<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 2000
FILE NO. 333-94047
FILE NO. 811-8108
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 19 /X/
PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
PROTECTIVE LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
(205) 879-9230
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
STEVE M. CALLAWAY, ESQUIRE
PROTECTIVE LIFE INSURANCE COMPANY
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA, 35223
(NAME AND ADDRESS OF AGENT FOR SERVICES)
COPY TO:
STEPHEN E. ROTH, ESQUIRE
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 383-0158
-------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the registration statement.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), SHALL
DETERMINE.
TITLE OF SECURITIES BEING REGISTERED: INTERESTS IN A SEPARATE
ACCOUNT ISSUED THROUGH VARIABLE ANNUITY CONTRACTS.
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<PAGE>
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<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
----
<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.
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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.
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 surrender your Contract
for its 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 surrender your Contract
for its commuted value while variable income payments under Annuity Option A
(payments for
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a certain period) are being made. In this case, the surrender charge will be
determined 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 surrendered for its
commuted value while variable income payments under Option A are being made
but fixed income payments under this option may not be surrendered.
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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<PAGE>
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
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<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).
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<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.
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DIRECT ROLLOVERS
If your Contract is used in connection with a pension, profit-sharing, or
annuity plan qualified under sections 401(a) or 403(a) of the Code, or is a
Section 403(b) Policy, any "eligible rollover distribution" from the Contract
will be subject to 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
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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.
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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.
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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
<PAGE>
PLEASE TEAR OFF, COMPLETE AND RETURN THIS FORM TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. ADDRESS
THE FORM TO PROTECTIVE LIFE'S INVESTMENT PRODUCTS DIVISION, CUSTOMER SERVICE
CENTER AT THE ADDRESS SHOWN ON THE COVER.
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
THE PROTECTIVE VARIABLE ANNUITY II.
- - - - - - - - - - - - - --------------------------------------------------------------------------------
Name Social Security No.
- - - - - - - - - - - - - --------------------------------------------------------------------------------
Address
- - - - - - - - - - - - - --------------------------------------------------------------------------------
City, State, Zip
- - - - - - - - - - - - - --------------------------------------------------------------------------------
Daytime Telephone Number
<PAGE>
PART B
INFORMATION REQUIRED TO BE IN
THE STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
P.O. Box 10648
Birmingham, Alabama 35202-0648
Telephone: 1-800-456-6330
STATEMENT OF ADDITIONAL INFORMATION
PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
PROTECTIVE VARIABLE ANNUITY II VARIABLE ANNUITY
A FLEXIBLE PREMIUM
DEFERRED VARIABLE AND FIXED ANNUITY CONTRACT
This Statement of Additional Information contains information in addition to
the information described in the Prospectus for the Protective Variable
Annuity II Variable Annuity, a group and individual flexible premium deferred
variable and fixed annuity contract (the "Contract") offered by Protective Life
Insurance Company. This Statement of Additional Information is not a Prospectus.
It should be read only in conjunction with the Prospectuses for the Contract and
the Funds. The Prospectus is dated the same as this Statement of Additional
Information. You may obtain a copy of the Prospectus by writing or calling us at
our address or phone number shown above.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY 1, 2000.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
CALCULATION OF YIELDS AND TOTAL RETURNS..................... 3
Oppenheimer Money Fund Sub-Account Yield.................. 3
Other Sub-Account Yields.................................. 4
Total Returns............................................. 5
Effect of the Contract Maintenance Fee on Performance
Data.................................................... 6
SAFEKEEPING OF ACCOUNT ASSETS............................... 6
STATE REGULATION............................................ 7
RECORDS AND REPORTS......................................... 7
LEGAL MATTERS............................................... 7
EXPERTS..................................................... 7
OTHER INFORMATION........................................... 7
FINANCIAL STATEMENTS........................................ 7
</TABLE>
2
<PAGE>
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, Protective Life may disclose yields, total returns, and
other performance data pertaining to the Contracts for a Sub-Account. Such
performance data will be computed or accompanied by performance data computed,
in accordance with the standards defined by the Securities and Exchange
Commission ("SEC").
Because of the charges and deductions imposed under a Contract, yields for
the Sub-Accounts will be lower than the yields for their respective Funds. The
calculations of yields, total returns, and other performance data do not reflect
the effect of premium tax that may be applicable to a particular Contract.
Premium taxes currently range from 0% to 3.50% of premium based on the state in
which the Contract is sold.
OPPENHEIMER MONEY FUND SUB-ACCOUNT YIELD
From time to time, advertisements and sales literature may quote the current
annualized yield of the Oppenheimer Money Fund Sub-Account for a seven-day
period in a manner which does not take into consideration any realized or
unrealized gain, or losses on shares of the Oppenheimer Variable Account Funds
Money Fund or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the seven day period in value of a
hypothetical account under a Contract having a balance of 1 Accumulation Unit of
the Oppenheimer Money Fund Sub-Account at the beginning of the period, dividing
such net change in account value by the value of the hypothetical account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis. The net change in account value reflects: 1)
net income from the Oppenheimer Variable Account Funds Money Fund attributable
to the hypothetical account; and 2) charges and deductions imposed under the
Contract attributable to the hypothetical account. The charges and deductions
reflect the per unit charges for the hypothetical account for: 1) the Annual
Contract Maintenance Fee; 2) Administration Charge; and 3) the Mortality and
Expense Risk Charge. For purposes of calculating current yields for a Contract,
an average per unit Contract Maintenance Fee is used based on the $30 Contract
Maintenance Fee deducted at the end of each Contract Year. Current Yield will be
calculated according to the following formula:
Current Yield = ((NCS-ES)/UV) X (365/7)
Where:
<TABLE>
<S> <C>
NCS the net change in the value of the Fund (exclusive of
unrealized gains or losses on the sale of securities and
unrealized appreciation and depreciation) for the seven-day
period attributable to a hypothetical Account having a
balance of 1 Sub-Account Accumulation Unit.
ES per Accumulation Unit expenses attributable to the
hypothetical account for the seven-day period.
UV The Accumulation Unit value as of the end of the last day of
the prior seven-day period.
</TABLE>
The effective yield of the Oppenheimer Money Fund Sub-Account determined on
a compounded basis for the same seven-day period may also be quoted.
3
<PAGE>
The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
Effective Yield = (1+((NCS-ES)/UV))TO THE POWER OF "365/7" - 1
Where:
<TABLE>
<S> <C>
NCS the net change in the value of the portfolio (exclusive of
realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) for the seven-day
period attributable to a hypothetical account having a
balance of 1 Sub-Account Accumulation Unit.
ES per Accumulation Unit expenses attributable to the
hypothetical account for the seven-day period.
UV the Accumulation Unit value as of the end of the last day of
the prior seven-day period.
</TABLE>
Because of the charges and deductions imposed under the Contract, the
current and effective yields for the Oppenheimer Money Fund Sub-Account will be
lower than such yields for the Oppenheimer Variable Account Funds Money Fund.
The current and effective yields on amounts held in the Oppenheimer Money
Fund Sub-Account normally will fluctuate on a daily basis. THEREFORE, THE
DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION
OF FUTURE YIELDS OR RATES OF RETURN. The Oppenheimer Money Fund Sub-Account's
actual yield is affected by changes in interest rates on money market
securities, average portfolio maturity of the Oppenheimer Variable Account Funds
Money Fund, the types of quality of portfolio securities held by the Oppenheimer
Variable Account Funds Money Fund and the Oppenheimer Variable Account Funds
Money Fund's operating expenses. Yields on amounts held in the Oppenheimer Money
Fund Sub-Account may also be presented for periods other than a seven day
period.
OTHER SUB-ACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Sub-Accounts (except the Oppenheimer
Money Fund Sub-Account) for a Contract for 30-day or one-month periods. The
annualized yield of a Sub-Account refers to income generated by the Sub-Account
over a specific 30 day or one month period. Because the yield is annualized, the
yield generated by a Sub-Account during a 30-day or one-month period is assumed
to be generated each period over a 12-month period.
The yield is computed by: 1) dividing the net investment income of the Fund
attributable to the Sub-Account Accumulation Units less Sub-Account expenses for
the period; by 2) the maximum offering price per Accumulation Unit on the last
day of the period times the daily average number of units outstanding for the
period; by 3) compounding that yield for a six-month period; and by
4) multiplying that result by 2. Expenses attributable to the Sub-Account
include the Annual Contract Maintenance Fee, the Administration Charge and the
Mortality and Expense Risk Charge. The yield calculation assumes a Contract
Maintenance Fee of $30 per year per Contract deducted at the end of each
Contract Year. For purposes of calculating the 31-day or one-month yield, an
average administration fee per dollar of Contract value in the Variable Account
is used to determine the
4
<PAGE>
amount of the charge attributable to the Sub-Account for the 30-day or one-month
period. The 30 day or one month yield is calculated according to the following
formula:
Yield = 2 X [(((NI-ES)/ (U X UV))+1) TO THE POWER OF 6 - 1]
Where:
<TABLE>
<S> <C>
NI net income of the Fund for the 30 day or one month period
attributable to the Sub-Account Accumulation Units.
ES expenses of the Sub-Account for the 30 day or one month
period.
U the average number of Accumulation Units outstanding.
UV the Accumulation Unit value as of the end of the last day in
the 30 day or one month period.
</TABLE>
Because of the charges and deductions imposed under the Contracts, the yield
for the Sub-Account will be lower than the yield for the corresponding Fund.
The yield on the amounts held in the Sub-Accounts normally will fluctuate
over time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
Sub-Account's actual yield is affected by the types and quality of portfolio
securities held by the corresponding Fund and its operating expenses.
Yield calculations do not take into account the surrender charge under the
Contract equal to 2% to 7% of Purchase Payments during the seven years prior to
the surrender (including the year in which the surrender is made) on amounts
surrendered.
TOTAL RETURNS
From time to time, sales literature or advertisements may also quote total
returns for one or more of the Sub-Accounts for various periods of time.
Until a Sub-Account has been in operation for 10 years, Protective Life will
always include quotes of standard average annual total return for the period
measured from the date that Sub-Account began operations. When a Sub-Account has
been in operation for 1, 5, and 10 years, respectively, the standard average
annual total return for these periods will be provided. Average annual total
returns for other periods of time may, from time to time, also be disclosed.
Average annual total returns represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Contract to
the redemption value of that investment as of the last day of each of the
periods. The ending date of each period for which total return quotations are
provided will generally be for the most recent month-end practicable considering
the type and media of the communication and will be stated in the communication.
All average annual total returns will be calculated using Sub-Account unit
values computed on each Valuation Day based on the performance of the
Sub-Account's underlying Fund, the deductions for the mortality and expense risk
charge and the administration charge.
The standard average annual total return calculation assumes that the
contract maintenance fee is $30 per year per contract, expressed as a percentage
of the average Contract Value. For any period less than seven years, the
standard average annual total return will also reflect the deduction of a
surrender charge. The standard average annual total return will be calculated
according to the following formula:
TR = (ERV/P)TO THE POWER OF (1/N) - 1
5
<PAGE>
Where:
<TABLE>
<S> <C> <C>
TR = the average annual total return net of Sub-Account recurring
charges.
ERV = the ending redeemable value (net of any applicable charges)
of the hypothetical account at the end of the period.
P = a hypothetical single Purchase Payment of $1,000.
N = the number of years in the period.
</TABLE>
In addition to standard average annual total returns, sales literature or
advertisements may from time to time also quote nonstandard average annual total
returns that do not reflect the contract maintenance fee or the surrender
charge. These nonstandard average annual total returns are calculated in exactly
the same way as standard average annual total returns described above, except
that the ending redeemable value of the hypothetical account for the period is
replaced with an ending value for the period that does not take into account the
contract maintenance fee or the deduction of a surrender charge.
Protective Life may also disclose cumulative total returns in conjunction
with the formats described above. The cumulative total returns will be
calculated using the following formula:
CTR = (EV/P) - 1
Where:
<TABLE>
<S> <C> <C>
CTR = The cumulative total return net of Sub-Account recurring
charges for the period.
EV = The ending value of the hypothetical investment at the end
of the period that does not take into account the contract
maintenance fee or the surrender charge.
P = A hypothetical single Purchase Payment of $1,000.
</TABLE>
EFFECT OF THE CONTRACT MAINTENANCE FEE ON PERFORMANCE DATA
The Contract provides for a $30 annual contract maintenance fee to be
deducted at the end of each Contract Year from the Sub-Accounts based on the
proportion that the value of each such Sub-Account bears to the total Contract
Value. For purposes of reflecting the contract maintenance fee in yield and
total return quotations, the annual charge is converted into a per-dollar
per-day charge based on the average Variable Account Value of all Contracts on
the last day of the period for which quotations are provided. The per-dollar
per-day average charge is then adjusted to reflect the basis upon which the
particular quotation is calculated.
SAFEKEEPING OF ACCOUNT ASSETS
Title to the assets of the Variable Account is held by Protective Life. The
assets are kept physically segregated and held separate and apart from the
Company's General Account assets and from the assets in any other separate
account.
Records are maintained of all purchases and redemptions of Fund shares held
by each of the Sub-Accounts.
The officers and employees of Protective Life are covered by an insurance
company blanket bond issued in the amount of $20 million dollars. The bond
insures against dishonest and fraudulent acts of officers and employees.
6
<PAGE>
STATE REGULATION
Protective Life is subject to regulation and supervision by the Department
of Insurance of the State of Tennessee which periodically examines its affairs.
It is also subject to the insurance laws and regulations of all jurisdictions
where it is authorized to do business. Where required, a copy of the Contract
form has been filed with, and, if applicable, approved by, insurance officials
in each jurisdiction where the Contracts are sold. Protective Life is required
to submit annual statements of its operations, including financial statements,
to the insurance departments of the various jurisdictions in which it does
business for the purposes of determining solvency and compliance with local
insurance laws and regulations.
RECORDS AND REPORTS
Protective Life will maintain all records and accounts relating to the
Variable Account. As presently required by the 1940 Act and regulations
promulgated thereunder, reports containing such information as may be required
under the Act or by any other applicable law or regulation will be sent to
Owner(s) periodically at the last known address.
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP of Washington, D. C. has provided advice on
certain matters relating to the federal securities laws.
EXPERTS
The statement of assets and liabilities of The Protective Variable Annuity
Separate Account as of December 31, 1999 and 1998 and the related statements of
operations and changes in net assets for the years ended December 31, 1999 and
1998 and the consolidated balance sheets of Protective Life as of December 31,
1999 and 1998 and the related consolidated statements of income, share-owner's
equity and cash flows for each of the three years ended December 31, 1999 and
the related financial statement schedules included in this Statement of
Additional Information and in the registration statement have been included
herein in reliance on the report of PricewaterhouseCoopers LLP of Birmingham,
AL, independent accountants, given on the authority of that firm as experts in
accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this Statement
of Additional Information concerning the content of the Contracts and other
legal instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed with
the SEC at 450 Fifth Street, N. W., Washington, D.C. 20549.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities of The Protective Variable
Annuity Separate Account as of December 31, 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
herein.
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 years ended December 31, 1999, 1998
and 1997 as well as the Report of Independent Accountants are contained herein.
Financial Statements follow this page.
7
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
Report of Independent Accountants........................... F-2
Statement of Assets and Liabilities as of December 31,
1999....................................................... F-3
Statement of Assets and Liabilities as of December 31,
1998....................................................... F-7
Statement of Operations for the year ended December 31,
1999....................................................... F-9
Statement of Operations for the year ended December 31,
1998....................................................... F-13
Statement of Changes in Net Assets for the year ended
December 31, 1999.......................................... F-15
Statement of Changes in Net Assets for the year ended
December 31, 1998.......................................... F-19
Notes to Financial Statements............................... F-21
PROTECTIVE LIFE INSURANCE COMPANY
Report of Independent Accountants........................... F-28
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997........................... F-29
Consolidated Balance Sheets as of December 31, 1999 and
1998....................................................... F-30
Consolidated Statements of Share-Owner's Equity for the
years ended December 31, 1999, 1998 and 1997............... F-31
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997........................... F-32
Notes to Consolidated Financial Statements.................. F-33
Financial Statement Schedules:
Schedule III-- Supplementary Insurance Information.......... S-1
Schedule IV-- Reinsurance................................... S-2
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners and Board of Directors
of Protective Life Insurance Company
In our opinion, the accompanying statements of assets and liabilities and
the related statements of operations and changes in net assets listed in the
accompanying index on page F-1 of this Form N-4 present fairly, in all material
respects, the financial position of The Protective Variable Annuity Separate
Account (the Separate Account) at December 31, 1999 and 1998, and the results of
its operations and changes in net assets for the years then ended, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Separate Account's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 20, 2000
Birmingham, AL
F-2
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIC PIC
GROWTH PIC PIC SMALL PIC PIC
AND INTERNATIONAL GLOBAL CAP CORE CAPITAL
INCOME EQUITY INCOME VALUE US EQUITY GROWTH
-------- ------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at
market value...................... $342,912 $221,310 $62,933 $80,004 $366,323 $260,922
Receivable from Protective Life
Insurance Company................. 5 0 12 0 6 9
-------- -------- ------- ------- -------- --------
Total assets................... 342,917 221,310 62,945 80,004 366,329 260,931
-------- -------- ------- ------- -------- --------
LIABILITIES
Payable to Protective Life
Insurance Company................. 0 0 0 0 0 0
-------- -------- ------- ------- -------- --------
NET ASSETS......................... $342,917 $221,310 $62,945 $80,004 $366,329 $260,931
======== ======== ======= ======= ======== ========
<CAPTION>
CALVERT
SOCIAL
SMALL
CAP
GROWTH
--------
<S> <C>
ASSETS
Investment in sub-accounts at
market value...................... $1,023
Receivable from Protective Life
Insurance Company................. 0
------
Total assets................... 1,023
------
LIABILITIES
Payable to Protective Life
Insurance Company................. 0
------
NET ASSETS......................... $1,023
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
MFS
CALVERT MFS GROWTH MFS MFS
SOCIAL EMERGING MFS WITH TOTAL NEW MFS
BALANCED GROWTH RESEARCH INCOME RETURN DISCOVERY UTILITIES
-------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts
at market value.......... $12,968 $66,218 $62,090 $66,100 $32,494 $2,891 $2,492
Receivable from Protective
Life Insurance Company... 0 35 13 0 6 1 27
------- ------- ------- ------- ------- ------ ------
Total assets.......... 12,968 66,253 62,103 66,100 32,500 2,892 2,519
------- ------- ------- ------- ------- ------ ------
LIABILITIES
Payable to Protective Life
Insurance Company........ 1 0 0 1 0 0 0
------- ------- ------- ------- ------- ------ ------
NET ASSETS................ $12,967 $66,253 $62,103 $66,099 $32,500 $2,892 $2,519
======= ======= ======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
OPPENHEIMER OPPENHEIMER OPPENHEIMER OPPENHEIMER
AGGRESSIVE CAPITAL GROWTH AND OPPENHEIMER STRATEGIC
GROWTH APPRECIATION INCOME MONEY FUND BOND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market value........ $32,243 $55,566 $56,379 $14,621 $27,246
Receivable from Protective Life Insurance
Company.......................................... 0 1 0 0 0
------- ------- ------- ------- -------
Total assets.................................. 32,243 55,567 56,379 14,621 27,246
------- ------- ------- ------- -------
LIABILITIES
Payable to Protective Life Insurance Company...... 5 0 2 0 0
------- ------- ------- ------- -------
NET ASSETS........................................ $32,238 $55,567 $56,377 $14,621 $27,246
======= ======= ======= ======= =======
<CAPTION>
OPPENHEIMER
GLOBAL OPPENHEIMER
SECURITIES HIGH INCOME
------------ ------------
<S> <C> <C>
ASSETS
Investment in sub-accounts at market value........ $5,689 $1,050
Receivable from Protective Life Insurance
Company.......................................... 5 0
------ ------
Total assets.................................. 5,694 1,050
------ ------
LIABILITIES
Payable to Protective Life Insurance Company...... 0 0
------ ------
NET ASSETS........................................ $5,694 $1,050
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
VAN ECK VAN ECK
HARD REAL
ASSET ESTATE TOTAL
-------- -------- ----------
<S> <C> <C> <C>
ASSETS
Investment in sub-accounts at market value.................. $56 $161 $1,773,691
Receivable from Protective Life Insurance Company........... 0 0 120
--- ---- ----------
Total assets............................................ 56 161 1,773,811
--- ---- ----------
LIABILITIES
Payable to Protective Life Insurance Company................ 0 0 9
--- ---- ----------
NET ASSETS.................................................. $56 $161 $1,773,802
=== ==== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIC PIC
PIC GROWTH PIC PIC SMALL PIC
MONEY AND INTERNATIONAL GLOBAL CAP CORE
MARKET INCOME EQUITY INCOME VALUE US EQUITY
-------- -------- ------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market value............. $5,305 $386,297 $173,533 $62,451 $99,008 $261,457
Receivable from Protective Life Insurance Company...... 0 0 0 0 0 0
------ -------- -------- ------- ------- --------
Total assets....................................... 5,305 386,297 173,533 62,451 99,008 261,457
------ -------- -------- ------- ------- --------
LIABILITIES
Payable to Protective Life Insurance Company........... 1 2 1 1 0 0
------ -------- -------- ------- ------- --------
NET ASSETS............................................. $5,304 $386,295 $173,532 $62,450 $99,008 $261,457
====== ======== ======== ======= ======= ========
<CAPTION>
CALVERT
SOCIAL
PIC SMALL CALVERT
CAPITAL CAP SOCIAL
GROWTH GROWTH BALANCED
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Investment in sub-accounts at market value............. $152,416 $550 $6,150
Receivable from Protective Life Insurance Company...... 0 0 0
-------- ---- ------
Total assets....................................... 152,416 550 6,150
-------- ---- ------
LIABILITIES
Payable to Protective Life Insurance Company........... 0 0 0
-------- ---- ------
NET ASSETS............................................. $152,416 $550 $6,150
======== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER GROWTH AND
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME
--------- -------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value.................................... $16,564 $26,334 $19,391 $13,035 $11,330 $16,022 $20,092
Receivable from Protective Life Insurance
Company.................................. 0 3 0 2 1 2 0
------- ------- ------- ------- ------- ------- -------
Total assets.......................... 16,564 26,337 19,391 13,037 11,331 16,024 20,092
------- ------- ------- ------- ------- ------- -------
LIABILITIES
Payable to Protective Life Insurance
Company.................................. 1 0 1 0 0 0 0
------- ------- ------- ------- ------- ------- -------
NET ASSETS................................ $16,563 $26,337 $19,390 $13,037 $11,331 $16,024 $20,092
======= ======= ======= ======= ======= ======= =======
<CAPTION>
OPPENHEIMER
STRATEGIC
BOND TOTAL
------------ ----------
<S> <C> <C>
ASSETS
Investment in sub-accounts at market
value.................................... $15,979 $1,285,914
Receivable from Protective Life Insurance
Company.................................. 0 8
------- ----------
Total assets.......................... 15,979 1,285,922
------- ----------
LIABILITIES
Payable to Protective Life Insurance
Company.................................. 0 7
------- ----------
NET ASSETS................................ $15,979 $1,285,915
======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIC PIC
GROWTH PIC PIC SMALL PIC PIC
AND INTERNATIONAL GLOBAL CAP CORE CAPITAL
INCOME EQUITY INCOME VALUE US EQUITY GROWTH
-------- ------------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................ $ 272 $ 636 $ 0 $ 0 $ 45 $ 3
------- ------- ------- ------- ------- -------
EXPENSE
Mortality and expense risk and
administrative charges......... 5,109 2,541 895 1,235 4,381 2,854
------- ------- ------- ------- ------- -------
Net investment income (loss)..... (4,837) (1,905) (895) (1,235) (4,336) (2,851)
------- ------- ------- ------- ------- -------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain (loss) from
redemption of investment shares... (4,446) 364 (33) (2,862) 1 19
Capital gain distribution.......... 4,268 2,848 275 18 1,338 2,822
------- ------- ------- ------- ------- -------
Net realized gain (loss) on
investments....................... (178) 3,212 242 (2,844) 1,339 2,841
Net unrealized appreciation
(depreciation) on investments
during the period................. 21,080 51,512 (1,020) 2,623 64,170 50,513
------- ------- ------- ------- ------- -------
Net realized and unrealized gain
(loss) on investments............. 20,902 54,724 (778) (221) 65,509 53,354
------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS........................ $16,065 $52,819 $(1,673) $(1,456) $61,173 $50,503
======= ======= ======= ======= ======= =======
<CAPTION>
CALVERT
SOCIAL
SMALL
CAP
GROWTH
--------
<S> <C>
INVESTMENT INCOME
Dividends........................ $ 0
----
EXPENSE
Mortality and expense risk and
administrative charges......... 9
----
Net investment income (loss)..... (9)
----
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain (loss) from
redemption of investment shares... 0
Capital gain distribution.......... 0
----
Net realized gain (loss) on
investments....................... 0
Net unrealized appreciation
(depreciation) on investments
during the period................. 172
----
Net realized and unrealized gain
(loss) on investments............. 172
----
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS........................ $163
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
MFS
CALVERT MFS GROWTH MFS MFS
SOCIAL EMERGING MFS WITH TOTAL NEW MFS
BALANCED GROWTH RESEARCH INCOME RETURN DISCOVERY UTILITIES
-------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............... $ 282 $ 0 $ 72 $ 122 $ 355 $ 0 $ 0
------ ------- ------- ------ ----- ---- ----
EXPENSE
Mortality and expense
risk and
administrative
charges............... 131 463 581 621 328 7 9
------ ------- ------- ------ ----- ---- ----
Net investment income
(loss)................ 151 (463) (509) (499) 27 (7) (9)
------ ------- ------- ------ ----- ---- ----
NET REALIZED AND
UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gain (loss)
from redemption of
investment shares........ (8) 19 2 3 (1) 19 0
Capital gain
distribution............. 966 0 378 146 659 49 0
------ ------- ------- ------ ----- ---- ----
Net realized gain (loss)
on investments........... 958 19 380 149 658 68 0
Net unrealized
appreciation
(depreciation) on
investments during the
period................... (65) 25,822 10,375 3,217 (433) 641 355
------ ------- ------- ------ ----- ---- ----
Net realized and
unrealized gain (loss) on
investments.............. 893 25,841 10,755 3,366 225 709 355
------ ------- ------- ------ ----- ---- ----
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS............... $1,044 $25,378 $10,246 $2,867 $ 252 $702 $346
====== ======= ======= ====== ===== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
OPPENHEIMER OPPENHEIMER OPPENHEIMER OPPENHEIMER
AGGRESSIVE CAPITAL GROWTH AND OPPENHEIMER STRATEGIC
GROWTH APPRECIATION INCOME MONEY FUND BOND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $ 0 $ 74 $ 109 $433 $1,062
------- ------- ------ ---- ------
EXPENSE
Mortality and expense risk and administrative
charges....................................... 241 444 501 128 312
------- ------- ------ ---- ------
Net investment income (loss).................... (241) (370) (392) 305 750
------- ------- ------ ---- ------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gain (loss) from redemption of
investment shares................................ 26 6 6 0 1
Capital gain distribution......................... 0 810 184 0 0
------- ------- ------ ---- ------
Net realized gain (loss) on investments........... 26 816 190 0 1
Net unrealized appreciation (depreciation) on
investments during the period.................... 12,820 12,647 7,087 0 (352)
------- ------- ------ ---- ------
Net realized and unrealized gain (loss) on
investments...................................... 12,846 13,463 7,277 0 (351)
------- ------- ------ ---- ------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................. $12,605 $13,093 $6,885 $305 $ 399
======= ======= ====== ==== ======
<CAPTION>
OPPENHEIMER
GLOBAL OPPENHEIMER
SECURITIES HIGH INCOME
------------ ------------
<S> <C> <C>
INVESTMENT INCOME
Dividends....................................... $ 1 $ 0
------ ----
EXPENSE
Mortality and expense risk and administrative
charges....................................... 19 7
------ ----
Net investment income (loss).................... (18) (7)
------ ----
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gain (loss) from redemption of
investment shares................................ 0 (11)
Capital gain distribution......................... 2 0
------ ----
Net realized gain (loss) on investments........... 2 (11)
Net unrealized appreciation (depreciation) on
investments during the period.................... 1,265 1
------ ----
Net realized and unrealized gain (loss) on
investments...................................... 1,267 (10)
------ ----
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................. $1,249 $(17)
====== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
VAN ECK VAN ECK
HARD REAL
ASSET ESTATE TOTAL
-------- -------- --------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................. $0 $ 0 $ 3,466
-- --- --------
EXPENSE
Mortality and expense risk and administrative charges..... 0 1 20,817
-- --- --------
Net investment income (loss).............................. 0 (1) (17,351)
-- --- --------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption of investment
shares..................................................... 0 0 (6,895)
Capital gain distribution................................... 0 0 14,763
-- --- --------
Net realized gain (loss) on investments..................... 0 0 7,868
Net unrealized appreciation (depreciation) on investments
during the period.......................................... 3 (4) 262,429
-- --- --------
Net realized and unrealized gain (loss) on investments...... 3 (4) 270,297
-- --- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................. $3 $(5) $252,946
== === ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIC PIC
PIC GROWTH PIC PIC SMALL PIC
MONEY AND INTERNATIONAL GLOBAL CAP CORE
MARKET INCOME EQUITY INCOME VALUE US EQUITY
-------- -------- ------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................................. $249 $ 4,636 $ 74 $1,425 $ 506 $ 1,545
---- -------- ------- ------ -------- -------
EXPENSE
Mortality and expense risk and administrative
charges.............................................. 74 5,531 2,193 781 1,543 3,060
---- -------- ------- ------ -------- -------
Net investment income (loss)........................... 175 (895) (2,119) 644 (1,037) (1,515)
---- -------- ------- ------ -------- -------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption of investment
shares.................................................. 0 (18) (17) 4 (81) (2)
Capital gain distribution................................ 26,646 8,165 1,574 11,786 2,694
---- -------- ------- ------ -------- -------
Net realized gain (loss) on investments.................. 0 26,628 8,148 1,578 11,705 2,692
Net unrealized appreciation (depreciation) on investments
during the period....................................... 0 (45,439) 19,473 2,463 (30,579) 39,310
---- -------- ------- ------ -------- -------
Net realized and unrealized gain (loss) on investments... 0 (18,811) 27,621 4,041 (18,874) 42,002
---- -------- ------- ------ -------- -------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. $175 $(19,706) $25,502 $4,685 $(19,911) $40,487
==== ======== ======= ====== ======== =======
<CAPTION>
CALVERT
SOCIAL
PIC SMALL CALVERT
CAPITAL CAP SOCIAL
GROWTH GROWTH BALANCED
-------- -------- --------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................................. $ 578 $ 0 $137
------- ---- ----
EXPENSE
Mortality and expense risk and administrative
charges.............................................. 1,510 4 43
------- ---- ----
Net investment income (loss)........................... (932) (4) 94
------- ---- ----
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption of investment
shares.................................................. (16) 1 (4)
Capital gain distribution................................ 2,672 6 308
------- ---- ----
Net realized gain (loss) on investments.................. 2,656 7 304
Net unrealized appreciation (depreciation) on investments
during the period....................................... 29,948 (21) 118
------- ---- ----
Net realized and unrealized gain (loss) on investments... 32,604 (14) 422
------- ---- ----
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. $31,672 $(18) $516
======= ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH
--------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $ 0 $ 18 $ 0 $ 62 $ 10 $ 39
------ ------ ------ ---- ---- ------
EXPENSE
Mortality and expense risk and
administrative charges................... 121 209 127 92 90 122
------ ------ ------ ---- ---- ------
Net investment income (loss)............... $ (121) $ (191) $ (127) $(30) $(80) $ (83)
------ ------ ------ ---- ---- ------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gain (loss) from redemption of
investment shares........................... 0 (2) 2 0 (8) 2
Capital gain distribution.................... 54 240 0 72 105 465
------ ------ ------ ---- ---- ------
Net realized gain (loss) on investments...... 54 238 2 72 97 467
Net unrealized appreciation (depreciation) on
investments during the period............... 2,954 3,074 2,041 696 899 1,756
------ ------ ------ ---- ---- ------
Net realized and unrealized gain (loss) on
investments................................. 3,008 3,312 2,043 768 996 2,223
------ ------ ------ ---- ---- ------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................... $2,887 $3,121 $1,916 $738 $916 $2,140
====== ====== ====== ==== ==== ======
<CAPTION>
OPPENHEIMER OPPENHEIMER
GROWTH AND STRATEGIC
INCOME BOND TOTAL
------------ ------------ --------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $ 12 $ 89 $ 9,380
----- ---- -------
EXPENSE
Mortality and expense risk and
administrative charges................... 137 129 15,766
----- ---- -------
Net investment income (loss)............... $(125) $(40) $(6,386)
----- ---- -------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gain (loss) from redemption of
investment shares........................... 0 2 (137)
Capital gain distribution.................... 256 57 55,100
----- ---- -------
Net realized gain (loss) on investments...... 256 59 54,963
Net unrealized appreciation (depreciation) on
investments during the period............... 345 48 27,086
----- ---- -------
Net realized and unrealized gain (loss) on
investments................................. 601 107 82,049
----- ---- -------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................... $ 476 $ 67 $75,663
===== ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIC PIC
GROWTH PIC PIC SMALL PIC PIC
AND INTERNATIONAL GLOBAL CAP CORE CAPITAL
INCOME EQUITY INCOME VALUE US EQUITY GROWTH
-------- ------------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ (4,837) $ (1,905) $ (895) $ (1,235) $ (4,336) $ (2,851)
Net realized gain (loss) on
investments....................... (178) 3,212 242 (2,844) 1,339 2,841
Net unrealized appreciation
(depreciation) of investments
during the period................. 21,080 51,512 (1,020) 2,623 64,170 50,513
-------- -------- ------- -------- -------- --------
Net increase (decrease) in net
assets resulting from
operations........................ 16,065 52,819 (1,673) (1,456) 61,173 50,503
-------- -------- ------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net payments...... 7,964 4,812 3,257 1,644 16,355 15,094
Contract maintenance fees.......... (163) (73) (23) (40) (118) (80)
Surrenders......................... (20,921) (9,538) (3,989) (5,319) (17,763) (10,765)
Death benefits..................... (2,874) (1,252) (723) (637) (1,990) (977)
Transfers (to) from other
portfolios........................ (43,449) 1,010 3,646 (13,196) 47,215 54,740
-------- -------- ------- -------- -------- --------
Net increase (decrease) in net
assets resulting from variable
annuity contract transactions..... (59,443) (5,041) 2,168 (17,548) 43,699 58,012
-------- -------- ------- -------- -------- --------
Net increase (decrease) in net
assets............................ (43,378) 47,778 495 (19,004) 104,872 108,515
Net assets, beginning of year...... 386,295 173,532 62,450 99,008 261,457 152,416
-------- -------- ------- -------- -------- --------
Net assets, end of year............ $342,917 $221,310 $62,945 $ 80,004 $366,329 $260,931
======== ======== ======= ======== ======== ========
<CAPTION>
CALVERT
SOCIAL
SMALL
CAP
GROWTH
--------
<S> <C>
FROM OPERATIONS
Net investment income (loss)....... $ (9)
Net realized gain (loss) on
investments....................... 0
Net unrealized appreciation
(depreciation) of investments
during the period................. 172
------
Net increase (decrease) in net
assets resulting from
operations........................ 163
------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net payments...... 137
Contract maintenance fees.......... (1)
Surrenders......................... (21)
Death benefits..................... 0
Transfers (to) from other
portfolios........................ 195
------
Net increase (decrease) in net
assets resulting from variable
annuity contract transactions..... 310
------
Net increase (decrease) in net
assets............................ 473
Net assets, beginning of year...... 550
------
Net assets, end of year............ $1,023
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
MFS
CALVERT MFS GROWTH MFS MFS
SOCIAL EMERGING MFS WITH TOTAL NEW MFS
BALANCED GROWTH RESEARCH INCOME RETURN DISCOVERY UTILITIES
-------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss)................... $ 151 $ (463) $ (509) $ (499) $ 27 $ (7) $ (9)
Net realized gain (loss)
on investments........... 958 19 380 149 658 68 0
Net unrealized
appreciation
(depreciation) of
investments during the
period................... (65) 25,822 10,375 3,217 (433) 641 355
------- ------- ------- ------- ------- ------ ------
Net increase (decrease) in
net assets resulting from
operations............... 1,044 25,378 10,246 2,867 252 702 346
------- ------- ------- ------- ------- ------ ------
FROM VARIABLE ANNUITY
CONTRACT TRANSACTIONS
Contract owners' net
payments................. 2,137 7,077 7,545 13,323 5,087 713 918
Contract maintenance
fees..................... (5) (14) (16) (15) (9) 0 0
Surrenders................ (406) (1,299) (1,230) (1,560) (949) (8) (43)
Death benefits............ (26) (166) (167) (521) (150) 0 0
Transfers (to) from other
portfolios............... 4,073 18,714 19,388 32,615 15,232 1,485 1,298
------- ------- ------- ------- ------- ------ ------
Net increase in net assets
resulting from variable
annuity contract
transactions............. 5,773 24,312 25,520 43,842 19,211 2,190 2,173
------- ------- ------- ------- ------- ------ ------
Net increase in net
assets................... 6,817 49,690 35,766 46,709 19,463 2,892 2,519
Net assets, beginning of
year..................... 6,150 16,563 26,337 19,390 13,037 0 0
------- ------- ------- ------- ------- ------ ------
Net assets, end of year... $12,967 $66,253 $62,103 $66,099 $32,500 $2,892 $2,519
======= ======= ======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
OPPENHEIMER OPPENHEIMER OPPENHEIMER OPPENHEIMER
AGGRESSIVE CAPITAL GROWTH AND OPPENHEIMER STRATEGIC
GROWTH APPRECIATION INCOME MONEY FUND BOND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)...................... $ (241) $ (370) $ (392) $ 305 $ 750
Net realized gain (loss) on investments........... 26 816 190 0 1
Net unrealized appreciation (depreciation) of
investments during the period.................... 12,820 12,647 7,087 0 (352)
------- ------- ------- ------- -------
Net increase (decrease) in net assets resulting
from operations.................................. 12,605 13,093 6,885 305 399
------- ------- ------- ------- -------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contract owners' net payments..................... 2,717 7,789 8,319 3,662 3,002
Contract maintenance fees......................... (9) (13) (15) (3) (10)
Surrenders........................................ (441) (894) (1,651) (1,688) (856)
Death benefits.................................... (31) (53) (278) (189) (226)
Transfers (to) from other portfolios.............. 6,066 19,621 23,025 7,230 8,958
------- ------- ------- ------- -------
Net increase in net assets resulting from variable
annuity contract transactions.................... 8,302 26,450 29,400 9,012 10,868
------- ------- ------- ------- -------
Net increase in net assets........................ 20,907 39,543 36,285 9,317 11,267
Net assets, beginning of year..................... 11,331 16,024 20,092 5,304 15,979
------- ------- ------- ------- -------
Net assets, end of year........................... $32,238 $55,567 $56,377 $14,621 $27,246
======= ======= ======= ======= =======
<CAPTION>
OPPENHEIMER
GLOBAL OPPENHEIMER
SECURITIES HIGH INCOME
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)...................... $ (18) $ (7)
Net realized gain (loss) on investments........... 2 (11)
Net unrealized appreciation (depreciation) of
investments during the period.................... 1,265 1
------ ------
Net increase (decrease) in net assets resulting
from operations.................................. 1,249 (17)
------ ------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contract owners' net payments..................... 1,850 447
Contract maintenance fees......................... 0 0
Surrenders........................................ (24) (40)
Death benefits.................................... 0 0
Transfers (to) from other portfolios.............. 2,619 660
------ ------
Net increase in net assets resulting from variable
annuity contract transactions.................... 4,445 1,067
------ ------
Net increase in net assets........................ 5,694 1,050
Net assets, beginning of year..................... 0 0
------ ------
Net assets, end of year........................... $5,694 $1,050
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
VAN ECK VAN ECK
HARD REAL
ASSET ESTATE TOTAL
-------- -------- ----------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................................ $ 0 $ (1) $ (17,351)
Net realized gain (loss) on investments..................... 0 0 7,868
Net unrealized appreciation (depreciation) of investments
during the period.......................................... 3 (4) 262,429
---- ---- ----------
Net increase (decrease) in net assets resulting from
operations................................................. 3 (5) 252,946
---- ---- ----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contract owners' net payments............................... 26 70 113,945
Contract maintenance fees................................... 0 0 (607)
Surrenders.................................................. (14) (2) (79,421)
Death benefits.............................................. 0 0 (10,260)
Transfers (to) from other portfolios........................ 41 98 211,284
---- ---- ----------
Net increase in net assets resulting from variable annuity
contract transactions...................................... 53 166 234,941
---- ---- ----------
Net increase in net assets.................................. 56 161 487,887
Net assets, beginning of year............................... 0 0 1,285,915
---- ---- ----------
Net assets, end of year..................................... $ 56 $161 $1,773,802
==== ==== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PIC PIC
PIC GROWTH PIC PIC SMALL PIC
MONEY AND INTERNATIONAL GLOBAL CAP CORE
MARKET INCOME EQUITY INCOME VALUE US EQUITY
-------- -------- ------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........................... $ 175 $ (895) $ (2,119) $ 644 $ (1,037) $ (1,515)
Net realized gain on investments....................... 0 26,628 8,148 1,578 11,705 2,692
Net unrealized appreciation (depreciation) of
investments during the period......................... 0 (45,439) 19,473 2,463 (30,579) 39,310
------- -------- -------- ------- -------- --------
Net increase (decrease) in net assets resulting from
operations............................................ 175 (19,706) 25,502 4,685 (19,911) 40,487
------- -------- -------- ------- -------- --------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contract owners' net payments.......................... 2,963 44,661 12,821 6,768 10,542 28,760
Contract maintenance fees.............................. (2) (156) (66) (18) (47) (79)
Surrenders............................................. (3,374) (15,674) (4,972) (2,848) (3,550) (7,436)
Death benefits......................................... (36) (2,354) (1,136) (492) (713) (1,431)
Transfers (to) from other portfolios................... 1,990 23,970 10,038 5,635 5,260 24,367
------- -------- -------- ------- -------- --------
Net increase in net assets resulting from variable
annuity contract transactions......................... 1,541 50,447 16,685 9,045 11,492 44,181
------- -------- -------- ------- -------- --------
Total increase (decrease) in net assets................ 1,716 30,741 42,187 13,730 (8,419) 84,668
Net assets, beginning of year.......................... 3,588 355,554 131,345 48,720 107,427 176,789
------- -------- -------- ------- -------- --------
Net assets, end of year................................ $ 5,304 $386,295 $173,532 $62,450 $ 99,008 $261,457
======= ======== ======== ======= ======== ========
<CAPTION>
CALVERT
SOCIAL
PIC SMALL CALVERT
CAPITAL CAP SOCIAL
GROWTH GROWTH BALANCED
-------- -------- --------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........................... $ (932) $ (4) $ 94
Net realized gain on investments....................... 2,656 7 304
Net unrealized appreciation (depreciation) of
investments during the period......................... 29,948 (21) 118
-------- ---- ------
Net increase (decrease) in net assets resulting from
operations............................................ 31,672 (18) 516
-------- ---- ------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contract owners' net payments.......................... 23,615 232 2,395
Contract maintenance fees.............................. (40) 0 (1)
Surrenders............................................. (2,925) (1) (96)
Death benefits......................................... (711) 0 (30)
Transfers (to) from other portfolios................... 26,394 200 2,315
-------- ---- ------
Net increase in net assets resulting from variable
annuity contract transactions......................... 46,333 431 4,583
-------- ---- ------
Total increase (decrease) in net assets................ 78,005 413 5,099
Net assets, beginning of year.......................... 74,411 137 1,051
-------- ---- ------
Net assets, end of year................................ $152,416 $550 $6,150
======== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER GROWTH AND
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME
--------- -------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).............. $ (121) $ (191) $ (127) $ (30) $ (80) $ (83) $ (125)
Net realized gain (loss) on investments... 54 238 2 72 97 467 256
Net unrealized appreciation (depreciation)
of investments during the period......... 2,954 3,074 2,041 696 899 1,756 345
------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in net assets
resulting from operations................ 2,887 3,121 1,916 738 916 2,140 476
------- ------- ------- ------- ------- ------- -------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net payments............. 5,571 9,052 7,664 3,750 4,312 5,906 8,994
Contract maintenance fees................. (3) (5) (2) (1) (2) (2) (2)
Surrenders................................ (177) (303) (326) (135) (89) (123) (246)
Death benefits............................ (103) (122) (57) (45) (51) (52) (164)
Transfers (to) from other portfolios...... 5,067 8,308 7,524 6,982 3,632 4,546 8,102
------- ------- ------- ------- ------- ------- -------
Net increase in net assets resulting from
variable annuity contract transactions... 10,355 16,930 14,803 10,551 7,802 10,275 16,684
------- ------- ------- ------- ------- ------- -------
Total increase (decrease) in net assets... 13,242 20,051 16,719 11,289 8,718 12,415 17,160
Net assets, beginning of year............. 3,321 6,286 2,671 1,748 2,613 3,609 2,932
------- ------- ------- ------- ------- ------- -------
Net assets, end of year................... $16,563 $26,337 $19,390 $13,037 $11,331 $16,024 $20,092
======= ======= ======= ======= ======= ======= =======
<CAPTION>
OPPENHEIMER
STRATEGIC
BOND TOTAL
------------ ----------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............. $ (40) $ (6,386)
Net realized gain (loss) on investments... 59 54,963
Net unrealized appreciation (depreciation)
of investments during the period......... 48 27,086
------- ----------
Net increase (decrease) in net assets
resulting from operations................ 67 75,663
------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contract owners' net payments............. 5,764 183,770
Contract maintenance fees................. (2) (428)
Surrenders................................ (341) (42,616)
Death benefits............................ (49) (7,546)
Transfers (to) from other portfolios...... 7,619 151,949
------- ----------
Net increase in net assets resulting from
variable annuity contract transactions... 12,991 285,129
------- ----------
Total increase (decrease) in net assets... 13,058 360,792
Net assets, beginning of year............. 2,921 925,123
------- ----------
Net assets, end of year................... $15,979 $1,285,915
======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
1. ORGANIZATION
The Protective Variable Annuity Separate Account (Separate Account) was
established by Protective Life Insurance Company (Protective Life) under the
provisions of Tennessee law and commenced operations on March 14, 1994. The
Separate Account is an investment account to which net proceeds from individual
flexible premium deferred variable annuity contracts (the Contracts) are
allocated until maturity or termination of the Contracts.
Protective Life has structured the Separate Account into a unit investment
trust form registered with the U.S. Securities and Exchange Commission under the
Investment Company Act of 1940, as amended.
At December 31, 1998, the Separate Account was comprised of seven
proprietary sub-accounts and ten independent sub-accounts. The seven proprietary
sub-accounts were the PIC Money Market, PIC Growth and Income, PIC International
Equity, PIC Global Income, PIC Small Cap Value, PIC Core US Equity, and PIC
Capital Growth sub-accounts. Funds are transferred to Protective Investment
Company in exchange for shares of the corresponding portfolio. The ten
independent sub-accounts were the Calvert Social Small Cap Growth, Calvert
Social Balanced, MFS Emerging Growth, MFS Research, MFS Growth with Income, MFS
Total Return, Oppenheimer Aggressive Growth, Oppenheimer Growth, Oppenheimer
Growth and Income, and Oppenheimer Strategic Bond, sub-accounts. These ten
independent sub-accounts were added July 1, 1997 with sales beginning on that
date. The Separate Account invests contract owners' funds in exchange for shares
in the independent funds and holds the shares for the contract owners.
During the year ended December 31, 1999, the Separate Account added six
additional sub-accounts. The additional sub-accounts are the MFS New Discovery,
MFS Utilities, Oppenheimer Global Securities, Oppenheimer High Income, Van Eck
Hard Asset, and Van Eck Real Estate sub-accounts. These six sub-accounts were
added November 5, 1998, with sales beginning in 1999. Additionally, the
Oppenheimer Growth Fund changed its name to the Oppenheimer Capital Appreciation
Fund, and the PIC Money Market account was replaced with the Oppenheimer Money
Fund. Results of the operations and changes in net assets in the PIC Money
Market sub-account and the Oppenheimer Money Fund are combined for the year
ended December 31, 1999.
Gross premiums from the Contracts are allocated to the sub-accounts in
accordance with contract owner instructions and are recorded as variable annuity
contract transactions in the statement of changes in net assets. Such amounts
are used to provide money to pay contract values under the Contracts (Note 4).
The Separate Account's assets are the property of Protective Life.
Contract owners may allocate some or all of gross premiums or transfer some
or all of the contract value to the Guaranteed Account, which is part of
Protective Life's General Account. The assets of Protective Life's General
Account support its insurance and annuity obligations and are subject to
Protective Life's general liabilities from business operations. The Guaranteed
Account balance for the years ended December 31, 1999 and 1998 was $302.5
million and $268.3 million, respectively.
Transfers to/from other portfolios, included in the statement of changes in
net assets, are transfers between the individual sub-accounts and the
sub-accounts and the Guaranteed Account.
F-21
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION: Investments are made in shares and are valued at the
net asset values of the respective portfolios. Transactions with the Funds are
recorded on the trade date. Dividend income is recorded on the ex-dividend date.
REALIZED GAINS AND LOSSES: Realized gains and losses on investments include
gains and losses on redemptions of the Fund's shares (determined on the
last-in-first-out (LIFO) basis) and capital gain distributions from the Fund.
DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS: Dividend income and capital
gain distributions are recorded on the ex-dividend date. Distributions are from
net investment income and net realized gains recorded in the Investment Company
financials.
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make various estimates that affect the reported amounts of assets
and liabilities, at the date of the financial statements, as well as the
reported amounts of income and expenses, during the reporting period. Actual
results could differ from those estimates.
FEDERAL INCOME TAXES: The result of operations of the Separate Account is
included in the federal income tax return of Protective Life. Under the
provisions of the contracts, Protective Life has the right to charge the
Separate Account for federal income tax attributable to the Separate Account. No
charge is currently being made against the Separate Account for such tax.
RECLASSIFICATIONS: Certain reclassifications have been made in previously
reported financial statements and accompanying notes to make the prior year
amounts comparable to those of the current year. Such reclassifications had no
effect on previously reported net assets.
F-22
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
3. INVESTMENTS
At December 31, 1999 and 1998, the investments by the respective
sub-accounts were as follows (in thousands, except share data):
<TABLE>
<CAPTION>
1999
---------------------------------------
SHARES COST MARKET VALUE
----------- ---------- ------------
<S> <C> <C> <C>
PIC Growth and Income................................... 23,301,826 $ 308,888 $ 342,912
PIC International Equity................................ 11,849,663 139,761 221,310
PIC Global Income....................................... 6,006,984 61,179 62,933
PIC Small Cap Value..................................... 9,221,453 95,437 80,004
PIC Core US Equity...................................... 13,498,580 221,964 366,323
PIC Capital Growth...................................... 9,923,557 167,834 260,922
Calvert Social Small Cap Growth......................... 77,089 885 1,023
Calvert Social Balanced................................. 5,978,567 12,967 12,968
MFS Emerging Growth..................................... 1,745,334 37,440 66,218
MFS Research............................................ 2,660,235 48,628 62,090
MFS Growth With Income.................................. 3,101,815 60,799 66,100
MFS Total Return........................................ 1,830,649 32,183 32,494
MFS New Discovery....................................... 167,421 2,251 2,891
MFS Utilities........................................... 103,161 2,138 2,492
Oppenheimer Aggressive Growth........................... 391,727 18,581 32,243
Oppenheimer Capital Appreciation........................ 1,114,886 41,172 55,566
Oppenheimer Growth and Income........................... 2,289,054 48,838 56,379
Oppenheimer Money Fund.................................. 14,621,300 14,621 14,621
Oppenheimer Strategic Bond.............................. 5,481,996 27,572 27,246
Oppenheimer Global Securities........................... 170,276 4,424 5,689
Oppenheimer High Income................................. 97,970 1,050 1,050
Van Eck Hard Asset...................................... 5,065 53 56
Van Eck Real Estate..................................... 17,622 165 161
----------- ---------- ----------
113,656,230 $1,348,830 $1,773,691
=========== ========== ==========
</TABLE>
F-23
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1998
--------------------------------------
SHARES COST MARKET VALUE
---------- ---------- ------------
<S> <C> <C> <C>
PIC Money Market......................................... 5,304,961 $ 5,305 $ 5,305
PIC Growth and Income.................................... 27,458,284 373,386 386,297
PIC International Equity................................. 12,131,396 143,493 173,533
PIC Global Income........................................ 5,864,080 59,678 62,451
PIC Small Cap Value...................................... 11,436,929 117,080 99,008
PIC Core US Equity....................................... 11,800,174 181,268 261,457
PIC Capital Growth....................................... 7,305,467 109,839 152,416
Calvert Social Small Cap Growth.......................... 49,445 584 550
Calvert Social Balanced.................................. 2,877,861 6,085 6,150
MFS Emerging Growth...................................... 771,472 13,607 16,564
MFS Research............................................. 1,382,383 23,248 26,334
MFS Growth With Income................................... 964,237 17,308 19,391
MFS Total Return......................................... 719,354 12,291 13,035
Oppenheimer Aggressive Growth............................ 252,736 10,488 11,330
Oppenheimer Growth....................................... 436,935 14,275 16,022
Oppenheimer Growth and Income............................ 981,040 19,637 20,092
Oppenheimer Strategic Bond............................... 3,120,780 15,953 15,979
---------- ---------- ----------
92,857,534 $1,123,525 $1,285,914
========== ========== ==========
</TABLE>
During the year ended December 31, 1999, transactions in shares were as
follows (in thousands, except share data):
<TABLE>
<CAPTION>
CALVERT
PIC PIC SOCIAL
GROWTH PIC PIC SMALL PIC PIC SMALL
AND INTERNATIONAL GLOBAL CAP CORE US CAPITAL CAP
INCOME EQUITY INCOME VALUE EQUITY GROWTH GROWTH
----------- ------------- ---------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased........... 425,378 413,482 802,577 267,678 1,859,304 2,700,712 40,528
Shares received from
reinvestment of
dividends................ 318,252 228,108 26,596 1,945 57,633 128,367 29
----------- ----------- ---------- ----------- ----------- ---------- -------
Total shares acquired...... 743,630 641,590 829,173 269,623 1,916,937 2,829,079 40,557
Shares redeemed............ (4,900,088) (923,323) (686,269) (2,485,099) (218,531) (210,989) (12,913)
----------- ----------- ---------- ----------- ----------- ---------- -------
Net increase in shares
owned.................... (4,156,458) (281,733) 142,904 (2,215,476) 1,698,406 2,618,090 27,644
Shares owned, beginning of
period................... 27,458,284 12,131,396 5,864,080 11,436,929 11,800,174 7,305,467 49,445
----------- ----------- ---------- ----------- ----------- ---------- -------
Shares owned, end of
period................... 23,301,826 11,849,663 6,006,984 9,221,453 13,498,580 9,923,557 77,089
=========== =========== ========== =========== =========== ========== =======
Cost of shares acquired.... $ 12,261 $ 10,514 $ 9,117 $ 2,831 $ 46,668 $ 63,512 $ 442
=========== =========== ========== =========== =========== ========== =======
Cost of shares redeemed.... $ (76,759) $ (14,246) $ (7,615) $ (24,473) $ (5,972) $ (5,517) $ (141)
=========== =========== ========== =========== =========== ========== =======
</TABLE>
F-24
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MFS
CALVERT MFS GROWTH MFS MFS
SOCIAL EMERGING MFS WITH TOTAL NEW MFS
BALANCED GROWTH RESEARCH INCOME RETURN DISCOVERY UTILITIES
---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased................. 2,933,116 1,000,104 1,278,500 2,141,878 1,081,626 177,523 110,952
Shares received from reinvestment
of dividends................... 575,681 0 22,937 12,820 56,004 2,906 12
---------- ---------- ---------- ---------- ---------- -------- --------
Total shares acquired............ 3,508,797 1,000,104 1,301,437 2,154,698 1,137,630 180,429 110,964
Shares redeemed.................. (408,091) (26,242) (23,585) (17,120) (26,335) (13,008) (7,803)
---------- ---------- ---------- ---------- ---------- -------- --------
Net increase in shares owned..... 3,100,706 973,862 1,277,852 2,137,578 1,111,295 167,421 103,161
Shares owned, beginning of
period......................... 2,877,861 771,472 1,382,383 964,237 719,354 0 0
---------- ---------- ---------- ---------- ---------- -------- --------
Shares owned, end of period...... 5,978,567 1,745,334 2,660,235 3,101,815 1,830,649 167,421 103,161
========== ========== ========== ========== ========== ======== ========
Cost of shares acquired.......... $ 7,803 $ 24,696 $ 25,932 $ 43,961 $ 20,438 $ 2,520 $ 2,330
========== ========== ========== ========== ========== ======== ========
Cost of shares redeemed.......... $ (921) $ (864) $ (551) $ (470) $ (546) $ (269) $ (193)
========== ========== ========== ========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER
OPPENHEIMER OPPENHEIMER GROWTH OPPENHEIMER OPPENHEIMER
AGGRESSIVE CAPITAL AND OPPENHEIMER STRATEGIC GLOBAL OPPENHEIMER
GROWTH APPRECIATION INCOME MONEY FUND BOND SECURITIES HIGH INCOME
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased......... 160,631 670,052 1,305,794 19,269,127 2,385,051 170,422 178,750
Shares received from
reinvestment of
dividends.............. 0 23,779 14,239 432,727 219,448 99 23
-------- ---------- ---------- ----------- ---------- -------- --------
Total shares acquired.... 160,631 693,831 1,320,033 19,701,854 2,604,499 170,521 178,773
Shares redeemed.......... (21,640) (15,880) (12,019) (10,385,515) (243,283) (245) (80,803)
-------- ---------- ---------- ----------- ---------- -------- --------
Net increase in shares
owned.................. 138,991 677,951 1,308,014 9,316,339 2,361,216 170,276 97,970
Shares owned, beginning
of period.............. 252,736 436,935 981,040 5,304,961 3,120,780 0 0
-------- ---------- ---------- ----------- ---------- -------- --------
Shares owned, end of
period................. 391,727 1,114,886 2,289,054 14,621,300 5,481,996 170,276 97,970
======== ========== ========== =========== ========== ======== ========
Cost of shares
acquired............... $ 9,325 $ 27,719 $ 29,776 $ 20,254 $ 12,921 $ 4,497 $ 1,926
======== ========== ========== =========== ========== ======== ========
Cost of shares
redeemed............... $ (1,233) $ (823) $ (576) $ (10,938) $ (1,302) $ (73) $ (877)
======== ========== ========== =========== ========== ======== ========
</TABLE>
F-25
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
VAN ECK
HARD VAN ECK
ASSET REAL ESTATE
-------- -----------
<S> <C> <C>
Shares purchased............................................ 7,114 18,392
Shares received from reinvestment of dividends.............. 0 0
------- -------
Total shares acquired....................................... 7,114 18,392
Shares redeemed............................................. (2,049) (770)
------- -------
Net increase in shares owned................................ 5,065 17,622
Shares owned, beginning of period........................... 0 0
------- -------
Shares owned, end of period................................. 5,065 17,622
======= =======
Cost of shares acquired..................................... $ 74 $ 173
======= =======
Cost of shares redeemed..................................... $ (21) $ (8)
======= =======
</TABLE>
During the year ended December 31, 1998, transactions in shares were as
follows (in thousands, except share data):
<TABLE>
<CAPTION>
CALVERT
PIC PIC SOCIAL
PIC GROWTH PIC PIC SMALL PIC PIC SMALL
MONEY AND INTERNATIONAL GLOBAL CAP CORE US CAPITAL CAP
MARKET INCOME EQUITY INCOME VALUE EQUITY GROWTH GROWTH
------------ ----------- ------------- ---------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased..... 11,715,106 3,331,957 1,290,753 971,363 1,225,909 2,111,671 2,491,965 39,534
Shares received from
reinvestment of
dividends.......... 248,570 2,218,535 579,579 281,841 1,466,219 189,588 155,774 665
------------ ----------- ----------- ---------- ----------- ----------- ---------- -------
Total shares
acquired........... 11,963,676 5,550,492 1,870,332 1,253,204 2,692,128 2,301,259 2,647,739 40,199
Shares redeemed...... (10,229,768) (647,253) (287,137) (196,985) (416,418) (104,877) (45,973) (2,134)
------------ ----------- ----------- ---------- ----------- ----------- ---------- -------
Net increase in
shares owned....... 1,733,908 4,903,239 1,583,195 1,056,219 2,275,710 2,196,382 2,601,766 38,065
Shares owned,
beginning of
period............. 3,571,053 22,555,045 10,548,201 4,807,861 9,161,219 9,603,792 4,703,701 11,380
------------ ----------- ----------- ---------- ----------- ----------- ---------- -------
Shares owned, end of
period............. 5,304,961 27,458,284 12,131,396 5,864,080 11,436,929 11,800,174 7,305,467 49,445
============ =========== =========== ========== =========== =========== ========== =======
Cost of shares
acquired........... $ 11,964 $ 86,018 $ 26,561 $ 13,374 $ 26,471 $ 47,417 $ 48,833 $ 458
============ =========== =========== ========== =========== =========== ========== =======
Cost of shares
redeemed........... $ (10,230) $ (9,813) $ (3,842) $ (2,107) $ (4,306) $ (2,061) $ (776) $ (24)
============ =========== =========== ========== =========== =========== ========== =======
<CAPTION>
CALVERT
SOCIAL
BALANCED
----------
<S> <C>
Shares purchased..... 2,236,805
Shares received from
reinvestment of
dividends.......... 209,275
----------
Total shares
acquired........... 2,446,080
Shares redeemed...... (98,358)
----------
Net increase in
shares owned....... 2,347,722
Shares owned,
beginning of
period............. 530,139
----------
Shares owned, end of
period............. 2,877,861
==========
Cost of shares
acquired........... $ 5,183
==========
Cost of shares
redeemed........... $ (203)
==========
</TABLE>
F-26
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MFS OPPENHEIMER
MFS GROWTH MFS OPPENHEIMER GROWTH OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER AND STRATEGIC
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME BOND
--------- ---------- -------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased.......... 568,571 981,678 807,870 610,804 191,902 319,277 835,284 2,654,705
Shares received from
reinvestment of
dividends............... 2,945 14,624 0 7,874 2,611 15,302 12,085 28,721
-------- ---------- -------- -------- -------- -------- -------- ----------
Total shares acquired..... 571,516 996,302 807,870 618,678 194,513 334,579 847,369 2,683,426
Shares redeemed........... (5,797) (12,005) (6,119) (4,392) (5,582) (8,915) (8,767) (135,938)
-------- ---------- -------- -------- -------- -------- -------- ----------
Net increase in shares
owned................... 565,719 984,297 801,751 614,286 188,931 325,664 838,602 2,547,488
Shares owned, beginning of
period.................. 205,753 398,086 162,486 105,068 63,805 111,271 142,438 573,292
-------- ---------- -------- -------- -------- -------- -------- ----------
Shares owned, end of
period.................. 771,472 1,382,383 964,237 719,354 252,736 436,935 981,040 3,120,780
======== ========== ======== ======== ======== ======== ======== ==========
Cost of shares acquired... $ 10,390 $ 17,169 $ 14,791 $ 10,667 $ 8,020 $ 10,948 $ 16,995 $ 13,680
======== ========== ======== ======== ======== ======== ======== ==========
Cost of shares redeemed... $ (101) $ (195) $ (113) $ (75) $ (202) $ (292) $ (180) $ (684)
======== ========== ======== ======== ======== ======== ======== ==========
</TABLE>
4. RELATED PARTY TRANSACTIONS
Contract owners' net payments represent premiums received from policyholders
less certain deductions made by Protective Life in accordance with the contract
terms. These deductions include, where appropriate, tax, surrender, mortality
risk and expense and administrative charges. These deductions are made to the
individual contracts in accordance with the terms governing each contract as set
forth in the contract.
The net assets of each sub-account of the Separate Account reflect the
investment management fees and other operating expenses incurred by the Funds.
Protective Life offers a loan privilege to certain contract owners. These
contract owners may obtain loans using the Contract as the only security for the
loan. Loans are subject to provisions of The Internal Revenue Code of 1986, as
amended, and to applicable retirement program rules. Loans outstanding
approximated $0.4 million at December 31, 1999 and 1998, respectively.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Share Owner
Protective Life Insurance Company
Birmingham, Alabama
In our opinion, the consolidated financial statements listed in the index on
page F-1 of this Form N-4 present fairly, in all material respects, the
consolidated financial position of Protective Life Insurance Company and
Subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedules
listed in the index on page F-1 present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 23, 2000
Birmingham, Alabama
F-28
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees......... $1,137,256 $1,027,340 $ 814,420
Reinsurance ceded................ (538,033) (459,215) (334,214)
---------- ---------- ----------
Net of reinsurance ceded....... 599,223 568,125 480,206
Net investment income............ 623,231 603,795 557,488
Realized investment gains........ 4,760 2,136 1,824
Other income..................... 27,102 20,201 6,149
---------- ---------- ----------
1,254,316 1,194,257 1,045,667
---------- ---------- ----------
BENEFITS AND EXPENSES
Benefits and settlement expenses
(net of reinsurance ceded:
1999-$344,474; 1998-$330,494;
1997-$180,605)................. 771,527 730,496 658,872
Amortization of deferred policy
acquisition costs.............. 104,913 111,188 107,175
Other operating expenses (net of
reinsurance ceded:
1999-$150,570; 1998-$166,375;
1997-$90,045).................. 176,439 172,228 129,870
---------- ---------- ----------
1,052,879 1,013,912 895,917
---------- ---------- ----------
INCOME BEFORE INCOME TAX........... 201,437 180,345 149,750
INCOME TAX EXPENSE (BENEFIT)
Current........................ 47,504 48,237 66,283
Deferred....................... 25,675 14,925 (13,981)
---------- ---------- ----------
73,179 63,162 52,302
---------- ---------- ----------
NET INCOME......................... $ 128,258 $ 117,183 $ 97,448
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized
cost: 1999-$6,517,851;
1998-$6,307,274)................... $ 6,275,607 $ 6,400,262
Equity securities, at market (cost:
1999-$32,092; 1998-$15,151)........ 30,696 12,258
Mortgage loans on real estate......... 1,946,690 1,623,603
Investment real estate, net of
accumulated depreciation
(1999-$1,014; 1998-$782)........... 15,582 14,868
Policy loans.......................... 232,126 232,670
Other long-term investments........... 68,890 70,078
Short-term investments................ 81,171 159,655
----------- -----------
Total investments................... 8,650,762 8,513,394
Accrued investment income............... 101,120 100,395
Accounts and premiums receivable, net of
allowance for uncollectible amounts
(1999-$2,540; 1998-$4,304)........... 45,852 31,265
Reinsurance receivables................. 859,684 756,370
Deferred policy acquisition costs....... 1,011,524 841,425
Property and equipment, net............. 49,002 42,374
Other assets............................ 27,712 34,632
Receivable from related parties......... 13,059
Assets related to separate accounts
Variable Annuity...................... 1,778,618 1,285,952
Variable Universal Life............... 40,293 13,606
Other................................. 3,517 3,482
----------- -----------
$12,581,143 $11,622,895
=========== ===========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims..... $ 4,566,426 $ 4,140,003
Unearned premiums..................... 507,659 389,294
----------- -----------
5,074,085 4,529,297
Stable value investment contract
deposits............................. 2,680,009 2,691,697
Annuity deposits........................ 1,639,231 1,519,820
Other policyholders' funds.............. 116,815 219,356
Other liabilities....................... 293,862 226,310
Accrued income taxes.................... (25,833) (10,992)
Deferred income taxes................... (32,335) 51,735
Note payable............................ 2,338 2,363
Indebtedness to related parties......... 14,000 20,898
Liabilities related to separate accounts
Variable Annuity...................... 1,778,618 1,285,952
Variable Universal Life............... 40,293 13,606
Other................................. 3,517 3,482
----------- -----------
Total liabilities................... 11,584,600 10,553,524
----------- -----------
COMMITMENTS AND CONTINGENT
LIABILITIES -- NOTE G
SHARE-OWNER'S EQUITY
Preferred Stock, $1.00 par value, shares
authorized and issued: 2,000,
liquidation preference $2,000........ 2 2
Common Stock, $1.00 par value........... 5,000 5,000
Shares authorized and issued:
5,000,000
Additional paid-in capital.............. 327,992 327,992
Note receivable from PLC Employee Stock
Ownership Plan....................... (5,148) (5,199)
Retained earnings....................... 814,777 686,519
Accumulated other comprehensive income
Net unrealized gains on investments
(net of income tax: 1999-$(78,658);
1998-$29,646)...................... (146,080) 55,057
----------- -----------
Total share-owner's equity.......... 996,543 1,069,371
----------- -----------
$12,581,143 $11,622,895
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF SHARE-OWNER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTE
RECEIVABLE NET
ADDITIONAL FROM UNREALIZED TOTAL
PREFERRED COMMON PAID-IN PLC RETAINED GAINS (LOSSES) SHARE-OWNER'S
STOCK STOCK CAPITAL ESOP EARNINGS ON INVESTMENTS EQUITY
--------- --------- ---------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... $2 $5,000 $237,992 $(5,579) $532,088 $ 6,688 $ 776,191
----------
Net income for 1997.... 97,448 97,448
Increase in net
unrealized gains on
investments (net of
income tax-
$30,275)............. 56,225 56,225
Reclassification
adjustment for
amounts included in
net income (net of
income tax:
$(638)).............. (1,186) (1,186)
----------
Comprehensive income
for 1997............. 152,487
----------
Preferred dividends
($50 per share)...... (100) (100)
Capital contribution
from PLC............. 90,000 90,000
Decrease in note
receivable from PLC
ESOP................. 201 201
-- ------ -------- ------- -------- --------- ----------
Balance, December 31,
1997................... 2 5,000 327,992 (5,378) 629,436 61,727 1,018,779
----------
Net income for 1998.... 117,183 117,183
Decrease in net
unrealized gains on
investments (net of
income tax --
$(2,844))............ (5,281) (5,281)
Reclassification
adjustment for
amounts included in
net income (net of
income tax:
$(747)).............. (1,389) (1,389)
----------
Comprehensive income
for 1998............. 110,513
----------
Common dividends ($12
per share)........... (60,000) (60,000)
Preferred dividends
($50 per share)...... (100) (100)
Decrease in note
receivable from PLC
ESOP................. 179 179
-- ------ -------- ------- -------- --------- ----------
Balance, December 31,
1998................... 2 5,000 327,992 (5,199) 686,519 55,057 1,069,371
---------
Net income for 1999.... 128,258 128,258
Decrease in net
unrealized gains on
investments (net of
income tax --
$(106,638)).......... (198,043) (198,043)
Reclassification
adjustment for
amounts included In
net income (net of
income tax --
$(1,666))............ (3,094) (3,094)
----------
Comprehensive loss for
1999................. (72,879)
----------
Decrease in note
receivable from PLC
ESOP................. 51 51
-- ------ -------- ------- -------- --------- ----------
Balance, December 31,
1999................... $2 $5,000 $327,992 $(5,148) $814,777 $(146,080) $ 996,543
== ====== ======== ======= ======== ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income....................... $ 128,258 $ 117,183 $ 97,448
Adjustments to reconcile net
income to net cash provided by
operating activities:
Realized investment gains...... (4,760) (2,136) (1,824)
Amortization of deferred policy
acquisition costs........... 104,913 111,188 107,175
Capitalization of deferred
policy acquisition costs.... (239,483) (192,838) (135,211)
Depreciation expense........... 10,513 7,110 5,124
Deferred income taxes.......... 24,234 14,925 (17,918)
Accrued income taxes........... (14,841) (11,933) (5,558)
Interest credited to universal
life and investment
products.................... 331,746 352,721 299,004
Policy fees assessed on
universal life and
investment products......... (165,818) (139,689) (131,582)
Change in accrued investment
income and other
receivables................. (119,183) (159,362) (158,798)
Change in policy liabilities
and other policyholder funds
of traditional life and
health products............. 215,201 322,464 279,522
Change in other liabilities.... 67,552 (19,771) 65,393
Other (net).................... (5,526) (22,634) (1,133)
------------ ------------ -----------
Net cash provided by operating
activities...................... 332,806 377,228 401,642
------------ ------------ -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Maturities and principal
reduction of investments:
Investments available for
sale........................ 9,973,742 10,445,407 6,462,663
Other.......................... 243,280 198,559 324,242
Sale of investments:
Investment available for
sale........................ 537,343 1,080,265 1,108,058
Other.......................... 267,892 155,906 695,270
Cost of investments acquired:
Investments available for
sale........................ (10,625,354) (11,505,098) (8,426,980)
Other.......................... (864,100) (662,350) (718,335)
Acquisitions and bulk reinsurance
assumptions................... 46,508 (169,124)
Purchase of property and
equipment..................... (18,075) (13,077) (6,087)
Sale of property and equipment... 151 2,681
------------ ------------ -----------
Net cash used in investing
activities...................... (438,613) (300,388) (727,612)
------------ ------------ -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Borrowings under line of credit
arrangements and long-term
debt.......................... 4,351,177 1,975,800 1,159,538
Capital contribution from PLC.... 90,000
Principal payments on line of
credit arrangements and
long-term debt................ (4,351,203) (1,973,437) (1,159,538)
Principal payment on surplus note
to PLC........................ (4,000) (2,000) (4,693)
Dividends to share owner......... (60,100) (100)
Investment product deposits and
change in universal life
deposits...................... 1,300,736 981,124 910,659
Investment product withdrawals... (1,190,903) (1,037,424) (745,083)
------------ ------------ -----------
Net cash provided by (used in)
financing activities............ 105,807 (116,037) 250,783
============ ============ ===========
INCREASE(DECREASE) IN CASH......... 0 (39,197) (75,187)
CASH AT BEGINNING OF YEAR.......... 0 39,197 114,384
------------ ------------ -----------
CASH AT END OF YEAR................ $ 0 $ 0 $ 39,197
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year:
Interest on debt............... $ 5,611 $ 8,338 $ 4,343
Income taxes................... $ 56,192 $ 57,429 $ 70,133
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES
Reduction of principal on note
from ESOP................... $ 51 $ 179 $ 201
Acquisitions and bulk
reinsurance assumptions
Assets acquired.............. $ 12,502 $ 247,894 $ 1,114,832
Liabilities assumed.......... (12,502) (380,405) (902,267)
------------ ------------ -----------
Net.......................... $ 0 $ (132,511) $ 212,565
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life
Insurance Company and subsidiaries ("Protective") are prepared on the basis of
accounting principles generally accepted in the United Sates. Such accounting
principles differ from statutory reporting practices used by insurance companies
in reporting to state regulatory authorities. (See also Note B.)
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
various estimates that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities, as well as the reported
amounts of revenues and expenses.
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its
wholly-owned subsidiaries. Protective is a wholly-owned subsidiary of Protective
Life Corporation ("PLC"), an insurance holding company.
NATURE OF OPERATIONS
Protective provides financial services through the production, distribution,
and administration of insurance and investment products. Protective markets
individual life insurance, dental insurance and managed care services, credit
life and disability insurance, guaranteed investment contracts, guaranteed
funding agreements, and fixed and variable annuities throughout the United
States. Protective also maintains a separate division devoted exclusively to the
acquisition of insurance policies from other companies.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997 Protective adopted Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities"; SFAS No. 130, "Reporting Comprehensive
Income"; and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information".
In 1998 PLC adopted SFAS No. 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits."
In 1999, Protective adopted SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise," and Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use," and
Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance Related Assessments" issued by the American Institute of Certified
Public Accountants.
The adoption of these accounting standards did not have a material effect on
PLC's or Protective's financial statements.
The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Effective
January 1, 2001, SFAS No. 133 will require Protective to report
F-33
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
derivative financial instruments on the balance sheet and to carry such
derivatives at fair value. The fair values of derivatives increase or decrease
as interest rates change. Under SFAS No. 133, changes in fair value are reported
as a component of net income or as a change to share-owner's equity, depending
upon the nature of the derivative. Although the adoption of SFAS No. 133 will
not affect Protective's operations, adoption will introduce volatility into
Protective's reported net income and share-owner's equity as interest rates
change. Protective has not estimated the potential effect SFAS No. 133 will have
on its net income and share-owner's equity.
INVESTMENTS
Protective has classified all of its investments in fixed maturities, equity
securities, and short-term investments as "available for sale".
Investments are reported on the following bases less allowances for
uncollectible amounts on investments, if applicable:
- Fixed maturities (bonds, and redeemable preferred stocks) -- at current
market value. Where market values are unavailable, Protective obtains
estimates from independent pricing services or estimates market value
based upon a comparison to quoted issues of the same issuer or issues of
other issuers with similar terms and risk characteristics.
- Equity securities (common and nonredeemable preferred stocks) -- at
current market value.
- Mortgage loans -- at unpaid balances, adjusted for loan origination costs,
net of fees, and amortization of premium or discount.
- Investment real estate -- at cost, less allowances for depreciation
computed on the straight-line method. With respect to real estate acquired
through foreclosure, cost is the lesser of the loan balance plus
foreclosure costs or appraised value.
- Policy loans -- at unpaid balances.
- Other long-term investments -- at a variety of methods similar to those
listed above, as deemed appropriate for the specific investment.
- Short-term investments -- at cost, which approximates current market
value.
Substantially all short-term investments have maturities of three months or
less at the time of acquisition and include approximately $0.8 million in bank
deposits voluntarily restricted as to withdrawal.
As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," certain investments are recorded at their market values
with the resulting unrealized gains and losses reduced by a related adjustment
to deferred policy acquisition costs, net of income tax reported as a component
of share-owner's equity. The market values of fixed maturities increase or
decrease as interest rates fall or rise. Therefore, although the adoption of
SFAS No. 115 does not affect Protective's operations, its reported share-
owner's equity will fluctuate significantly as interest rates change.
F-34
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Protective's balance sheets at December 31, prepared on the basis of
reporting investments at amortized cost rather than at market values, are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Total investments....................... $ 8,894,426 $ 8,412,167
Deferred policy acquisition costs....... 992,518 857,949
All other assets........................ 2,918,857 2,268,076
----------- -----------
$12,805,801 $11,538,192
=========== ===========
Deferred income taxes................... $ 46,243 $ 22,089
All other liabilities................... 11,616,935 10,501,789
----------- -----------
11,663,178 10,523,878
Share-owner's equity.................... 1,142,623 1,014,314
----------- -----------
$12,805,801 $11,538,192
=========== ===========
</TABLE>
Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.
DERIVATIVE FINANCIAL INSTRUMENTS
Protective has not used derivative financial instruments for trading
purposes. Combinations of interest rate swap contracts, options, and futures
contracts are sometimes used as hedges against changes in interest rates for
certain investments, primarily outstanding mortgage loan commitments, mortgage
loans, and mortgage-backed securities, and liabilities arising from
interest-sensitive products. Realized gains and losses on certain contracts are
deferred and amortized over the life of the hedged asset or liability, and such
amortization is recorded in investment income or interest expense. Any
unamortized gain or loss is recorded as a realized investment gain or loss upon
the early termination of a hedged asset or liability, or when the anticipated
transaction is no longer likely to occur. No realized gains or losses were
deferred in 1999 and 1998.
Protective uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest and from a fixed rate to a variable
rate of interest. Swap contracts are also used to alter the effective durations
of assets and liabilities. Amounts paid or received related to the initiation of
certain interest rate swap contracts are deferred and amortized over the life of
the related financial instrument, and subsequent periodic settlements are
recorded in investment income or interest expense. Gains or losses on contracts
terminated upon the early termination of the related financial instrument are
recorded as realized investment gains or losses. Amounts paid related to the
initiation of interest rate swap contracts were $1.4 million and $1.0 million in
1999 and 1998 respectively. No amounts were received in 1999 and 1998.
At December 31, 1999, contracts with a notional amount of $1,328.9 million
were in a $2.1 million net unrealized gain position. At December 31, 1998,
contracts with a notional amount of $1,623.1 million were in a $5.4 million net
unrealized gain position. Protective recognized $3.8 million in realized
investment gains related to derivative financial instruments in 1999.
Protective's derivative financial instruments are with highly rated
counterparties.
F-35
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH
Cash includes all demand deposits reduced by the amount of outstanding
checks and drafts. Protective has deposits with certain financial institutions
which exceed federally insured limits. Protective has reviewed the credit
worthiness of these financial institutions and believes there is minimal risk of
a material loss.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost. Protective primarily uses the
straight-line method of depreciation based upon the estimated useful lives of
the assets. Major repairs or improvements are capitalized and depreciated over
the estimated useful lives of the assets. Other repairs are expensed as
incurred. The cost and related accumulated depreciation of property and
equipment sold or retired are removed from the accounts, and resulting gains or
losses are included in income.
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Home office building.................... $40,524 $37,959
Other, principally furniture and
equipment............................. 54,412 58,958
------- -------
94,936 96,917
Accumulated depreciation................ 45,934 54,543
------- -------
$49,002 $42,374
======= =======
</TABLE>
SEPARATE ACCOUNTS
The assets and liabilities related to separate accounts in which Protective
does not bear the investment risk are valued at market and reported separately
as assets and liabilities related to separate accounts in the accompanying
consolidated financial statements.
REVENUES AND BENEFITS EXPENSE
- Traditional Life, Health, and Credit Insurance Products -- Traditional
life insurance products consist principally of those products with fixed
and guaranteed premiums and benefits and include whole life insurance
policies, term and term-like life insurance policies, limited-payment life
insurance policies, and certain annuities with life contingencies. Life
insurance and immediate annuity premiums are recognized as revenue when
due. Health and credit insurance premiums are recognized as revenue over
the terms of the policies. Benefits and expenses are associated with
earned premiums so that profits are recognized over the life of the
contracts. This is accomplished by means of the provision for liabilities
for future policy benefits and the amortization of deferred policy
acquisition costs.
Liabilities for future policy benefits on traditional life insurance
products have been computed using a net level method including assumptions
as to investment yields, mortality, persistency, and other assumptions
based on Protective's experience, modified as necessary to reflect
anticipated trends and to include provisions for possible adverse
deviation. Reserve investment yield assumptions are graded and range from
2.5% to 7.0%. The liability for future policy benefits and claims on
traditional life, health, and credit insurance products includes estimated
unpaid claims that have been reported to Protective and claims incurred
but not yet reported. Policy claims are charged to expense in the period
that the claims are incurred.
F-36
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance beginning of year.......... $ 90,332 $106,121 $108,159
Less reinsurance................. 20,019 18,673 6,423
-------- -------- --------
Net balance beginning of year...... 70,313 87,448 101,736
-------- -------- --------
Incurred related to:
Current year....................... 311,002 288,015 258,322
Prior year......................... (5,574) (10,198) (14,540)
-------- -------- --------
Total incurred................... 305,428 277,817 243,782
-------- -------- --------
Paid related to:
Current year....................... 264,298 236,001 203,381
Prior year......................... 40,197 58,951 58,104
-------- -------- --------
Total paid....................... 304,495 294,952 261,485
-------- -------- --------
Other changes:
Acquisitions and reserve
transfers...................... 1,668 0 3,415
-------- -------- --------
Net balance end of year............ 72,914 70,313 87,448
Plus reinsurance................. 47,661 20,019 18,673
-------- -------- --------
Balance end of year................ 120,575 $ 90,332 $106,121
======== ======== ========
</TABLE>
- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, guaranteed investment
contracts, deferred annuities, and annuities without life contingencies.
Revenues for universal life and investment products consist of policy fees
that have been assessed against policy account balances for the costs of
insurance, policy administration, and surrenders. Benefit reserves for
universal life and investment products represent policy account balances
before applicable surrender charges plus certain deferred policy
initiation fees that are recognized in income over the term of the
policies. Policy benefits and claims that are charged to expense include
benefit claims incurred in the period in excess of related policy account
balances and interest credited to policy account balances. Interest credit
rates for universal life and investment products ranged from 3.4% to 9.4%
in 1999.
Protective's accounting policies with respect to variable universal life
and variable annuities are identical except that policy account balances
(excluding account balances that earn a fixed rate) are valued at market
and reported as components of assets and liabilities related to separate
accounts.
DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs of acquiring traditional life and health
insurance, credit insurance, universal life insurance, and investment products
that vary with and are primarily related to the production of new business have
been deferred. Traditional life and health insurance acquisition costs are
amortized over the premium-payment period of the related policies in proportion
to the ratio of annual premium income to total anticipated premium income.
Credit insurance acquisition costs are being amortized in proportion to earned
premium. Acquisition costs for universal life and investment products are
amortized over the lives of the policies in relation to the present value of
estimated gross profits before amortization. Under SFAS No. 97, "Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for
Realized
F-37
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains and Losses from the Sale of Investments," Protective makes certain
assumptions regarding the mortality, persistency, expenses, and interest rates
it expects to experience in future periods. These assumptions are to be best
estimates and are to be periodically updated whenever actual experience and/or
expectations for the future change from that assumed. Additionally, relating to
SFAS No. 115, these costs have been adjusted by an amount equal to the
amortization that would have been recorded if unrealized gains or losses on
investments associated with Protective's universal life and investment products
had been realized.
The cost to acquire blocks of insurance representing the present value of
future profits from such blocks of insurance is also included in deferred policy
acquisition costs. Protective amortizes the present value of future profits over
the premium payment period, including accrued interest of up to approximately
8%. The unamortized present value of future profits for all acquisitions was
approximately $340.6 million and $370.3 million at December 31, 1999 and 1998,
respectively. During 1999 $13.3 million of present value of future profits was
capitalized (relating to acquisitions made during the year) and $43.0 million
was amortized. During 1998 $132.5 million of present value of future profits was
capitalized, and $37.1 million was amortized.
INCOME TAXES
Protective uses the asset and liability method of accounting for income
taxes. Income tax provisions are generally based on income reported for
financial statement purposes. Deferred federal income taxes arise from the
recognition of temporary differences between the bases of assets and liabilities
determined for financial reporting purposes and the bases determined for income
tax purposes. Such temporary differences are principally related to the deferral
of policy acquisition costs and the provision for future policy benefits and
expenses.
RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
previously reported net income, total assets, or share-owner's equity.
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with accounting principals
generally accepted in the United States (GAAP) differ in some respects from the
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. The most significant differences are as follows: (a) acquisition
costs of obtaining new business are deferred and amortized over the approximate
life of the policies rather than charged to operations as incurred, (b) benefit
liabilities are computed using a net level method and are based on realistic
estimates of expected mortality, interest, and withdrawals as adjusted to
provide for possible unfavorable deviation from such assumptions, (c) deferred
income taxes are provided for temporary differences between financial and
taxable earnings, (d) the Asset Valuation Reserve and Interest Maintenance
Reserve are restored to stock-owner's equity, (e) furniture and equipment,
agents' debit balances, and prepaid expenses are reported as assets rather than
being charged directly to surplus (referred to as nonadmitted items), (f)
certain items of interest income, principally accrual of mortgage and bond
discounts are amortized differently, and (g) bonds are stated at market instead
of amortized cost.
F-38
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES (CONTINUED)
The reconciliations of net income and share-owner's equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<TABLE>
<CAPTION>
NET INCOME SHARE-OWNERS' EQUITY
----------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
--------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
In conformity with
statutory reporting
practices:(1).......... $ 75,114 $147,077 $134,417 $ 567,634 $ 531,956 $ 579,111
Additions (deductions)
by adjustment:
Deferred policy
acquisition costs,
net of
amortization....... 120,644 68,155 10,310 1,011,524 841,425 632,605
Deferred income
tax................ (25,675) (14,925) 13,981 32,335 (51,735) (49,417)
Asset Valuation
Reserve............ 41,104 66,922 67,369
Interest Maintenance
Reserve............ (226) (1,355) (1,434) 19,328 15,507 9,809
Nonadmitted items.... 51,350 42,835 30,500
Other timing and
valuation
adjustments........ 72,527 (76,214) (54,494) (467,130) (282,480) (215,448)
Noninsurance
affiliates......... 20,698 18,171 17,530 (4)
Consolidation
elimination........ (134,824) (23,726) (22,862) (259,602) (95,059) (35,746)
--------- -------- -------- ---------- ---------- ----------
In conformity with
generally accepted
accounting
principles............. $ 128,258 $117,183 $ 97,448 $ 996,543 $1,069,371 $1,018,779
========= ======== ======== ========== ========== ==========
</TABLE>
- - - - - - - - - - - - - -------------
(1) Consolidated
As of December 31, 1999, Protective and its insurance subsidiaries had on
deposit with regulatory authorities, fixed maturity and short-term investments
with a market value of approximately $53.6 million.
The National Association of Insurance Commissioners has adopted the
Codification of Statutory Accounting Principles ("Codification"). The
Codification changes current statutory accounting rules in several areas.
Protective has not estimated the potential effect the Codification may have on
the statutory capital of Protective and its insurance subsidiaries. The
Codification will become effective January 1, 2001.
NOTE C -- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities................... $466,957 $463,416 $396,255
Equity securities.................. 775 905 1,186
Mortgage loans on real estate...... 172,027 158,461 161,604
Investment real estate............. 1,949 1,224 2,004
Policy loans....................... 15,994 12,346 11,370
Other, principally short-term
investments...................... 20,244 16,536 21,876
-------- -------- --------
677,946 652,888 594,295
Investment expenses................ 54,715 49,093 36,807
-------- -------- --------
$623,231 $603,795 $557,488
======== ======== ========
</TABLE>
F-39
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................... $13,049 $ 4,374 $(8,355)
Equity securities.................. (3,371) (4,465) 5,975
Mortgage loans and other
investments...................... (4,918) 2,227 4,204
------- ------- -------
$ 4,760 $ 2,136 $ 1,824
======= ======= =======
</TABLE>
Protective recognizes permanent impairments through changes to an allowance
for uncollectible amounts on investments. The allowance totaled $20.4 million at
December 31, 1999 and $24.1 million at December 31, 1998. Additions and
reductions to the allowance are included in realized investment gains (losses).
Without such additions/reductions, Protective had net realized investment gains
of $1.0 million in 1999, net realized investment gains of $3.2 million in 1998,
and net realized investment losses of $6.1 million in 1997.
In 1999, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $48.8 million and
gross losses were $33.6 million. In 1998, gross gains were $32.3 million and
gross losses were $32.5 million. In 1997, gross gains were $21.3 million and
gross losses were $23.5 million.
F-40
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of Protective's investments
classified as available for sale at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1999 COST GAINS LOSSES VALUES
- - - - - - - - - - - - - ------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed........... $2,619,918 $ 18,491 $101,150 $2,537,259
United States Government
and authorities......... 154,954 138 1,257 153,835
States, municipalities,
and political
subdivisions............ 27,254 7 295 26,966
Public utilities.......... 537,834 301 14,690 523,445
Convertibles and bonds
with warrants........... 693 0 155 538
All other corporate
bonds................... 3,176,016 5,938 149,591 3,032,363
Redeemable preferred
stocks.................... 1,182 19 0 1,201
---------- -------- -------- ----------
6,517,851 24,894 267,138 6,275,607
Equity securities............. 32,092 644 2,040 30,696
Short-term investments........ 81,171 0 0 81,171
---------- -------- -------- ----------
$6,631,114 $ 25,538 $269,178 $6,387,474
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1998 COST GAINS LOSSES VALUES
- - - - - - - - - - - - - ------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed........... $2,581,561 $ 41,626 $ 33,939 $2,589,248
United States Government
and authorities......... 72,697 2,812 0 75,509
States, municipalities,
and political
subdivisions............ 29,521 1,131 0 30,652
Public utilities.......... 533,082 15,066 0 548,148
Convertibles and bonds
with warrants........... 694 0 179 515
All other corporate
bonds................... 3,083,782 98,992 32,629 3,150,145
Redeemable preferred
stocks.................... 5,937 108 0 6,045
---------- -------- -------- ----------
6,307,274 159,735 66,747 6,400,262
Equity securities............. 15,151 456 3,349 12,258
Short-term investments........ 159,655 0 0 159,655
---------- -------- -------- ----------
$6,482,080 $160,191 $ 70,096 $6,572,175
========== ======== ======== ==========
</TABLE>
F-41
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of fixed maturities at
December 31, by expected maturity, are shown below. Expected maturities are
derived from rates of prepayment that may differ from actual rates of
prepayment.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1999 COST VALUES
- - - - - - - - - - - - - ---------------------------------------- ---------- ----------
<S> <C> <C>
Due in one year or less................. $ 321,155 $ 320,601
Due after one year through five years... 2,913,620 2,863,873
Due after five years through ten
years................................. 2,152,116 2,049,482
Due after ten years..................... 1,130,960 1,041,651
---------- ----------
$6,517,851 $6,275,607
========== ==========
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1998 COST VALUES
- - - - - - - - - - - - - ---------------------------------------- ---------- ----------
<S> <C> <C>
Due in one year or less................. $ 705,859 $ 709,686
Due after one year through five years... 3,255,973 3,325,078
Due after five years through ten
years................................. 1,655,055 1,690,581
Due after ten years..................... 690,387 674,917
---------- ----------
$6,307,274 $6,400,262
========== ==========
</TABLE>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1999 1998
- - - - - - - - - - - - - ---------------------------------------- ------ ------
<S> <C> <C>
AAA..................................... 37.5% 34.3%
AA...................................... 6.3 6.2
A....................................... 26.6 29.4
BBB..................................... 25.7 26.5
BB or less.............................. 3.8 3.5
Redeemable preferred stocks............. 0.1 0.1
----- -----
100.0% 100.0%
===== =====
</TABLE>
At December 31, 1999 and 1998, Protective had bonds which were rated less
than investment grade of $243.6 million and $222.9 million, respectively, having
an amortized cost of $293.1 million and $252.0 million, respectively. At
December 31, 1999, approximately $81.5 million of the bonds rated less than
investment grade were securities issued in company-sponsored commercial mortgage
loan securitizations. Approximately $910.4 million of bonds are not publicly
traded.
The change in unrealized gains (losses), net of income tax on fixed maturity
and equity securities for the years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- -------
<S> <C> <C> <C>
Fixed maturities................... $(217,901) $(21,705) $72,741
Equity securities.................. 973 4,605 (8,813)
</TABLE>
F-42
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
At December 31, 1999, all of Protective's mortgage loans were commercial
loans of which 79% were retail, 8% were apartments, 6% were office buildings,
and 6% were warehouses. Protective specializes in making mortgage loans on
either credit-oriented or credit-anchored commercial properties, most of which
are strip shopping centers in smaller towns and cities. No single tenant's
leased space represents more than 5% of mortgage loans. Approximately 74% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: Florida, Texas, Georgia, Tennessee, North
Carolina, Virginia, Alabama, South Carolina, Washington, Kentucky, Ohio, and
Mississippi.
Many of the mortgage loans have call provisions after 3 to 10 years.
Assuming the loans are called at their next call dates, approximately $109.6
million would become due in 2001, $408.8 million in 2002 to 2005, and $333.6
million in 2006 to 2010.
At December 31, 1999, the average mortgage loan was approximately $2.0
million, and the weighted average interest rate was 7.8%. The largest single
mortgage loan was $17.0 million.
At December 31, 1999 and 1998, Protective's problem mortgage loans (over
ninety days past due) and foreclosed properties totaled $22.9 million and $11.7
million, respectively. Since Protective's mortgage loans are collateralized by
real estate, any assessment of impairment is based upon the estimated fair value
of the real estate. Based on Protective's evaluation of its mortgage loan
portfolio, Protective does not expect any material losses on its mortgage loans.
Certain investments, principally real estate, with a carrying value of $36.3
million were non-income producing for the twelve months ended December 31, 1999.
Policy loan interest rates generally range from 4.5% to 8.0%.
NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate
applied to pretax income......... 35.0% 35.0% 35.0%
Dividends received deduction and
tax-exempt interest.............. (0.1) (0.1) (0.2)
Low-income housing credit.......... (0.5) (0.5) (0.6)
Tax benefits arising from prior
acquisitions and other
adjustments...................... 0.3 0.1 0.7
State income taxes................. 1.6 0.5
----- ----- -----
Effective income tax rate.......... 36.3% 35.0% 34.9%
===== ===== =====
</TABLE>
The provision for federal income tax differs from amounts currently payable
due to certain items reported for financial statement purposes in periods which
differ from those in which they are reported for income tax purposes.
Details of the deferred income tax provision for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Deferred policy acquisition
costs............................ $46,175 $60,746 $ 7,054
Benefit and other policy liability
changes.......................... (27,158) (41,268) (23,564)
Temporary differences of investment
income........................... 6,655 (3,491) 2,516
Other items........................ 3 (1,062) 13
------- ------- --------
$25,675 $14,925 $(13,981)
======= ======= ========
</TABLE>
F-43
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability
reserves.............................. $217,642 $190,328
Unrealized loss on investments.......... 70,421
Other................................... 2,088 2,091
-------- --------
290,151 192,419
======== ========
Deferred income tax liabilities:
Deferred policy acquisition costs....... 257,816 211,641
Unrealized gain on investments.......... 32,513
-------- --------
257,816 244,154
-------- --------
Net deferred income tax liability....... $(32,335) $ 51,735
======== ========
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of
Protective's gain from operations which was not subject to current income
taxation was accumulated for income tax purposes in a memorandum account
designated as Policyholders' Surplus. The aggregate accumulation in this account
at December 31, 1999 was approximately $70.5 million. Should the accumulation in
the Policyholders' Surplus account exceed certain stated maximums, or should
distributions including cash dividends be made to PLC in excess of approximately
$840.3 million, such excess would be subject to federal income taxes at rates
then effective. Deferred income taxes have not been provided on amounts
designated as Policyholders' Surplus. Under current income tax laws, Protective
does not anticipate paying income tax on amounts in the Policyholders' Surplus
accounts.
Protective's income tax returns are included in the consolidated income tax
returns of PLC. The allocation of income tax liabilities among affiliates is
based upon separate income tax return calculations.
NOTE E -- DEBT
At December 31, 1999, PLC had borrowed $55.0 million at a rate of 6.7%. PLC
had also borrowed $59.0 million at a rate of 6.6% under a term note that
contains, among other provisions, requirements for maintaining certain financial
ratios, and restrictions on indebtedness incurred by PLC's subsidiaries
including Protective. Additionally, PLC, on a consolidated basis, cannot incur
debt in excess of 50% of its total capital.
Protective has arranged sources of credit to temporarily fund scheduled
investment commitments. Protective expects that the rate received on its
investments will equal or exceed its borrowing rate. Protective had no such
temporary borrowings outstanding at December 31, 1999 and 1998. Also, Protective
has a mortgage note on investment real estate amounting to approximately $2.3
million that matures in 2003.
Included in indebtedness to related parties is a surplus debenture issued by
Protective to PLC. At December 31, 1999, the balance of the surplus debenture
was $14.0 million. The debenture matures in 2003.
Protective routinely receives from or pays to affiliates under the control
of PLC reimbursements for expenses incurred on one another's behalf. Receivables
and payables among affiliates are generally settled monthly.
Interest expense on borrowed money totaled $5.1 million, $8.3 million, and
$4.3 million, in 1999, 1998, and 1997, respectively.
F-44
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE F -- RECENT ACQUISITIONS
In June 1997, Protective acquired West Coast Life Insurance Company ("West
Coast"). In September 1997, Protective acquired the Western Diversified Group.
In October 1997, Protective coinsured a block of credit policies.
In October 1998 Protective coinsured a block of life insurance policies from
Lincoln National Corporation. The policies represent the payroll deduction
business originally marketed and underwritten by Aetna.
In September 1999, Protective recaptured a block of credit life and
disability policies which it had previously ceded.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since their respective effective dates.
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. Protective does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
A number of civil jury verdicts have been returned against insurers in the
jurisdictions in which Protective does business involving the insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. Increasingly these lawsuits have resulted in the award of
substantial judgments against the insurer that are disproportionate to the
actual damages, including material amounts of punitive damages. In some states
including Alabama, (where Protective maintains its headquarters) juries have
substantial discretion in awarding punitive and non-economic compensatory
damages which creates the potential for unpredictable material adverse judgments
in any given lawsuit. In addition, in some class action and other lawsuits
involving insurers' sales practices, insurers have made material settlement
payments. Protective and its subsidiaries, like other financial service
companies, in the ordinary course of business, are involved in such litigation
or alternatively in arbitration. Although the outcome of any litigation or
arbitration cannot be predicted, Protective believes that at the present time
there are no pending or threatened lawsuits that are reasonably likely to have a
material adverse effect on the financial position, results of operations, or
liquidity of Protective.
NOTE H -- SHARE-OWNER'S EQUITY AND RESTRICTIONS
At December 31, 1999, approximately $736.0 million of consolidated
share-owner's equity excluding net unrealized gains on investments, represented
net assets of Protective and its subsidiaries that cannot be transferred to PLC.
In general, dividends up to specified levels are considered ordinary and may be
paid thirty days after written notice to the insurance commissioner of the state
of domicile unless such commissioner objects to the dividend prior to the
expiration of such period. Dividends in larger amounts are considered
extraordinary and are subject to affirmative prior approval by such
commissioner. The maximum amount that would qualify as ordinary dividends to PLC
by Protective in 2000 is estimated to be $175.5 million.
NOTE I -- PREFERRED STOCK
PLC owns all of the 2,000 shares of preferred stock issued by Protective's
subsidiary, Protective Life and Annuity Insurance Company ("PL&A"). Prior to
November 1998, the stock paid, when and if declared, annual
F-45
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE I -- PREFERRED STOCK (CONTINUED)
minimum cumulative dividends of $50 per share, and noncumulative participating
dividends to the extent PL&A's statutory earnings for the immediately preceding
fiscal year exceeded $1 million. PL&A paid no preferred dividends during 1999.
Dividends of $0.1 million were paid to PLC in 1998, and 1997. Effective
November 3, 1998, PL&A's articles of incorporation were amended such that the
provision for an annual minimum cumulative dividend was removed.
NOTE J -- RELATED PARTY MATTERS
On August 6, 1990, PLC announced that its Board of Directors approved the
formation of an Employee Stock Ownership Plan ("ESOP"). On December 1, 1990,
Protective transferred to the ESOP 520,000 shares of PLC's common stock held by
it in exchange for a note. The outstanding balance of the note, $5.1 million at
December 31, 1999, is accounted for as a reduction to share-owner's equity. The
stock will be used to match employee contributions to PLC's existing 401(k)
Plan. The ESOP shares are dividend paying. Dividends on the shares are used to
pay the ESOP's note to Protective.
Protective leases furnished office space and computers to affiliates. Lease
revenues were $3.7 million in 1999, $3.0 million in 1998, and $3.1 million in
1997. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $69.2 million, $56.2
million, and $51.6 million in 1999, 1998, and 1997, respectively. Commissions
paid to affiliated marketing organizations of $11.4 million, $8.4 million, and
$5.2 million in 1999, 1998, and 1997, respectively, were included in deferred
policy acquisition costs.
Certain corporations with which PLC's directors were affiliated paid
Protective premiums, policy fees, or deposits for various types of insurance and
investment products. Such premiums, policy fees, and deposits amounted to $56.4
million, $28.6 million and $21.4 million in 1999, 1998, and 1997, respectively.
Protective and/or PLC paid commissions, interest on debt and investment
products, and fees to these same corporations totaling $16.9 million, $7.3
million and $5.4 million in 1999, 1998, and 1997, respectively.
For a discussion of indebtedness to related parties, see Note E.
NOTE K -- OPERATING SEGMENTS
Protective operates seven divisions whose principal strategic focuses can be
grouped into three general categories: Life Insurance, Specialty Insurance
Products, and Retirement Savings and Investment Products. Each division has a
senior officer of Protective responsible for its operations. A division is
generally distinguished by products and/or channels of distribution. A brief
description of each division follows.
LIFE INSURANCE
INDIVIDUAL LIFE DIVISION. The Individual Life Division markets level premium
term and term-like insurance products, universal life, and variable universal
life on a national basis primarily through networks of independent insurance
agents.
WEST COAST DIVISION. The West Coast Division sells universal life and level
premium term-like insurance products in the life insurance brokerage market and
in the "bank owned life insurance" market.
ACQUISITIONS DIVISION. The Acquisitions Division focuses on acquiring,
converting, and servicing policies acquired from other companies. The Division's
primary focus is on life insurance policies sold to individuals.
F-46
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
SPECIALTY INSURANCE PRODUCTS
DENTAL AND CONSUMER BENEFITS DIVISION. The Division's primary focus is on
indemnity and prepaid dental products. In 1997, the Division exited from the
traditional group major medical business, fulfilling the Division's strategy to
focus primarily on dental and related products.
FINANCIAL INSTITUTIONS DIVISION. The Financial Institutions Division
specializes in marketing credit life and disability insurance products through
banks, consumer finance companies and automobile dealers. The Division also
includes a small property casualty insurer that sells automobile service
contracts.
RETIREMENT SAVINGS AND INVESTMENT PRODUCTS
STABLE VALUE PRODUCTS DIVISION. The Stable Value Products Division markets
guaranteed investment contracts to 401(k) and other qualified retirement savings
plans. The Division also offers related products, including fixed and floating
rate funding agreements offered to the trustees of municipal bond proceeds, bank
trust departments, and money market funds, and long-term annuity contracts
offered to fund certain state obligations.
INVESTMENT PRODUCTS DIVISION. The Investment Products Division manufactures,
sells, and supports fixed and variable annuity products. These products are
primarily sold through stockbrokers, but are also sold through financial
institutions and the Individual Life Division's sales force.
CORPORATE AND OTHER
Protective has an additional business segment herein referred to as
Corporate and Other. The Corporate and Other segment primarily consists of net
investment income and expenses not attributable to the Divisions above
(including net investment income on capital and interest on substantially all
debt).
Protective uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated net
income and assets. Operating segment income is generally income before income
tax. Premiums and policy fees, other income, benefits and settlement expenses,
and amortization of deferred policy acquisition costs are attributed directly to
each operating segment. Net investment income is allocated based on directly
related assets required for transacting the business of that segment. Realized
investment gains (losses) and other operating expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
F-47
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
Operating segment income and assets for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
LIFE INSURANCE
------------------------------------
INDIVIDUAL
LIFE WEST COAST ACQUISITIONS
OPERATING SEGMENT INCOME ---------- ---------- ------------
<S> <C> <C> <C>
1999
Premiums and policy
fees................... $ 274,598 $ 87,226 $ 148,620
Reinsurance ceded........ (182,092) (64,019) (33,754)
---------- ---------- ----------
Net of reinsurance
ceded................ 92,506 23,207 114,866
Net investment income.... 59,916 78,128 129,806
Realized investment gains
(losses)...............
Other income............. (2,250) 1,302 (9)
---------- ---------- ----------
Total revenues......... 150,172 102,637 244,663
---------- ---------- ----------
Benefits and settlement
expenses............... 74,455 73,176 129,581
Amortization of deferred
policy acquisition
costs.................. 23,434 6,047 19,444
Other operating
expenses............... 20,850 (2,649) 31,178
---------- ---------- ----------
Total benefits and
expenses............. 118,739 76,574 180,203
---------- ---------- ----------
Income before income
tax.................... 31,433 26,063 64,460
Income tax expense.......
---------- ---------- ----------
Net income
---------- ---------- ----------
1998
Premiums and policy
fees................... $ 228,701 $ 75,757 $ 125,329
Reinsurance ceded........ (102,533) (53,377) (28,594)
---------- ---------- ----------
Net of reinsurance
ceded................ 126,168 22,380 96,735
Net investment income.... 55,779 63,492 112,154
Realized investment gains
(losses)
Other income............. 70 6 1,713
---------- ---------- ----------
Total revenues......... 182,017 85,878 210,602
---------- ---------- ----------
Benefits and settlement
expenses............... 106,308 54,617 112,051
Amortization of deferred
policy acquisition
costs.................. 30,543 4,924 18,894
Other operating
expenses............... 14,983 5,354 26,717
---------- ---------- ----------
Total benefits and
expenses............. 151,834 64,895 157,662
---------- ---------- ----------
Income before income
tax.................... 30,183 20,983 52,940
Income tax expense
---------- ---------- ----------
Net income
---------- ---------- ----------
1997
Premiums and policy
fees................... $ 182,746 $ 41,290 $ 120,504
Reinsurance ceded........ (55,266) (27,168) (17,869)
---------- ---------- ----------
Net of reinsurance
ceded................ 127,480 14,122 102,635
Net investment income.... 54,593 30,194 110,155
Realized investment gains
(losses)
Other income............. 617 10
---------- ---------- ----------
Total revenues......... 182,690 44,316 212,800
---------- ---------- ----------
Benefits and settlement
expenses............... 114,678 28,304 116,506
Amortization of deferred
policy acquisition
costs.................. 27,354 961 16,606
Other operating
expenses............... 18,178 6,849 23,016
---------- ---------- ----------
Total benefits and
expenses............. 160,210 36,114 156,128
---------- ---------- ----------
Income before income
tax.................... 22,480 8,202 56,672
Income tax expense
---------- ---------- ----------
Net income
---------- ---------- ----------
OPERATING SEGMENT ASSETS
1999
Investments and other
assets................. $1,205,968 $1,343,517 $1,553,954
Deferred policy
acquisition costs...... 379,117 200,605 235,903
---------- ---------- ----------
Total assets............. $1,585,085 $1,544,122 $1,789,857
---------- ---------- ----------
Operating Segment Assets
1998
Investments and other
assets................. $1,076,202 $1,149,642 $1,600,123
Deferred policy
acquisition costs...... 301,941 144,455 255,347
---------- ---------- ----------
Total assets............. $1,378,143 $1,294,097 $1,855,470
---------- ---------- ----------
1997
Investments and other
assets................. $ 960,316 $ 910,030 $1,401,294
Deferred policy
acquisition costs...... 252,321 108,126 138,052
---------- ---------- ----------
Total assets............. $1,212,637 $1,018,156 $1,539,346
---------- ---------- ----------
</TABLE>
- - - - - - - - - - - - - -----------------
(1) Adjustments represent the inclusion of unallocated realized investment
gains (losses) and the recognition of income tax expense. There are no
asset adjustments.
F-48
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
SPECIALTY INSURANCE RETIREMENT SAVINGS AND
PRODUCTS INVESTMENT PRODUCTS
----------------------- ------------------------
DENTAL
AND STABLE CORPORATE
CONSUMER FINANCIAL VALUE INVESTMENT AND TOTAL
OPERATING SEGMENT INCOME BENEFITS INSTITUTIONS PRODUCTS PRODUCTS OTHER ADJUSTMENTS(1) CONSOLIDATED
- - - - - - - - - - - - - ------------------------- --------- ------------ ----------- ----------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Premiums and policy
fees................... $317,360 $ 284,891 $ 24,248 $ 313 $ 1,137,256
Reinsurance ceded........ (81,240) (176,928) (538,033)
--------- --------- ---------- ---------- -------- ------- -----------
Net of reinsurance
ceded................ 236,120 107,963 24,248 313 599,223
Net investment income.... 14,915 24,121 $ 210,208 106,599 (462) 623,231
Realized investment gains
(losses)............... (549) 1,446 $ 3,863 4,760
Other income............. 6,277 15,831 2,146 3,805 27,102
--------- --------- ---------- ---------- -------- ------- -----------
Total revenues......... 257,312 147,915 209,659 134,439 3,656 1,254,316
--------- --------- ---------- ---------- -------- ------- -----------
Benefits and settlement
expenses............... 172,166 55,899 175,290 88,642 2,318 771,527
Amortization of deferred
policy acquisition
costs.................. 10,705 24,718 744 19,820 1 104,913
Other operating
expenses............... 56,396 44,728 4,709 14,617 6,610 176,439
--------- --------- ---------- ---------- -------- ------- -----------
Total benefits and
expenses............. 239,267 125,345 180,743 123,079 8,929 1,052,879
--------- --------- ---------- ---------- -------- ------- -----------
Income before income
tax.................... 18,045 22,570 28,916 11,360 (5,273) 201,437
Income tax expense....... 73,179 73,179
--------- --------- ---------- ---------- -------- ------- -----------
Net income............... $ 128,258
--------- --------- ---------- ---------- -------- ------- -----------
1998
Premiums and policy
fees................... $277,316 $ 301,230 $ 18,809 $ 198 $ 1,027,340
Reinsurance ceded........ (85,753) (188,958) (459,215)
--------- --------- ---------- ---------- -------- ------- -----------
Net of reinsurance
ceded................ 191,563 112,272 18,809 198 568,125
Net investment income.... 15,245 25,068 $ 213,136 105,827 13,094 603,795
Realized investment gains
(losses)............... 1,609 1,318 $ (791) 2,136
Other income............. 4,295 10,302 1,799 2,016 20,201
--------- --------- ---------- ---------- -------- ------- -----------
Total revenues......... 211,103 147,642 214,745 127,753 15,308 1,194,257
--------- --------- ---------- ---------- -------- ------- -----------
Benefits and settlement
expenses............... 140,632 52,629 178,745 85,045 469 730,496
Amortization of deferred
policy acquisition
costs.................. 10,352 28,526 735 17,213 1 111,188
Other operating
expenses............... 49,913 48,837 2,876 14,428 9,120 172,228
--------- --------- ---------- ---------- -------- ------- -----------
Total benefits and
expenses............. 200,897 129,992 182,356 116,686 9,590 1,013,912
--------- --------- ---------- ---------- -------- ------- -----------
Income before income
tax.................... 10,206 17,650 32,389 11,067 5,718 180,345
Income tax expense....... 63,162 63,162
--------- --------- ---------- ---------- -------- ------- -----------
Net income............... $ 117,183
--------- --------- ---------- ---------- -------- ------- -----------
1997
Premiums and policy
fees................... $260,590 $ 196,694 $ 12,367 $ 229 $ 814,420
Reinsurance ceded........ (109,480) (124,431) (334,214)
--------- --------- ---------- ---------- -------- ------- -----------
Net of reinsurance
ceded................ 151,110 72,263 12,367 229 480,206
Net investment income.... 23,810 16,341 $ 211,915 105,196 5,284 557,488
Realized investment gains
(losses)............... (3,180) 589 $ 4,415 1,824
Other income............. 1,278 3,033 (192) 1,403 6,149
--------- --------- ---------- ---------- -------- ------- -----------
Total revenues......... 176,198 91,637 208,735 117,960 6,916 1,045,667
--------- --------- ---------- ---------- -------- ------- -----------
Benefits and settlement
expenses............... 110,148 27,643 179,235 82,019 339 658,872
Amortization of deferred
policy acquisition
costs.................. 15,711 30,812 618 15,110 3 107,175
Other operating
expenses............... 38,572 20,165 3,945 12,312 6,833 129,870
--------- --------- ---------- ---------- -------- ------- -----------
Total benefits and
expenses............. 164,431 78,620 183,798 109,441 7,175 895,917
--------- --------- ---------- ---------- -------- ------- -----------
Income before income
tax.................... 11,767 13,017 24,937 8,519 (259) 149,750
Income tax expense....... 52,302 52,302
--------- --------- ---------- ---------- -------- ------- -----------
Net income............... $ 97,448
--------- --------- ---------- ---------- -------- ------- -----------
OPERATING SEGMENT ASSETS
1999
Investments and other
assets................. $197,673 $ 727,857 $2,766,178 $3,355,863 $418,609 $11,569,619
Deferred policy
acquisition costs...... 25,819 51,339 1,156 117,577 8 1,011,524
--------- --------- ---------- ---------- -------- ------- -----------
Total assets............. $223,492 $ 779,196 $2,767,334 $3,473,440 $418,617 $12,581,143
--------- --------- ---------- ---------- -------- ------- -----------
Operating Segment Assets
1998
Investments and other
assets................. $197,337 $ 645,909 $2,869,304 $2,542,536 $700,417 $10,781,470
Deferred policy
acquisition costs...... 23,836 39,212 1,448 75,177 9 841,425
--------- --------- ---------- ---------- -------- ------- -----------
Total assets............. $221,173 $ 685,121 $2,870,752 $2,617,713 $700,426 $11,622,895
--------- --------- ---------- ---------- -------- ------- -----------
1997
Investments and other
assets................. $208,071 $ 536,058 $2,887,732 $2,313,279 $525,896 $ 9,742,676
Deferred policy
acquisition costs...... 22,459 52,836 1,785 56,074 952 632,605
--------- --------- ---------- ---------- -------- ------- -----------
Total assets............. $230,530 $ 588,894 $2,889,517 $2,369,353 $526,848 $10,375,281
--------- --------- ---------- ---------- -------- ------- -----------
</TABLE>
- - - - - - - - - - - - - -----------------
(1) Adjustments represent the inclusion of unallocated realized investment
gains (losses) and the recognition of income tax expense. There are no
asset adjustments.
F-49
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE L -- EMPLOYEE BENEFIT PLANS
PLC has a defined benefit pension plan covering substantially all of its
employees. The plan is not separable by affiliates participating in the plan.
However, approximately 81% of the participants in the plan are employees of
Protective. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. PLC's funding policy is
to contribute amounts to the plan sufficient to meet the minimum finding
requirements of ERISA plus such additional amounts as PLC may determine to be
appropriate from time to time. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future.
The actuarial present value of benefit obligations and the funded status of
the plan taken as a whole at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Projected benefit obligation, beginning
of the year........................... $36,547 $ 30,612
Service cost - benefits earned during
the year.............................. 3,270 2,585
Interest cost - on projected benefit
obligation............................ 2,779 2,203
Actuarial gain (loss)................... (5,729) 2,115
Plan amendment.......................... 32 160
Benefits paid........................... (369) (1,128)
------- --------
Projected benefit obligation, end of the
year.................................. 36,530 36,547
------- --------
Fair value of plan assets beginning of
the year.............................. $25,147 $ 21,763
Actual return on plan assets............ 2,594 1,689
Employer contribution................... 7,048 2,823
Benefits paid........................... (369) (1,128)
------- --------
Fair value of plan assets end of the
year.................................. $34,420 25,147
------- --------
Plan assets less than the projected
benefit obligation.................... $(2,110) $(11,400)
Unrecognized net actuarial loss from
past experience different from that
assumed............................... 2,601 9,069
Unrecognized prior service cost......... 569 652
Unrecognized net transition asset....... (17) (34)
------- --------
Net pension liability recognized in
balance sheet......................... $ 1,043 $ (1,713)
======= ========
</TABLE>
Net pension cost of the defined benefit pension plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Service cost....................... $3,270 $2,585 $2,112
Interest cost...................... 2,779 2,203 2,036
Expected return on plan assets..... (2,348) (1,950) (1,793)
Amortization of prior service
cost............................. 115 112 100
Amortization of transition asset... (17) (17) (17)
Recognized net actuarial loss...... 494 305 152
------ ------ ------
Net pension cost................... $4,293 $3,238 $2,590
====== ====== ======
</TABLE>
Protective's share of the net pension cost was $3.6 million, $2.6 million,
and $1.8 million, in 1999, 1998, and 1997, respectively.
F-50
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Weighted average discount rate..... 8.00% 6.75% 7.25%
Rates of increase in compensation
level............................ 5.75% 4.75% 5.25%
Expected long-term rate of return
on assets........................ 8.50% 8.50% 8.50%
</TABLE>
Assets of the pension plan are included in the general assets of Protective.
Until recently, upon retirement, the amount of pension plan assets vested in the
retiree were used to purchase a single premium annuity from Protective in the
retiree's name. Therefore, amounts presented above as plan assets exclude assets
relating to retirees. Beginning July 1, 1999, retiree obligations are being
fulfilled from pension plan assets.
PLC also sponsors an unfunded excess benefits plan, which is a nonqualified
plan that provides defined pension benefits in excess of limits imposed by
federal income tax law. At December 31, 1999 and 1998, the projected benefit
obligation of this plan totaled $13.1 million and $11.7 million, respectively,
of which $8.3 million and $7.8 million, respectively, have been recognized in
PLC's financial statements.
Net pension cost of the excess benefits plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Service cost....................... $ 695 $ 611 $ 544
Interest cost...................... 887 722 651
Plan amendment..................... 351
Amortization of prior service
cost............................. 113 112 112
Amortization of transition asset... 37 37 37
Recognized net actuarial loss...... 265 173 180
------ ------ ------
Net pension cost................... $1,997 $1,655 $1,875
====== ====== ======
</TABLE>
In addition to pension benefits, PLC provides limited healthcare benefits to
eligible retired employees until age 65. The postretirement benefit is provided
by an unfunded plan. At December 31, 1999 and 1998, the liability for such
benefits totaled $1.2 million. The expense recorded by PLC was $0.1 million in
1999, 1998 and 1997. PLC's obligation is not materially affected by a 1% change
in the healthcare cost trend assumptions used in the calculation of the
obligation.
Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation up to a maximum of $75,000. This plan is partially funded at a
maximum of $50,000 face amount of insurance.
PLC sponsors a defined contribution plan which covers substantially all
employees. Employee contributions are made on a before-tax basis as provided by
Section 401(k) of the Internal Revenue Code. PLC established an Employee Stock
Ownership Plan ("ESOP") to match voluntary employee contributions to PLC's
401(k) Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees
who are not otherwise under a bonus plan. Expense related to the ESOP consists
of the cost of the shares allocated to participating employees plus the interest
expense on the ESOP's note payable to Protective less dividends on shares held
by the ESOP. At December 31, 1999, PLC had committed up to 120,812 shares to be
released to fund employee benefits. The expense recorded by PLC for these
employee benefits was less than $0.1 million in 1999, 1998, and 1997.
F-51
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
PLC sponsors a deferred compensation plan for certain directors, officers,
agents, and others. Compensation deferred is credited to the participants in
cash, PLC Common Stock, or as a combination thereof.
NOTE M -- STOCK BASED COMPENSATION
Certain Protective employees participate in PLC's Long-Term Incentive Plan
(previously known as the Performance Share Plan) and receive stock appreciation
rights (SARs) from PLC.
Since 1973 PLC has had a Long-Term Incentive Plan (previously known as the
Performance Share Plan) to motivate senior management to focus on PLC's
long-range earnings performance through the awarding of performance shares. The
criterion for payment of performance share awards is based upon a comparison of
PLC's average return on average equity and total rate of return over a four year
award period (earlier upon the death, disability or retirement of the executive,
or in certain circumstances, of a change in control of PLC) to that of a
comparison group of publicly held life and multiline insurance companies. If
PLC's results are below the median of the comparison group, no portion of the
award is earned. If PLC's results are at or above the 90th percentile, the award
maximum is earned. Under the plan approved by share owners in 1992 and 1997, up
to 6,400,000 shares may be issued in payment of awards. The number of shares
granted in 1999, 1998, and 1997 were 99,380, 71,340 and 98,780, respectively,
having an approximate market value on the grant date of $3.4 million, $2.3
million, and $2.0 million, respectively. At December 31, 1999, outstanding
awards measured at target and maximum payouts were 424,960 and 571,396 shares,
respectively. The expense recorded by PLC for the Long-Term Incentive Plan was
$3.4 million, $2.7 million, and $2.7 million in 1999, 1998, and 1997,
respectively.
During 1996, stock appreciation rights (SARs) were granted to certain
executives of PLC to provide long-term incentive compensation based on the
performance of PLC's Common Stock. Under this arrangement PLC will pay (in
shares of PLC Common Stock) an amount equal to the difference between the
specified base price of PLC's Common Stock and the market value at the exercise
date. The SARs are exercisable after five years (earlier upon the death,
disability or retirement of the executive, or in certain circumstances, of a
change in control of PLC) and expire in 2006 or upon termination of employment.
The number of SARs granted during 1996 and outstanding at December 31, 1999 was
675,000. The SARs have a base price of $17.4375 per share of PLC Common Stock
(the market price on the grant date was $17.50 per share). The estimated fair
value of the SARs on the grant date was $3.0 million. This estimate was derived
using the Roll-Geske variation of the Black-Sholes option pricing model.
Assumptions used in the pricing model are as follows: expected volatility rate
of 15% (approximately equal to that of the S & P Life Insurance Index), a risk
free interest rate of 6.35%, a dividend yield rate of 1.97%, and an expected
exercise date of August 15, 2002. The expense recorded by PLC for the SARs was
$0.6 million in 1999, 1998 and 1997.
NOTE N -- REINSURANCE
Protective assumes risks from, and reinsures certain of its risks with other
insurers under yearly renewable term, coinsurance, and modified coinsurance
agreements. Yearly renewable term and coinsurance agreements are accounted for
by passing a portion of the risk to the reinsurer. Generally, the reinsurer
receives a proportionate part of the premiums less commissions and is liable for
a corresponding part of all benefit payments. Modified coinsurance is accounted
for similarly to coinsurance except that the liability for future policy
benefits is held by the original company, and settlements are made on a net
basis between the companies. A substantial portion of Protective's new life
insurance and credit insurance sales are being reinsured. Protective reviews the
financial condition of its reinsurers and monitors the amount of reinsurance it
has with its reinsurers.
F-52
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE N -- REINSURANCE (CONTINUED)
Protective has reinsured approximately $93.5 billion, $64.8 billion, and
$34.1 billion in face amount of life insurance risks with other insurers
representing $364.7 million, $294.4 million, and $147.2 million of premium
income for 1999, 1998, and 1997, respectively. Protective has also reinsured
accident and health risks representing $172.8 million, $164.8 million, and
$187.7 million of premium income for 1999, 1998, and 1997, respectively. In 1999
and 1998, policy and claim reserves relating to insurance ceded of $739.3
million and $658.7 million respectively are included in reinsurance receivables.
Should any of the reinsurers be unable to meet its obligation at the time of the
claim, obligation to pay such claim would remain with Protective. At
December 31, 1999 and 1998, Protective had paid $46.8 million and $22.8 million,
respectively, of ceded benefits which are recoverable from reinsurers. In
addition, at December 31, 1999, Protective had receivables of $74.0 million
related to insurance assumed.
NOTE O -- ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of Protective's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUES AMOUNT VALUES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities............ $6,275,607 $6,275,607 $6,400,262 $6,400,262
Equity securities........... 30,696 30,696 12,258 12,258
Mortgage loans on real
estate.................... 1,946,690 1,909,026 1,623,603 1,774,379
Short-term investments...... 81,171 81,171 159,655 159,655
LIABILITIES (SEE NOTES A AND
E):
Guaranteed investment
contract deposits......... 2,680,009 2,649,616 2,691,697 2,751,007
Annuity deposits............ 1,639,231 1,598,993 1,519,820 1,513,148
Notes payable............... 2,338 2,338 2,363 2,363
OTHER (SEE NOTE A):
Derivative Financial
Instruments............... 5,273 3,564 986 6,426
</TABLE>
Except as noted below, fair values were estimated using quoted market prices.
Protective estimates the fair value of its mortgage loans using discounted cash
flows from the next call date. Protective believes the fair value of its
short-term investments and notes payable to banks approximates book value due to
either being short-term or having a variable rate of interest. Protective
estimates the fair value of its guaranteed investment contracts and annuities
using discounted cash flows and surrender values, respectively. Protective
believes it is not practicable to determine the fair value of its policy loans
since there is no stated maturity, and policy loans are often repaid by
reductions to policy benefits.
Protective estimates the fair value of its derivative financial instruments
using market quotes or derivative pricing models. The fair value represents the
net amount of cash Protective would have received (or paid) had the contracts
been terminated on December 31.
NOTE P -- SUBSEQUENT EVENT
On January 20, 2000, Protective acquired the Lyndon Insurance Group
("Lyndon"). Lyndon manufactures and markets a variety of specialty insurance
products including credit insurance, and vehicle and marine service agreements.
F-53
<PAGE>
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H COL. I
- - - - - - - - - - - - - ------------------------- ----------- ---------- -------- -------------- --------- ---------- ---------- ------------
STABLE VALUE
FUTURE AND ANNUITY AMORTIZATION
DEFERRED POLICY DEPOSITS PREMIUMS BENEFITS OF DEFERRED
POLICY BENEFITS AND OTHER AND NET AND POLICY
ACQUISITION AND UNEARNED POLICYHOLDERS' POLICY INVESTMENT SETTLEMENT ACQUISITION
SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES INCOME(1) EXPENSES COSTS
- - - - - - - - - - - - - ------------------------- ----------- ---------- -------- -------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1999:
Life Insurance
Individual Life........ $ 379,117 $1,210,188 $ 338 $ 17,159 $ 92,506 $ 59,916 $ 74,455 $ 23,434
West Coast............. 200,605 1,279,554 0 74,831 23,208 78,126 73,176 6,047
Acquisitions........... 235,903 1,374,445 558 260,267 114,866 129,806 129,581 19,444
Specialty Insurance
Products
Dental and Consumer
Benefits............. 25,819 126,592 2,994 74,204 236,120 14,915 172,165 10,705
Financial
Institutions......... 51,339 150,888 503,735 9,044 107,962 24,122 55,899 24,718
Retirement Savings and
Investment Products
Stable Value
Products............. 1,156 167,415 0 2,680,009 0 210,209 175,291 744
Investment Products.... 117,577 254,492 0 1,320,453 24,248 106,599 88,642 19,820
Corporate and Other...... 8 2,852 34 88 313 (462) 2,318 1
---------- ---------- -------- ---------- -------- -------- -------- --------
TOTAL.............. $1,011,524 $4,566,426 $507,659 $4,436,055 $599,223 $623,231 $771,527 $104,913
========== ========== ======== ========== ======== ======== ======== ========
Year Ended
December 31, 1998:
Life Insurance
Individual Life........ $ 301,941 $1,054,253 $ 355 $ 10,802 $126,168 $ 55,779 $106,308 $ 30,543
West Coast............. 144,455 1,006,280 0 77,254 22,380 63,492 54,617 4,924
Acquisitions........... 255,347 1,383,759 553 233,846 96,735 112,154 112,051 18,894
Specialty Insurance
Products
Dental and Consumer
Benefits............. 23,836 111,916 3,341 78,224 191,563 15,245 140,632 10,352
Financial
Institutions......... 39,212 215,451 385,006 105,434 112,272 25,068 52,629 28,526
Retirement Savings and
Investment Products
Stable Value
Contracts............ 1,448 172,674 0 2,691,697 0 213,136 178,745 735
Investment Products.... 75,177 194,726 0 1,233,528 18,809 105,827 85,045 17,213
Corporate and Other...... 9 944 39 88 198 13,094 469 1
---------- ---------- -------- ---------- -------- -------- -------- --------
TOTAL.............. $ 841,425 $4,140,003 $389,294 $4,430,873 $568,125 $603,795 $730,496 $111,188
========== ========== ======== ========== ======== ======== ======== ========
Year Ended
December 31, 1997:
Life Insurance
Individual Life........ $ 252,321 $ 920,924 $ 356 $ 16,334 $127,480 $ 54,593 $114,678 $ 27,354
West Coast............. 108,126 739,463 0 95,495 14,122 30,194 28,304 961
Acquisitions........... 138,052 1,025,340 1,437 311,150 102,635 110,155 116,506 16,606
Specialty Insurance
Products
Dental and Consumer
Benefits............. 22,459 120,925 2,536 80,654 151,110 23,810 110,148 15,711
Financial
Institutions......... 52,836 159,422 391,085 6,791 72,263 16,341 27,643 30,812
Retirement Savings and
Investment Products
Stable Value
Products............. 1,785 180,690 0 2,684,676 0 211,915 179,235 618
Investment Products.... 56,074 177,150 0 1,184,268 12,367 105,196 82,019 15,110
Corporate and Other...... 952 380 1,282 185 229 5,284 339 3
---------- ---------- -------- ---------- -------- -------- -------- --------
TOTAL.............. $ 632,605 $3,324,294 $396,696 $4,379,553 $480,206 $557,488 $658,872 $107,175
========== ========== ======== ========== ======== ======== ======== ========
<CAPTION>
- - - - - - - - - - - - - ------------------------- -----------
COL. A COL. J
- - - - - - - - - - - - - ------------------------- -----------
OTHER
OPERATING
SEGMENT EXPENSES(1)
- - - - - - - - - - - - - ------------------------- -----------
<S> <C>
Year Ended
December 31, 1999:
Life Insurance
Individual Life........ $ 20,851
West Coast............. (2,649)
Acquisitions........... 31,178
Specialty Insurance
Products
Dental and Consumer
Benefits............. 56,396
Financial
Institutions......... 44,728
Retirement Savings and
Investment Products
Stable Value
Products............. 4,708
Investment Products.... 14,617
Corporate and Other...... 6,610
--------
TOTAL.............. $176,439
========
Year Ended
December 31, 1998:
Life Insurance
Individual Life........ $ 14,983
West Coast............. 5,354
Acquisitions........... 26,717
Specialty Insurance
Products
Dental and Consumer
Benefits............. 49,913
Financial
Institutions......... 48,837
Retirement Savings and
Investment Products
Stable Value
Contracts............ 2,876
Investment Products.... 14,428
Corporate and Other...... 9,120
--------
TOTAL.............. $172,228
========
Year Ended
December 31, 1997:
Life Insurance
Individual Life........ $ 18,178
West Coast............. 6,849
Acquisitions........... 23,016
Specialty Insurance
Products
Dental and Consumer
Benefits............. 38,572
Financial
Institutions......... 20,165
Retirement Savings and
Investment Products
Stable Value
Products............. 3,945
Investment Products.... 12,312
Corporate and Other...... 6,833
--------
TOTAL.............. $129,870
========
</TABLE>
- - - - - - - - - - - - - -----------------
(1) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if
different methods were applied.
S-1
<PAGE>
SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- - - - - - - - - - - - - ------------------------- ------------ ----------- ----------- ----------- ----------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31,1999:
Life insurance in
force................ $120,577,512 $92,566,755 $ 9,239,074 $37,249,831 24.8%
============ =========== =========== =========== ========
Premiums and policy fees:
Life insurance......... $ 540,430 $ 364,680 $ 131,855 $ 307,605 42.9%
Accident and health
insurance............ 403,491 172,852 27,266 257,905 10.6%
Property and liability
insurance............ 34,104 501 110 33,713 0.3%
------------ ----------- ----------- -----------
TOTAL................ $ 978,025 $ 538,033 $ 159,231 $ 599,223
============ =========== =========== ===========
Year Ended
December 31,1998:
Life insurance in
force................ $ 91,980,657 $64,846,246 $18,010,434 $45,144,845 39.9%
============ =========== =========== =========== ========
Premiums and policy fees:
Life insurance......... $ 537,002 $ 294,363 $ 87,965 $ 330,604 26.6%
Accident and health
insurance............ 361,705 164,852 14,279 211,132 6.8%
Property and liability
insurance............ 26,389 26,389 0.0%
------------ ----------- ----------- -----------
TOTAL................ $ 925,096 $ 459,215 $ 102,244 $ 568,125
============ =========== =========== ===========
Year Ended
December 31,1997:
Life insurance in
force................ $ 78,240,282 $34,139,554 $11,013,202 $55,113,930 20.0%
============ =========== =========== =========== ========
Premiums and policy fees:
Life insurance......... $ 387,108 $ 147,184 $ 74,738 $ 314,662 23.8%
Accident and health
insurance............ 336,575 187,539 10,510 159,546 6.7%
Property and liability
insurance............ 6,139 176 35 5,998 0.6%
------------ ----------- ----------- -----------
TOTAL................ $ 729,822 $ 334,899 $ 85,283 $ 480,206
============ =========== =========== ===========
</TABLE>
S-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
All required financial statements are included in Part A and Part B of this
Registration Statement.
(b) Exhibits:
<TABLE>
<C> <S>
1. Resolution of the Board of Directors of Protective Life
Insurance Company authorizing establishment of the
Protective Life Variable Annuity Separate Account**
2. Not applicable
3. (a) Form of Underwriting Agreement among Protective Life
Insurance Company, Investment Distributors, Inc. and the
Protective Life Variable Annuity Separate Account**
(b) Form of Distribution Agreement between Investment
Distributors, Inc. and broker/dealers**
4. (a) Form of Individual Flexible Premium Deferred Variable
and Fixed Annuity Contract
(b) Form of Group Flexible Premium Deferred Variable and
Fixed Annuity Contract
(c) Participant Certificate for use with Group Flexible
Premium Deferred Variable and Fixed Annuity Contract
(d) Annual Reset Death Benefit Rider
(e) Compound Death Benefit Rider
5. (a) Form of Contract Application for Individual Flexible
Premium Deferred Variable and Fixed Annuity Contract
(b) Form of Contract Application for Group Flexible Premium
Deferred Variable and Fixed Annuity Contract
6. (a) Charter of Protective Life Insurance Company.*
(b) By-Laws of Protective Life Insurance Company.*
7. Not applicable
8. (a) Participation/Distribution Agreement (Protective
Investment Company)**
(b) Participation Agreement (Oppenheimer Variable Account
Funds)***
(c) Participation Agreement (MFS Variable Insurance
Trust)***
(d) ParticipationAgreement (Calvert Group, formerly Acacia
Capital Corporation)***
(e) Participation Agreement (Van Eck Worldwide Insurance
Trust)+
(f) Participation Agreement (Van Kampen Life Investment
Trust)++
9. Opinion and Consent of Steve M. Callaway, Esq.
10. (a) Consent of Sutherland, Asbill & Brennan, LLP
(b) Consent of PricewaterhouseCoopers LLP
11. No financial statements will be omitted from Item 23
12. Not applicable
13. Not applicable
14. Powers of attorney
</TABLE>
C-1
<PAGE>
- - - - - - - - - - - - - ------------
* Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement, (File No. 33-70984) filed with the Commission on
October 28, 1993.
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement, (File No. 33-70984) filed with the
Commission on February 23, 1994.
*** Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form N-4 Registration Statement, (File No. 33-70984) filed with the
Commission on April 30, 1997.
**** Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 333-68551) filed with the Commission on
December 8, 1998.
+ Incorporated herein by reference to Pre-Effective Amendment Number 1 to the
Form N-4 Registration Statement, (File No. 333-60149) filed with the
Commission on October 26, 1998.
++ Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Form N-4 Registration Statement, (File No. 33-70984) filed with the
Commission on April 20, 2000.
ITEM 25. DIRECTORS AND OFFICERS OF DEPOSITOR.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH DEPOSITOR
- - - - - - - - - - - - - ----------------------------------- -----------------------------------
<S> <C>
Drayton Nabers, Jr. Chairman of the Board
John D. Johns President, and Director
R. Stephen Briggs Executive Vice President, Director
Carolyn King Senior Vice President, Investment Products,
and Director
Deborah J. Long Senior Vice President, General Counsel,
Secretary, and Director
Jim E. Massengale Executive Vice President, Acquisitions, and
Director
Steven A. Schultz Senior Vice President, Financial
Institutions, and Director
Wayne E. Stuenkel Senior Vice President and Chief Actuary, and
Director
A.S. Williams, III Executive Vice President, Investments,
Treasurer, and Director
Judy Wilson Senior Vice President, Stable Value Products
T. Davis Keyes Director
J. Russell Bailey, Jr. Vice President, Dental and Consumer Benefits
Michael B. Ballard Vice President, Individual Life Marketing
Harvey S. Benjamin Vice President, Investment Products
Operations
Danny L. Bentley Senior Vice President, Dental and Consumer
Benefits, and Director
Richard J. Bielen Senior Vice President, Investments, and
Director
Larry Adams Vice President, PPGA Sales
D. Wayne Hall Vice President, Acquisition Administration
Chris T. Calos Vice President, Marketing, Dental and
Consumer Benefits
Tim W. Carney Vice President, MGMD Dental Sales
Jerry W. DeFoor Vice President and Controller and Chief
Accounting Officer
John B. Deremo Vice President, Individual Life Sales
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH DEPOSITOR
- - - - - - - - - - - - - ----------------------------------- -----------------------------------
<S> <C>
Brent E. Fritz Vice President, Individual Life Product
Development
Kevin B. Borie Vice President and Actuary, Investment
Products
Bruce W. Gordon Vice President, Marketing, Individual Life
James T. Helton III Vice President and Actuary, Dental and
Consumer Benefits
Charles (T.O.) McDowell Vice President, PPGA Sales
William L. McMullen, Jr. Vice President, Customer Service, Financial
Institutions
Lawrence G. Merrill Vice President, Investment Products Marketing
Charles Misasi Vice President, Network Plans
Edmund P. Perry Vice President, Individual Life Sales
Carl E. Price Vice President, Direct Marketing, Dental and
Consumer Benefits
Charles M. Prior Vice President, Investments
T. Michael Presley Vice President and Actuary, Financial
Institutions
John Sawyer Vice President, Equity Marketing, Individual
Life
David C. Stevens Vice President, Operations, Dental and
Consumer Benefits
James M. Styne Vice President, Financial Institutions
Carl S. Thigpen Vice President, Investments and Assistant
Secretary
Alan E. Watson Vice President, Individual Life Sales
Thomas W. Willingham Vice President, Individual Life Operations
and Assistant Secretary
Banks M. Wood Vice President, Sales and Marketing,
Financial Institutions
</TABLE>
- - - - - - - - - - - - - ------------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama 35223.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR AND
REGISTRANT.
The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. All of the Company's outstanding voting
common stock is owned by Protective Life Corporation. Protective Life
Corporation is described more fully in the prospectus included in this
registration statement. Various companies and other entities controlled by
Protective Life Corporation may therefore be considered to be under common
control with the registrant or the Company. Such other companies and entities,
together with the identity of their controlling persons (where applicable), are
set forth in Exhibit 21 to Form 10-K of Protective Life Corporation for the
fiscal year ended December 31, 1999 (File No. 1-12332) filed with the Commission
on March 28, 2000.
ITEM 27. NUMBER OF CONTRACTOWNERS.
As of the date of this filing, there were 0 contract owners of Protective
Variable Annuity II individual and group flexible premium deferred variable and
fixed annuity contracts offered by Registrant.
C-3
<PAGE>
ITEM 28. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XI of the By-laws of Protective Life provides, in substance, that
any of Protective Life's directors and officers, who is a party or is threatened
to be made a party to any action, suit or proceeding, other than an action by or
in the right of Protective Life, by reason of the fact that he is or was an
officer or director, shall be indemnified by Protective Life against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such claim,
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Protective
Life and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. If the claim, action or suit is or
was by or in the right of Protective Life to procure a judgment in its favor,
such person shall be indemnified by Protective Life against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Protective Life, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to Protective
Life unless and only to the extent that the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper. To the extent that a director or officer has been successful on the
merits or otherwise in defense of any such action, suit or proceeding, or in
defense of any claim, issue or matter therein, he shall be indemnified by
Protective Life against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, not withstanding that he has
not been successful on any other claim issue or matter in any such action, suit
or proceeding. Unless ordered by a court, indemnification shall be made by
Protective Life only as authorized in the specific case upon a determination
that indemnification of the officer or director is proper in the circumstances
because he has met the applicable standard of conduct Such determination shall
be made (a) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to, or who have been successful on the merits
or otherwise with respect to, such claim action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion or (c) by the shareholders.
In addition, the executive officers and directors are insured by PLC's
Directors' and Officers' Liability Insurance Policy including Company
Reimbursement and are indemnified by a written contract with PLC which
supplements such coverage.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-4
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Investment Distributors, Inc. ("IDI") is the principal underwriter of
the Contracts as defined in the Investment Company Act of 1940. IDI is
also principal underwriter for the PIC Fund and for the Protective Life
Variable Separate Account.
(b) The following information is furnished with respect to the officers and
directors of Investment Distributors, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS* POSITION AND OFFICES POSITION AND OFFICES WITH REGISTRANT
----------------- -------------------- ------------------------------------
<S> <C> <C>
Briggs, Robert Stephen President, Chief Executive Executive Vice President, Director
Officer and Director
A.S. Williams, III Vice President Executive Vice President,
Investments, Treasurer, Director
Ballard, Michael B. Director Vice President, Individual Life
Marketing
Merrill, Lawrence G. Director Vice President, Investment Products
Marketing
King, Carolyn Secretary, Chief Compliance Senior Vice President, Investment
Officer Products
Callaway, Steve M. Director None
Borie, Kevin B. Treasurer and Director Vice President and Actuary,
Investment Products
Janet Summey Assistant Secretary Assistant Vice President, Investment
Products
Bonnie Miller Assistant Secretary Assistant Vice President, Investment
Products
Beth Zaiontz Assistant Secretary None
Joseph Gilmer Financial Operations None
Principal
</TABLE>
- - - - - - - - - - - - - ------------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama, 35223.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts and records required to be maintained by Section 31(c) of the
Investment Company Act of 1940 and the rules thereunder are maintained by
Protective Life Insurance Company at 2801 Highway 280 South, Birmingham, Alabama
35223.
ITEM 31. MANAGEMENT SERVICES.
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS.
(a) Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never
more than sixteen (16) months old for so long as payments under the
variable annuity contracts may be accepted.
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space
that an applicant can check to request a Statement
C-5
<PAGE>
of Additional Information, or (2) a postcard or similar written
communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information;
and
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available
under this Form promptly upon written or oral request.
(d) The Company represents that in connection with its offering of the
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986, it
is relying on a no-action letter dated November 28, 1988, to the
American Council of Life Insurance (Ref. No. IP-6-88) regarding Sections
22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, and
that paragraphs numbered (1) through (4) of that letter will be complied
with.
(e) Protective Life hereby represents that the fees and charges deducted
under the Contract, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed by Protective Life.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
the amendment to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama, on April 24, 2000.
PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT
By: /s/ JOHN D. JOHNS
-----------------------------------
John D. Johns, PRESIDENT
PROTECTIVE LIFE INSURANCE COMPANY
PROTECTIVE LIFE INSURANCE COMPANY
By: /s/ JOHN D. JOHNS
-----------------------------------
John D. Johns, PRESIDENT
PROTECTIVE LIFE INSURANCE COMPANY
As required by the Securities Act of 1933, the amendment to this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
------------------------------------------- Chairman of the Board April 24, 2000
Drayton Nabers, Jr. (Principal Executive Officer)
/s/ JOHN D. JOHNS
------------------------------------------- President April 24, 2000
John D. Johns (Principal Financial Officer)
Vice President, Controller, and
* Chief Accounting Officer
------------------------------------------- (Principal Accounting April 24, 2000
Jerry DeFoor Officer)
*
------------------------------------------- Director April 24, 2000
Drayton Nabers, Jr.
/s/ JOHN D. JOHNS
------------------------------------------- Director April 24, 2000
John D. Johns
*
------------------------------------------- Director April 24, 2000
R. Stephen Briggs
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
------------------------------------------- Director April 24, 2000
Jim E. Massengale
*
------------------------------------------- Director April 24, 2000
Wayne E. Stuenkel
*
------------------------------------------- Director April 24, 2000
A.S. Williams III
*
------------------------------------------- Director April 24, 2000
Steven A. Schultz
*
------------------------------------------- Director April 24, 2000
Deborah J. Long
*
------------------------------------------- Director April 24, 2000
Carolyn King
*
------------------------------------------- Director April 24, 2000
Richard J. Bielen
*
------------------------------------------- Director April 24, 2000
Danny L. Bentley
*
------------------------------------------- Director April 24, 2000
T. Davis Keyes
/s/ STEVE M. CALLAWAY
-------------------------------------------
Steve M. Callaway
ATTORNEY-IN-FACT
</TABLE>
C-8
<PAGE>
[PROTECTIVE LETTERHEAD]
- - - - - - - - - - - - - -------------------------------
STEVE M. CALLAWAY
Senior Associate Counsel
Writer's Direct Number: (205)868-3804
Facsimile Number: (205)868-3597
Toll-Free Number: (800)627-0220
April 24, 2000
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Gentlemen:
This opinion is submitted with respect to Pre-Effective Amendment No. 1 to
the Form N-4 Registration Statement, file numbers 811-8108 and 333-94047, to be
filed by Protective Life Insurance Company (the "Company") and Protective
Variable Annuity Separate Account (the "Account") with the Securities and
Exchange Commission for the purpose of registering under the Securities Act of
1933, as amended, group and individual flexible premium deferred variable and
fixed annuity contracts marketed under the name "Protective Variable Annuity II"
(the "Contracts"). I have examined such documents and such law as I considered
necessary and appropriate, and on the basis of such examination, it is my
opinion that:
1. The Company is a corporation duly organized and validly existing as a
stock life insurance company under the laws of the State of Tennessee
and is duly authorized by the Department of Commerce and Insurance of
the State of Tennessee to issue the Contracts.
2. The Account is a duly authorized and existing separate account
established pursuant to the provisions of Section 53-3-501 of the
Tennessee Code.
3. To the extent so provided under the Contracts, that portion of the
assets of the Account equal to the reserves and other contract
liabilities with respect to the Account will not be chargeable with
liabilities arising out of any other business that the Company may
conduct.
4. The Contracts, when issued as contemplated by the Form N-4
registration statement, will constitute legal, validly issued and
binding obligations of the Company.
I hereby consent to the filing of this opinion as an exhibit to the
Form N-4 registration statement for the Contracts and the Account.
Very truly yours,
/s/ STEVE M. CALLAWAY
Steve M. Callaway
Senior Associate Counsel
PROTECTIVE LIFE INSURANCE COMPANY/PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
EMPIRE GENERAL LIFE ASSURANCE CORPORATION/WISCONSIN NATIONAL LIFE
INSURANCE COMPANY
<PAGE>
[SUTHERLAND ASBILL & BRENNAN LETTERHEAD]
April 14, 2000
Board of Directors
Protective Life Insurance Company
2801 Highway 201 South
Birmingham, Alabama 35223
Directors:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the statement of additional information filed as part of
pre-effective amendment number 1 to the registration statement on Form N-4 (File
No. 333-94097) filed by Protective Life Insurance Company and Protective
Variable Annuity Separate Account with the Securities and Exchange Commission.
In giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ DAVID S. GOLDSTEIN
--------------------------------------
David S. Goldstein
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use, in this Registration Statement on Form N-4 (File
No. 333-94047) of our report dated February 23, 2000, relating to the
consolidated financial statements and financial statement schedules of
Protective Life Insurance Company and Subsidiaries, which appear in such
Registration Statement. We also consent to the use in this registration
statement of our report dated March 20, 2000 on our audits of the financial
statements of the Protective Variable Annuity Separate Account, which appears in
such Registration Statement. We also consent to the reference to our Firm under
the heading "Experts."
/s/ PricewaterhouseCoopers, LLP
Birmingham, Alabama
April 24, 2000
<PAGE>
EXHIBIT 14
DIRECTORS'
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors of
Protective Life Insurance Company, a Tennessee corporation, ("Company") by his
execution hereof or upon an identical counterpart hereof, does hereby constitute
and appoint John D. Johns, Steve M. Callaway or Jerry W. DeFoor, and each or any
of them, his true and lawful attorney-in-fact and agent, for him and in his
name, place and stead, to execute and sign the Registration Statement on Form
N-4 to be filed by the Company in April, 2000 for the Protective Variable
Annuity II, an individual flexible premium deferred variable and fixed annuity
product, with the Securities and Exchange Commission, pursuant to the provisions
of the Securities Exchange Act of 1933 and the Investment Company Act of 1940
and, further, to execute and sign any and all pre-effective and post-effective
amendments to such Registration Statement, and to file same, with all exhibits
and schedules thereto and all other documents in connection therewith, with the
Securities and Exchange Commission and with such state securities authorities as
may be appropriate, granting unto said attorney-in-fact and agent, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes of the undersigned might or could do in person, hereby
ratifying and confirming all the acts of said attorney-in-fact and agent or any
of them which they may lawfully do in the premises or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and
seal this 19th day of April, 2000.
WITNESS TO ALL SIGNATURES:
<TABLE>
<S> <C>
/s/ DEBORAH J. LONG /s/ JACKIE ANDERSON
- - - - - - - - - - - - - --------------------------------------------- ---------------------------------------------
Deborah J. Long Jackie Anderson
Witness to Deborah J. Long's signature
/s/ DRAYTON NABERS, JR. /s/ DANNY L. BENTLEY
- - - - - - - - - - - - - --------------------------------------------- ---------------------------------------------
Drayton Nabers, Jr. Danny L. Bentley
/s/ JOHN D. JOHNS /s/ RICHARD J. BIELEN
- - - - - - - - - - - - - --------------------------------------------- ---------------------------------------------
John D. Johns Richard J. Bielen
/s/ R. STEPHEN BRIGGS /s/ CAROLYN KING
- - - - - - - - - - - - - --------------------------------------------- ---------------------------------------------
R. Stephen Briggs Carolyn King
/s/ DEBORAH J. LONG /s/ JIM E. MASSENGALE
- - - - - - - - - - - - - --------------------------------------------- ---------------------------------------------
Deborah J. Long Jim E. Massengale
/s/ STEVEN A. SCHULTZ /s/ WAYNE E. STUENKEL
- - - - - - - - - - - - - --------------------------------------------- ---------------------------------------------
Steven A. Schultz Wayne E. Stuenkel
/s/ A. S. WILLIAMS III /s/ T. DAVIS KEYES
- - - - - - - - - - - - - --------------------------------------------- ---------------------------------------------
A. S. Williams III T. Davis Keyes
</TABLE>
