a
Certain Period
Life with 10 Year
Life Only Certain Period
Monthly Age of -------------- -----------------
Years Payment Annuitant Male Female Male Female
<S> <C> <C> <C> <C> <C> <C>
5 17.91 60 4.77 4.25 4.68 4.21
10 9.61 65 5.46 4.78 5.28 4.70
15 6.87 70 6.44 5.53 6.03 5.36
20 5.51 75 7.79 6.63 6.90 6.21
25 4.71 80 9.70 8.26 7.81 7.22
30 4.18 85 & 12.38 10.70 8.60 8.20
over
</TABLE>
These tables illustrate the minimum fixed monthly annuity payments rates for
each $1,000 applied.
Individual Flexible Premium Deferred Fixed and Variable Annuity Contract
Non-Participating
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EXHIBIT 4B
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PROTECTIVE LIFE INSURANCE COMPANY P. O. BOX 10648 BIRMINGHAM, ALABAMA 35202-0648
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL RESET DEATH BENEFIT RIDER
We are amending the Contract to which this rider is attached by adding the
following provisions and making them a part of the Contract as of its Effective
Date:
Annual Reset Death Benefit - We will determine an annual reset anniversary value
on each Contract Anniversary occurring before the earlier of the deceased
Owner's 80th birthday or the deceased Owner's date of death. Each annual reset
anniversary value is equal to the sum of: the Contract Value on that Contract
Anniversary; plus all Purchase Payments since that Contract Anniversary; minus
all amounts surrendered since that Contract Anniversary.
The death benefit will equal the greatest of: (1) the Contract Value; or (2)
aggregate Purchase Payments less aggregate surrenders; or (3) the greatest
annual reset anniversary value attained.
Suspension of Benefits - For a period of one year after any change of ownership
involving a natural person, the death benefit will equal the Contract Value.
Signed for the Company as of the Effective Date.
PROTECTIVE LIFE INSURANCE COMPANY
/s/ DEBORAH J. LONG
- ---------------------------------
Secretary
8/98
EXHIBIT 4C
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PROTECTIVE LIFE INSURANCE COMPANY P. O. BOX 10648 BIRMINGHAM, ALABAMA 35202-0648
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPOUND AND 3-YEAR RESET DEATH BENEFIT RIDER
We are amending the Contract to which this rider is attached by adding the
following provisions and making them a part of the Contract as of its Effective
Date:
Compound Death Benefit - We will determine a compound anniversary value on the
most recent Contract Anniversary before the earlier of the deceased Owner's 80th
birthday or the deceased Owner's date of death.
The compound anniversary value is equal to the sum of:
(a) the accumulation to the Contract Anniversary of all Purchase Payments
prior to that Contract Anniversary, minus the accumulation of amounts
surrendered prior to that Contract Anniversary; plus,
(b) any Purchase Payments on or since that Contract Anniversary, minus any
amounts surrendered on or since that Contract Anniversary.
If the Effective Date is before the deceased Owner's 71st birthday, the amounts
in (a) will accumulate at an annual effective interest rate of 4.00%. If the
Effective Date is on or after the deceased Owner's 71st birthday, the amounts in
(a) will accumulate at an annual effective interest rate of 3.00%
3-Year Reset Death Benefit - We will determine a 3-year reset anniversary value
every 3rd Contract Anniversary occurring before the earlier of the deceased
Owner's 80th birthday or the deceased Owner's date of death. Each 3-year reset
anniversary value is equal the sum of: the Contract Value on that Contract
Anniversary; plus all Purchase Payments since that Contract Anniversary; minus
all amounts surrendered since that Contract Anniversary.
The death benefit will equal the greatest of: (1) the Contract Value; or (2)
aggregate Purchase Payments less aggregate surrenders; or (3) the compound
anniversary value; or (4) the greatest 3-year reset anniversary value attained.
Suspension of Benefits - For a period of one year after any change of ownership
involving a natural person, the death benefit will equal the Contract Value.
Signed for the Company as of the Effective Date.
PROTECTIVE LIFE INSURANCE COMPANY
/s/ DEBORAH J. LONG
- ---------------------------------
Secretary
8/98
PLEASE MAKE CHECK PAYABLE TO:
ELEMENTS ACCESS[SM] PROTECTIVE LIFE INSURANCE COMPANY
A Variable Annuity Variable Annuity Services 3-7IPS
P.O. Box 10648
Annuity Application Birmingham, AL 35202-0648
- --------------------------------------------------------------------------------
OWNER NAME, STREET, CITY, STATE, ZIP CODE Phone Number ( ) -
[ ] Male Birthdate (MO./DAY/YR.)
/ /
[ ] Female Tax ID/Social Security
No. ___ ___
- --------------------------------------------------------------------------------
JOINT OWNER (IF ANY) NAME, STREET, CITY, STATE, ZIP CODE
[ ] Male Birthdate (MO./DAY/YR.)
/ /
[ ] Female Tax ID/Social Security
No. ___ ___
- --------------------------------------------------------------------------------
ANNUITANT (IF OTHER THAN OWNER) NAME, STREET, CITY, STATE, ZIP CODE
[ ] Male Birthdate (MO./DAY/YR.)
/ /
[ ] Female Tax ID/Social Security
No. ___ ___
================================================================================
BENEFICIARY NAME, ADDRESS, RELATIONSHIP TO OWNER, SS# & PERCENTAGE
(USE 'SPECIAL REMARKS' IF ADDITIONAL SPACE IS NEEDED)
Primary(s)-
Contingent(s)-
================================================================================
PLAN TYPE-Check all that apply.
[ ] Non-Qualified [ ] Roth IRA* If an IRA purchase payment
[ ] CD Transfer *Please complete appro- includes new contributions,
[ ] Sec. 1035 Exchange priate service form. please complete below:
[ ] TSA Direct Rollover [ ] IRA Transfer
[ ] ___________________ [ ] IRA Rollover Allocate IRA Contribution to
(OTHER) [ ] IRA Direct Rollover Tax Year
$______(AMOUNT)
______(PREVIOUS TAX YEAR)
$______(AMOUNT)
______(CURRENT TAX YEAR)
================================================================================
BENEFIT PACKAGE-Check only one. (SEE PROSPECTUS FOR DETAILS.)
[ ] STANDARD (MORTALITY AND EXPENSE RISK CHARGE = 1.25%; ADMINISTRATIVE
CHARGE = 0.15%.)
Death Benefit-Return of Purchase Payments
[ ] ANNUAL RESET DEATH BENEFIT (MORTALITY AND EXPENSE RISK CHARGE = 1.40%;
ADMINISTRATIVE CHARGE = 0.15%).
Death Benefit-Return of Purchase Payments, Annual Reset
[ ] COMPOUND AND 3-YEAR RESET DEATH BENEFIT (MORTALITY AND EXPENSE RISK
CHARGE = 1.40%; ADMINISTRATIVE CHARGE = 0.15%.)
Death Benefit-Return of Purchase Payments, Compound, 3-Year Reset
================================================================================
Page 1 8/98
<PAGE>
- --------------------------------------------------------------------------------
[ ] DOLLAR COST AVERAGING
Please transfer my initial allocation on the ____ day of the month (1ST-28TH)
from the account(s) below into the Allocation Options indicated on the next
page in the column headed 'DCA DESTINATION ALLOCATION'.
[ ] DCA Fixed Account 1 for _____ months (1 - 6 MONTHS) or for _____ quarters
(1 - 2 QUARTERS).
[ ] DCA Fixed Account 2 for _____ months (7 - 12 MONTHS) or for _____ quarters
(3 - 4 QUARTERS).
[ ] __________________________________ for _____ months (NO LIMIT) or for _____
(OTHER ALLOCATION OPTION)
quarters (NO LIMIT).
================================================================================
[ ] AUTOMATIC PURCHASE PAYMENT PLAN
A minimum $25,000 initial Purchase Payment is required, after which Automatic
Purchase Payments may begin. Use the column headed 'SUBSEQUENT PURCHASE
PAYMENT ALLOCATION' to allocate Automatic Purchase Payments. If Automatic
Purchase Payments are made, Partial Automatic Withdrawals cannot be selected.
PLEASE ATTACH A VOIDED CHECK OR WITHDRAWAL TICKET.
I authorize Protective Life to collect $___________ (MINIMUM $100) [ ] monthly
[ ] quarterly on the ____ day of the month (1ST-28TH) by initiating automatic
deductions from my account.
================================================================================
[ ] PARTIAL AUTOMATIC WITHDRAWAL PLAN
A minimum Purchase Payment of $40,000 is required to begin surrenders through
Partial Automatic Withdrawals. If Partial Automatic Withdrawals are made,
Automatic Purchase Payments will not be accepted by the Company. The minimum
surrender as a Partial Automatic Withdrawal is $100. Partial Automatic
Withdrawals will be taken pro-rata from the Allocations Options and will be
made only by an electronic fund transfer. PLEASE ATTACH A VOIDED CHECK OR
WITHDRAWAL TICKET.
Please withdraw $_______ [ ] monthly [ ] quarterly on the ____ day of the
month (1ST-28TH). YOU MAY CHANGE YOUR ELECTION AT ANY TIME.)
NOTICE OF WITHHOLDING ON DISTRIBUTIONS OR WITHDRAWALS
(FORM W-4P 10MB NO. 1545.0145)
The distributions you receive from the above policy are subject to Federal
Income Tax withholding unless you elect not to have withholding apply. You
may elect not to have withholding apply to your distribution payments by
checking the appropriate box below. IF YOU DO NOT RESPOND BY THE DATE YOUR
DISTRIBUTION IS SCHEDULED TO BE MADE, FEDERAL INCOME TAX WILL BE WITHHELD FROM
THE TAXABLE PORTION OF YOUR DISTRIBUTION. If you elect not to have withholding
apply to your distribution payments, you may be responsible for payment of
estimated tax. You may incur penalties under the estimated tax rules if your
withholding and estimated tax payments are not sufficient.
WITHHOLDING ELECTION
[ ] I have read the above information and I DO NOT want to have Federal Income
Tax, where applicable, withheld from my distribution.
[ ] I have read the above information and I DO want to have Federal Income
Tax withheld from my distribution.
================================================================================
[ ] PORTFOLIO REBALANCING
Please rebalance my Variable Account [ ] quarterly [ ] semi-annually
[ ] annually on the _____ day of the month (1ST-28TH) according to my current
Variable Account Purchase Payment allocation.
================================================================================
Page 2 8/98
<PAGE>
TOTAL PURCHASE PAYMENT: $____________ (MINIMUM $25,000) Unless you give us
instructions for allocating subsequent Purchase Payments either now, by
completing column 2, or at the time the subsequent Purchase Payment is made, we
will use the allocation specified in column 3 if completed, and if not, the
allocation in column 1. (PLEASE ALLOCATE USING WHOLE PERCENTAGES.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. 2. 3.
INITIAL PURCHASE SUBSEQUENT PURCHASE DCA DESTINATION
PAYMENT ALLOCATION PAYMENT ALLOCATION ALLOCATION
- ------------------ ------------------- ---------------
PROTECTIVE LIFE GUARANTEED ACCOUNT*
_____________% Fixed Account ___________% ________%
_____________% DCA Fixed Account 1 N/A N/A
_____________% DCA Fixed Account 2 N/A N/A
GOLDMAN SACHS / PIC
_____________% International Equity ___________% ________%
_____________% Small Cap Value ___________% ________%
_____________% Capital Growth ___________% ________%
_____________% CORE U.S. Equity ___________% ________%
_____________% Growth & Income ___________% ________%
_____________% Global Income ___________% ________%
_____________% Money Market ___________% ________%
MASSACHUSETTS FINANCIAL SERVICES (MFS)
_____________% New Discovery ___________% ________%
_____________% Emerging Growth ___________% ________%
_____________% Research ___________% ________%
_____________% Growth with Income ___________% ________%
_____________% Utilities ___________% ________%
_____________% Total Return ___________% ________%
OPPENHEIMERFUNDS
_____________% Aggressive Growth ___________% ________%
_____________% Global Securities ___________% ________%
_____________% Growth ___________% ________%
_____________% Growth & Income ___________% ________%
_____________% High Income ___________% ________%
_____________% Strategic Bond ___________% ________%
CALVERT
_____________% Social Small Cap Growth ___________% ________%
_____________% Social Balanced ___________% ________%
VAN ECK
_____________% Worldwide Hard Assets ___________% ________%
_____________% Worldwide Real Estate ___________% ________%
MODEL PORTFOLIOS
_____________% Growth ___________% ________%
_____________% Balanced ___________% ________%
_____________% Capital Appreciation ___________% ________%
100% TOTAL 100% 100%
*60 day Rate Lock elected for all accounts in the Guaranteed Account [ ] Yes [ ] No
</TABLE>
8/98
Page 3
<PAGE>
|------------------------------------------------------------------------------|
|SPECIAL REMARKS |
| |
| |
| |
| |
| |
| |
| |
| |
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZATION AND ACKNOWLEDGEMENT Each Owner and Annuitant acknowledges the following:
<S> <C> <C>
I have received a current prospectus. Yes [ ] No [ ]
The information contained in this application is true and correct. Yes [ ] No [ ]
My telephone and other non-written instructions should be honored, subject to the terms of the prospectus. Yes [ ] No [ ]
The Agent who signs this application is authorized to make transfers on my behalf. Yes [ ] No [ ]
I have purchased other annuities from Protective Life this calendar year. Yes [ ] No [ ]
Does this annuity change or replace any existing annuity contract or life insurance policy? Yes [ ] No [ ]
If 'Yes' please complete below: (USE 'SPECIAL REMARKS' IF ADDITIONAL SPACE IS NEEDED.)
<S> <C>
Company Name(s): _______________________________ Policy Number(s): ____________________________
_______________________________ ____________________________
THIS APPLICATION SHALL BECOME PART OF THE ANNUITY CONTRACT ISSUED BY PROECTIVE LIFE.
</TABLE>
THE CONTRACT VALUE AND ANNUITY INCOME PAYMENTS, WHEN BASED UPON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO A
FIXED DOLLAR AMOUNT.
<TABLE>
<CAPTION>
<S> <C>
Application signed at: _______________________________________________ on ___________________.
(CITY, STATE) (DATE)
Owner: ____________________________________________________ Joint Owner: _____________________
(IF ANY)
Annuitant: ________________________________________________ Witness:__________________________
(IF DIFFERENT THAN OWNER)
</TABLE>
AGENT REPORT - The agent acknowledges that to the best of his or her knowledge
and belief this annuity [ ] does [ ] does not change or replace any existing
life insurance or annuity policy.
<TABLE>
<CAPTION>
<S> <C>
Agent's signature: ______________________________ Print agent's name: _____________________________
Agent number: ___________________________________ Broker/Dealer name: _____________________________
Branch: _________________________________________ Agent phone number: _____________________________
Client account number: __________________________
8/98
</TABLE>
Page 4
[Protective Logo]
PROTECTIVE LIFE CORPORATION
Post Office Box 2606
Birmingham, Alabama 35202
205-879-9230
STEVE M. CALLAWAY
Senior Associate Counsel
Writer's Direct Number: (205) 666-3804
Facsimile Number: (205) 868-3597
Toll-Free Number: (800) 627-0220
E-mail: [email protected]
December 8, 1998
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: PROTECTIVE LIFE INSURANCE COMPANY
PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
Commissioners:
On behalf of Protective Life Insurance Company ("the Company") and
Protective Variable Annuity Separate Account (the "Account"), we are
transmitting for filing with the Commission pursuant to the Securities Act of
1933, the Investment Company Act of 1940, and Rule 101(a) of Regulation S-T,
a conformed electronic format copy of a Form N-4 registration statement for
certain variable annuity contracts being issued through the Account.
A paper format copy of this registration statement is being delivered to
the Office of Insurance Products, Division of Investment Management. This
registration statement has been manually signed by the persons specified in
the 1933 Act. Pursuant to Rule 302 of Regulation S-T, the Company will retain
the manually executed copy of the registration statement. Exhibits not
included herein, and certain other information will be added by pre-effective
amendment.
If you have any questions or comments regarding this registration
statement, please call the undersigned at (800) 627-0220.
Sincerely,
/s/ STEVE M. CALLAWAY
-------------------------------
Steve M. Callaway
Senior Associate Counsel
cc: Stephen E. Roth
David S. Goldstein
30964
