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PROTECTIVE LIFE INSURANCE
[LOGO] COMPANY
PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT
P.O. BOX 10648
BIRMINGHAM, ALABAMA 35202-0648
TELEPHONE: 1-800-456-6330
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This Prospectus describes the Protective Advantage-SM- 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 qualified 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-Registered Trademark- Variable Insurance Trust-SM-, Calvert Variable Series,
Inc., and Van Eck Worldwide Insurance Trust. The Funds are:
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PROTECTIVE INVESTMENT MFS-REGISTERED TRADEMARK- OPPENHEIMER VARIABLE ACCOUNT CALVERT VARIABLE SERIES,
COMPANY VARIABLE INSURANCE TRUST-SM- FUNDS INC.
INTERNATIONAL EQUITY FUND NEW DISCOVERY SERIES AGGRESSIVE GROWTH FUND/VA SOCIAL SMALL CAP GROWTH
SMALL CAP VALUE FUND EMERGING GROWTH SERIES GLOBAL SECURITIES FUND/VA PORTFOLIO
CAPITAL GROWTH FUND RESEARCH SERIES CAPITAL APPRECIATION FUND/VA SOCIAL BALANCED PORTFOLIO
CORE U.S. EQUITY FUND GROWTH WITH INCOME SERIES MAIN STREET GROWTH & VAN ECK WORLDWIDE INSURANCE
GROWTH AND INCOME FUND UTILITIES SERIES INCOME FUND/VA TRUST
GLOBAL INCOME FUND TOTAL RETURN SERIES HIGH INCOME FUND/VA WORLDWIDE HARD ASSETS FUND
STRATEGIC BOND FUND/VA WORLDWIDE REAL ESTATE FUND
MONEY FUND/VA
</TABLE>
The value of your Contract, except amounts you allocate to the Guaranteed
Account, will vary according to the investment performance of the Funds in which
the selected Sub-Accounts are invested. You bear the investment risk on amounts
you allocate to the Sub-Accounts.
This Prospectus sets forth basic information about the Contract and the
Variable Account that a prospective investor should know before investing.
Additional information about the Contract and the Variable Account is contained
in the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information is
dated the same date as this Prospectus and is incorporated herein by reference.
The Table of Contents for the Statement of Additional Information is on the last
page of this Prospectus. You may obtain a copy of the Statement of Additional
Information free of charge by writing or calling Protective Life at the address
or telephone number shown above. You may also obtain an electronic copy of the
Statement of Additional Information, as well as other material that we file
electronically and certain material incorporated by reference, at the SEC web
site (http://www.sec.gov).
PLEASE READ THIS PROSPECTUS CAREFULLY. INVESTORS SHOULD KEEP A COPY FOR
FUTURE REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS
FOR EACH OF THE FUNDS.
THE PROTECTIVE ADVANTAGE-SM- 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 SEPTEMBER 21, 1999
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TABLE OF CONTENTS
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DEFINITIONS...................................... 3
EXPENSE TABLES................................... 4
Examples....................................... 6
SUMMARY.......................................... 8
The Contract................................... 8
Federal Tax Status............................. 10
CONDENSED FINANCIAL INFORMATION.................. 11
THE COMPANY, VARIABLE ACCOUNT AND FUNDS.......... 12
Protective Life Insurance Company.............. 12
Protective Variable Annuity Separate Account... 12
Administration................................. 12
The Funds...................................... 13
Protective Investment Company (PIC)............ 13
MFS-Registered Trademark- Variable Insurance
Trust-SM-.................................... 14
Oppenheimer Variable Account Funds............. 14
Calvert Variable Series, Inc................... 15
Van Eck Worldwide Insurance Trust.............. 15
Other Investors in the Funds................... 16
Addition, Deletion or Substitution of
Investments.................................. 17
DESCRIPTION OF THE CONTRACT...................... 18
The Contract................................... 18
Parties to the Contract........................ 18
Issuance of a Contract......................... 19
Purchase Payments.............................. 20
Right to Cancel................................ 20
Allocation of Purchase Payments................ 20
Variable Account Value......................... 21
Transfers...................................... 22
Surrenders and Partial Surrenders.............. 25
THE GUARANTEED ACCOUNT........................... 27
DEATH BENEFIT.................................... 28
Standard Death Benefit......................... 29
Optional Benefit Packages...................... 29
SUSPENSION OR DELAY IN PAYMENTS.................. 31
CHARGES AND DEDUCTIONS........................... 31
Sales Charge................................... 31
Mortality and Expense Risk Charge.............. 32
Administration Charges......................... 33
Transfer Fee................................... 33
Contract Maintenance Fee....................... 33
Fund Expenses.................................. 33
Premium Taxes.................................. 33
Other Taxes.................................... 33
ANNUITIZATION.................................... 34
Annuity Commencement Date...................... 34
Fixed Income Payments.......................... 34
Variable Income Payments....................... 34
Annuity Options................................ 35
Minimum Amounts................................ 36
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Death of Annuitant or Owner After Annuity
Commencement Date............................ 36
YIELDS AND TOTAL RETURNS......................... 36
Yields......................................... 36
Total Returns.................................. 37
Standardized Average Annual Total Returns...... 37
Non-Standard Average Annual Total Returns...... 37
Performance Comparisons........................ 38
Other Matters.................................. 38
FEDERAL TAX MATTERS.............................. 38
Introduction................................... 38
The Company's Tax Status....................... 39
TAXATION OF ANNUITIES IN GENERAL................. 39
Tax Deferral During Accumulation Period........ 39
Taxation of Partial and Full Surrenders........ 41
Taxation of Annuity Payments................... 41
Taxation of Death Benefit Proceeds............. 42
Assignments, Pledges, and Gratuitous
Transfers.................................... 42
Penalty Tax on Premature Distributions......... 42
Aggregation of Contracts....................... 43
Loss of Interest Deduction Where Contract Is
Held By or For the Benefit of Certain
Non-Natural Persons.......................... 43
QUALIFIED RETIREMENT PLANS....................... 43
In General..................................... 43
Direct Rollovers............................... 46
FEDERAL INCOME TAX WITHHOLDING................... 47
GENERAL MATTERS.................................. 47
The Contract................................... 47
Error in Age or Gender......................... 47
Incontestability............................... 48
Non-Participation.............................. 48
Assignment..................................... 48
Notice......................................... 48
Modification................................... 48
Reports........................................ 48
Settlement..................................... 48
Receipt of Payment............................. 48
Protection of Proceeds......................... 49
Minimum Values................................. 49
Application of Law............................. 49
No Default..................................... 49
DISTRIBUTION OF THE CONTRACTS.................... 49
Inquiries...................................... 49
PREPARATION FOR YEAR 2000........................ 49
IMSA............................................. 50
LEGAL PROCEEDINGS................................ 51
VOTING RIGHTS.................................... 51
FINANCIAL STATEMENTS............................. 51
STATEMENT OF ADDITIONAL INFORMATION TABLE OF
CONTENTS....................................... 52
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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 Protective Advantage-SM- flexible premium deferred variable
and fixed annuity Contract.
CONTRACT ANNIVERSARY: The same month and day as the Effective Date in each
subsequent year of the Contract.
CONTRACT VALUE: Prior to the Annuity Commencement Date, the sum of the
Variable Account value and the Guaranteed Account value.
CONTRACT YEAR: Any period of 12 months commencing with the Effective Date
or any Contract Anniversary.
DCA: Dollar cost averaging.
DCA FIXED ACCOUNTS: The DCA Fixed 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 Net 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.
NET PURCHASE PAYMENT: The Purchase Payment, less the sales charge and any
applicable premium taxes.
PURCHASE PAYMENT: The amount(s) paid by the Owner and accepted by the
Company as consideration for this Contract.
QUALIFIED CONTRACTS: Contracts issued in connection with retirement plans
that receive favorable tax treatment under Sections 401, 403, 408, 408A or 457
of the Internal Revenue Code.
QUALIFIED PLANS: Retirement plans that receive favorable tax treatment
under Sections 401, 403, 408, 408A or 457 of the Internal Revenue Code.
SUB-ACCOUNT: A separate division of the Variable Account.
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
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EXPENSE TABLES
The following expense information assumes that the entire Contract Value is
Variable Account Value.
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OWNER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchase Payments................ 5.50%(1)
Surrender Charge Imposed on Amount Surrendered................... None
Transfer Processing Fee.......................................... None(2)
ANNUAL CONTRACT MAINTENANCE FEE.................................... $30(3)
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WITH
STANDARD WITH OPTIONAL
BENEFITS BENEFITS
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ANNUAL ACCOUNT EXPENSES (as a percentage of average Variable
Account value)
Mortality and Expense Risk Charge................................ 0.60% 0.75%
Administration Charge............................................ 0.10% 0.10%
Total Account Expenses........................................... 0.70% 0.85%
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ANNUAL FUND EXPENSES
(after reimbursement and as percentage of average net assets)
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MANAGEMENT OTHER TOTAL ANNUAL
(ADVISORY) EXPENSES AFTER FUND EXPENSES
FEES REIMBURSEMENT (AFTER REIMBURSEMENTS)
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PROTECTIVE INVESTMENT COMPANY (PIC) (1)
International Equity Fund................................. 1.10% 0.00% 1.10%
Small Cap Value Fund...................................... 0.80% 0.00% 0.80%
Capital Growth Fund....................................... 0.80% 0.00% 0.80%
CORE U.S. Equity Fund..................................... 0.80% 0.00% 0.80%
Growth and Income Fund.................................... 0.80% 0.00% 0.80%
Global Income Fund........................................ 1.10% 0.00% 1.10%
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM- (2,3)
New Discovery Series...................................... 0.90% 0.27% 1.17%
Emerging Growth Series.................................... 0.75% 0.10% 0.85%
Research Series........................................... 0.75% 0.11% 0.86%
Growth With Income Series................................. 0.75% 0.13% 0.88%
Utilities Series.......................................... 0.75% 0.26% 1.01%
Total Return Series....................................... 0.75% 0.16% 0.91%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Aggressive Growth Fund/VA................................. 0.69% 0.02% 0.71%
Global Securities Fund/VA................................. 0.68% 0.06% 0.74%
Capital Appreciation Fund/VA.............................. 0.72% 0.03% 0.75%
Main Street Growth & Income Fund/VA....................... 0.74% 0.05% 0.79%
High Income Fund/VA....................................... 0.74% 0.04% 0.78%
Strategic Bond Fund/VA.................................... 0.74% 0.06% 0.80%
Money Fund/VA............................................. 0.45% 0.05% 0.50%
CALVERT VARIABLE SERIES, INC. (4)
Social Small Cap Growth Portfolio......................... 1.00% 0.33% 1.33%
Social Balanced Portfolio................................. 0.70% 0.18% 0.88%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund................................ 1.00% 0.16% 1.16%
Worldwide Real Estate Fund (5)............................ 0.00% 0.89% 0.89%
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(1) The Sales Charge percentage decreases at certain points as your Contract
Value or the aggregate amount of your Purchase Payments increases. Your
Purchase Payment may also qualify for a reduced Sales Charge percentage if
you submit a Letter of Intent to make sufficient additional Purchase
Payments within a certain period. (See "Charges and Deductions".)
(2) Protective Life reserves the right to charge a Transfer Fee in the future.
(See "Charges and Deductions".)
(3) The contract maintenance fee may not apply. (See "Charges and
Deductions".)
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(1) The annual expenses listed for all of the PIC Funds are net of certain
reimbursements by PIC's investment manager. (See "The Funds".) Absent the
reimbursements, total expenses for the period ended December 31, 1998 were:
CORE U.S. Equity Fund 0.85%, Small Cap Value Fund 0.89%, International
Equity Fund 1.39%, Growth and Income Fund 0.85%, Capital Growth Fund 0.86%,
and Global Income Fund 1.28%. PIC's investment manager has voluntarily
agreed to reimburse certain of each Fund's expenses in excess of its
management fees. Although this reimbursement may be ended on 120 days'
notice to PIC, the investment manager has no present intention of doing so.
(2) MFS has agreed to bear expenses for these series, subject to reimbursement
by these series, such that each series' "Other Expenses" shall not exceed
0.25% of the average daily net assets of these series during the current
fiscal year. This waiver and reimbursement was in effect for the period
ending December 31, 1998. The payments made by MFS on behalf of each series
under this arrangement are subject to reimbursement by the series to MFS,
which will be accomplished by the payment of an expense reimbursement fee by
the series to MFS computed and paid monthly at a percentage of the series'
average daily net assets for its then current fiscal year, with a limitation
that immediately after such payment the series' "Other Expenses" will not
exceed the percentage set forth above for that series. The obligation of MFS
to bear a series' "Other Expenses" pursuant to this arrangement, and the
series' obligation to pay the reimbursement fee to MFS, terminates on the
earlier of the date on which payments made by the series equal the prior
payment of such reimbursable expenses by MFS, or December 31, 2004 (May 1,
2001 in the case of the New Discovery Series). MFS may, in its discretion,
terminate this arrangement at an earlier date, provided that the arrangement
will continue for each series until at least May 1, 2000, unless terminated
with the consent of the board of trustees which oversees the series. Absent
the reimbursements, total expenses for the New Discovery Series for the
period ended December 31, 1998 were 5.22% reflecting "Other Expenses" of
4.47%.
(3) Each Series has an expense offset arrangement which reduces the Series'
custodian based fee based on the amount of cash maintained by the Series
with its custodian and dividend disbursing agent. Each Series may enter into
other such arrangements and directed brokerage arrangements which would also
have the effect of reducing the Series' expenses. Expenses do not take into
account these expense reductions and are therefore higher than the actual
expenses of the Series. Had this offset been incorporated into the reported
expenses, the "Other Expenses" for the New Discovery Series would appear on
the Expense Table as 0.25% and in footnote (2) as 4.45%, and the "Other
Expenses" for the Utilities Series would appear on the Expense Table as
0.23%.
(4) The figures have been restated to reflect an increase in transfer agency
expenses (the addition of 0.01%) for the Calvert Social Balanced Portfolio
expected to be incurred in 1999. "Other Expenses" reflect an indirect fee.
Net fund operating expenses after reductions for fees paid indirectly
(again, restated for the Calvert Social Balanced Portfolio) would be 0.86%
for Calvert Social Balanced, and 1.12% for Calvert Social Small Cap Growth.
(5) Van Eck Associates Corporation (the "Adviser") earned fees for investment
management and advisory services. The fee is based on an annual rate of 1%
of the average daily net assets. The Adviser agreed to waive its management
fees and assume all expenses of the fund except interest, taxes, brokerage
commissions and extraordinary expenses for the period January 1, 1998 to
February 28, 1998. The Adviser also agreed to assume expenses exceeding 1%
of average daily net assets except interest, taxes, brokerage commissions
and extraordinary expenses for the period March 1, 1998 to December 31,
1998. For the year ended December 31, 1998, the Adviser assumed expenses in
the amount of $49,729 (3.43%). Absent this reimbursement, total expenses for
the Van Eck Worldwide Real Estate Fund would have been 5.32% reflecting
"Management Fees" of 1.00% and "Other Expenses" of 4.32%. Certain of the
officers and trustees of the Trust are officers, directors or stockholders
of the Adviser and Van Eck Securities Corporation. As of December 31, 1998,
the Adviser owned 39% of the outstanding shares of beneficial interest of
the Fund.
The above tables are intended to assist the owner in understanding the costs
and expenses that he or she will bear directly or indirectly. The tables reflect
the expenses for the Account and reflect the investment management fees and
other expenses and total expenses for each Fund for the period January 1, 1998
to December 31, 1998. For a more complete description of the various costs and
expenses see "Charges and Deductions" and the prospectuses for each of the
Funds, which accompany
5
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this prospectus. In addition to the expenses listed above, premium taxes
currently varying from 0 to 3.5% may be applicable in certain states.
EXAMPLES
During the applicable time period, you would pay the following expenses on a
$1,000 investment, assuming selection of the standard death benefit, the maximum
5.5% sales charge, a 5% annual return on assets and that the contract
maintenance fee is $30, and at the anticipated Contract size of $100,000 is
equivalent to 0.03%. We do not deduct any additional fees or charges when you
surrender your Contract or annuitize. Therefore, we provide only one set of
expense figures below.
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SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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PIC International Equity................................... $73 $109 $149 $258
PIC Small Cap Value........................................ 70 101 134 227
PIC Capital Growth......................................... 70 101 134 227
PIC CORE U. S. Equity...................................... 70 101 134 227
PIC Growth and Income...................................... 70 101 134 227
PIC Global Income.......................................... 73 109 149 258
MFS New Discovery.......................................... 73 111 152 265
MFS Emerging Growth........................................ 70 102 136 232
MFS Research............................................... 70 102 137 234
MFS Growth With Income..................................... 70 103 138 236
MFS Utilities.............................................. 72 107 144 249
MFS Total Return........................................... 71 104 139 239
Oppenheimer Aggressive Growth.............................. 69 98 129 218
Oppenheimer Global Securities.............................. 69 99 131 221
Oppenheimer Capital Appreciation........................... 69 99 131 222
Oppenheimer Main Street Growth & Income.................... 70 100 133 226
Oppenheimer High Income.................................... 70 100 133 225
Oppenheimer Strategic Bond................................. 70 101 134 227
Oppenheimer Money Fund..................................... 67 92 119 196
Calvert Social Small Cap Growth............................ 75 116 160 281
Calvert Social Balanced.................................... 70 103 138 236
Van Eck Worldwide Hard Assets.............................. 73 111 152 264
Van Eck Worldwide Real Estate.............................. 71 103 138 237
</TABLE>
During the applicable time period, you would pay the following expenses on a
$1,000 investment, assuming selection of an optional benefit package, the
maximum 5.5% sales charge, a 5% annual return on assets and that the contract
maintenance fee is $30, and at the anticipated Contract size of $100,000 is
equivalent to 0.03%. We do not deduct any additional fees or charges when you
surrender your Contract or annuitize. Therefore, we provide only one set of
expense figures below.
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SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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PIC International Equity................................... $74 $114 $156 $273
PIC Small Cap Value........................................ 71 105 141 243
PIC Capital Growth......................................... 71 105 141 243
PIC CORE U. S. Equity...................................... 71 105 141 243
PIC Growth and Income...................................... 71 105 141 243
PIC Global Income.......................................... 74 114 156 273
MFS New Discovery.......................................... 75 116 159 280
MFS Emerging Growth........................................ 72 106 144 248
MFS Research............................................... 72 107 144 249
MFS Growth With Income..................................... 72 107 145 251
MFS Utilities.............................................. 73 111 152 264
MFS Total Return........................................... 72 108 147 254
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6
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Oppenheimer Aggressive Growth.............................. 70 102 137 234
Oppenheimer Global Securities.............................. 71 103 138 237
Oppenheimer Capital Appreciation........................... 71 104 139 238
Oppenheimer Main Street Growth & Income.................... 71 105 141 242
Oppenheimer High Income.................................... 71 104 140 241
Oppenheimer Strategic Bond................................. 71 105 141 243
Oppenheimer Money Fund..................................... 68 96 126 212
Calvert Social Small Cap Growth............................ 76 120 167 295
Calvert Social Balanced.................................... 72 107 145 251
Van Eck Worldwide Hard Assets.............................. 75 115 159 279
Van Eck Worldwide Real Estate.............................. 72 108 146 252
</TABLE>
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* The examples assume that no transfer fee or premium taxes have been
assessed.
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
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SUMMARY
THE CONTRACT
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WHAT IS THE PROTECTIVE ADVANTAGE-SM- The Protective Advantage-SM- Contract is a flexible
CONTRACT? 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 $5,000 for
Non-Qualified Contracts and $2,000 for Qualified
Contracts. Subsequent Purchase Payments may only 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. The minimum subsequent Purchase Payment we
will accept is $500, or $100 if made by electronic
funds transfer. 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) after you receive it. The
returned Contract will be treated as if it were never
issued. Protective Life will refund the Contract Value
plus the sales charge in states where permitted. This
amount may be more or less than the Purchase Payments.
Where required, we will refund Purchase Payments. (See
"Right to Cancel".)
CAN I TRANSFER AMOUNTS IN THE Prior to the Annuity Commencement Date, you may
CONTRACT? request transfers from one Allocation Option to
another. No transfers may be made into 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".) Surrenders may have federal (and state)
income tax consequences. In addition, surrenders from
Contracts issued pursuant to Section 403(b) of the
Internal Revenue Code may not be allowed in certain
circumstances. (See "Federal Tax Matters".)
</TABLE>
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IS THERE A DEATH BENEFIT? If any Owner dies prior to the Annuity Commencement
Date and while this Contract is in force, a death
benefit, less any applicable premium tax, will be
payable to the Beneficiary. The death benefit is
determined as of the end of the Valuation Period
during which we receive due proof of the Owner's
death. The death benefit will 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".)
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. Currently, two
optional benefit packages are available. (See
"Optional Benefit Packages".)
ARE THERE CHARGES AND DEDUCTIONS The following charges and deductions are made in
FROM MY CONTRACT? connection with the Contract:
SALES CHARGE. We will deduct a sales charge from each Purchase
Payment we accept. The sales charge is a percentage of
the Purchase Payment. The maximum sales charge
percentage we will apply is 5.5%. The sales charge
percentage decreases at certain points as your
Contract Value or the aggregate amount of your
Purchase Payments increases. Your Purchase Payment may
also qualify for a reduced sales charge percentage if
you submit a letter of intent to make sufficient
additional Purchase Payments within a certain period.
(See "Charges and Deductions".)
MORTALITY AND EXPENSE RISK We will deduct a mortality and expense risk charge to
CHARGE. compensate us for assuming certain mortality and
expense risks. For Contracts issued with the standard
death benefit, the charge equals, on an annual basis,
0.60% 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 0.75% of such assets prior to the
Annuity Commencement Date. (See "Optional Benefit
Packages".) On and after the Annuity Commencement
Date, the charge equals 0.60% of such assets. (See
"Mortality and Expense Risk Charge".)
ADMINISTRATION CHARGE. We will deduct an administration charge equal, on an
annual basis, to 0.10% 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, we may waive this fee.
(See "Contract Maintenance Fee".)
</TABLE>
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<TABLE>
<S> <C>
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
OTHER EXPENSES OF THE FUNDS. Account will reflect the investment management fee the
corresponding Fund incurs as well as other operating
expenses of that Fund. For each Fund, the investment
manager receives a daily fee for its investment
management services. The management fees are based on
the average daily net assets of the Fund. (See "Fund
Expenses" and the Funds' prospectuses.)
WHAT ANNUITY OPTIONS ARE AVAILABLE? Currently, we apply the 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 We may issue the Contract for use with retirement
QUALIFIED RETIREMENT PLANS? plans that receive special federal income tax
treatment under the Internal Revenue Code such as
pension and profit sharing plans (including H.R. 10
plans), tax sheltered annuities, individual retirement
accounts, and individual retirement annuities.
Contracts issued for these qualified retirement plans
are referred to as Qualified Contracts, and these
types of plans are referred to as Qualified Plans.
(See "Federal Tax Matters".)
OTHER CONTRACTS We offer other types of annuity contracts and
insurance policies which also invest in the same Funds
in which your Contract invests. These other types of
contracts and policies may have different charges that
could affect the value of Sub-Accounts and may offer
different benefits than your Contract. To obtain more
information about these contracts and policies, you
may contact our administrative office in writing or by
telephone.
</TABLE>
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".)
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CONDENSED FINANCIAL INFORMATION
The date of inception of each of the sub-accounts is as follows:
<TABLE>
<S> <C>
March 14, 1994 -- PIC International Equity
PIC Small Cap Value
PIC CORE U.S. Equity
PIC Growth and Income
PIC Global Income
Oppenheimer Money Fund (formerly PIC
Money Market)
June 13, 1995 -- PIC Capital Growth
July 1, 1997 -- MFS Emerging Growth
MFS Research
MFS Growth With Income
MFS Total Return
Oppenheimer Aggressive Growth
Oppenheimer Capital Appreciation
(formerly Oppenheimer Growth)
Oppenheimer Main Street Growth & Income
(formerly Oppenheimer Growth &
Income)
Oppenheimer Strategic Bond
Calvert Social Small Cap Growth
Calvert Social Balanced
November 5, 1998 -- MFS New Discovery
MFS Utilities
Oppenheimer Global Securities
Oppenheimer High Income
Van Eck Worldwide Hard Assets
Van Eck Worldwide Real Estate
</TABLE>
The Contracts represent a new class of Accumulation Units of the Variable
Account. No information is provided with respect to these Accumulation Units
because, as of the date of this prospectus, the Variable Account has not yet
commenced operations with respect to this new class.
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THE COMPANY, VARIABLE ACCOUNT AND FUNDS
PROTECTIVE LIFE INSURANCE COMPANY
The Contracts are issued by Protective Life. A Tennessee corporation 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, 1998, Protective Life had total assets
of approximately $11.6 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 $12.0 billion at December 31,
1998.
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; MFS New
Discovery; MFS Emerging Growth; MFS Research; MFS Growth With Income; MFS
Utilities; MFS Total Return; Oppenheimer Aggressive Growth; Oppenheimer Global
Securities; Oppenheimer Capital Appreciation; Oppenheimer Main Street Growth &
Income; Oppenheimer High Income; Oppenheimer Strategic Bond; Oppenheimer Money
Fund; Calvert Social Small Cap Growth; Calvert Social Balanced; Van Eck
Worldwide Hard Assets; and Van Eck Worldwide Real Estate. Each Sub-Account
invests in shares of a corresponding Fund. Therefore, the investment experience
of your Contract depends on the experience of the Sub-Accounts that you select.
Other contracts issued by Protective Life may offer some or all of the Sub-
Accounts of the Variable Account.
ADMINISTRATION
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.
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THE FUNDS
Each Sub-Account invests in a corresponding Fund. Each Fund is an investment
portfolio of one of the following investment companies: Protective Investment
Company ("PIC Funds") managed by Protective Investment Advisors, Inc. (formerly
Investment Distributors Advisory Services, Inc.), and subadvised by Goldman
Sachs Asset Management or Goldman Sachs Asset Management International;
Oppenheimer Variable Account Funds managed by OppenheimerFunds, Inc.;
MFS-Registered Trademark- Variable Insurance Trust-SM- managed by MFS Investment
Management; Calvert Variable Series, Inc. managed by Calvert Asset Management
Company, Inc.; or Van Eck Worldwide Insurance Trust managed by Van Eck
Associates Corporation. Shares of these Funds are offered only to:
(1) the Variable Account,
(2) other separate accounts of Protective Life and its affiliates
supporting variable annuity contracts or variable life insurance policies,
(3) separate accounts of other life insurance companies supporting
variable annuity contracts or variable life insurance policies, and
(4) certain qualified retirement plans.
Such shares are not offered directly to investors but are available only
through the purchase of such contracts or policies or through such plans. See
the prospectus for each Fund for details about that Fund.
There is no guarantee that any Fund will meet its investment objectives.
Please refer to the prospectus for each of the Funds you are considering for
more information.
PROTECTIVE INVESTMENT COMPANY (PIC)
INTERNATIONAL EQUITY FUND.
This Fund seeks long-term capital appreciation. This Fund will pursue its
objectives by investing substantially all, and at least 65%, of total assets in
equity and equity-related securities of companies that are organized outside the
United States or whose securities are primarily traded outside the United
States.
SMALL CAP VALUE FUND.
This Fund seeks long-term capital growth. This Fund will pursue its
objectives by investing, under normal circumstances, at least 65% of its total
assets in equity securities of companies with public stock market
capitalizations of $1 billion or less at the time of investment.
CAPITAL GROWTH FUND.
This Fund seeks long-term capital growth. The Fund will pursue its objective
by investing, under normal circumstances, at least 90% of its total assets in a
diversified portfolio of equity securities having long-term capital appreciation
potential.
CORE U.S. EQUITY FUND.
This Fund seeks a total return consisting of capital appreciation plus
dividend income. This Fund will pursue its objectives by investing, under normal
circumstances, at least 90% of its total assets in equity securities selected
using both fundamental research and a variety of quantitative techniques in
seeking to maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the S&P 500 Index.
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<PAGE>
GROWTH AND INCOME FUND.
This Fund seeks long-term growth of capital and growth of income. This Fund
will pursue its objectives by investing, under normal circumstances, at least
65% of its total assets in equity securities having favorable prospects of
capital appreciation and/or dividend paying ability.
GLOBAL INCOME FUND.
This Fund seeks high total return, emphasizing current income and, to a
lesser extent, providing opportunities for capital appreciation. This Fund will
pursue its objectives by investing primarily in high quality fixed-income
securities of U.S. and foreign issuers and through foreign currency
transactions.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
NEW DISCOVERY SERIES.
This Fund seeks to provide capital appreciation.
EMERGING GROWTH SERIES.
This Fund seeks to provide long-term growth of capital.
RESEARCH SERIES.
This Fund seeks to provide long-term growth of capital and future income.
GROWTH WITH INCOME SERIES.
This Fund seeks reasonable current income and long-term growth of capital
and income.
UTILITIES SERIES.
This Fund seeks to provide capital growth and current income above that
available from a portfolio invested entirely in equity securities.
TOTAL RETURN SERIES.
This Fund seeks primarily to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital and secondarily to provide a reasonable opportunity for
growth of capital and income.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
AGGRESSIVE GROWTH FUND/VA.
This Fund seeks to achieve capital appreciation by investing in
"growth-type" companies.
GLOBAL SECURITIES FUND/VA.
This Fund seeks long-term capital appreciation by investing in securities of
foreign issuers, "growth-type" companies and cyclical industries.
CAPITAL APPRECIATION FUND/VA.
This Fund seeks to achieve long-term capital appreciation by investing in
securities of well-known established companies.
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<PAGE>
MAIN STREET GROWTH & INCOME FUND/VA.
This Fund seeks a high total return (which includes growth in the value of
its shares as well as current income) from equity and debt securities. From time
to time this Fund may focus on small to medium capitalization common stocks,
bonds and convertible securities.
HIGH INCOME FUND/VA.
This Fund seeks a high level of current income from investment in high yield
fixed-income securities.
STRATEGIC BOND FUND/VA.
This Fund seeks a high level of current income principally derived from
interest on debt securities and seeks to enhance such income by writing covered
call options on debt securities.
MONEY FUND/VA.
This Fund seeks to maximize current income from investments in "money
market" securities consistent with low capital risk and the maintenance of
liquidity. AN INVESTMENT IN THE MONEY FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
CALVERT VARIABLE SERIES, INC.
SOCIAL SMALL CAP GROWTH PORTFOLIO.
This Fund seeks to provide long-term capital appreciation by investing in
equity securities of companies that have small market capitalizations.
SOCIAL BALANCED PORTFOLIO.
This Fund seeks to achieve a total return above the rate of inflation
through an actively managed, non-diversified portfolio of common and preferred
stocks, bonds, and money market instruments that offer income and capital growth
opportunity and that satisfy the social criteria established for the Fund.
VAN ECK WORLDWIDE INSURANCE TRUST
WORLDWIDE HARD ASSETS FUND.
This Fund seeks long-term capital appreciation by investing primarily in
"Hard Asset Securities". Hard Asset Securities are the stocks, bonds and other
securities of companies that derive at least 50% of gross revenue or profit from
the exploration, development, production or distribution of (together "Hard
Assets"):
(i) precious metals;
(ii) natural resources;
(iii) real estate; and
(iv) commodities.
WORLDWIDE REAL ESTATE FUND.
This Fund seeks a high total return by investing in equity securities of
companies that own significant real estate or that principally do business in
real estate.
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<PAGE>
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED. MORE DETAILED INFORMATION CONCERNING THE INVESTMENT
OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUNDS, THE EXPENSES OF THE FUNDS,
THE RISKS ATTENDANT TO INVESTING IN THE FUNDS AND OTHER ASPECTS OF THEIR
OPERATIONS CAN BE FOUND IN THE CURRENT PROSPECTUSES FOR THE FUNDS, WHICH
ACCOMPANY THIS PROSPECTUS, AND THE CURRENT STATEMENT OF ADDITIONAL INFORMATION
FOR EACH OF THE FUNDS. THE FUNDS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE
ANY DECISION IS MADE CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS OR TRANSFERS
AMONG THE SUB-ACCOUNTS.
Certain Funds may have investment objectives and policies similar to other
mutual funds (sometimes having similar names) that are managed by the same
investment adviser or manager. The investment results of the Funds, however, may
be more or less favorable than the results of such other mutual funds.
Protective Life does not guarantee or make any representation that the
investment results of any Fund is, or will be, comparable to any other mutual
fund, even one with the same investment adviser or manager.
OTHER INFORMATION ABOUT THE FUNDS
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.
We may receive compensation from one or more of the Funds (or their
affiliates) based upon an annual percentage of the average net assets we hold in
the Fund. These amounts are intended to compensate us for administrative and
other services we provide to the Funds. Managers or advisers paying fees under
these agreements do not increase the fees or expenses the Funds or their
shareholders pay.
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 Protective Life and
Annuity Insurance Company (formerly American Foundation Life Insurance Company),
a Protective Life affiliate, as the underlying investment for variable annuity
contracts issued by Protective Life and Annuity. PIC may in the future sell
shares of its Funds to other separate accounts of Protective Life or its life
insurance company affiliates supporting other variable annuity contracts or
variable life insurance policies. In addition, upon obtaining regulatory
approval, PIC may sell shares to certain retirement plans qualifying under
Section 401 of the Internal Revenue Code of 1986. Protective Life currently does
not foresee any disadvantages to Owners that would arise from the possible sale
of shares to support its variable annuity and variable life insurance policies
or those of its affiliates or from the possible sale of shares to such
retirement plans. However, the board of directors of PIC will monitor events in
order to identify any material irreconcilable conflicts that might possibly
arise if such shares were also offered to support variable annuity contracts
other than the Contracts or variable life insurance policies or to retirement
plans. In event of such a conflict, the board of directors would determine what
action, if any, should be taken in response to the conflict. In addition, if
Protective Life believes that PIC's response to any such conflicts
insufficiently protects Owners, it will take appropriate
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action on its own, including withdrawing the Account's investment in the Fund.
(See the PIC Prospectus for more detail.)
Shares of the MFS-Registered Trademark- Variable Insurance Trust-SM-,
Oppenheimer Variable Account Funds, Calvert Variable Series, Inc. and Van Eck
Worldwide Insurance Trust are sold to separate accounts of insurance companies,
which may or may not be affiliated with Protective Life or each other, a
practice known as "shared funding." They may also be sold to separate accounts
to serve as the underlying investment for both variable annuity contracts and
variable life insurance policies, a practice known as "mixed funding." As a
result, there is a possibility that a material conflict may arise between the
interests of Owners of Protective Life's Contracts, whose Contract Values are
allocated to the Variable Account, and of owners of other contracts whose
contract values are allocated to one or more other separate accounts investing
in any one of the Funds. Shares of some of these Funds may also be sold to
certain qualified pension and retirement plans. As a result, there is a
possibility that a material conflict may arise between the interests of Contract
Owners generally or certain classes of Contract Owners, and such retirement
plans or participants in such retirement plans. In the event of any such
material conflicts, Protective Life will consider what action may be
appropriate, including removing the Fund from the Variable Account or replacing
the Fund with another fund. As is the case with PIC, the boards of directors (or
trustees) of the MFS-Registered Trademark- Variable Insurance Trust-SM-,
Oppenheimer Variable Account Funds, Calvert Variable Series, Inc. and Van Eck
Worldwide Insurance Trust monitor events related to their Funds to identify
possible material irreconcilable conflicts among and between the interests of
the Fund's various investors. There are certain risks associated with mixed and
shared funding and with the sale of shares to qualified pension and retirement
plans, as disclosed in each Fund's prospectus.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Protective Life reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Variable Account or that the Variable Account may purchase. If the shares of
a Fund are no longer available for investment or if in Protective Life's
judgment further investment in any Fund should become inappropriate in view of
the purposes of the Variable Account, Protective Life may redeem the shares, if
any, of that Fund and substitute shares of another registered open-end
management company or unit investment trust. Protective Life will not substitute
any shares attributable to a Contract's interest in the Variable Account without
notice and any necessary approval of the Securities and Exchange Commission and
state insurance authorities.
Protective Life also reserves the right to establish additional Sub-Accounts
of the Variable Account, each of which would invest in shares corresponding to a
new Fund. Subject to applicable law and any required SEC approval, Protective
Life may, in its sole discretion, establish new Sub-Accounts or eliminate one or
more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. 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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DESCRIPTION OF THE CONTRACT
The following sections describe the Contracts currently being offered.
THE CONTRACT
The Protective Advantage-SM- Contract is a flexible premium deferred
variable and fixed annuity contract issued by Protective Life. In certain states
we offer the Contract 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 we may also offer the Contract to members of other eligible groups. In
all other states, we offer the Contract 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.
You may wish to consult a qualified tax and/or financial adviser regarding
the use of the Contract within a qualified plan or in connection with other
employee benefit plans or arrangements that receive favorable tax treatment,
since many such plans or arrangements provide the same type of tax deferral as
provided by the Contract. The Contract provides a number of extra benefits and
features not provided by employee benefit plans or arrangements alone, although
there are costs and expenses under the Contract related to these benefits and
features. You should carefully consider these benefits and features in relation
to their costs as they apply to your particular situation.
PARTIES TO THE CONTRACT
OWNER.
The Owner is the person or persons who own the Contract and are entitled to
exercise all rights and privileges provided in the Contract. 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. In the case of Joint Owners, provisions relating to action by the
Owner means both Joint Owners acting together. Individuals as well as nonnatural
persons, such as corporations or trusts, may be Owners. The Company will only
issue a Contract prior to each Owner's 85th birthday.
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.
For a period of 1 year after any change of ownership involving a natural
person, the death benefit will equal the Contract Value. Changing the 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.
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CONTINGENT -- The Contingent Beneficiary is the person or persons
designated by the Owner and named in our records to be Beneficiary
if the Primary Beneficiary is not living at the time of the
Owner's death.
If no Beneficiary designation is in effect or if no Beneficiary is living at
the time of an Owner's death, the Beneficiary will be the estate of the deceased
Owner. If any Owner dies on or after the Annuity Commencement Date, the
Beneficiary will become the new Owner.
Unless designated irrevocably, the Owner may change the Beneficiary by
Written Notice prior to the death of any Owner. An irrevocable Beneficiary is
one whose written consent is needed before the Owner can change the Beneficiary
designation or exercise certain other rights. In the case of certain Qualified
Contracts, Treasury Department regulations prescribe certain limitations on the
designation of a Beneficiary.
ANNUITANT.
The Annuitant is the person on whose life annuity income payments may be
based. The Owner is the Annuitant unless the Owner designates another person as
the Annuitant. The Contract must be issued prior to the Annuitant's 85th
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 Annuitant's 90th birthday may not occur before the Annuity
Commencement Date.
PAYEE.
The Payee is the person or persons designated by the Owner to receive the
annuity income payments under the Contract. The Annuitant is the Payee unless
the Owner designates another party as the Payee. The Owner may change the Payee
at any time.
ISSUANCE OF A CONTRACT
To purchase a Contract, you must submit certain application information and
an initial Purchase Payment to Protective Life through a licensed representative
of Protective Life, who is also a registered representative of a broker-dealer
having a distribution agreement with Investment Distributors, Inc. The minimum
initial Purchase Payment is $5,000 for non-Qualified Contracts and $2,000 for
Qualified Contracts. Protective Life reserves the right to accept or decline a
request to issue a Contract. Contracts may be sold to or in connection with
retirement plans which do not qualify for special tax treatment as well as
retirement plans that qualify for special tax treatment under the Internal
Revenue Code.
If the necessary application information for a Contract accompanies the
initial Purchase Payment, we will allocate the Net Purchase Payment to the
Allocation Options as you direct on the appropriate form within two business
days of receiving such Purchase Payment at the administrative office. If we do
not receive the necessary application information, Protective Life will retain
the Purchase Payment for up to five business days while it attempts to complete
the information. If the necessary application information is not complete after
five days, Protective Life will inform the applicant of the reason for the delay
and return the initial Purchase Payment immediately unless the applicant
specifically consents to Protective Life retaining it until the information is
complete. Once the information is complete, we will allocate the Net Purchase
Payment to the appropriate Allocation Options within two business days.
You may transmit information necessary to complete an application to the
Company by telephone, facsimile, or electronic media.
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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 $500, or $100
if made by electronic funds transfer. We reserve the right not to accept any
Purchase Payment.
Purchase Payments are payable at our administrative office. You may make
them 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 Payments that can be made without prior
administrative office approval. This amount is currently $1,000,000.
We may also offer an automatic purchase payment plan. Under such an
automatic purchase payment plan, you may select a monthly or quarterly payment
schedule pursuant to which Purchase Payments will be automatically deducted from
a bank account. We accept automatic purchase payments on the 1st through the
28th day of each month. Each automatic purchase payment must be at least $100.
You may not allocate payments made through the automatic purchase payment plan
to any DCA Fixed Account. If offered, you may not elect the automatic purchase
payment plan and the partial automatic withdrawal plan simultaneously. (See
"Surrenders and Partial Surrenders".) Upon notification of the death of any
Owner the Company will terminate deductions under the automatic purchase payment
plan. (See "Allocation of Purchase Payments".) To find out whether we currently
offer the automatic purchase payment plan you should inquire with your broker.
RIGHT TO CANCEL
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 the sales charge and any fees deducted from
either Purchase Payments or Contract Value. This amount may be more or less than
the aggregate amount of your Purchase Payments up to that time. Where required,
we will refund the Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
The allocation of your Net Purchase Payment among the Allocation Options you
have selected will be at the next price determined after we receive your
Purchase Payment. Owners must indicate how their initial and subsequent Net
Purchase Payments are to be allocated among the Allocation Options. The Fixed
Account is not available in all states.
If your allocation instructions are indicated by percentages, whole
percentages must be used. Subsequent Purchase Payments made through the
automatic purchase payment plan will not be allocated to any DCA Fixed Account.
Subsequent Net Purchase Payments also will not be allocated to a DCA Fixed
Account if, on the day we receive the Purchase Payment, the value of that DCA
Fixed Account is greater than $0.00.
For Individual Retirement Annuities and Contracts issued in states where,
upon cancellation during the right-to-cancel period, we return at least your
Purchase Payments, we reserve the right to allocate your initial Net Purchase
Payment (and any subsequent Net Purchase Payment made during the right-to-cancel
period) to the Oppenheimer Money Fund Sub-Account until the expiration of the
number of days in the right-to-cancel period starting from the date the Contract
is mailed from our
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administrative office. Thereafter, all Net 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,
automated telephone system or via the Internet at www.ipd1.protective.com. 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 Net 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 Net 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. The Sub-Account value for a Contract may be
determined on any day by multiplying the number of Accumulation Units
attributable to the Contract in that Sub-Account by the Accumulation Unit value
for that Sub-Account on that day. (See "Determination of Accumulation Units" and
"Determination of Accumulation Unit Value").
DETERMINATION OF ACCUMULATION UNITS.
Net Purchase Payments allocated and Contract Value transferred to a
Sub-Account are converted into Accumulation Units. An Accumulation Unit is a
unit of measure used to calculate the value of a Sub-Account prior to the
Annuity Commencement Date. We determine the number of Accumulation Units 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. Net Purchase Payments allocated or amounts
transferred to a Sub-Account under a Contract increase the number of
Accumulation Units of that Sub-Account credited to the Contract. The Company
executes such allocations and transfers as of the end of the Valuation Period in
which it receives a Purchase Payment or Written Notice or other instruction
requesting a transfer.
Certain events reduce the number of Accumulation Units of a Sub-Account
credited to a Contract. The following events result in the cancellation of the
appropriate number of Accumulation Units of a Sub-Account:
- surrenders;
- partial surrenders;
- partial automatic withdrawals;
- transfer from a Sub-Account;
- payment of a death benefit claim;
- application of the Contract Value to an Annuity Option;
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- deduction of the annual contract maintenance fee; and
- deduction of a sales charge when a letter of intent is not fulfilled.
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. If the terms of a letter of intent are not satisfied, we will deduct the
Accumulation Units associated with any outstanding sales charge without notice
or instruction. Accumulation Units associated with the contract maintenance fee
are also deducted without notice or instruction.
DETERMINATION OF ACCUMULATION UNIT VALUE.
The Accumulation Unit value for each Sub-Account at the end of every
Valuation Day is the Accumulation Unit value at the end of the previous
Valuation Day times the net investment factor. The Sub-Account value for a
Contract may be determined on any day by multiplying the number of Accumulation
Units attributable to the Contract in that Sub-Account by the Accumulation Unit
value for that Sub-Account on that day.
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
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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 a 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, automated telephone
system or via the Internet at www.ipd1.protective.com. From time to time and at
our sole discretion, we may introduce additional methods for requesting
transfers or discontinue any method for making non-written requests for such
transfers. 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 or out of any account
within the Guaranteed Account. We reserve the right to modify, limit, suspend or
eliminate the transfer privileges (including acceptance of non-written
instructions) without prior notice for any Contract or class of Contracts at any
time for any reason. We also reserve the right to not honor transfers requested
by a third party holding a power of attorney from an Owner where that third
party requests transfers during a single Valuation Period on behalf of the
Owners of two or more Contracts.
DOLLAR COST AVERAGING.
Prior to the Annuity Commencement Date, you may instruct us by Written
Notice to systematically and automatically transfer, on a monthly or quarterly
basis, amounts from 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. 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.
You may make dollar cost averaging transfers on the 1st through the 28th day
of each month. In states where, upon cancellation during the right-to-cancel
period, we are required to return your Purchase Payment, we reserve the right to
delay commencement of dollar cost averaging transfers until the expiration of
the right-to-cancel period.
The DCA Fixed Accounts are available only for Net Purchase Payments
designated for dollar cost averaging. Net 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
Net Purchase Payment to that DCA Fixed Account. Where we agree, under current
administrative procedures, to allocate a Net 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
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first installment we receive. Any Net 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.
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 Net Purchase Payment allocated to the DCA Fixed Account divided by the
number of dollar cost averaging transfers to be made. Interest credited will be
transferred from the DCA Fixed Account after the last dollar cost averaging
transfer. We will process dollar cost averaging transfers until the earlier of
the following: (1) the designated number of transfers have been completed, (2)
the Owner instructs us by Written Notice to cancel the automatic transfers or
(3) the value of that DCA Fixed Account is $0.00. If you terminate transfers
from a DCA Fixed Account, we will transfer any amount remaining in that DCA
Fixed Account into your selected DCA destination Allocation Options. 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 dollar cost averaging upon 30 days' written
notice to the Owner.
PORTFOLIO REBALANCING.
Prior to the Annuity Commencement Date, you may instruct Protective Life by
Written Notice to periodically transfer your Variable Account value among
specified Sub-Accounts to achieve a particular percentage allocation of Variable
Account value among such Sub-Accounts ("portfolio rebalancing"). 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. We deem portfolio
rebalancing instructions from you that differ from your current Purchase Payment
allocation instructions to be a request to change your Purchase Payment
allocation.
You may elect portfolio rebalancing to occur on the 1st through 28th day of
a month on either a quarterly, semi-annual or annual basis. If you do not select
a day, transfers will occur on the same day of the month as your Contract
Anniversary, or on the 28th day of the month if your Contract Anniversary occurs
on the 29th, 30th or 31st day of the month. You may change or terminate
portfolio rebalancing by Written Notice, or by other non-written communication
methods acceptable for transfer requests. Upon the death of any Owner portfolio
rebalancing will continue until canceled by the Beneficiary(s).
There is no charge for portfolio rebalancing. Automatic transfers made to
facilitate portfolio rebalancing will not count toward the 12 transfers
permitted each Contract Year if Protective Life elects to limit transfers, or
the designated number of free transfers in any Contract Year if the Company
elects to charge for transfers in excess of that number in any Contract Year. We
reserve the right to discontinue portfolio rebalancing upon 30 days' written
notice to the Owner.
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SURRENDERS AND PARTIAL SURRENDERS
SURRENDER.
At any time before the Annuity Commencement Date, you may request a
surrender of your Contract for its surrender value. To surrender your Contract,
you must return the Contract to us and make your surrender request by Written
Notice. We will pay you the surrender value in a lump sum unless you request
payment under another payment option that we are making available at the time.
Partial and full surrenders from Contracts issued as tax sheltered annuities are
prohibited in certain circumstances. (See "Federal Tax Matters.") 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".) In accordance with SEC regulations, surrenders and
partial surrenders are payable within 7 calendar days of our receiving Written
Notice of your request.
SURRENDER VALUE.
The surrender value of your Contract is equal to the Contract Value minus
any applicable contract maintenance fee, outstanding sales charge and premium
tax. We will determine the surrender value as of the end of the Valuation Day on
which we receive your Written Notice requesting surrender and your Contract at
our administrative office.
PARTIAL SURRENDER.
At any time before the Annuity Commencement Date, you may request a partial
surrender of your Contract Value provided the Contract Value remaining after the
partial surrender is at least $5,000. You must request the partial surrender by
Written Notice. We will withdraw the amount requested from the Contract Value as
of the Valuation Period during which we receive Written Notice requesting the
partial surrender.
You may specify the amount of the partial surrender to be made from any
Allocation Option. If you do not so specify, or if the amount in the designated
account(s) is inadequate to comply with the request, the partial surrender will
be made from each Allocation Option based on the proportion that the value of
each Allocation Option bears to the total Contract Value.
A partial surrender may have federal income tax consequences. (See "Taxation
of Partial and Full Surrenders".)
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.
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RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS.
There are certain restrictions on surrenders and partial surrenders of
Contracts used as funding vehicles for Internal Revenue Code Section 403(b)
retirement plans. Section 403(b)(11) of the Internal Revenue Code restricts the
distribution under Section 403(b) annuity contracts of:
(i) contributions made pursuant to a salary reduction agreement
in years beginning after December 31, 1988;
(ii) earnings on those contributions; and
(iii) earnings after December 31, 1988 on amounts attributable to
salary reduction contributions held as of December 31, 1988.
Distributions of those amounts may only occur upon the death of the
employee, attainment of age 59 1/2, separation from service, disability, or
hardship. In addition, income attributable to salary reduction contributions may
not be distributed in the case of hardship.
In the case of certain Qualified Plans, federal tax law imposes restrictions
on the form and manner in which benefits may be paid. For example, spousal
consent may be needed in certain instances before a distribution may be made.
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 $5,000; or
(2) a Contract Value as of the previous Contract Anniversary equal to
$5,000.
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 $5,000 after the withdrawal, the transaction will not be
completed and the partial automatic withdrawal plan will terminate. Once partial
automatic withdrawals have terminated due to insufficient Contract Value, they
will not be automatically reinstated in the event that your Contract Value
should reach $5,000 again. 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 Net 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 Net 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 Net 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 Net Purchase Payments and transfers into the
Fixed Account is guaranteed for one year from the date the Net 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 Net 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 Net
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 and subject to regulatory approval, we may offer Fixed
Accounts or DCA Fixed Accounts with different interest guaranteed periods. We,
in our sole discretion, establish the interest rates for each account in the
Guaranteed Account. We will not declare a rate that is less than an 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) Net Purchase Payments allocated to the Guaranteed Account;
plus
(2) amounts transferred into the Guaranteed Account; plus
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(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; minus
(7) deduction of a sales charge when a letter of intent is not
fulfilled.
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. We will determine the death benefit 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.
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. 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 Section 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.
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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 0.75%, for total mortality and expense
risk and administration charges of 0.85%. (See "Charges and Deductions".) Once
you select an optional benefit package, you may not cancel or change the option.
If any Owner is not a natural person, we will treat references to the Owner as
references to the Annuitant for purposes of these benefit packages.
Refer to Appendix A for an example of the calculation of each death benefit.
ANNUAL RESET DEATH BENEFIT PACKAGE.
In most states, 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.
NURSING HOME CONFINEMENT/TERMINAL ILLNESS BENEFIT
In most states, we provide a Nursing Home Confinement/Terminal Illness
Benefit if you purchase an optional benefit package. If you request a full
surrender of your Contract under this benefit and meet either of the two
qualifying conditions stated below, we will pay you the greater of:
1) the Contract Value as of the end of the Valuation Period during which
we receive your written request for surrender, less any applicable
premium tax; or
2) your aggregate Purchase Payments less aggregate amounts previously
surrendered.
You may make a full surrender of the Contract under this benefit at any time
after the Effective Date if:
(1) you are first diagnosed as having a terminal illness by a
physician that is not related to you or the Annuitant; or,
(2) you enter, for a period of at least ninety (90) days, a
facility which is both licensed by the state and qualified as
a skilled nursing home facility under Medicare or Medicaid.
The term "terminal illness" means that you are diagnosed as having a
non-correctable medical condition that, with a reasonable degree of medical
certainty, will result in your death in less than 12 months. You must submit
written proof satisfactory to us of a terminal illness or nursing home
confinement. We reserve the right to require an examination by a physician of
our choice at our expense.
SUSPENSION OF BENEFITS
For a period of one year after any change of ownership involving a natural
person, you may surrender the Contract for the Contract Value.
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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
where permitted by the state of issue:
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
SALES CHARGE
We may deduct a sales charge from each Purchase Payment we accept to cover
the expenses associated with the sales and distribution of the Contracts. These
expenses include commissions, sales literature and other promotional activities.
If the sales charge is not sufficient to cover these costs we will pay them from
our general assets (which may include amounts derived from the mortality and
expense risk charge). We will retain as profit any aggregate sales charge we
collect in excess of the amount needed for commissions and promotional
activities.
The sales charge is a percentage of each Purchase Payment and is calculated
separately for each Purchase Payment by multiplying the Purchase Payment by the
applicable sales charge percentage. The sales charge will be deducted from the
Purchase Payment before we allocate the Net Purchase Payment to the Allocation
Options you selected. The maximum Purchase Payment we will accept without prior
approval by our administrative office is $1,000,000.
The sales charge percentage is based upon the greater of: 1) aggregate
Purchase Payments made under a contract; or, 2) the Contract Value plus the
Purchase Payment on the date we accept the Purchase Payment. The sales charge
percentage is determined according to the table below:
SALES CHARGE PERCENTAGES
<TABLE>
<CAPTION>
CONTRACT VALUE OR SALES
AGGREGATE PURCHASE PAYMENTS CHARGE PERCENTAGE
- --------------------------------------------------------------------------- -----------------
<S> <C>
Less than $50,000.......................................................... 5.50%
At least $50,000 but less than $100,000.................................... 4.50%
At least $100,000 but less than $250,000................................... 3.50%
At least $250,000 but less than $500,000................................... 2.50%
At least $500,000 but less than $1,000,000................................. 2.00%
At least $1,000,000 but less than $2,500,000............................... 1.00%
$2,500,000 or greater...................................................... 0.50%
</TABLE>
The sales charge will not be retroactively reduced for Purchase Payments we
have previously accepted. On certain sales to specific groups, sales charge
percentages may be reduced or waived.
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REDUCING YOUR SALES CHARGE
You may qualify for a reduced sales charge percentage shown on the table
above through our letter of intent program. We may modify, suspend or terminate
this program at any time. Our letter of intent program may not be available in
all states.
LETTER OF INTENT
A letter of intent is your agreement to make Purchase Payments of a
specified minimum aggregate amount within 13 months of your initial Purchase
Payment. If the amount committed in your letter of intent entitles you to a
reduced sales charge percentage, we will deduct sales charges on your Purchase
Payments during the 13 month period as if the total amount of Purchase Payments
to which you have committed had been paid in one lump sum. We will accept a
letter of intent only at the time you apply for a Contract. Once we have
accepted it, you may not modify or change a letter of intent.
If you do not make the aggregate Purchase Payments to which you committed in
your letter of intent within the 13 month period, we will deduct from your
Contract Value the difference between (1) the sales charges applicable to the
actual breakpoint you reached during the period, and (2) the total sales charge
you actually paid. If you exceed the aggregate Purchase Payments to which you
committed in your letter of intent within the 13 month period and reach a
breakpoint that would entitle you to a lower sales charge percentage, we will
only apply the lower percentage to the first Purchase Payment that reaches the
breakpoint and all subsequent Purchase Payments. We will not retroactively
reduce sales charges on previous Purchase Payments.
In the event that you make a full surrender of the Contract during the 13
month period, we will determine the aggregate Purchase Payments as of the time
of surrender. If you have not made Purchase Payments in the aggregate amount
committed in your letter of intent, we will deduct from your Contract Value the
difference between (1) the sales charge applicable to the actual breakpoint you
reached prior to surrender, and (2) the sales charge you actually paid.
WAIVER OF SALES CHARGES
We may waive sales charges 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 advisors of any of the Funds or their
affiliated companies (based upon the Owner's status at the time the Contract is
purchased) because no marketing expenses and sales commissions are associated
with such Contracts.
We may also reduce or waive sales charges for certain block transactions
that will create a net reduction in the costs we bear with respect to the
affected annuity contracts. If any such transaction applies to your Contract, we
will notify you of this fact in writing.
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 0.60% 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 0.75% 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 0.60% of
the average annual daily net assets of the Variable Account attributable to a
Contract.
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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."). We may incur a profit or a loss from this charge. Any
profit may be used to finance distribution expenses.
ADMINISTRATION CHARGES
We will deduct an administration charge equal, on an annual basis, to 0.10%
of the daily net asset value of the Variable Account attributable to such
Contracts. This deduction helps pay for expenses incurred in the administration
of the Contract and the Variable Account. We deduct the administration charge
only from the Variable Account value.
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, we would consider each
request to be one transfer, regardless of the number of Allocation Options
affected by the transfer in one day. We would deduct the fee from the amount
being transferred.
CONTRACT MAINTENANCE FEE
Prior to the Annuity Commencement Date, we deduct a contract maintenance fee
of $30 from the Contract Value on each Contract Anniversary, and on any day that
the Contract is surrendered other than the Contract Anniversary. We will deduct
the contract maintenance fee from the Allocation Options in the same proportion
as their values are to the Contract Value. We will waive the contract
maintenance fee in the event the Contract Value or the aggregate Purchase
Payments reduced by surrenders equals or exceeds $50,000 on the date we are to
deduct the contract maintenance fee.
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 receives 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.
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ANNUITIZATION
ANNUITY COMMENCEMENT DATE
On the Effective Date, the Annuity Commencement Date is the later of 1) the
oldest Owner's or Annuitant's 90th birthday or 2) the 10th Contract Anniversary.
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
1) the oldest Owner's or Annuitant's 90th birthday or 2) the 10th Contract
Anniversary unless approved by Protective Life. Annuity Commencement Dates that
occur or are scheduled to occur at an advanced age for the Annuitant (E.G., past
age 85), may in certain circumstances have adverse income tax consequences. (See
"Federal Income Tax Matters".) Distributions from Qualified Contracts may be
required before the Annuity Commencement Date.
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.
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.
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We determine the dollar amount of each variable income payment attributable
to each Sub-Account 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.
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.
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. You may not change your selection of Annuity Option less 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:
We will make payments 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 but fixed income payments under this option may not be surrendered.
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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, we will make payments 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 under Option B. 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 income payments under Option B are
being made regardless of whether fixed or variable income payments are
selected.
ADDITIONAL OPTION:
You may use the Contract Value, less applicable premium tax, to purchase any
annuity contract that we offer on the date you elect this option.
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 you selected have been paid, we will pay any remaining portion of
such benefits at least as fast as under the Annuity Option in effect 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. More detailed information about the calculation of
performance information appears in the Statement of Additional Information.
Yields, effective yields, and total returns for the Sub-Accounts are based
on the investment performance of the corresponding Funds. The Funds' performance
also reflects the Funds' expenses. Certain of the expenses of each Fund may be
reimbursed by the investment manager. (See the Prospectuses for the Funds.)
YIELDS
The yield of the Oppenheimer Money Fund Sub-Account refers to the annualized
income generated by an investment in the Sub-Account over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven day period over a 52 week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but when annualized the income earned by an investment in the
Sub-Account is assumed to be
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reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account (except the Oppenheimer Money Fund Sub-Account)
refers to the annualized income generated by an investment in the Sub-Account
over a specified 30 day or one-month period. The yield is calculated by assuming
that the income generated by the investment during that 30 day or one month
period is generated each period over a 12 month period and is shown as a
percentage of the investment.
TOTAL RETURNS
The 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 a period measured from the date the Sub-Account commenced
operations. Average annual total return refers to total return quotations that
are based on an average return over one, five and ten years since the inception
of the Sub-Account.
Certain Funds have been in existence prior to the investment by the
Sub-Accounts in such Funds. Protective Life may advertise the performance of the
Sub-Accounts that invest in these Funds for these prior periods. The performance
information of any period prior to the investments by the Sub-Accounts is
calculated as if the Sub-Account had invested in those Funds during those
periods, using current charges and expenses associated with the Contract.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which the quotations are provided. Average annual
total return information shows the average percentage change in the value of an
investment in the Sub-Account from the beginning date of the measuring period to
the end of that period. This standardized version of average annual total return
reflects all historical investment results, less all charges and deductions
(excluding any deductions for premium taxes).
When a Sub-Account has been in operation prior to the commencement of the
offering of the Contract described in this prospectus, Protective Life may
advertise the performance of the Sub-Accounts for these prior periods. The
Sub-Account performance information of any period prior to the commencement of
the offering of the Contract is calculated as if the Contract had been offered
during those periods, using current charges and expenses.
Until a Sub-Account (other than the Oppenheimer Money Fund Sub-Account) has
been in operation for 10 years, Protective Life will always include quotes of
standard average annual total return for the period measured from the date that
Sub-Account began operations. When a Sub-Account (other than the Oppenheimer
Money Fund Sub-Account) has been in operation for one, five and ten years,
respectively, the standard version average annual total return for these periods
will be provided.
NON-STANDARD AVERAGE ANNUAL TOTAL RETURNS
In addition to the standard version of average annual total return described
above, total return performance information computed on non-standard bases may
be used in advertisements or sales literature. Non-standard average annual total
return information may be presented, computed on the same basis as the standard
version except deductions will not include the sales charge or 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.
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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 periods described in "Standardized Average Annual Total
Returns," above, is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information.
PERFORMANCE COMPARISONS
Protective Life may, from time to time, advertise or include in sales
literature Sub-Account performance relative to certain performance rankings and
indices compiled by independent organizations. In advertising and sales
literature, the performance of each Sub-Account may be compared to the
performance of other variable annuity issuers in general or to the performance
of particular types of variable annuities investing in mutual funds, or
investment portfolios of mutual funds with investment objectives similar to each
of the Sub-Accounts. Lipper Analytical Services, Inc. ("Lipper"), the Variable
Annuity Research Data Service ("VARDS"), and Morningstar Inc. ("Morningstar")
are independent services which monitor and rank the performance of variable
annuity issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper and Morningstar rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS rankings compare only variable annuity
issuers. The performance analyses prepared by Lipper, Morningstar and VARDS each
rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption fees, or certain
expense deductions at the separate account level into consideration. In
addition, VARDS prepares risk adjusted rankings, which consider the effects of
market risk on total return performance. This type of ranking provides data as
to which funds provide the highest total return within various categories of
funds defined by the degree of risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Sub-Account to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as a source of performance comparison.
OTHER MATTERS
Protective Life may also report other information including the effect of
tax-deferred compounding on a Sub-Account's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts.
All income and capital gains derived from Sub-Account investments are
reinvested and can lead to substantial long-term accumulation of assets,
provided that the underlying Fund's investment experience is positive.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the Contract
is not exhaustive, does not purport to cover all situations, and is not intended
as tax advice. The federal income tax treatment of the Contract is unclear in
certain circumstances, and you should always consult a qualified tax adviser
regarding the application of law to individual circumstances. This discussion is
based on the Internal Revenue Code of 1986, as amended ("the Code"), Treasury
regulations, and interpretations
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existing on the date of this Prospectus. These authorities, however, are subject
to change by Congress, the Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences associated
with the purchase of the Contract. In addition, PROTECTIVE LIFE MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
Protective Life is taxed as a life insurance company under the Internal
Revenue Code. Since the operations of the Variable Account are a part of, and
are taxed with, the operations of the Company, the Variable Account is not
separately taxed as a "regulated investment company" under the Internal Revenue
Code. Under existing federal income tax laws, investment income and capital
gains of the Variable Account are not taxed to the extent they are applied under
a Contract. Protective Life does not anticipate that it will incur any federal
income tax liability attributable to such income and gains of the Variable
Account, and therefore does not intend to make provision for any such taxes. If
Protective Life is taxed on investment income or capital gains of the Variable
Account, then Protective Life may impose a charge against the Variable Account
in order to make provision for such taxes.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Internal Revenue Code, except as described
below, any increase in an Owner's Contract Value is generally not taxable to the
Owner until received, either in the form of annuity payments as contemplated by
the Contracts, or in some other form of distribution. However, this rule applies
only if:
(1) the investments of the Variable Account are "adequately diversified"
in accordance with Treasury Department regulations;
(2) the Company, rather than the Owner, is considered the owner of the
assets of the Variable Account for federal income tax purposes; and
(3) the Owner is an individual (or an individual is treated as the Owner
for tax purposes).
DIVERSIFICATION REQUIREMENTS.
The Internal Revenue Code and Treasury Department regulations prescribe the
manner in which the investments of a segregated asset account, such as the
Variable Account, are to be "adequately diversified." If the Variable Account
fails to comply with these diversification standards, the Contract will not be
treated as an annuity contract for federal income tax purposes and the Owner
would generally be taxable currently on the excess of the Contact Value over the
premiums paid for the Contact. Protective Life expects that the Variable
Account, through the Funds, will comply with the diversification requirements
prescribed by the Internal Revenue Code and Treasury Department regulations.
OWNERSHIP TREATMENT.
In certain circumstances, variable annuity contract owners may be considered
the owners, for federal income tax purposes, of the assets of a segregated asset
account, such as the Variable Account, used to support their contracts. In those
circumstances, income and gains from the segregated asset account would be
includable in the contract owners' gross income. The Internal Revenue Service
(the "IRS") has stated in published rulings that a variable contract owner will
be considered the owner of the assets of a segregated asset account if the owner
possesses incidents of ownership in those assets,
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such as the ability to exercise investment control over the assets. In addition,
the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that the IRS would issue guidance by way
of regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts [of a segregated asset account] without
being treated as owners of the underlying assets." As of the date of this
Prospectus the IRS has not issued any guidance.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the Owner of this Contract has the choice of more
investment options to which to allocate purchase payments and Variable Account
values, and may be able to transfer among investment options more frequently
than in such rulings. These differences could result in the Owner being treated
as the owner of the assets of the Variable Account and thus subject to current
taxation on the income and gains from those assets. In addition, the Company
does not know what standards will be set forth in the regulations or rulings
which the Treasury Department has stated it expects to issue. Protective Life
therefore reserves the right to modify the Contract as necessary to attempt to
prevent Contract Owners from being considered the owners of the assets of the
Variable Account. However, there is no assurance such efforts would be
successful.
NONNATURAL OWNER.
As a general rule, Contracts held by "nonnatural persons" such as a
corporation, trust or other similar entity, as opposed to a natural person, are
not treated as annuity contracts for federal tax purposes. The income on such
Contracts (as defined in the tax law) is taxed as ordinary income that is
received or accrued by the Owner of the Contract during the taxable year. There
are several exceptions to this general rule for nonnatural Owners. First,
Contracts will generally be treated as held by a natural person if the nominal
owner is a trust or other entity which holds the Contract as an agent for a
natural person. However, this special exception will not apply in the case of
any employer who is the nominal owner of a Contract under a non-qualified
deferred compensation arrangement for its employees.
In addition, exceptions to the general rule for nonnatural Owners will apply
with respect to:
(1) Contracts acquired by an estate of a decedent by reason of the death
of the decedent;
(2) certain Qualified Contracts;
(3) Contracts purchased by employers upon the termination of certain
Qualified Plans;
(4) certain Contracts used in connection with structured settlement
agreements; and
(5) Contracts purchased with a single purchase payment when the annuity
starting date is no later than a year from purchase of the Contract
and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period.
DELAYED ANNUITY COMMENCEMENT DATES.
If the Contract's Annuity Commencement Date occurs (or is scheduled to
occur) at a time when the Annuitant has reached an advanced age (E.G., past age
85), it is possible that the Contract would not be treated as an annuity for
federal income tax purposes. In that event, the income and gains under the
Contract could be currently includable in the Owner's income.
The remainder of this discussion assumes that the Contract will be treated
as an annuity contract for federal income tax purposes.
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TAXATION OF PARTIAL AND FULL SURRENDERS
In the case of a partial surrender, amounts you receive are generally
includable in income to the extent your Contract Value before the surrender
exceeds your "investment in the contract." Amounts received under a partial
automatic withdrawal plan are treated as partial surrenders. In the case of a
full surrender, amounts received are includable in income to the extent they
exceed the "investment in the contract." For these purposes, the investment in
the contract at any time equals the total of the Purchase Payments made under
the Contract to that time (to the extent such payments were neither deductible
when made nor excludable from income as, for example, in the case of certain
contributions to Qualified Contracts) less any amounts previously received from
the Contract which were not included in income. Partial and full surrenders may
be subject to a 10% penalty tax. (See "Penalty Tax on Premature Distributions.")
Partial and full surrenders may also be subject to federal income tax
withholding requirements. (See "Federal Income Tax Withholding.") In addition,
in the case of partial and full surrenders from certain Qualified Contracts,
mandatory withholding requirements may apply, unless a "direct rollover" of the
amount surrendered is made. (See "Direct Rollovers".)
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 equals 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) you allocate to the variable Annuity Option, adjusted
for any period certain or refund feature, when payments begin divided by the
number of payments expected (as 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 you allocate 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).
Once the total amount of the investment in the contract is excluded using
the above formulas, 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.
Annuity income payments may be subject to federal income tax withholding
requirements. (See "Federal Income Tax Income Withholding".) In addition, in the
case of annuity income payments from certain Qualified Plans, mandatory
withholding requirements may apply, unless a "direct rollover" of such annuity
payments is made. (See "Direct Rollovers".)
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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 we make to the Beneficiary for the remainder of that period are
includable in income as follows:
(1) if received in a lump sum, they are included in income to the extent
that they exceed the unrecovered investment in the contract at that
time; or
(2) if distributed in accordance with the existing Annuity Option
selected, they are fully excluded from income until the remaining
investment in the contract is deemed to be recovered, and all
annuity income payments thereafter are fully includable in income.
Proceeds payable on death may be subject to federal income tax withholding
requirements. (See "Federal Income Tax Withholding".) In addition, in the case
of such proceeds from certain Qualified Contracts, mandatory withholding
requirements may apply, unless a "direct rollover" of such proceeds is made.
(See "Direct Rollovers".)
ASSIGNMENTS, PLEDGES, AND GRATUITOUS TRANSFERS
Other than in the case of Qualified Contracts (which generally cannot be
assigned or pledged), any assignment or pledge of (or agreement to assign or
pledge) any portion of the Contract Value is treated for federal income tax
purposes as a surrender of such amount or portion. The investment in the
contract is increased by the amount includable as income with respect to such
assignment or pledge, though it is not affected by any other aspect of the
assignment or pledge (including its release). If an Owner transfers a Contract
without adequate consideration to a person other than the Owner's spouse (or to
a former spouse incident to divorce), the Owner will be taxed on the difference
between his or her Contract Value and the investment in the contract at the time
of transfer. In such case, the transferee's investment in the contract will be
increased to reflect the increase in the transferor's income.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
Where a Contract has not been issued in connection with a Qualified Plan,
there generally is a 10% penalty tax on the amount of any payment from the
Contract that is includable in income unless the payment is:
(a) received on or after the Owner reaches age 59 1/2;
(b) attributable to the Owner's becoming disabled (as defined in the tax
law);
(c) made on or after the death of the Owner or, if the Owner is not an
individual, on or after the death of the primary annuitant (as
defined in the tax law);
(d) made as a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
Owner or the joint lives (or joint life expectancies) of the Owner
and a designated beneficiary (as defined in the tax law); or
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(e) made under a Contract purchased with a single Purchase Payment when
the annuity starting date is no later than a year from purchase of
the Contract and substantially equal periodic payments are made, not
less frequently than annually, during the annuity period.
(Similar rules, discussed below, apply in the case of certain Qualified
Contracts.)
AGGREGATION OF CONTRACTS
In certain circumstances, the IRS may determine the amount of an annuity
income payment or a surrender from a Contract that is includable in income by
combining some or all of the annuity contracts a person owns that were not
issued in connection with Qualified Plans. For example, if a person purchases a
Contract offered by this Prospectus and also purchases at approximately the same
time an immediate annuity issued by Protective Life, the IRS may treat the two
contracts as one contract. In addition, if a person purchases two or more
deferred annuity contracts from the same insurance company (or its affiliates)
during any calendar year, all such contracts will be treated as one contract for
purposes of determining whether any payment that was 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 an annuity payment that is taxable and the amount which might be
subject to the 10% penalty tax described above.
LOSS OF INTEREST DEDUCTION WHERE CONTRACT IS HELD BY OR FOR THE BENEFIT OF
CERTAIN NONNATURAL PERSONS
In the case of Contracts issued after June 8, 1997 to a nonnatural taxpayer
(such as a corporation or a trust), or held for the benefit of such an entity,
recent changes in the tax law may result in a portion of otherwise deductible
interest no longer being deductible by the entity, regardless of whether the
interest relates to debt used to purchase or carry the Contract. However, this
interest deduction disallowance does not affect Contracts where the income on
such Contracts is treated as ordinary income that the Owner received or accrued
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 Internal Revenue
Code. Numerous special tax rules apply to the participants in Qualified Plans
and to Contracts used in connection with Qualified Plans. Therefore, we make no
attempt 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, for full
surrenders, partial automatic withdrawals, 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 you and/or your employer may make, and the tax deduction or exclusion that
you and/or your employer may claim for such contribution, are limited under
Qualified Plans and vary with the type of plan.
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If this Contract is used in connection with a Qualified Plan, the Owner and
Annuitant must be the same individual. Additionally, for Contracts issued in
connection with Qualified Plans subject to the Employee Retirement Income
Security Act ("ERISA"), the spouse or former spouse of the Owner will have
rights in the Contract. In such a case, the Owner may need the consent of the
spouse or former spouse to change annuity options, to elect a partial automatic
withdrawal option, or to make a partial or full surrender of the Contract.
In addition, special rules apply to the time at which distributions must
commence and the form in which the distributions must be paid. For example, the
length of any guarantee period may be limited in some circumstances to satisfy
certain minimum distribution requirements under the Internal Revenue Code.
Furthermore, failure to comply with minimum distribution requirements applicable
to Qualified Plans will result in the imposition of an excise tax. This excise
tax generally equals 50% of the amount by which a minimum required distribution
exceeds the actual distribution from the Qualified Plan. In the case of
Individual Retirement Accounts or Annuities ("IRAs"), distributions of minimum
amounts (as specified in the tax law) must generally commence by April 1 of the
calendar year following the calendar year in which the Owner attains age 70 1/2.
In the case of certain other Qualified Plans, distributions of such minimum
amounts must generally commence by the later of this date or April 1 of the
calendar year following the calendar year in which the employee retires.
There may be a 10% penalty tax on the taxable amount of payments from
certain Qualified Contracts. There are exceptions to this penalty tax which vary
depending on the type of Qualified Plan. In the case of an IRA, exceptions
provide that the penalty tax does not apply to a payment:
(a) received on or after the Owner reaches age 59 1/2;
(b) received on or after the Owner's death or because of the Owner's
disability (as defined in the tax law); or
(c) made as a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
Owner or for the joint lives (or joint life expectancies) of the
Owner and his designated beneficiary (as defined in the tax law).
These exceptions, as well as certain others not described herein, generally
apply to taxable distributions from other Qualified Plans (although, in the case
of plans qualified under sections 401 and 403, exception "c" above for
substantially equal periodic payments applies only if the Owner has separated
from service). In addition, the penalty tax does not apply to certain
distributions from IRAs taken after December 31, 1997 which are used for
qualified first time home purchases or for higher education expenses. You must
meet special conditions to be eligible for these two exceptions to the penalty
tax. Those wishing to take a distribution from an IRA for these purposes should
consult their tax advisor.
When issued in connection with a Qualified Plan, we will amend a Contract as
generally necessary to conform to the requirements of the plan. However, Owners,
Annuitants, and Beneficiaries are cautioned that the rights of any person to any
benefits under Qualified Plans may be subject to the terms and conditions of the
plans themselves, regardless of the terms and conditions of the Contract. In
addition, the Company shall not be bound by terms and conditions of Qualified
Plans to the extent such terms and conditions contradict the Contract, unless
the Company consents.
Following are brief descriptions of various types of Qualified Plans in
connection with which the Company may issue a Contract.
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES.
Section 408 of the Internal Revenue Code permits eligible individuals to
contribute to an individual retirement program known as IRAs. IRAs are subject
to limits on the amounts that may be contributed and deducted, the persons who
may be eligible and on the time when distributions may
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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.
However, you may not use the Contract in connection with an "Education IRA"
under Section 530 of the Internal Revenue Code, a "Simplified Employee Pension"
under Section 408(k) of the Internal Revenue Code, or a "Simple IRA" under
Section 408(p) of the Internal Revenue 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 Owners of
the Contract may purchase an optional benefit package which provides a death
benefit that in certain circumstances may exceed the greater of the Purchase
Payments and the Contract Value. It is possible that the death benefit could be
viewed as violating the prohibition on investment in life insurance contracts
with the result that the Contract would not be viewed as satisfying the
requirements of an IRA.
ROTH IRAS.
Section 408A of the Internal Revenue Code permits eligible individuals to
contribute to a type of IRA known as a "Roth IRA." Roth IRAs are generally
subject to the same rules as non-Roth IRAs, but differ in several respects.
Among the differences is that, although contributions to a Roth IRA are not
deductible, "qualified distributions" from a Roth IRA will be excludable from
income.
A qualified distribution is a distribution that satisfies two requirements.
First, the distribution must be made in a taxable year that is at least five
years after the first taxable year for which a contribution to any Roth IRA
established for the Owner was made. Second, the distribution must be either (1)
made after the Owner attains the age of 59 1/2; (2) made after the Owner's
death; (3) attributable to the Owner being disabled; (4) a qualified first-time
homebuyer distribution within the meaning of Section 72(t)(2)(F) of the Internal
Revenue Code. In addition, distributions from Roth IRAs need not commence when
the Owner attains age 70 1/2. A Roth IRA may not accept rollover contributions
from other qualified plans. The state tax treatment of a Roth IRA may differ
from federal tax treatment of a Roth IRA.
As described above (see "Individual Retirement Annuities"), there is some
uncertainty regarding the proper characterization of the Contract's optional
death benefits 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 Internal Revenue Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
Contract in order to provide benefits under the plans. If the Owner of the
Contract purchases an optional death benefit package, the death benefit in
certain circumstances may exceed the greater of the Purchase Payments and the
Contract Value. It is possible the IRS could characterize such a death benefit
as an incidental death benefit. There are limitations on the amount of
incidental benefits that may be provided under pension and profit sharing plans.
In addition, the provision of such benefits may result in currently taxable
income to participants. Employers intending to use the Contract in connection
with such plans should seek competent advice.
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SECTION 403(B) POLICIES.
Section 403(b) of the Internal Revenue Code permits public school employees
and employees of certain types of charitable, educational and scientific
organizations specified in Section 501(c)(3) of the Internal Revenue Code to
have their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. Purchasers of the Contracts for use as a "Section 403(b) Policy"
should seek competent advice as to eligibility, limitations on permissible
amounts of purchase payments and other tax consequences associated with such
Contracts. In particular, purchasers and their advisers should consider that the
optional benefit packages available under the Contract provide a death benefit
that in certain circumstances may exceed the greater of the Purchase Payments
and the Contract Value. It is possible the IRS could characterize the death
benefit as an incidental death benefit. If the death benefit were so
characterized, this could result in currently taxable income to purchasers. In
addition, there are limitations on the amount of incidental death benefits that
may be provided under a Section 403(b) Policy. Even if the IRS characterizes the
death benefit under the Contract as an incidental death benefit, the death
benefit is unlikely to violate those limits unless the purchaser also purchases
a life insurance contract as part of his or her Section 403(b) Policy.
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.)
Employers intending to use the Contract in connection with such plans should
seek competent advice.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS.
Section 457 of the Internal Revenue Code permits employees of state and
local governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. Generally, a Contract purchased by a
state or local government or a tax-exempt organization will not be treated as an
annuity contract for federal income tax purposes. The Contract will be issued in
connection with a Section 457 deferred compensation plan sponsored by a state or
local government only if the plan has established a trust to hold plan assets,
including the Contract. Those who intend to use the Contracts in connection with
such plans should seek competent advice.
DIRECT ROLLOVERS
If your Contract is used in connection with a pension, profit-sharing, or
annuity plan qualified under sections 401(a) or 403(a) of the 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
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plan under section 401(a) of the Internal Revenue 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, distributions which are part of a "series of
substantially equal periodic payments" made for life or a specified period of 10
years or more, or hardship distributions as defined in the tax law).
Under these requirements, federal income tax equal to 20% of the eligible
rollover distribution will be withheld from the amount of the distribution.
Unlike withholding on certain other amounts distributed from the Contract,
discussed below, you cannot elect out of withholding with respect to an eligible
rollover distribution. However, this 20% withholding will not apply if, instead
of receiving the eligible rollover distribution, you elect to have it directly
transferred to certain Qualified Plans. Prior to receiving an eligible rollover
distribution, you will receive a notice (from the plan administrator or the
Company) explaining generally the direct rollover and mandatory withholding
requirements and how to avoid the 20% withholding by electing a direct transfer.
FEDERAL INCOME TAX WITHHOLDING
Protective Life will withhold and remit to the federal government a part of
the taxable portion of each distribution made under a Contract unless the
distributee notifies Protective Life at or before the time of the distribution
that he or she elects not to have any amounts withheld. In certain
circumstances, Protective Life may be required to withhold tax. The withholding
rates applicable to the taxable portion of periodic annuity payments (other than
eligible rollover distributions) are the same as the withholding rates generally
applicable to payments of wages. In addition, a 10% withholding rate applies to
the taxable portion of non-periodic payments (including surrenders prior to the
Annuity Commencement Date) and conversions of, or rollovers from, non-Roth IRAs
to Roth IRAs. Regardless of whether you elect not to have federal income tax
withheld, you are still liable for payment of federal income tax on the taxable
portion of the payment. As discussed above, the withholding rate applicable to
eligible rollover distributions is 20%.
GENERAL MATTERS
THE CONTRACT
The Contract and its attachments, including the copy of your application and
any endorsements, riders and amendments, constitute the entire agreement between
you and us. All statements in the application shall be considered
representations and not warranties. The terms and provisions of this Contract
are to be interpreted in accordance with the Internal Revenue Code 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, we
determine that the information you furnished was not correct, we will adjust any
benefit under this Contract to that which would be payable based upon the
correct information. If we have underpaid a benefit because of the error, we
will make up the underpayment in a lump sum. If the error resulted in an
overpayment, we will deduct the amount of the overpayment from any current or
future payment due under the Contract. We will deduct up to the full amount of
any current or future payment until the overpayment has been fully repaid.
Underpayments and overpayments will bear interest at an annual effective
interest rate of 3% when permitted by the state of issue.
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INCONTESTABILITY
We will not contest the Contract.
NON-PARTICIPATION
The Contract is not eligible for dividends and will not participate in
Protective Life's surplus or profits.
ASSIGNMENT
You have the right to assign the Contract if it is a Non-Qualified Contract.
We do not assume responsibility for the assignment. Any claim made under an
assignment is subject to proof of the nature and extent of the assignee's
interest prior to payment by us. Assignments have federal income tax
consequences. (See "Assignments, Pledges and Gratuitous Transfers" in the
prospectus.)
NOTICE
All instructions and requests to change or assign the Contract must be in
writing in a form acceptable to us, signed by the Owner(s), and received at our
administrative office. The instruction, change or assignment will relate back to
and take effect on the date it was signed, except we will not be responsible for
following any instruction or making any change or assignment before we receive
it.
MODIFICATION
No one is authorized to modify or waive any term or provision of this
Contract unless we agree to the modification or waiver in writing and it is
signed by our President, Vice-President or Secretary. We reserve the right to
change or modify the provisions of this Contract to conform to any applicable
laws, rules or regulations issued by a government agency, or to assure continued
qualification of the Contract as an annuity contract under the Internal Revenue
Code. We will send you a copy of the endorsement that modifies the Contract, and
where required we will obtain all necessary approvals, including that of the
Owner(s).
REPORTS
At least annually prior to the Annuity Commencement Date, we will send to
you at the address contained in our records a report showing the current
Contract Value and any other information required by law.
SETTLEMENT
Benefits due under this Contract are payable from our administrative office.
You 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.
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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
We will offer the Contracts 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 the National Association of Securities
Dealers, Inc. The maximum commission Protective Life will pay is 4.5% 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
Computer hardware and software often denote the year using two digits rather
than four, for example, the year 1998 often is denoted by such hardware and
software as "98." It is probable that such hardware and software will
malfunction when calculations involving the year 2000 are attempted because the
hardware and/or software will interpret "00" as representing the year 1900
rather than the year 2000. This "Year 2000" issue potentially affects all
individuals and companies (including Protective Life, its customers, business
partners, suppliers, banks, custodians and administrators). The problem is most
prevalent in older mainframe systems, but personal computers and equipment
containing computer chips could also be affected.
Protective Life shares computer hardware and software with its parent, PLC.
PLC began work on the Year 2000 problem in 1995. At that time, PLC identified
and assessed PLC's critical mainframe systems, and prioritized the remediation
efforts that were to follow. During 1998 all other hardware
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and software, including non-information technology (non-IT) related hardware and
software, were included in the process. PLC's Year 2000 plan includes all
subsidiaries.
PLC estimates that Year 2000 remediation is complete for its mission
critical insurance administration and general administration systems. Personal
computer network hardware and software have been reviewed, with upgrades
implemented where necessary. A review of personal computer desktop software is
in progress, but not complete. All Year 2000 personal computer preparations are
expected to be completed by September 30, 1999. With respect to non-IT equipment
and processes, the assessment and remediation is progressing on schedule and all
known issues are expected to be remediated before December 31, 1999.
Future date tests are used to verify a system's ability to process
transactions dated up to and beyond January 1, 2000. Future date tests are
complete for PLC's mission-critical systems. A large portion of the testing has
been conducted by a contract programming staff dedicated full time to Year 2000
preparations. These resources have been part of PLC's Year 2000 project since
1995.
Integrated tests involve multiple system testing and are used to verify the
Year 2000 readiness of interfaces and connectivity across multiple systems. PLC
is using its mainframe computer to simulate a Year 2000 production environment
and to facilitate integrated testing. Integrated testing is materially complete
but will continue throughout 1999 as needed.
Business partners and suppliers that provide products or services critical
to PLC's operations are being reviewed and in some cases their Year 2000
preparations are being monitored by PLC. To date, no partners or suppliers have
reported that they expect to be unable to continue supplying products and
services after January 1, 2000. Monitoring and testing of critical partners and
suppliers will continue throughout 1999. Formal contingency plans are currently
being documented. These plans will be complete and approved by senior management
by September 30, 1999. These plans will augment PLC's existing disaster recovery
plans.
PLC cannot specifically identify all of the costs to develop and implement
its Year 2000 plan. The cost of new systems to replace non-compliant systems
have been capitalized in the ordinary course of business. Other costs have been
expensed as incurred. Through June 30, 1999, costs that have been specifically
identified as relating to the Year 2000 problem total $4.7 million, with an
additional $0.5 million estimated to be required to support continued testing
activity. PLC's Year 2000 efforts have not adversely affected its normal
procurement and development of information technology.
Although PLC believes that a process is in place to successfully address
Year 2000 issues, there can be no assurances that PLC's efforts will be
successful, that interactions with other service providers with Year 2000 issues
will not impair Protective Life's operations, or that the Year 2000 issue will
not otherwise adversely affect Protective Life.
Should some of PLC's systems not be available due to Year 2000 problems, in
a reasonably likely worst case scenario, Protective Life may experience
significant delays in its ability to perform certain functions, but does not
expect to be unable to perform critical functions or to otherwise conduct
business.
IMSA
Protective Life Insurance Company is a member of the Insurance Marketplace
Standards Association ("IMSA"), and as such may include the IMSA logo and
information about IMSA membership in its advertisements. Companies that belong
to IMSA subscribe to a set of ethical standards covering the various aspects of
sales and service for individually sold life insurance and annuities.
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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.
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 as of December 31, 1998 and 1997 and the related
statements of operations and changes in net assets for the years ended December
31, 1998 and 1997 as well as the Report of Independent Accountants are contained
in the Statement of Additional Information.
The audited consolidated balance sheets for Protective Life as of December
31, 1998 and 1997 and the related consolidated statements of income,
stockholder's equity, and cash flows for the three years in the period ended
December 31, 1998 and the related financial statement schedules as well as the
Report of Independent Accountants are contained in the Statement of Additional
Information.
51
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CALCULATION OF YIELDS AND TOTAL RETURNS.................................................................... 3
Oppenheimer Money Fund Sub-Account Yield................................................................. 3
Other Sub-Account Yields................................................................................. 4
Total Returns............................................................................................ 4
Effect of the Contract Maintenance Fee on Performance Data............................................... 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>
52
<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. These
Contract Values are hypothetical and are solely for the purpose of illustrating
death benefit calculations. The Contract Values presented are net of all
expenses and charges (except any charge for premium taxes), including Fund
expenses and Variable Account expenses and charges. This illustration does not
reflect historical investment results, nor does it predict or guarantee future
investment results. Actual results may be higher or lower.
<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.
A-1
<PAGE>
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.
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 (1.04(5)) equals $121,665.29; minus
Surrender of $25,000 times (1.04(2.75)) equals $27,847.21; plus Purchase
Payment of $80,000 times (1.04(0.25)) 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; or
(2) the Compound Death Benefit, of $174,606.35; or
(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
EARNED CONTRACT CONTRACT
DURING YEAR VALUE BEFORE VALUE AFTER
DATE AT 5% PAYMENT 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>
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B-2
<PAGE>
PLEASE TEAR OFF, COMPLETE AND RETURN THIS FORM TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. ADDRESS
THE FORM TO PROTECTIVE LIFE'S INVESTMENT PRODUCTS DIVISION, CUSTOMER SERVICE
CENTER AT THE ADDRESS SHOWN ON THE COVER.
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
THE PROTECTIVE ADVANTAGE-SM- VARIABLE ANNUITY.
- --------------------------------------------------------------------------------
Name Social Security No.
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, Zip
- --------------------------------------------------------------------------------
Daytime Telephone Number
