<PAGE>
<TABLE>
<S> <C>
PROTECTIVE LIFE INSURANCE COMPANY
[LOGO] PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT
P.O. BOX 10648
BIRMINGHAM, ALABAMA 35202-0648
TELEPHONE: 1-800-456-6330
</TABLE>
This Prospectus describes the Protective Variable Annuity II Contract, a
group and individual flexible premium deferred variable and fixed annuity
contract offered by Protective Life Insurance Company. The Contract is designed
for investors who desire to accumulate capital on a tax deferred basis for
retirement or other long term investment purpose. It may be purchased on a
non-qualified basis or for use with certain qualified retirement plans.
You may allocate your Purchase Payments to one or more of the Sub-Accounts
of the Protective Variable Annuity Separate Account, the Guaranteed Account, or
both. The assets of each Sub-Account will be invested solely in a corresponding
Fund of Protective Investment Company, Van Kampen Life Investment Trust,
MFS-Registered Trademark- Variable Insurance Trust-SM-, Oppenheimer Variable
Account Funds, Calvert Variable Series, Inc., and Van Eck Worldwide Insurance
Trust. The Funds are:
<TABLE>
<S> <C> <C>
PROTECTIVE INVESTMENT COMPANY MFS-REGISTERED TRADEMARK- VARIABLE OPPENHEIMER VARIABLE ACCOUNT FUNDS
INTERNATIONAL EQUITY FUND INSURANCE TRUST AGGRESSIVE GROWTH FUND/VA
SMALL CAP VALUE FUND NEW DISCOVERY SERIES GLOBAL SECURITIES FUND/ VA
CAPITAL GROWTH FUND EMERGING GROWTH SERIES CAPITAL APPRECIATION FUND/VA
CORE(SM) U.S. EQUITY FUND RESEARCH SERIES MAIN STREET GROWTH &
GROWTH AND INCOME FUND GROWTH SERIES INCOME FUND/VA
GLOBAL INCOME FUND GROWTH WITH INCOME SERIES HIGH INCOME FUND/VA
UTILITIES SERIES MONEY FUND/VA
TOTAL RETURN SERIES STRATEGIC BOND FUND/VA
</TABLE>
<TABLE>
<S> <C> <C>
VAN KAMPEN LIFE INVESTMENT TRUST CALVERT VARIABLE SERIES, INC.
EMERGING GROWTH PORTFOLIO SOCIAL SMALL CAP GROWTH PORTFOLIO
ENTERPRISE PORTFOLIO SOCIAL BALANCED PORTFOLIO
COMSTOCK PORTFOLIO VAN ECK WORLDWIDE INSURANCE TRUST
GROWTH AND INCOME PORTFOLIO WORLDWIDE HARD ASSETS FUND
STRATEGIC STOCK PORTFOLIO WORLDWIDE REAL ESTATE FUND
ASSET ALLOCATION PORTFOLIO
</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. The
Statement of Additional Information, which has been filed with the Securities
and Exchange Commission, contains additional information about the Contract and
the Variable Account. 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 II 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, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS................................................. 3
EXPENSES.................................................... 4
Examples.................................................. 7
SUMMARY..................................................... 11
The Contract.............................................. 11
Federal Tax Status........................................ 13
CONDENSED FINANCIAL INFORMATION............................. 14
Sub-Accounts.............................................. 14
Accumulation Units........................................ 15
THE COMPANY, VARIABLE ACCOUNT AND FUNDS..................... 17
Protective Life Insurance Company......................... 17
Protective Variable Annuity Separate Account.............. 17
Administration............................................ 17
The Funds................................................. 18
Protective Investment Company (PIC)....................... 18
Van Kampen Life Investment Trust.......................... 19
MFS-Registered Trademark- Variable Insurance Trust
-SM-........................................................ 19
Oppenheimer Variable Account Funds........................ 20
Calvert Variable Series, Inc.............................. 21
Van Eck Worldwide Insurance Trust......................... 21
Other Information about the Funds......................... 21
Other Investors in the Funds.............................. 22
Addition, Deletion or Substitution of Investments......... 22
DESCRIPTION OF THE CONTRACT................................. 23
The Contract.............................................. 23
Parties to the Contract................................... 23
Issuance of a Contract.................................... 24
Purchase Payments......................................... 25
Right to Cancel........................................... 25
Allocation of Purchase Payments........................... 25
Variable Account Value.................................... 26
Transfers................................................. 27
Surrenders and Partial Surrenders......................... 29
THE GUARANTEED ACCOUNT...................................... 31
DEATH BENEFIT............................................... 32
Standard Death Benefit.................................... 33
Optional Benefit Packages................................. 33
SUSPENSION OR DELAY IN PAYMENTS............................. 35
CHARGES AND DEDUCTIONS...................................... 35
Surrender Charge.......................................... 35
Mortality and Expense Risk Charge......................... 37
Administration Charges.................................... 37
Transfer Fee.............................................. 37
Contract Maintenance Fee.................................. 37
Fund Expenses............................................. 38
Premium Taxes............................................. 38
Other Taxes............................................... 38
ANNUITIZATION............................................... 38
Annuity Commencement Date................................. 38
Fixed Income Payments..................................... 39
Variable Income Payments.................................. 39
Annuity Options........................................... 40
Minimum Amounts........................................... 41
Death of Annuitant or Owner After Annuity Commencement
Date.................................................... 41
YIELDS AND TOTAL RETURNS.................................... 41
Yields.................................................... 41
Total Returns............................................. 41
Standardized Average Annual Total Returns................. 42
Non-Standard Average Annual Total Returns................. 42
Performance Comparisons................................... 42
Other Matters............................................. 43
FEDERAL TAX MATTERS......................................... 43
Introduction.............................................. 43
The Company's Tax Status.................................. 43
TAXATION OF ANNUITIES IN GENERAL.......................... 43
Tax Deferral During Accumulation Period................... 43
Taxation of Partial and Full Surrenders................... 45
Taxation of Annuity Payments.............................. 46
Taxation of Death Benefit Proceeds........................ 46
Assignments, Pledges, and Gratuitous Transfers............ 46
Penalty Tax on Premature Distributions.................... 47
Aggregation of Contracts.................................. 47
Loss of Interest Deduction Where Contract Is Held By or
For the Benefit of Certain Nonnatural Persons........... 47
QUALIFIED RETIREMENT PLANS................................ 48
In General................................................ 48
Direct Rollovers.......................................... 51
FEDERAL INCOME TAX WITHHOLDING............................ 51
GENERAL MATTERS............................................. 51
The Contract.............................................. 51
Error in Age or Gender.................................... 51
Incontestability.......................................... 52
Non-Participation......................................... 52
Assignment................................................ 52
Notice.................................................... 52
Modification.............................................. 52
Reports................................................... 52
Settlement................................................ 52
Receipt of Payment........................................ 52
Protection of Proceeds.................................... 52
Minimum Values............................................ 53
Application of Law........................................ 53
No Default................................................ 53
DISTRIBUTION OF THE CONTRACTS............................... 53
Inquiries................................................. 53
YEAR 2000 COMPUTER COMPLIANCE ISSUES........................ 53
IMSA........................................................ 53
LEGAL PROCEEDINGS........................................... 53
VOTING RIGHTS............................................... 54
FINANCIAL STATEMENTS........................................ 54
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
APPENDIX A: Death Benefit calculation examples.............. A-1
APPENDIX B: Surrender Charge calculation examples........... B-1
APPENDIX C: Variable Annuitization calculation.............. 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 II, a flexible premium, deferred,
variable and fixed annuity contract.
CONTRACT ANNIVERSARY: The same month and day as the Effective Date in each
subsequent year of the Contract.
CONTRACT VALUE: Prior to the Annuity Commencement Date, the sum of the
Variable Account value and the Guaranteed Account value.
CONTRACT YEAR: Any period of 12 months commencing with the Effective Date or
any Contract Anniversary.
DCA: Dollar cost averaging.
DCA FIXED ACCOUNTS: The DCA Fixed Accounts are part of the Company's general
account and are not part of or dependent upon the investment performance of the
Variable Account. These accounts are available for dollar cost averaging only
and may not be available in all states.
EFFECTIVE DATE: The date as of which we credit the initial Purchase Payment
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. This account may not be available in all states.
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 tax treatment under
Sections 401, 403, 408, 408A or 457 of the Internal Revenue Code.
SUB-ACCOUNT: A separate division of the Variable Account.
VALUATION DAY: Each day on which the New York Stock Exchange is open for
business.
VALUATION PERIOD: The period which begins at the close of regular trading on
the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the next Valuation Day.
VARIABLE ACCOUNT: The Protective Variable Annuity Separate Account, a
separate investment account of Protective Life.
WRITTEN NOTICE: A notice or request submitted in writing in a form
satisfactory to the Company that we receive at the administrative office via
hand delivery, courier, mail, or facsimile transmission.
3
<PAGE>
EXPENSES
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 Imposed on Amount
Surrendered (contingent deferred sales charge
as a % of amount surrendered)................. 7.0%
Transfer Processing Fee......................... None*
ANNUAL CONTRACT MAINTENANCE FEE................... $30**
</TABLE>
<TABLE>
<CAPTION>
WITH STANDARD WITH OPTIONAL
BENEFITS BENEFITS
------------------------- -------------------------
<S> <C> <C>
ANNUAL VARIABLE ACCOUNT EXPENSES
(as a percentage of average Variable
Account value)
Mortality and Expense Risk Charge..... 1.10% 1.25%
Administration Charge................. 0.15% 0.15%
Total Annual Variable Account
Expenses............................ 1.25% 1.40%
</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>
ANNUAL FUND EXPENSES
(AFTER REIMBURSEMENT AND AS PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
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MANAGEMENT OTHER TOTAL ANNUAL
(ADVISORY) EXPENSES AFTER FUND EXPENSES
FEES REIMBURSEMENT (AFTER REIMBURSEMENTS)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROTECTIVE INVESTMENT COMPANY (PIC) (1)
International Equity Fund.................. 1.10% 0.00% 1.10%
Small Cap Value Fund....................... 0.80% 0.00% 0.80%
Capital Growth Fund........................ 0.80% 0.00% 0.80%
CORE-SM- 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%
VAN KAMPEN LIFE INVESTMENT TRUST (6)
Emerging Growth Portfolio.................. 0.67% 0.18% 0.85%
Enterprise Portfolio....................... 0.48% 0.12% 0.60%
Comstock Portfolio......................... 0.00% 0.95% 0.95%
Growth and Income Portfolio................ 0.43% 0.32% 0.75%
Strategic Stock Portfolio.................. 0.24% 0.41% 0.65%
Asset Allocation Portfolio................. 0.33% 0.27% 0.60%
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE
TRUST-SM- (2, 3)
New Discovery Series....................... 0.90% 0.17% 1.07%
Emerging Growth Series..................... 0.75% 0.09% 0.84%
Research Series............................ 0.75% 0.11% 0.86%
Growth Series.............................. 0.75% 0.16% 0.91%
Growth With Income Series.................. 0.75% 0.13% 0.88%
Utilities Series........................... 0.75% 0.16% 0.91%
Total Return Series........................ 0.75% 0.15% 0.90%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Aggressive Growth Fund/VA.................. 0.66% 0.01% 0.67%
Global Securities Fund/VA.................. 0.67% 0.02% 0.69%
Capital Appreciation Fund/VA............... 0.68% 0.02% 0.70%
Main Street Growth & Income Fund/VA........ 0.73% 0.05% 0.78%
High Income Fund/VA........................ 0.74% 0.01% 0.75%
Strategic Bond Fund/VA..................... 0.74% 0.04% 0.78%
Money Fund/VA.............................. 0.45% 0.03% 0.48%
CALVERT VARIABLE SERIES, INC. (4)
Social Small Cap Growth Portfolio.......... 1.00% 0.58% 1.58%
Social Balanced Portfolio.................. 0.70% 0.19% 0.89%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund................. 1.00% 0.26% 1.26%
Worldwide Real Estate Fund (5)............. 1.00% 2.23% 3.23%
- -------------------------------------------------------------------------------------------------
</TABLE>
5
<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, 1999 were:
CORE-SM- U.S. Equity Fund 0.85%, Small Cap Value Fund 0.90%, International
Equity Fund 1.33%, Growth and Income Fund 0.86%, Capital Growth Fund 0.85%,
and Global Income Fund 1.29%. 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
0.15% of the average daily net assets of these series during the current
fiscal year. This waiver and reimbursement was in effect for the period
ending December 31, 1999. The payments made by MFS on behalf of each series
under this arrangement are subject to reimbursement by the series to MFS,
which will be accomplished by the payment of an expense reimbursement fee
by the series to MFS computed and paid monthly at a percentage of the
series' average daily net assets for its then current fiscal year, with a
limitation that immediately after such payment the series' "Other Expenses"
will not exceed the percentage set forth above for that series. The
obligation of MFS to bear a series' "Other Expenses" pursuant to this
arrangement, and the series' obligation to pay the reimbursement fee to
MFS, terminates on the earlier of the date on which payments made by the
series equal the prior payment of such reimbursable expenses by MFS, or
December 31, 2004 (May 1, 2001 in the case of the New Discovery Series).
MFS may, in its discretion, terminate this arrangement at an earlier date,
provided that the arrangement will continue for each series until at least
May 1, 2001, 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, 1999 were 2.49%
reflecting "Other Expenses" of 1.59% and total expenses for the Growth
Series were 1.46% reflecting other expenses of 0.71%.
(3) Each Series has an expense offset arrangement which reduces the Series'
custodian based fee based on the amount of cash maintained by the Series
with its custodian and dividend disbursing agent. Each Series may enter
into other such arrangements and directed brokerage arrangements, which
would also have the effect of reducing the Series' expenses. Expenses do
not take into account these expense reductions and are therefore higher
than the actual expenses of the Series. Had this offset been incorporated
into the reported expenses, "Other Expenses" for the New Discovery Series
would appear on the Expense Table as 0.15% and in footnote (2) as 2.47%;
the "Other Expenses" for the Emerging Growth Series would appear on the
Expense Table as 0.08%; the "Other Expenses" for the Research Series would
appear on the Expense Table as 0.10%; the "Other Expenses" for the Growth
Series would appear on the Expense Table as 0.15% and in footnote (2) as
0.70%; the "Other Expenses" for the Growth with Income Series would appear
on the Expense Table as 0.12%; the "Other Expenses" for the Utility Series
would appear on the Expense Table as 0.15% and the "Other Expenses" for the
Total Return Series would appear on the Expense Table as 0.14%.
(4) The figures have been restated to reflect expenses expected to be incurred
in 2000. "Other Expenses" reflect an indirect fee. Net fund operating
expenses after reductions for fees paid indirectly would be 0.86% for
Calvert Social Balanced, and 1.15% 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 assume expenses
exceeding 1% of average daily net assets except interest, taxes, brokerage
commissions and extraordinary expenses for the period January 1, 1999 to
February 28, 1999.
6
<PAGE>
Beginning March 1, 1999 through February, 2000, the Adviser agreed to assume
expenses exceeding 1.5% of average daily net assets except interest, taxes,
brokerage commissions and extraordinary expenses. For the year ended
December 31, 1999, the Adviser assumed expenses in the amount of $40,036.
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, 1999, the Adviser owned 18.6% of the outstanding shares of
beneficial interest of the Fund.
(6) The Advisor has voluntarily agreed to reimburse the Portfolio for all
advisory fees in excess of certain thresholds. This agreement was in effect
for the period of January 1, 1999 to December 31, 1999 and will continue
through the period of January 1, 2000 to December 31, 2000. There is no
guarantee that the Advisor will continue the reimbursement beyond
December 31, 2000. Absent these reimbursements, the advisory fees would
have been 0.70% for the Emerging Growth Portfolio, 0.50% for the Enterprise
Portfolio; 0.60% for the Comstock Portfolio, 0.60% for the Growth and
Income Portfolio; 0.50% for the Strategic Stock Portfolio and 0.50% for the
Asset Allocation Portfolio; the "Other Expenses" would have been 0.18% for
the Emerging Growth Portfolio, 0.12% for the Enterprise Portfolio, 9.76%
for the Comstock Portfolio, 0.32% for the Growth and Income Portfolio,
0.41% for the Strategic Stock Portfolio and 0.27% for the Asset Allocation
Portfolio.
EXAMPLES
STANDARD DEATH BENEFIT
At the end of the applicable time period, you would have paid the following
expenses on a $1,000 investment, assuming selection of the standard death
benefit and a 5% annual return on assets.
1. If the Contract is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
PIC International Equity...... $85 $130 $167 $275
PIC Small Cap Value........... 83 122 153 244
PIC Capital Growth............ 83 122 153 244
PIC CORE-SM- U. S. Equity..... 83 122 153 244
PIC Growth and Income......... 83 122 153 244
PIC Global Income............. 85 130 167 275
Van Kampen Emerging Growth.... 83 123 155 249
Van Kampen Enterprise......... 81 116 143 223
Van Kampen Comstock........... 84 126 160 260
Van Kampen Growth and
Income...................... 82 120 150 239
Van Kampen Strategic Stock.... 81 117 145 229
Van Kampen Asset Allocation... 81 116 143 223
MFS New Discovery............. 85 129 166 272
MFS Emerging Growth........... 83 123 155 248
MFS Research.................. 83 123 156 250
MFS Growth.................... 84 125 158 255
MFS Growth With Income........ 84 125 158 255
MFS Utilities................. 84 125 157 254
MFS Total Return.............. 84 125 157 254
Oppenheimer Aggressive
Growth...................... 81 118 146 231
Oppenheimer Global
Securities.................. 82 118 147 233
Oppenheimer Capital
Appreciation................ 82 119 148 234
Oppenheimer Main Street Growth
& Income.................... 82 121 152 242
Oppenheimer High Income....... 82 120 150 239
Oppenheimer Strategic Bond.... 82 121 152 242
Oppenheimer Money Fund........ 80 112 137 211
Calvert Social Small Cap
Growth...................... 86 132 170 280
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Calvert Social Balanced....... $83 $123 $156 $250
Van Eck Worldwide Hard
Assets...................... 87 135 175 290
Van Eck Worldwide Real
Estate...................... 89 140 183 308
</TABLE>
2. If the Contract is not surrendered at the end of the applicable time
period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
PIC International Equity...... $24 $ 75 $129 $275
PIC Small Cap Value........... 21 66 113 244
PIC Capital Growth............ 21 66 113 244
PIC CORE-SM- U. S. Equity..... 21 66 113 244
PIC Growth and Income......... 21 66 113 244
PIC Global Income............. 24 75 129 275
Van Kampen Emerging Growth.... 22 68 116 249
Van Kampen Enterprise......... 19 60 103 223
Van Kampen Comstock........... 23 71 121 260
Van Kampen Growth and
Income...................... 21 65 111 239
Van Kampen Strategic Stock.... 20 62 106 229
Van Kampen Asset Allocation... 19 60 103 223
MFS New Discovery............. 24 74 127 272
MFS Emerging Growth........... 22 67 115 248
MFS Growth.................... 23 69 119 255
MFS Research.................. 22 68 116 250
MFS Growth With Income........ 23 69 119 255
MFS Utilities................. 22 69 118 254
MFS Total Return.............. 22 69 118 254
Oppenheimer Aggressive
Growth...................... 20 62 107 231
Oppenheimer Global
Securities.................. 20 63 108 233
Oppenheimer Capital
Appreciation................ 20 63 108 234
Oppenheimer Main Street Growth
& Income.................... 21 65 112 242
Oppenheimer High Income....... 21 65 111 239
Oppenheimer Strategic Bond.... 21 65 112 242
Oppenheimer Money Fund........ 18 56 97 211
Calvert Social Small Cap
Growth...................... 25 77 131 280
Calvert Social Balanced....... 22 68 116 250
Van Eck Worldwide Hard
Assets...................... 20 80 137 290
Van Eck Worldwide Real
Estate...................... 28 85 145 308
</TABLE>
OPTIONAL BENEFIT PACKAGES
At the end of the applicable time period, you would have paid the following
expenses on a $1,000 investment, assuming selection of an optional benefit
package and a 5% annual return on assets.
3. If the Contract is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
PIC International Equity...... $87 $134 $174 $290
PIC Small Cap Value........... 84 126 160 260
PIC Capital Growth............ 84 126 160 260
PIC CORE-SM- U. S. Equity..... 84 126 160 260
PIC Growth and Income......... 84 126 160 260
PIC Global Income............. 87 134 174 290
Van Kampen Emerging Growth.... 85 127 162 265
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Van Kampen Enterprise......... $82 $120 $150 $239
Van Kampen Comstock........... 85 130 167 275
Van Kampen Growth and
Income...................... 84 125 157 254
Van Kampen Strategic Stock.... 83 122 153 244
Van Kampen Asset Allocation... 82 120 150 239
MFS New Discovery............. 87 134 173 287
MFS Emerging Growth........... 84 127 162 264
MFS Growth.................... 85 129 165 271
MFS Research.................. 85 128 163 266
MFS Growth With Income........ 85 129 165 271
MFS Utilities................. 85 129 165 270
MFS Total Return.............. 85 129 165 270
Oppenheimer Aggressive
Growth...................... 83 122 154 246
Oppenheimer Global
Securities.................. 83 123 155 248
Oppenheimer Capital
Appreciation................ 83 123 155 249
Oppenheimer Main Street Growth
& Income.................... 84 125 159 257
Oppenheimer High Income....... 84 125 157 254
Oppenheimer Strategic Bond.... 84 125 159 257
Oppenheimer Money Fund........ 81 117 144 226
Calvert Social Small Cap
Growth...................... 87 136 177 294
Calvert Social Balanced....... 85 128 163 266
Van Eck Worldwide Hard
Assets...................... 88 139 182 305
Van Eck Worldwide Real
Estate...................... 90 144 191 322
</TABLE>
4. If the Contract is not surrendered at the end of the applicable time
period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
PIC International Equity...... $26 $80 $136 $290
PIC Small Cap Value........... 23 71 121 260
PIC Capital Growth............ 23 71 121 260
PIC CORE-SM- U. S. Equity..... 23 71 121 260
PIC Growth and Income......... 23 71 121 260
PIC Global Income............. 26 80 136 290
Van Kampen Emerging Growth.... 23 72 124 265
Van Kampen Enterprise......... 21 65 111 239
Van Kampen Comstock........... 24 75 129 275
Van Kampen Growth and
Income...................... 22 69 118 254
Van Kampen Strategic Stock.... 21 66 113 244
Van Kampen Asset Allocation... 21 65 111 239
MFS New Discovery............. 26 79 135 287
MFS Emerging Growth........... 23 72 123 264
MFS Research.................. 24 72 124 266
MFS Growth.................... 24 74 127 271
MFS Growth With Income........ 24 74 127 271
MFS Utilities................. 24 74 126 270
MFS Total Return.............. 24 74 126 270
Oppenheimer Aggressive
Growth...................... 22 67 114 246
Oppenheimer Global
Securities.................. 22 67 115 248
Oppenheimer Capital
Appreciation................ 22 68 116 249
Oppenheimer Main Street Growth
& Income.................... 23 70 120 257
Oppenheimer High Income....... 22 69 118 254
Oppenheimer Strategic Bond.... 23 70 120 257
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Oppenheimer Money Fund........ $20 $61 $105 $226
Calvert Social Small Cap
Growth...................... 26 81 139 294
Calvert Social Balanced....... 24 72 124 266
Van Eck Worldwide Hard
Assets...................... 28 84 144 305
Van Eck Worldwide Real
Estate...................... 29 90 153 322
</TABLE>
The preceding Expenses and Examples are intended to assist the owner in
understanding the costs and expenses that he or she will bear directly or
indirectly. They reflect the expenses for the Variable Account and each Fund for
the period January 1, 1999 to December 31, 1999. For a more complete description
of the various costs and expenses associated with the Contract, see "Charges and
Deductions" in this prospectus. For a more complete description of the
management fees associated with the Contract, see 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.
The Examples assume that no transfer fee or premium taxes have been assessed
and that the contract maintenance fee is $30. At the anticipated average
Contract value of $59,563.39, the contract maintenance fee is equivalent to
0.06%.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN 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.
10
<PAGE>
SUMMARY
THE CONTRACT
<TABLE>
<S> <C>
WHAT IS THE PROTECTIVE VARIABLE ANNUITY II The Protective Variable Annuity II Contract is a
CONTRACT? flexible premium deferred variable and fixed annuity
contract issued by Protective Life. (See "The
Contract.") In certain states the Contract is offered
as a group contract to eligible persons.
HOW IS A CONTRACT ISSUED? Protective Life will issue the Contract when it
receives and accepts your complete application
information and an initial Purchase Payment. (See
"Issuance of a Contract.")
WHAT ARE THE PURCHASE PAYMENTS? The minimum amount which Protective Life will accept
as an initial Purchase Payment is $2,000. Initial
Purchase Payments may be made at any time prior to the
earlier of: (1) the oldest Owner's 85th birthday; or
(2) the Annuitant's 85th birthday. No Purchase Payment
will be accepted within 7 years of the Annuity
Commencement Date then in effect. The minimum
subsequent Purchase Payment we will accept is $100, or
$50 if the payment is made under our current automatic
purchase payment plan. The maximum aggregate Purchase
Payment(s) we will accept without prior administrative
office approval is $1,000,000. We reserve the right
not to accept any Purchase Payment. (See "Purchase
Payments.")
CAN I CANCEL THE CONTRACT? You have the right to return the Contract within a
certain number of days (which varies by state and is
never less than ten) after you receive it. The
returned Contract will be treated as if it were never
issued. Protective Life will refund the Contract Value
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 CONTRACT? Prior to the Annuity Commencement Date, you may
request transfers from one Allocation Option to
another. No transfers may be made into a DCA Fixed
Account. At least $100 must be transferred. Protective
Life reserves the right to limit the maximum amount
that may be transferred from the Fixed Account to the
greater of (a) $2,500; or (b) 25% of the value of the
Fixed Account per Contract Year. The Company reserves
the right to charge a transfer fee of $25 for each
transfer after the 12th transfer during such Contract
Year. (See "Transfers.")
CAN I SURRENDER THE CONTRACT? Upon Written Notice before the Annuity Commencement
Date, you may surrender the Contract and receive its
surrender value. (See "Surrenders and Partial
Surrenders.") 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>
11
<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 standard death benefit will equal the
greater of: (1) the Contract Value; or (2) aggregate
Purchase Payments less aggregate amounts surrendered,
including surrender charges. Only one death benefit is
payable under this Contract, even though the Contract
may, in some circumstances, continue beyond the time
of an Owner's death. (See "Death Benefit.")
At the time of application the Owner may purchase an
optional benefit package that may provide a death
benefit which is greater than the standard death
benefit provided under the contract. (See "Optional
Benefit Packages.")
ARE THERE CHARGES AND DEDUCTIONS FROM MY The following charges and deductions are made in
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 7.0%) of the amount you surrender.
The cumulative surrender charges assessed will never
exceed 8.5% of the total Purchase Payments we accept
under this Contract. (See "Surrender Charges.")
MORTALITY AND EXPENSE RISK CHARGE. We will deduct a mortality and expense risk charge to
compensate us for assuming certain mortality and
expense risks. For Contracts issued with the standard
death benefit, the charge equals, on an annual basis,
1.10% of the average daily net assets of the Variable
Account value attributable to the Contracts. For
Contracts issued with an optional benefit package, the
charge equals 1.25% of such assets prior to the
Annuity Commencement Date. (See "Optional Benefit
Packages.") On and after the Annuity Commencement
Date, the charge equals 1.10% of such assets. (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.")
CONTRACT MAINTENANCE FEE. Prior to the Annuity Commencement Date a contract
maintenance fee of $30 is deducted from the Contract
Value on each Contract Anniversary, and on any day
that the Contract is surrendered, if the surrender
occurs on any day other than the Contract Anniversary.
Under certain circumstances, we may waive this fee.
(See "Contract Maintenance Fee.")
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
TAXES. Some states impose premium taxes at rates currently
ranging up to 3.5%. If premium taxes apply to your
Contract, we will deduct them from the Purchase
Payment(s) when accepted or from the Contract Value
upon a full or partial surrender, death or
annuitization. The Company reserves the right to
impose a charge for other taxes attributable to the
Variable Account. (See "Charges and Deductions.")
INVESTMENT MANAGEMENT FEES AND OTHER The net assets of each Sub-Account of the Variable
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, to an Annuity Option on the
Annuity Commencement Date, unless you choose to
receive the surrender value in a lump sum. Annuity
Options include: payments for a certain period and
life income with or without payments for a certain
period. Some Annuity Options are available on either a
fixed or variable payment basis. (See
"Annuitization".)
IS THE CONTRACT AVAILABLE FOR QUALIFIED We may issue the Contract for use with retirement
RETIREMENT PLANS? plans that receive special federal income tax
treatment under the Internal Revenue Code such as
pension and profit sharing plans (including H.R. 10
plans), tax sheltered annuities individual retirement
accounts, and individual retirement annuities.
Contracts issued for these qualified retirement plans
are referred to as Qualified Contracts, and these
types of plans are referred to as Qualified Plans.
(See "Federal Tax Matters".)
OTHER CONTRACTS We offer other types of annuity contracts and
insurance policies which also invest in the same Funds
in which your Contract invests. These other types of
contracts and policies may have different charges that
could affect the value of Sub-Accounts and may offer
different benefits than your Contract. To obtain more
information about these contracts and policies, you
may contact our administrative office in writing or by
telephone.
</TABLE>
FEDERAL TAX STATUS
Generally all earnings on the Investments underlying the Contract are
tax-deferred until withdrawn or until annuity income payments begin. A
distribution from the Contract, which includes a full or partial surrender or
payment of a death benefit, will generally 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").
13
<PAGE>
CONDENSED FINANCIAL INFORMATION
SUB-ACCOUNTS
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-SM-
U.S. Equity
PIC Growth and Income
PIC Global Income
Oppenheimer Money Fund (formerly PIC Money
Market)
June 13, 1995 -- PIC Capital Growth
July 1, 1997 -- MFS Emerging Growth
MFS Research
MFS Growth With Income
MFS Total Return
Oppenheimer Aggressive Growth
Oppenheimer Capital Appreciation
(formerly Oppenheimer Growth)
Oppenheimer Main Street Growth &
Income (formerly Oppenheimer
Growth & Income)
Oppenheimer Strategic Bond
Calvert Social Small Cap Growth
Calvert Social Balanced
November 5, 1998 -- MFS New Discovery
MFS Utilities
Oppenheimer Global Securities
Oppenheimer High Income
Van Eck Worldwide Hard Assets
Van Eck Worldwide Real Estate
May 1, 2000 -- MFS Growth
Van Kampen Emerging Growth
Van Kampen Enterprise
Van Kampen Comstock
Van Kampen Growth and Income
Van Kampen Strategic Stock
Van Kampen Asset Allocation
</TABLE>
14
<PAGE>
ACCUMULATION UNITS
The following tables show, for each Sub-Account, Accumulation Unit values
and outstanding Accumulation Units for the classes of Accumulation Units
available in the Protective Variable Annuity II Contract. We offer other
variable annuity contracts with classes of Accumulation Units in each
Sub-Account that have different mortality and expense risk charges and
administration charges than the classes of Accumulation Units offered in the
Protective Variable Annuity II Contract. Only the classes of Accumulation Units
available in the Protective Variable Annuity II Contract are shown in the
following tables.
The Accumulation Unit values and the number of Accumulation Units
outstanding are shown as of December 31 of each year listed. The Accumulation
Unit values and outstanding Accumulation Units shown are for the class of
Accumulation Units associated with the optional benefits package of the
Protective Variable Annuity II Contract. This class of Accumulation Units has
total mortality and expense risk charges and administration charges of 1.40%.
The class of Accumulation Units associated with the standard death benefit of
the Protective Variable Annuity II Contract has total mortality and expense risk
charges and administration charges of 1.25%. No Accumulation Units of the class
associated with the standard death benefit were offered on or before
December 31, 1999. If both classes of Accumulation Units had been offered
starting on the same date and at the same value, then the Accumulation Unit
values for the class of Accumulation Units associated with the standard death
benefit would be higher going forward than those associated with the optional
benefits package.
You should read the information in the following tables in conjunction with
the Variable Account's financial statements and the related notes in the
Statement of Additional Information.
ACCUMULATION UNIT VALUES*
<TABLE>
<CAPTION>
SUB-ACCOUNT 1994 1995 1996 1997 1998 1999
----------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
PIC
International Equity... 9.48 11.18 13.12 13.51 16.07 21.06
Small Cap Value........ 8.91 9.35 11.09 14.46 12.07 11.91
Capital Growth......... -- 10.36 12.48 16.56 22.00 27.67
CORE-SM- U. S.
Equity............... 9.94 13.40 16.12 20.81 25.10 30.40
Growth and Income...... 9.71 12.66 15.83 20.27 19.40 20.24
Global Income.......... 9.82 11.32 12.22 13.25 14.42 14.02
VAN KAMPEN
Emerging Growth........ -- -- -- -- -- --
Enterprise............. -- -- -- -- -- --
Comstock............... -- -- -- -- -- --
Growth and Income...... -- -- -- -- -- --
Strategic Stock........ -- -- -- -- -- --
Asset Allocation....... -- -- -- -- -- --
MFS
New Discovery.......... -- -- -- -- 11.97 20.43
Emerging Growth........ -- -- -- 11.36 15.02 26.14
Research............... -- -- -- 10.89 13.24 16.18
Growth................. -- -- -- -- -- --
Growth With Income..... -- -- -- 11.40 13.75 14.44
Utilities.............. -- -- -- -- 10.65 13.72
Total Return........... -- -- -- 11.10 12.29 12.47
OPPENHEIMER
Aggressive Growth...... -- -- -- 10.97 12.16 21.97
Global Securities...... -- -- -- -- 11.26 17.57
Capital Appreciation... -- -- -- 11.22 13.72 19.13
Main Street Growth &
Income............... -- -- -- 11.83 12.21 14.63
High Income............ -- -- -- -- 10.51 10.79
Money Fund............. 1.02 1.05 1.09 1.13 1.17 1.21
Strategic Bond......... -- -- -- 10.33 10.47 10.61
CALVERT
Social Small Cap
Growth............... -- -- -- 11.04 10.22 12.01
Social Balanced........ -- -- -- 11.14 12.77 14.10
VAN ECK
Worldwide Hard
Assets............... -- -- -- -- 9.50 11.32
Worldwide Real
Estate............... -- -- -- -- 10.39 10.02
</TABLE>
- ---------------
* Accumulation Unit values are rounded to the nearest whole cent.
15
<PAGE>
ACCUMULATION UNITS OUTSTANDING**
<TABLE>
<CAPTION>
SUB-ACCOUNT 1994 1995 1996 1997 1998 1999
----------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PIC
International Equity... 2,588,605 4,954,564 7,363,767 9,722,696 10,798,391 10,449,270
Small Cap Value........ 2,347,968 4,579,808 5,797,119 7,429,530 8,201,197 6,671,154
Capital Growth......... -- 930,249 2,419,601 4,493,710 6,926,984 9,304,240
CORE-SM- U. S.
Equity............... 1,682,927 4,128,798 6,300,382 8,495,067 10,415,387 11,889,192
Growth and Income...... 4,260,743 10,012,351 13,291,398 17,539,696 19,909,590 16,852,150
Global Income.......... 1,457,712 2,438,238 3,081,317 3,677,919 4,330,727 4,417,091
VAN KAMPEN
Emerging Growth........ -- -- -- -- -- --
Enterprise............. -- -- -- -- -- --
Comstock............... -- -- -- -- -- --
Growth and Income...... -- -- -- -- -- --
Strategic Stock........ -- -- -- -- -- --
Asset Allocation....... -- -- -- -- -- --
MFS
New Discovery.......... -- -- -- -- 0 119,735
Emerging Growth........ -- -- -- 292,318 1,102,153 2,417,374
Research............... -- -- -- 577,212 1,987,679 3,724,827
Growth................. -- -- -- -- -- --
Growth With Income..... -- -- -- 234,240 1,409,735 4,336,388
Utilities.............. -- -- -- -- 0 142,311
Total Return........... -- -- -- 157,430 1,060,293 2,530,284
OPPENHEIMER
Aggressive Growth...... -- -- -- 238,172 931,993 1,430,515
Global Securities...... -- -- -- -- 0 255,811
Capital Appreciation... -- -- -- 321,669 1,167,782 2,744,570
Main Street Growth &
Income............... -- -- -- 247,774 1,644,982 3,650,951
High Income............ -- -- -- -- 0 74,135
Money Fund............. 3,034,056 4,273,270 5,577,080 3,151,349 4,526,291 10,833,442
Strategic Bond......... -- -- -- 284,169 1,524,677 2,478,990
CALVERT
Social Small Cap
Growth............... -- -- -- 12,376 53,800 83,449
Social Balanced........ -- -- -- 94,365 481,687 908,525
VAN ECK
Worldwide Hard
Assets............... -- -- -- -- 0 3,459
Worldwide Real
Estate............... -- -- -- -- 0 5,743
</TABLE>
- ---------------
** Accumulation Units are rounded to the nearest unit.
16
<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, 1999, Protective Life had total assets
of approximately $12.6 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 $13.0 billion at December 31,
1999.
PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
The Protective Variable Annuity Separate Account is a separate investment
account of Protective Life. The Variable Account was established under Tennessee
law by the Board of Directors of Protective Life on October 11, 1993. The
Variable Account is registered with the Securities and Exchange Commission (the
"SEC") as a unit investment trust under the Investment Company Act of 1940 (the
"1940 Act") and meets the definition of a separate account under federal
securities laws. This registration does not involve supervision by the SEC of
the management or investment policies or practices of the Variable Account.
Protective Life owns the assets of the Variable Account. These assets are
held separate from other assets and are not part of Protective Life's general
account. The portion of the assets of the Variable Account equal to the reserves
or other contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business Protective Life conducts.
Protective Life may transfer to its general account any assets which exceed the
reserves and other contract liabilities of the Variable Account. Protective Life
may accumulate in the Variable Account the charge for mortality and expense
risks and investment results applicable to those assets that are in excess of
the net assets supporting the contracts. The income, gains and losses, both
realized and unrealized, from the assets of the Variable Account are credited to
or charged against the Variable Account without regard to any other income,
gains or losses of Protective Life. The obligations under the Contracts are
obligations of Protective Life.
Currently, thirty Sub-Accounts of the Variable Account are available under
this Contract: PIC International Equity; PIC Small Cap Value; PIC Capital
Growth; PIC CORE-SM- U.S. Equity; PIC Growth and Income; PIC Global Income; Van
Kampen Emerging Growth; Van Kampen Enterprise; Van Kampen Comstock; Van Kampen
Growth and Income; Van Kampen Strategic Stock; Van Kampen Asset Allocation; MFS
New Discovery; MFS Emerging Growth; MFS Research; MFS Growth; MFS Growth With
Income; MFS Utilities; MFS Total Return; Oppenheimer Aggressive Growth;
Oppenheimer Global Securities; Oppenheimer Capital Appreciation; Oppenheimer
Main Street Growth & Income; Oppenheimer High Income; Oppenheimer Strategic
Bond; Oppenheimer Money Fund; Calvert Social Small Cap Growth; Calvert Social
Balanced; Van Eck Worldwide Hard Assets; and Van Eck Worldwide Real Estate. Each
Sub-Account invests in shares of a corresponding Fund. Therefore, the investment
experience of your Contract depends on the experience of the Sub-Accounts that
you select. Other contracts Protective Life issues 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.
17
<PAGE>
THE FUNDS
Each Sub-Account invests in a corresponding Fund. Each Fund is an investment
portfolio of one of the following investment companies: Protective Investment
Company ("PIC") managed by Protective Investment Advisors, Inc., and subadvised
by Goldman Sachs Asset Management or Goldman Sachs Asset Management
International; Van Kampen Life Investment Trust managed by Van Kampen Asset
Management Inc.; 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 to provide long-term capital appreciation. This Fund will
pursue its objectives by investing, under normal circumstances, substantially
all, and at least 65%, of its total assets in equity securities of companies
that are organized outside the United States or whose securities are principally
traded outside the United States.
SMALL CAP VALUE FUND.
This Fund seeks long-term growth of capital. 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 growth of capital. 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-SM- U.S. EQUITY FUND.
This Fund seeks long-term growth of capital and dividend income. This Fund
will pursue its objectives by investing, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including foreign
issuers that are traded in the United States. The Fund's investments are
selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintaining
risk, style, capitalization and industry characteristics similar to the S&P 500
Index.
18
<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 that the investment advisers
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.
GLOBAL INCOME FUND.
This Fund seeks a 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 a portfolio of high quality
fixed-income securities of U.S. and foreign issuers and entering into foreign
currency transactions.
VAN KAMPEN LIFE INVESTMENT TRUST
EMERGING GROWTH PORTFOLIO.
Seeks capital appreciation.
ENTERPRISE PORTFOLIO.
Seeks capital appreciation through investment in securities believed by the
investment adviser to have above average potential for capital appreciation.
COMSTOCK PORTFOLIO.
Seeks capital growth and income through investments in equity securities,
including common stocks, preferred stocks and securities convertible into common
and preferred stocks.
GROWTH AND INCOME.
Seeks income and long-term growth of capital and income.
STRATEGIC STOCK PORTFOLIO.
Seeks above average total return through a combination of potential capital
appreciation and dividend income consistent with the preservation of invested
capital.
ASSET ALLOCATION PORTFOLIO.
Seeks high total investment return consistent with prudent investment risk
through a fully managed investment policy utilizing equity securities as well as
investment grade intermediate and long-term debt securities and money market
securities. Total investment return consists of current income (including
dividends, interest and discount accruals) and capital appreciation or
depreciation.
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.
19
<PAGE>
GROWTH SERIES.
This Fund seeks long-term growth of capital and future income rather than
current income by investing primarily in common stocks and related securities,
such as preferred stocks, convertible securities and depositary receipts for
those securities of companies that the Fund's investment adviser believes offer
better than average prospects for long-term growth.
GROWTH WITH INCOME SERIES.
This Fund seeks reasonable current income and long-term growth of capital
and income.
UTILITIES SERIES.
This Fund seeks to provide capital growth and current income above that
available from a portfolio invested entirely in equity securities.
TOTAL RETURN SERIES.
This Fund seeks primarily to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital and secondarily to provide a reasonable opportunity for
growth of capital and income.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
AGGRESSIVE GROWTH FUND/VA.
This Fund seeks capital appreciation.
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.
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. The Fund
invests mainly in common stocks of U.S. companies.
HIGH INCOME FUND/VA.
This Fund seeks a high level of current income from investment in high yield
fixed-income securities.
MONEY FUND/VA.
This 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 by investing mainly in three
market sectors: debt securities of foreign governments and companies, U.S.
government securities and high yield securities of U.S. and foreign companies.
20
<PAGE>
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 competitive total return through an actively
managed, non-diversified portfolio of stocks, bonds, and money market
instruments that offer income and capital growth opportunity and that satisfy
the investment and social criteria.
VAN ECK WORLDWIDE INSURANCE TRUST
WORLDWIDE HARD ASSETS FUND.
This Fund seeks long-term capital appreciation by investing primarily in
"Hard Asset Securities". Hard Asset Securities are the stocks, bonds and other
securities of companies that derive at least 50% of gross revenue or profit from
the exploration, development, production or distribution of (together "Hard
Assets"):
(i) precious metals;
(ii) natural resources;
(iii) real estate; and
(iv) commodities.
WORLDWIDE REAL ESTATE FUND.
This Fund seeks a high total return by investing in equity securities of
companies that own significant real estate or that principally do business in
real estate.
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.
OTHER INFORMATION ABOUT THE FUNDS
Each Fund sells its shares to the Variable Account in accordance with the
terms of a participation agreement between the appropriate investment company
and Protective Life. The termination provisions of these agreements vary. Should
a participation agreement relating to a Fund terminate, the Variable Account may
not be able to purchase additional shares of that Fund. In that event, Owners
may no longer be able to allocate Variable Account value or Purchase Payments to
Sub-Accounts investing in that Fund. In certain circumstances, it is also
possible that a Fund may refuse to sell its shares to the Variable Account
despite the fact that the participation agreement relating to that Fund has not
been terminated. Should a Fund decide to discontinue selling its shares to the
Variable Account, Protective Life would not be able to honor requests from
Owners to allocate Purchase Payments or transfer Account Value to the
Sub-Account investing in shares of that Fund.
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
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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 contracts issued through Protective Life, and to Protective Life
Annuity and 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 policies other than the Contracts or variable life insurance policies or
to retirement plans. In event of such a conflict, the board of directors would
determine what action, if any, should be taken in response to the conflict. In
addition, if Protective Life believes that PIC's response to any such conflicts
insufficiently protects Owners, it will take appropriate action on its own,
including withdrawing the Account's investment in the Fund. (See the PIC
Prospectus for more detail.)
Shares of the Van Kampen Life Investment Trust, the MFS-Registered
Trademark- Variable Insurance Trust-SM-, Oppenheimer Variable Account Funds,
Calvert Variable Series, Inc. and Van Eck Worldwide Insurance Trust are sold to
separate accounts of insurance companies, which may or may not be affiliated
with Protective Life or each other, a practice known as "shared funding." They
may also be sold to separate accounts to serve as the underlying investment for
both variable annuity contracts and variable life insurance policies, a practice
known as "mixed funding." As a result, there is a possibility that a material
conflict may arise between the interests of Owners of Protective Life's
Contracts, whose Contract Values are allocated to the Variable Account, and of
owners of other contracts whose contract values are allocated to one or more
other separate accounts investing in any one of the Funds. Shares of some of
these Funds may also be sold to certain qualified pension and retirement plans.
As a result, there is a possibility that a material conflict may arise between
the interests of Contract Owners generally or certain classes of Contract
Owners, and such retirement plans or participants in such retirement plans. In
the event of any such material conflicts, Protective Life will consider what
action may be appropriate, including removing the Fund from the Variable Account
or replacing the Fund with another fund. As is the case with PIC, the boards of
directors (or trustees) of the Van Kampen Life Investment Trust, the
MFS-Registered Trademark- Variable Insurance Trust-SM-, Oppenheimer Variable
Account Funds, Calvert Variable Series, Inc. and Van Eck Worldwide Insurance
Trust monitor events related to their Funds to identify possible material
irreconcilable conflicts among and between the interests of the Fund's various
investors. There are certain risks associated with mixed and shared funding and
with the sale of shares to qualified pension and retirement plans, as disclosed
in each Fund's prospectus.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Protective Life reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Variable Account or that the Variable Account may purchase. If the shares of
a Fund are no longer available for investment or if in Protective Life's
judgment further investment in any Fund should become inappropriate in view of
the purposes of the Variable Account, Protective Life may redeem the shares, if
any, of that Fund and substitute shares of another registered
open-end management company or unit investment trust. Protective Life will not
substitute any shares attributable to a Contract's interest in the Variable
Account without notice and any necessary approval of the Securities and Exchange
Commission and state insurance authorities.
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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 Owners 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.
THE CONTRACT
The Protective Variable Annuity II Contract is a flexible premium deferred
variable and fixed annuity contract issued by Protective Life. In certain states
we offer the Contract as a group contract to eligible persons who have
established accounts with certain broker-dealers that have entered into a
distribution agreement with Protective Life to offer the Contract. In those
states we may also offer the Contract to members of other eligible groups. In
all other states, we offer the Contract as an individual contract. If you
purchase an interest in a group contract, you will receive a certificate
evidencing your ownership interest in the group contract. Otherwise, you will
receive an individual Contract.
You may purchase the Contract on a non-qualified basis. You may also
purchase it for use with certain qualified retirement plans that receive special
federal income tax treatment under the Internal Revenue Code, such as pension
and profit sharing plans (including H.R. 10 Plans), tax sheltered annuity plans,
individual retirement accounts, and individual retirement annuities.
You may wish to consult a qualified tax and/or financial adviser regarding
the use of the Contract within a qualfiied plan or in connection with other
employee benefit plans or arrangements that receive favorable tax treatment,
since many such plans or arrangements provide the same type of tax deferral as
provided by the Contract. The Contract provides a number of extra benefits and
features not provided by employee benefit plans or arrangements alone, although
there are costs and expenses under the Contract related to these benefits and
features. You should carefully consider these benefits and features in relation
to their costs as they apply to your particular situation.
PARTIES TO THE CONTRACT
OWNER.
The Owner is the person or persons who own the Contract and are entitled to
exercise all rights and privileges provided in the Contract. In those states
where the Contract is issued as a group contract, the term "Owner" refers to the
holder of the certificate evidencing an interest in the group contract. Two
persons may own the Contract together; they are designated as the Owner and the
Joint Owner. In the case of Joint Owners, provisions relating to action by the
Owner means both Joint Owners acting together. Individuals as well as nonnatural
persons, such as corporations or trusts, may be Owners. Protective Life will
only issue a Contract prior to each Owner's 85th birthday.
The Owner of this Contract may be changed by Written Notice provided:
(1) each new Owner's 85th birthday is after the Effective Date; and
(2) each new Owner's 90th birthday is on or after the Annuity
Commencement Date.
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For a period of 1 year after any change of ownership involving a natural
person, the death benefit will equal the Contract Value regardless of the death
benefit option selected. Naming a nonnatural person as an Owner or changing the
Owner may result in a tax liability. (See "Taxation of Annuities in General.")
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.
ANNUITANT.
The Annuitant is the person on whose life annuity income payments may be
based. The Owner is the Annuitant unless the Owner designates another person as
the Annuitant. The Contract must be issued prior to the Annuitant's 85th
birthday. If the Annuitant is not an Owner and dies prior to the Annuity
Commencement Date, the Owner will become the new Annuitant unless the Owner
designates otherwise.
The Owner may change the Annuitant by Written Notice prior to the Annuity
Commencement Date. However, if any Owner is not an individual the Annuitant may
not be changed. The new Annuitant's 90th birthday must be on or after the
Annuity Commencement Date in effect when the change of Annuitant is requested.
PAYEE.
The Payee is the person or persons designated by the Owner to receive the
annuity income payments under the Contract. The Annuitant is the Payee unless
the Owner designates another party as the Payee. The Owner may change the Payee
at any time.
ISSUANCE OF A CONTRACT
To purchase a Contract, 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 Options as you direct on the
appropriate form within two business days of receiving such Purchase Payment at
the administrative office. If we do not receive the necessary application
information, Protective Life will retain the Purchase
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Payment for up to five business days while it attempts to complete the
information. If the necessary application information is not complete after five
days, Protective Life will inform the applicant of the reason for the delay and
return the initial Purchase Payment immediately unless the applicant
specifically consents to Protective Life retaining it until the information is
complete. Once the information is complete, we will allocate the initial
Purchase Payment to the appropriate Allocation Options within two business days.
You may transmit information necessary to complete an application to the
Company by telephone, facsimile, or electronic media.
PURCHASE PAYMENTS
We will only accept initial Purchase Payments prior to the earlier of the
oldest Owner's 85th birthday, or the Annuitant's 85th birthday. No Purchase
Payment will be accepted within 7 years of the Annuity Commencement Date then in
effect. The minimum subsequent Purchase Payment we will accept is $100. We
reserve the right not to accept any Purchase Payment.
Purchase Payments are payable at our administrative office. 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.
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 $50. 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. In the
state of Connecticut, non-written requests are also accepted. The number of
days, which is at least ten, is determined by state law in the state where the
Contract is delivered. Return of the Contract by mail is effective on being
post-marked, properly addressed and postage pre-paid. We will treat the returned
Contract as if it had never been issued. Where permitted, Protective Life will
refund the Contract Value plus any fees deducted from either Purchase Payments
or Contract Value. This amount may be more or less than the aggregate amount of
your Purchase Payments up to that time. Where required, we will refund the
Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
The allocation of your Purchase Payment among the Allocation Options you
have selected will be at the next price determined after we receive your
Purchase Payment. Owners must indicate in the application how their initial and
subsequent Purchase Payments are to be allocated among the Allocation Options.
The Fixed Account is not available in the states of Washington, Maryland,
Massachusetts, or South Carolina.
If your allocation 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.
Subsequent Purchase Payments will not be allocated to a DCA Fixed Account if, on
the day we receive the Purchase Payment, the value of that DCA Fixed Account is
greater than $0.
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
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Oppenheimer Money Fund Sub-Account until the expiration of the number of days in
the free look period starting from the date we mail the Contract from our
administrative office. Thereafter, we will allocate all Purchase Payments
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, automated telephone system or
via the internet at www.ipd1.protective.com. For non-written instructions
regarding allocations, we will require a form of personal identification prior
to acting on instructions and we will record any telephone voice instructions.
If we follow these procedures, we will not be liable for any losses due to
unauthorized or fraudulent instructions. We reserve the right to limit or
eliminate any of these non-written communication methods for any Contract or
class of Contracts at any time for any reason.
VARIABLE ACCOUNT VALUE
SUB-ACCOUNT VALUE.
A Contract's Variable Account value at any time is the sum of the
Sub-Account values and therefore reflects the investment experience of the
Sub-Accounts to which it is allocated. There is no guaranteed minimum Variable
Account value. The Sub-Account value for any Sub-Account as of the Effective
Date is equal to the amount of the initial Purchase Payment allocated to that
Sub-Account. On subsequent Valuation Days prior to the Annuity Commencement
Date, the Sub-Account value is equal to that part of any Purchase Payment
allocated to the Sub-Account and any Contract Value transferred to the
Sub-Account, adjusted by 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.
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 the appropriate class of
Accumulation Units in that Sub-Account on that day. (See "Determination of
Accumulation Units" and "Determination of Accumulation Unit Value.") The class
of Accumulation Units attributable to a Contract depends on the benefits package
chosen by the Owner. (See "Condensed Financial Information, Accumulation
Units.")
DETERMINATION OF ACCUMULATION UNITS.
Purchase Payments allocated and Contract Value transferred to a Sub-Account
are converted into Accumulation Units. An Accumulation Unit is a unit of measure
used to calculate the value of a Sub-Account prior to the Annuity Commencement
Date. We determine the number of Accumulation Units to be credited to a Contract
by dividing the dollar amount directed to the Sub-Account by the Accumulation
Unit value of the appropriate class of Accumulation Units of that Sub-Account
for the Valuation Day as of which the allocation or transfer occurs. Purchase
Payments allocated or amounts transferred to a Sub-Account under a Contract
increase the number of Accumulation Units of that Sub-Account credited to the
Contract. We execute such allocations and transfers as of the end of the
Valuation Period in which we receive 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;
- partial automatic withdrawals;
- transfer from a Sub-Account and any applicable transfer fee;
- payment of a death benefit claim;
- application of the Contract Value to an Annuity Option; and
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- deduction of the annual contract maintenance fee.
Accumulation Units are canceled as of the end of the Valuation Period in which
we receive Written Notice of or other instructions regarding the event.
DETERMINATION OF ACCUMULATION UNIT VALUE.
The Accumulation Unit value for each class of Accumulation Units in a
Sub-Account at the end of every Valuation Day is the Accumulation Unit value for
that class at the end of the previous Valuation Day times the net investment
factor.
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 the Fund makes 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
the Company determines 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.
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Transfers into any DCA Fixed Account are not permitted.
Owners may request transfers by Written Notice at any time. Owners also may
request transfers by telephone, automated telephone system or via the Internet
at www.ipd1.protective.com. From time to time and at our sole discretion, we may
introduce additional methods for requesting transfers or discontinue any method
for making non-written requests and facsimile transmitted requests for such
transfers. We will require a form of personal identification prior to acting on
non-written requests and facsimile transmitted 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 or 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 and facsimile transmitted instructions) without prior notice for
any Contract or class of Contracts at any time for any reason. We also reserve
the right to not honor transfers requested by a third party holding a power of
attorney from an Owner where that third party requests transfers during a single
Valuation Period on behalf of the Owners of two or more Contracts.
DOLLAR COST AVERAGING.
Prior to the Annuity Commencement Date, you may instruct us by Written
Notice to systematically and automatically transfer, on a monthly or quarterly
basis, amounts from a DCA Fixed Account (or any other Allocation Option) to any
Allocation Option, except that no transfers may be made into a DCA Fixed
Account. This is known as the "dollar-cost averaging" method of investment. By
transferring equal amounts of Contract Value on a regularly scheduled basis, as
opposed to allocating a larger amount at one particular time, an Owner may be
less susceptible to the impact of market fluctuations in the value of
Sub-Account Accumulation Units. Protective Life, however, makes no guarantee
that the dollar cost averaging method will result in a profit or protection
against loss.
You may make dollar cost averaging transfers on the 1st through the 28th day
of each month. In states where, upon cancellation during the right-to-cancel
period, we are required to return your Purchase Payment, we reserve the right to
delay commencement of dollar cost averaging transfers until the expiration of
the right-to-cancel period.
The DCA Fixed Accounts are available only for 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 interest 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.
The periodic amount transferred from a DCA Fixed Account will be equal to
the Purchase Payment allocated to the DCA Fixed Account divided by the number of
dollar cost averaging transfers to be made.
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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 DCA Fixed Account Value equals $0,
or (2) the Owner instructs us by Written Notice to cancel the automatic
transfers. If you terminate transfers from a DCA Fixed Account before the amount
remaining in that account is $0, we will immediately transfer any amount
remaining in that DCA Fixed Account according to your instructions. If you do
not provide instructions, we will transfer the remaining amount to the Fixed
Account. In states where the Fixed Account is not available, we will transfer
the remaining amount to 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 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. You may not transfer any Contract Value to or from the
Guaranteed Account as part of portfolio rebalancing. Unless you instruct
otherwise, portfolio rebalancing is based on your Purchase Payment allocation
instructions in effect with respect to the Sub-Accounts at the time of each
rebalancing transfer. We deem portfolio rebalancing instructions from you that
differ from your current Purchase Payment allocation instructions to be a
request to change your Purchase Payment allocation.
You may elect portfolio rebalancing to occur on the 1st through 28th day of
a month on either a quarterly, semi-annual or annual basis. If you do not select
a day, transfers will occur on the same day of the month as your Contract
Anniversary, or on the 28th day of the month if your Contract Anniversary occurs
on the 29th, 30th or 31st day of the month. You may change or terminate
portfolio rebalancing by Written Notice, or by other non-written communication
methods acceptable for transfer requests. Upon the death of any Owner portfolio
rebalancing will continue until canceled by the Beneficiary(s).
There is no charge for portfolio rebalancing. Automatic transfers made to
facilitate portfolio rebalancing will not count toward the 12 transfers
permitted each Contract Year if Protective Life elects to limit transfers, or
the designated number of free transfers in any Contract Year if the Company
elects to charge for transfers in excess of that number in any Contract Year. We
reserve the right to discontinue portfolio rebalancing upon written notice to
the Owner.
SURRENDERS AND PARTIAL SURRENDERS
SURRENDER.
At any time before the Annuity Commencement Date, you may request a
surrender of your Contract for its surrender value. To surrender your Contract,
you must return the Contract to us and make your surrender request by Written
Notice. We will pay you the surrender value in a lump sum unless you request
payment under another payment option that we are making available at the time.
Partial and full surrenders from Contracts issued as tax sheltered annuities are
prohibited in certain circumstances. (See "Federal Tax Matters.") A surrender
may have federal and state income tax consequences. (See "Taxation of Partial
and Full Surrenders".) A surrender value may be available under certain Annuity
Options. (See "Annuitization".) In accordance with SEC regulations, surrenders
and partial surrenders are generally payable within 7 calendar days of our
receiving Written Notice of your request. (See "Suspension or Delay in
Payments".)
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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 Period during
which we receive your Written Notice requesting surrender and your Contract at
our administrative office.
PARTIAL SURRENDER.
At any time before the Annuity Commencement Date, you may request a partial
surrender of your Contract Value provided the Contract Value remaining after the
partial surrender is at least $2,000. If surrendering more than $50,000, you
must request the partial surrender by Written Notice. We will withdraw the
amount requested from the Contract Value as of the end of the Valuation Period
during which we receive your request for 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 and state income tax consequences. (See
"Taxation of Partial and Full Surrenders".)
CANCELLATION OF ACCUMULATION UNITS.
Surrenders and partial surrenders, including any surrender charges, 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 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.
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PARTIAL AUTOMATIC WITHDRAWALS.
Currently, the Company offers a partial automatic withdrawal plan. This plan
allows you to pre-authorize periodic partial surrenders prior to the Annuity
Commencement Date. You may elect to participate in this plan at the time of
application or at a later date by properly completing an election form. In order
to participate in the plan you must have:
(1) made an initial Purchase Payment of at least $5,000; or
(2) a Contract Value as of the previous Contract Anniversary equal to
$5,000.
The partial automatic withdrawal plan and the automatic purchase payment
plan may not be elected simultaneously. (See "Purchase Payments".) There may be
federal and state income tax consequences to partial automatic withdrawals from
the Contract and the Owner should, therefore, consult with his or her tax
advisor before participating in any withdrawal program. (See "Taxation of
Partial and Full Surrenders".)
When you elect the partial automatic withdrawal plan, you will instruct
Protective Life to withdraw a level dollar amount from the Contract on a monthly
or quarterly basis. Partial automatic withdrawals may be made on the 1st through
the 28th day of each month. The amount requested must be at least $100 per
withdrawal. We will process withdrawals for the designated amount until you
instruct us otherwise. If, during any Contract Year, the amount of the
withdrawals exceeds the "free withdrawal amount" described in the "Surrender
Charge" section of this prospectus, we will deduct a surrender charge where
applicable. (See "Surrender Charge.") Partial automatic withdrawals will be
taken pro-rata from the Allocation Options in proportion to the value each
Allocation Option bears to the total Contract Value and will be made only by an
electronic fund transfer. We will pay you the amount requested each month or
quarter as applicable and cancel the applicable Accumulation Units.
If any partial automatic withdrawal transaction would result in a Contract
Value of less than $5,000 after the withdrawal, the transaction will not be
completed and the partial automatic withdrawal plan will terminate. Once partial
automatic withdrawals have terminated due to insufficient Contract Value, they
will not be automatically reinstated in the event that your Contract Value
should reach $5,000 again. The partial automatic withdrawal plan will also
terminate in the event that a non-automated partial surrender is made from a
Contract participating in the plan, except in the case of a partial surrender
taken as a minimum required distribution from a Qualified Plan. (See "Qualified
Retirement Plans".) Upon notification of the death of any Owner, we will
terminate the partial automatic withdrawal plan. The partial automatic
withdrawal plan may be discontinued by the Owner at any time by Written Notice.
There is no charge for the partial automatic withdrawal plan. We reserve the
right to discontinue the partial automatic withdrawal plan upon written notice
to you.
THE GUARANTEED ACCOUNT
The Guaranteed Account has not been, and is not required to be, registered
with the SEC under the Securities Act of 1933, and neither these accounts nor
the Company's general account have been registered as an investment company
under the 1940 Act. Therefore, neither the Guaranteed Account, the Company's
general account, nor any interests therein are generally subject to regulation
under the 1933 Act or the 1940 Act. The disclosures relating to the Guaranteed
Account included in this prospectus are for the Owner's information and have not
been reviewed by the SEC. However, such disclosures may be subject to certain
generally applicable provisions of federal securities law relating to the
accuracy and completeness of statements made in prospectuses.
The Guaranteed Account currently includes the Fixed Account and two DCA
Fixed Accounts. The Fixed Account and the DCA Fixed Accounts are part of
Protective Life's general account. The assets of Protective Life's general
account support its insurance and annuity obligations and are subject to
Protective Life's general liabilities from business operations. Since the Fixed
Account and the DCA Fixed Accounts are part of the general account, Protective
Life assumes the risk of investment gain or loss on this amount.
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The Fixed Account is not available in the states of Washington, Maryland,
Massachusetts or South Carolina.
In states where the Fixed Account and DCA Fixed Accounts are available, you
may allocate some or all of your Purchase Payments and may transfer some or all
of your Contract Value to an account within the Guaranteed Account, except that
transfers may not be made into any DCA Fixed Account, and Purchase Payments may
not be allocated to any DCA Fixed Account when that DCA Fixed Account value is
greater than $0. All previously allocated funds must be transferred out of a DCA
Fixed Account prior to allocating a subsequent Purchase Payment to that DCA
Fixed Account. Amounts allocated or transferred to an account within the
Guaranteed Account earn interest from the date the funds are credited to the
account.
The interest rate we apply to Purchase Payments and transfers into the Fixed
Account is guaranteed for one year from the date the Purchase Payment or
transfer is credited to the account. When an interest rate guarantee expires, we
will set a new interest rate, which may not be the same as the interest rate
then in effect for Purchase Payments or transfers allocated to the Fixed
Account. The new interest rate is also guaranteed for one year.
DCA Fixed Accounts are designed to systematically transfer amounts to other
Allocation Options over a designated period. (See "Transfers, Dollar Cost
Averaging.") The interest rate we apply to Purchase Payments allocated to a DCA
Fixed Account is guaranteed for the period over which transfers are allowed from
that DCA Fixed Account.
From time to time 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, including any
applicable transfer fee; minus
(5) the amount of any surrenders removed from the Guaranteed Account,
including any applicable premium tax and surrender charges; minus
(6) fees deducted from the Guaranteed Account.
For the purposes of interest crediting, amounts deducted, transferred or
withdrawn from accounts within the Guaranteed Account will be separately
accounted for on a "first-in, first-out" (FIFO) basis.
DEATH BENEFIT
If any Owner dies before the Annuity Commencement Date and while this
Contract is in force, we will pay a death benefit, less any applicable premium
tax, to the Beneficiary. We will determine the death benefit as of the end of
the Valuation Period during which we receive due proof of death. Only one death
benefit is payable under this Contract, even though the Contract may, in some
circumstances, continue beyond the time of an Owner's death. If any Owner is not
a natural person, the death of the Annuitant is treated as the death of an
Owner. In the case of certain Qualified Contracts, Treasury Department
regulations prescribe certain limitations on the designation of a Beneficiary.
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The Beneficiary may take the death benefit in one sum immediately, in which
event the Contract will terminate. If the death benefit is not taken in one sum
immediately, the death benefit will become the new Contract Value as of the end
of the Valuation Period during which we receive due proof of death, and the
entire interest in the Contract must be distributed under one of the following
options:
(1) the entire interest must be distributed over the life of the
Beneficiary, or over a period not extending beyond the life
expectancy of the Beneficiary, with 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, the surviving spouse may
elect, in lieu of receiving a death benefit, to continue the Contract and become
the new Owner, provided the deceased Owner's spouse's 85th birthday is after the
Effective Date and the 90th birthday is after the Annuity Commencement Date then
in effect. The surviving spouse may select a new Beneficiary. Upon this spouse's
death, the death benefit may be taken in one sum immediately and the Contract
will terminate. If the death benefit is not taken in one sum immediately, the
death benefit will become the new Contract Value as of the end of the Valuation
Period during which we receive due proof of death and must be distributed to the
new Beneficiary according to option (1) or (2), above.
If there is more than one Beneficiary, the foregoing provisions apply to
each Beneficiary individually.
The death benefit provisions of this Contract shall be interpreted to comply
with the requirements of Section72(s) of the Internal Revenue Code. We reserve
the right to endorse this Contract, as necessary, to conform with regulatory
requirements. We will send you a copy of any endorsement containing such
Contract modifications.
STANDARD DEATH BENEFIT
The standard death benefit will equal the greater of:
(1) the Contract Value; or
(2) aggregate Purchase Payments less aggregate amounts surrendered,
including associated surrender charges.
OPTIONAL BENEFIT PACKAGES
At the time of application, the Owner may purchase an optional benefit
package that may provide a death benefit which is greater than the standard
death benefit provided under the Contract and a waiver of surrender charges
under certain circumstances. A death benefit available under an optional benefit
package must be distributed according to the rules in the "Death Benefit"
section above. See "Charges and Deductions, Surrender Charges" for a discussion
of the waiver of surrender charges.
Currently, two optional benefit packages are available. If you purchase one
of these packages, the mortality and expense risk expense charge will increase
by 0.15% to 1.25%, for total mortality and expense risk and administration
charges of 1.40%. (See "Charges and Deductions".) Once you select an optional
benefit package, you may not cancel or change the option. If any Owner is not a
natural person, we will treat references to the Owner's birthday as references
to the Annuitant's birthday.
For a period of one year after any change of ownership involving a natural
person, the death benefit will equal the Contract Value regardless of whether
the standard or optional death benefit was selected and without any change in
the Contract's mortality and expense risk charge.
Refer to Appendix A for an example of the calculation of each death benefit.
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ANNUAL RESET DEATH BENEFIT PACKAGE.
We will determine an annual reset anniversary value, for each Contract
Anniversary occurring before the earlier of the deceased Owner's 80th birthday
or the deceased Owner's date of death. Each annual reset anniversary value is
equal to the sum of:
- the Contract Value on that Contract Anniversary; plus
- all Purchase Payments since that Contract Anniversary;
- minus all amounts surrendered, including associated surrender
charges, since that Contract Anniversary.
The death benefit will equal the greatest of:
(1) the Contract Value; or
(2) aggregate Purchase Payments less aggregate surrenders, including
associated surrender charges; or
(3) the greatest annual reset anniversary value attained.
COMPOUND AND 3-YEAR RESET DEATH BENEFIT PACKAGE (NOT AVAILABLE IN THE STATE OF
WASHINGTON).
We will determine a compound anniversary value on the most recent Contract
Anniversary before the earlier of the deceased Owner's 80th birthday or the
deceased Owner's date of death.
The compound anniversary value is equal to the sum of:
(a) the accumulation to the Contract Anniversary of all Purchase
Payments prior to that Contract Anniversary, minus the
accumulation of amounts surrendered, including associated
surrender charges, prior to that Contract Anniversary; plus,
(b) any Purchase Payments on or since that Contract Anniversary,
minus any amounts surrendered, including associated surrender
charges, on or since that Contract Anniversary.
If the Effective Date is before the deceased Owner's 71st birthday, the
amounts in (a) will accumulate at an annual effective interest rate of 4.00%. If
the Effective Date is on or after the deceased Owner's 71st birthday, the
amounts in (a) will accumulate at an annual effective interest rate of 3.00%.
We will determine a 3-year reset anniversary value for every 3rd Contract
Anniversary occurring before the earlier of the deceased Owner's 80th birthday
or the deceased Owner's date of death. Each 3-year reset anniversary value is
equal the sum of:
- the Contract Value on that Contract Anniversary;
- plus all Purchase Payments since that Contract Anniversary;
- minus all amounts surrendered, including associated surrender
charges, since that Contract Anniversary.
The death benefit will equal the greatest of:
(1) the Contract Value; or
(2) aggregate Purchase Payments less aggregate surrenders, including
associated surrender charges; or
(3) the compound anniversary value; or
(4) the greatest 3-year reset anniversary value attained.
Refer to Appendix A for an example of the calculation of each death benefit.
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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, we may
delay such payment of a partial or full surrender of the Variable Account value
or death benefit for any period in the following circumstances where permitted
by state law:
(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.
We 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 charge 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 when you make a full or partial surrender before the Annuity Commencement
Date or, if you elected early annuitization, when you fully or partially
surrender your Contract for a commuted value while variable income payments
under Annuity Option A (payments for a certain period) are being made. (See
"Annuitization, Annuity Commencement Date."). We do not apply the surrender
charge to the payment of a death benefit.
In the event surrender charges are not sufficient to cover sales expenses,
we will bear the loss; conversely, if the amount of such charges provides more
than enough to cover such expenses, we will retain the excess. 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.
FREE WITHDRAWAL AMOUNT
Each Contract Year you may withdraw a specified amount, called the "free
withdrawal amount", from your Contract without incurring a surrender charge.
During the first Contract Year the free withdrawal amount is equal to 15% of
your initial Purchase Payment. In any subsequent Contract Year the free
withdrawal amount is equal to the greatest of: (1) the earnings in your Contract
as of the prior Contract Anniversary; (2) 15% of your cumulative Purchase
Payments as of the prior Contract Anniversary; or (3) 15% of the Contract Value
as of the prior Contract Anniversary. For the purpose of determining the free
withdrawal amount, earnings equal the Contract Value minus the Purchase Payments
not previously assessed with a surrender charge, both measured as of the
Contract Anniversary for which values are being determined. Withdrawals in
excess of the free withdrawal amount in any Contract Year are treated as
surrenders. Withdrawals, including withdrawals of the free withdrawal amount,
may be subject to income taxation and may be subject to a 10% federal penalty
tax if taken before the Owner reaches age 59 1/2. (See "Taxation of Annuities in
General, Taxation of Partial and Full Surrenders.")
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DETERMINING THE SURRENDER CHARGE.
We calculate the surrender charge by first allocating surrendered Contract
Value in excess of any free withdrawal amount to Purchase Payments or portions
of Purchase Payments not previously assessed with a surrender charge on a
"first-in, first-out" (FIFO) basis. We then allocate any remaining surrendered
Contract Value pro-rata to these Purchase Payments. The surrender charge is the
total of each of the allocated amounts of surrendered Contract Value multiplied
by its applicable surrender charge percentage, as shown below. If the
surrendered Contract Value exceeds any free withdrawal amount and if no
surrendered Contract Value was allocated to Purchase Payments, we determine the
surrender charge on the surrendered Contract Value by applying the surrender
charge percentage associated with the most recent Purchase Payment we accepted.
<TABLE>
<CAPTION>
SURRENDER
CHARGE AS
NUMBER OF FULL YEARS ELAPSED BETWEEN PERCENTAGE
THE DATE PURCHASE PAYMENT WAS ACCEPTED OF AMOUNT
AND THE DATE OF SURRENDER SURRENDERED
- -------------------------------------- -----------
<S> <C>
0................................................. 7.0%
1................................................. 6.0%
2................................................. 6.0%
3................................................. 5.0%
4................................................. 4.0%
5................................................. 3.0%
6................................................. 2.0%
7+................................................ 0%
</TABLE>
The cumulative surrender charges assessed will never exceed 8.5% of the
total Purchase Payments we have accepted under this Contract. Refer to
Appendix B for an example of how the surrender charge is calculated.
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 savings of sales expenses. We will determine 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 on amounts attributable to
Protective Life annuity contracts. (See "Qualified Retirement Plans".) During
any Contract Year, the total amount of such partial surrenders will reduce the
free withdrawal amount available on any subsequent partial surrender.
WAIVER OF SURRENDER CHARGES.
If you select an optional benefit package we will waive any applicable
surrender charge if, at any time after the first Contract Year:
(1) you are first diagnosed as having a terminal illness by a physician
that is not related to you or the Annuitant; or,
(2) you enter, for a period of at least ninety (90) days, a facility
which is both
(a) licensed by the state; and
(b) qualified as a skilled nursing home facility under Medicare or
Medicaid.
For Contracts purchased in the State of Texas, we will also waive surrender
charges on these conditions during the first Contract Year.
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The term "terminal illness" means that you are diagnosed as having a
non-correctable medical condition that, with a reasonable degree of medical
certainty, will result in your death in less than 12 months. A "physician" is a
medical doctor licensed by a state's Board of Medical Examiners, or similar
authority in the United States, acting within the scope of his or her license.
You must submit written proof of a terminal illness satisfactory to the Company.
The Company reserves the right to require an examination by a physician of its
choice.
Once we have granted the waiver of surrender charges, no surrender charges
will apply to the Contract in the future and we will accept no additional
Purchase Payments.
If any Owner is not an individual, the waiver of surrender charge provisions
will apply to the Annuitant.
SUSPENSION OF BENEFITS.
For a period of one year after any change of ownership involving a natural
person, we will not waive the surrender charges under the provision above.
MORTALITY AND EXPENSE RISK CHARGE
To compensate Protective Life for assuming mortality and expense risks, we
deduct a daily mortality and expense risk charge. Prior to the Annuity
Commencement Date, for Contracts issued with the standard death benefit the
charge is equal, on an annual basis, to 1.10% of the average daily net assets of
the Variable Account attributable to such Contracts. If you select one of the
optional benefit packages, the mortality and expense risk expense charge will
increase by 0.15% for a total mortality and expense risk charge of 1.25% of the
average annual daily net assets of the Variable Account attributable to your
Contract. (See "Optional Benefit Packages".) On, and after the Annuity
Commencement Date, the mortality and expense risk charge is equal to 1.10% of
the average annual daily net assets of the Variable Account attributable to a
Contract. We deduct the mortality and expense charge only from the Variable
Account.
The mortality risk Protective Life assumes is that Annuitant(s) may live for
a longer period of time than estimated when the guarantees in the Contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk that Protective Life assumes also includes a guarantee to pay a death
benefit if the Owner dies before the Annuity Commencement Date. The expense risk
that Protective Life assumes is the risk that the administration charge,
contract maintenance fee and transfer fees may be insufficient to cover actual
future expenses. It is possible that the mortality and expense risk charge (or a
portion of it) could be treated as an amount received through a partial
surrender for tax purposes. (See "Federal Tax Matters.") WE MAY INCUR A PROFIT
OR A LOSS FROM THE MORTALITY AND EXPENSE RISK CHARGE. ANY PROFIT MAY BE USED TO
FINANCE DISTRIBUTION EXPENSES.
ADMINISTRATION CHARGES
We will deduct an administration charge equal, on an annual basis, to 0.15%
of the daily net asset value of the Variable Account attributable to such
Contracts. We make this deduction to reimburse Protective Life for expenses
incurred in the administration of the Contract and the Variable Account. We
deduct the administration charge only from the Variable Account value.
TRANSFER FEE
Currently, there is no charge for transfers. Protective Life reserves the
right, however, to charge $25 for each transfer after the first 12 transfers in
any Contract Year. For the purpose of assessing the fee, we would consider each
request to be one transfer, regardless of the number of Allocation Options
affected by the transfer in one day. We would deduct the fee from the amount
being transferred.
CONTRACT MAINTENANCE FEE
Prior to the Annuity Commencement Date, we deduct a contract maintenance fee
of $30 from the Contract Value on each Contract Anniversary, and on any day that
you surrender the Contract other than the
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Contract Anniversary. We will deduct the contract maintenance fee from the
Allocation Options in the same proportion as their values are to the Contract
Value. We will waive the contract maintenance fee in the event the Contract
Value or the aggregate Purchase Payments reduced by surrenders and associated
surrender charges equals or exceeds $50,000 on the date we are to deduct the
contract maintenance fee.
FUND EXPENSES
The net assets of each Sub-Account of the Variable Account will reflect the
investment management fees and other operating expenses the Funds incur. For
each Fund, an investment manager receives a daily fee for its services. (See the
prospectuses for the Funds, which accompany this Prospectus.)
PREMIUM TAXES
Some states impose premium taxes at rates currently ranging up to 3.5%. If
premium taxes apply to your Contract, we will deduct them from the Purchase
Payment(s) when accepted or from the Contract Value upon a full or partial
surrender, death or annuitization.
OTHER TAXES
Currently, no charge will be made against the Variable Account for federal,
state or local taxes other than premium taxes. We reserve the right, however, to
deduct a charge for taxes attributable to the operation of the Variable Account.
ANNUITIZATION
ANNUITY COMMENCEMENT DATE
On the Effective Date, the Annuity Commencement Date is the later of (1) the
oldest Owner's or Annuitant's 90th birthday or (2) the 10th Contract
Anniversary. The Owner may change the Annuity Commencement Date by Written
Notice. The proposed Annuity Commencement Date must be at least 30 days after
the date the written request is received by the Company and at least 7 years
after the most recent Purchase Payment. The new Annuity Commencement Date may be
any date before or on the Owner's or Annuitant's 90th birthday and may not be
later than that date unless approved by Protective Life. Annuity Commencement
Dates that occur or are scheduled to occur at an advanced age for the Annuitant
(E.G., past age 85), may in certain circumstances have adverse income tax
consequences. (See "Federal Tax Matters".) Distributions from Qualified
Contracts may be required before the Annuity Commencement Date.
On the Annuity Commencement Date, we will apply your Contract Value, less
any applicable charges and premium tax, to the Annuity Option you have selected
to determine an annuity income payment. You may elect to receive a fixed income
payment, a variable income payment, or a combination of both using the same
Annuity Option and certain period.
EARLY ANNUITIZATION.
At any time after the second Contract Anniversary, we will permit you to
elect the immediate annuitization of your Contract under certain Annuity
Options. To elect this early annuitization, you must make your election by
Written Notice, and you must select an Annuity Option providing either (i) life
income with or without a certain period, or (ii) payments for a certain period
of at least 10 years. We will not accept an early annuitization election if you
select payments for a certain period of less than 10 years. Once we accept your
early annuitization election, we will change the Annuity Commencement Date to
the date on which we accepted the election, and we will apply your Contract
Value, less any applicable charges and premium tax, to the Annuity Option you
have selected to determine an annuity income payment.
We will waive any surrender charges that may otherwise apply on the date we
accept your election of early annuitization. However, surrender charges will
apply if, after your early annuitization election, you fully or partially
surrender your Contract for a commuted value while variable income payments
under Annuity
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Option A (payments for a certain period) are being made. In this case, the
surrender charge will be determined as described in "Charges and Deductions,
Surrender Charge," but without regard to any free withdrawal amount that may
have otherwise been available. (See "Charges and Deductions, Surrender Charge.")
We reserve the right to modify, limit, suspend or eliminate the early
annuitization privilege without prior notice for any Contract or class of
Contracts at any time for any reason.
FIXED INCOME PAYMENTS
Fixed income payments are periodic payments from the Company to the
designated Payee, the amount of which is fixed and guaranteed by the Company.
Fixed income payments are not in any way dependent upon the investment
experience of the Variable Account. Once fixed income payments have begun, they
may not be surrendered.
VARIABLE INCOME PAYMENTS
Variable income payments are periodic payments from the Company to the
designated Payee, the amount of which varies from one payment to the next as a
reflection of the net investment experience of the Sub-Account(s) you select to
support the payments.
ANNUITY UNITS.
On the Annuity Commencement Date, we will apply the Contract Value you have
allocated to variable income payments (less applicable charges and premium
taxes) to the variable Annuity Option you have selected. Using an interest
assumption of 5%, we will determine the dollar amount that would equal a
variable income payment if a payment were made on that date. (No payment is
actually made on that date.) We will then allocate that dollar amount among the
Sub-Accounts you selected to support your variable income payments, and we will
determine the number of Annuity Units in each of those Sub-Accounts that is
credited to your Contract. We will make this determination based on the Annuity
Unit values established at the close of regular trading on the New York Stock
Exchange on the Annuity Commencement Date. If the Annuity Commencement Date is a
day on which the New York Stock Exchange is closed, we will determine the number
of Annuity Units on the next day the New York Stock Exchange is open. The number
of Annuity Units attributable to each Sub-Account under a Contract generally
remains constant unless there is an exchange of Annuity Units between
Sub-Accounts.
DETERMINING THE AMOUNT OF VARIABLE INCOME PAYMENTS.
We will determine the amount of your variable income payment no earlier than
five Valuation Days before the date on which a payment is due, using values
established at the close of regular trading on the New York Stock Exchange that
day.
We determine the dollar amount of each variable income payment attributable
to each Sub-Account by multiplying the number of Annuity Units of that
Sub-Account credited to your Contract by the Annuity Unit value (described
below) for that Sub-Account on the Valuation Period during which the payment is
determined. The dollar value of each variable income payment is the sum of the
variable income payments attributable to each Sub-Account.
The Annuity Unit value of each Sub-Account for any Valuation Period is equal
to (a) multiplied by (b) divided by (c) where:
(a) is the net investment factor for the Valuation Period for which the
Annuity Unit value is being calculated;
(b) is the Annuity Unit value for the preceding Valuation Period; and
(c) is a daily Assumed Investment Return (AIR) factor adjusted for the
number of days in the Valuation Period.
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The AIR is equal to 5%.
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 C 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. We allow only one
exchange between Sub-Accounts in any calendar month, and allow no exchanges
between the Guaranteed Account and the Variable Account.
ANNUITY OPTIONS.
You may select an Annuity Option, or change your selection by Written Notice
the Company receives no later than 30 days before the Annuity Commencement Date.
You may not change your selection of Annuity Option less than 30 days before the
Annuity Commencement Date. If you have not selected an Annuity Option within 30
days of the Annuity Commencement Date, we will apply your Contract Value to
Option B -- Life Income with Payments for a 10 Year Certain Period, with the
Variable Account value used to purchase variable income payments and the
Guaranteed Account value used to purchase fixed income payments.
You may select from among the following Annuity Options:
OPTION A -- PAYMENTS FOR A CERTAIN PERIOD:
We will make payments for the period you select. No certain period may
be longer than 30 years. Payments under this Annuity Option do not depend
on the life of an Annuitant. The Contract may be fully or partially
surrendered for a commuted value while variable income payments under
Option A are being made but fixed income payments under this option may not
be surrendered.
OPTION B -- LIFE INCOME WITH OR WITHOUT A CERTAIN PERIOD:
Payments are based on the life of the named Annuitant(s). If you elect
to include a certain period, we will make payments for the lifetime of the
Annuitant(s), with payments guaranteed for the certain period you select.
No certain period may be longer than 30 years. Payments stop at the end of
the selected certain period or when the Annuitant(s) dies, whichever is
later. We reserve the right to demand proof that the Annuitant(s) is living
prior to making any payment under Option B. IF NO CERTAIN PERIOD IS
SELECTED, PAYMENTS WILL STOP UPON THE DEATH OF THE ANNUITANT(S), NO MATTER
HOW FEW OR HOW MANY PAYMENTS HAVE BEEN MADE. The Contract may not be
surrendered while variable income payments under Option B are being made
regardless of whether fixed or variable income payments are selected.
ADDITIONAL OPTION:
You may use the Contract Value, less applicable premium tax, to
purchase any annuity contract that we offer on the date you elect this
option.
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MINIMUM AMOUNTS
If your Contract Value is less than $5,000 on the Annuity Commencement Date,
we reserve the right to pay the Contract Value in one lump sum. If at any time
your annuity income payments are less than the minimum payment amount according
to the Company's rules then in effect, we reserve the right to change the
frequency to an interval that will result in a payment at least equal to the
minimum.
DEATH OF ANNUITANT OR OWNER AFTER ANNUITY COMMENCEMENT DATE
In the event of the death of any Owner on or after the Annuity Commencement
Date, the Beneficiary will become the new Owner. If any Owner or Annuitant dies
on or after the Annuity Commencement Date and before all benefits under the
Annuity Option you selected have been paid, we will pay any remaining portion of
such benefits at least as rapidly as under the Annuity Option in effect when the
Owner or Annuitant died. After the death of the Annuitant, any remaining
payments shall be payable to the Beneficiary unless you specified otherwise
before the Annuitant's death.
YIELDS AND TOTAL RETURNS
From time to time, Protective Life may advertise or include in sales
literature yields, effective yields, and total returns for the Sub-Accounts.
THESE FIGURES ARE BASED ON HISTORIC RESULTS AND DO NOT INDICATE OR PROJECT
FUTURE PERFORMANCE. More detailed information about the calculation of
performance information appears in the Statement of Additional Information.
Yields, effective yields, and total returns for the Sub-Accounts are based
on the investment performance of the corresponding Funds. The Funds' performance
also reflects the Funds' expenses. Certain of the expenses of each Fund may be
reimbursed by the investment manager. (See the Prospectuses for the Funds.)
YIELDS
The yield of the Oppenheimer Money Fund Sub-Account refers to the annualized
income generated by an investment in the Sub-Account over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven day period over a 52 week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but when annualized the income earned by an investment in the
Sub-Account is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
The yield of a Sub-Account (except the Oppenheimer Money Fund Sub-Account)
refers to the annualized income generated by an investment in the Sub-Account
over a specified 30 day or one-month period. The yield is calculated by assuming
that the income generated by the investment during that 30 day or one month
period is generated each period over a 12 month period and is shown as a
percentage of the investment.
TOTAL RETURNS
The total return of a Sub-Account refers to return quotations assuming an
investment under a Contract has been held in the Sub-Account for various periods
of time including a period measured from the date the Sub-Account commenced
operations. Average annual total return refers to total return quotations that
are based on an average return over various periods of time.
Certain Funds have been in existence prior to the investment by the
Sub-Accounts in such Funds. Protective Life may advertise and include in sales
literature 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-Accounts had
invested in those Funds during those periods, using current charges and expenses
associated with the Contract.
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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 (including any surrender charges that would
apply if you terminated the Contract at the end of each indicated period, but
excluding any deductions for premium taxes).
When a Sub-Account has been in operation prior to the commencement of the
offering of the Contract described in this prospectus, Protective Life may
advertise and include in sales literature the performance of the Sub-Accounts
for these prior periods. The Sub-Account performance information of any period
prior to the commencement of the offering of the Contract is calculated as if
the Contract had been offered during those periods, using current charges and
expenses.
Until a Sub-Account (other than the Oppenheimer Money Fund Sub-Account) has
been in operation for 10 years, Protective Life will always include quotes of
standard average annual total return for the period measured from the date that
Sub-Account began operations. When a Sub-Account (other than the Oppenheimer
Money Fund Sub-Account) has been in operation for one, five and ten years,
respectively, the standard version average annual total return for these periods
will be provided.
NON-STANDARD AVERAGE ANNUAL TOTAL RETURNS
In addition to the standard version of average annual total return described
above, total return performance information computed on non-standard bases may
be used in advertisements or sales literature. Non-standard average annual total
return information may be presented, computed on the same basis as the standard
version except deductions may not include the surrender charges or the contract
maintenance fee. In addition, Protective Life may from time to time disclose
average annual total return in other non-standard formats and cumulative total
return for Contracts funded by the Sub-Accounts.
Protective Life may, from time to time, also disclose yield, standard
average annual total returns, and non-standard total returns for the Funds.
Non-standard performance data will only be disclosed if the standard
performance data for the periods described in "Standardized Average Annual Total
Returns," above, is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information.
PERFORMANCE COMPARISONS
Protective Life may, from time to time, advertise or include in sales
literature Sub-Account performance relative to certain performance rankings and
indices compiled by independent organizations. In advertising and sales
literature, the performance of each Sub-Account may be compared to the
performance of other variable annuity issuers in general or to the performance
of particular types of variable annuities investing in mutual funds, or
investment portfolios of mutual funds with investment objectives similar to each
of the Sub-Accounts. Lipper Analytical Services, Inc. ("Lipper"), the Variable
Annuity Research Data Service ("VARDS"), and Morningstar Inc. ("Morningstar")
are independent services which monitor and rank the performance of variable
annuity issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper and Morningstar rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS rankings compare only variable annuity
issuers. The performance analyses prepared by Lipper, Morningstar and VARDS each
rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption fees, or certain
expense deductions at the separate
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account level into consideration. In addition, VARDS prepares risk adjusted
rankings, which consider the effects of market risk on total return performance.
This type of ranking provides data as to which funds provide the highest total
return within various categories of funds defined by the degree of risk inherent
in their investment objectives.
Advertising and sales literature may also compare the performance of each
Sub-Account to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as a source of performance comparison.
OTHER MATTERS
Protective Life may also report other information including the effect of
tax-deferred compounding on a Sub-Account's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts.
All income and capital gains derived from Sub-Account investments are
reinvested and can lead to substantial long-term accumulation of assets,
provided that the underlying Fund's investment experience is positive.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the Contract
is not exhaustive, does not purport to cover all situations, and is not intended
as tax advice. The federal income tax treatment of the Contract is unclear in
certain circumstances, and you should always consult a qualified tax adviser
regarding the application of law to individual circumstances. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, and interpretations 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
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payments as contemplated by the Contracts, or in some other form of
distribution. However, this rule applies only if:
(1) the investments of the Variable Account are "adequately
diversified" in accordance with Treasury Department regulations;
(2) the Company, rather than the Owner, is considered the owner of
the assets of the Variable Account for federal income tax
purposes; and
(3) the Owner is an individual (or an individual is treated as the
Owner for tax purposes).
DIVERSIFICATION REQUIREMENTS.
The Internal Revenue Code and Treasury Department regulations prescribe the
manner in which the investments of a segregated asset account, such as the
Variable Account, are to be "adequately diversified." If the Variable Account
fails to comply with these diversification standards, the Contract will not be
treated as an annuity contract for federal income tax purposes and the Owner
would generally be taxable currently on the excess of the Contact Value over the
premiums paid for the Contact. Protective Life expects that the Variable
Account, through the Funds, will comply with the diversification requirements
prescribed by the Internal Revenue Code and Treasury Department regulations.
OWNERSHIP TREATMENT.
In certain circumstances, variable annuity contract owners may be considered
the owners, for federal income tax purposes, of the assets of a segregated asset
account, such as the Variable Account, used to support their contracts. In those
circumstances, income and gains from the segregated asset account would be
includable in the contract owners' gross income. The Internal Revenue Service
(the "IRS") has stated in published rulings that a variable contract owner will
be considered the owner of the assets of a segregated asset account if the owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. In addition, the Treasury
Department announced, in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor, rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that the IRS would issue guidance by way of regulations
or rulings on the "extent to which policyholders may direct their investments to
particular sub-accounts [of a segregated asset account] without being treated as
owners of the underlying assets." As of the date of this Prospectus, the IRS has
not issued any such guidance.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the Owner of this Contract has the choice of more
investment options to which to allocate purchase payments and Variable Account
values, and may be able to transfer among investment options more frequently
than in such rulings. These differences could result in the Owner being treated
as the owner of the assets of the Variable Account and thus subject to current
taxation on the income and gains from those assets. In addition, the Company
does not know what standards will be set forth in the regulations or rulings
which the Treasury Department has stated it expects to issue. Protective Life
therefore reserves the right to modify the Contract as necessary to attempt to
prevent Contract Owners from being considered the owners of the assets of the
Variable Account. However, there is no assurance such efforts would be
successful.
NONNATURAL OWNER.
As a general rule, Contracts held by "nonnatural persons" such as a
corporation, trust or other similar entity, as opposed to a natural person, are
not treated as annuity contracts for federal tax purposes. The income on such
Contracts (as defined in the tax law) is taxed as ordinary income that is
received or accrued by the Owner of the Contract during the taxable year. There
are several exceptions to this general rule for
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nonnatural Owners. First, Contracts will generally be treated as held by a
natural person if the nominal owner is a trust or other entity which holds the
Contract as an agent for a natural person. However, this special exception will
not apply in the case of any employer who is the nominal owner of a Contract
under a non-qualified deferred compensation arrangement for its employees.
In addition, exceptions to the general rule for nonnatural Owners will apply
with respect to:
(1) Contracts acquired by an estate of a decedent by reason of the
death of the decedent;
(2) certain Qualified Contracts;
(3) Contracts purchased by employers upon the termination of certain
Qualified Plans;
(4) certain Contracts used in connection with structured settlement
agreements; and
(5) Contracts purchased with a single purchase payment when the
annuity starting date is no later than a year from purchase of
the Contract and substantially equal periodic payments are made,
not less frequently than annually, during the annuity period.
DELAYED ANNUITY COMMENCEMENT DATES.
If the Contract's Annuity Commencement Date occurs (or is scheduled to
occur) at a time when the Annuitant has reached an advanced age (E.G., past age
85), it is possible that the Contract would not be treated as an annuity for
federal income tax purposes. In that event, the income and gains under the
Contract could be currently includable in the Owner's income.
The remainder of this discussion assumes that the Contract will be treated
as an annuity contract for federal income tax purposes.
TAXATION OF PARTIAL AND FULL SURRENDERS
In the case of a partial surrender, amounts you receive are generally
includable in income to the extent your Contract Value before the surrender
exceeds your "investment in the contract." Amounts received under a partial
automatic withdrawal plan are treated as partial surrenders. In the case of a
full surrender, amounts received are includable in income to the extent they
exceed the "investment in the contract." For these purposes, the investment in
the contract at any time equals the total of the Purchase Payments made under
the Contract to that time (to the extent such payments were neither deductible
when made nor excludable from income as, for example, in the case of certain
contributions to Qualified Contracts) less any amounts previously received from
the Contract which were not included in income. Partial and full surrenders may
be subject to a 10% penalty tax. (See "Penalty Tax on Premature Distributions.")
Partial and full surrenders may also be subject to federal income tax
withholding requirements. (See "Federal Income Tax Withholding.") In addition,
in the case of partial and full surrenders from certain Qualified Contracts,
mandatory withholding requirements may apply, unless a "direct rollover" of the
amount surrendered is made. (See "Direct Rollovers".)
Under the Waiver of Surrender Charges provision of the Contract, amounts we
distribute may not be subject to Surrender Charges if you have a terminal
illness or enter, for a period of at leaast 90 days, certain nursing home
facilities. However, such distributions will be treated as surrenders for
federal income tax purposes.
The Contract provides optional death benefits that in certain circumstances
may exceed the greater of the Purchase Payments or the Contract Value. As
described elsewhere in this Prospectus, the Company imposes certain charges with
respect to these death benefits. It is possible that these charges (or some
portion thereof) could be treated for federal tax purposes as a partial
surrender of the Contract.
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TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity income payment taxable as ordinary
income equals the excess of the payment over the exclusion amount. In the case
of variable income payments, the exclusion amount is the "investment in the
Contract" (defined above) you allocate to the variable Annuity Option, adjusted
for any period certain or refund feature, when payments begin divided by the
number of payments expected (as determined by Treasury Department regulations
which take into account the Annuitant's life expectancy and the form of annuity
benefit selected). In the case of fixed income payments, the exclusion amount is
determined by multiplying (1) the payment by (2) the ratio of the investment in
the contract you allocate to the fixed Annuity Option, adjusted for any period
certain or refund feature, to the total expected amount of annuity income
payments for the term of the Contract (determined under Treasury Department
regulations).
Once the total amount of the investment in the Contract is excluded using
the above formulas, annuity income payments will be fully taxable. If annuity
income payments cease because of the death of the Annuitant and before the total
amount of the investment in the contract is recovered, the unrecovered amount
generally will be allowed as a deduction.
There may be special income tax issues present in situations where the Owner
and the Annuitant are not the same person and are not married to one another.
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, we may distribute amounts from a
Contract because of the death of an Owner or, in certain circumstances, the
death of the Annuitant. Such death benefit proceeds are includable in income as
follows:
(1) if distributed in a lump sum, they are taxed in the same manner
as a full surrender, as described above; or
(2) if distributed under an Annuity Option, they are taxed in the
same manner as annuity income payments, as described above.
After the Annuity Commencement Date, where a guaranteed period exists under
an Annuity Option, and the Annuitant dies before the end of that period,
payments we make to the Beneficiary for the remainder of that period are
includable in income as follows:
(1) if received in a lump sum, they are included in income to the
extent that they exceed the unrecovered investment in the
Contract at that time; or
(2) if distributed in accordance with the existing Annuity Option
selected, they are fully excluded from income until the remaining
investment in the Contract is deemed to be recovered, and all
annuity income payments thereafter are fully includable in
income.
Proceeds payable on death may be subject to federal income tax withholding
requirements. (See "Federal Income Tax Withholding".) In addition, in the case
of such proceeds from certain Qualified Contracts, mandatory withholding
requirements may apply, unless a "direct rollover" of such proceeds is made.
(See "Direct Rollovers".)
ASSIGNMENTS, PLEDGES, AND GRATUITOUS TRANSFERS
Other than in the case of Qualified Contracts (which generally cannot be
assigned or pledged), any assignment or pledge of (or agreement to assign or
pledge) any portion of the Contract Value is treated for federal income tax
purposes as a surrender of such amount or portion. The investment in the
contract is
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increased by the amount includable as income with respect to such assignment or
pledge, though it is not affected by any other aspect of the assignment or
pledge (including its release). If an Owner transfers a Contract without
adequate consideration to a person other than the Owner's spouse (or to a former
spouse incident to divorce), the Owner will be taxed on the difference between
his or her Contract Value and the investment in the Contract at the time of
transfer. In such case, the transferee's investment in the Contract will
increase to reflect the increase in the transferor's income.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
Where we have not issued the Contract 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 a person owns that were not
issued in connection with Qualified Plans. For example, if a person purchases a
Contract offered by this Prospectus and also purchases at approximately the same
time an immediate annuity issued by Protective Life, the IRS may treat the two
contracts as one contract. Similarly, if a person transfers part of his or her
interest in one annuity contract to purchase another annuity contract, the IRS
might treat the two contracts as one contract. In addition, if a person
purchases two or more deferred annuity contracts from the same insurance company
(or its affiliates) during any calendar year, all such contracts will be treated
as one contract for purposes of determining whether any payment that was not
received as an annuity (including surrenders prior to the Annuity Commencement
Date) is includable in income. The effects of such aggregation are not always
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, a
portion of otherwise deductible interest may not be deductible by the entity,
regardless of whether the interest relates to debt used to purchase or carry the
Contract. However, this interest deduction disallowance does not affect
Contracts where the income on such Contracts is treated as ordinary income that
the Owner received or accrued during the taxable year. Entities that are
considering purchasing the Contract, or entities that will be Beneficiaries
under a Contract, should consult a tax adviser.
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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, we make no
attempt in this Prospectus to provide more than general information about use of
the Contract with the various types of Qualified Plans. THOSE WHO INTEND TO USE
THE CONTRACT IN CONNECTION WITH QUALIFIED PLANS SHOULD SEEK COMPETENT ADVICE.
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 you may make, and the tax deduction or exclusion
that you may claim for such contribution, are limited under Qualified Plans and
vary with the type of plan. Also, for full surrenders, partial automatic
withdrawals, partial surrenders, and annuity income payments under Qualified
Contracts, there may be no "investment in the contract" and the total amount
received may be taxable. Similarly, loans from Qualified Contracts, where
available, are subject to a variety of limitations, including restrictions as to
the amount that may be borrowed, the duration of the loan, and the manner in
which the loan must be repaid. (Owners should always consult their tax advisors
and retirement plan fiduciaries prior to exercising any loan privileges that are
available.) Both the amount of the contribution that you and/or your employer
may make, and the tax deduction or exclusion that you and/or your employer may
claim for such contribution, are limited under Qualified Plans.
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, to elect a partial automatic
withdrawal option, or to make a partial or full surrender of the Contract.
In addition, special rules apply to the time at which distributions must
commence and the form in which the distributions must be paid. For example, the
length of any guarantee period may be limited in some circumstances to satisfy
certain minimum distribution requirements under the Internal Revenue Code.
Furthermore, failure to comply with minimum distribution requirements applicable
to Qualified Plans will result in the imposition of an excise tax. This excise
tax generally equals 50% of the amount by which a minimum required distribution
exceeds the actual distribution from the Qualified Plan. In the case of
Individual Retirement Accounts or Annuities ("IRAs"), distributions of minimum
amounts (as specified in the tax law) must generally commence by April 1 of the
calendar year following the calendar year in which the Owner attains age 70 1/2.
In the case of certain other Qualified Plans, distributions of such minimum
amounts must generally commence by the later of this date or April 1 of the
calendar year following the calendar year in which the employee retires.
There may be a 10% penalty tax on the taxable amount of payments from
certain Qualified Contracts. There are exceptions to this penalty tax which vary
depending on the type of Qualified Plan. In the case of an IRA, exceptions
provide that the penalty tax does not apply to a payment:
(a) received on or after the Owner reaches age 59 1/2;
(b) received on or after the Owner's death or because of the Owner's
disability (as defined in the tax law); or
(c) made as a series of substantially equal periodic payments (not
less frequently than annually) for the life (or life expectancy)
of the Owner or for the joint lives (or joint life expectancies)
of the Owner and his designated beneficiary (as defined in the
tax law).
These exceptions, as well as certain others not described herein, generally
apply to taxable distributions from other Qualified Plans (although, in the case
of plans qualified under sections 401 and 403, exception "c" above for
substantially equal periodic payments applies only if the Owner has separated
from service). In
48
<PAGE>
addition, the penalty tax does not apply to certain distributions from IRAs
which are used for qualified first time home purchases or for higher education
expenses. You must meet special conditions to be eligible for these two
exceptions to the penalty tax. Those wishing to take a distribution from an IRA
for these purposes should consult their tax advisor.
When issued in connection with a Qualified Plan, we will amend a Contract as
generally necessary to conform to the requirements of the plan. However, Owners,
Annuitants, and Beneficiaries are cautioned that the rights of any person to any
benefits under Qualified Plans may be subject to the terms and conditions of the
plans themselves, regardless of the terms and conditions of the Contract. In
addition, the Company shall not be bound by terms and conditions of Qualified
Plans to the extent such terms and conditions contradict the Contract, unless
the Company consents.
Following are brief descriptions of various types of Qualified Plans in
connection with which the Company may issue a Contract.
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES.
Section 408 of the Internal Revenue Code permits eligible individuals to
contribute to an individual retirement program known as IRAs. IRAs are subject
to limits on the amounts that may be contributed and deducted, the persons who
may be eligible and on the time when distributions may commence. Also, subject
to the direct rollover and mandatory withholding requirements (discussed below),
you may "roll over" distributions from certain Qualified Plans on a tax-deferred
basis into an IRA.
However, you may not use the Contract in connection with an "Education IRA"
under Section 530 of the Internal Revenue Code, a "Simplified Employee Pension"
under Section 408(k) of the Internal Revenue Code, or a "Simple IRA" under
Section 408(p) of the Internal Revenue Code.
IRAs generally may not invest in life insurance contracts, but an annuity
contract that is purchased by, or used as, an IRA may provide a death benefit
that equals the greater of the premiums paid and the contract's cash value. The
Owners of the Contract may purchase an optional benefit package which provides a
death benefit that in certain circumstances may exceed the greater of the
Purchase Payments and the Contract Value. It is possible that the death benefit
could be viewed as violating the prohibition on investment in life insurance
contracts with the result that the Contract would not be viewed as satisfying
the requirements of an IRA.
ROTH IRAS.
Section 408A of the Internal Revenue Code permits eligible individuals to
contribute to a type of IRA known as a "Roth IRA." Roth IRAs are generally
subject to the same rules as non-Roth IRAs, but differ in several respects.
Among the differences is that, although contributions to a Roth IRA are not
deductible, "qualified distributions" from a Roth IRA will be excludable from
income.
A qualifed distribution is a distribution that satisfies two requirements.
First, the distribution must be made in a taxable year that is at least five
years after the first taxable year for which a contribution to any Roth IRA
established for the Owner was made. Second, the distribution must be either (1)
made after the Owner attains the age of 59 1/2; (2) made after the Owner's
death; (3) attributable to the Owner being disabled; (4) a qualified first-time
homebuyer distribution within the meaning of Section 72(t)(2)(F) of the Internal
Revenue Code. In addition, distributions from Roth IRAs need not commence when
the Owner attains age 70 1/2. A Roth IRA may accept a "qualified rollover
contribution" from a non-Roth IRA, but a Roth IRA may not accept rollover
contributions from other qualified plans. The state tax treatment of a Roth IRA
may differ from federal tax treatment of a Roth IRA.
As described above (see "Individual Retirement Annuities"), there is some
uncertainty regarding the proper characterization of the Contract's optional
death benefit for purposes of the tax rules governing IRAs (which include Roth
IRAs).
49
<PAGE>
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT-SHARING
PLANS.
Sections 401(a) and 403(a) of the Code permit corporate employers to
establish various types of tax-favored retirement plans for employees. The
Self-Employed Individuals' Tax Retirement Act of 1962, as amended, commonly
referred to as "H.R. 10" or "Keogh," permits self-employed individuals also to
establish such tax-favored retirement plans for themselves and their employees.
Such retirement plans may permit the purchase of the Contract in order to
provide benefits under the plans. If the Owner of the Contract purchases an
optional death benefit package, the death benefit in certain circumstances may
exceed the greater of the Purchase Payments and the Contract Value. It is
possible the IRS could characterize such a death benefit as an incidental death
benefit. There are limitations on the amount of incidental benefits that may be
provided under pension and profit sharing plans. In addition, the provision of
such benefits may result in currently taxable income to participants.
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 Internal Revenue the Code to
have their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. Purchasers of the Contracts for use as a "Section 403(b) Policy"
should seek competent advice as to eligibility, limitations on permissible
amounts of purchase payments and other tax consequences associated with such
Contracts. In particular, purchasers and their advisers should consider that the
optional benefit packages under the Contract provide a death benefit that in
certain circumstances may exceed the greater of the Purchase Payments and the
Contract Value. It is possible the IRS could characterize the death benefit as
an "incidental death benefit". If the death benefit were so characterized, this
could result in currently taxable income to purchasers. In addition, there are
limitations on the amount of incidental death benefits that may be provided
under a Section 403(b) Policy. Even if the IRS characterized the death benefit
under the Contract as an incidental death benefit, the death benefit is unlikely
to violate those limits unless the purchaser also purchases a life insurance
contract as part of his or her Section 403(b) Policy.
Section 403(b) Policies contain restrictions on withdrawals of:
(i) contributions made pursuant to a salary reduction agreement in
years beginning after December 31, 1988;
(ii) earnings on those contributions; and
(iii) earnings after December 31, 1988 on amounts attributable to
salary reduction contributions held as of December 31, 1988.
These amounts can be paid only if the employee has reached age 59 1/2,
separated from service, died, become disabled, or in the case of hardship.
Amounts permitted to be distributed in the event of hardship are limited to
actual contributions; earnings thereon can not be distributed on account of
hardship. (These limitations on withdrawals do not apply to the extent the
Company is directed to transfer some or all of the Contract Value to the issuer
of another Section 403(b) Policy or into a Section 403(b)(7) custodial account.)
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS.
Section 457 of the Internal Revenue Code permits employees of state and
local governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. Generally, a Contract purchased by a
state or local government or a tax-exempt organization will not be treated as an
annuity contract for federal income tax purposes. The Contract will be issued in
connection with a Section 457 deferred compensation plan sponsored by a state or
local government only if the plan has established a trust to hold plan assets,
including the Contract.
50
<PAGE>
DIRECT ROLLOVERS
If your Contract is used in connection with a pension, profit-sharing, or
annuity plan qualified under sections 401(a) or 403(a) of the Code, or is a
Section 403(b) Policy, any "eligible rollover distribution" from the Contract
will be subject to direct rollover and mandatory withholding requirements. An
eligible rollover distribution generally is any taxable distribution from a
qualified pension plan under section 401(a) of the Internal Revenue Code,
qualified annuity plan under section 403(a) of the Code, or section 403(b)
annuity or custodial account, excluding certain amounts (such as minimum
distributions required under section 401(a)(9) of the 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. 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.
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
51
<PAGE>
amount of any current or future payment until the overpayment has been fully
repaid. Underpayments and overpayments will bear interest at an annual effective
interest rate of 3% when permitted by the state of issue.
INCONTESTABILITY
We will not contest the Contract.
NON-PARTICIPATION
The Contract is not eligible for dividends and will not participate in
Protective Life's surplus or profits.
ASSIGNMENT
You have the right to assign the Contract if it is a non-qualified contract.
We do not assume responsibility for the assignment. Any claim made under an
assignment is subject to proof of the nature and extent of the assignee's
interest prior to payment by us. Assignments have federal income tax
consequences. (See "Assignments, Pledges and Gratuitous Transfers" in the
prospectus.)
NOTICE
All instructions and requests to change or assign the Contract must be in
writing in a form acceptable to us, signed by the Owner(s), and received at our
administrative office. The instruction, change or assignment will relate back to
and take effect on the date it was signed, except we will not be responsible for
following any instruction or making any change or assignment before we receive
it.
MODIFICATION
No one is authorized to modify or waive any term or provision of this
Contract unless we agree to the modification or waiver in writing and it is
signed by our President, Vice-President or Secretary. We reserve the right to
change or modify the provisions of this Contract to conform to any applicable
laws, rules or regulations issued by a government agency, or to assure continued
qualification of the Contract as an annuity contract under the Internal Revenue
Code. We will send you a copy of the endorsement that modifies the Contract, and
where required we will obtain all necessary approvals, including that of the
Owner(s).
REPORTS
At least annually prior to the Annuity Commencement Date, we will send to
you at the address contained in our records a report showing the current
Contract Value and any other information required by law.
SETTLEMENT
Benefits due under this Contract are payable from our administrative office.
You may apply the settlement proceeds to any payout option we offer for such
payments at the time you make the election. Unless directed otherwise in
writing, we will make payments according to the Owner's instructions as
contained in our records at the time we make the payment. 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.
52
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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
Protective Life reserves the right to stop offering the Contracts 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
You may make inquiries regarding a Contract by writing to Protective Life at
its administrative office.
YEAR 2000 COMPUTER COMPLIANCE ISSUES
As of March 31, 2000, Protective Life has had no Year 2000 issues which have
impaired its operations. Although Protective believes it has made all of the
modifications necessary for its systems to process transactions dated beyond
1999, it is possible that Year 2000 issues involving Protective Life or its
service providers may emerge during 2000. Therefore, there can be no assurances
that the Year 2000 issue will not otherwise adversely affect Protective.
Should some of Protective Life's systems become unavailable due to Year 2000
problems, in a reasonably likely worst case scenario, Protective could
experience delays in its ability to perform certain functions, but we do not
expect an inability to perform critical functions or to otherwise conduct
business. However, other worst case scenarios could have an adverse effect on
Protective and its operations.
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
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claims for monetary damages or penalties may be asserted. Management, after
consultation with legal counsel, does not believe that such proceedings are
material, nor does it anticipate the ultimate liability arising from any such
proceeding would be material, to Protective Life in relation to its total
assets. Such proceedings are not related to the Variable Account.
VOTING RIGHTS
In accordance with its view of applicable law, Protective Life will vote the
Fund shares held in the Variable Account at special shareholder meetings of the
Funds in accordance with instructions received from persons having voting
interests in the corresponding Sub-Accounts. If, however, the 1940 Act or any
regulation thereunder should be amended, or if the present interpretation
thereof should change, or Protective Life determines that it is allowed to vote
such shares in its own right, it may elect to do so.
The number of votes available to an Owner will be calculated separately for
each Sub-Account of the Variable Account, and may include fractional votes. The
number of votes attributable to a Sub-Account will be determined by applying an
Owner's percentage interest, if any, in a particular Sub-Account to the total
number of votes attributable to that Sub-Account. An Owner holds a voting
interest in each Sub-Account to which that Owner has allocated Accumulation
Units or Annuity Units. Before the Annuity Commencement Date, the Owner's
percentage interest, if any, will be percentage of the dollar value of
Accumulation Units allocated for his or her Contract to the total dollar value
of that Sub-Account. On or after the Annuity Commencement Date, the Owner's
percentage interest, if any, will be percentage of the dollar value of the
liability for future variable income payments to be paid from the Sub-Account to
the total dollar value of that Sub-Account. The liability for future payments is
calculated on the basis of the mortality assumptions, (if any), the Assumed
Investment Return and the Annuity Unit Value of that Sub-Account. Generally, as
variable income payments are made to the payee, the liability for future
payments decreases as does the number of votes.
The number of votes which are available to the Owner will be determined as
of the date coincident with the date established by the Fund for determining
shareholders eligible to vote at the relevant meeting of that Fund. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the Fund.
Shares as to which no timely instructions are received and shares held by
Protective Life in a Sub-Account as to which no Owner has a beneficial interest
will be voted in proportion to the voting instructions which are received with
respect to all Contracts participating in that Sub-Account. Voting instructions
to abstain on any item to be voted upon will be applied to reduce the votes
eligible to be cast on that item.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports, and other material relating to the appropriate Fund.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities of The Protective Variable
Annuity Separate Account as of December 31, 1999 and 1998 and the related
statements of operations and changes in net assets for the years ended
December 31, 1999 and 1998 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, 1999 and 1998 and the related consolidated statements of income,
share-owner's equity, and cash flows for the three years ended December 31, 1999
and the related financial statement schedules as well as the Report of
Independent Accountants are contained in the Statement of Additional
Information.
54
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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............................................ 7
RECORDS AND REPORTS......................................... 7
LEGAL MATTERS............................................... 7
EXPERTS..................................................... 7
OTHER INFORMATION........................................... 7
FINANCIAL STATEMENTS........................................ 7
</TABLE>
<PAGE>
APPENDIX A
EXAMPLE OF DEATH BENEFIT CALCULATIONS
Assume an Owner is 55 on the Effective Date, 1/1/yy. The following
transactions occur prior to the Owner's death on 7/1(yy+5) when the Contract
Value is $185,000. For purposes of this example, also assume that proof of death
was provided immediately, and no premium tax is applicable.
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
- ---- ----------- ------
<S> <C> <C>
1/1/yy Purchase Payment $100,000
Partial
4/1/(yy+2) Surrender $ 25,000
10/1(yy+4) Purchase Payment $ 80,000
</TABLE>
The Contract Values on each Contract Anniversary are shown below. These
Contract Values are hypothetical and are solely for the purpose of illustrating
death benefit calculations. The Contract Values presented are net of all
expenses and charges (except any charge for premium taxes), including Fund
expenses and Variable Account expenses and charges. This illustration does not
reflect historical investment results, nor does it predict or guarantee future
investment results. Actual results may be higher or lower.
<TABLE>
<CAPTION>
ANNIVERSARY DATE CONTRACT VALUE
- ---------------- --------------
<S> <C>
1/1(yy+1) $120,000
1/1(yy+2) $130,000
1/1(yy+3) $105,000
1/1(yy+4) $110,000
1/1(yy+5) $180,000
</TABLE>
STANDARD DEATH BENEFIT
Under the Standard Death Benefit, the death benefit payable is the greater
of:
(1) Contract Value of $185,000 or,
(2) aggregate Purchase Payments less aggregate surrenders, or $180,000
less $25,000 equals $155,000.
The death benefit payable is then $185,000.
ANNUAL RESET DEATH BENEFIT OPTION
The Annual Reset Death Benefit is equal to the greatest annual reset
anniversary value attained, where an annual reset anniversary value equals the
Contract Value on the Contract Anniversary plus all subsequent Purchase Payments
minus all subsequent amounts surrendered, as shown below.
ANNIVERSARY
<TABLE>
<CAPTION>
ANNIVERSARY
DATE ANNIVERSARY VALUE
- ----------- -----------------
<S> <C>
1/1/(yy+1) $120,000 minus $25,000 plus $80,000 equals $175,000
1/1/(yy+2) $130,000 minus $25,000 plus $80,000 equals $185,000
1/1/(yy+3) $105,000 plus $80,000 equals $185,000
1/1/(yy+4) $110,000 plus $80,000 equals $190,000
1/1/(yy+5) $180,000
</TABLE>
The Annual Reset Death Benefit is the greatest annual reset anniversary
value attained, or $190,000.
Under the Annual Reset Death Benefit option, the death benefit payable is
the greater of:
(1) the Standard Death Benefit of $185,000; or
(2) the Annual Reset Death Benefit of $190,000.
A-1
<PAGE>
The death benefit payable is then $190,000.
COMPOUND AND 3-YEAR RESET DEATH BENEFIT OPTION
The Compound Death Benefit is equal to the accumulation to the most recent
Contract Anniversary of all prior Purchase Payments less all prior amounts
surrendered, using an annual effective interest rate of 4%, plus all Purchase
Payments on or since that Contract Anniversary less all amounts surrendered
since that Contract Anniversary.
An accumulation interest rate of 3% would have been applicable if the
Effective Date of the Contract had been on or after the deceased Owner's 71st
birthday.
For ease of understanding, this example assumes an equal number of days in
each quarterly period. In practice, the actual number of days in each period
will be taken into account.
The Compound Death Benefit is:
Purchase Payment of $100,000 times (1.04 TO THE POWER OF 5) equals
$121,665.29;
minus
Surrender of $25,000 times (1.04 TO THE POWER OF 2.75) equals $27,847.21;
plus
Purchase Payment of $80,000 times (1.04 TO THE POWER OF 0.25) equals
$80,788.27;
equals $174,606.35.
The 3-Year Reset Death Benefit is equal to the greatest 3-year reset
anniversary value attained, where a 3-year reset anniversary value equals the
Contract Value on that Contract Anniversary plus all subsequent Purchase
Payments minus all subsequent amounts surrendered, as shown below.
The only 3-year reset anniversary was on 1/1/(yy+3), where the anniversary
value was $105,000 plus $80,000 equals $185,000.
The 3-Year Reset Death Benefit is the greatest 3-year reset anniversary
value attained, or $185,000.
Under the Compound and 3-Year Reset Death Benefit option, the death benefit
payable is the greatest of:
(1) the standard Death Benefit of $185,000; or
(2) the Compound Death Benefit, of $174,606.35; or
(3) the 3-Year Reset Death Benefit, of $185,000.
The death benefit payable is then $185,000.
A-2
<PAGE>
APPENDIX B
EXAMPLE OF SURRENDER CHARGE CALCULATION
Surrender charges are applied to Contract Value surrendered according to the
table below:
<TABLE>
<CAPTION>
NUMBER OF FULL YEARS ELAPSED BETWEEN SURRENDER
THE DATE PURCHASE PAYMENT WAS ACCEPTED CHARGE
AND THE DATE OF SURRENDER PERCENTAGE
- -------------------------------------- ----------
<S> <C>
0................................................. 7.0%
1................................................. 6.0%
2................................................. 6.0%
3................................................. 5.0%
4................................................. 4.0%
5................................................. 3.0%
6................................................. 2.0%
7+................................................ 0.0%
</TABLE>
Assume an initial Purchase Payment of $100,000 is made on the Effective
Date, followed 5 years later by a subsequent Purchase Payment of $50,000. On the
sixth Contract Anniversary, assume the Contract Value is $175,000.
During the seventh Contract Year, when the Contract Value has increased to
$185,000, a partial surrender of $50,000 is requested. On the eighth Contract
Anniversary, when the Contract Value is $200,000, a full surrender is requested.
When the partial surrender is requested, 15% of $175,000 equals $26,250 is
available free of surrender charges. The remaining surrendered amount of $50,000
less $26,250 equals $23,750 is allocated to the initial Purchase Payment of
$100,000. Since 6 full years have elapsed since the initial Purchase Payment, a
2.0% surrender charge percentage will apply and the surrender charge is $23,750
times 2.0% equals $475.
From the $200,000 surrendered, $73,750 represents earnings in the Contract
and is free of surrender charges. The remaining $200,000 less $73,750 equals
$126,250 is prorated to surrendered Purchase Payments as follows:
- $76,250 is allocated to the initial Purchase Payment
- $50,000 is allocated to the surrendered subsequent Purchase Payment
Since 8 full years have elapsed since the initial Purchase Payment, a 0.0%
surrender charge percentage will apply to $76,250.
Since 3 full years have elapsed since the subsequent Purchase Payment, a
5.0% surrender charge percentage will apply to $50,000.
The total surrender charge upon the full surrender is $2,500.
B-1
<PAGE>
APPENDIX C
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
DURING VALUE
YEAR BEFORE PAYMENT
DATE AT 5% PAYMENT MADE
- ---- ------------------------------------------ -------------------------------------- ---------------
<S> <C> <C> <C>
Annuity Commencement Date..... $100,000.00 $ 0.00
End of 1st year.......... $5,000.00 $105,000.00 $23,097.48
End of 2nd year.......... $4,095.13 $ 85,997.65 $23,097.48
End of 3rd year.......... $3,145.01 $ 66,045.17 $23,097.48
End of 4th year.......... $2,147.38 $ 45,095.08 $23,097.48
End of 5th year.......... $1,099.88 $ 23,097.48 $23,097.48
<CAPTION>
CONTRACT
VALUE
AFTER
DATE PAYMENT
- ---- -------------------------------------
<S> <C>
Annuity Commencement Date..... $100,000.00
End of 1st year.......... $ 81,902.52
End of 2nd year.......... $ 62,900.17
End of 3rd year.......... $ 42,947.69
End of 4th year.......... $ 21,997.60
End of 5th year.......... $ 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.
C-1
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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 II.
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