<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1999
FILE NO. 33-70984
FILE NO. 811-8108
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 8 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 11 /X/
PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
PROTECTIVE LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
(205) 879-9230
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
STEVE M. CALLAWAY, ESQUIRE
PROTECTIVE LIFE INSURANCE COMPANY
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA, 35223
(NAME AND ADDRESS OF AGENT FOR SERVICES)
COPY TO:
STEPHEN E. ROTH, ESQUIRE
SUTHERLAND, ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 383-0158
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IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485;
/X/ ON MAY 1, 1999 PURSUANT TO PARAGRAPH (B) OF RULE 485;
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A) OF RULE 485;
/ / ON MAY 1, 1999 PURSUANT TO PARAGRAPH (A)(I) OF RULE 485;
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(II) OF RULE 485;
/ / ON DATE PURSUANT TO PARAGRAPH (A)(II) OF RULE 485.
TITLE OF SECURITIES BEING REGISTERED: INTERESTS IN A SEPARATE
ACCOUNT ISSUED THROUGH VARIABLE ANNUITY CONTRACTS.
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<PAGE>
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE>
<TABLE>
<S> <C>
PROTECTIVE LIFE INSURANCE
[LOGO] COMPANY
PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
TELEPHONE: 1-800-866-3555
</TABLE>
This Prospectus describes the Protective Variable Annuity Contract, an
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, Calvert Variable Series,
Inc., and Van Eck Worldwide Insurance Trust. The Funds are:
<TABLE>
<S> <C> <C> <C>
PROTECTIVE INVESTMENT MFS-REGISTERED TRADEMARK- OPPENHEIMER VARIABLE ACCOUNT CALVERT VARIABLE SERIES,
COMPANY VARIABLE INSURANCE TRUST FUNDS INC.
INTERNATIONAL EQUITY FUND NEW DISCOVERY SERIES AGGRESSIVE GROWTH FUND/VA SOCIAL SMALL CAP GROWTH
SMALL CAP VALUE FUND EMERGING GROWTH SERIES GLOBAL SECURITIES FUND/VA PORTFOLIO
CAPITAL GROWTH FUND RESEARCH SERIES CAPITAL APPRECIATION FUND/VA SOCIAL BALANCED PORTFOLIO
CORE U.S. EQUITY FUND GROWTH WITH INCOME SERIES MAIN STREET GROWTH & VAN ECK WORLDWIDE INSURANCE
GROWTH AND INCOME FUND UTILITIES SERIES INCOME FUND/VA TRUST
GLOBAL INCOME FUND TOTAL RETURN SERIES HIGH INCOME FUND/VA WORLDWIDE HARD ASSETS FUND
MONEY FUND/VA WORLDWIDE REAL ESTATE FUND
STRATEGIC BOND FUND/VA
</TABLE>
The value of your Contract, except amounts you allocate to the Guaranteed
Account, will vary according to the investment performance of the Funds in which
the selected Sub-Accounts are invested. You bear the investment risk on amounts
you allocate to the Sub-Accounts.
This Prospectus sets forth basic information about the Contract and the
Variable Account that a prospective investor should know before investing.
Additional information about the Contract and the Variable Account is contained
in the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information is
dated the same date as this Prospectus and is incorporated herein by reference.
The Table of Contents for the Statement of Additional Information is on the last
page of this Prospectus. You may obtain a copy of the Statement of Additional
Information free of charge by writing or calling Protective Life at the address
or telephone number shown above. You may also obtain an electronic copy of the
Statement of Additional Information, as well as other material that we file
electronically and certain material incorporated by reference, at the SEC web
site (http://www.sec.gov).
PLEASE READ THIS PROSPECTUS CAREFULLY. INVESTORS SHOULD KEEP A COPY FOR
FUTURE REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS
FOR EACH OF THE FUNDS.
THE PROTECTIVE VARIABLE ANNUITY CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF,
OR GUARANTEED BY, ANY BANK OR FINANCIAL INSTITUTION. IT IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY, AND IT IS
SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS...................................... 3
EXPENSE TABLES................................... 4
Examples....................................... 6
SUMMARY.......................................... 8
The Contract................................... 8
Federal Tax Status............................. 11
CONDENSED FINANCIAL INFORMATION.................. 11
THE COMPANY, VARIABLE ACCOUNT AND FUNDS.......... 14
Protective Life Insurance Company.............. 14
Protective Variable Annuity Separate Account... 14
Administration................................. 14
The Funds...................................... 15
Protective Investment Company (PIC)............ 15
MFS-Registered Trademark- Variable Insurance
Trust-SM-.................................... 16
Oppenheimer Variable Account Funds ............ 16
Calvert Variable Series, Inc. ................. 17
Van Eck Worldwide Insurance Trust ............. 17
Other Investors in the Funds................... 18
Addition, Deletion or Substitution of
Investments.................................. 19
DESCRIPTION OF THE CONTRACT...................... 19
The Contract................................... 20
Parties to the Contract........................ 20
Issuance of a Contract......................... 21
Purchase Payments.............................. 21
Right to Cancel................................ 22
Allocation of Purchase Payments................ 22
Variable Account Value......................... 23
Transfers...................................... 24
Surrenders and Partial Surrenders.............. 26
THE GUARANTEED ACCOUNT........................... 28
DEATH BENEFIT.................................... 30
SUSPENSION OR DELAY IN PAYMENTS.................. 31
CHARGES AND DEDUCTIONS........................... 31
Surrender 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.................................... 33
Annuity Commencement Date...................... 33
Fixed Income Payments.......................... 34
Variable Income Payments....................... 34
Annuity Options................................ 35
Minimum Amounts................................ 36
Death of Annuitant or Owner After Annuity
Commencement Date............................ 36
YIELDS AND TOTAL RETURNS......................... 37
<CAPTION>
PAGE
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<S> <C>
Yields......................................... 37
Total Returns.................................. 37
Standardized Average Annual Total Returns...... 37
Non-Standard Average Annual Total Returns...... 38
Performance Comparisons........................ 38
Other Matters.................................. 39
FEDERAL TAX MATTERS.............................. 39
Introduction................................... 39
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......... 43
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....................... 44
In General..................................... 44
Direct Rollovers............................... 47
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..................................... 49
Receipt of Payment............................. 49
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........................ 50
IMSA............................................. 51
LEGAL PROCEEDINGS................................ 51
VOTING RIGHTS.................................... 51
FINANCIAL STATEMENTS............................. 52
STATEMENT OF ADDITIONAL INFORMATION TABLE OF
CONTENTS....................................... 53
APPENDIX A....................................... A-1
APPENDIX B....................................... B-1
APPENDIX C....................................... C-1
</TABLE>
2
<PAGE>
DEFINITIONS
"We", "us", "our", "Protective Life", and "Company" refer to Protective Life
Insurance Company. "You" and "your" refer to the person(s) who has been issued a
Contract.
ACCUMULATION UNIT: A unit of measure used to calculate the value of a
Sub-Account prior to the Annuity Commencement Date.
ALLOCATION OPTION: Any account to which you may allocate Purchase Payments
or transfer Contract Value under this Contract.
ANNUITY COMMENCEMENT DATE: The date as of which the Contract Value, less
applicable premium tax, is applied to an Annuity Option.
ANNUITY OPTION: The payout option under which the Company makes annuity
income payments.
ANNUITY UNIT: A unit of measure used to calculate the amount of the
variable income payments.
ASSUMED INVESTMENT RETURN: The assumed annual rate of return used to
calculate the amount of the variable income payments.
CONTRACT: The Protective Variable Annuity Contract.
CONTRACT ANNIVERSARY: The same month and day as the Effective Date in each
subsequent year of the Contract.
CONTRACT VALUE: Prior to the Annuity Commencement Date, the sum of the
Variable Account value and the Guaranteed Account value.
CONTRACT YEAR: Any period of 12 months commencing with the Effective Date
or any Contract Anniversary.
DCA: Dollar cost averaging.
DCA FIXED ACCOUNTS: The DCA Fixed Accounts are part of the Company's
general account and are not part of or dependent upon the investment performance
of the Variable Account.
EFFECTIVE DATE: The date as of which the initial Purchase Payment is
credited to the Contract and the date the Contract takes effect.
FIXED ACCOUNT: The Fixed Account is part of the Company's general account
and is not part of or dependent upon the investment performance of the Variable
Account.
FUND: Any investment portfolio in which a corresponding Sub-Account
invests.
GUARANTEED ACCOUNT: The Fixed Account, DCA Fixed Accounts, and any other
Allocation Option we may offer with interest rate guarantees.
PURCHASE PAYMENT: The amount(s) paid by the Owner and accepted by the
Company as consideration for this Contract.
QUALIFIED CONTRACTS: Contracts issued in connection with retirement plans
that receive favorable tax treatment under Sections 401, 403, 408, 408A or 457
of the Internal Revenue Code.
QUALIFIED PLANS: Retirement plans that receive favorable treatment under
Sections 401, 403, 408, 408A or 457 of the Internal Revenue Code.
SUB-ACCOUNT: A separate division of the Variable Account.
SURRENDER VALUE: The amount available for a full surrender. It is equal to
the Contract Value minus any applicable contract maintenance fee and premium
tax.
VALUATION DAY: Each day on which the New York Stock Exchange is open for
business.
VALUATION PERIOD: The period which begins at the close of regular trading
on the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the next Valuation Day.
VARIABLE ACCOUNT: The Protective Variable Annuity Separate Account, a
separate investment account of Protective Life.
WRITTEN NOTICE: A notice or request submitted in writing in a form
satisfactory to the Company that is received at the administrative office.
3
<PAGE>
EXPENSE TABLES
The following expense information assumes that the entire Contract Value is
Variable Account Value.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchase Payments......................................... None
Maximum Surrender Charge (contingent deferred sales charge) (as a % of amount
surrendered).................................................................... 7%
Transfer Processing Fee........................................................... None*
ANNUAL CONTRACT MAINTENANCE FEE..................................................... $35**
ANNUAL ACCOUNT EXPENSES (as a percentage of average Variable Account value)
Mortality and Expense Risk Charge................................................. 1.25%
Administration Charge............................................................. 0.15%
Total Account Expenses............................................................ 1.40%
</TABLE>
ANNUAL FUND EXPENSES
(after reimbursement and as percentage of average net assets)
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<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
(ADVISORY) EXPENSES AFTER FUND EXPENSES
FEES REIMBURSEMENT (AFTER REIMBURSEMENTS)
<S> <C> <C> <C>
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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%
</TABLE>
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* Protective Life reserves the right to charge a Transfer Fee in the future.
(See "Charges and Deductions".)
** The contract maintenance fee may not apply. (See "Charges and Deductions".)
4
<PAGE>
(1) The annual expenses listed for all of the PIC funds are net of certain
reimbursements by PIC's investment manager. (See "The Funds".) Absent the
reimbursements, total expenses for the period ended December 31, 1998 were:
CORE U.S. Equity Fund 0.85%, Small Cap Value Fund 0.89%, International
Equity Fund 1.39%, Growth and Income Fund 0.85%, Capital Growth Fund 0.86%,
and Global Income Fund 1.28%. PIC's investment manager has voluntarily
agreed to reimburse certain of each Fund's expenses in excess of its
management fees. Although this reimbursement may be ended on 120 days notice
to PIC, the investment manager has no present intention of doing so.
(2) MFS has agreed to bear expenses for these series, subject to reimbursement
by these series, such that each series' "Other Expenses" shall not exceed
0.25% of the average daily net assets of these series during the current
fiscal year. The payments made by MFS on behalf of each series under this
arrangement are subject to reimbursement by the series to MFS, which will be
accomplished by the payment of an expense reimbursement fee by the series to
MFS computed and paid monthly at a percentage of the series' average daily
net assets for its then current fiscal year, with a limitation that
immediately after such payment the series' "Other Expenses" will not exceed
the percentage set forth above for that series. The obligation of MFS to
bear a series' "Other Expenses" pursuant to this arrangement, and the
series' obligation to pay the reimbursement fee to MFS, terminates on the
earlier of the date on which payments made by the series equal the prior
payment of such reimbursement expenses by MFS, or December 31, 2004 (May 1,
2001, in the case of the New Discovery Series). MFS may, in its discretion,
terminate this arrangement at an earlier date, provided that the arrangement
will continue for each series until at least May 1, 2000, unless terminated
with the consent of the board of trustees which oversees the series. Absent
the reimbursements, total expenses for the New Discovery Series for the
period ended December 31, 1998 were 5.22%
(3) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent. Each Series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the Series' expenses. Expenses do not take
into account these expense reductions and are therefore higher than the
actual expenses of the Series.
(4) The figures have been restated to reflect the complete assessment of
transfer agency expenses (the addition of 0.01%) for the Calvert Social
Balanced Portfolio expected to be incurred in 1999. "Other Expenses" reflect
an indirect fee. Net fund operating expenses after reductions for fees paid
indirectly (again, restated for the Calvert Social Balanced) would be 0.86%
for Calvert Social Balanced, and 1.12% for Calvert Social Small Cap Growth.
(5) Van Eck Associates Corporation (the "Adviser") earned fees for investment
management and advisory services. The fee is based on an annual rate of 1%
of the average daily net assets. The Adviser agreed to waive its management
fees and assumes all expenses of the fund except interest, taxes, brokerage
commissions and extraordinary expenses for the period January 1, 1998 to
February 28, 1998. The Adviser also agreed to assume expenses exceeding 1%
of average daily net assets except interest, taxes, brokerage commissions
and extraordinary expenses for the period March 1, 1998 to December 31,
1998. For the year ended December 31, 1998, the Adviser assumed expenses in
the amount of $49,729. Certain of the officers and trustees of the Trust are
officers, directors or stockholders of the Adviser and Van Eck Securities
Corporation. As of December 31, 1998, the Adviser owned 39% of the
outstanding shares of beneficial interest of the Fund.
The above tables are intended to assist the owner in understanding the costs
and expenses that he or she will bear directly or indirectly. The tables reflect
the expenses for the Account and reflect the investment management fees and
other expenses and total expenses for each Fund for the period January 1, 1998
to December 31, 1998. For a more complete description of the various costs and
5
<PAGE>
expenses see "Charges and Deductions" and the prospectuses for each of the
Funds, which accompany this prospectus. In addition to the expenses listed
above, premium taxes currently varying from 0 to 3.5% may be applicable in
certain states.
EXAMPLES
An Owner would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets:
1. If the Contract is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
PIC International Equity............................................ $96 $130 $167 $290
PIC Small Cap Value................................................. 93 121 152 261
PIC Capital Growth.................................................. 93 121 152 261
PIC CORE U.S. Equity................................................ 93 121 152 261
PIC Growth and Income............................................... 93 121 152 261
PIC Global Income................................................... 96 130 167 290
MFS New Discovery................................................... 97 132 170 297
MFS Emerging Growth................................................. 94 122 154 266
MFS Research........................................................ 94 123 155 267
MFS Growth With Income.............................................. 94 123 156 269
MFS Utilities....................................................... 95 127 162 282
MFS Total Return.................................................... 94 124 157 272
Oppenheimer Aggressive Growth....................................... 92 118 147 251
Oppenheimer Global Securities....................................... 92 119 148 254
Oppenheimer Capital Appreciation.................................... 93 119 149 255
Oppenheimer Main Street Growth & Income............................. 93 121 151 260
Oppenheimer High Income............................................. 93 120 150 258
Oppenheimer Strategic Bond.......................................... 93 121 152 261
Oppenheimer Money Fund.............................................. 90 112 136 230
Calvert Social Small Cap Growth..................................... 98 137 178 313
Calvert Social Balanced............................................. 94 123 156 269
Van Eck Worldwide Hard Assets....................................... 97 132 170 296
Van Eck Worldwide Real Estate....................................... 94 124 156 270
</TABLE>
2. If the Contract is not surrendered or is annuitized at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PIC International Equity............................................ 26 80 137 290
PIC Small Cap Value................................................. 23 71 122 261
PIC Capital Growth.................................................. 23 71 122 261
PIC CORE U.S. Equity................................................ 23 71 122 261
PIC Growth and Income............................................... 23 71 122 261
PIC Global Income................................................... 26 80 137 290
MFS New Discovery................................................... 27 82 140 297
MFS Emerging Growth................................................. 24 72 124 266
MFS Research........................................................ 24 73 125 267
MFS Growth With Income.............................................. 24 73 126 269
MFS Utilities....................................................... 25 77 132 282
MFS Total Return.................................................... 24 74 127 272
Oppenheimer Aggressive Growth....................................... 22 68 117 251
Oppenheimer Global Securities....................................... 22 69 118 254
Oppenheimer Capital Appreciation.................................... 23 69 119 255
Oppenheimer Main Street Growth & Income............................. 23 71 121 260
Oppenheimer High Income............................................. 23 70 120 258
Oppenheimer Strategic Bond.......................................... 23 71 122 261
Oppenheimer Money Fund.............................................. 20 62 106 230
</TABLE>
6
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<TABLE>
<S> <C> <C> <C> <C>
Calvert Social Small Cap Growth..................................... 28 87 148 313
Calvert Social Balanced............................................. 24 73 126 269
Van Eck Worldwide Hard Assets....................................... 27 82 140 296
Van Eck Worldwide Real Estate....................................... 24 74 126 270
</TABLE>
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* The examples assume that no transfer fees or premium taxes have been
assessed. The examples assume that the contract maintenance fee is $35. The
contract maintenance fee reflected in the above examples are based on an
anticipated average Contract value of $52,603.26 for purposes of the
examples based on $1,000 investment.
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THESE SHOWN. THE 5%
ANNUAL RETURN ASSUMED IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED AMOUNT.
7
<PAGE>
SUMMARY
THE CONTRACT
<TABLE>
<S> <C>
WHAT IS THE PROTECTIVE VARIABLE The Protective Variable Annuity Contract is an
ANNUITY CONTRACT? individual flexible premium deferred variable and
fixed annuity contract issued by Protective Life. (See
"The Contract".)
HOW IS A CONTRACT ISSUED? Protective Life will issue the Contract when it
receives and accepts your complete application
information and an initial Purchase Payment. (See
"Issuance of a Contract".)
WHAT ARE THE PURCHASE PAYMENTS? The minimum amount which Protective Life will accept
as an initial Purchase Payment is $2,000. Subsequent
Purchase Payments may be made at any time except for
certain contracts issued in the State of Oregon. The
minimum subsequent Purchase Payment we will accept is
(1) $100 for Non-Qualified Contracts, and (2) $50 for
Qualified Contracts. The maximum aggregate Purchase
Payment(s) we will accept without prior administrative
office approval is $1,000,000. We reserve the right
not to accept any Purchase Payment. (See "Purchase
Payments".)
CAN I CANCEL THE CONTRACT? You have the right to return the Contract within a
certain number of days (which varies by state and is
never less than ten days) after you receive it. The
returned Contract will be treated as if it were never
issued. Protective Life will refund the Contract Value
in states where permitted. This amount may be more or
less than the Purchase Payments. Where required, we
will refund Purchase Payments. (See "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>
8
<PAGE>
<TABLE>
<S> <C>
IS THERE A DEATH BENEFIT? If any Owner dies prior to the Annuity Commencement
Date and while this Contract is in force, a death
benefit, less any applicable premium tax, will be
payable to the Beneficiary. The death benefit is
determined as of the end of the Valuation Period
during which we receive due proof of the Owner's
death. The death benefit will depend on the age of the
Owner on the date of death.
In general for Contracts issued after April 1996, if
an Owner dies on or before his or her 90th birthday,
the death benefit is the greater of: (1) the Contract
Value; or (2) aggregate Purchase Payments less
aggregate amounts surrendered and any associated
surrender charges; or (3) the maximum Anniversary
Value.
If the Owner dies after his or her 90th birthday, the
death benefit is the Contract Value.
Only one death benefit is payable under this Contract,
even though the Contract may, in some circumstances,
continue beyond the time of an Owner's death. (See
"Death Benefit".)
ARE THERE CHARGES AND DEDUCTIONS The following charges and deductions are made in
FROM MY CONTRACT? connection with the Contract:
SURRENDER CHARGES. Full or partial surrenders are subject to a surrender
charge. The surrender charge is equal to a specified
percentage (maximum 7%) of each Purchase Payment
surrendered. No surrender charge applies to Contract
Value in excess of the total of the Purchase Payments
(less prior partial surrenders of Purchase Payments).
Protective calculates the surrender charge using the
assumption that the Contract Value in excess of
aggregate Purchase Payments (less prior partial
surrenders of Purchase Payments) is surrendered before
any Purchase Payments and that Purchase Payments are
surrendered on a first-in-first-out basis. (See
"Surrender Charge.")
MORTALITY AND EXPENSE RISK We will deduct a mortality and expense risk charge to
CHARGE. compensate us for assuming certain mortality and
expense risks. The charge equals, on an annual basis,
1.25% of the average daily net assets of the Variable
Account value attributable to the Contracts. (See
"Mortality and Expense Risk Charge".)
ADMINISTRATION CHARGE. We will deduct an administration charge equal, on an
annual basis, to 0.15% of the average daily net assets
of the Variable Account value supporting the
Contracts. (See "Administration Charge".)
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
CONTRACT MAINTENANCE FEE. Prior to the Annuity Commencement Date we will deduct
a contract maintenance fee of $35 from the Variable
Account value on each Contract Anniversary, and on any
day that the Contract is surrendered if the surrender
occurs on any day other than the Contract Anniversary.
Under certain circumstances, we may waive this fee.
(See "Contract Maintenance Fee".)
TAXES. Some states impose premium taxes at rates currently
ranging up to 3.5%. If premium taxes apply to your
Contract, we will deduct them from the Purchase
Payment(s) when accepted or from the Contract Value
upon a full or partial surrender, death or
annuitization. The Company reserves the right to
impose a charge for other taxes attributable to the
Variable Account. (See "Charges and Deductions".)
INVESTMENT MANAGEMENT FEES AND The net assets of each Sub-Account of the Variable
OTHER EXPENSES OF THE FUNDS. Account will reflect the investment management fee the
corresponding Fund incurs as well as the other
operating expenses of that Fund. For each Fund, the
investment manager receives a daily fee for its
investment management services. The management fees
are based on the average daily net assets of the Fund.
(See "Fund Expenses" and the Funds' prospectuses.)
WHAT ANNUITY OPTIONS ARE AVAILABLE? Currently, we apply the Contract Value, less any
applicable premium tax and surrender charge, to an
Annuity Option on the Annuity Commencement Date,
unless you choose to receive the surrender value in a
lump sum. Annuity Options include: payments for a
fixed period, and life income with payments for a
guaranteed period. 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. (See
"Federal Tax Matters".) Contracts issued for these
qualified retirement plans are referred to as
Qualified Contracts, and these types of plans are
referred to as Qualified Plans.
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 effect the value of Sub-Accounts and may offer
different benefits from your Contract. To obtain more
information about these contracts and policies, you
may contact our administrative office in writing or by
telephone.
</TABLE>
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<PAGE>
FEDERAL TAX STATUS
Generally, a distribution from the Contract, which includes a full or
partial surrender or payment of a death benefit, will result in taxable income
if there has been an increase in the Contract Value. In certain circumstances, a
10% penalty tax may also apply. (See "Federal Tax Matters".)
CONDENSED FINANCIAL INFORMATION
The date of inception of each of the Sub-Accounts is as follows:
<TABLE>
<S> <C>
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 Fund)
Oppenheimer Main Street Growth & Income
(formerly Oppenheimer Growth & Income
Fund)
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 following Accumulation Unit values and Accumulation Units represent the
net assets of the Variable Account at December 31, 1994, 1995, 1996, 1997 and
1998. The Accumulation Unit values shown for each period are as of the date of
inception of their respective Sub-Accounts. You should read this information in
conjunction with the Variable Account's financial statements and the related
notes in the Statement of Additional Information.
11
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES*
(DECEMBER 31, (DECEMBER 31, (DECEMBER 31, (DECEMBER 31, (DECEMBER 31,
SUB-ACCOUNT 1994) 1995) 1996) 1997) 1998)
- ------------------------------------- ----------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
PIC International Equity............. 9.48 11.18 13.12 13.51 16.07
PIC Small Cap Value.................. 8.91 9.35 11.09 14.46 12.07
PIC Capital Growth................... -- 10.36 12.48 16.56 22.00
PIC CORE U.S. Equity................. 9.94 13.40 16.12 20.81 25.10
PIC Growth and Income................ 9.71 12.66 15.83 20.27 19.40
PIC Global Income Sub-Account........ 9.82 11.32 12.22 13.25 14.42
MFS New Discovery.................... -- -- -- -- 11.97
MFS Emerging Growth.................. -- -- -- 11.36 15.02
MFS Research......................... -- -- -- 10.89 13.24
MFS Growth With Income............... -- -- -- 11.40 13.75
MFS Utilities........................ -- -- -- -- 10.65
MFS Total Return..................... -- -- -- 11.10 12.29
Oppenheimer Aggressive Growth........ -- -- -- 10.97 12.16
Oppenheimer Global Securities........ -- -- -- -- 11.26
Oppenheimer Capital Appreciation..... -- -- -- 11.22 13.72
Oppenheimer Main Street Growth &
Income............................. -- -- -- 11.83 12.21
Oppenheimer High Income.............. -- -- -- -- 10.51
Oppenheimer Strategic Bond........... -- -- -- 10.33 10.47
Oppenheimer Money Fund (formerly the
PIC Money Market Sub-Account)...... 1.02 1.05 1.09 1.13 1.17
Calvert Social Small Cap Growth...... -- -- -- 11.04 10.22
Calvert Social Balanced.............. -- -- -- 11.14 12.77
Van Eck Worldwide Hard Assets........ -- -- -- -- 9.50
Van Eck Worldwide Real Estate........ -- -- -- -- 10.39
</TABLE>
- ------------
* Accumulation unit values are rounded to the nearest whole cent.
12
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION UNITS**
(DECEMBER 31, (DECEMBER 31, (DECEMBER 31, (DECEMBER 31, (DECEMBER 31,
SUB-ACCOUNT 1994) 1995) 1996) 1997) 1998)
- ------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
PIC International Equity............. 2,588,605 4,954,564 7,363,767 9,722,696 10,798,391
PIC Small Cap Value.................. 2,347,968 4,579,808 5,797,119 7,429,530 8,201,197
PIC Capital Growth................... -- 930,249 2,419,601 4,493,710 6,926,984
PIC CORE U.S. Equity................. 1,682,927 4,128,798 6,300,382 8,495,067 10,415,387
PIC Growth and Income................ 4,260,743 10,012,351 13,291,398 17,539,696 19,909,590
PIC Global Income.................... 1,457,712 2,438,238 3,081,317 3,677,919 4,330,727
MFS New Discovery.................... -- -- -- -- --
MFS Emerging Growth.................. -- -- -- 292,318 1,102,153
MFS Research......................... -- -- -- 577,212 1,987,679
MFS Growth With Income............... -- -- -- 234,240 1,409,735
MFS Utilities........................ -- -- -- -- --
MFS Total Return..................... -- -- -- 157,430 1,060,293
Oppenheimer Aggressive Growth........ -- -- -- 238,172 931,933
Oppenheimer Global Securities........ -- -- -- -- --
Oppenheimer Capital Appreciation..... -- -- -- 321,669 1,167,782
Oppenheimer Main Street Growth &
Income............................. -- -- -- 247,774 1,644,982
Oppenheimer High Income.............. -- -- -- -- --
Oppenheimer Strategic Bond........... -- -- -- 284,169 1,524,677
Oppenheimer Money Fund (formerly the
PIC Money Market Sub-Account)...... 3,034,056 4,273,270 5,577,080 3,151,349 4,526,291
Calvert Social Small Cap Growth...... -- -- -- 12,376 53,800
Calvert Social Balanced.............. -- -- -- 94,365 481,687
Van Eck Worldwide Hard Assets........ -- -- -- -- --
Van Eck Worldwide Real Estate........ -- -- -- -- --
</TABLE>
- ------------
** Accumulation units are rounded to the nearest unit.
13
<PAGE>
THE COMPANY, VARIABLE ACCOUNT AND FUNDS
PROTECTIVE LIFE 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, also called the Variable
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 Money; Oppenheimer Strategic Bond;
Calvert Social Small Cap Growth; Calvert Social Balanced; Van Eck Worldwide Hard
Assets; and Van Eck Worldwide Real Estate. Each Sub-Account invests in shares of
a corresponding Fund. Therefore, the investment experience of your Contract
depends on the experience of the Sub-Accounts that you select. Other contracts
issued by Protective Life may offer some or all of the Sub-Accounts of the
Variable Account.
ADMINISTRATION
Protective Life Insurance Company performs the Contract administration at
its administrative office at 2801 Highway 280 South, Birmingham, Alabama 35223.
Contract administration includes processing applications for the Contracts and
subsequent Owner requests; processing Purchase Payments, transfers, surrenders
and death benefit claims as well as performing record maintenance and disbursing
annuity income payments.
14
<PAGE>
THE FUNDS
Each Sub-Account invests in a corresponding Fund. Each Fund is an investment
portfolio of one of the following investment companies: Protective Investment
Company managed by Protective Investment Advisors, Inc. (formerly Investment
Distributors Advisory Services, Inc.), and subadvised by Goldman Sachs Asset
Management or Goldman Sachs Asset Management International; Oppenheimer Variable
Account Funds managed by OppenheimerFunds, Inc.; MFS-Registered Trademark-
Variable Insurance Trust-SM- managed by MFS Investment Management; Calvert
Variable Series, Inc. managed by Calvert Asset Management Company, Inc.; or Van
Eck Worldwide Insurance Trust managed by Van Eck Associates Corporation. Shares
of these Funds are offered only to:
(1) the Variable Account,
(2) other separate accounts of Protective Life and its affiliates
supporting variable annuity contracts or variable life insurance policies,
(3) separate accounts of other life insurance companies supporting
variable annuity contracts or variable life insurance policies, and
(4) certain qualified retirement plans.
Such shares are not offered directly to investors but are available only
through the purchase of such contracts or policies or through such plans. See
the prospectus for each Fund for details about that Fund.
There is no guarantee that any Fund will meet its investment objectives.
Please refer to the prospectus for each of the Funds you are considering for
more information.
PROTECTIVE INVESTMENT COMPANY (PIC)
INTERNATIONAL EQUITY FUND.
This Fund seeks long-term capital appreciation. This Fund will pursue its
objectives by investing substantially all, and at least 65%, of total assets in
equity and equity-related securities of companies that are organized outside the
United States or whose securities are primarily traded outside the United
States.
SMALL CAP VALUE FUND.
This Fund seeks long-term capital growth. This Fund will pursue its
objectives by investing, under normal circumstances, at least 65% of its total
assets in equity securities of companies with public stock market
capitalizations of $1 billion or less at the time of investment.
CAPITAL GROWTH FUND.
This Fund seeks long-term capital growth. The Fund will pursue its objective
by investing, under normal circumstances, at least 90% of its total assets in a
diversified portfolio of equity securities having long-term capital appreciation
potential.
CORE U.S. EQUITY FUND.
This Fund seeks a total return consisting of capital appreciation plus
dividend income. This Fund will pursue its objectives by investing, under normal
circumstances, at least 90% of its total assets in equity securities selected
using both fundamental research and a variety of quantitative techniques in
seeking to maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the S&P 500 Index.
15
<PAGE>
GROWTH AND INCOME FUND.
This Fund seeks long-term growth of capital and growth of income. This Fund
will pursue its objectives by investing, under normal circumstances, at least
65% of its total assets in equity securities having favorable prospects of
capital appreciation and/or dividend paying ability.
GLOBAL INCOME FUND.
This Fund seeks high total return, emphasizing current income and, to a
lesser extent, providing opportunities for capital appreciation. This Fund will
pursue its objectives by investing primarily in high quality fixed-income
securities of U.S. and foreign issuers and through foreign currency
transactions.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
NEW DISCOVERY SERIES.
This Fund seeks to provide capital appreciation.
EMERGING GROWTH SERIES.
This Fund seeks to provide long-term growth of capital.
RESEARCH SERIES.
This Fund seeks to provide long-term growth of capital and future income.
GROWTH WITH INCOME SERIES.
This Fund seeks to provide reasonable current income and long-term growth of
capital and income.
UTILITIES SERIES.
This Fund seeks to provide capital growth and current income (income above
that available from a portfolio invested entirely in equity securities).
TOTAL RETURN SERIES.
This Fund seeks primarily to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital and secondarily to provide a reasonable opportunity for
growth of capital and income.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
AGGRESSIVE GROWTH FUND/VA.
This Fund seeks to achieve long-term capital appreciation by investing in
"growth-type" companies.
GLOBAL SECURITIES FUND/VA.
This Fund seeks long-term capital appreciation by investing in securities of
foreign issuers, "growth-type" companies and cyclical industries.
CAPITAL APPRECIATION FUND/VA.
This Fund seeks to achieve long-term capital appreciation by investing in
securities of well-known established companies.
16
<PAGE>
MAIN STREET GROWTH & INCOME FUND/VA.
This Fund seeks a high total return (which includes growth in the value of
its shares as well as current income) from equity and debt securities. From time
to time this Fund may focus on small to medium capitalization common stocks,
bonds and convertible securities.
HIGH INCOME FUND/VA.
This Fund seeks a high level of current income from investment in high yield
fixed-income securities.
MONEY FUND/VA.
The Fund seeks maximum current income from investments in "money market"
securities consistent with low capital risk and the maintenance of liquidity. An
investment in the Money Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
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.
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
exploration, development, production or distribution of (together "Hard
Assets"):
(i) precious metals;
(ii) natural resources;
(iii) real estate; and
(iv) commodities.
WORLDWIDE REAL ESTATE FUND.
This Fund seeks a high total return by investing in equity securities of
companies that own significant real estate or that principally do business in
real estate.
17
<PAGE>
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED. MORE DETAILED INFORMATION CONCERNING THE INVESTMENT
OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUNDS, THE EXPENSES OF THE FUNDS,
THE RISKS ATTENDANT TO INVESTING IN THE FUNDS AND OTHER ASPECTS OF THEIR
OPERATIONS CAN BE FOUND IN THE CURRENT PROSPECTUSES FOR THE FUNDS, WHICH
ACCOMPANY THIS PROSPECTUS, AND THE CURRENT STATEMENT OF ADDITIONAL INFORMATION
FOR EACH OF THE FUNDS. YOU SHOULD READ THE FUNDS' PROSPECTUSES CAREFULLY BEFORE
MAKING ANY DECISION CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS OR TRANSFERS
AMONG THE SUB-ACCOUNTS.
Certain Funds may have investment objectives and policies similar to other
mutual funds (sometimes having similar names) that are managed by the same
investment adviser or manager. The investment results of the Funds, however, may
be more or less favorable than the results of such other mutual funds.
Protective Life does not guarantee or make any representation that the
investment results of any Fund is, or will be, comparable to any other mutual
fund, even one with the same investment adviser or manager.
Each Fund sells its shares to the Variable Account in accordance with the
terms of a participation agreement between the appropriate investment company
and Protective Life. The termination provisions of these agreements vary. Should
a participation agreement relating to a Fund terminate, the Variable Account may
not be able to purchase additional shares of that Fund. In that event, Owners
may no longer be able to allocate Variable Account value or Purchase Payments to
Sub-Accounts investing in that Fund. In certain circumstances, it is also
possible that a Fund may refuse to sell its shares to the Variable Account
despite the fact that the participation agreement relating to that Fund has not
been terminated. Should a Fund decide to discontinue selling its shares to the
Variable Account, Protective Life would not be able to honor requests from
Owners to allocate Purchase Payments or transfer Account Value to the
Sub-Account investing in shares of that Fund.
Protective Life has entered into agreements with the investment managers or
advisers of the Funds pursuant to which each such investment manager or adviser
pays Protective Life a servicing fee based upon an annual percentage of the
average daily net assets invested by the Variable Account (and other separate
accounts of Protective Life and its affiliates) in the Funds managed by that
manager or adviser. These fees are in consideration for administrative services
provided to the Funds by Protective Life and its affiliates. Payments of fees
under these agreements by managers or advisers do not increase the fees or
expenses paid by the Funds or their shareholders.
OTHER INVESTORS IN THE FUNDS
PIC currently sells shares of its Funds only to Protective Life as the
underlying investment for the Variable Account as well as for variable life
insurance policies 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 Insurance Company. PIC may in
the future sell shares of its Funds to other separate accounts of Protective
Life or its life insurance company affiliates supporting other variable annuity
contracts or variable life insurance policies. In addition, upon obtaining
regulatory approval, PIC may sell shares to certain retirement plans qualifying
under Section 401 of the Internal Revenue Code of 1986. Protective Life
currently does not foresee any disadvantages to Owners that would arise from the
possible sale of shares to support its variable annuity 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
18
<PAGE>
protects Owners, it will take appropriate action on its own, including
withdrawing the Account's investment in the Fund. (See the PIC Prospectus for
more detail.)
Shares of the MFS-Registered Trademark- Variable Insurance Trust-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 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. We may make any new Sub-Accounts available to existing
Owner(s) on a basis we determine.
If we make any of these substitutions or changes, Protective Life may by
appropriate endorsement change the Contract to reflect the substitution or other
change. If Protective Life deems it to be in the best interest of Owner(s) and
Annuitants, and subject to any approvals that applicable law may require, we may
operate the Variable Account as a management company under the 1940 Act, we may
de-register it under that Act if registration is no longer required, or we may
combine it with other Protective Life separate accounts. Protective Life
reserves the right to make any changes to the Variable Account that the 1940 Act
or other applicable law or regulation requires.
DESCRIPTION OF THE CONTRACT
The following sections describe the Contracts currently being offered.
Contracts with an Effective Date prior to May 1, 1996 and Contracts issued in
certain states after May 1, 1996 contain provisions that may differ from those
described below. In particular, death benefit and certain Section 403(b)
19
<PAGE>
provisions may be different in Contracts with an Effective Date prior to May 1,
1996. Refer to Appendix B for these provisions. Contracts with an Effective Date
prior to May 1, 1999 also differ from those described below with respect to DCA
Accounts. Refer to Appendix C for these provisions.
THE CONTRACT
The Protective Variable Annuity Contract is an individual flexible premium
deferred variable and fixed annuity contract Protective Life issues upon
receiving complete application information and an initial Purchase Payment. (See
"Purchase Payments.")
You may purchase the Contract on a non-qualified basis. You may also
purchase it for use with certain qualified retirement plans that receive special
federal income tax treatment under the Internal Revenue Code, such as pension
and profit sharing plans (including H.R. 10 Plans), tax sheltered annuity plans,
individual retirement accounts, and individual retirement annuities.
You may wish to consult a qualified tax and/or financial adviser regarding
the use of the Contract within a Qualified Plan or in connection with other
employee benefit plans or arrangements that receive favorable tax treatment,
since many such plans or arrangements provide the same type of tax deferral as
provided by the Contract. The Contract provides a number of extra benefits and
features not provided by employee benefit plans or arrangements alone, although
there are costs and expenses under the Contract related to these benefits and
features. You should carefully consider these benefits and features in relation
to their costs as they apply to your particular situation.
PARTIES TO THE CONTRACT
OWNER.
The Owner is the person or persons who own the Contract and are entitled to
exercise all rights and privileges provided in the Contract. Two persons may own
the Contract together; they are designated as the Owner and the Joint Owner. In
the case of Joint Owners, provisions relating to action by the Owner mean both
Joint Owners acting together. Individuals as well as nonnatural persons, such as
corporations or trusts, may be Owners. The Company will only issue a Contract
prior to each Owner's 85th birthday. In certain states, more restrictive age
conditions may apply.
An Owner or Joint Owner may transfer the Contract to a new Owner or Owners
by Written Notice to us. The maximum age for new Owners on the date we receive
notice of a transfer is 85. 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.
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.
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ANNUITANT.
The Annuitant is the person on whose life annuity income payments may be
based. The Owner is the Annuitant unless the Owner designates another person as
the Annuitant. If the Annuitant is not an Owner and dies prior to the Annuity
Commencement Date, the Owner will become the new Annuitant unless the Owner
designates otherwise.
The Owner may change the Annuitant by Written Notice prior to the Annuity
Commencement Date. However, if any Owner is not an individual the Annuitant may
not be changed.
PAYEE.
The Payee is the person or persons designated by the Owner to receive the
annuity income payments under the Contract. The Annuitant is the Payee unless
the Owner designates another party as the Payee. The Owner may change the Payee
at any time.
ISSUANCE OF A CONTRACT
To purchase a Contract, you must submit certain application information and
an initial Purchase Payment to Protective Life through a licensed representative
of Protective Life, who is also a registered representative of a broker-dealer
having a distribution agreement with Investment Distributors, Inc. The minimum
initial Purchase Payment is $2,000. Protective Life reserves the right to accept
or decline a request to issue a Contract. Contracts may be sold to or in
connection with retirement plans which do not qualify for special tax treatment
as well as retirement plans that qualify for special tax treatment under the
Internal Revenue Code.
If the necessary application information for a Contract accompanies the
initial Purchase Payment, we will allocate the initial Purchase Payment (less
any applicable premium tax) to the Allocation Option you direct in the
application within two business days of receiving such Purchase Payment at the
administrative office. If we do not receive the necessary application
information, Protective Life will retain the Purchase Payment for up to five
business days while it attempts to complete we will allocate 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 unless the applicant specifically consents to
Protective Life retaining it until the information is complete. Once the
information is complete, we will allocate the initial Purchase Payment to the
appropriate Allocation Options within two business days.
Information necessary to complete an application may be transmitted to the
Company by telephone, facsimile, or electronic media.
PURCHASE PAYMENTS
The Company will only accept Purchase Payments prior to the earlier of the
oldest Owner's 85th birthday, or the Annuitant's 85th birthday. Protective Life
may accept subsequent Purchase Payments except on Contracts issued in the State
of Oregon prior to May 1, 1996 where only a single Purchase Payment is
acceptable. The minimum subsequent Purchase Payment we will accept is $100 for
Non-Qualified Contracts and $50 for Qualified Contracts. 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 Payment that can be made without prior administrative
office approval. This amount is currently $1,000,000.
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Under the current automatic purchase payment plan, you may select a monthly
or quarterly payment schedule pursuant to which Purchase Payments will be
automatically deducted from a bank account. We currently accept Automatic
Purchase Payments on the 1st through the 28th day of each month. Each automatic
purchase payment must be at least $100. You may not allocate payments made
through the Automatic Purchase Payment plan to any DCA Fixed Account. 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".)
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 prepaid. We will treat the returned
Contract as if it had never been issued. Where permitted, Protective Life will
refund the Contract Value plus any fees deducted from either Purchase Payments
or Contract Value. This amount may be more or less than the aggregate amount of
your Purchase Payments up to that time. Where required, we will refund the
Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
We will allocate your Purchase Payment among the Allocation Options you have
selected at the next price determined after we receive your Purchase Payment.
Owners must indicate in the application how their initial and subsequent
Purchase Payments are to be allocated among the Allocation Options. If such
instructions are indicated by percentages, whole percentages must be used.
Subsequent Purchase Payments made through the automatic purchase payment plan
may not be allocated to any DCA Fixed Account.
For Individual Retirement Annuities and Contracts issued in states where,
upon cancellation during the right-to-cancel period, we return at least your
Purchase Payments, we reserve the right to allocate your initial Purchase
Payment (and any subsequent Purchase Payment made during the 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 administrative office. Thereafter, all Purchase Payments will
be allocated according to your allocation instructions then in effect.
Owners may change allocation instructions by Written Notice at any time.
Owners may also change instructions by telephone, facsimile transmission or
automated telephone system. From time to time and at our sole discretion we may
introduce additional methods for changing these instructions or discontinue any
method of making non-written requests for changes. For non-written instructions
regarding allocations, we will require a form of personal identification prior
to acting on instructions and we will record any telephone voice instructions.
If we follow these procedures, we will not be liable for any losses due to
unauthorized or fraudulent instructions. The Company reserves the right to limit
or eliminate any of these non-written communication methods for any Contract or
class of Contracts at any time for any reason.
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VARIABLE ACCOUNT VALUE
SUB-ACCOUNT VALUE.
A Contract's Variable Account value at any time is the sum of the
Sub-Account values and therefore reflects the investment experience of the
Sub-Accounts to which it is allocated. There is no guaranteed minimum Variable
Account value. The Sub-Account value for any Sub-Account as of the Effective
Date is equal to the amount of the initial Purchase Payment allocated to that
Sub-Account. On subsequent Valuation Days prior to the Annuity Commencement
Date, the Sub-Account value is equal to that part of any Purchase Payment
allocated to the Sub-Account and any Contract Value transferred to the
Sub-Account, adjusted by income, dividends, net capital gains or losses
(realized or unrealized), decreased by partial surrenders (including any
applicable surrender charges and premium tax), Contract Value transferred out of
the Sub-Account and fees deducted from the Sub-Account.
DETERMINATION OF ACCUMULATION UNITS.
Purchase Payments allocated to and Contract Value transferred to a
Sub-Account are converted into Accumulation Units. An Accumulation Unit is a
unit of measure used to calculate the value of a Sub-Account prior to the
Annuity Commencement Date. The number of Accumulation Units is determined by
dividing the dollar amount directed to the Sub-Account by the value of the
Accumulation Unit for that Sub-Account for the Valuation Day as of which the
allocation or transfer occurs. Purchase Payments allocated to or amounts
transferred to a Sub-Account under a Contract increase the number of
Accumulation Units of that Sub-Account credited to the Contract. The Company
executes such allocations and transfers as of the end of the Valuation Period in
which it receives a Purchase Payment or Written Notice or other instruction
requesting a transfer.
Certain events reduce the number of Accumulation Units of a Sub-Account
credited to a Contract. The following events result in the cancellation of the
appropriate number of Accumulation Units of a Sub-Account:
- surrenders and applicable surrender charges;
- partial surrenders and applicable surrender charges;
- systematic withdrawals;
- transfer from a Sub-Account;
- payment of a death benefit claim;
- application of the Contract Value to an Annuity Option; and
- deduction of the annual contract maintenance fee.
Accumulation Units are canceled as of the end of the Valuation Period in which
the Company receives Written Notice of or other instructions regarding the
event.
DETERMINATION OF ACCUMULATION UNIT VALUE.
The Accumulation Unit value for each Sub-Account at the end of every
Valuation Day is the Accumulation Unit value at the end of the previous
Valuation Day times the net investment factor. The Sub-Account value for a
Contract may be determined on any day by multiplying the number of Accumulation
Units attributable to the Contract in that Sub-Account by the Accumulation Unit
value for that Sub-Account on that day.
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NET INVESTMENT FACTOR.
The net investment factor measures the investment performance of a
Sub-Account from one Valuation Period to the next. For each Sub-Account, the net
investment factor reflects the investment performance of the Fund in which the
Sub-Account invests and the charges assessed against that Sub-Account for a
Valuation Period. Each Sub-Account has a net investment factor for each
Valuation Period which may be greater or less than one. Therefore, the value of
an Accumulation Unit may increase or decrease. The net investment factor for any
Sub-Account for any Valuation Period is determined by dividing (1) by (2) and
subtracting (3) from the result, where:
(1) is the result of:
a. the net asset value per share of the Fund held in the
Sub-Account, determined at the end of the current
Valuation Period; plus
b. the per share amount of any dividend or capital gain
distributions made by the Fund to the Sub-Account, if the
"ex-dividend" date occurs during the current Valuation
Period; plus or minus
c. a per share charge or credit for any taxes reserved for,
which is determined by the Company to have resulted from
the investment operations of the Sub-Account.
(2) is the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the last prior Valuation Period.
(3) is a factor representing the Mortality and Expense Risk Charge and
the Administration Charge for the number of days in the Valuation
Period.
TRANSFERS
Prior to the Annuity Commencement Date, you may instruct us to transfer
Contract Value between and among the Allocation Options. When we receive your
transfer instructions, we will allocate the Contract Value you transfer at the
next price determined for the Allocation Options you indicate.
You must transfer at least $100, or if less, the entire amount in the
Allocation Option each time you make a transfer. If after the transfer, the
Contract Value remaining in any Allocation Option from which a transfer is made
would be less than $100, then we may transfer the entire Contract Value in that
Allocation Option instead of the requested amount. We reserve the right to limit
the number of transfers to no more than 12 per Contract Year. For each
additional transfer over 12 during each Contract Year, we reserve the right to
charge a Transfer Fee which will not exceed $25. The Transfer Fee, if any, will
be deducted from the amount being transferred. (See "Charges and Deductions --
Transfer Fee".)
Transfers involving a Guaranteed Account are subject to additional
restrictions. The maximum amount that may be transferred from the Fixed Account
during a Contract Year is the greater of:
(1) $2,500; or
(2) 25% of the Contract Value in the Fixed Account value.
Transfers into 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, or automated telephone
system. From time to time and at our sole discretion we may introduce additional
methods for requesting transfers or discontinue any method of making non-written
requests for such transfers. We will require a form of personal identification
prior
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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.
After the Annuity Commencement Date, when Variable Income Payments are
selected, transfers are allowed between Sub-Accounts, but are limited to one
transfer per month. Dollar cost averaging and portfolio rebalancing are not
allowed. No transfers are allowed within the Guaranteed Account or between the
Guaranteed Account and any Sub-Account.
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.
Dollar cost averaging transfers may be made on the 1st through the 28th day
of each month. If no day is selected, transfers will occur on the same day of
the month as your Contract Anniversary, or on the 28th day of the month if your
Contract Anniversary occurs on the 29th, 30th, or 31st day of the month. In
states where, upon cancellation during the right-to-cancel period, we are
required to return your Purchase Payment, we reserve the right to delay
commencement of dollar cost averaging transfers until the expiration of the
right-to-cancel period.
The DCA Fixed Accounts are currently unavailable in the State of Oregon and
are available elsewhere only for Purchase Payments designated for dollar cost
averaging. Purchase Payments may not be allocated into any DCA Fixed Account
when that DCA Fixed Account value is greater than $0, and all funds must be
transferred from a DCA Fixed Account prior to allocating a Purchase Payment to
that DCA Fixed Account. Where we agree, under current administrative procedures,
to allocate a Purchase Payment to any DCA Fixed Account in installments from
more than one source, we will credit each installment with the rate applied to
the first installment we receive. Any Purchase Payment allocated to a DCA Fixed
Account must include instructions regarding the number and frequency of the
dollar cost averaging transfers, and the Allocation Option(s) into which the
transfers are to be made.
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. For Contracts issued prior to May 1, 1999,
please see Appendix C for a description of additional DCA Fixed Account
provisions.
The periodic amount transferred from a DCA Fixed Account will be equal to
the Purchase Payment allocated to the DCA Fixed Account divided by the number of
dollar cost averaging transfers to
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be made. Interest credited will be transferred from the DCA Fixed Account after
the last dollar cost averaging transfer. We will process dollar cost averaging
transfers until the earlier of the following: (1) the designated number of
transfers have been completed, or (2) the Owner instructs us by Written Notice
to cancel the automatic transfers. Any time dollar cost averaging transfers end,
all Contract Value remaining in a DCA Fixed Account will be transferred to the
Fixed Account if it is available. If the Fixed Account is unavailable in your
state, we will transfer these amounts into the Oppenheimer Money Fund
Sub-Account. Upon the death of any Owner, dollar cost averaging transfers will
continue until canceled by the Beneficiary(s).
There is no charge for dollar cost averaging. Automatic transfers made to
facilitate dollar cost averaging will not count toward the 12 transfers
permitted each Contract Year if Protective Life elects to limit transfers, or
the designated number of free transfers in any Contract Year if the Company
elects to charge for transfers in excess of that number in any Contract Year. We
reserve the right to discontinue 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. Portfolio rebalancing
instructions from you that differ from your current Purchase Payment allocation
instructions are deemed to be a request to change your Purchase Payment
allocation.
You may elect portfolio rebalancing to occur on the 1st through 28th day of
a month on either a quarterly, semi-annual or annual basis. If you do not select
a day, transfers will occur on the same day of the month as your Contract
Anniversary, or on the 28th day of the month if your Contract Anniversary occurs
on the 29th, 30th or 31st day of the month . You may change or terminate
portfolio rebalancing by Written Notice, or by other non-written communication
methods acceptable for transfer requests. Upon the death of any Owner portfolio
rebalancing will continue until canceled by the Beneficiary(s).
There is no charge for portfolio rebalancing. Automatic transfers made to
facilitate portfolio rebalancing will not count toward the 12 transfers
permitted each Contract Year if Protective Life elects to limit transfers, or
the designated number of free transfers in any Contract Year if the Company
elects to charge for transfers in excess of that number in any Contract Year. We
reserve the right to discontinue portfolio rebalancing upon 30 days' written
notice to the Owner.
SURRENDERS AND PARTIAL SURRENDERS
SURRENDER.
At any time prior to the Annuity Commencement Date, you may request a
surrender of your Contract for its surrender value. To surrender your Contract,
you must return the Contract to us and make your surrender request by Written
Notice. We will pay you the surrender value in a lump sum unless you request
payment under another payment option that we are making available at that time.
A surrender may have federal income tax consequences. (See "Taxation of Full and
Partial Surrenders".) Under certain Annuity Options, a surrender value may be
available.
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SURRENDER VALUE.
The surrender value of your Contract is equal to the Contract Value minus
any applicable surrender charge, contract maintenance fee and premium tax. We
will determine the surrender value as of the end of the Valuation Day on which
we receive your Written Notice requesting surrender and your Contract at our
administrative office.
PARTIAL SURRENDER.
At any time before the Annuity Commencement Date, you may request a partial
surrender of your Contract Value. You must request the partial surrender by
Written Notice. We will withdraw the amount requested from the Contract Value as
of the Valuation Period during which we receive Written Notice requesting the
partial surrender. The amount we will pay you upon a partial surrender is equal
to the Contract Value surrendered minus any applicable surrender charge.
You may specify the amount of the partial surrender to be made from any
Allocation Option. If you do not so specify, or if the amount in the designated
account(s) is inadequate to comply with the request, the partial surrender will
be made from each Allocation Option based on the proportion that the value of
each Allocation Option bears to the total Contract Value.
A partial surrender may have federal income tax consequences. (See "Taxation
of Partial and Full Surrenders".)
CANCELLATION OF ACCUMULATION UNITS.
Surrenders and partial surrenders will result in the cancellation of
Accumulation Units from each applicable Sub-Account(s) and/or in a reduction of
the Guaranteed Account Value.
SURRENDER AND PARTIAL SURRENDER RESTRICTIONS.
The Owner's right to make surrenders and partial surrenders is subject to
any restrictions imposed by applicable law or employee benefit plan.
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS.
There are certain restrictions on surrenders and partial surrenders of
Contracts used as funding vehicles for Internal Revenue Code Section 403(b)
retirement plans. Section 403(b)(11) of the Internal Revenue Code restricts the
distribution under Section 403(b) annuity contracts of:
(i) contributions made pursuant to a salary reduction agreement
in years beginning after December 31, 1988;
(ii) earnings on those contributions; and
(iii) earnings after December 31, 1988 on amounts attributable to
salary reduction contributions held as of December 31, 1988.
Distributions of those amounts may only occur upon the death of the
employee, attainment of age 59 1/2, separation from service, disability, or
hardship. In addition, income attributable to salary reduction contributions may
not be distributed in the case of hardship.
In the case of certain Qualified Plans, federal tax law imposes restrictions
on the form and manner in which benefits may be paid. For example, spousal
consent may be needed in certain instances before a distribution may be made.
SYSTEMATIC WITHDRAWALS.
Currently, the Company offers a systematic withdrawal plan. This plan allows
you to pre-authorize periodic partial surrenders prior to the Annuity
Commencement Date. You may elect to participate in
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this plan at the time of application or at a later date by properly completing
an election form. In order to participate in the plan you must have:
(1) made an initial Purchase Payment of at least $12,000; or
(2) a Surrender Value as of the previous Contract Anniversary equal to at
least $12,000.
The systematic withdrawal plan and the automatic purchase payment plan may
not be elected simultaneously. (See "Purchase Payments".) There are federal
income tax consequences to systematic withdrawals from the Contract and the
Owner should, therefore, consult with his or her tax advisor before
participating in any withdrawal program. (See "Taxation of Partial and Full
Surrenders".)
When you elect the systematic withdrawal plan, you will instruct Protective
Life to withdraw a level dollar amount from the Contract on a monthly or
quarterly basis. Systematic withdrawals may be made on the 1st through the 28th
day of each month. The amount requested must be at least $100 per withdrawal. We
will process withdrawals for the designated amount until you instruct us
otherwise. You may instruct us as to the Allocation Options from which the
withdrawals should be made. If you give no instructions, systematic withdrawals
will be taken pro-rata from the Allocation Options in proportion to the value
each Allocation Option bears to the total Contract Value. We will pay you the
amount requested each month or quarter as applicable and cancel the applicable
Accumulation Units.
The maximum penalty-free amount you can withdraw under the systematic
withdrawal plan each year is the greater of:
(1) 10% of all Purchase Payments made as of the date of the request, or
(2) your cumulative earnings calculated as of each Contract Anniversary.
Unless you instruct us to reduce the withdrawal amount so the annual total will
not exceed these limits, we will continue to process withdrawals for the monthly
amount you designate. Once the amount of your withdrawals exceeds the limit for
penalty-free withdrawals, we reserve the right to deduct a surrender charge, if
applicable, from the remaining payments made during that Contract Year. (See
"Surrender Charge".)
If the amount to be withdrawn from an Allocation Option exceeds the value
available, the transaction will not be completed and the systematic withdrawal
plan will terminate. If you request a partial surrender that is not part of the
systematic withdrawal plan in a year when you have used the systematic
withdrawal plan, that partial surrender will be subject to any applicable
surrender charge. (See "Surrender Charge.") Upon notification of the death of
any Owner the Company will terminate the systematic withdrawal plan. The
systematic withdrawal plan may be discontinued by the Owner at any time by
Written Notice.
Other than the surrender charges described in this section, there is no
charge for the systematic withdrawal plan. We reserve the right to discontinue
the systematic withdrawal plan upon written notice to you.
THE GUARANTEED ACCOUNT
The Guaranteed Account has not been, and is not required to be, registered
with the SEC under the Securities Act of 1933, and neither these accounts nor
the Company's general account have been registered as an investment company
under the 1940 Act. Therefore, neither the Guaranteed Account, the Company's
general account, nor any interests therein are generally subject to regulation
under the 1933 Act or the 1940 Act. The disclosures relating to the Guaranteed
Account included in this prospectus are for the Owner's information and have not
been reviewed by the SEC. However, such disclosures may be subject to certain
generally applicable provisions of federal securities law relating to the
accuracy and completeness of statements made in prospectuses.
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The Guaranteed Account currently includes the Fixed Account and two DCA
Fixed Accounts. For a discussion of Contracts issued prior to May 1, 1999, see
Appendix C. 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 the State of Oregon, you may allocate
some or all of your Purchase Payments and may transfer some or all of your
Contract Value to an account within the Guaranteed Account, except that
transfers may not be made into any DCA Fixed Account, and Purchase Payments may
not be allocated to any DCA Fixed Account when that DCA Fixed Account value is
greater than $0. All previously allocated funds must be transferred out of a DCA
Fixed Account prior to allocating a subsequent Purchase Payment to that DCA
Fixed Account. For Contracts issued before May 1, 1999, please see Appendix C
for additional DCA Fixed Account provisions.
Amounts allocated or transferred to an account within the Guaranteed Account
earn interest from the date the funds are credited to the account. The interest
rate we apply to Purchase Payments and transfers into the Fixed Account is
guaranteed for one year from the date the Purchase Payment or transfer is
credited to the account. When an interest rate guarantee expires, we will set a
new interest rate, which may not be the same as the interest rate then in effect
for Purchase Payments or transfers allocated to the Fixed Account. The new
interest rate is also guaranteed for one year.
DCA Fixed Accounts 1 and 2 are designed to systematically transfer amounts
to other Allocation Options over a designated period. The interest rate we apply
to Purchase Payments allocated to DCA Fixed Account 1 or 2 is guaranteed for the
period over which transfers are allowed from that DCA Fixed Account. For
Contracts issued before May 1, 1999, please see Appendix C for additional DCA
Account provisions.
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) Purchase Payments allocated to the Guaranteed Account; plus
(2) amounts transferred into the Guaranteed Account; plus
(3) interest credited to the Guaranteed Account; minus
(4) amounts transferred out of the Guaranteed Account; minus
(5) the amount of any surrenders removed from the Guaranteed
Account, including any applicable premium tax and surrender
charges; minus
(6) fees deducted from the Guaranteed Account.
For the purposes of interest crediting, amounts deducted, transferred or
withdrawn from accounts within the Guaranteed Account will be separately
accounted for on a "first-in, first-out" (FIFO) basis.
DEATH BENEFIT
The following paragraphs describe the death benefit of Contracts we
currently offer. For a discussion of the death benefit for Contracts with an
Effective Date before May 1, 1996, see Appendix B.
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If any Owner dies before the Annuity Commencement Date and while this
Contract is in force, the Company will pay a death benefit to the Beneficiary.
The Death Benefit is determined as of the end of the Valuation Period in
which we receive due proof of death. The amount of the death benefit will depend
upon the age of the Owner when he or she dies.
If the Owner dies on or before his or her 90th birthday, the death benefit
is the greatest of:
(1) the Contract Value, which is the sum of the Variable Account
value and the Guaranteed Account value,
(2) aggregate Purchase Payments made under the Contract reduced by
any partial surrenders and any associated charges, or
(3) the maximum anniversary value.
The maximum anniversary value is the greatest anniversary value attained.
The anniversary value is the sum of:
(1) the Contract Value on a Contract Anniversary; plus
(2) all Purchase Payments made since that Contract Anniversary;
minus
(3) any partial surrenders (and any associated charges) made since
that Contract Anniversary.
An anniversary value is determined for each Contract Anniversary through the
earlier of:
(1) the deceased Owner's 80th birthday, or
(2) the date of that Owner's death
If the Owner dies after his or her 90th birthday, the death benefit is the
Contract Value.
Only one death benefit is payable under this Contract, even though the
Contract may, in some circumstances, continue beyond the time of an Owner's
death.
The Beneficiary may take the death benefit in one sum immediately. In this
event the Contract will terminate. If the death benefit is not taken in one sum
immediately, then the death benefit will become the new Contract Value as of the
date we receive due proof of death and the entire interest in the Contract must
be distributed under one of the following options:
(1) the entire interest must be distributed over the life of the
Beneficiary, or over a period that does not extend beyond the
life expectancy of the Beneficiary, with distributions
beginning within one year of the Owner's death, or
(2) the entire interest must be distributed within 5 years of the
Owner's death.
If no option is elected, we will distribute the entire interest within 5
years of the Owner's death.
If the Beneficiary is the deceased Owner's spouse, then the surviving spouse
may elect, in lieu of receiving the death benefit, to continue the Contract and
become the new Owner. The surviving spouse may select a new Beneficiary. Upon
this spouse's death, the death benefit will become payable to the new
Beneficiary and must then be distributed to the new Beneficiary in one sum
immediately or according to either paragraph (1) or (2) above.
If any Owner is not an individual, the death of the Annuitant is treated as
the death of an Owner.
If there is more than one Beneficiary, the foregoing provisions apply to
each Beneficiary individually.
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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:
1) when the New York Stock Exchange is closed; or
2) when trading on the New York Stock Exchange is restricted; or
3) when an emergency exists (as determined by the SEC as a result
of which (a) the disposal of securities in the Variable
Account is not reasonably practical; or (b) it is not
reasonably practical to determine fairly the value of the net
assets of the Variable Account); or
4) when the SEC, by order, so permits for the protection of
security holders.
The Company may delay payment of a partial or full surrender from the
Guaranteed Account for up to six months where permitted.
CHARGES AND DEDUCTIONS
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
GENERAL
We do not deduct any charges for sales expenses from Purchase Payments at
the time you make them. However, within certain time limits described below, we
deduct a surrender charge (contingent deferred sales charge) from the Contract
Value if you make a partial surrender or surrender before the Annuity
Commencement Date. Also, in certain circumstances we may deduct a surrender
charge from amounts applied to Annuity Options. (See "Annuity Options.")
We do not apply the surrender charge to the payment of a death benefit.
Currently, we do not apply the surrender charge to systematic withdrawals you
make within the limits described in the "Systematic Withdrawals" section of this
prospectus. (See "Death Benefits" and "Systematic Withdrawals.")
In the event surrender charges are not sufficient to cover sales expenses,
the loss will be borne by Protective Life; conversely, if the amount of such
charges provides more than enough to cover such expenses, the excess will be
retained by Protective Life. Protective Life does not currently believe that the
surrender charges imposed will cover the expected costs of distributing the
Contracts. Any shortfall will be made up from Protective Life's general assets
which may include amounts derived from the mortality and expense risk charge.
DETERMINING THE SURRENDER CHARGE
The surrender charge is equal to the percentage of each Purchase Payment or
portion of a Purchase Payment you surrender as specified in the table below. We
calculate the surrender charge separately and apply it to each Purchase Payment
at any time you surrender the Purchase Payment. No such surrender charge applies
to the surrenders or partial surrenders of Contract Value in excess of the
aggregate Purchase Payments. We calculate the surrender charge using the
principle that all Contract Value in excess of the aggregate Purchase Payments
is surrendered before any Purchase Payments and that Purchase Payments are
surrendered on a first-in-first-out basis.
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The surrender charge is as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS ELAPSED
BETWEEN THE DATE OF RECEIPT OF SURRENDER CHARGE AS A PERCENTAGE
PURCHASE PAYMENT(S) & DATE OF OF PURCHASE PAYMENT WITHDRAWN
SURRENDER IN A FULL YEAR
- ----------------------------------- -------------------------------------
<S> <C>
Less than 1 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 and more 0%
</TABLE>
Surrenders will cause the cancellation of Accumulation Units from each
applicable Sub-Account and/or a reduction of the Guaranteed Account value.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE.
We may decrease or waive surrender charges on Contracts issued to a trustee,
employer or similar entity pursuant to a retirement plan or when sales are made
in a similar arrangement where offering the Contracts to a group of individuals
under such a program results in saving of sales expenses. We will determine, at
our sole discretion, the entitlement to such a reduction in surrender charge.
We may also waive surrender charges on partial surrenders taken as a minimum
distribution required under federal or state tax laws. (See "Qualified
Retirement Plans".)
WAIVER OF SURRENDER CHARGES.
Protective Life will waive surrender charges in the event you, at any time
after the first Contract Year,
1) enter for a period of at least ninety (90) days a facility which is
licensed by the State and qualifies as a skilled nursing home
facility under Medicare or Medicaid; or
2) you are first diagnosed as having a terminal illness by a physician
who is not related to you or the Annuitant.
The term "terminal illness" is defined in the Contract. You must submit written
proof of a terminal illness satisfactory to Protective Life. We reserve the
right to require an examination by a physician of our choice. The waiver of
surrender charges provision is not available in all states due to applicable
insurance laws in effect in various states.
MORTALITY AND EXPENSE RISK CHARGE
To compensate Protective Life for assuming mortality and expense risks, we
deduct a daily mortality and expense risk charge equal, on an annual basis, to
1.25% of the average daily net assets of the Variable Account attributable to
such Contracts.
The mortality risk Protective Life assumes is that Annuitant(s) may live for
a longer period of time than estimated when the guarantees in the Contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk that Protective Life assumes also includes a guarantee to pay a death
benefit if the Owner dies before the Annuity Commencement Date. The expense risk
that Protective Life assumes is the risk that the administration charge,
contract maintenance fee and transfer fees may be insufficient to cover actual
future expenses. It is possible that the mortality and expense risk charge (or a
portion
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of it) could be treated as an amount received through a partial surrender for
tax purposes. (See "Federal Tax Matters.")
ADMINISTRATION CHARGES
We will deduct an administration charge equal, on an annual basis, to 0.15%
of the daily net asset value of each Sub-Account in the Variable Account. This
deduction is made to reimburse Protective Life for expenses incurred in the
administration of the Contract and the Variable Account. The administration
charge is deducted only from the Variable Account value. The Variable Account is
not responsible for any other operating expenses.
TRANSFER FEE
Currently, there is no charge for transfers. Protective Life reserves the
right, however, to charge $25 for each transfer after the first 12 transfers in
any Contract Year. For the purpose of assessing the fee, each request would be
considered to be one transfer, regardless of the number of Allocation Options
affected by the transfer in one day. The fee would be deducted from the amount
being transferred.
CONTRACT MAINTENANCE FEE
Prior to the Annuity Commencement Date, the contract maintenance fee is $35
and it is deducted from the Variable Account value on each Contract Anniversary,
and on any day that the Contract is surrendered other than the Contract
Anniversary. The contract maintenance fee will be deducted from the Sub-Accounts
in the same proportion as their values are to the Variable Account. The contract
maintenance fee will be waived by the Company in the event the Contract Value,
or the aggregate Purchase Payments reduced by any withdrawals or partial
surrenders, equals or exceeds $50,000 on the date the contract maintenance fee
is to be deducted.
FUND EXPENSES
The net assets of each Sub-Account of the Variable Account will reflect the
investment management fees and other operating expenses incurred by the Funds.
For each Fund, an investment manager is paid a daily fee for its services. (See
the prospectuses for the Funds, which accompany this Prospectus.)
PREMIUM TAXES
Some states impose premium taxes at rates currently ranging up to 3.5%. If
premium taxes apply to your Contract, we will deduct them from the Purchase
Payment(s) when accepted or from the Contract Value upon a full or partial
surrender, death or annuitization.
OTHER TAXES
Currently, no charge will be made against the Variable Account for federal,
state or local taxes other than premium taxes. We reserve the right, however, to
deduct a charge for taxes attributable to the operation of the Variable Account.
ANNUITIZATION
ANNUITY COMMENCEMENT DATE
As of the Annuity Commencement Date, we will apply your Contract Value (less
any applicable charges and premium taxes) to the Annuity Option you have
selected, and determine the amount of your first Annuity Income Payment. You may
elect to receive a fixed income payment, a variable
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income payment, or a combination of both using the same Annuity Option and
period. The Annuity Commencement Date may be any date before or on the
Annuitant's 85th birthday and may not be later than that date unless approved by
Protective Life. You may change the Annuity Commencement Date from time to time
by Written Notice no later than 30 days before the scheduled Annuity
Commencement Date. Annuity Commencement Dates that occur or are scheduled to
occur at an advanced age for the Annuitant (E.G., past age 85) may in certain
circumstances have adverse income tax consequences. (See "Federal Income Tax
Matters.") Distributions from Qualified Contracts may be required before the
Annuity Commencement Date.
FIXED ANNUITY INCOME PAYMENTS
Fixed annuity income payments are periodic payments from the Company to the
designated Payee, the amount of which is fixed and guaranteed by the Company.
Fixed annuity income payments are not in any way dependent upon the investment
experience of the Variable Account. Once fixed annuity income payments have
begun, they may not be surrendered.
VARIABLE ANNUITY INCOME PAYMENTS
Variable annuity 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. Variable annuity income payments may not be available
in all states.
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.
DETERMINING THE AMOUNT OF VARIABLE ANNUITY INCOME PAYMENTS.
We will determine the amount of your variable annuity income payment on the
20th of each month in which a payment is due, using values established at the
close of regular trading on the New York Stock Exchange that day. If the 20th
day of the month is a day on which the New York Stock Exchange is closed, we
will determine the amount of your variable annuity income payment on the next
day the New York Stock Exchange is open.
The dollar amount of each variable income payment attributable to each
Sub-Account is determined by multiplying the number of Annuity Units of that
Sub-Account credited to your Contract by the Annuity Unit value (described
below) for that Sub-Account on the Valuation Period during which the payment is
determined. The dollar value of each variable income payment is the sum of the
variable income payment attributable to each Sub-Account.
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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 A 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 apply your Contract Value to a fixed annuity income payment option,
a variable annuity income payment option (where available), or a combination of
both. If you choose a combination of both, the period during which the fixed and
variable payments are to be made must correspond. To receive a combination of
both fixed annuity income payments and variable annuity income payments, you
must apply at least 50% of your Contract Value to the variable annuity income
payment option. To receive any variable annuity income payments, you must apply
at least $25,000 of Contract value to a variable annuity income payment option.
For Qualified Contracts, certain restrictions in the selection of the Annuity
Options apply. You may not change your selection of Annuity Option less than 30
days before the Annuity Commencement Date.
A surrender charge will not be applied to the Contract Value when the
Contract Value is applied to an Annuity Option on the Annuity Commencement Date
if annuity payments are made for the lifetime of the Annuitant or for a period
certain of at least 5 years. In certain circumstances, therefore, a surrender
charge could apply under Fixed Option C, Variable Annuity Option A and the
Additional Option described below.
You may select from the following Annuity Options:
FIXED OPTION A -- FIXED PAYMENT FOR A CERTAIN PERIOD:
We will make equal payments for any period of not less than 5 or more than
30 years. The amount of each payment depends on the total amount
applied, the period selected and the payment rates in effect on the
Annuity Commencement Date. Payments under this Annuity Option do
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not depend on the life of the Annuitant(s). Under this option, you may
not surrender the Contract after the Annuity Commencement Date.
FIXED OPTION B -- LIFE INCOME WITH FIXED PAYMENTS FOR A CERTAIN PERIOD:
Equal payments are based on the life of the named Annuitant(s). We will make
payments for the lifetime of the Annuitant(s), with payments guaranteed
for not less than 5 nor more than 30 years. Protective Life may make
other periods available. Payments stop at the end of the selected
certain period or when the Annuitant(s) dies, whichever is later. Under
this option, you may not surrender the Contract after the Annuity
Commencement Date.
FIXED OPTION C -- PAYMENTS OF A FIXED AMOUNT:
We will make equal payments for a fixed amount. The amount of each payment
may not be less than $10 for each $1,000 you apply. The period for which
we will make payments depends on the total amount applied, the amount of
the fixed payment, and the payment rates in effect on the Annuity
Commencement Date. Under this option, you may not surrender the Contract
after the Annuity Commencement Date.
VARIABLE OPTION A -- VARIABLE PAYMENTS FOR A CERTAIN PERIOD:
Payments are made for any selected period of not less than 10 nor more than
30 years. Payments under this Annuity Option do not depend on the life
of the Annuitant(s).
You may surrender the Contract under this option for its commuted value.
Surrender charges will be imposed, when applicable, on the Purchase
Payments you allocated to this Annuity Option on the Annuity
Commencement Date or the commuted value, whichever is less.
VARIABLE OPTION B -- LIFE INCOME WITH VARIABLE PAYMENTS FOR A CERTAIN PERIOD:
Payments are made for the lifetime of the Annuitant(s), with payments
guaranteed from 10 to 30 years. Payments stop at the end of the certain
period or when the Annuitant(s) dies, whichever is later. Under this
option, you may not surrender the Contract after the Annuity
Commencement Date.
ADDITIONAL OPTION
In addition to the Annuity Options described above, you may use the Contract
Value (less applicable charges and premium taxes) 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. The current minimum payment amount is $100.
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, any remaining portion of such
benefits will be paid out at least as fast as under the Annuity Option
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being used when the Owner or Annuitant died. After the death of the Annuitant,
any remaining payments shall be payable to the Beneficiary unless you specified
otherwise before the Annuitant's death.
YIELDS AND TOTAL RETURNS
From time to time, Protective Life may advertise or include in sales
literature yields, effective yields, and total returns for the Sub-Accounts.
THESE FIGURES ARE BASED ON HISTORIC RESULTS AND DO NOT INDICATE OR PROJECT
FUTURE PERFORMANCE. More detailed information about the calculation of
performance information appears in the Statement of Additional Information.
Yields, effective yields, and total returns for the Sub-Accounts are based
on the investment performance of the corresponding Funds. The Funds' performance
also reflects the Funds' expenses. Certain of the expenses of each Fund may be
reimbursed by the investment manager. (See the Prospectuses for the Funds.)
YIELDS
The yield of the Oppenheimer Money Fund Sub-Account refers to the annualized
income generated by an investment in the Sub-Account over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven day period over a 52 week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but when annualized the income earned by an investment in the
Sub-Account is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
The yield of a Sub-Account (except the Oppenheimer Money Fund Sub-Account)
refers to the annualized income generated by an investment in the Sub-Account
over a specified 30 day or one-month period. The yield is calculated by assuming
that the income generated by the investment during that 30 day or one month
period is generated each period over a 12 month period and is shown as a
percentage of the investment.
TOTAL RETURNS
The cumulative total return of a Sub-Account refers to return quotations
assuming an investment under a Contract has been held in the Sub-Account for
various periods of time including, but not limited to, a period measured from
the date the Sub-Account commenced operations. Average annual total return
refers to total return quotations that are annualized based on an average return
over various periods of time.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which the quotations are provided. Average annual
total return information shows the average percentage change in the value of an
investment in the Sub-Account from the beginning date of the measuring period to
the end of that period. This standardized version of average annual total return
reflects all historical investment results, less all charges and deductions
applied against the Sub-Account (excluding any deductions for premium taxes).
The Sub-Accounts have been in operation prior to the commencement of the
offering of the Contract described in this prospectus. Protective Life may
advertise the performance of the Sub-Accounts for these prior periods. The
Sub-Account performance information of any period prior to the commencement of
the offering of the Contract is calculated as if the Contract had been offered
during those periods, using current charges and expenses.
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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. Average annual total return
information may be presented, computed on the same basis as the standard version
except deductions will not include the contract maintenance fee. In addition,
Protective Life may from time to time disclose average annual total return in
other non-standard formats and cumulative total return for Contracts funded by
the Sub-Accounts.
Protective Life may, from time to time, also disclose yield, standard
average annual total returns, and non-standard total returns for the Funds.
Certain Funds have been in existence prior to the investment by the
Sub-Accounts in such Funds. Protective Life may advertise the performance of the
Sub-Accounts that invest in these Funds for these prior periods. The performance
information of any period prior to the investments by the Sub-Accounts is
calculated as if the Sub-Account had invested in those Funds during those
periods, using current charges and expenses associated with the Contract.
Non-standard performance data will only be disclosed if the standard
performance data for the periods described in "Standardized Average Annual Total
Returns," above, is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information.
PERFORMANCE COMPARISONS
Protective Life may, from time to time, advertise or include in sales
literature Sub-Account performance relative to certain performance rankings and
indices compiled by independent organizations. In advertising and sales
literature, the performance of each Sub-Account may be compared to the
performance of other variable annuity issuers in general or to the performance
of particular types of variable annuities investing in mutual funds, or
investment portfolios of mutual funds with investment objectives similar to each
of the Sub-Accounts. Lipper Analytical Services, Inc. ("Lipper"), the Variable
Annuity Research Data Service ("VARDS"), and Morningstar Inc. ("Morningstar")
are independent services which monitor and rank the performance of variable
annuity issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper and Morningstar rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS rankings compare only variable annuity
issuers. The performance analyses prepared by Lipper, Morningstar and VARDS each
rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption fees, or certain
expense deductions at the separate account level into consideration. In
addition, VARDS prepares risk adjusted rankings, which consider the effects of
market risk on total return performance. This type of ranking provides data as
to which funds provide the highest total return within various categories of
funds defined by the degree of risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Sub-Account to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as a source of performance comparison.
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OTHER MATTERS
Protective Life may also report other information including the effect of
tax-deferred compounding on a Sub-Account's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts.
All income and capital gains derived from Sub-Account investments are
reinvested and can lead to substantial long-term accumulation of assets,
provided that the underlying Fund's investment experience is positive.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the Contract
is not exhaustive, does not purport to cover all situations, and is not intended
as tax advice. The federal income tax treatment of the Contract is unclear in
certain circumstances, and you should always consult a qualified tax adviser
regarding the application of law to individual circumstances. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, and interpretations existing on the date of this Prospectus. These
authorities, however, are subject to change by Congress, the Treasury
Department, and judicial decisions.
This discussion does not address state or local tax consequences associated
with the purchase of the Contract. In addition, PROTECTIVE LIFE MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
Protective Life is taxed as a life insurance company under the Internal
Revenue Code. Since the operations of the Variable Account are a part of, and
are taxed with, the operations of the Company, the Variable Account is not
separately taxed as a "regulated investment company" under the Internal Revenue
Code. Under existing federal income tax laws, investment income and capital
gains of the Variable Account are not taxed to the extent they are applied under
a Contract. Protective Life does not anticipate that it will incur any federal
income tax liability attributable to such income and gains of the Variable
Account, and therefore does not intend to make provision for any such taxes. If
Protective Life is taxed on investment income or capital gains of the Variable
Account, then Protective Life may impose a charge against the Variable Account
in order to make provision for such taxes.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Internal Revenue Code, except as described
below, any increase in an Owner's Contract Value is generally not taxable to the
Owner until received, either in the form of annuity payments as contemplated by
the Contracts, or in some other form of distribution. However, this rule applies
only if:
(1) the investments of the Variable Account are "adequately diversified"
in accordance with Treasury Department regulations;
(2) the Company, rather than the Owner, is considered the owner of the
assets of the Variable Account for federal income tax purposes; and
(3) the Owner is an individual (or an individual is treated as the Owner
for tax purposes).
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DIVERSIFICATION REQUIREMENTS.
The Internal Revenue Code and Treasury Department regulations prescribe the
manner in which the investments of a segregated asset account, such as the
Variable Account, are to be "adequately diversified." If the Variable Account
fails to comply with these diversification standards, the Contract will not be
treated as an annuity contract for federal income tax purposes and the Owner
would generally be taxable currently on the excess of the Contact Value over the
premiums paid for the Contact. Protective Life expects that the Variable
Account, through the Funds, will comply with the diversification requirements
prescribed by the Internal Revenue Code and Treasury Department regulations.
OWNERSHIP TREATMENT.
In certain circumstances, variable annuity contract owners may be considered
the owners, for federal income tax purposes, of the assets of a segregated asset
account, such as the Variable Account, used to support their contracts. In those
circumstances, income and gains from the segregated asset account would be
includable in the contract owners' gross income. The Internal Revenue Service
(the "IRS") has stated in published rulings that a variable contract owner will
be considered the owner of the assets of a segregated asset account if the owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. In addition, the Treasury
Department announced, in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor, rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that the IRS would issue guidance by way of regulations
or rulings on the "extent to which policyholders may direct their investments to
particular sub-accounts [of a segregated asset account] without being treated as
owners of the underlying assets." As of the date of this Prospectus, the IRS had
not issued any such guidance.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the Owner of this Contract has the choice of more
investment options to which to allocate purchase payments and Variable Account
values, and may be able to transfer among investment options more frequently
than in such rulings. These differences could result in the Owner being treated
as the owner of the assets of the Variable Account and thus subject to current
taxation on the income and gains from those assets. In addition, the Company
does not know what standards will be set forth in the regulations or rulings
which the Treasury Department has stated it expects to issue. Protective Life
therefore reserves the right to modify the Contract as necessary to attempt to
prevent Contract Owners from being considered the owners of the assets of the
Variable Account. However, there is no assurance such efforts would be
successful.
NONNATURAL OWNER.
As a general rule, Contracts held by "nonnatural persons" such as a
corporation, trust or other similar entity, as opposed to a natural person, are
not treated as annuity contracts for federal tax purposes. The income on such
Contracts (as defined in the tax law) is taxed as ordinary income that is
received or accrued by the Owner of the Contract during the taxable year. There
are several exceptions to this general rule for nonnatural Owners. First,
Contracts will generally be treated as held by a natural person if the nominal
owner is a trust or other entity which holds the Contract as an agent for a
natural person. However, this special exception will not apply in the case of
any employer who is the nominal owner of a Contract under a non-qualified
deferred compensation arrangement for its employees.
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In addition, exceptions to the general rule for nonnatural Owners will apply
with respect to:
(1) Contracts acquired by an estate of a decedent by reason of the death
of the decedent;
(2) certain Qualified Contracts;
(3) Contracts purchased by employers upon the termination of certain
Qualified Plans;
(4) certain Contracts used in connection with structured settlement
agreements; and
(5) Contracts purchased with a single purchase payment when the annuity
starting date is no later than a year from purchase of the Contract
and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period.
DELAYED ANNUITY COMMENCEMENT DATES.
If the Contract's Annuity Commencement Date occurs (or is scheduled to
occur) at a time when the Annuitant has reached an advanced age (E.G., past age
85), it is possible that the Contract would not be treated as an annuity for
federal income tax purposes. In that event, the income and gains under the
Contract could be currently includable in the Owner's income.
The remainder of this discussion assumes that the Contract will be treated
as an annuity contract for federal income tax purposes.
TAXATION OF PARTIAL AND FULL SURRENDERS
In the case of a partial surrender, amounts you 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 systematic
withdrawal plan are treated as partial surrenders. In the case of a full
surrender, amounts received are includable in income to the extent they exceed
the "investment in the contract." For these purposes, the investment in the
contract at any time equals the total of the Purchase Payments made under the
Contract to that time (to the extent such payments were neither deductible when
made nor excludable from income as, for example, in the case of certain
contributions to Qualified Contracts) less any amounts previously received from
the Contract which were not included in income. Partial and full surrenders may
be subject to a 10% penalty tax. (See "Penalty Tax on Premature Distributions.")
Partial and full surrenders may also be subject to federal income tax
withholding requirements. (See "Federal Income Tax Withholding.") In addition,
in the case of partial and full surrenders from certain Qualified Contracts,
mandatory withholding requirements may apply, unless a "direct rollover" of the
amount surrendered is made. (See "Direct Rollovers".)
Under the Waiver of Surrender Charges provision of the Contract, amounts we
distribute may not be subject to surrender charges if the Owner has a terminal
illness or enters, for a period of at least 90 days, certain nursing home
facilities. Such distributions will be treated as surrenders for federal tax
purposes.
The Contract provides a death benefit that in certain circumstances may
exceed the greater of the Purchase Payments and the Contract Value. As described
elsewhere in this Prospectus, the Company imposes certain charges with respect
to the death benefit. It is possible that these charges (or some portion
thereof) could be treated for federal tax purposes as a partial surrender of the
Contract.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity income payment taxable as ordinary
income is equal to the excess of the payment over the exclusion amount. In the
case of variable income payments, the exclusion amount is the "investment in the
contract" (defined above) allocated to the variable Annuity Option, adjusted for
any period certain or refund feature, when payments begin to be made divided by
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the number of payments expected to be made (determined by Treasury Department
regulations which take into account the annuitant's life expectancy and the form
of annuity benefit selected). In the case of fixed income payments, the
exclusion amount is the amount determined by multiplying (1) the payment by (2)
the ratio of the investment in the contract allocated to the fixed Annuity
Option, adjusted for any period certain or refund feature, to the total expected
amount of annuity income payments for the term of the Contract (determined under
Treasury Department regulations).
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.
You should consult a tax advisor 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".)
TAXATION OF DEATH BENEFIT PROCEEDS
Prior to the Annuity Commencement Date, amounts may be distributed from a
Contract because of the death of an Owner or, in certain circumstances, the
death of the Annuitant. Such death benefit proceeds are includable in income as
follows:
(1) if distributed in a lump sum, they are taxed in the same manner as a
full surrender, as described above; or
(2) if distributed under an Annuity Option, they are taxed in the same
manner as annuity income payments, as described above.
After the Annuity Commencement Date, where a guaranteed period exists under
an Annuity Option, and the Annuitant dies before the end of that period,
payments made to the Beneficiary for the remainder of that period are includable
in income as follows:
(1) if received in a lump sum, they are included in income to the extent
that they exceed the unrecovered investment in the contract at that
time; or
(2) if distributed in accordance with the existing Annuity Option
selected, they are fully excluded from income until the remaining
investment in the contract is deemed to be recovered, and all
annuity income payments thereafter are fully includable in income.
Proceeds payable on death may be subject to federal income tax withholding
requirements. (See "Federal Income Tax Withholding".) In addition, in the case
of such proceeds from certain Qualified Contracts, mandatory withholding
requirements may apply, unless a "direct rollover" of such proceeds is made.
(See "Direct Rollovers".)
ASSIGNMENTS, PLEDGES, AND GRATUITOUS TRANSFERS
Other than in the case of Qualified Contracts (which generally cannot be
assigned or pledged), any assignment or pledge of (or agreement to assign or
pledge) any portion of the Contract Value is treated for federal income tax
purposes as a surrender of such amount or portion. The investment in the
contract is increased by the amount includable as income with respect to such
assignment or pledge, though it is not affected by any other aspect of the
assignment or pledge (including its release).
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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
(e) made under a Contract purchased with a single Purchase Payment when
the annuity starting date is no later than a year from purchase of
the Contract and substantially equal periodic payments are made, not
less frequently than annually, during the annuity period.
(Similar rules, discussed below, apply in the case of certain Qualified
Contracts.)
AGGREGATION OF CONTRACTS
In certain circumstances, the IRS may determine the amount of an annuity
income payment or a surrender from a Contract that is includable in income by
combining some or all of the annuity contracts owned by an individual not issued
in connection with Qualified Plans. For example, if a person purchases a
Contract offered by this Prospectus and also purchases at approximately the same
time an immediate annuity issued by Protective Life, the IRS may treat the two
contracts as one contract. In addition, if a person purchases two or more
deferred annuity contracts from the same insurance company (or its affiliates)
during any calendar year, all such contracts will be treated as one contract for
purposes of determining whether any payment not received as an annuity
(including surrenders prior to the Annuity Commencement Date) is includable in
income. The effects of such aggregation are not clear; however, it could affect
the amount of a surrender or an annuity payment that is taxable and the amount
which might be subject to the 10% penalty tax described above.
LOSS OF INTEREST DEDUCTION WHERE CONTRACT IS HELD BY OR FOR THE BENEFIT OF
CERTAIN NONNATURAL PERSONS
In the case of Contracts issued after June 8, 1997 to a nonnatural taxpayer
(such as a corporation or a trust), or held for the benefit of such an entity,
recent changes in the tax law may result in a portion of otherwise deductible
interest no longer being deductible by the entity, regardless of whether the
interest relates to debt used to purchase or carry the Contract. However, this
interest deduction disallowance does not affect Contracts where the income on
such Contracts is treated as ordinary income that is received or accrued by the
Owner during the taxable year. Entities that are considering purchasing the
Contract, or entities that will be Beneficiaries under a Contract, should
consult a tax adviser.
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QUALIFIED RETIREMENT PLANS
IN GENERAL
The Contracts are also designed for use in connection with certain types of
retirement plans which receive favorable treatment under the Internal Revenue
Code. Numerous special tax rules apply to the participants in Qualified Plans
and to Contracts used in connection with Qualified Plans. Therefore, no attempt
is made in this Prospectus to provide more than general information about use of
the Contract with the various types of Qualified Plans.
The tax rules applicable to Qualified Plans vary according to the type of
plan and the terms and conditions of the plan itself. For example, both the
amount of the contribution that may be made, and the tax deduction or exclusion
that the Owner may claim for such contribution, are limited under Qualified
Plans and vary with the type of plan. Also, for full surrenders, partial
surrenders, systematic withdrawals and annuity income payments under Qualified
Contracts, there may be no "investment in the contract" and the total amount
received may be taxable. Similarly, loans from Qualified Contracts, where
available, are subject to a variety of limitations, including restrictions as to
the amount that may be borrowed, the duration of the loan, and the manner in
which the loan must be repaid. (Owners should always consult their tax advisors
and retirement plan fiduciaries prior to exercising any loan privileges that are
available.) Both the amount of the contribution that may be made, and the tax
deduction or exclusion that the Owner may claim for such contribution, are
limited under Qualified Plans.
If you use this Contract 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 or make a full or partial
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,
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exception "c" above for substantially equal periodic payments applies only if
the Owner has separated from service). In addition, the penalty tax does not
apply to certain distributions from IRAs taken after December 31, 1997 which are
used for qualified first time home purchases or for higher education expenses.
Special conditions must be met for these two exceptions to the penalty tax.
Those wishing to take a distribution from an IRA for these purposes should
consult their tax advisor.
When issued in connection with a Qualified Plan, a Contract will be amended
as generally necessary to conform to the requirements of the plan. However,
Owners, Annuitants, and Beneficiaries are cautioned that the rights of any
person to any benefits under Qualified Plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract. In addition, the Company shall not be bound by terms and
conditions of Qualified Plans to the extent such terms and conditions contradict
the Contract, unless the Company consents.
Following are brief descriptions of various types of Qualified Plans in
connection with which the Company may issue a Contract.
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES.
Section 408 of the Internal Revenue Code permits eligible individuals to
contribute to an individual retirement program known as IRAs. IRAs are subject
to limits on the amounts that may be contributed, the persons who may be
eligible and on the time when distributions may commence. Also, subject to the
direct rollover and mandatory withholding requirements (discussed below),
distributions from certain Qualified Plans may be "rolled over" on a
tax-deferred basis into an IRA.
The Contract may not, however, be used in connection with an "Education IRA"
under Section 530 of the Code, a "Simplified Employee Pension" under Section
408(k) of the Internal Revenue Code, or a "Simple IRA" under Section 408(p) of
the Code.
IRAs generally may not invest in life insurance contracts, but an annuity
that is purchased by, or used as, an IRA may provide a death benefit that equals
the greater of the premiums paid and the contract's cash value. The Contract
provides a death benefit that in certain circumstances may exceed the greater of
the Purchase Payments and the Contract Value. It is possible that the death
benefit could be viewed as violating the prohibition on investment in life
insurance contracts with the result that the Contract would not be viewed as
satisfying the requirements of an IRA.
ROTH IRAS.
Section 408A of the Internal Revenue Code permits eligible individuals to
contribute to a type of IRA known as a "Roth IRA." Roth IRAs are generally
subject to the same rules as non-Roth IRAs, but differ in several respects.
Among the differences is that, although contributions to a Roth IRA are not
deductible, "qualified distributions" from a Roth IRA will be excludable from
income.
A qualified distribution is a distribution that satisfies two requirements.
First, the distribution must be made in a taxable year that is at least five
years after the first taxable year for which a contribution to any Roth IRA
established for the Owner was made. Second, the distribution must be either (1)
made after the Owner attains age 59 1/2; (2) made after the Owner's death; (3)
attributable to the Owner being disabled; or (4) a qualified first-time
homebuyer distribution within the meaning of Section 72(t)(2)(F) of the Internal
Revenue Code. In addition, distributions from Roth IRAs need not commence when
the owner attains age 70 1/2. A Roth IRA may accept a "qualified rollover
contribution" from a non-Roth IRA, but a Roth IRA may not accept rollover
contributions from other qualified plans. The state tax treatment of a Roth IRA
may differ from the federal income tax treatment of a Roth IRA.
As described above (see "Individual Retirement Annuities"), there is some
uncertainty regarding the proper characterization of the Contract's death
benefit for purposes of the tax rules governing
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IRAs (which include Roth IRAs). Persons intending to use the Contract in
connection with a Roth IRA should seek competent advice.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT-SHARING
PLANS.
Sections 401(a) and 403(a) of the Internal Revenue Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
Contract in order to provide benefits under the plans. The Contract provides a
death benefit that in certain circumstances may exceed the greater of the
Purchase Payments and the Contract Value. It is possible that the IRS could
characterize the death benefit as an incidental death benefit. There are
limitations on the amount of incidental benefits that may be provided under
pension and profit sharing plans. In addition, the provision of such benefits
may result in currently taxable income to participants. Employers intending to
use the Contract in connection with such plans should seek competent advice.
SECTION 403(b) POLICIES.
Section 403(b) of the Internal Revenue Code permits public school employees
and employees of certain types of charitable, educational and scientific
organizations specified in Section 501(c)(3) of the Internal Revenue Code to
have their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. Purchasers of the Contracts for use as a "Section 403(b) Policy"
should seek competent advice as to eligibility, limitations on permissible
amounts of purchase payments and other tax consequences associated with such
Contracts. In particular, purchasers and their advisers should consider that the
Contract provides a death benefit that in certain circumstances may exceed the
greater of the Purchase Payments and the Contract Value. It is possible that the
IRS could characterize the death benefit as an incidental death benefit. If the
death benefit were so characterized, this could result in currently taxable
income to purchasers. In addition, there are limitations on the amount of
incidental death benefits that may be provided under a Section 403(b) Policy.
Even if the IRS characterized the death benefit under the Contract as an
incidental death benefit, it is unlikely to violate those limits unless the
purchaser also purchases a life insurance contract as part of his or her Section
403(b) Policy.
Section 403(b) Policies contain restrictions on withdrawals of:
(i) contributions made pursuant to a salary reduction agreement in
years beginning after December 31, 1988;
(ii) earnings on those contributions; and
(iii) earnings after December 31, 1988 on amounts attributable to salary
reduction contributions held as of December 31, 1988.
These amounts can be paid only if the employee has reached age 59 1/2,
separated from service, died, become disabled, or in the case of hardship.
Amounts permitted to be distributed in the event of hardship are limited to
actual contributions; earnings thereon can not be distributed on account of
hardship. (These limitations on withdrawals do not apply to the extent the
Company is directed to transfer some or all of the Contract Value to the issuer
of another Section 403(b) Policy or into a Section 403(b)(7) custodial account.)
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS.
Section 457 of the Internal Revenue Code permits employees of state and
local governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The
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employees must be participants in an eligible deferred compensation plan.
Generally, a Contract purchased by a state or local government or a tax-exempt
organization will not be treated as an annuity contract for federal income tax
purposes. The Contract will be issued in connection with a Section 457 deferred
compensation plan sponsored by a state or local government only if the plan has
established a trust to hold plan assets, including the Contract. Those who
intend to use the Contracts in connection with such plans should seek competent
advice.
DIRECT ROLLOVERS
If your Contract is used in connection with a pension, profit-sharing, or
annuity plan qualified under sections 401(a) or 403(a) of the Internal Revenue
Code, or is a Section 403(b) Policy, any "eligible rollover distribution" from
the Contract will be subject to direct rollover and mandatory withholding
requirements. An eligible rollover distribution generally is any taxable
distribution from a qualified pension plan under section 401(a) of the Internal
Revenue Code, qualified annuity plan under section 403(a) of the Internal
Revenue Code, or section 403(b) annuity or custodial account, excluding certain
amounts (such as minimum distributions required under section 401(a)(9) of the
Internal Revenue Code, 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 is 10%. Regardless of whether you elect not to have federal income
tax withheld, you are still liable for payment of federal income tax on the
taxable portion of the payment. As discussed above, the withholding rate
applicable to eligible rollover distributions is 20%.
GENERAL MATTERS
THE CONTRACT
The Contract and its attachments, including the copy of your application and
any endorsements, riders and amendments, constitute the entire agreement between
you and us. All statements in the application shall be considered
representations and not warranties. The terms and provisions of this Contract
are to be interpreted in accordance with the Internal Revenue Code and
applicable regulations.
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ERROR IN AGE OR GENDER
When a benefit of the Contract is contingent upon any person's age or
gender, we may require proof of such. We may suspend payments until we receive
proof. When we receive satisfactory proof, we will make the payments which were
due during the period of suspension. Where the use of unisex mortality rates is
required, we will not determine or adjust benefits based upon gender.
If after we receive proof of age and gender (where applicable), we determine
that the information you furnished was not correct, we will adjust any benefit
under this Contract to that which would be payable based upon the correct
information. If we have underpaid a benefit because of the error, we will make
up the underpayment in a lump sum. If the error resulted in an overpayment, we
will deduct the amount of the overpayment from any current or future payment due
under the Contract. We will deduct up to the full amount of any current or
future payment until the overpayment has been fully repaid. Underpayments or
overpayments will bear interest at an annual effective interest rate of 3% when
permitted by the state of issue.
INCONTESTABILITY
We will not contest the Contract.
NON-PARTICIPATION
The Contract is not eligible for dividends and will not participate in
Protective Life's surplus or profits.
ASSIGNMENT
You have the right to assign the Contract if it is a non-qualified contract.
We do not assume responsibility for the assignment. Any claim made under an
assignment is subject to proof of the nature and extent of the assignee's
interest prior to payment by us. Assignments have federal income tax
consequences. (See "Assignments, Pledges and Gratuitous Transfers" in the
prospectus.)
NOTICE
All instructions and requests to change or assign the Contract must be in
writing in a form acceptable to us, signed by the Owner(s), and received at our
administrative office. The instruction, change or assignment will relate back to
and take effect on the date it was signed, except we will not be responsible for
following any instruction or making any change or assignment before we receive
it.
MODIFICATION
No one is authorized to modify or waive any term or provision of this
Contract unless we agree to the modification or waiver in writing and it is
signed by our President, Vice-President or Secretary. We reserve the right to
change or modify the provisions of this Contract to conform to any applicable
laws, rules or regulations issued by a government agency, or to assure continued
qualification of the Contract as an annuity contract under the Internal Revenue
Code. We will send you a copy of the endorsement that modifies the Contract, and
where required we will obtain all necessary approvals, including that of the
Owner(s).
REPORTS
At least annually prior to the Annuity Commencement Date, we will send to
you at the address contained in our records a report showing the current
Contract Value and any other information required by law.
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SETTLEMENT
Benefits due under this Contract are payable from our administrative office.
The Owner may apply the settlement proceeds to any payout option we offer for
such payments at the time the election is made. Unless directed otherwise in
writing, we will make payments according to the Owner's instructions as
contained in our records at the time the payment is made. We shall be discharged
from all liability for payment to the extent of any payments we make.
RECEIPT OF PAYMENT
If any Owner, Annuitant, Beneficiary or Payee is incapable of giving a valid
receipt for any payment, we may make such payment to whomever has legally
assumed his or her care and principal support. Any such payment shall fully
discharge us to the extent of that payment.
PROTECTION OF PROCEEDS
To the extent permitted by law and except as provided by an assignment, no
benefits payable under this Contract will be subject to the claims of creditors.
MINIMUM VALUES
The values available under the Contract are at least equal to the minimum
values required in the state where the Contract is delivered.
APPLICATION OF LAW
The provisions of the Contract are to be interpreted in accordance with the
laws of the state where the Contract is delivered, with the Internal Revenue
Code and with applicable regulations.
NO DEFAULT
The Contract will not be in default if subsequent Purchase Payments are not
made.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be offered on a continuous basis and Protective Life does
not anticipate discontinuing the offering of the Contracts. Nevertheless,
Protective Life reserves the right to discontinue the offering at any time.
Investment Distributors, Inc. serves as principal underwriter (as defined in the
1940 Act) for the Contracts. Investment Distributors, Inc. has agreed to use its
best efforts to sell the Contracts. Investment Distributors, Inc. is a
wholly-owned subsidiary of PLC and has the same address as Protective Life.
Applications for Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell Protective Life's Contracts and
who are also registered representatives of broker/ dealers having a distribution
agreement with Investment Distributors, Inc. or broker/dealers having a
distribution agreement with such broker/dealer. Investment Distributors, Inc. is
an affiliate of Protective Life Insurance Company and is registered with the SEC
under the Securities Exchange Act of 1934 as a broker/dealer. Investment
Distributors, Inc. is a member of the National Association of Securities
Dealers, Inc. The maximum commission Protective Life will pay is 7% of the
Purchase Payments for the sale of a Contract, not including subsequent
asset-based commissions.
INQUIRIES
Inquiries regarding a Contract may be made by writing to Protective Life at
its administrative office.
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PREPARATION FOR YEAR 2000
Computer hardware and software often denote the year using two digits rather
than four, for example, the year 1998 often is denoted by such hardware and
software as "98." It is probable that such hardware and software will
malfunction when calculations involving the year 2000 are attempted because the
hardware and/or software will interpret "00" as representing the year 1900
rather than the year 2000. This "Year 2000" issue potentially affects all
individuals and companies (including the Company, its customers, business
partners, suppliers, banks, custodians and administrators). The problem is most
prevalent in older mainframe systems, but personal computers and equipment
containing computer chips could also be affected.
The Company began work on the Year 2000 problem in 1995. At that time, the
Company identified and assessed the Company's critical mainframe systems, and
prioritized the remediation efforts that were to follow. During 1998 all other
hardware and software, including non-information technology (non-IT) related
hardware and software, were included in the process. The Company's Year 2000
plan includes all subsidiaries.
The Company estimates that Year 2000 remediation is complete for most of its
insurance administration and general administration systems. Of the general
administration systems that are not yet remediated, the majority are new systems
that were implemented during 1998 and are scheduled to be upgraded to the
current release of the system during the second quarter of 1999. All remediated
systems are currently in production. Personal computer network hardware and
software have been reviewed, with upgrades implemented where necessary. A review
of personal computer desktop software is in progress, but not complete. All Year
2000 personal computer preparations are expected to be completed by June 30,
1999. With respect to non-IT equipment and processes, the assessment and
remediation is progressing on schedule and all known issues are expected to be
remediated before December 31, 1999.
Two insurance administration systems identified as mission critical are not
yet fully remediated. A personal computer database system that processes member
information for one subsidiary is currently being remediated. This effort is on
schedule and targeted to be complete by June 30, 1999. Also, another personal
computer application, which processes policy information for one line of
business, is being re-written and is currently in test. This system is targeted
to be in production by April 30, 1999.
Future date tests are used to verify a system's ability to process
transactions dated up to and beyond January 1, 2000. Future date tests are
complete or in-progress for the majority of the Company's mission critical
systems. A large portion of the testing is conducted by a contract programming
staff dedicated full time to Year 2000 preparations. These resources have been
part of the Company's Year 2000 project since 1995.
Integrated tests involve multiple system testing and are used to verify the
Year 2000 readiness of interfaces and connectivity across multiple systems. The
Company is using its mainframe computer to simulate a Year 2000 production
environment and to facilitate integrated testing. Integrated testing will
continue throughout 1999.
Business partners and suppliers that provide products or services critical
to the Company's operations are being reviewed and in some cases that Year 2000
preparations are being monitored by the Company. To date, no partners or
suppliers have reported that they expect to be unable to continue supplying
products and services after January 1, 2000. Initial reviews are targeted to be
completed in the first quarter of 1998. Monitoring and testing of critical
partners and suppliers will continue throughout 1999. Formal contingency
planning will begin in March 1999 and continue throughout the year. These plans
will augment the Company's existing disaster recovery plans.
The Company cannot specifically identify all of the costs to develop and
implement its Year 2000 plan. The cost of new systems to replace non-compliant
systems have been capitalized in the ordinary
50
<PAGE>
course of business. Other costs have been expensed as incurred. Through December
31, 1998, costs that have been specifically identified as relating to the Year
2000 problem total $3.9 million, with an additional $1.9 million estimated to be
required to support continued testing activity. The Company's Year 2000 efforts
have not adversely affected its normal procurement and development of
information technology.
Although the Company believes that a process is in place to successfully
address Year 2000 issues, there can be no assurances that the Company's efforts
will be successful, that interactions with other service providers with Year
2000 issues will not impair the Company's operations, or that the Year 2000
issue will not otherwise adversely affect the Company.
Should some of the Company's systems not be available due to Year 2000
problems, in a reasonably likely worst case scenario, the Company may experience
significant delays in its ability to perform certain functions, but does not
expect to be unable to perform critical functions or to otherwise conduct
business.
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.
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.
51
<PAGE>
The number of votes which are available to the Owner will be determined as
of the date coincident with the date established by the Fund for determining
shareholders eligible to vote at the relevant meeting of that Fund. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the Fund.
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.
52
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CALCULATION OF YIELDS AND TOTAL RETURNS.................................................................... 3
Oppenheimer Money Fund Sub-Account Yield................................................................. 3
Other Sub-Account Yields................................................................................. 4
Total Returns............................................................................................ 5
Effect of the Contract Maintenance Fee on Performance Data............................................... 6
SAFEKEEPING OF ACCOUNT ASSETS.............................................................................. 6
STATE REGULATION........................................................................................... 6
RECORDS AND REPORTS........................................................................................ 6
LEGAL MATTERS.............................................................................................. 7
EXPERTS.................................................................................................... 7
OTHER INFORMATION.......................................................................................... 7
FINANCIAL STATEMENTS....................................................................................... 7
</TABLE>
53
<PAGE>
APPENDIX A
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.
A-1
<PAGE>
APPENDIX B
MATTERS RELATING TO CONTRACTS OFFERED PRIOR TO MAY 1, 1996
Contracts issued before May 1, 1996 and Contracts issued in certain states
after May 1, 1996 are different in certain regards including but not limited to
providing an option that allows Owners to take loans against their Contracts, a
different guaranteed death benefit than the death benefit described on page 28,
and different procedures relating to the death benefit than those described
elsewhere in this Prospectus. (For a list of these states, please contact our
home office or your registered representative.) Owners with the different
guaranteed death benefit must refer to the discussion in this appendix together
with the other sections of this Prospectus in order to determine their rights
and benefits under the Contract.
LOAN PRIVILEGE
The Loan Privilege is an additional feature that is only available for
Section 403(b) Contracts issued before May 1, 1996, and those issued in certain
states after that date, that are not subject to Title 1 of ERISA. Under this
feature, Owners may obtain loans using only their Contracts as security for the
loan. Any such loan will be subject to the Internal Revenue Code and applicable
retirement program rules, so you should always consult a tax adviser and a
retirement plan adviser before exercising the loan privilege.
The total amount available for a loan at any given time is the lesser of:
(1) 80% of the Contract Value less any outstanding debt under the Contract
(including any interest that has accrued on the debt), or
(2) the amount permitted for a loan under federal tax law. The minimum
amount permitted under federal tax law is $1,000; the maximum is
generally equal to the amount which, when added to the existing debt
under the Contract, does not exceed the lesser of:
(a) $50,000 (reduced by any amount by which that the greatest outstanding
debt during the previous one year period, ending on the date of the
current loan, exceeds the outstanding debt as of the date of the
loan), or
(b) $10,000 or, if it is greater than $10,000, one half of the Contract
Value. For purposes of determining the permitted loan amount under
federal tax law, one must aggregate certain employer plans. You
should consult a tax advisor to determine the maximum amount you may
take as a loan without having a taxable distribution for federal tax
purposes.
We will only make loans if you make your request in the form of a properly
completed written loan application. We will make loans within seven days of
receiving your completed written loan application, subject to postponement under
the same circumstances that the payment of surrenders may be postponed. (See
"Suspension or Delay in Payments.") When you request a loan, we will reduce your
Contract Value (on a pro rata basis among the investments in the Allocation
Options, unless you request otherwise) by the amount of the loan. We will then
transfer that amount to the loan account, which is part of Protective Life's
general account. The amounts in the loan account will not be included in the
investment experience of any Sub-Account. You must repay any loan within five
years, making at least quarterly payments in substantially equal amounts. The
repayment period on a loan may be longer than five years, however, if the
purpose of the loan is to acquire a principal place of residence. In such a
case, you may prepay the loan, in whole or in part, at any time while the
Contract is in force. Failure to make timely payments may have tax consequences.
When you have repaid the loan, the amount of your repayment will be
transferred from the loan account back into the Variable Account and the
Guaranteed Account. If you do not designate otherwise, the repayment will be
allocated in accordance with your most recent instructions for allocations.
B-1
<PAGE>
On each Contract Anniversary, we will transfer from the Contract Value (from the
Allocation Options as described above) to the loan account any amount by which
your debt on the Contract exceeds the balance on the loan account.
We charge interest at 6% per year on Contract loans. Loan interest is
payable on amounts in arrears and, unless you repay it in cash, the accrued loan
interest will be added to the amount of your debt and will also bear an interest
rate of 6% per year. We credit interest on amounts held in the loan account at
4% per year. As a result, the net cost of loans under the Contract is 2% per
year. If the debt on a Contract ever exceeds the Contract Value, the Contract
will be in default and you will receive a notice indicating the payment you will
need to make in order to bring the Contract out of default. You will have 31
days as a grace period in which to pay the default amount after which, if you
have not paid the default amount, the Contract may be terminated without value.
The amount of any debt will be deducted from the death benefit. Regardless
of whether it is repaid or not, debt will have a permanent effect on the
Contract Value because the investment results of the Guaranteed and Variable
Accounts will only apply to the unborrowed portions of the Contract Value. The
longer the debt is outstanding, the greater this effect is likely to be.
DEATH BENEFIT
For Contracts issued prior to May 1, 1996, and those issued in certain
states after that date, the guaranteed death benefit equals the sum of the
Guaranteed Account plus the greater of:
(1) the Variable Account Value; or
(2) the total Purchase Payment(s) allocated to the Variable Account,
(a) plus any amounts transferred to the Variable Account,
(b) plus interest at a compounded annual effective interest rate of 5%
credited as of each Contract Anniversary until the 80th birthday of
any Owner, and
(c) minus any previous transfers from the Variable Account, partial
surrenders, and any applicable Surrender Charges and contract
maintenance fees
If the death benefit is not taken in one sum immediately, the Contract will
be continued and any increase in the Contract Value will be allocated among the
Allocation Options in proportion to their values immediately prior to the
Owners' death. In such a case, the entire interest in the Contract must be
distributed within five years of the Owner's death unless:
(a) the entire interest in the Contract is distributed over the life of the
Beneficiary, or over a period that does not extend beyond the life
expectancy of the Beneficiary, with distributions beginning within one
year of the Owner's death; or
(b) the Beneficiary is the deceased Owner's spouse and elects to continue
the Contract and become the new Owner. If the Beneficiary is the deceased
Owner's spouse and makes this election, the entire interest in the
Contract must be distributed to the new Beneficiary within five years of
the spouse's death.
B-2
<PAGE>
APPENDIX C
MATTERS RELATING TO CONTRACTS OFFERED PRIOR TO MAY 1, 1999
Contracts issued before May 1, 1999 are different in that the DCA Fixed
Accounts include an additional account that is not available in Contracts with
an Effective Date of May 1, 1999 or later. Owners of these Contracts must refer
to the discussion in this appendix together with the other sections of this
Prospectus in order to determine their rights and benefits under this Contract.
THE PRE-MAY 1, 1999 DCA FIXED ACCOUNT
The Pre-May 1, 1999 DCA Fixed Account is identical to the DCA Fixed Accounts
offered after May 1, 1999 with the following exceptions:
- You may determine the amount we systematically or automatically transfer
from this account without reference to a scheduled number of dollar cost
averaging transfers. The minimum amount you may systematically or
automatically transfer from this account, however, is $100.
- You may allocate Purchase Payments to this account with an account balance
that is greater than $0.
- Interest rates on this account are only guaranteed for a fixed period and
the interest rates we offer for any such interest guaranteed period may
differ from those we offer in a subsequent interest guaranteed period. We
determine the interest rate we offer for any interest guaranteed period at
our sole discretion, but the interest rate we offer is never less than 3%.
We currently offer interest guaranteed periods of 12 months.
C-1
<PAGE>
PLEASE TEAR OFF, COMPLETE AND RETURN THIS FORM TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. ADDRESS
THE FORM TO PROTECTIVE LIFE'S INVESTMENT PRODUCTS DIVISION, CUSTOMER SERVICE
CENTER AT THE ADDRESS SHOWN ON THE COVER.
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
THE PROTECTIVE VARIABLE ANNUITY.
- --------------------------------------------------------------------------------
Name Social Security No.
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, Zip
- --------------------------------------------------------------------------------
Daytime Telephone Number
<PAGE>
PART B
INFORMATION REQUIRED TO BE IN
THE STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone: 1-800-866-3555
STATEMENT OF ADDITIONAL INFORMATION
PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
THE PROTECTIVE VARIABLE ANNUITY
AN INDIVIDUAL FLEXIBLE PREMIUM
DEFERRED VARIABLE AND FIXED ANNUITY CONTRACT
This Statement of Additional Information contains information in addition to
the information described in the Prospectus for the Protective Variable Annuity,
an individual flexible premium deferred variable and fixed annuity contract (the
"Contract") offered by Protective Life Insurance Company. This Statement of
Additional Information is not a Prospectus. It should be read only in
conjunction with the Prospectuses for the Contract and the Funds. The Prospectus
is dated the same as this Statement of Additional Information. You may obtain a
copy of the Prospectus by writing or calling us at our address or phone number
shown above.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY 1, 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CALCULATION OF YIELDS AND TOTAL RETURNS.................................................................... 3
Oppenheimer Money Fund Sub-Account Yield................................................................. 3
Other Sub-Account Yields................................................................................. 4
Total Returns............................................................................................ 5
Effect of the Contract Maintenance Fee on Performance Data............................................... 6
SAFEKEEPING OF ACCOUNT ASSETS.............................................................................. 6
STATE REGULATION........................................................................................... 6
RECORDS AND REPORTS........................................................................................ 6
LEGAL MATTERS.............................................................................................. 7
EXPERTS.................................................................................................... 7
OTHER INFORMATION.......................................................................................... 7
FINANCIAL STATEMENTS....................................................................................... 7
</TABLE>
2
<PAGE>
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, Protective Life may disclose yields, total returns, and
other performance data pertaining to the Contracts for a Sub-Account. Such
performance data will be computed or accompanied by performance data computed,
in accordance with the standards defined by the Securities and Exchange
Commission ("SEC").
Because of the charges and deductions imposed under a Contract, yields for
the Sub-Accounts will be lower than the yields for their respective Funds. The
calculations of yields, total returns, and other performance data do not reflect
the effect of premium tax that may be applicable to a particular Contract.
Premium taxes currently range from 0% to 3.50% of premium based on the state in
which the Contract is sold.
OPPENHEIMER MONEY FUND SUB-ACCOUNT YIELD
From time to time, advertisements and sales literature may quote the current
annualized yield of the Oppenheimer Money Fund Sub-Account for a seven-day
period in a manner which does not take into consideration any realized or
unrealized gain, or losses on shares of the Oppenheimer Variable Account Funds
Money Fund/VA or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the seven day period in value of a
hypothetical account under a Contract having a balance of 1 Accumulation Unit of
the Oppenheimer Money Fund Sub-Account at the beginning of the period, dividing
such net change in account value by the value of the hypothetical account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis. The net change in account value reflects: 1)
net income from the Oppenheimer Variable Account Funds Money Fund/VA
attributable to the hypothetical account; and 2) charges and deductions imposed
under the Contract attributable to the hypothetical account. The charges and
deductions reflect the per unit charges for the hypothetical account for: 1) the
Annual Contract Maintenance Fee; 2) Administration Charge; and 3) the Mortality
and Expense Risk Charge. For purposes of calculating current yields for a
Contract, an average per unit Contract Maintenance Fee is used based on the $35
Contract Maintenance Fee deducted at the end of each Contract Year. Current
Yield will be calculated according to the following formula:
Current Yield = ((NCS-ES)/UV) X (365/7)
Where:
<TABLE>
<S> <C>
NCS the net change in the value of the Fund (exclusive of unrealized gains
or losses on the sale of securities and unrealized appreciation and
depreciation) for the seven-day period attributable to a hypothetical
Account having a balance of 1 Sub-Account Accumulation Unit.
ES per unit expenses attributable to the hypothetical account for the
seven-day period.
UV the Accumulation Unit value as of the end of the last day of the prior
seven-day period.
</TABLE>
The effective yield of the Oppenheimer Variable Account Funds Money Fund
Sub-Account determined on a compounded basis for the same seven-day period may
also be quoted.
The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
Effective Yield = (1+((NCS-ES)/UV))(365/7) - 1
3
<PAGE>
Where:
<TABLE>
<S> <C>
NCS the net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation) for the seven-day period attributable to a
hypothetical account having a balance of 1 Sub-Account Accumulation
Unit.
ES per Accumulation Unit expenses attributable to the hypothetical account
for the seven-day period.
UV the Accumulation Unit value as of the end of the last day of the prior
seven-day period.
</TABLE>
Because of the charges and deductions imposed under the Contract, the
current and effective yields for the Oppenheimer Money Fund Sub-Account will be
lower than such yields for the Oppenheimer Variable Account Funds Money Fund.
The current and effective yields on amounts held in the Oppenheimer Money
Fund Sub-Account normally will fluctuate on a daily basis. THEREFORE, THE
DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION
OF FUTURE YIELDS OR RATES OF RETURN. The Oppenheimer Money Fund Sub-Account's
actual yield is affected by changes in interest rates on money market
securities, average portfolio maturity of the Oppenheimer Variable Account Funds
Money Fund, the types of quality of portfolio securities held by the Oppenheimer
Variable Account Funds Money Fund and the Oppenheimer Money Fund's operating
expenses. Yields on amounts held in the Oppenheimer Money Fund Sub-Account may
also be presented for periods other than a seven day period.
OTHER SUB-ACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Sub-Accounts (except the Oppenheimer
Money Fund Sub-Account) for a Contract for 30-day or one-month periods. The
annualized yield of a Sub-Account refers to income generated by the Sub-Account
over a specific 30 day or one month period. Because the yield is annualized, the
yield generated by a Sub-Account during a 30-day or one-month period is assumed
to be generated each period over a 12-month period.
The yield is computed by: 1) dividing the net investment income of the Fund
attributable to the Sub-Account Accumulation Units less Sub-Account expenses for
the period; by 2) the maximum offering price per Accumulation Unit on the last
day of the period times the daily average number of units outstanding for the
period; by 3) compounding that yield for a six-month period; and by 4)
multiplying that result by 2. Expenses attributable to the Sub-Account include
the Annual Contract Maintenance Fee, the Administration Charge and the Mortality
and Expense Risk Charge. The yield calculation assumes an Contract Maintenance
Fee of $35 per year per Contract deducted at the end of each Contract Year. For
purposes of calculating the 31-day or one-month yield, an average administration
fee per dollar of Contract value in the Variable Account is used to determine
the amount of the charge attributable to the Sub-Account for the 30-day or
one-month period. The 30 day or one month yield is calculated according to the
following formula:
Yield = 2 X [(((N1-ES)/ (U X UV))+1)(6) - 1]
Where:
<TABLE>
<S> <C>
N1 net income of the Fund for the 30 day or one month period attributable
to the Sub-Account Accumulation Units.
ES expenses of the Sub-Account for the 30 day or one month period.
U the average number of Accumulation Units outstanding.
UV the Accumulation Unit value as of the end of the last day in the 30 day
or one month period.
</TABLE>
4
<PAGE>
Because of the charges and deductions imposed under the Contracts, the yield
for the Sub-Account will be lower than the yield for the corresponding Fund.
The yield on the amounts held in the Sub-Accounts normally will fluctuate
over time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
Sub-Account's actual yield is affected by the types and quality of portfolio
securities held by the corresponding Fund and its operating expenses.
TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns for one or more of the Sub-Accounts for various periods of
time.
Until a Sub-Account has been in operation for 10 years, Protective Life will
always include quotes of standard average annual total return for the period
measured from the date that Sub-Account began operations. When a Sub-Account has
been in operation for 1, 5, and 10 years, respectively, the standard average
annual total return for these periods will be provided. Average annual total
returns for other periods of time may, from time to time, also be disclosed.
Average annual total returns represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Contract to
the redemption value of that investment as of the last day of each of the
periods. The ending date of each period for which total return quotations are
provided will generally be for the most recent month-end practicable considering
the type and media of the communication and will be stated in the communication.
All average annual total returns will be calculated using Sub-Account unit
values computed on each Valuation Day based on the performance of the
Sub-Account's underlying Fund, the deductions for the mortality and expense risk
charge and the administration charge.
The standard average annual total return calculation assumes that the
contract maintenance fee is $35 per year per contract, expressed as a percentage
of the average Contract Value. The standard average annual total return will be
calculated according to the following formula:
TR = (ERV/P)(1/N) - 1
Where:
<TABLE>
<S> <C> <C>
TR = the average annual total return net of Sub-Account recurring
charges.
EV = the ending redeemable value (net of any applicable surrender charge)
of the hypothetical account at the end of the period.
P = a hypothetical single Purchase Payment of $1,000.
N = the number of years in the period.
</TABLE>
In addition to standard average annual total returns, sales literature or
advertisements may from time to time also quote nonstandard average annual total
returns that do not reflect the surrender charge, the Contract maintenance fee,
or both. These nonstandard average annual total returns are calculated in
exactly the same way as standard average annual total returns described above,
except that the ending redeemable value of the hypothetical account for the
period is replaced with an ending value for the period that does not take into
account the surrender charge, the Contract maintenance fee, or both.
5
<PAGE>
Protective Life may also disclose cumulative total returns in conjunction
with the formats described above. The cumulative total returns will be
calculated using the following formula:
CTR = (EV/P) - 1
Where:
<TABLE>
<S> <C> <C>
CTR = The cumulative total return net of Sub-Account recurring charges for
the period.
ERV = The ending value of the hypothetical investment at the end of the
period that does not take into account the surrender charge, the
Contract maintenance fee, or both.
P = A hypothetical single Purchase Payment of $1,000.
</TABLE>
EFFECT OF THE CONTRACT MAINTENANCE FEE ON PERFORMANCE DATA
The Contract provides for a $35 annual contract maintenance fee to be
deducted at the end of each Contract Year from the Sub-Accounts based on the
proportion that the value of each Sub-Account bears to the total Contract Value.
For purposes of reflecting the contract maintenance fee in yield and total
return quotations, the annual charge is converted into a per-dollar per-day
charge based on the average Variable Account value of all Contracts on the last
day of the period for which quotations are provided. The per-dollar per-day
average charge is then adjusted to reflect the basis upon which the particular
quotation is calculated.
SAFEKEEPING OF ACCOUNT ASSETS
Title to the assets of the Variable Account are held by Protective Life. The
assets are kept physically segregated and held separate and apart from the
Company's General Account assets and from the assets in any other separate
account.
Records are maintained of all purchases and redemptions of Fund shares held
by each of the Sub-Accounts.
The officers and employees of Protective Life are covered by an insurance
company blanket bond issued in the amount of $20 million dollars. The bond
insures against dishonest and fraudulent acts of officers and employees.
STATE REGULATION
Protective Life is subject to regulation and supervision by the Department
of Insurance of the State of Tennessee which periodically examines its affairs.
It is also subject to the insurance laws and regulations of all jurisdictions
where it is authorized to do business. A copy of the Contract form has been
filed with, and where required approved by, insurance officials in each
jurisdiction where the Contracts are sold. Protective Life is required to submit
annual statements of its operations, including financial statements, to the
insurance departments of the various jurisdictions in which it does business for
the purposes of determining solvency and compliance with local insurance laws
and regulations.
RECORDS AND REPORTS
Protective Life will maintain all records and accounts relating to the
Variable Account. As presently required by the 1940 Act and regulations
promulgated thereunder, reports containing such information as may be required
under the Act or by any other applicable law or regulation will be sent to
Owner(s) periodically at the last known address.
6
<PAGE>
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws.
EXPERTS
The statement of assets and liabilities of The 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 and the consolidated balance sheets of Protective Life as of December 31,
1998 and 1997 and the related consolidated statements of income, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1998 and the related financial statement schedules included in this
Statement of Additional Information and in the registration statement have been
included herein in reliance on the report of PricewaterhouseCoopers LLP
(formerly Coopers & Lybrand LLP) of Birmingham, AL, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this Statement
of Additional Information concerning the content of the Contracts and other
legal instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed with
the SEC at 450 Fifth Street, N. W., Washington, D.C. 20549.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities of The 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
herein.
The audited consolidated balance sheets for Protective Life as of December
31, 1998 and 1997 and the related consolidated statements of income,
stockholder's equity, and cash flows for the years ended December 31, 1998, 1997
and 1996 as well as the Report of Independent Accountants are contained herein.
Financial Statements follow this page.
7
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
Report of Independent Accountants.................................................... F-1
Statement of Assets and Liabilities as of December 31, 1998.......................... F-2
Statement of Assets and Liabilities as of December 31, 1997.......................... F-4
Statement of Operations for the period ended December 31, 1998....................... F-6
Statement of Operations for the period ended December 31, 1997....................... F-8
Statement of Changes in Net Assets for the period ended December 31, 1998............ F-10
Statement of Changes in Net Assets for the period ended December 31, 1997............ F-12
Notes to Financial Statements........................................................ F-14
PROTECTIVE LIFE INSURANCE COMPANY
Report of Independent Accountants.................................................... F-22
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and
1996................................................................................ F-23
Consolidated Balance Sheets as of December 31, 1998 and 1997......................... F-24
Consolidated Statements of Share-Owner's Equity for the years ended December 31,
1998, 1997 and 1996................................................................. F-25
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and
1996................................................................................ F-26
Notes to Consolidated Financial Statements........................................... F-27
Financial Statement Schedules:
Schedule III-- Supplementary Insurance Information................................... S-1
Schedule IV-- Reinsurance............................................................ S-2
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners and Board of Directors
of Protective Life Insurance Company
In our opinion, the accompanying statements of assets and liabilities and
the related statements of operations and changes in assets of the Protective
Variable Annuity Separate Account (the "Separate Account") listed in the index
on page F-1 of this Form N-4 present fairly, in all material respects, the
financial position of the Separate Account at December 31, 1998 and 1997, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Separate Account's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
March 17, 1999
Birmingham, Alabama
F-1
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC PIC
MONEY GROWTH AND INTERNATIONAL GLOBAL SMALL CAP CORE US
MARKET INCOME EQUITY INCOME VALUE EQUITY
---------- ------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at
market value...................... $5,304,962 $ 386,296,900 $ 173,532,636 $62,451,103 $99,008,326 $ 261,457,421
Receivable from Protective Life
Insurance Company................. 1 0 0 0 0 0
---------- ------------- ------------- ----------- ----------- -------------
Total Assets................... 5,304,963 386,296,900 173,532,636 62,451,103 99,008,326 261,457,421
---------- ------------- ------------- ----------- ----------- -------------
LIABILITIES
Payable to Protective Life
Insurance Company................. 0 0 0 0 0 0
---------- ------------- ------------- ----------- ----------- -------------
NET ASSETS......................... $5,304,963 $ 386,296,900 $ 173,532,636 $62,451,103 $99,008,326 $ 261,457,421
---------- ------------- ------------- ----------- ----------- -------------
---------- ------------- ------------- ----------- ----------- -------------
<CAPTION>
CALVERT
PIC SOCIAL CALVERT
CAPITAL SMALL CAP SOCIAL
GROWTH GROWTH BALANCED
------------- --------- ----------
<S> <C> <C> <C>
ASSETS
Investment in sub-accounts at
market value...................... $ 152,416,381 $ 549,826 $6,149,990
Receivable from Protective Life
Insurance Company................. 0 0 0
------------- --------- ----------
Total Assets................... 152,416,381 549,826 6,149,990
------------- --------- ----------
LIABILITIES
Payable to Protective Life
Insurance Company................. 0 0 0
------------- --------- ----------
NET ASSETS......................... $ 152,416,381 $ 549,826 $6,149,990
------------- --------- ----------
------------- --------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS MFS MFS OPPENHEIMER OPPENHEIMER
EMERGING MFS GROWTH WITH TOTAL AGGRESSIVE OPPENHEIMER GROWTH AND
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME
----------- ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts
at market value............ $16,563,501 $26,334,396 $19,391,258 $13,034,687 $11,330,154 $16,022,393 $20,092,152
Receivable from Protective
Life Insurance Company..... 0 0 0 0 0 0 0
----------- ----------- ----------- ----------- ------------ ------------ ------------
Total Assets............ 16,563,501 26,334,396 19,391,258 13,034,687 11,330,154 16,022,393 20,092,152
----------- ----------- ----------- ----------- ------------ ------------ ------------
LIABILITIES
Payable to Protective Life
Insurance Company.......... 0 0 0 0 0 0 0
----------- ----------- ----------- ----------- ------------ ------------ ------------
NET ASSETS.................. $16,563,501 $26,334,396 $19,391,258 $13,034,687 $11,330,154 $16,022,393 $20,092,152
----------- ----------- ----------- ----------- ------------ ------------ ------------
----------- ----------- ----------- ----------- ------------ ------------ ------------
<CAPTION>
OPPENHEIMER
STRATEGIC
BOND TOTAL
------------ --------------
<S> <C> <C>
ASSETS
Investment in sub-accounts
at market value............ $15,978,991 $1,285,915,077
Receivable from Protective
Life Insurance Company..... 0 1
------------ --------------
Total Assets............ 15,978,991 1,285,915,078
------------ --------------
LIABILITIES
Payable to Protective Life
Insurance Company.......... 0 0
------------ --------------
NET ASSETS.................. $15,978,991 $1,285,915,078
------------ --------------
------------ --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC PIC
MONEY GROWTH AND INTERNATIONAL GLOBAL SMALL CAP CORE
MARKET INCOME EQUITY INCOME VALUE US EQUITY
---------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at
market value...................... $3,571,053 $ 355,505,039 $ 131,344,810 $48,720,463 $ 107,421,163 $ 176,791,623
Receivable from Protective Life
Insurance Company................. 17,327 49,074 479 0 6,003 0
---------- ------------- ------------- ----------- ------------- -------------
Total Assets................... 3,588,380 355,554,113 131,345,289 48,720,463 107,427,166 176,791,623
---------- ------------- ------------- ----------- ------------- -------------
LIABILITIES
Payable to Protective Life
Insurance Company................. 0 0 0 14 0 2,581
---------- ------------- ------------- ----------- ------------- -------------
NET ASSETS......................... $3,588,380 $ 355,554,113 $ 131,345,289 $48,720,449 $ 107,427,166 $ 176,789,042
---------- ------------- ------------- ----------- ------------- -------------
---------- ------------- ------------- ----------- ------------- -------------
<CAPTION>
CALVERT
PIC SOCIAL CALVERT
CAPITAL SMALL CAP SOCIAL
GROWTH GROWTH BALANCED
----------- --------- ----------
<S> <C> <C> <C>
ASSETS
Investment in sub-accounts at
market value...................... $74,411,193 $ 136,679 $1,050,736
Receivable from Protective Life
Insurance Company................. 0 0 155
----------- --------- ----------
Total Assets................... 74,411,193 136,679 1,050,891
----------- --------- ----------
LIABILITIES
Payable to Protective Life
Insurance Company................. 12 0 0
----------- --------- ----------
NET ASSETS......................... $74,411,181 $ 136,679 $1,050,891
----------- --------- ----------
----------- --------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS GROWTH MFS OPPENHEIMER OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER GROWTH AND
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME
---------- ---------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at
market value..................... $3,320,856 $6,285,782 $2,671,278 $1,747,276 $2,613,453 $3,609,636 $2,931,384
Receivable from Protective Life
Insurance Company................ 0 0 0 0 0 0 728
---------- ---------- ---------- ---------- ------------ ------------ ------------
Total Assets.................. 3,320,856 6,285,782 2,671,278 1,747,276 2,613,453 3,609,636 2,932,112
---------- ---------- ---------- ---------- ------------ ------------ ------------
LIABILITIES
Payable to Protective Life
Insurance Company................ 0 0 1 0 0 1,092 0
---------- ---------- ---------- ---------- ------------ ------------ ------------
NET ASSETS........................ $3,320,856 $6,285,782 $2,671,277 $1,747,276 $2,613,453 $3,608,544 $2,932,112
---------- ---------- ---------- ---------- ------------ ------------ ------------
---------- ---------- ---------- ---------- ------------ ------------ ------------
<CAPTION>
OPPENHEIMER
STRATEGIC
BOND TOTAL
------------ -------------
<S> <C> <C>
ASSETS
Investment in sub-accounts at
market value..................... $2,935,255 $ 925,067,679
Receivable from Protective Life
Insurance Company................ 0 73,766
------------ -------------
Total Assets.................. 2,935,255 925,141,445
------------ -------------
LIABILITIES
Payable to Protective Life
Insurance Company................ 14,633 18,333
------------ -------------
NET ASSETS........................ $2,920,622 $ 925,123,112
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC PIC
MONEY GROWTH AND INTERNATIONAL GLOBAL SMALL CAP CORE US
MARKET INCOME EQUITY INCOME VALUE EQUITY
--------- ------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................. $ 248,570 $ 4,636,458 $ 73,813 $1,425,072 $ 506,364 $ 1,545,019
EXPENSE
Mortality and expense risk and
administrative charges................... 73,185 5,531,483 2,192,885 781,443 1,543,516 3,060,032
--------- ------------ ------------ ---------- ------------ -----------
Net investment income (loss).............. 175,385 (895,025) (2,119,072) 643,629 (1,037,152) (1,515,013)
--------- ------------ ------------ ---------- ------------ -----------
NET REALIZED AND UNREALIZED GAINS ON
INVESTMENTS
Net realized gain (loss) from redemption of
investment shares.......................... 1 (17,561) (17,289) 4,026 (80,834) (1,687)
Capital gain distribution................... 0 26,646,014 8,165,714 1,574,397 11,785,637 2,694,185
--------- ------------ ------------ ---------- ------------ -----------
Net realized gain on investments............ 1 26,628,453 8,148,425 1,578,423 11,704,803 2,692,498
Net unrealized appreciation (depreciation)
on investments during the period........... 1 (45,438,848) 19,472,762 2,463,139 (30,578,648) 39,309,978
--------- ------------ ------------ ---------- ------------ -----------
Net realized and unrealized gain (loss) on
investments................................ 2 (18,810,395) 27,621,187 4,041,562 (18,873,845) 42,002,476
--------- ------------ ------------ ---------- ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. $ 175,387 $(19,705,420) $25,502,115 $4,685,191 $(19,910,997) $40,487,463
--------- ------------ ------------ ---------- ------------ -----------
--------- ------------ ------------ ---------- ------------ -----------
<CAPTION>
CALVERT
PIC SOCIAL CALVERT
CAPITAL SMALL CAP SOCIAL
GROWTH GROWTH BALANCED
----------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends................................. $ 578,012 $ 487 $ 137,208
EXPENSE
Mortality and expense risk and
administrative charges................... 1,509,515 4,471 43,385
----------- --------- ---------
Net investment income (loss).............. (931,503) (3,984) 93,823
----------- --------- ---------
NET REALIZED AND UNREALIZED GAINS ON
INVESTMENTS
Net realized gain (loss) from redemption of
investment shares.......................... (15,882) 543 (4,185)
Capital gain distribution................... 2,671,568 6,748 307,711
----------- --------- ---------
Net realized gain on investments............ 2,655,686 7,291 303,526
Net unrealized appreciation (depreciation)
on investments during the period........... 29,948,200 (21,221) 118,408
----------- --------- ---------
Net realized and unrealized gain (loss) on
investments................................ 32,603,886 (13,930) 421,934
----------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. $31,672,383 $ (17,914) $ 515,757
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS MFS GROWTH OPPENHEIMER OPPENHEIMER
EMERGING MFS WITH MFS TOTAL AGGRESSIVE OPPENHEIMER GROWTH AND
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME
---------- ---------- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................ $ 0 $ 18,216 $ 0 $ 61,776 $ 10,204 $ 38,507 $ 11,591
EXPENSE
Mortality and expense risk and
administrative charges.............. 121,117 208,964 127,398 91,976 90,619 121,481 136,131
---------- ---------- ---------- --------- ------------ ------------ ------------
Net investment income (loss)......... (121,117) (190,748) (127,398) (30,200) (80,415) (82,974) (124,540)
---------- ---------- ---------- --------- ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAINS ON
INVESTMENTS
Net realized gain (loss) from
redemption of investment shares....... (150) (2,028) 2,288 (149) (8,467) 1,617 430
Capital gain distribution.............. 54,636 238,877 0 72,636 104,789 464,612 255,235
---------- ---------- ---------- --------- ------------ ------------ ------------
Net realized gain on investments....... 54,486 236,849 2,288 72,487 96,322 466,229 255,665
Net unrealized appreciation
(depreciation) on investments during
the period............................ 2,954,000 3,073,695 2,041,489 695,548 898,627 1,756,712 344,809
---------- ---------- ---------- --------- ------------ ------------ ------------
Net realized and unrealized gain (loss)
on investments........................ 3,008,486 3,310,544 2,043,777 768,035 994,949 2,222,941 600,474
---------- ---------- ---------- --------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $2,887,369 $3,119,796 $1,916,379 $ 737,835 $ 914,534 $2,139,967 $ 475,934
---------- ---------- ---------- --------- ------------ ------------ ------------
---------- ---------- ---------- --------- ------------ ------------ ------------
<CAPTION>
OPPENHEIMER
STRATEGIC
BOND TOTAL
------------ -----------
<S> <C> <C>
INVESTMENT INCOME
Dividends............................ $ 89,250 $ 9,380,547
EXPENSE
Mortality and expense risk and
administrative charges.............. 128,836 15,766,437
------------ -----------
Net investment income (loss)......... (39,586) (6,385,890)
------------ -----------
NET REALIZED AND UNREALIZED GAINS ON
INVESTMENTS
Net realized gain (loss) from
redemption of investment shares....... 1,758 (137,569)
Capital gain distribution.............. 57,517 55,100,276
------------ -----------
Net realized gain on investments....... 59,275 54,962,707
Net unrealized appreciation
(depreciation) on investments during
the period............................ 47,763 27,086,414
------------ -----------
Net realized and unrealized gain (loss)
on investments........................ 107,038 82,049,121
------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $ 67,452 $75,663,231
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC PIC
MONEY GROWTH AND INTERNATIONAL GLOBAL SMALL CAP CORE US
MARKET INCOME EQUITY INCOME VALUE EQUITY
--------- ----------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................... $ 216,131 $ 2,530,403 $2,328,793 $3,987,063 $ 311,079 $ 1,442,006
EXPENSE
Mortality and expense risk and
administrative charges..................... 62,875 4,093,470 1,668,076 601,492 1,213,746 1,983,808
--------- ----------- ------------ ---------- ----------- -----------
Net investment income (loss)................ 153,256 (1,563,067) 660,717 3,385,571 (902,667) (541,802)
--------- ----------- ------------ ---------- ----------- -----------
NET REALIZED AND UNREALIZED GAINS ON
INVESTMENTS
Net realized gain (loss) from redemption of
investment shares............................ 0 3,109 5,500 1,401 17,568 553
Capital gain distribution..................... 0 47,260,910 7,212,859 603,653 11,826,478 13,990,186
--------- ----------- ------------ ---------- ----------- -----------
Net realized gain on investments.............. 0 47,264,019 7,218,359 605,054 11,844,046 13,990,739
Net unrealized appreciation (depreciation) on
investments during the period................ 1 19,421,926 (5,637,373) (450,116) 10,752,598 20,604,003
--------- ----------- ------------ ---------- ----------- -----------
Net realized and unrealized gain (loss) on
investments.................................. 1 66,685,945 1,580,986 154,938 22,596,644 34,594,742
--------- ----------- ------------ ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................... $ 153,257 $65,122,878 $2,241,703 $3,540,509 $21,693,977 $34,052,940
--------- ----------- ------------ ---------- ----------- -----------
--------- ----------- ------------ ---------- ----------- -----------
<CAPTION>
CALVERT
PIC SOCIAL CALVERT
CAPITAL SMALL CAP SOCIAL
GROWTH GROWTH BALANCED
----------- --------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends................................... $ 451,531 $ 0 $ 23,016
EXPENSE
Mortality and expense risk and
administrative charges..................... 711,311 408 2,454
----------- --------- -----------
Net investment income (loss)................ (259,780) (408) 20,562
----------- --------- -----------
NET REALIZED AND UNREALIZED GAINS ON
INVESTMENTS
Net realized gain (loss) from redemption of
investment shares............................ (554) (12) 76
Capital gain distribution..................... 4,665,040 12,282 49,926
----------- --------- -----------
Net realized gain on investments.............. 4,664,486 12,270 50,002
Net unrealized appreciation (depreciation) on
investments during the period................ 8,959,175 (12,845) (53,486)
----------- --------- -----------
Net realized and unrealized gain (loss) on
investments.................................. 13,623,661 (575) (3,484)
----------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................... $13,363,881 $ (983) $ 17,078
----------- --------- -----------
----------- --------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
MFS GROWTH OPPENHEIMER
EMERGING MFS WITH MFS TOTAL AGGRESSIVE OPPENHEIMER
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH
----------- ----------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $ 0 $ 0 $ 10,479 $ 0 $ 0 $ 0
EXPENSE
Mortality and expense risk and
administrative charges.................... 11,765 19,515 7,836 4,785 7,974 11,176
----------- ----------- --------- --------- ------------- -------------
Net investment income (loss)............... (11,765) (19,515) 2,643 (4,785) (7,974) (11,176)
----------- ----------- --------- --------- ------------- -------------
NET REALIZED AND UNREALIZED GAINS ON
INVESTMENTS
Net realized gain (loss) from redemption of
investment shares........................... 2,267 7 92 202 11 19
Capital gain distribution.................... 0 0 49,017 0 0 0
----------- ----------- --------- --------- ------------- -------------
Net realized gain on investments............. 2,267 7 49,109 202 11 19
Net unrealized appreciation (depreciation) on
investments during the period............... 2,208 13,033 41,478 48,443 (56,978) (9,267)
----------- ----------- --------- --------- ------------- -------------
Net realized and unrealized gain (loss) on
investments................................. 4,475 13,040 90,587 48,645 (56,967) (9,248)
----------- ----------- --------- --------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................... $ (7,290) $ (6,475) $ 93,230 $ 43,860 $ (64,941) $ (20,424)
----------- ----------- --------- --------- ------------- -------------
----------- ----------- --------- --------- ------------- -------------
<CAPTION>
OPPENHEIMER OPPENHEIMER
GROWTH AND STRATEGIC
INCOME BOND TOTAL
------------ ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $ 8,008 $ 73,276 $ 11,381,785
EXPENSE
Mortality and expense risk and
administrative charges.................... 8,503 9,293 10,418,487
------------ ------------- -------------
Net investment income (loss)............... (495) 63,983 963,298
------------ ------------- -------------
NET REALIZED AND UNREALIZED GAINS ON
INVESTMENTS
Net realized gain (loss) from redemption of
investment shares........................... 118 21 30,378
Capital gain distribution.................... 0 0 85,670,351
------------ ------------- -------------
Net realized gain on investments............. 118 21 85,700,729
Net unrealized appreciation (depreciation) on
investments during the period............... 109,900 (22,462) 53,710,238
------------ ------------- -------------
Net realized and unrealized gain (loss) on
investments................................. 110,018 (22,441) 139,410,967
------------ ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................... $ 109,523 $ 41,542 $ 140,374,265
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC PIC
MONEY GROWTH AND INTERNATIONAL GLOBAL SMALL CAP CORE US
MARKET INCOME EQUITY INCOME VALUE EQUITY
----------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ 175,385 $ (895,025) $ (2,119,072) $ 643,629 $ (1,037,152) $ (1,515,013)
Net realized gain on investments... 1 26,628,453 8,148,425 1,578,423 11,704,803 2,692,498
Net unrealized appreciation
(depreciation) of investments
during the period................. 1 (45,438,848) 19,472,762 2,463,139 (30,578,648) 39,309,978
----------- ------------- ------------- ----------- ------------- -------------
Net increase (decrease) in net
assets resulting from
operations........................ 175,387 (19,705,420) 25,502,115 4,685,191 (19,910,997) 40,487,463
----------- ------------- ------------- ----------- ------------- -------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net payments...... 2,963,346 44,661,113 12,821,323 6,767,675 10,541,589 28,759,864
Contract maintenance fees.......... (2,344) (155,734) (66,464) (17,859) (47,353) (79,195)
Surrenders......................... (3,373,648) (15,673,534) (4,971,778) (2,847,710) (3,549,612) (7,435,839)
Death benefits..................... (36,443) (2,354,085) (1,135,800) (491,719) (712,842) (1,430,656)
Transfer (to) from other
portfolios........................ 1,990,285 23,970,447 10,037,951 5,635,076 5,260,375 24,366,742
----------- ------------- ------------- ----------- ------------- -------------
Net increase in net assets
resulting from variable annuity
contract transactions............. 1,541,196 50,448,207 16,685,232 9,045,463 11,492,157 44,180,916
----------- ------------- ------------- ----------- ------------- -------------
Total increase (decrease) in net
assets............................ 1,716,583 30,742,787 42,187,347 13,730,654 (8,418,840) 84,668,379
NET ASSETS
Beginning of year.................. 3,588,380 355,554,113 131,345,289 48,720,449 107,427,166 176,789,042
----------- ------------- ------------- ----------- ------------- -------------
End of year........................ $ 5,304,963 $ 386,296,900 $ 173,532,636 $62,451,103 $ 99,008,326 $ 261,457,421
----------- ------------- ------------- ----------- ------------- -------------
----------- ------------- ------------- ----------- ------------- -------------
<CAPTION>
CALVERT
SOCIAL
PIC SMALL CALVERT
CAPITAL CAP SOCIAL
GROWTH GROWTH BALANCED
------------- --------- ----------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ (931,503) $ (3,984) $ 93,823
Net realized gain on investments... 2,655,686 7,291 303,526
Net unrealized appreciation
(depreciation) of investments
during the period................. 29,948,200 (21,221) 118,408
------------- --------- ----------
Net increase (decrease) in net
assets resulting from
operations........................ 31,672,383 (17,914) 515,757
------------- --------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net payments...... 23,614,776 231,937 2,395,475
Contract maintenance fees.......... (40,182) (260) (692)
Surrenders......................... (2,924,880) (824) (95,901)
Death benefits..................... (710,672) 0 (30,452)
Transfer (to) from other
portfolios........................ 26,393,775 200,208 2,314,912
------------- --------- ----------
Net increase in net assets
resulting from variable annuity
contract transactions............. 46,332,817 431,061 4,583,342
------------- --------- ----------
Total increase (decrease) in net
assets............................ 78,005,200 413,147 5,099,099
NET ASSETS
Beginning of year.................. 74,411,181 136,679 1,050,891
------------- --------- ----------
End of year........................ $ 152,416,381 $ 549,826 $6,149,990
------------- --------- ----------
------------- --------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER GROWTH AND
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME
----------- ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss)....................... $ (121,117) $ (190,748) $ (127,398) $ (30,200) $ (80,415) $ (82,974) $ (124,540)
Net realized gain on
investments.................. 54,486 236,849 2,288 72,487 96,322 466,229 255,665
Net unrealized appreciation
(depreciation) of investments
during the period............ 2,954,000 3,073,695 2,041,489 695,548 898,627 1,756,712 344,809
----------- ----------- ----------- ----------- ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations................... 2,887,369 3,119,796 1,916,379 737,835 914,534 2,139,967 475,934
----------- ----------- ----------- ----------- ------------ ------------ ------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net
payments..................... 5,571,115 9,051,964 7,664,341 3,749,787 4,311,786 5,905,789 8,994,192
Contract maintenance fees..... (2,956) (3,930) (1,930) (1,409) (2,142) (2,350) (2,233)
Surrenders.................... (177,307) (303,372) (326,160) (135,376) (89,091) (123,371) (246,266)
Death benefits................ (102,914) (122,413) (56,738) (44,941) (50,848) (52,012) (164,009)
Transfer (to) from other
portfolios................... 5,067,338 8,306,569 7,524,089 6,981,515 3,632,462 4,545,826 8,102,422
----------- ----------- ----------- ----------- ------------ ------------ ------------
Net increase in net assets
resulting from variable
annuity contract
transactions................. 10,355,276 16,928,818 14,803,602 10,549,576 7,802,167 10,273,882 16,684,106
----------- ----------- ----------- ----------- ------------ ------------ ------------
Total increase (decrease) in
net assets................... 13,242,645 20,048,614 16,719,981 11,287,411 8,716,701 12,413,849 17,160,040
NET ASSETS
Beginning of year............. 3,320,856 6,285,782 2,671,277 1,747,276 2,613,453 3,608,544 2,932,112
----------- ----------- ----------- ----------- ------------ ------------ ------------
End of year................... $16,563,501 $26,334,396 $19,391,258 $13,034,687 $11,330,154 $16,022,393 $20,092,152
----------- ----------- ----------- ----------- ------------ ------------ ------------
----------- ----------- ----------- ----------- ------------ ------------ ------------
<CAPTION>
OPPENHEIMER
STRATEGIC
BOND TOTAL
------------ --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income
(loss)....................... $ (39,586) $ (6,385,890)
Net realized gain on
investments.................. 59,275 54,962,707
Net unrealized appreciation
(depreciation) of investments
during the period............ 47,763 27,086,414
------------ --------------
Net increase (decrease) in net
assets resulting from
operations................... 67,452 75,663,231
------------ --------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net
payments..................... 5,763,714 183,769,786
Contract maintenance fees..... (2,055) (429,088)
Surrenders.................... (340,560) (42,615,229)
Death benefits................ (49,270) (7,545,814)
Transfer (to) from other
portfolios................... 7,619,088 151,949,080
------------ --------------
Net increase in net assets
resulting from variable
annuity contract
transactions................. 12,990,917 285,128,735
------------ --------------
Total increase (decrease) in
net assets................... 13,058,369 360,791,966
NET ASSETS
Beginning of year............. 2,920,622 925,123,112
------------ --------------
End of year................... $15,978,991 $1,285,915,078
------------ --------------
------------ --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC PIC
MONEY GROWTH AND INTERNATIONAL GLOBAL SMALL CAP CORE US
MARKET INCOME EQUITY INCOME VALUE EQUITY
----------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)......... $ 153,256 $ (1,563,067) $ 660,717 $ 3,385,571 $ (902,667) $ (541,802)
Net realized gain on investments..... 0 47,264,019 7,218,359 605,054 11,844,046 13,990,739
Net unrealized appreciation
(depreciation) of investments during
the period.......................... 1 19,421,926 (5,637,373) (450,116) 10,752,598 20,604,003
----------- ------------- ------------- ----------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations........... 153,257 65,122,878 2,241,703 3,540,509 21,693,977 34,052,940
----------- ------------- ------------- ----------- ------------- -------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net payments........ 4,550,506 70,285,404 27,497,729 8,832,118 17,115,594 33,348,489
Contract maintenance fees............ (1,861) (119,996) (53,643) (15,577) (40,747) (57,679)
Surrenders........................... (2,124,233) (10,448,724) (4,248,152) (1,859,370) (3,563,235) (5,804,052)
Death benefits....................... (90,244) (2,020,758) (806,371) (432,617) (383,402) (952,669)
Transfer (to) from other
portfolios.......................... (5,005,559) 22,297,846 10,100,492 1,001,821 8,302,698 14,654,534
----------- ------------- ------------- ----------- ------------- -------------
Net increase in net assets resulting
from variable annuity contract
transactions........................ (2,671,391) 79,993,772 32,490,055 7,526,375 21,430,908 41,188,623
----------- ------------- ------------- ----------- ------------- -------------
Total increase (decrease) in net
assets.............................. (2,518,134) 145,116,650 34,731,758 11,066,884 43,124,885 75,241,563
NET ASSETS
Beginning of year.................... 6,106,514 210,437,463 96,613,531 37,653,565 64,302,281 101,547,479
----------- ------------- ------------- ----------- ------------- -------------
End of year.......................... $ 3,588,380 $ 355,554,113 $ 131,345,289 $48,720,449 $ 107,427,166 $ 176,789,042
----------- ------------- ------------- ----------- ------------- -------------
----------- ------------- ------------- ----------- ------------- -------------
<CAPTION>
CALVERT
SOCIAL
PIC SMALL CALVERT
CAPITAL CAP SOCIAL
GROWTH GROWTH BALANCED
----------- --------- ----------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)......... $ (259,780) $ (408) $ 20,562
Net realized gain on investments..... 4,664,486 12,270 50,002
Net unrealized appreciation
(depreciation) of investments during
the period.......................... 8,959,175 (12,845) (53,486)
----------- --------- ----------
Net increase (decrease) in net assets
resulting from operations........... 13,363,881 (983) 17,078
----------- --------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net payments........ 23,501,411 107,775 954,698
Contract maintenance fees............ (19,980) 7 (21)
Surrenders........................... (1,542,873) (544) (9,883)
Death benefits....................... (290,376) 0 0
Transfer (to) from other
portfolios.......................... 9,204,993 30,424 89,019
----------- --------- ----------
Net increase in net assets resulting
from variable annuity contract
transactions........................ 30,853,175 137,662 1,033,813
----------- --------- ----------
Total increase (decrease) in net
assets.............................. 44,217,056 136,679 1,050,891
NET ASSETS
Beginning of year.................... 30,194,125 0 0
----------- --------- ----------
End of year.......................... $74,411,181 $ 136,679 $1,050,891
----------- --------- ----------
----------- --------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER GROWTH AND
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME
---------- ---------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........ $ (11,765) $ (19,515) $ 2,643 $ (4,785) $ (7,974) $ (11,176) $ (495)
Net realized gain on investments.... 2,267 7 49,109 202 11 19 118
Net unrealized appreciation
(depreciation) of investments
during the period.................. 2,208 13,033 41,478 48,443 (56,978) (9,267) 109,900
---------- ---------- ---------- ---------- ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from operations... (7,290) (6,475) 93,230 43,860 (64,941) (20,424) 109,523
---------- ---------- ---------- ---------- ------------ ------------ ------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net payments....... 2,503,454 4,920,127 2,051,786 1,145,999 2,107,943 2,994,586 2,158,105
Contract maintenance fees........... 307 (56) 40 (55) (370) (22) (21)
Surrenders.......................... (8,914) (32,833) (7,709) (3,032) (19,335) (7,756) (13,263)
Death benefits...................... 0 0 (4,375) 0 0 (4,472) 0
Transfer (to) from other
portfolios......................... 833,299 1,405,019 538,305 560,504 590,156 646,632 677,768
---------- ---------- ---------- ---------- ------------ ------------ ------------
Net increase in net assets resulting
from variable annuity contract
transactions....................... 3,328,146 6,292,257 2,578,047 1,703,416 2,678,394 3,628,968 2,822,589
---------- ---------- ---------- ---------- ------------ ------------ ------------
Total increase (decrease) in net
assets............................. 3,320,856 6,285,782 2,671,277 1,747,276 2,613,453 3,608,544 2,932,112
NET ASSETS
Beginning of year................... 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ------------ ------------ ------------
End of year......................... $3,320,856 $6,285,782 $2,671,277 $1,747,276 $2,613,453 $3,608,544 $2,932,112
---------- ---------- ---------- ---------- ------------ ------------ ------------
---------- ---------- ---------- ---------- ------------ ------------ ------------
<CAPTION>
OPPENHEIMER
STRATEGIC
BOND TOTAL
------------ -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)........ $ 63,983 $ 963,298
Net realized gain on investments.... 21 85,700,729
Net unrealized appreciation
(depreciation) of investments
during the period.................. (22,462) 53,710,238
------------ -------------
Net increase (decrease) in net
assets resulting from operations... 41,542 140,374,265
------------ -------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net payments....... 1,948,790 206,024,514
Contract maintenance fees........... 429 (309,245)
Surrenders.......................... (13,822) (29,707,730)
Death benefits...................... 0 (4,985,284)
Transfer (to) from other
portfolios......................... 943,683 66,871,634
------------ -------------
Net increase in net assets resulting
from variable annuity contract
transactions....................... 2,879,080 237,893,889
------------ -------------
Total increase (decrease) in net
assets............................. 2,920,622 378,268,154
NET ASSETS
Beginning of year................... 0 546,854,958
------------ -------------
End of year......................... $2,920,622 $ 925,123,112
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Protective Variable Annuity Separate Account (Separate Account) was
established by Protective Life Insurance Company (Protective Life) under the
provisions of Tennessee law and commenced operations on March 14, 1994. The
Separate Account is an investment account to which net proceeds from individual
flexible premium deferred variable annuity contracts (the Contracts) are
allocated until maturity or termination of the Contracts.
Protective Life has structured the Separate Account into a unit investment
trust form registered with the U.S. Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
seven proprietary sub-accounts and ten independent sub-accounts. The seven
proprietary sub-accounts are the Money Market, Growth and Income, International
Equity, Global Income, Small Cap Value, Core U.S. Equity, and Capital Growth
sub-accounts. Funds are transferred to Protective Investment Company (the Fund)
in exchange for shares of the corresponding portfolio of the Fund.
The ten independent sub-accounts are the Calvert Social Small Cap Growth,
Calvert Social Balanced, MFS Emerging Growth, MFS Research, MFS Growth with
Income, MFS Total Return, Oppenheimer Aggressive Growth, Oppenheimer Growth,
Oppenheimer Growth & Income, and Oppenheimer Strategic Bond sub-accounts. The
ten independent sub-accounts were added July 1, 1997, with sales beginning July
1, 1997. The Fund invests contract holder's funds in exchange for shares in the
independent funds. The Fund then holds the shares for the contract owners.
Gross premiums from the Contracts are allocated to the sub-accounts in
accordance with contract owner instructions and are recorded as variable annuity
contract transactions in the statement of changes in net assets. Such amounts
are used to provide money to pay contract values under the Contracts (Note 4).
The Separate Account's assets are the property of Protective Life.
Contract owners may allocate some or all of gross premiums or transfer some
or all of the contract value to the Guaranteed Account, which is part of
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. The Guaranteed
Account balance for the years ended December 31, 1998 and 1997 was $268,282,860
and $227,706,042, respectively.
Transfers to/from other portfolios, included in the statement of changes in
net assets, are transfers between the individual sub-accounts and the
sub-accounts and the Guaranteed Account.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION: Investments are made in shares and are valued at the
net asset values of the respective portfolios. Transactions with the Funds are
recorded on the trade date. Dividend income is recorded on the ex-dividend date.
REALIZED GAINS AND LOSSES: Realized gains and losses on investments include
gains and losses on redemptions of the Fund's shares (determined on the
last-in-first-out (LIFO) basis) and capital gain distributions from the Fund.
DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS: Dividend income and capital
gain distributions are recorded on the ex-dividend date. Distributions are from
net investment income and net realized gains recorded in the Investment Company
financials.
F-14
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make various
estimates that affect the reported amounts of assets and liabilities, at the
date of the financial statements, as well as the reported amounts of income and
expenses, during the reporting period. Actual results could differ from those
estimates.
FEDERAL INCOME TAXES: The operation of the Separate Account is included in
the federal income tax return of Protective Life. Under the provisions of the
contracts, Protective Life has the right to charge the Separate Account for
federal income tax attributable to the Separate Account. No charge is currently
being made against the Separate Account for such tax.
RECLASSIFICATIONS: Certain reclassifications have been made in previously
reported financial statements and accompanying notes to make the prior year
amounts comparable to those of the current year. Such reclassifications had no
effect on previously reported net assets.
3. INVESTMENTS
At December 31, 1998, the investments by the respective sub-accounts were as
follows:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
------------ ---------------- ----------------
<S> <C> <C> <C>
PIC Money Market............................................... 5,304,961 $ 5,304,961 $ 5,304,961
PIC Growth and Income.......................................... 27,458,284 373,386,033 386,296,900
PIC International Equity....................................... 12,131,396 143,492,563 173,532,636
PIC Global Income.............................................. 5,864,080 59,677,628 62,451,103
Small Cap Value................................................ 11,436,929 117,079,682 99,008,326
PIC Core US Equity............................................. 11,800,174 181,268,517 261,457,421
Capital Growth................................................. 7,305,467 109,839,206 152,416,381
Calvert Social Small Cap Growth................................ 49,445 583,893 549,826
Calvert Social Balanced........................................ 2,877,861 6,085,066 6,149,990
MFS Emerging Growth............................................ 771,472 13,607,295 16,563,501
MFS Research................................................... 1,382,383 23,247,669 26,334,396
MFS Growth With Income......................................... 964,237 17,307,844 19,391,258
MFS Total Return............................................... 719,354 12,290,697 13,034,687
Oppenheimer Aggressive Growth.................................. 252,736 10,488,505 11,330,154
Oppenheimer Growth............................................. 436,935 14,274,948 16,022,393
Oppenheimer Growth and Income.................................. 981,040 19,636,990 20,092,152
Oppenheimer Strategic Bond..................................... 3,120,780 15,953,092 15,978,992
---------------- ----------------
$ 1,123,524,589 $ 1,285,915,077
---------------- ----------------
---------------- ----------------
</TABLE>
F-15
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
At December 31, 1997, the investments by the respective sub-accounts were as
follows:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
------------ -------------- --------------
<S> <C> <C> <C>
PIC Money Market................................................... 3,571,053 $ 3,571,053 $ 3,571,053
PIC Growth and Income.............................................. 22,555,045 297,181,881 355,505,039
PIC International Equity........................................... 10,548,201 120,773,576 131,344,810
PIC Global Income.................................................. 4,807,861 48,410,709 48,720,463
PIC Small Cap Value................................................ 9,161,219 94,914,942 107,421,163
PIC Core US Equity................................................. 9,603,792 135,912,917 176,791,623
Capital Growth..................................................... 4,703,701 61,781,865 74,411,193
Calvert Social Small Cap Growth.................................... 11,380 149,524 136,679
Calvert Social Balanced............................................ 530,139 1,104,222 1,050,736
MFS Emerging Growth................................................ 205,753 3,318,647 3,320,856
MFS Research....................................................... 398,086 6,272,749 6,285,782
MFS Growth With Income............................................. 162,486 2,629,799 2,671,278
MFS Total Return................................................... 105,068 1,698,832 1,747,276
Oppenheimer Aggressive Growth...................................... 63,805 2,670,431 2,613,453
Oppenheimer Growth................................................. 111,271 3,618,902 3,609,636
Oppenheimer Growth and Income...................................... 142,438 2,821,485 2,931,384
Oppenheimer Strategic Bond......................................... 573,292 2,957,717 2,935,255
-------------- --------------
$ 789,789,251 $ 925,067,679
-------------- --------------
-------------- --------------
</TABLE>
F-16
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During the year ended December 31, 1998, transactions in shares were as
follows:
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC
MONEY AND INTERNATIONAL GLOBAL
MARKET INCOME EQUITY INCOME
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares purchased.................................... 11,715,106 3,331,957 1,290,753 971,363
Shares received from reinvestment of dividends...... 248,570 2,218,535 579,579 281,841
-------------- ------------- ------------- -------------
Total shares acquired............................... 11,963,676 5,550,492 1,870,332 1,253,204
Shares redeemed..................................... (10,229,768) (647,253) (287,137) (196,985)
-------------- ------------- ------------- -------------
Net increase in shares owned........................ 1,733,908 4,903,239 1,583,195 1,056,219
Shares owned, beginning of the period............... 3,571,053 22,555,045 10,548,201 4,807,861
-------------- ------------- ------------- -------------
Shares owned, end of period......................... 5,304,961 27,458,284 12,131,396 5,864,080
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Cost of shares acquired............................. $ 11,963,675 $ 86,017,562 $ 26,560,785 $ 13,373,841
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Cost of shares redeemed............................. $ (10,229,767) $ (9,813,410) $ (3,841,798) $ (2,106,922)
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
CALVERT
PIC SOCIAL
SMALL PIC PIC SMALL CALVERT
CAP CORE US CAPITAL CAP SOCIAL
VALUE EQUITY GROWTH GROWTH BALANCED
------------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Shares purchased......................... 1,225,909 2,111,671 2,491,965 39,534 2,236,805
Shares received from reinvestment of
dividends.............................. 1,466,219 189,588 155,774 665 209,275
------------- ------------- ------------- ---------- ------------
Total shares acquired.................... 2,692,128 2,301,259 2,647,739 40,199 2,446,080
Shares redeemed.......................... (416,418) (104,877) (45,973) (2,134) (98,358)
------------- ------------- ------------- ---------- ------------
Net increase in shares owned............. 2,275,710 2,196,382 2,601,766 38,065 2,347,722
Shares owned, beginning of the period.... 9,161,219 9,603,792 4,703,701 11,380 530,139
------------- ------------- ------------- ---------- ------------
Shares owned, end of period.............. 11,436,929 11,800,174 7,305,467 49,445 2,877,861
------------- ------------- ------------- ---------- ------------
------------- ------------- ------------- ---------- ------------
Cost of shares acquired.................. $ 26,470,659 $ 47,416,639 $ 48,833,246 $ 458,138 $ 5,183,395
------------- ------------- ------------- ---------- ------------
------------- ------------- ------------- ---------- ------------
Cost of shares redeemed.................. $ (4,305,919) $ (2,061,039) $ (775,905) $ (23,769) $ (202,551)
------------- ------------- ------------- ---------- ------------
------------- ------------- ------------- ---------- ------------
</TABLE>
F-17
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During the year ended December 31, 1998, transactions in shares were as
follows (continued):
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS
EMERGING MFS WITH TOTAL
GROWTH RESEARCH INCOME RETURN
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares purchased.................................... 568,571 981,678 807,870 610,804
Shares received from reinvestment of
dividends......................................... 2,945 14,624 0 7,874
------------- ------------- ------------- -------------
Total shares acquired............................... 571,516 996,302 807,870 618,678
Shares redeemed..................................... (5,797) (12,005) (6,119) (4,392)
------------- ------------- ------------- -------------
Net increase in shares owned........................ 565,719 984,297 801,751 614,286
Shares owned, beginning of the period............... 205,753 398,086 162,486 105,068
------------- ------------- ------------- -------------
Shares owned, end of period......................... 771,472 1,382,383 964,237 719,354
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Cost of shares acquired............................. $ 10,389,644 $ 17,169,721 $ 14,790,927 $ 10,667,082
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Cost of shares redeemed............................. $ (100,996) $ (194,801) $ (112,882) $ (75,217)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER
OPPENHEIMER GROWTH OPPENHEIMER
AGGRESSIVE OPPENHEIMER AND STRATEGIC
GROWTH GROWTH INCOME BOND
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares purchased..................................... 191,902 319,277 835,284 2,654,705
Shares received from reinvestment of
dividends.......................................... 2,611 15,302 12,085 28,721
------------ ------------- ------------- -------------
Total shares acquired................................ 194,513 334,579 847,369 2,683,426
Shares redeemed...................................... (5,582) (8,915) (8,767) (135,938)
------------ ------------- ------------- -------------
Net increase in shares owned......................... 188,931 325,664 838,602 2,547,488
Shares owned, beginning of the period................ 63,805 111,271 142,438 573,292
------------ ------------- ------------- -------------
Shares owned, end of period.......................... 252,736 436,935 981,040 3,120,780
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Cost of shares acquired.............................. $8,020,170 $ 10,947,912 $ 16,995,327 $ 13,679,843
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Cost of shares redeemed.............................. $ (202,096) $ (291,866) $ (179,822) $ (684,468)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
F-18
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During the year ended December 31, 1997, transactions in shares were as
follows:
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC
MONEY AND INTERNATIONAL GLOBAL
MARKET INCOME EQUITY INCOME
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares Purchased......................................... 7,384,222 4,568,466 2,382,529 880,418
Shares received from reinvestment of dividends........... 216,131 3,243,711 771,149 452,653
-------------- -------------- ------------- -------------
Total shares acquired.................................... 7,600,353 7,812,177 3,153,678 1,333,071
Shares redeemed.......................................... (10,135,816) (94,476) (115,268) (225,101)
-------------- -------------- ------------- -------------
Net increase in shares owned............................. (2,535,463) 7,717,701 3,038,410 1,107,970
Shares owned, beginning of the period.................... 6,106,516 14,837,344 7,509,791 3,699,891
-------------- -------------- ------------- -------------
Shares owned, end of period.............................. 3,571,053 22,555,045 10,548,201 4,807,861
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
Cost of shares acquired.................................. $ 7,600,353 $ 127,303,311 $ 41,961,893 $ 13,885,758
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
Cost of shares redeemed.................................. $ (10,135,816) $ (1,631,128) $ (1,593,224) $ (2,368,748)
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
CALVERT
PIC SOCIAL
SMALL PIC PIC SMALL CALVERT
CAP CORE US CAPITAL CAP SOCIAL
VALUE EQUITY GROWTH GROWTH BALANCED
------------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Shares Purchased.................................. 1,889,641 2,256,497 1,994,733 10,417 496,705
Shares received from reinvestment of dividends.... 1,052,027 856,997 330,376 1,023 36,802
------------- ------------- ------------- ---------- ------------
Total shares acquired............................. 2,941,668 3,113,494 2,325,109 11,440 533,507
Shares redeemed................................... (196,875) (87,885) (8,939) (60) (3,368)
------------- ------------- ------------- ---------- ------------
Net increase in shares owned...................... 2,744,793 3,025,609 2,316,170 11,380 530,139
Shares owned, beginning of the period............. 6,416,426 6,578,183 2,387,531 0 0
------------- ------------- ------------- ---------- ------------
Shares owned, end of period....................... 9,161,219 9,603,792 4,703,701 11,380 530,139
------------- ------------- ------------- ---------- ------------
------------- ------------- ------------- ---------- ------------
Cost of shares acquired........................... $ 34,688,924 $ 56,301,000 $ 35,386,576 $ 150,314 $ 1,111,207
------------- ------------- ------------- ---------- ------------
------------- ------------- ------------- ---------- ------------
Cost of shares redeemed........................... $ (2,321,547) $ (1,660,892) $ (128,687) $ (790) $ (6,985)
------------- ------------- ------------- ---------- ------------
------------- ------------- ------------- ---------- ------------
</TABLE>
F-19
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During the year ended December 31, 1997, transactions in shares were as
follows (continued):
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS
EMERGING MFS WITH TOTAL
GROWTH RESEARCH INCOME RETURN
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares Purchased................................................ 212,328 398,087 160,174 107,942
Shares received from reinvestment of dividends.................. 0 0 3,695 0
------------ ------------ ------------ ------------
Total shares acquired........................................... 212,328 398,087 163,869 107,942
Shares redeemed................................................. (6,575) (1) (1,383) (2,874)
------------ ------------ ------------ ------------
Net increase in shares owned.................................... 205,753 398,086 162,486 105,068
Shares owned, beginning of the period........................... 0 0 0 0
------------ ------------ ------------ ------------
Shares owned, end of period..................................... 205,753 398,086 162,486 105,068
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cost of shares acquired......................................... $ 3,422,009 $ 6,272,771 $ 2,652,475 $ 1,745,363
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cost of shares redeemed......................................... $ (103,362) $ (22) $ (22,676) $ (46,531)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER
OPPENHEIMER GROWTH OPPENHEIMER
AGGRESSIVE OPPENHEIMER AND STRATEGIC
GROWTH GROWTH INCOME BOND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares Purchased.............................................. 63,852 111,304 142,996 599,683
Shares received from reinvestment of dividends................ 0 0 405 14,325
------------ ------------ ------------ ------------
Total shares acquired......................................... 63,852 111,304 143,401 614,008
Shares redeemed............................................... (47) (33) (963) (40,716)
------------ ------------ ------------ ------------
Net increase in shares owned.................................. 63,805 111,271 142,438 573,292
Shares owned, beginning of the period......................... 0 0 0 0
------------ ------------ ------------ ------------
Shares owned, end of period................................... 63,805 111,271 142,438 573,292
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cost of shares acquired....................................... $2,672,447 $3,619,878 $2,840,522 $3,167,524
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cost of shares redeemed....................................... $ (2,016) $ (976) $ (19,037) $ (209,807)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
4. RELATED PARTY TRANSACTIONS
Contract owners' net payments represent premiums received from policyholders
less certain deductions made by Protective Life in accordance with the contract
terms. These deductions include, where appropriate, tax, surrender, mortality
risk and expense and administrative charges. These deductions are made to the
individual contracts in accordance with the terms governing each contract as set
forth in the contract.
The net assets of each sub-account of the Separate Account reflect the
investment management fees and other operating expenses incurred by the Funds.
Protective Life offers a loan privilege to contract owners. Contract owners
may obtain loans using the Contract as the only security for the loan. Loans are
subject to provisions of The Internal Revenue
F-20
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
Code of 1986, as amended, and to applicable retirement program rules. Loans
outstanding approximated $423,000 and $395,000 at December 31, 1998 and 1997,
respectively.
5. SUBSEQUENT EVENTS
In November 1998, six additional sub-accounts were added to the Separate
Account. These sub-accounts are MFS New Discovery, MFS Utilities, Oppenheimer
Global Securities, Oppenheimer High Income, Van Eck Worldwide Hard Assets, and
Van Eck Worldwide Real Estate. Sales will begin in the sub-accounts in 1999.
Protective Life has also announced plans to liquidate the PIC Money Market
Account and replace it with the Oppenheimer Money Fund in 1999.
In 1999, the Oppenheimer Growth Fund and the Oppenheimer Growth and Income
Fund names will be changed to Oppenheimer Capital Appreciation and Oppenheimer
Main Street Growth and Income, respectively.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Share Owner
Protective Life Insurance Company
Birmingham, Alabama
In our opinion, the consolidated financial statements of Protective Life
Insurance Company and Subsidiaries (the "Company") listed in the index on page
F1 of this Form N-4 present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules listed in the index on page F1 of this Form N-4 present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 11, 1999
Birmingham, Alabama
F-22
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees................................. $1,027,340 $ 814,420 $ 770,224
Reinsurance ceded........................................ (459,215) (334,214) (308,174)
--------- --------- ---------
Net of reinsurance ceded............................... 568,125 480,206 462,050
Net investment income.................................... 603,795 557,488 498,781
Realized investment gains................................ 2,136 1,824 5,510
Other income............................................. 20,201 6,149 5,010
--------- --------- ---------
1,194,257 1,045,667 971,351
--------- --------- ---------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance
ceded: 1998-$330,494; 1997-$180,605; 1996-$215,424).... 730,496 658,872 626,893
Amortization of deferred policy acquisition costs........ 111,188 107,175 91,001
Other operating expenses (net of reinsurance ceded:
1998-$166,375; 1997-$90,045; 1996-$81,839)............. 172,228 129,870 128,148
--------- --------- ---------
1,013,912 895,917 846,042
--------- --------- ---------
INCOME BEFORE INCOME TAX................................... 180,345 149,750 125,309
INCOME TAX EXPENSE (BENEFIT)
Current.................................................. 48,237 66,283 44,908
Deferred................................................. 14,925 (13,981) (2,142)
--------- --------- ---------
63,162 52,302 42,766
--------- --------- ---------
NET INCOME................................................. $ 117,183 $ 97,448 $ 82,543
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1998-$6,307,274; 1997-$6,221,871)........ $6,400,262 $6,348,252
Equity securities, at market (cost: 1998-$15,151; 1997-$24,983)....................... 12,258 15,006
Mortgage loans on real estate......................................................... 1,623,603 1,313,478
Investment real estate, net of accumulated depreciation (1998-$782; 1997-$671)........ 14,868 13,469
Policy loans.......................................................................... 232,670 194,109
Other long-term investments........................................................... 70,078 54,704
Short-term investments................................................................ 159,655 54,337
---------- ----------
Total investments................................................................... 8,513,394 7,993,355
Cash.................................................................................... 39,197
Accrued investment income............................................................... 100,395 94,095
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1998-$4,304; 1997-$5,292)............................................................ 31,265 42,255
Reinsurance receivables................................................................. 756,370 591,457
Deferred policy acquisition costs....................................................... 841,425 632,605
Property and equipment, net............................................................. 42,374 36,407
Other assets............................................................................ 34,632 14,445
Assets related to separate accounts
Variable Annuity...................................................................... 1,285,952 924,406
Variable Universal Life............................................................... 13,606 3,634
Other................................................................................. 3,482 3,425
---------- ----------
$11,622,895 $10,375,281
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims..................................................... $4,140,003 $3,324,294
Unearned premiums..................................................................... 389,294 396,696
---------- ----------
4,529,297 3,720,990
Guaranteed investment contract deposits................................................. 2,691,697 2,684,676
Annuity deposits........................................................................ 1,519,820 1,511,553
Other policyholders' funds.............................................................. 219,356 183,324
Other liabilities....................................................................... 226,310 246,081
Accrued income taxes.................................................................... (10,992) 941
Deferred income taxes................................................................... 51,735 49,417
Note payable............................................................................ 2,363
Indebtedness to related parties......................................................... 20,898 28,055
Liabilities related to separate accounts
Variable Annuity...................................................................... 1,285,952 924,406
Variable Universal Life............................................................... 13,606 3,634
Other................................................................................. 3,482 3,425
---------- ----------
Total liabilities................................................................... 10,553,524 9,356,502
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
SHARE-OWNER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation
preference $2,000..................................................................... 2 2
Common Stock, $1.00 par value........................................................... 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital.............................................................. 327,992 327,992
Note receivable from PLC Employee Stock Ownership Plan.................................. (5,199) (5,378)
Retained earnings....................................................................... 686,519 629,436
Accumulated other comprehensive income
Net unrealized gains on investments (net of income tax: 1998-$29,646; 1997-$33,238)... 55,057 61,727
---------- ----------
Total share-owner's equity.......................................................... 1,069,371 1,018,779
---------- ----------
$11,622,895 $10,375,281
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF SHARE-OWNER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTE
ADDITIONAL RECEIVABLE NET UNREALIZED TOTAL SHARE-
PREFERRED COMMON PAID-IN FROM PLC RETAINED GAINS (LOSSES) OWNER'S
STOCK STOCK CAPITAL ESOP EARNINGS ON INVESTMENTS EQUITY
------------ ------- ---------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.............. $5,000 $144,494 $(5,765) $449,645 $ 57,863 $ 651,237
-------------
Net income for 1996................... 82,543 82,543
Decrease in net unrealized gains on
investments (net of income tax:
$(25,627)).......................... (47,593) (47,593)
Reclassification adjustment for
amounts included in net income (net
of income tax: $(1,928))............ (3,582) (3,582)
-------------
Comprehensive income for 1996......... 31,368
-------------
Redemption feature of preferred stock
removed-Note I...................... $ 2 1,998 2,000
Preferred dividends ($50 per share)... (100 ) (100)
Capital contribution from PLC......... 91,500 91,500
Decrease in note receivable from PLC
ESOP................................ 186 186
--- ------- ---------- ---------- -------- -------------- -------------
Balance, December 31, 1996.............. 2 5,000 237,992 (5,579) 532,088 6,688 776,191
-------------
Net income for 1997................... 97,448 97,448
Increase in net unrealized gains on
investments (net of income tax-
$30,275)............................ 56,225 56,225
Reclassification adjustment for
amounts included in net income (net
of income tax: $(638)).............. (1,186) (1,186)
-------------
Comprehensive income for 1997......... 152,487
-------------
Preferred dividends ($50 per share)... (100 ) (100)
Capital contribution from PLC......... 90,000 90,000
Decrease in note receivable from PLC
ESOP................................ 201 201
--- ------- ---------- ---------- -------- -------------- -------------
Balance, December 31, 1997.............. 2 5,000 327,992 (5,378) 629,436 61,727 1,018,779
-------------
Net income for 1998................... 117,183 117,183
Decrease in net unrealized gains on
investments (net of income tax-
($2,844))........................... (5,281) (5,281)
Reclassification adjustment for
amounts included in net income (net
of income tax: $(747)).............. (1,389) (1,389)
-------------
Comprehensive income for 1998......... 110,513
-------------
Common dividends ($12 per share)...... (60,000 ) (60,000)
Preferred dividends ($50 per share)... (100 ) (100)
Decrease in note receivable from PLC
ESOP................................ 179 179
--- ------- ---------- ---------- -------- -------------- -------------
Balance, December 31, 1998.............. $ 2 $5,000 $327,992 $(5,199) $686,519 $ 55,057 $1,069,371
--- ------- ---------- ---------- -------- -------------- -------------
--- ------- ---------- ---------- -------- -------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................. $ 117,183 $ 97,448 $ 82,543
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs........................ 111,188 107,175 91,001
Capitalization of deferred policy acquisition costs...................... (192,838) (135,211) (77,078)
Depreciation expense..................................................... 7,110 5,124 5,333
Deferred income taxes.................................................... 14,925 (17,918) (2,442)
Accrued income taxes..................................................... (11,933) (5,558) 893
Interest credited to universal life and investment products.............. 352,721 299,004 280,377
Policy fees assessed on universal life and investment products........... (139,689) (131,582) (116,401)
Change in accrued investment income and other receivables................ (159,362) (158,798) (70,987)
Change in policy liabilities and other policyholder funds of
traditional life and health products................................... 322,464 279,522 133,621
Change in other liabilities.............................................. (19,771) 65,393 7,209
Other (net).............................................................. (22,634) (1,133) (4,281)
----------- ----------- -----------
Net cash provided by operating activities.................................... 379,364 403,466 329,788
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale........................................... 10,445,407 6,462,663 1,327,323
Other.................................................................... 198,559 324,242 168,898
Sale of investments:
Investment available for sale............................................ 1,080,265 1,108,058 1,569,119
Other.................................................................... 155,906 695,270 568,218
Cost of investments acquired:
Investments available for sale........................................... (11,507,234) (8,428,804) (3,798,631)
Other.................................................................... (662,350) (718,335) (400,322)
Acquisitions and bulk reinsurance assumptions.............................. (169,124) 264,126
Purchase of property and equipment......................................... (13,077) (6,087) (6,899)
Sale of property and equipment............................................. 2,681 288
----------- ----------- -----------
Net cash used in investing activities........................................ (302,524) (729,436) (307,880)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt............ 1,975,800 1,159,538 941,438
Capital contribution from PLC.............................................. 90,000 91,500
Principal payments on line of credit arrangements and long-term debt....... (1,973,437) (1,159,538) (941,438)
Principal payment on surplus note to PLC................................... (2,000) (4,693) (10,000)
Dividends to share-owner................................................... (60,100) (100) (100)
Investment product deposits and change in universal life deposits.......... 981,124 910,659 949,122
Investment product withdrawals............................................. (1,037,424) (745,083) (944,244)
----------- ----------- -----------
Net cash provided by (used in) financing activities.......................... (116,037) 250,783 86,278
----------- ----------- -----------
INCREASE (DECREASE) IN CASH.................................................. (39,197) (75,187) 108,186
CASH AT BEGINNING OF YEAR.................................................... 39,197 114,384 6,198
----------- ----------- -----------
CASH AT END OF YEAR.......................................................... $ 0 $ 39,197 $ 114,384
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt......................................................... $ 8,338 $ 4,343 $ 4,633
Income taxes............................................................. $ 57,429 $ 70,133 $ 43,478
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP................................... $ 179 $ 201 $ 186
Acquisitions and bulk reinsurance assumptions
Assets acquired.......................................................... $ 247,894 $ 1,114,832 $ 296,935
Liabilities assumed...................................................... (380,405) (902,267) (364,862)
----------- ----------- -----------
Net...................................................................... $ (132,511) $ 212,565 $ (67,927)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life
Insurance Company and subsidiaries ("Protective") are prepared on the basis of
generally accepted accounting principles. Such accounting principles differ from
statutory reporting practices used by insurance companies in reporting to state
regulatory authorities. (See also Note B.)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make various estimates
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, as well as the reported amounts of revenues
and expenses.
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its
wholly-owned subsidiaries. Protective is a wholly-owned subsidiary of Protective
Life Corporation ("PLC"), an insurance holding company.
NATURE OF OPERATIONS
Protective provides financial services through the production, distribution,
and administration of insurance and investment products. Protective markets
individual life insurance, dental insurance and managed care services, credit
life and disability insurance, guaranteed investment contracts, guaranteed
funding agreements, and fixed and variable annuities throughout the United
States. Protective also maintains a separate division devoted exclusively to the
acquisition of insurance policies from other companies.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997 Protective adopted Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities;" SFAS No. 130, "Reporting Comprehensive
Income;" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
In 1998 PLC adopted SFAS No. 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits."
The adoption of these accounting standards did not have a material effect on
PLC's or Protective's financial statements.
INVESTMENTS
Protective has classified all of its investments in fixed maturities, equity
securities, and short-term investments as "available for sale."
F-27
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments are reported on the following bases less allowances for
uncollectible amounts on investments, if applicable:
- Fixed maturities (bonds, bank loan participations, and redeemable
preferred stocks) -- at current market value.
- Equity securities (common and nonredeemable preferred stocks) -- at
current market value.
- Mortgage loans on real estate -- at unpaid balances, adjusted for loan
origination costs, net of fees, and amortization of premium or discount.
- Investment real estate -- at cost, less allowances for depreciation
computed on the straight-line method. With respect to real estate acquired
through foreclosure, cost is the lesser of the loan balance plus
foreclosure costs or appraised value.
- Policy loans -- at unpaid balances.
- Other long-term investments -- at a variety of methods similar to those
listed above, as deemed appropriate for the specific investment.
- Short-term investments -- at cost, which approximates current market
value.
Substantially all short-term investments have maturities of three months or
less at the time of acquisition and include approximately $0.9 million in bank
deposits voluntarily restricted as to withdrawal.
As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," certain investments are recorded at their market values
with the resulting unrealized gains and losses reduced by a related adjustment
to deferred policy acquisition costs, net of income tax reported as a component
of share-owner's equity. The market values of fixed maturities increase or
decrease as interest rates fall or rise. Therefore, although the adoption of
SFAS No. 115 does not affect Protective's operations, its reported shareowner's
equity will fluctuate significantly as interest rates change.
Protective's balance sheets at December 31, prepared on the basis of
reporting investments at amortized cost rather than at market values, are as
follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Total investments.............................................. $ 8,412,167 $ 7,876,952
Deferred policy acquisition costs.............................. 857,949 654,043
All other assets............................................... 2,268,076 1,749,321
------------- -------------
$ 11,538,192 $ 10,280,316
------------- -------------
------------- -------------
Deferred income taxes.......................................... $ 22,089 $ 16,179
All other liabilities.......................................... 10,501,789 9,307,085
------------- -------------
10,523,878 9,323,264
Share-owner's equity........................................... 1,014,314 957,052
------------- -------------
$ 11,538,192 $ 10,280,316
------------- -------------
------------- -------------
</TABLE>
Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.
F-28
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
Protective does not use derivative financial instruments for trading
purposes. Combinations of swaps, futures contracts and options on treasury notes
are currently being used as hedges for asset/liability management of certain
investments, primarily mortgage loans on real estate, mortgage-backed
securities, and liabilities arising from interest-sensitive products such as
guaranteed investment contracts and individual annuities. Realized investment
gains and losses on such contracts are deferred and amortized over the life of
the hedged asset. No realized investment gains or losses were deferred in 1998.
Net realized gains of $1.5 million were deferred in 1997. At December 31, 1998
and 1997, options and open futures contracts with notional amounts of $975.0
million and $925.0 million, respectively, had net unrealized losses of $0.5
million and $0.4 million respectively.
Protective uses interest rate swap contracts to convert certain investments
and liabilities from a variable to a fixed rate of interest and from a fixed
rate to variable rate of interest. At December 31, 1998, related open interest
rate swap contracts with a notional amount of $55.3 million were in a $0.2
million net unrealized loss position. At December 31, 1997, related open
interest rate swap contracts with a notional amount of $95.3 million were in a
$0.1 million net unrealized loss position.
CASH
Cash includes all demand deposits reduced by the amount of outstanding
checks and drafts.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost. Protective primarily uses the
straight-line method of depreciation based upon the estimated useful lives of
the assets. Major repairs or improvements are capitalized and depreciated over
the estimated useful lives of the assets. Other repairs are expensed as
incurred. The cost and related accumulated depreciation of property and
equipment sold or retired are removed from the accounts, and resulting gains or
losses are included in income.
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Home office building.................................................... $ 37,959 $ 37,459
Other, principally furniture and equipment.............................. 58,958 46,937
--------- ---------
96,917 84,396
Accumulated depreciation................................................ 54,543 47,989
--------- ---------
$ 42,374 $ 36,407
--------- ---------
--------- ---------
</TABLE>
SEPARATE ACCOUNTS
Protective operates separate accounts, some in which Protective bears the
investment risk and others in which the investments risk rests with the contract
holder. The assets and liabilities related to separate accounts in which
Protective does not bear the investment risk are valued at market and reported
separately as assets and liabilities related to separate accounts in the
accompanying consolidated financial statements.
F-29
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUES AND BENEFITS EXPENSE
- Traditional Life and Health Insurance Products -- Traditional life
insurance products consist principally of those products with fixed and
guaranteed premiums and benefits and include whole life insurance
policies, term and term-like life insurance policies, limited-payment life
insurance policies, and certain annuities with life contingencies. Life
insurance and immediate annuity premiums are recognized as revenue when
due. Health insurance premiums are recognized as revenue over the terms of
the policies. Benefits and expenses are associated with earned premiums so
that profits are recognized over the life of the contracts. This is
accomplished by means of the provision for liabilities for future policy
benefits and the amortization of deferred policy acquisition costs.
Liabilities for future policy benefits on traditional life insurance
products have been computed using a net level method including assumptions
as to investment yields, mortality, persistency, and other assumptions
based on Protective's experience modified as necessary to reflect
anticipated trends and to include provisions for possible adverse
deviation. Reserve investment yield assumptions are graded and range from
2.5% to 7.0%. The liability for future policy benefits and claims on
traditional life and health insurance products includes estimated unpaid
claims that have been reported to Protective and claims incurred but not
yet reported. Policy claims are charged to expense in the period that the
claims are incurred.
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance beginning of year................................ $ 106,121 $ 108,159 $ 73,642
Less reinsurance....................................... 18,673 6,423 3,330
---------- ---------- ----------
Net balance beginning of year............................ 87,448 101,736 70,312
---------- ---------- ----------
Incurred related to:
Current year............................................. 288,015 258,322 275,524
Prior year............................................... (10,198) (14,540) (2,417)
---------- ---------- ----------
Total incurred......................................... 277,817 243,782 273,107
---------- ---------- ----------
Paid related to:
Current year............................................. 236,001 203,381 197,163
Prior year............................................... 58,951 58,104 57,812
---------- ---------- ----------
Total paid............................................. 294,952 261,485 254,975
---------- ---------- ----------
Other changes:
Acquisitions and reserve transfers..................... 0 3,415 13,292
---------- ---------- ----------
Net balance end of year.................................. 70,313 87,448 101,736
Plus reinsurance....................................... 20,019 18,673 6,423
---------- ---------- ----------
Balance end of year...................................... $ 90,332 $ 106,121 $ 108,159
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, guaranteed investment
contracts, deferred annuities, and annuities without life contingencies.
Revenues for universal life and investment products consist of policy fees
that have
F-30
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
been assessed against policy account balances for the costs of insurance,
policy administration, and surrenders. That is, universal life and
investment product deposits are not considered revenues in accordance with
generally accepted accounting principles. Benefit reserves for universal
life and investment products represent policy account balances before
applicable surrender charges plus certain deferred policy initiation fees
that are recognized in income over the term of the policies. Policy
benefits and claims that are charged to expense include benefit claims
incurred in the period in excess of related policy account balances and
interest credited to policy account balances. Interest credit rates for
universal life and investment products ranged from 3.4% to 9.4% in 1998.
Protective's accounting policies with respect to variable universal life
and variable annuities are identical except that policy account balances
(excluding account balances that earn a fixed rate) are valued at market
and reported as components of assets and liabilities related to separate
accounts.
DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs of acquiring traditional life and health
insurance, universal life insurance, and investment products that vary with and
are primarily related to the production of new business have been deferred.
Traditional life and health insurance acquisition costs are amortized over the
premium-payment period of the related policies in proportion to the ratio of
annual premium income to total anticipated premium income. Acquisition costs for
universal life and investment products are being amortized over the lives of the
policies in relation to the present value of estimated gross profits before
amortization. Under SFAS No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," Protective makes certain assumptions
regarding the mortality, persistency, expenses, and interest rates it expects to
experience in future periods. These assumptions are to be best estimates and are
to be periodically updated whenever actual experience and/or expectations for
the future change from that assumed. Additionally, relating to SFAS No. 115,
these costs have been adjusted by an amount equal to the amortization that would
have been recorded if unrealized gains or losses on investments associated with
Protective's universal life and investment products had been realized.
The cost to acquire blocks of insurance representing the present value of
future profits from such blocks of insurance is also included in deferred policy
acquisition costs. Protective amortizes the present value of future profits over
the premium payment period including accrued interest of up to approximately 8%.
The unamortized present value of future profits for all acquisitions was
approximately $370.3 million and $274.9 million at December 31, 1998 and 1997,
respectively. During 1998 $132.5 million of present value of future profits on
acquisitions made during the year was capitalized and $37.1 million was
amortized. During 1997 $136.2 million of present value of future profits on
acquisitions made during the year was capitalized, and $28.9 million was
amortized.
INCOME TAXES
Protective uses the asset and liability method of accounting for income
taxes. Income tax provisions are generally based on income reported for
financial statement purposes. Deferred federal income taxes arise from the
recognition of temporary differences between the bases of assets and liabilities
determined for financial reporting purposes and the bases determined for income
tax purposes. Such temporary differences are principally related to the deferral
of policy acquisition costs and the provision for future policy benefits and
expenses.
F-31
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
net income, total assets, or share-owner's equity.
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principals ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The most significant differences are: (a) acquisition costs of
obtaining new business are deferred and amortized over the approximate life of
the policies rather than charged to operations as incurred, (b) benefit
liabilities are computed using a net level method and are based on realistic
estimates of expected mortality, interest, and withdrawals as adjusted to
provide for possible unfavorable deviation from such assumptions, (c) deferred
income taxes are provided for temporary differences between financial and
taxable earnings, (d) the Asset Valuation Reserve and Interest Maintenance
Reserve are restored to stock-owner's equity, (e) furniture and equipment,
agents' debit balances, and prepaid expenses are reported as assets rather than
being charged directly to surplus (referred to as nonadmitted items), (f)
certain items of interest income, principally accrual of mortgage and bond
discounts are amortized differently, and (g) bonds are stated at market instead
of amortized cost.
The reconciliations of net income and share-owner's equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<TABLE>
<CAPTION>
NET INCOME SHARE-OWNER'S EQUITY
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory
reporting practices: (1).......... $ 147,077 $ 134,417 $ 102,337 $ 531,956 $ 579,111 $ 456,320
Additions (deductions) by
adjustment:
Deferred policy acquisition
costs, net of amortization...... 68,155 10,310 (2,830) 841,425 632,605 488,201
Deferred income tax............... (14,925) 13,981 2,142 (51,735) (49,417) (37,722)
Asset Valuation Reserve........... 66,922 67,369 64,233
Interest Maintenance Reserve...... (1,355) (1,434) (2,142) 15,507 9,809 17,682
Nonadmitted items................. 42,835 30,500 21,610
Other timing and valuation
adjustments..................... (76,214) (54,494) (11,210) (282,480) (215,448) (197,227)
Noninsurance affiliates........... 18,171 17,530 11,104 (4) 4
Consolidation elimination......... (23,726) (22,862) (16,858) (95,059) (35,746) (36,910)
--------- --------- --------- --------- --------- ---------
In conformity with generally
accepted accounting principles.... $ 117,183 $ 97,448 $ 82,543 $1,069,371 $1,018,779 776,191
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- ------------
(1) Consolidated
F-32
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities......................................... $ 463,416 $ 396,255 $ 310,353
Equity securities........................................ 905 1,186 2,124
Mortgage loans on real estate............................ 158,461 161,604 153,463
Investment real estate................................... 1,224 2,004 1,875
Policy loans............................................. 12,346 11,370 10,378
Other, principally short-term investments................ 16,536 21,876 51,637
---------- ---------- ----------
652,888 594,295 529,830
Investment expenses...................................... 49,093 36,807 31,049
---------- ---------- ----------
$ 603,795 $ 557,488 $ 498,781
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<S> <C> <C> <C>
Fixed maturities................................. $ 4,374 $ (8,355) $ (7,101)
Equity securities................................ (4,465) 5,975 1,733
Mortgage loans and other investments............. 2,227 4,204 10,878
--------- --------- ---------
$ 2,136 $ 1,824 $ 5,510
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective recognizes permanent impairments through changes to an allowance
for uncollectible amounts on investments. The allowance totaled $24.1 million at
December 31, 1998 and $23.0 million at December 31, 1997. Additions and
reductions to the allowance are included in realized investment gains (losses).
Without such additions/reductions, Protective had net realized investment gains
of $3.2 million in 1998, net realized investment losses of $6.1 million in 1997,
and net realized investment gains of $3.7 million in 1996.
In 1998, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $32.3 million and
gross losses were $32.5 million. In 1997, gross gains were $21.3 million and
gross losses were $23.5 million. In 1996, gross gains were $6.9 million and
gross losses were $11.8 million.
F-33
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of Protective's investments
classified as available for sale at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1998 COST GAINS LOSSES VALUES
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed.......................................... $ 2,581,561 $ 41,626 $ 33,939 $ 2,589,248
United States Government and authorities................. 72,697 2,812 75,509
States, municipalities, and political subdivisions....... 29,521 1,131 30,652
Public utilities......................................... 533,082 15,066 548,148
Convertibles and bonds with warrants..................... 694 179 515
All other corporate bonds................................ 3,083,782 98,992 32,629 3,150,145
Redeemable preferred stocks................................ 5,937 108 6,045
------------ ----------- ----------- ------------
6,307,274 159,735 66,747 6,400,262
Equity securities............................................ 15,151 456 3,349 12,258
Short-term investments....................................... 159,655 159,655
------------ ----------- ----------- ------------
$ 6,482,080 $ 160,191 $ 70,096 $ 6,572,175
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1997 COST GAINS LOSSES VALUES
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed.......................................... $ 2,982,266 $ 54,103 $ 16,577 $ 3,019,792
United States Government and authorities................. 160,484 1,366 0 161,850
States, municipalities, and political subdivisions....... 31,621 532 0 32,153
Public utilities......................................... 481,679 7,241 0 488,920
Convertibles and bonds with warrants..................... 694 0 168 526
All other corporate bonds................................ 2,559,186 80,903 1,019 2,639,070
Redeemable preferred stocks................................ 5,941 0 0 5,941
------------ ----------- ----------- ------------
6,221,871 144,145 17,764 6,348,252
Equity securities............................................ 24,983 300 10,277 15,006
Short-term investments....................................... 54,337 0 0 54,337
------------ ----------- ----------- ------------
$ 6,301,190 $ 144,445 $ 28,041 $ 6,417,595
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
F-34
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of fixed maturities at
December 31, by expected maturity, are shown below. Expected maturities are
derived from rates of prepayment that may differ from actual rates of
prepayment.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1998 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 705,859 $ 709,686
Due after one year through five years............................. 3,255,973 3,325,078
Due after five years through ten years............................ 1,655,055 1,690,581
Due after ten years............................................... 690,387 674,917
------------ ------------
$ 6,307,274 $ 6,400,262
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1997 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 456,248 $ 460,994
Due after one year through five years............................. 2,774,769 2,815,553
Due after five years through ten years............................ 2,377,989 2,440,193
Due after ten years............................................... 612,865 631,512
------------ ------------
$ 6,221,871 $ 6,348,252
------------ ------------
------------ ------------
</TABLE>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1998 1997
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
AAA........................................................................ 34.3% 41.1%
AA......................................................................... 6.2 4.8
A.......................................................................... 29.4 29.1
BBB........................................................................ 26.5 21.9
BB or less................................................................. 3.5 3.0
Redeemable preferred stocks................................................ 0.1 0.1
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
At December 31, 1998 and 1997, Protective had bonds which were rated less than
investment grade of $222.9 million and $195.2 million, respectively, having an
amortized cost of $252.0 million and $193.6 million, respectively. At December
31, 1998, approximately $83.5 million of the bonds rates less than investment
grade were securities issued in company-sponsored commercial mortgage loan
securitizations. Approximately $817.9 million of bonds are not publically
traded.
F-35
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The change in unrealized gains (losses), net of income tax on fixed maturity
and equity securities for the years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Fixed maturities........................................... $ (21,705) $ 72,741 $ (56,898)
Equity securities.......................................... $ 4,605 $ (8,813) $ 207
</TABLE>
At December 31, 1998, all of Protective's mortgage loans were commercial
loans of which 75% were retail, 10% were apartments, 8% were warehouses, and 6%
were office buildings. Protective specializes in making mortgage loans on either
credit-oriented or credit-anchored commercial properties, most of which are
strip shopping centers in smaller towns and cities. No single tenant's leased
space represents more than 5% of mortgage loans. Approximately 82% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: Georgia, Florida, Texas, North Carolina,
Tennessee, Virginia, Alabama, South Carolina, Kentucky, Ohio, Maryland,
California, Mississippi, and Washington.
Many of the mortgage loans have call provisions after three to ten years.
Assuming the loans are called at their next call dates, approximately $48.1
million would become due in 1999, $348.9 million in 2000 to 2003, and $209.1
million in 2004 to 2008.
At December 31, 1998, the average mortgage loan was approximately $2.0
million, and the weighted average interest rate was 8.3%. The largest single
mortgage loan was $12.8 million.
At December 31, 1998 and 1997, Protective's problem mortgage loans and
foreclosed properties totaled $11.7 million and $17.7 million, respectively.
Since Protective's mortgage loans are collateralized by real estate, any
assessment of impairment is based upon the estimated fair value of the real
estate. Based on Protective's evaluation of its mortgage loan portfolio,
Protective does not expect any material losses on its mortgage loans.
Certain investments, principally real estate, with a carrying value of $10.6
million were nonincome producing for the twelve months ended December 31, 1998.
Policy loan interest rates generally range from 4.5% to 8.0%.
NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax
income.................................................... 35.0% 35.0% 35.0%
Dividends received deduction and tax-exempt interest........ (0.1) (0.2) (0.4)
Low-income housing credit................................... (0.5) (0.6) (0.6)
Tax benefits arising from prior acquisitions and other
adjustments............................................... 0.1 0.7 0.1
State income taxes.......................................... 0.5
----- ----- -----
Effective income tax rate................................... 35.0% 34.9% 34.1%
----- ----- -----
----- ----- -----
</TABLE>
F-36
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
The provision for federal income tax differs from amounts currently payable
due to certain items reported for financial statement purposes in periods which
differ from those in which they are reported for income tax purposes.
Details of the deferred income tax provision for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs................................... $ 60,746 $ 7,054 $ 15,542
Benefit and other policy liability changes.......................... (41,268) (23,564) (16,321)
Temporary differences of investment income.......................... (3,491) 2,516 (1,163)
Other items......................................................... (1,062) 13 (200)
---------- ---------- ----------
$ 14,925 $ (13,981) $ (2,142)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves.................................... $ 190,328 $ 138,701
Other......................................................................... 2,091 1,029
---------- ----------
192,419 139,730
---------- ----------
Deferred income tax liabilities:
Deferred policy acquisition costs............................................. 211,641 150,895
Unrealized gain on investments................................................ 32,513 38,252
---------- ----------
244,154 189,147
---------- ----------
Net deferred income tax liability............................................. $ 51,735 $ 49,417
---------- ----------
---------- ----------
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of
Protective's gain from operations which was not subject to current income
taxation was accumulated for income tax purposes in a memorandum account
designated as Policyholders' Surplus. The aggregate accumulation in this account
at December 31, 1998 was approximately $70.5 million. Should the accumulation in
the Policyholders' Surplus account exceed certain stated maximums, or should
distributions including cash dividends be made to PLC in excess of approximately
$769 million, such excess would be subject to federal income taxes at rates then
effective. Deferred income taxes have not been provided on amounts designated as
Policyholders' Surplus. Under current income tax laws, Protective does not
anticipate involuntarily paying income tax on amounts in the Policyholders'
Surplus accounts.
Protective's income tax returns are included in the consolidated income tax
returns of PLC. The allocation of income tax liabilities among affiliates is
based upon separate income tax return calculations.
NOTE E -- DEBT
At December 31, 1998, PLC had borrowed $18.5 million at a rate of 5.8%. PLC
had also borrowed $30.0 million at a rate of 5.4% under a term note that
contains, among other provisions, requirements for maintaining certain financial
ratios, and restrictions on indebtedness incurred by PLC's subsidiaries
F-37
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E -- DEBT (CONTINUED)
including Protective. Additionally, PLC, on a consolidated basis, cannot incur
debt in excess of 50% of its total capital.
Protective has arranged sources of credit to temporarily fund scheduled
investment commitments. Protective expects that the rate received on its
investments will equal or exceed its borrowing rate. Protective had no such
temporary borrowings outstanding at December 31, 1998 and 1997. Also, Protective
has a mortgage note on investment real estate amounting to approximately $2.4
million that matures in 2003.
Included in indebtedness to related parties is a surplus debenture issued by
Protective to PLC. At December 31, 1998, the balance of the surplus debenture
was $18.0 million. The debenture matures in 2003.
Indebtedness to related parties also consists of payables to affiliates
under control of PLC in the amount of $2.9 million at December 31, 1998.
Protective routinely receives from or pays to affiliates under the control of
PLC reimbursements for expenses incurred on one another's behalf. Receivables
and payables among affiliates are generally settled monthly.
Interest expense on borrowed money totaled $8.3 million, $4.3 million, and
$4.6 million, in 1998, 1997, and 1996, respectively.
NOTE F -- RECENT ACQUISITIONS
In June 1997, Protective acquired West Coast Life Insurance Company ("West
Coast"). In September 1997, Protective acquired the Western Diversified Group.
In October 1997, Protective coinsured a block of credit policies.
In October 1998 Protective coinsured a block of life insurance policies from
Lincoln National Corporation. The policies represent the payroll deduction
business originally marketed and underwritten by Aetna.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. Protective does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
A number of civil jury verdicts have been returned against insurers in the
jurisdictions in which Protective does business involving the insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. Increasingly these lawsuits have resulted in the award of
substantial judgments against the insurer that are disproportionate to the
actual damages, including material amounts of punitive damages. In addition, in
some class action and other lawsuits involving insurers' sales practices,
insurers have made material settlement payments. In some states (including
Alabama), juries have substantial discretion in awarding punitive damages which
creates the potential for
F-38
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
unpredictable material adverse judgments in any given punitive damage suit.
Protective and its subsidiaries, like other insurers, in the ordinary course of
business, are involved in such litigation or alternatively in arbitration.
Although the outcome of any litigation or arbitration cannot be predicted with
certainty, Protective believes that at the present time there are no pending or
threatened lawsuits that are reasonably likely to have a material adverse effect
on the financial position, results of operations, or liquidity of Protective.
NOTE H -- SHARE-OWNER'S EQUITY AND RESTRICTIONS
At December 31, 1998, approximately $608.6 million of consolidated
share-owner's equity excluding net unrealized gains and losses represented net
assets of Protective that cannot be transferred in the form of dividends, loans,
or advances to PLC. In general, dividends up to specified levels are considered
ordinary and may be paid thirty days after written notice to the insurance
commissioner of the state of domicile unless such commissioner objects to the
dividend prior to the expiration of such period. Dividends in larger amounts are
considered extraordinary and are subject to affirmative prior approval by such
commissioner. The maximum amount that would qualify as ordinary dividends to PLC
by Protective in 1999 is estimated to be $138.9 million. Dividends of $60.0
million were paid to PLC in 1998.
NOTE I -- PREFERRED STOCK
PLC owns all of the 2,000 shares of preferred stock issued by Protective's
subsidiary, Protective Life and Annuity Insurance Company ("PL&A"). During 1996,
PL&A's articles of incorporation were amended such that the preferred stock is
redeemable solely at the discretion of PL&A. Prior to November 1998, the stock
paid, when and if declared, annual minimum cumulative dividends of $50 per
share, and noncumulative participating dividends to the extent PL&A's statutory
earnings for the immediately preceding fiscal year exceeded $1 million.
Dividends of $0.1 million were paid to PLC in 1998, 1997, and 1996. Effective
November 3, 1998, PL&A's articles of incorporation were amended such that the
provision for an annual minimum cumulative dividend was removed.
NOTE J -- RELATED PARTY MATTERS
On August 6, 1990, PLC announced that its Board of Directors approved the
formation of an Employee Stock Ownership Plan ("ESOP"). On December 1, 1990,
Protective transferred to the ESOP 520,000 shares of PLC's common stock held by
it in exchange for a note. The outstanding balance of the note, $5.2 million at
December 31, 1998, is accounted for as a reduction to share-owner's equity. The
stock will be used to match employee contributions to PLC's existing 401(k)
Plan. The ESOP shares are dividend paying. Dividends on the shares are used to
pay the ESOP's note to Protective.
Protective leases furnished office space and computers to affiliates. Lease
revenues were $3.0 million in 1998, $3.1 million in 1997, and $3.7 million in
1996. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $56.2 million, $51.6
million, and $50.4 million in 1998, 1997, and 1996, respectively. Commissions
paid to affiliated marketing organizations of $8.4 million, $5.2 million, and
$7.4 million in 1998, 1997, and 1996, respectively, were included in deferred
policy acquisition costs.
Certain corporations with which PLC's directors were affiliated paid
Protective premiums, policy fees, or deposits for various types of insurance and
investment products. Such premiums, policy fees, and deposits amounted to $28.6
million, $21.4 million and $31.2 million in 1998, 1997, and 1996, respectively.
F-39
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- RELATED PARTY MATTERS (CONTINUED)
Protective and/or PLC paid commissions, interest on debt and investment
products, and fees to these same corporations totaling $7.3 million, $5.4
million and $5.0 million in 1998, 1997, and 1996, respectively.
For a discussion of indebtedness to related parties, see Note E.
NOTE K -- OPERATING SEGMENTS
Protective operates seven divisions whose principal strategic focuses can be
grouped into three general categories: Life Insurance, Specialty Insurance
Products, and Retirement Savings and Investment Products. Each division has a
senior officer of Protective responsible for its operations. A division is
generally distinguished by products and/or channels of distribution. A brief
description of each division follows.
LIFE INSURANCE
INDIVIDUAL LIFE DIVISION. The Individual Life Division markets universal
life, variable universal life, and level premium term and term-like insurance
products on a national basis through a network of independent insurance agents.
WEST COAST DIVISION. The West Coast Division sells universal life and level
premium term-like insurance products in the life insurance brokerage market and
in the "bank owned life insurance" market.
ACQUISITIONS DIVISION. The Acquisitions Division focuses solely on
acquiring, converting, and servicing policies acquired from other companies.
These acquisitions may be accomplished through acquisitions of companies or
through the assumption or reinsurance of life insurance and related policies.
SPECIALTY INSURANCE PRODUCTS
DENTAL AND CONSUMER BENEFITS DIVISION. The Division's primary focus is on
indemnity and prepaid dental products. In 1997, the Division exited from the
traditional group major medical business, fulfilling the Division's strategy to
focus primarily on dental and related products.
FINANCIAL INSTITUTIONS DIVISION. The Financial Institutions Division
specializes in marketing credit life and disability insurance products through
banks, consumer finance companies and automobile dealers. The Division also
includes a small property casualty insurer that sells automobile service
contracts.
GUARANTEED INVESTMENT CONTRACTS DIVISION. The Guaranteed Investment
Contracts ("GIC") Division markets GICs to 401(k) and other qualified retirement
savings plans. The Division also offers related products, including fixed and
floating rate funding agreements offered to the trustees of municipal bond
proceeds, bank trust departments, and money market funds, and long-term annuity
contracts offered to fund certain state obligations.
INVESTMENT PRODUCTS DIVISION. The Investment Products Division
manufactures, sells, and supports fixed and variable annuity products. These
products are primarily sold through stockbrokers, but are also sold through
financial institutions and the Individual Life Division's sales force.
CORPORATE AND OTHER
Protective has an additional business segment herein referred to as
Corporate and Other. The Corporate and Other segment primarily consists of net
investment income and expenses not attributable to the Divisions above
(including net investment income on capital and interest on substantially all
debt).
F-40
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
Protective uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated net
income and assets. Operating segment income is generally income before income
tax. Premiums and policy fees, other income, benefits and settlement expenses,
and amortization of deferred policy acquisition costs are attributed directly to
each operating segment. Net investment income is allocated based on directly
related assets required for transacting the business of that segment. Realized
investment gains (losses) and other operating expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
F-41
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
Operating segment income and assets for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
LIFE INSURANCE
-------------------------------------
INDIVIDUAL
OPERATING SEGMENT INCOME LIFE WEST COAST ACQUISITIONS
- ------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
1998
Premiums and policy
fees................... $ 228,701 $ 75,757 $ 125,329
Reinsurance ceded........ (102,533) (53,377 ) (28,594)
---------- ---------- -------------
Net of reinsurance
ceded................ 126,168 22,380 96,735
Net investment income.... 55,779 63,492 112,154
Realized investment gains
(losses)...............
Other income............. 70 6 1,713
---------- ---------- -------------
Total revenues....... 182,017 85,878 210,602
---------- ---------- -------------
Benefits and settlement
expenses............... 106,308 54,617 112,051
Amortization of deferred
policy acquisition
costs.................. 30,543 4,924 18,894
Other operating
expenses............... 14,983 5,354 26,717
---------- ---------- -------------
Total benefits and
expenses............ 151,834 64,895 157,662
---------- ---------- -------------
Income before income
tax.................... 30,183 20,983 52,940
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
1997
Premiums and policy
fees................... $ 182,746 $ 41,290 $ 120,504
Reinsurance ceded........ (55,266) (27,168 ) (17,869)
---------- ---------- -------------
Net of reinsurance
ceded................ 127,480 14,122 102,635
Net investment income.... 54,593 30,194 110,155
Realized investment gains
(losses)...............
Other income............. 617 10
---------- ---------- -------------
Total revenues....... 182,690 44,316 212,800
---------- ---------- -------------
Benefits and settlement
expenses............... 114,678 28,304 116,506
Amortization of deferred
policy acquisition
costs.................. 27,354 961 16,606
Other operating
expenses............... 18,178 6,849 23,016
---------- ---------- -------------
Total benefits and
expenses............ 160,210 36,114 156,128
---------- ---------- -------------
Income before income
tax.................... 22,480 8,202 56,672
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
1996
Premiums and policy
fees................... $ 154,295 $ 125,798
Reinsurance ceded........ (37,585) (19,255)
---------- ---------- -------------
Net of reinsurance
ceded................ 116,710 106,543
Net investment income.... 48,442 106,015
Realized investment gains
(losses)............... 3,098
Other income............. 1,056 641
---------- ---------- -------------
Total revenues....... 169,306 213,199
---------- ---------- -------------
Benefits and settlement
expenses............... 96,404 118,181
Amortization of deferred
policy acquisition
costs.................. 28,393 17,162
Other operating
expenses............... 28,611 24,292
---------- ---------- -------------
Total benefits and
expenses............ 153,408 159,635
---------- ---------- -------------
Income before income
tax.................... 15,898 53,564
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
OPERATING SEGMENT ASSETS
- -------------------------
1998
Investments and other
assets................. $1,076,202 $1,149,642 $1,600,123
Deferred policy
acquisition costs...... 301,941 144,455 255,347
---------- ---------- -------------
Total assets............. $1,378,143 $1,294,097 $1,855,470
---------- ---------- -------------
1997
Investments and other
assets................. $ 960,316 $ 910,030 $1,401,294
Deferred policy
acquisition costs...... 252,321 108,126 138,052
---------- ---------- -------------
Total assets............. $1,212,637 $1,018,156 $1,539,346
---------- ---------- -------------
1996
Investments and other
assets................. $ 814,728 $1,423,081
Deferred policy
acquisition costs...... 220,232 156,172
---------- ---------- -------------
Total assets............. $1,034,960 $1,579,253
---------- ---------- -------------
</TABLE>
- --------------------
(1) Adjustments represent the inclusion of unallocated realized investment
gains (losses) and the recognition of income tax expense. There are no
asset adjustments.
F-42
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
SPECIALTY INSURANCE RETIREMENT SAVINGS AND
PRODUCTS INVESTMENT PRODUCTS
--------------------------- ---------------------------
DENTAL AND GUARANTEED CORPORATE
CONSUMER FINANCIAL INVESTMENT INVESTMENT AND TOTAL
BENEFITS INSTITUTIONS CONTRACTS PRODUCTS OTHER ADJUSTMENTS(1) CONSOLIDATED
----------- ------------- ------------ ------------ ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Premiums and policy
fees................... $ 277,316 $ 301,230 $ 18,809 $ 198 $ 1,027,340
Reinsurance ceded........ (85,753) (188,958) (459,215)
----------- ------------- ------------ ------------ ---------- ------ -------------
Net of reinsurance
ceded................ 191,563 112,272 18,809 198 568,125
Net investment income.... 15,245 25,068 $ 213,136 105,827 13,094 603,795
Realized investment gains
(losses)............... 1,609 1,318 $ (791) 2,136
Other income............. 4,295 10,302 1,799 2,016 20,201
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 211,103 147,642 214,745 127,753 15,308 1,194,257
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 140,632 52,629 178,745 85,045 469 730,496
Amortization of deferred
policy acquisition
costs.................. 10,352 28,526 735 17,213 1 111,188
Other operating
expenses............... 49,913 48,837 2,876 14,428 9,120 172,228
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 200,897 129,992 182,356 116,686 9,590 1,013,912
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 10,206 17,650 32,389 11,067 5,718 180,345
Income tax expense....... 63,162 63,162
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 117,183
----------- ------------- ------------ ------------ ---------- ------ -------------
1997
Premiums and policy
fees................... $ 260,590 $ 196,694 $ 12,367 $ 229 $ 814,420
Reinsurance ceded........ (109,480) (124,431) (334,214)
----------- ------------- ------------ ------------ ---------- ------ -------------
Net of reinsurance
ceded................ 151,110 72,263 12,367 229 480,206
Net investment income.... 23,810 16,341 $ 211,915 105,196 5,284 557,488
Realized investment gains
(losses)............... (3,180) 589 $4,415 1,824
Other income............. 1,278 3,033 (192) 1,403 6,149
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 176,198 91,637 208,735 117,960 6,916 1,045,667
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 110,148 27,643 179,235 82,019 339 658,872
Amortization of deferred
policy acquisition
costs.................. 15,711 30,812 618 15,110 3 107,175
Other operating
expenses............... 38,572 20,165 3,945 12,312 6,833 129,870
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 164,431 78,620 183,798 109,441 7,175 895,917
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 11,767 13,017 24,937 8,519 (259) 149,750
Income tax expense....... 52,302 52,302
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 97,448
----------- ------------- ------------ ------------ ---------- ------ -------------
1996
Premiums and policy
fees................... $ 288,050 $ 193,236 $ 8,189 $ 656 $ 770,224
Reinsurance ceded........ (131,520) (119,814) (308,174)
----------- ------------- ------------ ------------ ---------- ------ -------------
Net of reinsurance
ceded................ 156,530 73,422 8,189 656 462,050
Net investment income.... 16,249 13,898 $ 214,369 98,719 1,089 498,781
Realized investment gains
(losses)............... (7,963) 3,858 $6,517 5,510
Other income............. 2,193 56 1,064 5,010
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 174,972 87,320 206,406 110,822 2,809 971,351
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 125,797 42,781 169,927 73,093 710 626,893
Amortization of deferred
policy acquisition
costs.................. 5,326 24,900 509 14,710 1 91,001
Other operating
expenses............... 43,028 10,673 3,840 13,196 4,508 128,148
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 174,151 78,354 174,276 100,999 5,219 846,042
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 821 8,966 32,130 9,823 (2,410) 125,309
Income tax expense....... 42,766 42,766
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 82,543
----------- ------------- ------------ ------------ ---------- ------ -------------
OPERATING SEGMENT ASSETS
- -------------------------
1998
Investments and other
assets................. $ 197,337 $ 645,909 $2,869,304 $2,542,536 $700,417 $10,781,470
Deferred policy
acquisition costs...... 23,836 39,212 1,448 75,177 9 841,425
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $ 221,173 $ 685,121 $2,870,752 $2,617,713 $700,426 $11,622,895
----------- ------------- ------------ ------------ ---------- ------ -------------
1997
Investments and other
assets................. $ 208,071 $ 536,058 $2,887,732 $2,313,279 $525,896 $ 9,742,676
Deferred policy
acquisition costs...... 22,459 52,836 1,785 56,074 952 632,605
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $ 230,530 $ 588,894 $2,889,517 $2,369,353 $526,848 $10,375,281
----------- ------------- ------------ ------------ ---------- ------ -------------
1996
Investments and other
assets................. $ 205,696 $ 312,826 $2,606,873 $1,821,250 $490,688 $ 7,675,142
Deferred policy
acquisition costs...... 27,944 32,040 1,164 50,637 12 488,201
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $ 233,640 $ 344,866 $2,608,037 $1,871,887 $490,700 $ 8,163,343
----------- ------------- ------------ ------------ ---------- ------ -------------
</TABLE>
- --------------------
F-43
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS
PLC has a defined benefit pension plan covering substantially all of its
employees. The plan is not separable by affiliates participating in the plan.
However, approximately 81% of the participants in the plan are employees of
Protective. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. PLC's funding policy is
to contribute amounts to the plan sufficient to meet the minimum finding
requirements of ERISA plus such additional amounts as PLC may determine to be
appropriate from time to time. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future.
The actuarial present value of benefit obligations and the funded status of
the plan taken as a whole at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Projected benefit obligation, beginning of the year........................................ $ 30,612 $ 25,196
Service cost -- benefits earned during the year............................................ 2,585 2,112
Interest cost -- on projected benefit obligation........................................... 2,203 2,036
Actuarial gain............................................................................. 2,115 3,421
Plan amendment............................................................................. 160
Benefits paid.............................................................................. (1,128) (2,153)
---------- ---------
Projected benefit obligation, end of the year.............................................. 36,547 30,612
---------- ---------
Fair value of plan assets beginning of the year............................................ 21,763 19,779
Actual return on plan assets............................................................... 1,689 1,625
Employer contribution...................................................................... 2,823 2,512
Benefits paid.............................................................................. (1,128) (2,153)
---------- ---------
Fair value of plan assets end of the year.................................................. 25,147 21,763
---------- ---------
Plan assets less than the projected benefit obligation..................................... (11,400) (8,849)
Unrecognized net actuarial loss from past experience different from that assumed........... 9,069 6,997
Unrecognized prior service cost............................................................ 652 605
Unrecognized net transition asset.......................................................... (34) (51)
---------- ---------
Net pension liability recognized in balance sheet.......................................... $ (1,713) $ (1,298)
---------- ---------
---------- ---------
</TABLE>
Net pension cost of the defined benefit pension plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................ $ 2,585 $ 2,112 $ 1,908
Interest cost........................................................... 2,203 2,036 1,793
Expected return on plan assets.......................................... (1,950) (1,793) (1,593)
Amortization of prior service cost...................................... 112 100 100
Amortization of transition asset........................................ (17) (17) (17)
Recognized net actuarial loss........................................... 305 152 210
--------- --------- ---------
Net pension cost........................................................ $ 3,238 $ 2,590 $ 2,401
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-44
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Protective's share of the net pension cost was $2.6 million, $1.8 million,
and $1.5 million, in 1998, 1997, and 1996, respectively,
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate.............................................. 6.75% 7.25% 7.75%
Rates of increase in compensation level..................................... 4.75% 5.25% 5.75%
Expected long-term rate of return on assets................................. 8.50% 8.50% 8.50%
</TABLE>
Assets of the pension plan are included in the general assets of Protective.
Upon retirement, the amount of pension plan assets vested in the retiree is used
to purchase a single premium annuity from Protective in the retiree's name.
Therefore, amounts presented above as plan assets exclude assets relating to
retirees.
PLC also sponsors an unfunded excess benefits plan, which is a nonqualified
plan that provides defined pension benefits in excess of limits imposed by
federal income tax law. At December 31, 1998 and 1997, the projected benefit
obligation of this plan totaled $11.7 million and $10.0 million, respectively,
of which $7.8 million and $6.6 million, respectively, have been recognized in
PLC's financial statements.
Net pension cost of the excess benefits plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................... $ 611 $ 544 $ 424
Interest cost.............................................................. 722 651 505
Plan amendment............................................................. 351
Amortization of prior service cost......................................... 112 112 112
Amortization of transition asset........................................... 37 37 37
Recognized net actuarial loss.............................................. 173 180 155
--------- --------- ---------
Net pension cost........................................................... $ 1,655 $ 1,875 $ 1,233
--------- --------- ---------
--------- --------- ---------
</TABLE>
In addition to pension benefits, PLC provides limited healthcare benefits to
eligible retired employees until age 65. The postretirement benefit is provided
by an unfunded plan. At December 31, 1998 and 1997, the liability for such
benefits totaled $1.2 million and $1.3 million, respectively. The expense
recorded by PLC was $0.1 million in 1998, 1997 and 1996. PLC's obligation is not
materially affected by a 1% change in the healthcare cost trend assumptions used
in the calculation of the obligation.
Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation up to a maximum of $75,000. This plan is partially funded at a
maximum of $50,000 face amount of insurance.
PLC sponsors a defined contribution plan which covers substantially all
employees. Employee contributions are made on a before-tax basis as provided by
Section 401(k) of the Internal Revenue Code. In 1990, PLC established an
Employee Stock Ownership Plan ("ESOP") to match voluntary employee contributions
to PLC's 401(k) Plan. In 1994, a stock bonus was added to the 401(k) Plan for
employees who are not otherwise under a bonus plan. Expense related to the ESOP
consists of the cost of the shares
F-45
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
allocated to participating employees plus the interest expense on the ESOP's
note payable to Protective less dividends on shares held by the ESOP. At
December 31, 1998, PLC had committed up to 101,124 shares to be released to fund
employee benefits. The expense recorded by PLC for these employee benefits was
less than $0.1 million in 1998 and 1997, and $1.0 million in 1996.
NOTE M -- STOCK BASED COMPENSATION
Certain Protective employees participate in PLC's Long-Tenn Incentive Plan
(previously known as the Performance Share Plan) and receive stock appreciation
rights (SARs) from PLC.
Since 1973 PLC has had a Performance Share Plan to motivate senior
management to focus on PLC's long-range earnings performance. The criterion for
payment of performance share awards is based upon a comparison of PLC's average
return on average equity or total return over a four year award period (earlier
upon the death, disability or retirement of the executive, or in certain
circumstances, of a change in control of PLC) to that of a comparison group of
publicly held life insurance companies, multiline insurers, and insurance
holding companies. If PLC's results are below the median of the comparison
group, no portion of the award is earned. If PLC's results are at or above the
90th percentile, the award maximum is earned. Under the plan approved by
share-owners in 1992 and 1997, up to 6,400,000 shares may be issued in payment
of awards. The number of shares granted in 1998, 1997, and 1996 were 71,340,
98,780 and 104,580 shares, respectively, having an approximate market value on
the grant date of $2.3 million, $2.0 million, and $1.8 million, respectively. At
December 31, 1998, outstanding awards measured at target and maximum payouts
were 474,695 and 638,090 shares, respectively. The expense recorded by PLC for
the Performance Share Plan was $2.7 million, $2.7 million, and $3.0 million in
1998, 1997, and 1996, respectively.
During 1996, stock appreciation rights (SARs) were granted to certain
executives of PLC to provide long-term incentive compensation based on the
performance of PLC's Common Stock. Under this arrangement PLC will pay (in
shares of PLC Common Stock) an amount equal to the difference between the
specified base price of PLC's Common Stock and the market value at the exercise
date. The SARs are exercisable after five years (earlier upon the death,
disability or retirement of the executive, or in certain circumstances, of a
change in control of PLC) and expire in 2006 or upon termination of employment.
The number of SARs granted during 1996 and outstanding at December 31, 1998 was
675,000. The SARs have a base price of $17.4375 per share of PLC Common Stock
(the market price on the grant date was $17.50 per share). The estimated fair
value of the SARs on the grant date was $3.0 million. This estimate was derived
using the Roll-Geske variation of the Black-Sholes option pricing model.
Assumptions used in the pricing model are as follows: expected volatility rate
of 15% (approximately equal to that of the S & P Life Insurance Index), a risk
free interest rate of 6.35%, a dividend yield rate of 1.97%, and an expected
exercise date of August 15, 2002. The expense recorded by PLC for the SARs was
$0.6 million in 1998 and 1997.
NOTE N -- REINSURANCE
Protective assumes risks from and reinsures certain parts of its risks with
other insurers under yearly renewable term, coinsurance, and modified
coinsurance agreements. Yearly renewable term and coinsurance agreements are
accounted for by passing a portion of the risk to the reinsurer. Generally, the
reinsurer receives a proportionate part of the premiums less commissions and is
liable for a corresponding part of all benefit payments. Modified coinsurance is
accounted for similarly to coinsurance except that the
F-46
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N -- REINSURANCE (CONTINUED)
liability for future policy benefits is held by the original company, and
settlements are made on a net basis between the companies.
Protective has reinsured approximately $64.8 billion, $34.1 billion, and
$18.8 billion in face amount of life insurance risks with other insurers
representing $294.4 million, $147.2 million, and $113.5 million of premium
income for 1998, 1997, and 1996, respectively. Protective has also reinsured
accident and health risks representing $164.8 million, $187.7 million, and
$194.7 million of premium income for 1998, 1997, and 1996, respectively. In 1998
and 1997, policy and claim reserves relating to insurance ceded of $658.7
million and $485.8 million respectively are included in reinsurance receivables.
Should any of the reinsurers be unable to meet its obligation at the time of the
claim, obligation to pay such claim would remain with Protective. At December
31, 1998 and 1997, Protective had paid $22.8 million and $25.6 million,
respectively, of ceded benefits which are recoverable from reinsurers. In
addition, at December 31, 1998, Protective had receivables of $75.0 million
related to insurance assumed.
A substantial portion of Protective's new credit insurance sales are being
reinsured.
NOTE O -- ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated market values of Protective's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities............................ $6,400,262 $6,400,262 $6,348,252 $6,348,252
Equity securities........................... 12,258 12,258 15,006 15,006
Mortgage loans on real estate............... 1,623,603 1,774,379 1,313,478 1,405,474
Short-term investments...................... 159,655 159,655 54,337 54,337
Cash.......................................... 39,197 39,197
Liabilities (see Notes A and E):
Guaranteed investment contract deposits..... 2,691,697 2,751,007 2,684,676 2,687,331
Annuity deposits............................ 1,519,820 1,513,148 1,511,553 1,494,600
Notes payable............................... 2,363 2,363
Other (see Note A):
Derivative Financial Instruments............ (734) (545)
</TABLE>
Except as noted below, fair values were estimated using quoted market
prices. Protective estimates the fair value of its mortgage loans using
discounted cash flows from the next call date. Protective believes the fair
value of its short-term investments and notes payable approximate book value due
to either being short-term or having a variable rate of interest. Protective
estimates the fair value of its guaranteed investment contracts and annuities
using discounted cash flows and surrender values, respectively. Protective
believes it is not practicable to determine the fair value of its policy loans
since there is no stated maturity, and policy loans are often repaid by
reductions to policy benefits.
F-47
<PAGE>
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
GIC AND
ANNUITY
DEFERRED FUTURE DEPOSITS AND
POLICY POLICY OTHER PREMIUMS NET
ACQUISITION BENEFITS UNEARNED POLICYHOLDERS' AND POLICY INVESTMENT
SEGMENT COSTS AND COSTS PREMIUMS FUNDS FEES INCOME (1)
- ------------------------------------------- ----------- ---------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Life Insurance
Individual Life.......................... $ 301,941 $1,054,253 $ 355 $ 10,802 $ 126,168 $ 55,779
West Coast............................... 144,455 1,006,280 0 77,254 22,380 63,492
Acquisitions............................. 255,347 1,383,759 553 253,846 96,735 112,154
Specialty Insurance Products
Dental and Consumer Benefits............. 23,836 111,916 3,341 78,224 191,563 15,245
Financial Institutions................... 39,212 215,451 385,006 105,434 112,273 25,068
Retirement Savings and Investment Products
Guaranteed Investment Contracts.......... 1,448 172,674 0 2,691,697 213,136
Investment Products...................... 75,177 194,726 0 1,233,528 18,609 105,827
Corporate and Other........................ 9 944 39 88 198 13,094
----------- ---------- ----------- -------------- ----------- -----------
TOTAL.................................. $ 841,425 $4,140,003 $ 389,204 $ 4,430,873 $ 568,125 $ 603,795
----------- ---------- ----------- -------------- ----------- -----------
----------- ---------- ----------- -------------- ----------- -----------
Year Ended December 31, 1997:
Life Insurance
Individual Life.......................... $ 252,321 $ 920,924 $ 356 $ 16,334 $ 127,480 $ 54,593
West Coast............................... 108,126 739,463 0 95,495 14,122 30,194
Acquisitions............................. 138,052 1,025,340 1,437 311,150 102,635 110,155
Specialty Insurance Products
Dental and Consumer Benefits............. 22,459 120,925 2,536 80,654 151,110 23,810
Financial Institutions................... 52,836 159,422 391,085 6,791 72,263 16,341
Retirement Savings and Investment Products
Guaranteed Investment Contracts.......... 1,785 180,690 0 2,684,676 0 211,915
Investment Products...................... 56,074 177,150 0 1,184,268 12,367 105,196
Corporate and Other........................ 952 380 1,282 185 229 5,284
Unallocated Realized Investment Gains
(Losses)................................. 0 0 0 0 0 0
----------- ---------- ----------- -------------- ----------- -----------
TOTAL.................................. $ 632,605 $3,324,294 $ 396,696 $ 4,379,553 $ 480,206 $ 557,488
----------- ---------- ----------- -------------- ----------- -----------
----------- ---------- ----------- -------------- ----------- -----------
Year Ended December 31, 1996:
Life Insurance
Individual Life.......................... $ 220,232 $ 793,370 $ 685 $ 15,577 $ 116,710 $ 48,442
Acquisitions............................. 156,172 1,117,159 1,087 251,450 106,543 106,015
Specialty Insurance Products
Dental and Consumer Benefits............. 27,944 119,010 2,572 83,632 156,530 16,249
Financial Institutions................... 32,040 119,242 253,154 1,880 73,422 13,898
Retirement Savings and Investment Products
Guaranteed Investment Contracts.......... 1,164 149,755 0 2,474,728 0 214,369
Investment Products...................... 50,637 149,743 0 1,120,557 8,189 98,719
Corporate and Other........................ 12 170 55 192 656 1,089
Unallocated Realized Investment Gains
(Losses)................................. 0 0 0 0 0 0
----------- ---------- ----------- -------------- ----------- -----------
TOTAL.................................. $ 488,201 $2,448,449 $ 257,553 $ 3,948,016 $ 462,050 $ 498,781
----------- ---------- ----------- -------------- ----------- -----------
----------- ---------- ----------- -------------- ----------- -----------
<CAPTION>
AMORTIZATION
BENEFITS OF DEFERRED
AND POLICY OTHER
SETTLEMENT ACQUISITION OPERATING
SEGMENT EXPENSES COSTS EXPENSES (1)
- ------------------------------------------- ----------- ------------- -------------
<S> <C> <C> <C>
Year Ended December 31, 1998:
Life Insurance
Individual Life.......................... $ 106,308 $ 30,543 $ 14,983
West Coast............................... 54,617 4,924 5,354
Acquisitions............................. 112,051 18,894 26,717
Specialty Insurance Products
Dental and Consumer Benefits............. 140,652 10,352 49,913
Financial Institutions................... 52,629 28,526 48,637
Retirement Savings and Investment Products
Guaranteed Investment Contracts.......... 178,745 735 2,876
Investment Products...................... 85,045 17,213 14,428
Corporate and Other........................ 469 1 9,120
----------- ------------- -------------
TOTAL.................................. $ 730,496 $ 111,188 $ 172,228
----------- ------------- -------------
----------- ------------- -------------
Year Ended December 31, 1997:
Life Insurance
Individual Life.......................... $ 114,678 $ 27,354 $ 18,178
West Coast............................... 28,304 961 6,849
Acquisitions............................. 116,506 16,606 23,016
Specialty Insurance Products
Dental and Consumer Benefits............. 110,148 15,711 38,572
Financial Institutions................... 27,643 30,812 20,165
Retirement Savings and Investment Products
Guaranteed Investment Contracts.......... 179,235 618 3,945
Investment Products...................... 82,019 15,110 12,312
Corporate and Other........................ 339 3 6,833
Unallocated Realized Investment Gains
(Losses)................................. 0 0 0
----------- ------------- -------------
TOTAL.................................. $ 658,872 $ 107,175 $ 129,870
----------- ------------- -------------
----------- ------------- -------------
Year Ended December 31, 1996:
Life Insurance
Individual Life.......................... $ 96,404 $ 28,393 $ 28,611
Acquisitions............................. 118,181 17,162 24,292
Specialty Insurance Products
Dental and Consumer Benefits............. 125,797 5,326 43,027
Financial Institutions................... 42,781 24,900 10,673
Retirement Savings and Investment Products
Guaranteed Investment Contracts.......... 169,927 509 3,840
Investment Products...................... 73,093 14,710 13,197
Corporate and Other........................ 710 1 4,508
Unallocated Realized Investment Gains
(Losses)................................. 0 0 0
----------- ------------- -------------
TOTAL.................................. $ 626,893 $ 91,001 $ 128,148
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
(1) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if
different methods were applied.
S-1
<PAGE>
SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- -------------------------------------------------- ---------- ---------- ----------- ---------- -------------
PERCENTAGE OF
CEDED TO ASSUMED AMOUNT
GROSS OTHER FROM OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Life insurance in force......................... $91,980,657 $64,846,246 1$8,010,434 $45,144,845 39.9%
---------- ---------- ----------- ---------- ------
---------- ---------- ----------- ---------- ------
Premiums and policy fees:
Life insurance.................................. $ 537,002 $ 294,363 $ 87,964 $ 330,603 26.6%
Accident and health insurance................... 361,705 164,852 14,279 211,132 6.8%
Property and liability insurance................ 26,389 26,289 0.0%
---------- ---------- ----------- ----------
TOTAL........................................... $ 925,096 $ 459,215 $ 102,243 $ 568,024
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Year Ended December 31, 1997:
Life insurance in force......................... $78,240,282 $34,139,554 1$1,013,202 $55,113,930 20.0%
---------- ---------- ----------- ---------- ------
---------- ---------- ----------- ---------- ------
Premiums and policy fees:
Life insurance.................................. $ 387,108 $ 147,184 $ 74,738 $ 314,662 23.8%
Accident and health insurance................... 336,575 187,539 10,510 159,546 6.6%
Property and liability insurance................ 6,139 176 35 5,998 0.6%
---------- ---------- ----------- ----------
TOTAL........................................... $ 729,822 $ 334,899 $ 85,283 $ 480,206
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Year Ended December 31, 1996:
Life insurance in force......................... $53,052,020 $18,840,221 1$6,275,386 $50,487,185 32.2%
---------- ---------- ----------- ---------- ------
---------- ---------- ----------- ---------- ------
Premiums and policy fees:
Life insurance.................................. $ 272,331 $ 113,487 $ 129,717 $ 288,561 45.0%
Accident and health insurance................... 338,709 194,687 29,467 173,489 17.0%
---------- ---------- ----------- ----------
TOTAL........................................... $ 611,040 $ 308,174 $ 159,184 $ 462,050
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
S-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
All required financial statements are included in Part A and Part B of this
Registration Statement.
(b) Exhibits:
<TABLE>
<C> <S>
1. Resolution of the Board of Directors of Protective Life Insurance Company authorizing
establishment of the Protective Life Variable Annuity Separate Account**
2. Not applicable
3. (a) Form of Underwriting Agreement among Protective Life Insurance Company, Investment
Distributors, Inc. and the Protective Life Variable Annuity Separate Account**
(b) Form of Distribution Agreement between Investment Distributors, Inc. and
broker/dealers**
4. (a) Form of Individual Flexible Premium Deferred Variable and Fixed Annuity Contract*
(b) Endorsement**
(c) Qualified Retirement Plan Endorsement**
(d) Individual Retirement Annuity Endorsement**
(e) Tax Sheltered Annuity Endorsement**
(f) ERISA Tax Sheltered Annuity Endorsement**
(g) Section 457 Deferred Compensation Plan Endorsement**
(h) Death Benefit Endorsement (96)***
(i) Tax Sheltered Annuity Endorsement (96)***
(j) Variable Settlement Option Endorsement+
5. Form of Contract Applications**
6. (a) Charter of Protective Life Insurance Company.*
(b) By-Laws of Protective Life Insurance Company.*
7. Not applicable
8. (a) Participation/Distribution Agreement (Protective Investment Company)**
(b) Participation Agreement (Oppenheimer Variable Account Funds)****
(c) Participation Agreement (MFS Variable Insurance Trust)****
(d) Participation Agreement (Calvert Group, formerly Acacia Capital Corporation)****
(e) Participation Agreement (Van Eck Worldwide Insurance Trust)++
9. Opinion and Consent of Steve M. Callaway, Esq.
10. (a) Consent of Sutherland, Asbill & Brennan, LLP
(b) Consent of PricewaterhouseCoopers LLP
11. No financial statements will be omitted from Item 23
12. Not applicable
13. Not applicable
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S>
14. Powers of Attorney
</TABLE>
- ------------
* Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 33-70984) filed with the Commission on
October 28, 1993.
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement (File No. 33-70984) filed with the
Commission on February 23, 1994.
*** Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Form N-4 Registration Statement (File No. 33-70984) filed with the
Commission on April 8, 1996.
**** Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form N-4 Registration Statement (File No. 33-70984) filed with the
Commission on April 30, 1997.
+ Incorporated herein by reference to Post-Effective Amendment No. 7 to the
Form N-4 Registration Statement (File No. 33-70984) filed with the
Commission on April 29, 1998.
++ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement (File No. 333-60149) filed with the
Commission on October 26, 1998.
ITEM 25. DIRECTORS AND OFFICERS OF DEPOSITOR.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH DEPOSITOR
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Drayton Nabers, Jr. Chairman of the Board, and Director
John D. Johns President, and Director
R. Stephen Briggs Executive Vice President, and Director
Carolyn King Senior Vice President, Investment Products, and Director
Deborah J. Long Senior Vice President, General Counsel, Secretary, and
Director
Jim E. Massengale Executive Vice President, Acquisitions, and Director
Steven A. Schultz Senior Vice President, Financial Institutions, and
Director
Wayne E. Stuenkel Senior Vice President and Chief Actuary, and Director
A.S. Williams, III Executive Vice President, Investments, Treasurer, and
Director
Judy Wilson Senior Vice President, Guaranteed Investment Contracts
T. Davis Keyes Senior Vice President, Information Services
J. Russell Bailey, Jr. Vice President, Dental and Consumer Benefits
Michael B. Ballard Vice President, Individual Life Marketing
Harvey S. Benjamin Vice President, Investment Products Operations
Danny L. Bentley Senior Vice President, Dental and Consumer Benefits, and
Director
Richard J. Bielen Senior Vice President, Investments, and Director
Larry J. Adams Vice President, PPGA Sales
Linda C. Cleveland Vice President, Acquisition Administration
Chris T. Calos Vice President, Marketing, Dental and Consumer Benefits
Tim W. Carney Vice President, MGMD Dental Sales
Jerry W. DeFoor Vice President and Controller
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH DEPOSITOR
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
John B. Deremo Vice President, Individual Life Sales
Brent E. Fritz Vice President, Individual Life Product Development
Bruce W. Gordon Vice President, Marketing, Individual Life
James T. Helton III Vice President and Actuary, Dental and Consumer Benefits
Charles (T.O.) McDowell Vice President, PPGA Sales
William L. McMullen, Jr. Vice President, Customer Service, Financial Institutions
Lawrence G. Merrill Vice President, Investment Products Marketing
Charles Misasi Vice President, Network Plans
Edmund P. Perry Vice President, Individual Life Sales
Carl E. Price Vice President, Direct Marketing, Dental and Consumer
Benefits
Charles M. Prior Vice President, Investments
T. Michael Presley Vice President and Actuary, Financial Institutions
John Sawyer Vice President, Equity Marketing, Individual Life
David C. Stevens Vice President, Operations, Dental and Consumer Benefits
James M. Styne Vice President, Financial Institutions
Carl S. Thigpen Vice President, Investments and Assistant Secretary
Alan E. Watson Vice President, Individual Life Sales
Thomas W. Willingham Vice President, Individual Life Operations and Assistant
Secretary
Banks M. Wood Vice President, Sales and Marketing, Financial
Institutions
</TABLE>
- ------------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama 35223.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR AND
REGISTRANT
The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. All of the Company's outstanding voting
common stock is owned by Protective Life Corporation. Protective Life
Corporation is described more fully in the prospectus included in this
registration statement. Various companies and other entities controlled by
Protective Life Corporation may therefore be considered to be under common
control with the registrant or the Company. Such other companies and entities,
together with the identity of their controlling persons (where applicable), are
set forth in Exhibit 21 to Form 10-K of Protective Life Corporation for the
fiscal year ended December 31, 1998 (File No. 1-12332) filed with the Commission
on March 25, 1999.
ITEM 27. NUMBER OF CONTRACTOWNERS.
As of the date of this filing, there were 30,819 contract owners of
individual flexible premium deferred variable and fixed annuity contracts
offered by Registrant.
ITEM 28. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XI of the By-laws of Protective Life provides, in substance, that
any of Protective Life's directors and officers, who is a party or is threatened
to be made a party to any action, suit or
C-3
<PAGE>
proceeding, other than an action by or in the right of Protective Life, by
reason of the fact that he is or was an officer or director, shall be
indemnified by Protective Life against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such claim, action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of Protective Life and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. If the claim, action or suit is or was by or in the right of
Protective Life to procure a judgment in its favor, such person shall be
indemnified by Protective Life against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Protective
Life, except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to Protective Life
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper. To the extent that a director or officer has been successful on the
merits or otherwise in defense of any such action, suit or proceeding, or in
defense of any claim, issue or matter therein, he shall be indemnified by
Protective Life against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, not withstanding that he has
not been successful on any other claim issue or matter in any such action, suit
or proceeding. Unless ordered by a court, indemnification shall be made by
Protective Life only as authorized in the specific case upon a determination
that indemnification of the officer or director is proper in the circumstances
because he has met the applicable standard of conduct Such determination shall
be made (a) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to, or who have been successful on the merits
or otherwise with respect to, such claim action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion or (c) by the shareholders.
In addition, the executive officers and directors are insured by PLC's
Directors' and Officers' Liability Insurance Policy including Company
Reimbursement and are indemnified by a written contract with PLC which
supplements such coverage.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Investment Distributors, Inc. ("IDI") is the principal underwriter of
the Contracts as defined in the Investment Company Act of 1940. IDI is
also principal underwriter for the Fund and for the Protective Life
Variable Separate Account.
C-4
<PAGE>
(b) The following information is furnished with respect to the officers and
directors of Investment Distributors, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS* POSITION AND OFFICES POSITION AND OFFICES WITH REGISTRANT
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Briggs, Robert Stephen President, Chief Executive Officer, Executive Vice President Director
and Director
A.S. Williams, III Vice President Executive Vice President,
Investments, Treasurer, Director
Ballard, Michael B. Director Vice President, Individual Life
Marketing
Merrill, Lawrence G. Director Vice President, Investment Products
Marketing
King, Carolyn Secretary, Compliance Officer Chief Senior Vice President,
Investment Products and Director
Callaway, Steve M. Director None
Janet Summey Assistant Secretary Assistant Vice President, Investment
Products
Bonnie Miller Assistant Secretary Assistant Vice President, Investment
Products
</TABLE>
- ------------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama, 35223.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts and records required to be maintained by Section 31(c) of the
Investment Company Act of 1940 and the rules thereunder are maintained by
Protective Life Insurance Company at 2801 Highway 280 South, Birmingham, Alabama
35223.
ITEM 31. MANAGEMENT SERVICES.
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS.
(a) Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never
more than sixteen (16) months old for so long as payments under the
variable annuity contracts may be accepted.
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a postcard or similar written communication affixed
to or included in the Prospectus that the applicant can remove to send
for a Statement of Additional Information; and
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available
under this Form promptly upon written or oral request.
C-5
<PAGE>
(d) The Company represents that in connection with its offering of the
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986, it
is relying on a no-action letter dated November 28, 1988, to the
American Council of Life Insurance (Ref. No. IP-6-88) regarding Sections
22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, and
that paragraphs numbered (1) through (4) of that letter will be complied
with.
(e) Protective Life hereby represents that the fees and charges deducted
under the Contract, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed by Protective Life.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirement of Securities Act Rule 485(b) for effectiveness of this registration
statement and has duly caused the amendment to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Birmingham, State of Alabama on April 29, 1999.
<TABLE>
<S> <C> <C>
PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT
By: /s/ JOHN D. JOHNS
------------------------------------------
John D. Johns, PRESIDENT
PROTECTIVE LIFE INSURANCE COMPANY
PROTECTIVE LIFE INSURANCE COMPANY
By: /s/ JOHN D. JOHNS
------------------------------------------
John D. Johns, PRESIDENT
PROTECTIVE LIFE INSURANCE COMPANY
</TABLE>
As required by the Securities Act of 1933, the amendment to this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
* Chairman of the Board
- ------------------------------ (Principal Executive April 29, 1999
Drayton Nabers, Jr. Officer)
/s/ JOHN D. JOHNS President
- ------------------------------ (Principal Financial April 29, 1999
John D. Johns Officer)
Vice President,
* Controller, and Chief
- ------------------------------ Accounting Officer April 29, 1999
Jerry Defoor (Principal Accounting
Officer)
*
- ------------------------------ Director April 29, 1999
Drayton Nabers, Jr.
/s/ JOHN D. JOHNS
- ------------------------------ Director April 29, 1999
John D. Johns
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director April 29, 1999
R. Stephen Briggs
*
- ------------------------------ Director April 29, 1999
Jim E. Massengale
*
- ------------------------------ Director April 29, 1999
Wayne E. Stuenkel
*
- ------------------------------ Director April 29, 1999
A.S. Williams III
*
- ------------------------------ Director April 29, 1999
Steven A. Schultz
*
- ------------------------------ Director April 29, 1999
Deborah J. Long
*
- ------------------------------ Director April 29, 1999
Carolyn King
*
- ------------------------------ Director April 29, 1999
Richard J. Bielen
*
- ------------------------------ Director April 29, 1999
Danny L. Bentley
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEVE CALLAWAY
-------------------------
Steve Callaway
ATTORNEY-IN-FACT
</TABLE>
C-8
<PAGE>
EXHIBIT 9
PROTECTIVE LIFE CORPORATION [PROTECTIVE LOGO]
Post office Box 2606
Birmingham, Alabama 35202
205-879-9230
______________________________________
STEVE M. CALLAWAY
Senior Associate Counsel
Writer's Direct Number: (205) 868-3804
Facsimile Number: (205) 868-3597
Toll-Free Number: (800) 627-0220
April 29, 1999
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Gentlemen:
With respect to the Post-Effective Amendment No. 8 to the Form N-4
Registration Statement to be filed by Protective Life Insurance Company (the
"Company") and Protective Variable Annuity Separate Account (the "Account")
with the Securities and Exchange Commission for the purpose of registering
under the Securities Act of 1933, as amended, individual flexible premium
deferred variable and fixed annuity contracts marketed as the Protective
Variable Annuity (the "Contracts"), I have examined such documents and such
law as I considered necessary and appropriate, and on the basis of such
examination, it is my opinion that:
1. The Company is a corporation duly organized and validly existing as
a stock life insurance company under the laws of the State of
Tennessee and is duly authorized by the Department of Commerce and
Insurance of the State of Tennessee to issue the Contracts.
2. The Account is a duly authorized and existing separate account
established pursuant to the provisions of Section 53-3-501 of the
Tennessee Code.
3. To the extent so provided under the Contracts, that portion of the
assets of the account equal to the reserves and other contract
liabilities with respect to the Account will not be chargeable with
liabilities arising out of any other business that the Company may
conduct.
4. The Contracts, when issued as contemplated by the Form N-4
registration statement, will constitute legal, validly issued and
binding obligations of the Company.
I hereby consent to the filing of this opinion as an exhibit to the Form
N-4 registration statement for the Contracts and the Account.
Very truly yours,
/s/ STEVE M. CALLAWAY
Steve M. Callaway
Senior Associate Counsel
PROTECTIVE LIFE INSURANCE COMPANY/PROTECTIVE LIFE AND
ANNUITY INSURANCE COMPANY
EMPIRE GENERAL LIFE ASSURANCE CORPORATION/
WISCONSIN NATIONAL LIFE INSURANCE COMPANY
<PAGE>
EXHIBIT 10(a)
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet:[email protected]
April 27, 1999
Board of Directors
Protective Life Insurance Company
2801 Highway 201 South
Birmingham, Alabama 35223
Directors:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the statement of additional information filed as part of
post-effective amendment number 8 (file number 33-70984) to the Registration
Statement on Form N-4 filed by Protective Life Insurance Company and
Protective Variable Annuity Separate Account with the Securities and Exchange
Commission. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ STEPHEN E. ROTH
-----------------------------------------
Stephen E. Roth
<PAGE>
[PRICEWATERHOUSECOOPERS LOGO]
[LETTERHEAD]
EXHIBIT 10(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form N-4 of our
report dated February 11, 1999, on our audits of the consolidated financial
statements and financial statement schedules of Protective Life Insurance
Company and Subsidiaries. We also consent to the inclusion of our report
dated March 17, 1999 on our audit of the financial statements of the
Protective Variable Annuity Separate Account. We also consent to the
reference to our firm under the caption "Experts."
PricewaterhouseCoopers LLP
Birmingham, Alabama
April 29, 1999
<PAGE>
EXHIBIT 14
DIRECTORS'
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors
of Protective Life Insurance Company, a Tennessee corporation, ("Company") by
his execution hereof or upon an identical counterpart hereof, does hereby
constitute and appoint John D. Johns, Steve M. Callaway or Jerry W. DeFoor,
and each or any of them, his true and lawful attorney-in-fact and agent, for
him and in his name, place and stead, to execute and sign the Registration
Statement on Form N-4 to be filed by the Company with respect to the
Protective Life Variable Annuity, an individual flexible premium deferred
variable and fixed annuity product, with the Securities and Exchange
Commission, pursuant to the provisions of the Securities Exchange Act of 1933
and the Investment Company Act of 1940 and, further, to execute and sign any
and all pre-effective and post-effective amendments to such Registration
Statement, and to file same, with all exhibits and schedules thereto and all
other documents in connection therewith, with the Securities and Exchange
Commission and with such state securities authorities as may be appropriate,
granting unto said attorney-in-fact and agent, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes of the undersigned might or could do in person, hereby ratifying
and confirming all the acts of said attorney-in-fact and agent or any of them
which they may lawfully do in the premises or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand
and seal this ____ day of _________, 1999.
WITNESS TO ALL SIGNATURES:
/s/ DEBORAH J. LONG /s/ JACKIE ANDERSON
- ----------------------------------- --------------------------------------
Deborah J. Long Witness to Deborah J. Long's signature
/s/ DRAYTON NABERS, JR. /s/ DANNY L. BENTLEY
- ----------------------------------- --------------------------------------
Drayton Nabers, Jr. Danny L. Bentley
/s/ JOHN D. JOHNS /s/ RICHARD J. BIELEN
- ----------------------------------- --------------------------------------
John D. Johns Richard J. Bielen
/s/ R. STEPHEN BRIGGS /s/ CAROLYN KING
- ----------------------------------- --------------------------------------
R. Stephen Briggs Carolyn King
/s/ DEBORAH J. LONG /s/ JIM E. MASSENGALE
- ----------------------------------- --------------------------------------
Deborah J. Long Jim E. Massengale
/s/ STEVEN A. SCHULTZ /s/ WAYNE E. STUENKEL
- ----------------------------------- --------------------------------------
Steven A. Schultz Wayne E. Stuenkel
/s/ A. S. WILLIAMS III
- -----------------------------------
A. S. Williams III
