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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1995
FILE NO. 33-61599
FILE NO. 811-7337
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
PRE-EFFECTIVE AMENDMENT NO. 1
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PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
PROTECTIVE LIFE INSURANCE COMPANY
(Name of Depositor)
2801 Highway 280 South
Birmingham, Alabama 35223
(Address of Depositor's Principal Executive Offices)
COPY TO:
Lizabeth R. Nichols, Esquire Stephen E. Roth, Esquire
2801 Highway 280 South Sutherland, Asbill & Brennan
Birmingham, Alabama 35223 1275 Pennsylvania Avenue, N.W.
(Name and Address of Agent Washington, D.C. 20004-2404
for Service of Process)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the registration statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
registrant has elected to register an indefinite amount of securities being
offered. The filing fee of $500 was paid with the initial filing.
The registrant hereby amends this registration statement under the
Securities Act of 1933 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), may determine.
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PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
REGISTRATION STATEMENT ON FORM S-6
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
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1 Cover Page
2 Cover Page
3 Inapplicable
4 Sale of the Policies
5 Protective Variable Life Separate Account
6 Protective Variable Life Separate Account
7 Inapplicable
8 Inapplicable
9 Legal Matters
10(a) The Policy
10(b) The Policy
10(c) Surrender Privilege; Withdrawal Privilege; Policy Loans; Payment Options
10(d) Cancellation Privilege; Special Transfer Privilege; Exchange Privilege; Withdrawal
Privilege; Policy Loans; Payment Options
10(e) Policy Lapse and Reinstatement
10(f) Voting Rights
10(g),(h) Other Investors in the Funds; Addition, Deletion and Substitution of Investments; Voting
Rights; Purchasing a Policy; Changes in the Policy or Benefits
10(i) Other Policy Benefits and Provisions; Death Benefit Proceeds; Payment Options; The Fixed
Account; Maturity Benefits; Limits on the Right to Contest the Policy; Suspension or Delay
of Payments; Arbitration; Supplemental Benefits and/or Riders; Tax Considerations
11 The Funds
12 The Funds
13 Charges and Deductions; Sale of the Policies; Illustrations of Policy Values, Surrender
Values, Death Benefits and Accumulated Premiums
14 Purchasing a Policy; Cancellation Privilege; Premium Payments; Net Premium Allocations;
15 Purchasing a Policy; Cancellation Privilege; Premium Payments; Net Premium Allocations;
16 The Funds
17 Captions referenced under Items 10(c), (d), and (e) above
18 Protective Variable Life Separate Account; The Funds; Calculation of Policy Values; Tax
Considerations
19 Voting Rights; Reports to Policy Owners; Sale of the Policies
20 Captions referenced under Items 6 and 10(g) above
21 Policy Loans
22 Protective Variable Life Separate Account; Financial Statements
</TABLE>
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<TABLE>
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FORM N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
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23 Inapplicable
24 Protective Life Directors and Executive Officers; State Regulation
25 Protective Life Insurance Company
26 Charges and Deductions
27 Protective Life Insurance Company
28 Protective Life Directors and Executive Officers
29 Protective Life Insurance Company
30 Inapplicable
31 Inapplicable
32 Inapplicable
33 Inapplicable
34 Sale of the Policies
35 Protective Life Insurance Company
36 Inapplicable
37 Inapplicable
38 Sale of the Policies
39 Sale of the Policies
40 Sale of the Policies
41(a) Sale of the Policies
42 Inapplicable
43 Inapplicable
44(a) Calculation of Policy Values; Premium Payments; Charges and Deductions
44(b) Charges and Deductions
44(c) Charges and Deductions
45 Inapplicable
46 Calculation of Policy Values; Surrender Privilege; Withdrawal Privilege; Charges and
Deductions; Illustrations of Policy Values, Surrender Values, Death Benefits and
Accumulated Premiums
47 Inapplicable
48 Inapplicable
49 Inapplicable
50 Inapplicable
51 Summary and Diagram of the Policy; The Policy; Policy Benefits
52 Addition, Deletion and Substitution of Investments
53 Tax Considerations
54 Inapplicable
55 Inapplicable
56 Inapplicable
57 Inapplicable
58 Inapplicable
59 Financial Statements
</TABLE>
<PAGE>
PROSPECTUS
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE AND FIXED LIFE INSURANCE POLICY
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Issued by: PROTECTIVE LIFE INSURANCE COMPANY
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone (800) 866-3555
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This prospectus describes an individual flexible premium variable and fixed
life insurance policy (the "Policy") offered by Protective Life Insurance
Company ("Protective Life"). The Policy is designed to provide insurance
protection on the life of the Insured named in the Policy, and at the same time
provide the Owner with the flexibility to vary the amount and timing of premium
payments and, within certain limits, to change the amount of death benefits
payable under the Policy. This flexibility permits the Owner to provide for
changing insurance needs with a single insurance policy. This Policy may not be
available in all jurisdictions.
The Owner may, within limits, allocate Net Premium payments and Policy Value
to one or more Sub-Accounts of the Protective Variable Life Separate Account
(the "Variable Account") and Protective Life's general account (the "Fixed
Account"). Discussions of values under the Policy in this prospectus generally
relate only to the values allocated to the Variable Account. The assets of each
Sub-Account of the Variable Account are invested in a corresponding investment
portfolio (each, a "Fund") of Protective Investment Company. These Funds are:
<TABLE>
<S> <C>
Protective Growth and Income Fund Protective Select Equity Fund
Protective International Equity Fund Protective Small Cap Equity Fund
Protective Global Income Fund Protective Money Market Fund
Protective Capital Growth Fund
</TABLE>
The Prospectus for the Funds describes the investment objective(s) and risks
of investing in the Sub-Account corresponding to each. The Owner bears the
entire investment risk for Policy Value allocated to a Sub-Account.
Consequently, except as to Policy Value allocated to the Fixed Account, the
Policy has no guaranteed minimum Surrender Value.
It may not be advantageous to replace existing insurance with this Policy.
Within certain limits, you may return the Policy, or convert it to a Policy that
provides benefits that do not vary with the investment results of a separate
account by exercising the Special Transfer Right.
POLICIES (OTHER THAN POLICIES ISSUED IN TENNESSEE) INCLUDE AN ARBITRATION
PROVISION THAT MANDATES RESOLUTION OF ALL DISPUTES ARISING UNDER THE POLICY
THROUGH BINDING ARBITRATION. THIS PROVISION IS INTENDED TO RESTRICT AN OWNER'S
ABILITY TO LITIGATE SUCH DISPUTES. SEE "ARBITRATION".
Please read this Prospectus and the prospectus for the Funds carefully and
retain both for future reference. This Prospectus must be accompanied or
preceded by the current prospectus for the Funds.
AN INVESTMENT IN THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, NOR IS THE POLICY FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THE POLICY INVOLVES CERTAIN RISKS, INCLUDING THE LOSS OF PREMIUM PAYMENTS
(PRINCIPAL).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
December __, 1995
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
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PAGE
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DEFINITIONS OF TERMS....................................................................................... 6
SUMMARY AND DIAGRAM OF THE POLICY.......................................................................... 8
GENERAL INFORMATION ABOUT PROTECTIVE LIFE, THE VARIABLE ACCOUNT AND THE FUNDS.............................. 11
Protective Life Insurance Company........................................................................ 11
Protective Variable Life Separate Account................................................................ 11
The Funds................................................................................................ 11
Other Investors in the Funds............................................................................. 12
Addition, Deletion or Substitution of Investments........................................................ 13
Voting Rights............................................................................................ 13
THE POLICY................................................................................................. 14
Purchasing a Policy...................................................................................... 14
Cancellation Privilege................................................................................... 15
Premium Payments......................................................................................... 15
- Minimum Initial Premium Payment...................................................................... 15
- Planned Periodic Premium Payments.................................................................... 15
- Unscheduled Premium Payments......................................................................... 15
- Premium Payment Limitations.......................................................................... 15
- No-Lapse Guarantee................................................................................... 16
- Premium Payments Upon Increase in Face Amount........................................................ 16
Net Premium Allocations.................................................................................. 16
Policy Lapse and Reinstatement........................................................................... 17
- Lapse................................................................................................ 17
- Reinstatement........................................................................................ 17
Special Transfer Privilege............................................................................... 17
CALCULATION OF POLICY VALUES............................................................................... 17
Variable Account Value................................................................................... 17
- Determination of Units............................................................................... 18
- Determination of Unit Value.......................................................................... 18
- Net Investment Factor................................................................................ 18
Fixed Account Value...................................................................................... 18
POLICY BENEFITS............................................................................................ 18
Transfers of Policy Values............................................................................... 18
- General.............................................................................................. 18
- Telephone Transfers.................................................................................. 19
- Reservation of Rights................................................................................ 19
- Dollar Cost Averaging................................................................................ 19
Surrender Privilege...................................................................................... 19
Withdrawal Privilege..................................................................................... 20
Policy Loans............................................................................................. 20
- General.............................................................................................. 20
- Loan Collateral...................................................................................... 20
- Loan Repayment....................................................................................... 21
- Interest............................................................................................. 21
- Non-Payment of Policy Loan........................................................................... 21
- Effect of a Policy Loan.............................................................................. 21
Maturity Benefits........................................................................................ 21
Death Benefit Proceeds................................................................................... 22
- Calculation of Death Benefit Proceeds................................................................ 22
- Death Benefit Options................................................................................ 22
- Changing the Death Benefit Option.................................................................... 22
</TABLE>
3
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<TABLE>
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PAGE
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<S> <C>
- Changing the Face Amount............................................................................. 23
Payment Options.......................................................................................... 23
- Minimum Amounts...................................................................................... 24
- Other Requirements................................................................................... 24
THE FIXED ACCOUNT.......................................................................................... 24
The Fixed Account........................................................................................ 24
Interest Credited on Fixed Account Value................................................................. 25
Payments from the Fixed Account.......................................................................... 25
CHARGES AND DEDUCTIONS..................................................................................... 25
Premium Expense Charges.................................................................................. 25
- Sales Charge......................................................................................... 25
- Federal Tax Charge................................................................................... 25
- Other Taxes.......................................................................................... 25
- Premium Tax Charge................................................................................... 26
Monthly Deduction........................................................................................ 26
- Cost of Insurance Charge............................................................................. 26
- Legal Considerations Relating to Sex--Distinct Premium Payments and Benefits......................... 27
- Monthly Administration Fee........................................................................... 27
- Supplemental Benefit and/or Rider Charges............................................................ 28
Daily Mortality and Expense Risk Charge.................................................................. 28
Transfer Fee............................................................................................. 28
Surrender Charge (Contingent Deferred Sales Charges)..................................................... 28
Withdrawal Charge........................................................................................ 29
Fund Expenses............................................................................................ 29
EXCHANGE PRIVILEGE......................................................................................... 30
Effect of the Exchange Offer............................................................................. 31
- Tax Considerations................................................................................... 32
- Sales Commissions.................................................................................... 32
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES, DEATH BENEFITS AND ACCUMULATED
PREMIUMS.................................................................................................. 32
OTHER POLICY BENEFITS AND PROVISIONS....................................................................... 42
Limits on Rights to Contest the Policy................................................................... 42
- Incontestability..................................................................................... 42
- Suicide Exclusion.................................................................................... 42
Changes in the Policy or Benefits........................................................................ 42
- Misstatement of Age or Sex........................................................................... 42
- Other Changes........................................................................................ 42
Suspension or Delay of Payments.......................................................................... 42
Reports to Policy Owners................................................................................. 42
Assignment............................................................................................... 42
Arbitration.............................................................................................. 43
Supplemental Benefits and/or Riders...................................................................... 43
- Children's Term Life Insurance Rider................................................................. 43
- Accidental Death Benefit Rider....................................................................... 43
- Disability Benefit Rider............................................................................. 43
- Guaranteed Insurability Rider........................................................................ 43
- Protected Insurability Benefit Rider................................................................. 43
Reinsurance.............................................................................................. 43
USES OF THE POLICY......................................................................................... 44
TAX CONSIDERATIONS......................................................................................... 44
Introduction............................................................................................. 44
</TABLE>
4
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Tax Status of Protective Life............................................................................ 44
Taxation of Life Insurance Policies...................................................................... 45
- Tax Status of the Policy............................................................................. 45
-- Diversification Requirements....................................................................... 45
-- Ownership Treatment................................................................................ 45
- Tax Treatment of Life Insurance Death Benefit Proceeds............................................... 46
- Tax Deferral During Accumulation Period.............................................................. 46
Policies Which Are Not MEC's............................................................................. 46
-- Tax Treatment of Withdrawals Generally............................................................. 46
-- Certain Distributions Required by the Tax Law in the First 15 Policy Years......................... 46
-- Tax Treatment of Loans............................................................................. 46
Policies Which Are MEC's................................................................................. 47
-- Characterization of a Policy as a MEC.............................................................. 47
-- Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs............................ 47
-- Penalty Tax........................................................................................ 47
-- Aggregation of Policies............................................................................ 47
- Treatment of Maturity Benefits and Extension of Maturity Date........................................ 48
- Actions to Ensure Compliance with the Tax Law........................................................ 48
- Other Considerations................................................................................. 48
Federal Income Tax Withholding........................................................................... 48
OTHER INFORMATION ABOUT THE POLICIES AND PROTECTIVE LIFE................................................... 48
Sale of the Policies..................................................................................... 48
Protective Life Directors and Executive Officers......................................................... 49
State Regulation......................................................................................... 50
Additional Information................................................................................... 50
Experts.................................................................................................. 50
Legal Matters............................................................................................ 51
Financial Statements..................................................................................... 51
APPENDICES
A-Examples of Death Benefit Options...................................................................... A-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS OF THE FUNDS, OR THE STATEMENT OF ADDITIONAL
INFORMATION OF THE FUNDS.
5
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DEFINITIONS OF TERMS
ATTAINED AGE -- The Insured's age as of the nearest birthday on the Policy
Effective Date, plus the number of complete Policy Years since the Policy
Effective Date.
BENEFICIARY -- The person to whom the Death Benefit Proceeds are paid upon the
death of the Insured. Primary, contingent, and irrevocable Beneficiaries may be
named.
CANCELLATION PERIOD -- Period shown in the Policy during which the Owner may
exercise the cancellation privilege and return the Policy for a refund.
CASH VALUE -- Policy Value minus any applicable Surrender Charge.
CODE -- The Internal Revenue Code of 1986, as amended.
DEATH BENEFIT -- The amount payable to the Beneficiary under a Death Benefit
Option before adjustments if the Insured dies while the Policy is in force.
DEATH BENEFIT OPTION -- One of two options that an Owner may select for the
computation of Death Benefit Proceeds. Face Amount (Option 1), or Face Amount
Plus Policy Value (Option 2).
DEATH BENEFIT PROCEEDS -- The amount payable to the Beneficiary if the Insured
dies while the Policy is in force and is equal to the Death Benefit plus any
death benefit under any rider to the Policy less any Policy Debt less unpaid
monthly deductions if the Insured dies during a
grace period.
FACE AMOUNT -- A dollar amount selected by the Owner and shown in the Policy.
FIXED ACCOUNT -- Part of Protective Life's General Account to which Policy Value
may be transferred or Net Premiums allocated under a Policy.
FIXED ACCOUNT VALUE -- The Policy Value in the Fixed Account.
FUND -- An investment portfolio of Protective Investment Company or any other
open-end management investment company or unit investment trust in which a
Sub-Account invests.
GENERAL ACCOUNT -- Protective Life's assets other than those allocated to the
Variable Account or another separate account.
HOME OFFICE -- 2801 Highway 280 South, Birmingham, Alabama 35223.
INITIAL FACE AMOUNT -- The Face Amount on the Policy Effective Date.
INSURED -- The person whose life is covered by the Policy.
ISSUE AGE -- The Insured's age as of the nearest birthday on the Policy
Effective Date.
ISSUE DATE -- The date the Policy is issued. The Issue Date may be a later date
than the Policy Effective Date if the initial premium payment is received at the
Home Office before the Issue Date.
LAPSE -- Termination of the Policy at the expiration of the grace period while
the Insured is still living.
LOAN ACCOUNT -- An account within Protective Life's general account to which
Fixed Account Value and/or Variable Account Value is transferred as collateral
for Policy loans.
LOAN ACCOUNT VALUE -- The Policy Value in the Loan Account.
MATURITY DATE -- The date shown in the Policy on which the Owner(s) will be paid
the Surrender Value, if any, provided the Insured is still living. It is the
Policy Anniversary nearest the Insured's 95th birthday. The Maturity Date may be
changed provided it is not less than 20 years from the Policy Effective Date.
MINIMUM MONTHLY PREMIUM -- For Policies issued on Insured's Issue Age below 70,
the minimum amount of premium payments that must be paid in order for the
No-Lapse Guarantee to remain in effect.
MONTHLY ANNIVERSARY DAY -- The same day as the Policy Effective Date.
NET AMOUNT AT RISK -- As of any Monthly Anniversary Day, the Death Benefit under
the Policy (discounted for the upcoming Policy month) less the Policy Value
(before deduction of the
6
<PAGE>
monthly administration fee and monthly supplemental and/or rider benefit charges
on that day).
NET ASSET VALUE PER SHARE -- The value per share of any Fund as computed on any
Valuation Day.
NET PREMIUM -- A premium payment minus the applicable Premium expense charges.
OWNER, YOU, YOUR -- The person(s) who owns a Policy.
PLANNED PERIODIC PREMIUM PAYMENT -- The premium determined by the Owner as a
level amount that he or she (or they) plan to pay at fixed intervals over a
specified period of time.
POLICY ANNIVERSARY -- The same day in each Policy Year as the Policy Effective
Date.
POLICY DEBT -- The sum of all outstanding policy loans plus accrued interest.
POLICY EFFECTIVE DATE -- The date shown in the Policy as of which coverage under
the Policy begins. Policy Years are measured from the Policy Effective Date. The
Policy Effective Date is never the 29th, 30th, or 31st of a month.
POLICY VALUE -- The sum of the Variable Account Value, the Fixed Account Value,
and the Loan Account Value.
POLICY YEAR -- Each period of twelve months commencing with the Policy Effective
Date and each Policy Anniversary thereafter.
PREMIUM PAYMENT(S) OR PREMIUMS -- Payments made by the Owner(s) to purchase the
Policy.
PROTECTIVE LIFE, WE, US, OUR, COMPANY -- Protective Life Insurance Company.
SUB-ACCOUNT -- A separate division of the Variable Account established to invest
in a particular Fund.
SUB-ACCOUNT VALUE -- The Policy Value in a Sub-Account.
SURRENDER VALUE -- The Cash Value minus any outstanding Policy Debt.
UNIT -- A unit of measurement used to calculate Sub-Account Values.
UNSCHEDULED PREMIUM PAYMENT -- Any Premium Payment other than a Planned Periodic
Premium Payment.
VALUATION DAY -- Each day the New York Stock Exchange is open for business
except federal and other holidays and days when Protective Life is not open for
business.
VALUATION PERIOD -- The period commencing with the close of regular trading on
the New York Stock Exchange on any valuation day and ending at the close of
regular trading on the New York Stock Exchange on the next succeeding Valuation
Day.
VARIABLE ACCOUNT -- Protective Variable Life Separate Account, a separate
investment account of Protective Life into which Net Premiums may be allocated.
VARIABLE ACCOUNT VALUE -- The sum of all Sub-Account Values.
WITHDRAWAL -- A withdrawal by the Owner of an amount of Cash Value that is less
than the Surrender Value.
WRITTEN NOTICE -- A written notice or request that is received by Protective
Life at the Home Office.
7
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SUMMARY AND DIAGRAM OF THE POLICY
THE FOLLOWING SUMMARY OF PROSPECTUS INFORMATION AND DIAGRAM OF THE POLICY
SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE DESCRIPTION OF THE POLICY IN
THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN FORCE AND THERE IS NO OUTSTANDING
POLICY DEBT.
The Policy is similar in many ways to fixed-benefit life insurance. As with
fixed-benefit life insurance, the Owner of a Policy makes premium payments for
insurance coverage on the person insured. Also, like many fixed-benefit life
insurance policies, the Policy provides for accumulation of Net Premiums and a
Surrender Value which is payable if the Policy is surrendered during the
Insured's lifetime. As with fixed-benefit life insurance, the Surrender Value
during the early Policy Years is likely to be substantially lower than the
aggregate Premium Payments made.
However, the Policy differs from fixed-benefit life insurance in several
important respects. Unlike fixed-benefit life insurance, the Death Benefit may
and the Policy Value will increase or decrease to reflect the investment
performance of any Sub-Accounts to which Policy Value is allocated. Also, unless
the entire Policy Value is allocated to the Fixed Account, there is no
guaranteed minimum Surrender Value. If Policy Value is insufficient to pay
charges due, then, after a grace period, the Policy will lapse without value.
See "Policy Lapse and Reinstatement". However, Protective Life guarantees that
the Policy will remain in force during the first ten Policy Years (for Insureds
Issue Age 0 through 64) or the first five Policy Years (for Insureds Issue Age
65 through 69) as long as certain requirements related to the Minimum Monthly
Premium have been met. See "Premium Payments -- No-Lapse Guarantee," and "Policy
Loans". If a Policy lapses while loans are outstanding, certain amounts may
become subject to income tax and a 10% penalty tax. See "Tax Considerations".
The most important features of the Policy, such as charges, cash benefits,
death benefits, and calculation of Policy values, are summarized in the diagram
on the following pages.
PURPOSE OF THE POLICY. The Policy is designed to be a long-term investment
providing insurance benefits. A prospective Owner should evaluate the Policy in
conjunction with other insurance policies he or she may own, as well as their
need for insurance and the Policy's long-term investment potential. It may not
be advantageous to replace existing insurance coverage with the Policy. In
particular, replacement should be carefully considered if the decision to
replace existing coverage is based solely on a comparison of Policy
illustrations (see below).
POLICY BENEFITS. Two Death Benefit options are available under the Policy:
a level death benefit ("Option 1") and a variable death benefit ("Option 2").
Protective Life guarantees that the Death Benefit Proceeds will never be less
than the Face Amount of insurance (less any outstanding Policy Debt and past due
charges) as long as sufficient premiums are paid to keep the Policy in force.
The Policy provides for a Surrender Value that can be obtained by surrendering
the Policy. The Policy also permits loans and withdrawals, within limits.
ILLUSTRATIONS. Illustrations in this prospectus or used in connection with
the purchase of a Policy are based on HYPOTHETICAL rates of return. THESE RATES
ARE NOT GUARANTEED. They are illustrative only and SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE PERFORMANCE. Actual rates of return may be
higher or lower than those reflected in Policy illustrations, and therefore,
actual Policy values will be different from those illustrated.
TAX CONSIDERATIONS. Protective Life intends for the Policy to satisfy the
definition of a life insurance contract under Section 7702 of the Internal
Revenue Code of 1986, as amended. A Policy may be a "modified endowment
contract" under federal tax law depending upon the amount of Premium Payments
made in relation to the Death Benefit provided under the Policy. Protective Life
will monitor Policies and will attempt to notify you on a timely basis if your
Policy is in jeopardy of becoming a modified endowment contract. For further
discussion of the tax status of a Policy and the tax consequences of being
treated as a life insurance contract or a modified endowment contract,
see "Tax Considerations".
8
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CANCELLATION PRIVILEGE AND SPECIAL TRANSFER RIGHT. For a limited time after
the Policy is issued, you have the right to cancel your Policy and receive a
refund. (See "Cancellation Privilege"). In certain states, until the end of this
"Cancellation Period," Protective Life reserves the right to allocate Net
Premium payments to the Sub-Account investing in the Protective Money Market
Fund. (See "Net Premium Allocations"). At any time within 24 Policy months after
the Issue Date, you may transfer the entire Variable Account Value to the Fixed
Account without payment of any transfer fee and without the transfer counting as
one of the 12 transfers per Policy Year that may be made without incurring a
transfer fee. Such a transfer will result in future Net Premium Payments being
allocated to the Fixed Account and effectively "converts" the Policy into a
policy that provides fixed (non-variable) benefits. See "Special Transfer
Privilege".
OWNER INQUIRIES. If you have any questions, you may write or call
Protective Life's Home Office at 2801 Highway 280 South, Birmingham, Alabama
35223, 1-800-866-3555.
DIAGRAM OF POLICY
PREMIUM PAYMENTS
- You select a payment plan but are not required to pay premium payments
according to the plan. You can vary the amount and frequency and can skip
planned premium payments. See page 15 for rules and limits.
- The Policy's minimum initial premium payment and planned premium payment
depend on the Insured's age, sex and underwriting class, Face Amount
selected, and any supplemental benefits and/or riders.
- Unscheduled premium payments may be made, within limits. See page 15.
DEDUCTIONS FROM PREMIUM PAYMENTS
- For sales charge (2.75% of each premium payment in Policy Years 1 through
10; 0.75% of each premium payment in Policy Years 11 and thereafter). See
page 25.
- For federal taxes (1.25% of each premium payment in all Policy Years). See
page 25.
- For state and local premium taxes (2.25% of each premium payment). See page
26.
NET PREMIUM PAYMENTS
- You direct the allocation of Net Premium payments among seven Sub-Accounts
and the Fixed Account. See page 16 for rules and limits on Net Premium
payment allocations.
- The Sub-Accounts invest in corresponding Funds. See page 11. Funds available
are:
Protective Growth and Income Fund Protective Select Equity Fund
Protective International Equity Fund Protective Small Cap Equity Fund
Protective Global Income Fund Protective Money Market Fund
Protective Capital Growth Fund
- Interest is credited on amounts allocated to the Fixed Account at a minimum
guaranteed rate of 4%. See page 24 for rules and limits on Fixed Account
allocations.
9
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DEDUCTIONS FROM POLICY VALUE
- Monthly Deduction for cost of insurance, administration fees, and charges
for any supplemental and/or rider benefits. Administration fees are
currently $31.00 per month the first Policy Year and $6.00 per month
thereafter, plus for the 12 Policy months following an increase in Face
Amount, a charge based on the increase. See pages 26 through 27.
DEDUCTIONS FROM ASSETS
- Daily charge at an annual rate of 0.90% from the Sub-Accounts for mortality
and expense risks. See page 28. This charge is not deducted from Fixed
Account Value.
- Investment advisory fees and fund operating expenses are also deducted from
the assets of each Fund. See page 29.
POLICY VALUE
- Is equal to Net Premiums, as adjusted each Valuation Day to reflect
Sub-Account investment experience, interest credited on Fixed Account Value,
charges deducted and other Policy transactions (such as transfers and
withdrawals). See page 17.
- Varies from day to day. There is no minimum guaranteed Policy Value. The
Policy may lapse if the Policy Value is insufficient to cover a Monthly
Deduction due. See pages 16 and 17.
- Can be transferred between and among the Sub-Accounts and the Fixed Account.
A transfer fee may apply if more than 12 transfers are made in a Policy
Year. See page 18 for rules and limits. Policy loans reduce the amount
available for allocations and transfers.
- Is the starting point for calculating certain values under a Policy, such as
the Cash Value, Surrender Value, and the Death Benefit used to determine
Death Benefit Proceeds.
CASH BENEFITS
- - Loans may be taken for amounts up to 90% of Surrender Value, at an
effective annual interest rate of 6.0% during the first 10 Policy Years
and 4.0% thereafter. See page 20 for rules and limits.
- - Withdrawals generally can be made provided there is sufficient remaining
Surrender Value. A withdrawal charge of the lesser of $25 or 2% of the
withdrawal amount requested will apply. See page 20 for rules and limits.
- - The Policy may be surrendered in full at any time for its Surrender
Value. A declining deferred sales charge of up to 27% of premium payments
made in the first Policy Year (or 27% of a "SEC guideline annual
premium," if less) is assessed on surrenders during the first 14 Policy
Years. See page 28.
- - Payment options are available. See page 24.
DEATH BENEFITS
- - Available as lump sum or under a variety of payment options.
- - For most Policies, the minimum Face Amount of $50,000.
- - Two Death Benefit options available: Option 1, equal to the Face Amount,
and Option 2, equal to the Face Amount plus Policy Value. See page 22.
- - Flexibility to change the Death Benefit option and Face Amount. See page
23 for rules and limits.
- - Supplemental benefits and/or riders may be available. See page 43.
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GENERAL INFORMATION ABOUT PROTECTIVE LIFE,
THE VARIABLE ACCOUNT AND THE FUNDS
PROTECTIVE LIFE INSURANCE COMPANY
Protective Life is a Tennessee stock life insurance company. Founded in
1907, Protective Life offers individual life and health insurance, annuities,
group life and health 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, 1994, Protective Life had total
assets of approximately $6.1 billion. Protective Life is the principal operating
subsidiary of Protective Life Corporation ("PLC"), an insurance holding company
whose stock is traded on the New York Stock Exchange. PLC, a Delaware
corporation, had assets of approximately $6.1 billion at
December 31, 1994.
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
Protective Variable Life Separate Account is a separate investment account
of Protective Life established under Tennessee law by the board of directors of
Protective Life on February 22, 1995. The Variable Account is registered with
the Securities and Exchange Commission ("SEC") as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act") and is a "separate account"
within the meaning of the federal securities laws. This registration does not
involve supervision by the SEC of the management or investment policies of
practices or 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. 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 that Protective Life conducts. Protective Life may
transfer to its General Account any assets of the Variable Account which exceed
the reserves and other contract liabilities of the Variable Account (which
always are at least equal to the aggregate Surrender Values under the Policies).
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 reserves and other contract liabilities related to the Policies.
Protective Life is obligated to pay all benefits provided under the Policies.
The Variable Account is divided into Sub-Accounts. The income, gains or
losses, whether or not realized, from the assets of each Sub-Account are
credited to or charged against that Sub-Account without regard to any other
income, gains or losses of Protective Life. The Variable Account currently has
seven Sub-Accounts: Growth and Income Sub-Account, International Equity
Sub-Account, Global Income Sub-Account, Select Equity Sub-Account, Small Cap
Equity Sub-Account, Money Market Sub-Account and Capital Growth Sub-Account. The
assets of each Sub-Account are invested exclusively in shares of a corresponding
Fund. In the future, the Variable Account may include other Sub-Accounts that
are not available under the Policies and are not otherwise discussed in this
Prospectus.
THE FUNDS
Each Sub-Account invests in shares of Protective Investment Company ("PIC"),
a "series" type of investment company registered with the SEC as an open-end
management investment company. PIC currently issues seven classes or "series" of
stock, each of which represents an interest in a separate investment portfolio
or Fund. New Funds, which may or may not be available as investments under the
Policies, may be established in the future. Each Fund has its own investment
objective(s) and the income and losses of each are determined separately. The
investment objective(s) of the Funds are briefly summarized below.
PROTECTIVE GROWTH AND INCOME FUND. This Fund seeks long-term growth of
capital and growth of income. This Fund will pursue its objectives by
investing, under normal circumstances, at least 65% of its total assets in
equity securities having favorable prospects of capital appreciation and/ or
dividend paying ability.
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PROTECTIVE INTERNATIONAL EQUITY FUND. This Fund seeks long-term capital
appreciation. This Fund will pursue its objective by investing, primarily in
equity and equity-related securities of companies that are organized outside
the United States or whose securities are primarily traded outside the
United States.
PROTECTIVE GLOBAL INCOME FUND. This Fund seeks high total return,
emphasizing current income and, to a lesser extent, providing opportunities
for capital appreciation. This Fund will pursue its objectives by investing
primarily in high quality fixed-income securities of U.S. and foreign
issuers and through foreign currency transactions.
PROTECTIVE SELECT EQUITY FUND. This Fund seeks a total return
consisting of capital appreciation plus dividend income. This Fund will
pursue its objective by investing, under normal circumstances, at least 90%
of its total assets in equity securities selected using both fundamental
research and a variety of quantitative techniques that seek to maximize the
Fund's reward to risk ratio.
PROTECTIVE SMALL CAP EQUITY FUND. This Fund seeks long-term capital
growth. This Fund will pursue its objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of
companies with public stock market capitalizations of $1 billion or less at
the time of investment.
PROTECTIVE MONEY MARKET FUND. This Fund seeks to maximize current
income to the extent consistent with the preservation of capital and
maintenance of liquidity. This Fund will pursue its objective by investing
exclusively in high quality money market instruments. AN INVESTMENT IN THE
MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT
AND THE FUND CANNOT ASSURE THAT IT WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1 PER SHARE.
PROTECTIVE CAPITAL GROWTH FUND. This Fund seeks long-term capital
growth. The Fund will pursue its objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities having
long-term capital appreciation potential.
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 PROSPECTUS FOR THE FUNDS WHICH ACCOMPANIES THIS PROSPECTUS AND THE
CURRENT STATEMENT OF ADDITIONAL INFORMATION FOR THE FUNDS. THE FUNDS' PROSPECTUS
SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING THE ALLOCATION
OF NET PREMIUMS OR TRANSFERS AMONG THE SUB-ACCOUNTS.
OTHER INVESTORS IN THE FUNDS
PIC currently sells shares only to the Variable Account, Protective Variable
Annuity Separate Account, and directly to Protective Life. PIC may in the future
sell shares to other separate accounts of Protective Life or its life insurance
company affiliates supporting other variable annuity contracts or variable life
insurance contracts. In addition, upon obtaining regulatory approval, PIC may
sell shares to certain retirement plans qualifying under Section 401 of the
Code. Protective Life currently does not foresee any disadvantages to Owners
that would arise from the sale of shares to separate accounts supporting its
variable annuity contracts or those of its affiliates, or from the possible sale
of shares to separate accounts of its affiliates supporting variable life
insurance contracts or from the possible sale of shares to retirement plans.
However, the board of directors of PIC will monitor events in order to identify
any material irreconcilable conflicts that might arise from the sale of shares
to separate accounts supporting variable annuity contracts or that might
possibly arise if such shares were also offered to support variable life
insurance contracts of its affiliates or to retirement plans. In event of such a
conflict, the board of directors of PIC would determine what action, if any,
should be taken in response to the conflict. In addition, if Protective Life
believes that the PIC's response to any
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such conflicts insufficiently protects Owners, it will take appropriate action
on its own, including withdrawing the Variable Account's investment in the
Funds. (See the prospectus for the Funds for more detail.)
Investment Distributors Advisory Services, Inc. ("IDASI") serves as the
investment manager of the Funds. IDASI, in turn, has retained Goldman Sachs
Asset Management as the investment adviser of Protective Money Market Fund,
Protective Select Equity Fund, Protective Capital Growth Fund, Protective Small
Cap Equity Fund, and Protective Growth and Income Fund. IDASI has retained
Goldman Sachs Asset Management International as the investment adviser of
Protective International Equity Fund and Protective Global Income Fund. Goldman
Sachs Asset Management is a separate operating division of Goldman, Sachs & Co.
and Goldman Sachs Asset Management International is an affiliate of Goldman,
Sachs & Co.
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 Fund. Protective Life will
not substitute any shares attributable to a Policy's interest in the Variable
Account without notice and prior approval of the SEC and state insurance
authorities, to the extent required by the 1940 Act or other applicable law.
Protective Life also reserves the right to establish additional Sub-Accounts
of the Variable Ac-count, each of which would invest in shares corresponding to
a one of the Funds or another Fund. Subject to applicable law and any required
SEC approval, Protective Life may, in its sole discretion, establish new
Sub-Accounts or eliminate one or more Sub-Accounts if marketing needs, tax
considerations or investment conditions warrant. Any new Sub-Accounts may be
made available to existing Owner(s) on a basis to be determined by Protective
Life.
If any of these substitutions or changes are made, Protective Life may by
appropriate endorsement change the Policy to reflect the substitution or other
change. If Protective Life deems it to be in the best interest of Owner(s), and
subject to any approvals that may be required under applicable law, the Variable
Account may be operated as a management investment company under the 1940 Act,
it may be deregistered under that Act if registration is no longer required, or
it may be combined with other Protective Life separate accounts. Protective Life
reserves the right to make any changes to the Variable Account required by the
1940 Act or other applicable law or regulation.
VOTING RIGHTS
Protective Life is the legal owner of Fund shares held by the Sub-Accounts
and as such has the right to vote on all matters submitted to shareholders of
the Funds. However, in accordance with applicable law, Protective Life will vote
shares held in the Sub-Accounts at meetings of shareholders of PIC or the Funds
in accordance with instructions received from Owners with Policy Value in the
Sub-Accounts. Should the 1940 Act or any regulation thereunder be amended, or
should the current interpretation thereof change, or Protective Life determines
that it is permitted to vote such shares in its own right, it may elect to do
so.
Protective Life will send Owners voting instruction forms and other voting
materials (such as Fund proxy statements, reports and other proxy materials)
prior to shareholders meetings. The number of votes as to which an Owner may
give instructions is calculated separately for each Sub-Account and may include
fractional votes.
The number of votes attributable to a Sub-Account for an Owner is determined
by applying the 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 Variable Policy Value is allocated
under his or her Policy. Owners only have voting interests while the Insured is
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alive. The number of votes for which an Owner may give instructions is
determined as of the date coincident with the date established by PIC for
determining shareholders eligible to vote at the relevant meeting of each Fund.
Shares as to which no timely instructions are received and shares held
directly by Protective Life are voted by Protective Life in proportion to the
voting instructions that are received with respect to all Policies participating
in a Sub-Account. Voting instructions to abstain on any item are applied to
reduce the votes eligible to be cast on that item.
Protective Life may, if required by state insurance officials, disregard
Owner voting instructions if such instructions would require shares to be voted
so as to cause a change in sub-classification or investment objectives of one or
more of the Funds, or to approve or disapprove the investment management
agreement or an investment advisory agreement. In addition, Protective Life may
under certain circumstances disregard voting instructions that would require
changes in the investment management agreement, investment manager, an
investment advisory agreement or an investment adviser of one or more of the
Funds, provided that Protective Life reasonably disapproves of such changes in
accordance with applicable regulations under the 1940 Act. If Protective Life
ever disregards voting instructions, Owners will be advised of that action and
of the reasons for such action in the next semiannual report.
THE POLICY
PURCHASING A POLICY
To purchase a Policy, a prospective Owner must submit a completed
application (which We must approve) and an initial Premium Payment 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. ("IDI"). The initial Premium Payment must be an
amount at least equal to the minimum required. See "Premium Payments," below.
Protective Life requires satisfactory evidence of the Insured's insurability,
which may include a medical examination of the Insured. Generally, Protective
Life will issue a Policy covering an Insured up to age 75 if evidence of
insurability satisfies Protective Life's underwriting rules. Acceptance of an
application depends on Protective Life's underwriting rules, and Protective Life
reserves the right to reject an application for any reason. With the consent of
the Owner, a Policy may be issued on a basis other than that applied for (I.E.,
on the basis of a revised application). A POLICY IS ISSUED AFTER PROTECTIVE LIFE
APPROVES THE APPLICATION AND RECEIVES THE MINIMUM INITIAL PREMIUM PAYMENT.
Insurance coverage under a Policy begins on the Policy Effective Date which
generally is also the Issue Date. If however, the initial Premium Payment is
submitted with the application and the Policy is issued as applied for in the
application, the Policy Effective Date is the later of the date that the
application is signed or any required medical examination is completed.
Temporary life insurance coverage also may be provided under the terms of a
temporary insurance agreement. In accordance with the terms of the temporary
life insurance agreement, temporary life insurance coverage may not exceed
$250,000 and may not be in effect for more than 90 days.
In order to obtain a more favorable Issue Age, Protective Life may permit
the Owner to "backdate" a Policy by electing a Policy Effective Date up to six
months prior to the date of the original application. Charges for the Monthly
Deduction for the backdated period are deducted as of the new Policy Effective
Date.
The Owner of the Policy may exercise all rights provided under the Policy.
The Insured is the Owner, unless a different person is named as Owner in the
application. By Written Notice while the Insured is living, the Owner may name a
Contingent Owner or a new Owner. If the application names more than one person
as Owner, they are joint Owners. In this event, the exercise of any right under
the Policy (such as transfers of Policy Values) requires the authorization of
all Owners. Unless the Owner provides otherwise, in the event of one joint
Owner's death, ownership passes to any surviving
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joint Owner(s). Unless a contingent Owner has been named, ownership of the
Policy passes to the estate of the last surviving Owner upon his or her death. A
change in Owner may have tax consequences. See "Tax Considerations".
CANCELLATION PRIVILEGE
You may cancel your Policy for a refund during the Cancellation Period by
returning it to Our Home Office or to the sales representative who sold it along
with a written cancellation request. The Cancellation Period is determined by
the law of the state in which the application is signed and is shown in your
Policy. In most states it expires at the latest of (1) ten days after you
receive your Policy, (2) 45 days after you sign your application, or (3) 10 days
after Protective Life mails or delivers a Notice of Right of Withdrawal. Return
of the Policy by mail is effective upon receipt by Us. We will treat the Policy
as if it had never been issued. Within seven calendar days after receiving the
returned Policy, Protective Life will refund (i) the difference between premiums
paid and amounts allocated to the Fixed Account or the Variable Account, plus
(ii) Fixed Account Value determined as of the date the returned Policy is
received, plus (iii) Variable Account Value determined as of the date the
returned Policy is received. This amount may be more or less than the aggregate
Premium Payments. In states where required, Protective Life will refund Premium
Payments.
PREMIUM PAYMENTS
MINIMUM INITIAL PREMIUM PAYMENT. The minimum initial Premium Payment
required depends on a number of factors, including the age, sex and rate class
of the proposed Insured, the Initial Face Amount requested by the applicant, any
supplemental benefits and/or riders requested by the applicant and the Planned
Periodic Premium Payments that the applicant selects. See "Planned Periodic
Premium Payments," below. Consult your sales representative for information
about the Initial Premium required for the coverage you desire.
PLANNED PERIODIC PREMIUMS PAYMENTS. In the application the Owner selects a
plan for paying level Premium Payments at specified intervals (e.g., quarterly,
semi-annually or annually) until the Maturity Date. At the Owner's election,
Protective Life will also arrange for payment of Planned Periodic Premiums on a
monthly basis (on any day except the 29th, 30th, or 31st of a month) under a
pre-authorized payment arrangement. You are not required to pay Premium Payments
in accordance with these plans; rather, you can pay more or less than planned or
skip a Planned Periodic Premium Payment entirely. (See, however, "Policy Lapse
and Reinstatement"). Subject to the limits described below, you can change the
amount and frequency of Planned Periodic Premium Payments whenever you want by
Written Notice to Us.
Unless you have arranged to pay Planned Periodic Premium Payments by
pre-authorized payment arrangement or have otherwise requested, you will be sent
reminder notices for Planned Periodic Premium Payments.
UNSCHEDULED PREMIUM PAYMENTS. Subject to the limitations described below,
additional Unscheduled Premium Payments may be paid in any amount and at any
time. By Written Notice, the Owner may specify that all Unscheduled Premium
Payments are to be applied as repayments of Policy Debt, if any.
PREMIUM PAYMENT LIMITATIONS. Premium Payments may be made by any method
acceptable to Us. If by check, the check must be from an Owner (or the Owner's
designee other than a sales representative), payable to Protective Life
Insurance Company, and be dated prior to its receipt at the Home Office. No
Premium Payments are accepted after a Policy's Maturity Date.
Additional limitations apply to Premium Payments. Premium Payments must be
at least $150 ($50 if paid monthly by a pre-authorized payment arrangement) and
must be remitted to the Home Office. See "Net Premium Allocations," and "Tax
Considerations". Protective Life also reserves the right to limit the amount of
any Premium Payment. In addition, at any point in time aggregate Premium
Payments made under a Policy may not exceed guideline premium payment
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limitations for life insurance policies set forth in the Code. Protective Life
will immediately refund any portion of any Premium Payment that is determined to
be in excess of the limits established by law to qualify a Policy as a contract
for life insurance. Protective Life will monitor Policies and will attempt to
notify the Owner on a timely basis if his or her Policy is in jeopardy of
becoming a modified endowment contract under the Code. See "Tax Considerations".
"NO-LAPSE" GUARANTEE. Protective Life guarantees that a Policy will remain
in force during the first ten Policy Years (if the Insured's Issue Age is 0
through 64) or during the first five Policy Years (if the Insured's Issue Age is
65 through 69), regardless of the Policy Value, if, for each month that the
Policy has been in force since the Policy Effective Date, the total premiums
paid less any withdrawals and Policy Debt is greater than or equal to the
Minimum Monthly Premium (shown in the Policy) multiplied by the number of
complete policy months since the Policy Effective Date, including the current
policy month. The Minimum Monthly Premium payment is calculated for each Policy
based on the age, sex and rate class of the Insured, the requested Face Amount
and any supplemental benefits and/or riders. The "No-Lapse" Guarantee does not
apply to Policies covering Insureds with an Issue Age of 70 or above. The
Company will not notify you in the event the No-Lapse Guarantee is no longer in
effect.
If you increase your Policy's Face Amount while the "No-Lapse" Guarantee is
in effect, Protective Life will NOT EXTEND the period of this guarantee. The
guarantee is based on the initial Face Amount. However, upon an increase in Face
Amount, Protective Life will recalculate the Minimum Monthly Premium, which will
generally also increase. Protective Life will notify you of any increase in the
Minimum Monthly Premium and will amend your Policy to reflect the change.
PREMIUM PAYMENTS UPON INCREASE IN FACE AMOUNT. Depending on the Policy
Value at the time of an increase in the Face Amount and the amount of the
increase requested, an additional Premium Payment may be necessary or a change
in the amount of Planned Periodic Premium Payments may be advisable. See "Death
Benefit Proceeds". You will be notified if a premium payment is necessary or a
change appropriate.
NET PREMIUM ALLOCATIONS
Owners must indicate in the application how Net Premium Payments are to be
allocated to the Sub-Accounts and/or to the Fixed Account. These allocation
instructions apply to both initial and subsequent Net Premium Payments. Owners
may change the allocation instructions in effect at any time by Written Notice.
Whole percentages must be used. The minimum percentage that may be allocated to
any Sub-Account or to the Fixed Account is 10% of Net Premium Payments and the
sum of allocations must add up to 100%.
For Policies issued in states where, upon cancellation during the
Cancellation Period, We return at least your Premium Payments, we reserve the
right to allocate your initial Net Premium Payment (and any subsequent Net
Premium Payments made during the Cancellation Period) to the Money Market
Sub-Account until the expiration of the number of days in the Cancellation
Period plus 6 days starting from the date that the Policy is mailed from the
Home Office. Thereafter, the Policy Value in the Money Market Sub-Account and
all Net Premium Payments will be allocated according to your allocation
instructions then in effect.
Planned Periodic Premium payments and unscheduled premium payments not
requiring additional underwriting will be credited to the Policy and the Net
Premium payments will be invested as requested on the Valuation Date they are
received by the Home Office. However, any premium payment in connection with an
increase in face amount will be allocated to the Money Market Sub-Account until
underwriting has been completed. When approved, the Policy Value in the Money
Market Sub-Account attributable to the resulting Net Premium payment will be
credited to the Policy and allocated in accordance to your allocation
instructions then in effect. If an additional premium payment is rejected,
Protective Life will return the premium payment immediately, without any
adjustment for investment experience.
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Unless designated by the Owner as a loan repayment, payments received from
Owners (other than Planned Periodic Premium Payments) are treated as Unscheduled
Premium Payments.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike a conventional life insurance policy, failure to make Planned
Periodic Premium Payments will not necessarily cause a Policy to lapse.
Conversely, making all Planned Periodic Premium Payments will not necessarily
prevent a Policy from lapsing. Rather, except when the "No-Lapse" Guarantee is
in effect, whether a Policy lapses depends on whether its Policy Value is
sufficient to cover the Monthly Deduction (See "Monthly Deduction") on the
Monthly Anniversary Day.
If the Policy Value on a Monthly Anniversary Day is less than the amount of
the Monthly Deduction due on that date and the "No-Lapse" Guarantee is not in
effect, the Policy will be in default and a grace period will begin. This could
happen if investment experience has been sufficiently unfavorable that it has
resulted in a decrease in Policy Value or the Policy Value has decreased because
you have not paid sufficient Net Premium Payments to offset prior Monthly
Deductions.
In the event of a Policy default, the Owner has a 61-day grace period to
make a Net Premium Payment sufficient to cover the current and past-due Monthly
Deductions. Protective Life will send to the Owner, at the last known address
and the last known address of any assignee of record, notice of the Premium
Payment required to prevent lapse. The grace period will begin when the notice
is sent. A Policy will remain in effect during the grace period. If the Insured
should die during the grace period, the Death Benefit proceeds payable to the
Beneficiary will reflect a reduction for the Monthly Deductions due on or before
the date of the Insured's death as well as any unpaid Policy Debt. See "Death
Benefit Proceeds". Unless the Premium Payment stated in the notice is paid
before the grace period ends, the Policy will lapse.
REINSTATEMENT. An Owner may reinstate a Policy within 5 years of its lapse
provided that: (1) a request for reinstatement is made by Written Notice, (2)
the Insured is still living, (3) the Maturity Date has not been reached, (4) the
Owner pays Net Premiums equal to (a) all Monthly Deductions that were due but
unpaid during the grace period, and (b) which are at least sufficient to keep
the reinstated Policy in force for three months, (5) the Insured provides
Protective Life with satisfactory evidence of insurability, (6) the Owner repays
or reinstates any Policy Debt which existed at the end of the grace period; and
(7) the Policy has not been surrendered. The "Approval Date" of a reinstated
Policy is the date that Protective Life approves the Owner's request for
reinstatement and requirements 1-7 above have been met.
SPECIAL TRANSFER PRIVILEGE.
During the first 24 policy months following the Policy Effective Date, the
Owner may exercise a one-time Special Transfer Privilege by requesting that all
Variable Account Value be transferred to the Fixed Account. Exercise of the
Special Transfer Privilege does not count toward the 12 transfers that are
permitted each Policy Year without imposition of a transfer fee, and is not
subject to a transfer fee. Unless the Owner specifies otherwise, all subsequent
Net Premium Payments are allocated to the Fixed Account after the exercise of
the Special Transfer Privilege. Owners may, however, change this allocation by
Subsequent Written Notice.
CALCULATION OF POLICY VALUES
VARIABLE ACCOUNT VALUE
THE VARIABLE ACCOUNT VALUE REFLECTS THE INVESTMENT EXPERIENCE OF THE
SUB-ACCOUNTS TO WHICH IT IS ALLOCATED, ANY PREMIUM PAYMENTS ALLOCATED TO THE
SUB-ACCOUNTS, TRANSFERS IN OR OUT OF THE SUB-ACCOUNTS, OR ANY WITHDRAWALS OF
VARIABLE ACCOUNT VALUE. THERE IS NO GUARANTEED MINIMUM VARIABLE ACCOUNT VALUE. A
POLICY'S VARIABLE ACCOUNT VALUE THEREFORE DEPENDS UPON A NUMBER OF FACTORS. THE
VARIABLE ACCOUNT VALUE FOR A POLICY AT ANY TIME IS THE SUM OF THE SUB-ACCOUNT
VALUES FOR THE POLICY ON THE VALUATION DAY MOST RECENTLY COMPLETED.
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DETERMINATION OF UNITS. For each Sub-Account, the Net Premium Payment(s) or
Policy Value transferred are converted into Units. The number of Units credited
is determined by dividing the dollar amount directed to each Sub-Account by the
value of the Unit for that Sub-Account for the Valuation Day on which the Net
Premium Payment(s) or transferred amount is invested in the Sub-Account.
Therefore, Net Premium Payments allocated to or amounts transferred to a
Sub-Account under a Policy increase the number of Units of that Sub-Account
credited to the Policy.
DETERMINATION OF UNIT VALUE. The Unit value for each Sub-Account was
arbitrarily set at $10 when the Sub-Account began operations. Thereafter, the
Unit value at the end of every Valuation Day is the Unit value at the end of the
previous Valuation Day times the net investment factor, as described below. The
Sub-Account Value for a Policy is determined on any day by multiplying the
number of Units attributable to the Policy in that Sub-Account by the Unit value
for that Sub-Account on that day.
NET INVESTMENT FACTOR. The net investment factor is an index applied to
measure the investment performance of a Sub-Account from one Valuation Period to
the next. Each Sub-Account has a net investment factor for each Valuation Period
which may be greater or less than one. Therefore, the value of a Unit may
increase or decrease. The net investment factor for any Sub-Account for any
Valuation Period is determined by dividing (1) by (2) and subtracting (3) from
the result, where:
(1) is the result of:
a. the Net Asset Value per share of the Fund held in the Sub-Account,
determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
made by the Fund to the Sub-Account, if the "ex-dividend" date occurs during
the current Valuation Period; plus or minus
c. a per share charge or credit for any taxes reserved for, which is
determined by Protective Life to have resulted from the 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 daily factor representing the mortality and expense risk charge
deducted from the Sub-Account adjusted for the number of days in the
Valuation Period.
FIXED ACCOUNT VALUE
The Fixed Account Value under a Policy at any time is equal to: (1) the Net
Premium Payment(s) allocated to the Fixed Account, plus (2) amounts transferred
to the Fixed Account, plus (3) interest credited to the Fixed Account, less (4)
transfers from the Fixed Account (including any transfer fees deducted), less
(5) withdrawals from the Fixed Account (including any withdrawal charges
deducted), less (6) surrender charges deducted in the event of a decrease in
Face Amount, less (7) monthly deductions. See "The Fixed Account," for a
discussion of how interest is credited to the Fixed Account.
POLICY BENEFITS
TRANSFERS OF POLICY VALUES
GENERAL. Upon receipt of Written Notice at any time on or after the later
of the following: (1) thirty days after the Policy Effective Date, or (2) six
days after the expiration of the Cancellation Period, you may transfer the Fixed
Account Value or any Policy Value in a Sub-Account to other Sub-Accounts or the
Fixed Account, subject to certain restrictions. Transfers (including telephone
transfers -- described below) are processed as of the date a request is received
at the Home Office. Protective Life may, however defer transfers under the same
conditions that payment of Death Benefit Proceeds, withdrawals and surrenders
may be delayed. See "Suspension or Delay of Payments". The minimum amount that
may be transferred is the lesser of $100 or the entire Policy value
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in any Sub-Account or the Fixed Account from which the transfer is made. If,
after the transfer, the Policy Value remaining in a Sub-Account(s) or the Fixed
Account would be less than $100, Protective Life reserves the right to transfer
the entire amount instead of the requested amount. The maximum amount which may
be transferred from the Fixed Account in any Policy Year is the greater of (1)
$2500, or (2) 25% of the Fixed Account Value. We reserve the right to limit
transfers to 12 per Policy Year. For each additional transfer over 12 in any
Policy Year, We reserve the right to charge a transfer fee. The transfer fee, if
any, is deducted from the amount being transferred. See "Transfer Fee".
TELEPHONE TRANSFERS. Transfers may be made upon instructions given by
telephone, provided the appropriate election has been made on the application or
written authorization is provided.
We will send you a confirmation of all instructions communicated by
telephone to determine if they are genuine. For telephone transfers we require a
form of personal identification prior to acting on instructions received by
telephone. We also make a tape-recording of the instructions given by telephone.
If we follow these procedures we are not liable for any losses due to
unauthorized or fraudulent instructions. We reserve the right to suspend
telephone transfer privileges at any time for any class of Policies.
RESERVATION OF RIGHTS. We reserve the right without prior notice to modify,
restrict, suspend or eliminate the transfer privileges (including telephone
transfers) at any time, for any class of Policies, for any reason. In
particular, we reserve the right not to honor transfer requests by a third party
holding a power of attorney from an Owner where that third party requests
simultaneous transfers on behalf of the Owners of two or more Policies.
DOLLAR-COST AVERAGING. If you elect at the time of application or at any
time thereafter by written notice to Protective Life, you may systematically and
automatically transfer, on a monthly or quarterly basis, specified dollar
amounts from the Fixed Account to any of the Sub-Account(s). This is known as
the dollar-cost averaging method of investment. By transferring on a regularly
scheduled basis as opposed to allocating the total amount at one particular
time, an Owner may be less susceptible to the impact of market fluctuations in
Sub-Account Unit Values. Protective Life, however, makes no guarantee that the
dollar-cost averaging method will result in a profit or protect against loss.
To elect dollar-cost averaging, Fixed Account Value must be at least $5,000
at the time of election. Automatic transfers for dollar-cost averaging are
subject to all transfer restrictions other than the maximum transfer amount from
the Fixed Account restriction. You may elect dollar cost averaging for periods
of at least 12 months but no longer than 48 months. At least $100 must be
transferred each month or $300 each quarter. Dollar-cost averaging transfers may
commence on any day of the month that you request following six days after the
end of the Cancellation Period, except the 29th, 30th, or 31st.
Once elected, Protective Life will continue to process dollar-cost averaging
transfers until the earlier of the following: (1) the number of designated
transfers has been completed, or (2) the Fixed Account Value is depleted, (3)
the Owner, by Written Notice, instructs Protective Life to cease the automatic
transfers, (4) a grace period begins under the Policy, or (5) the maximum amount
of Policy Value has been transferred under a dollar-cost averaging election.
Automatic transfers made to facilitate dollar-cost averaging will not count
toward the 12 transfers permitted each Policy Year if Protective Life elects to
limit the number of transfers or impose the transfer fee. Protective Life
reserves the right to discontinue offering automatic dollar-cost averaging
transfers upon 30 days' written notice to the Owner.
SURRENDER PRIVILEGE
At any time prior to the Maturity Date while the Insured is still living,
You may surrender your Policy for its Surrender Value. Surrender Value is
determined as of the Valuation Day on or next following the day Written Notice
requesting the surrender, the Policy and any other required documents are
received by Protective Life. A Surrender Charge may apply. See "Surrender
Charges". The
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Surrender Value is paid in a lump sum unless the Owner requests payment under a
payment option. See "Payment Options". Payment is generally made within seven
calendar days. See "Suspension or Delay of Payments", and "Payments from the
Fixed Account". A Policy terminates upon surrender if payments are taken in one
lump sum and cannot later be reinstated.
WITHDRAWAL PRIVILEGE
At any time after the first Policy Year, an Owner, by Written Notice, may
make a withdrawal of Surrender Value in minimum amounts of $500. Protective Life
will withdraw the amount requested, plus a withdrawal charge, from Policy Value
as of the Valuation Day we receive the request. See "Withdrawal Charge".
The Owner may specify the amount of the withdrawal to be made from any
Sub-Account or the Fixed Account. If the Owner does not so specify, or if the
Sub-Account Value or Fixed Account Value is insufficient to carry out the
request, the withdrawal from each Sub-Account and the Fixed Account is based on
the proportion that such Sub-Account Value(s) and Fixed Account Value bears to
the Policy Value on the Valuation Day immediately prior to the withdrawal.
Payment is generally made within seven calendar days. See "Suspension or Delay
of Payments", and "Payments from the Fixed Account".
If Death Benefit Option 1 is in effect, Protective Life reserves the right
to reduce the Face Amount by the withdrawn amount (exclusive of withdrawal
charge). Protective Life may reject a withdrawal request if the withdrawal would
reduce the Face Amount below the minimum amount for which the Policy would be
issued under Protective Life's then-current rules, or if the withdrawal would
cause the Policy to fail to qualify as a life insurance contract under
applicable tax laws, as interpreted by Protective Life. If the Face Amount at
the time of the withdrawal includes increases from the Initial Face Amount and
the withdrawal requires a decrease of Face Amount, the reduction is made first
from the most recent increase, then from prior increases, if any, in reverse
order of their being made and finally from the Initial Face Amount.
POLICY LOANS
GENERAL. After the first Policy Anniversary and while the Insured is still
living, an Owner may borrow $500 or more from Protective Life using the Policy
as the security for the loan. Policy Loans must be requested by Written Notice
and the maximum amount that an Owner may borrow is an amount equal to 90% of the
Policy's Surrender Value on the date that the loan request is received.
Outstanding Policy Loans therefore reduce the amount available for new Policy
Loans. Loan proceeds generally are mailed within seven calendar days of the Loan
being approved. See "Suspension or Delay of Payments", and "Payments from the
Fixed Account".
LOAN COLLATERAL. When a Policy Loan is made, an amount equal to the Loan is
transferred out of the Sub-Accounts and the Fixed Account and into a Loan
Account established for the Policy. Like the Fixed Account, a Policy's Loan
Account is part of Protective Life's General Account and amounts therein earn
interest as credited by Protective Life from time to time. Because Loan Account
values are part of Policy Value, a loan will have no immediate effect on the
Policy Value. In contrast, Surrender Value (including, as applicable, Variable
Account Value and Fixed Account Value) under a Policy is reduced immediately by
the amount transferred to the Loan Account. The Owner(s) can specify the
Sub-Accounts and the Fixed Account from which collateral is transferred to the
Loan Account. If no allocation is specified, collateral is transferred from each
Sub-Account and from the Fixed Account in the same proportion that the Cash
Value in each Sub-Account and the Fixed Account bears to the total Cash Value on
the date that the loan is made.
On each Policy Anniversary, an amount of Policy Value equal to any due and
unpaid loan interest (explained below), is also transferred to the Loan Account.
Such interest is transferred from each Sub-Account and the Fixed Account in the
same proportion that each Sub-Account Value and the Fixed Account Value bears to
the total unloaned Policy Value.
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LOAN REPAYMENT. You may repay all or part of your Policy Debt (the amount
borrowed plus unpaid interest) at any time while the Insured is living and the
Policy is in force. Loan repayments must be sent to the Home Office and are
credited as of the date received. The Owner may specify in writing that any
Unscheduled Premium Payments made while a loan is outstanding be applied as loan
repayments. (Loan repayments, unlike Unscheduled Premium Payments, are not
subject to Premium Expense Charges.) When a loan repayment is made, Policy Value
in the Loan Account in an amount equal to the repayment is transferred from the
Loan Account to the Sub-Accounts and the Fixed Account. Thus, a loan repayment
will have no immediate effect on the Policy Value, but the Surrender Value
(including, as applicable, Variable Account Value and Fixed Account Value) under
a Policy is increased immediately by the amount transferred from the Loan
Account. Unless specified otherwise by the Owner(s), amounts are transferred to
the Sub-Accounts and the Fixed Account in the same manner as loan collateral is
transferred to the Loan Account.
INTEREST. During the first ten Policy Years, Protective Life will charge
interest daily on any outstanding loan at an effective annual rate of 6.0%.
During Policy Years 11 and thereafter, Protective Life will charge interest
daily on any outstanding loan at an effective annual rate of 4.0%. Interest is
due and payable at the end of each Policy Year while a loan is outstanding. We
will notify You of the amount due. If interest is not paid when due, the amount
of the interest is added to the loan and becomes part of the Policy Debt.
The Loan Account is credited with interest at an effective annual rate of
not less than 4%. Thus, the maximum net cost of a loan is 2.0% per year during
Policy Years 1 through 10, and 0% thereafter (the difference between the rate of
interest charged on Policy loans and the amount credited on the equivalent
amount held in the Loan Account). Protective Life determines the rate of
interest to be credited to the Loan Account in advance of each calendar year.
The rate, once determined, is applied to the calendar year which follows the
date of determination. On each Policy Anniversary, the interest earned on the
Loan Account since the previous Policy Anniversary is transferred to the
Sub-Accounts and to the Fixed Account. Unless specified in writing by the Owner,
interest is transferred and allocated to the Sub-Accounts and the Fixed Account
in the same manner as collateral is transferred to the Loan Account.
NON-PAYMENT OF POLICY LOAN. If the Insured dies while a loan is
outstanding, the Policy Debt is deducted from the Death Benefit in calculating
the Death Benefit proceeds.
If the Loan Account Value exceeds the Cash Value (I.E., the Surrender Value
becomes zero) on any Valuation Date, the Policy may be in default. If this
occurs, You, and any assignee of record, will be sent notice of the default. You
will have a 31-day grace period to submit a sufficient payment to avoid a lapse
(I.E., termination) of the Policy. The notice will specify the amount that must
be repaid to prevent lapse.
EFFECT OF A POLICY LOAN. A loan, whether or not repaid, has a permanent
effect on the Death Benefit and Policy values because the investment results of
the Sub-Accounts and current interest rates credited on Fixed Account Value do
not apply to Policy Value in the Loan Account. The larger the loan and longer
the loan is outstanding, the greater will be the effect of Policy Value being
held as collateral in the Loan Account. See "No Lapse Guarantee". Depending on
the investment results of the Sub-Accounts or credited interest rates for the
Fixed Account while the loan is outstanding, the effect could be favorable or
unfavorable. Policy loans also may increase the potential for lapse if
investment results of the Sub-Accounts to which Surrender Value is allocated is
unfavorable. If a Policy lapses with loans outstanding, certain amounts may be
subject to income tax and a 10% penalty tax. See "Tax Considerations," for a
discussion of the tax treatment of policy loans. In addition, if your Policy is
a "modified endowment contract," loans may be currently taxable and subject to a
10% penalty tax.
MATURITY BENEFITS
The Maturity Date is the Policy Anniversary nearest the Insured's 95th
birthday. If the Policy is still in force on the Maturity Date, the Maturity
Benefit will be paid to the Owner. The Maturity
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Benefit is equal to the Surrender Value on the Maturity Date. You may request a
change in Maturity Date, subject to Protective Life's approval. To elect or not
elect a change in Maturity Date will have income tax consequences. See "Tax
Considerations".
DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, Protective Life will pay the Death
Benefit Proceeds upon receipt at the Home Office of satisfactory proof of the
Insured's death. Protective Life may require return of the Policy. The Death
Benefit Proceeds are paid to the primary Beneficiary or a contingent
Beneficiary. The Owner may name one or more primary or contingent Beneficiaries
and change such Beneficiaries, as provided for in the Policy. If no Beneficiary
survives the Insured, the Death Benefit Proceeds are paid to the Owner or the
Owner's estate. Death Benefit Proceeds are paid in a lump sum or under a payment
option (see "Payment Options").
CALCULATION OF DEATH BENEFIT PROCEEDS. The Death Benefit proceeds are equal
to the Death Benefit under the Death Benefit option selected calculated as of
the date of the Insured's death, plus any supplemental and/or rider benefits,
minus any Policy Debt on that date and, if the Insured died during a grace
period, minus any past due Monthly Deductions. Under certain circumstances, the
amount of the Death Benefit may be further adjusted. See "Limits on Rights to
Contest the Policy" and "Misstatement of Age or Sex".
If part or all of the Death Benefit is paid in one sum, Protective Life will
pay interest on this sum as required by applicable state law from the date of
receipt of due proof of the Insured's death to the date of payment.
DEATH BENEFIT OPTIONS. The Policy Owner may choose one of two Death Benefit
options for use in determining the Death Benefit. Under Death Benefit Option 1,
the Death Benefit is the greater of: (1) the Face Amount under the Policy on the
date of the Insured's death, or (2) a specified percentage of Policy Value on
the date of the Insured's death. Under Death Benefit Option 2, the Death Benefit
is the greater of: (1) the Face Amount under the Policy plus the Policy Value on
the date of the Insured's death, or (2) the same specified percentage of the
Policy Value on the date of the Insured's death.
The specified percentage is 250% when the Insured has reached an "Attained
Age" of 40 or less by date of death, and decreases each year thereafter to 100%
when the Insured has reached an "Attained Age" of 95 at death. A table showing
these percentages for Attained Ages 0 to 95 and examples of Death Benefit
calculations for both Death Benefit Options are found in Appendix A.
Under Death Benefit Option 1, the Death Benefit remains level at the Face
Amount unless the Policy Value multiplied by the specified percentage exceeds
that Face Amount, in which event the Death Benefit will vary as the Policy Value
varies. Owners who are satisfied with the amount of their insurance coverage
under the Policy and who prefer to have favorable investment performance and
additional Premium Payments reflected in higher Policy Value, rather than
increased Death Benefits, generally should select Option 1. Under Death Benefit
Option 2, the Death Benefit always varies as the Policy Value varies (although
it is never less than the Face Amount). Owners who prefer to have favorable
investment performance and additional Premium Payments reflected in increased
Death Benefits generally should select Option 2.
CHANGING THE DEATH BENEFIT OPTION. On or after the first Policy
Anniversary, you may change the Death Benefit option on your Policy subject to
the following rules. After any change, the Face Amount must be at least $50,000
(standard smoker or standard nonsmoker class) or $100,000 (preferred nonsmoker
class). The effective date of the change will be the Monthly Anniversary Day
that coincides with or next follows the day that Protective Life receives and
accepts the request. Protective Life may require satisfactory evidence of
insurability.
When a change from Option 1 to Option 2 is made, the Face Amount after the
change is effected will be equal to the Face Amount before the change less the
Policy Value on the effective date of the
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change. When a change from Option 2 to Option 1 is made, the Face Amount after
the change will be equal to the Face Amount before the change is effected plus
the Policy Value on the effective date of the change.
CHANGING THE FACE AMOUNT. On or after the first Policy Anniversary, you may
request a change in the Face Amount. If a change in the Face Amount would result
in total premiums paid exceeding the premium limitations prescribed under
current tax law to qualify your Policy as a life insurance contract, Protective
Life will immediately return to you the amount of such excess above the premium
limitations.
Protective Life reserves the right to decline a requested decrease in the
Face Amount if compliance with the guideline premium limitations under current
tax law resulting from such a decrease would result in immediate termination of
the Policy, or if to effect the requested decrease, payments to the Owner would
have to be made from Policy Value for compliance with the guideline premium
limitations, and the amount of such payments would exceed the Surrender Value
under the Policy.
Any increase in the Face Amount must be at least $10,000 and an application
must be submitted. Protective Life reserves the right to require satisfactory
evidence of insurability. In addition, the Insured's Attained Age must be less
than the current maximum Issue Age for the Policies, as determined by Protective
Life from time to time. A change in Planned Periodic Premium Payments may be
advisable. See "Premium Payments Upon Increase in Face Amount". The increase in
Face Amount will become effective on the Monthly Anniversary Day on or next
following the date the request for the increase is received and approved, and
the Policy Value will be adjusted to the extent necessary to reflect a monthly
deduction as of the effective date based on the increase in Face Amount. When
the "No-Lapse" Guarantee is in effect, the Policy's Minimum Monthly Premium
amount is also generally increased. See "No-Lapse Guarantee," and "Premium
Payments Upon Increase in Face Amount".
An increase in Face Amount may be cancelled by the Owner in accordance with
the Policy's cancellation privilege provisions, which also apply to increases in
Face Amount. In such case, the amount refunded will be calculated in accordance
with such provisions described above, except that if no additional Premium
Payments are required in connection with the Face Amount increase, then the
amount refunded is limited to that portion of the first monthly deduction
following the increase that is attributable to cost of insurance charges for the
increase and the monthly administration fee for the increase. See "Cancellation
Privilege".
The Face Amount after any decrease must be at least $50,000 (standard smoker
or standard nonsmoker class), or $100,000 (preferred nonsmoker class).
Protective Life reserves the right to prohibit any decrease in Face Amount (i)
for three years following an increase in Face Amount; and (ii) for one Policy
Year following the last decrease in Face Amount. If the Initial Face Amount of
the Policy has been increased prior to the requested decrease, then the decrease
will first be applied against any previous increases in Face Amount in the
reverse order in which they occurred. The decrease will then be applied to the
Initial Face Amount. A decrease in Face Amount will become effective on the
Monthly Anniversary Day that coincides with or next follows receipt and
acceptance of a request at the Home Office.
Decreasing the Face Amount of the Policy may have the effect of decreasing
monthly cost of insurance charges. However, if the Face Amount is decreased
during the first fourteen Policy Years, a Surrender Charge will apply. See
"Surrender Charge".
PAYMENT OPTIONS
The Policy offers a variety of ways of receiving proceeds payable under the
Policy, such as on surrender, death or maturity, other than in a lump sum. These
payment options are summarized below. Any sales representative authorized to
sell this Policy can further explain these options upon
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request. All of these options are forms of fixed-benefit annuities (except
Option 3) which do not vary with the investment performance of a separate
account. Under each payment option (other than Option 3), no surrender or
withdrawal may be made once payments have begun.
The following payment options may be elected.
OPTION 1 -- PAYMENT FOR A FIXED PERIOD. Equal monthly payments will be made
for any period of up to 30 years. The amount of each payment depends on the
total amount applied, the period selected and the monthly payment rates
Protective Life is using when the first payment is due.
OPTION 2 -- LIFE INCOME WITH PAYMENTS FOR A GUARANTEED PERIOD. Equal
monthly payments are based on the life of the named annuitant. Payments will
continue for the lifetime of the annuitant with payments guaranteed for 10 or 20
years. Payments stop at the end of the selected guaranteed period or when the
named person dies, whichever is later.
OPTION 3 -- INTEREST INCOME. Protective Life will hold any amount applied
under this option. Interest on the unpaid balance will be paid each month at a
rate determined by Protective Life. This rate will not be less than the
equivalent of 3% per year.
OPTION 4 -- PAYMENTS FOR A FIXED AMOUNT. Equal monthly payments will be
made of an agreed fixed amount. The amount of each payment may not be less than
$10 for each $1,000 applied. Interest will be credited each month on the unpaid
balance and added to it. This interest will be at a rate set by us, but not less
than an effective rate of 3% per year. Payments continue until the amount
Protective Life holds runs out. The last payment will be for the balance only.
MINIMUM AMOUNTS. Protective Life reserves the right to pay the total amount
of the Policy in one lump sum, if less than $5,000. If monthly payments are less
than $50, payments may be made quarterly, semi-annually, or annually at
Protective Life's option.
OTHER REQUIREMENTS. Payment options must be elected by Written Notice. The
Owner may elect payment options during the Insured's lifetime; Beneficiaries may
elect payment options thereafter if Death Benefit Proceeds are payable in a lump
sum. The effective date of an option applied to Death Benefit Proceeds is the
date of the Insured's death. The effective date of an option applied to
Surrender Value is the date as of which the withdrawal or surrender is executed.
If Protective Life has available at the time a payment option is elected
options or rates on a more favorable basis than those guaranteed, the higher
benefits will apply.
THE FIXED ACCOUNT
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED
ACCOUNT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR HAS THE
FIXED ACCOUNT BEEN REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT
COMPANY ACT OF 1940. ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS
THEREIN ARE SUBJECT TO THE PROVISIONS OF THESE ACTS AND, AS A RESULT, THE STAFF
OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN
THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT. THE DISCLOSURE REGARDING THE
FIXED ACCOUNT MAY, HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE
PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND
COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
THE FIXED ACCOUNT
The Fixed Account consists of assets owned by Protective Life with respect
to the Policies, other than those in the Variable Account. It is part of
Protective Life's general account assets. Protective Life's general account
assets are used to support its insurance and annuity obligations other than
those funded by separate accounts, and are subject to the claims of Protective
Life's general creditors. Subject to applicable law, Protective Life has sole
discretion over the investment of the assets of the
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Fixed Account. The Loan Account is part of the Fixed Account. Guarantees of Net
Premiums allocated to the Fixed Account, and interest credited thereto, are
backed by Protective Life. The Fixed Account Value is calculated daily. See
"Fixed Account Value".
INTEREST CREDITED ON FIXED ACCOUNT VALUE
Protective Life guarantees that the interest credited during the first
Policy Year to the initial Net Premium Payment allocated to the Fixed Account
will not be less than the rate shown in the Policy. The interest rate credited
to subsequent Net Premium Payments allocated to or amounts transferred to the
Fixed Account will be the annual effective interest rate in effect on the date
that the Net Premium Payment(s) is received by Us or the date that the transfer
is made. The interest rate is guaranteed to apply to such amounts for a twelve
month period which begins on the date that the Net Premium Payment(s) is
allocated or the date that the transfer is made.
After an interest rate guarantee expires as to a Net Premium Payment or
amount transferred, (I.E., 12 months after the Premium Payment(s) or transfer is
placed in the Fixed Account) we will credit interest on the Fixed Account Value
at the current interest rate in effect. New current interest rates are effective
for Fixed Account Value for 12 months from the time that they are first applied.
We, in Our sole discretion, may declare a new current interest rate from time to
time but in no event more frequently than once per year. The initial annual
effective interest rate and the current interest rates that We will credit are
annual effective interest rates of not less than 4.00%. For purposes of
crediting interest, amounts deducted, transferred or withdrawn from the Fixed
Account are accounted for on a "first-in-first-out" (FIFO) basis.
PAYMENTS FROM THE FIXED ACCOUNT
Payments from the Fixed Account for a withdrawal, surrender or loan request
may be deferred for up to six months from the date Protective Life receives the
written request. If a payment from the Fixed Account is deferred for 30 days or
more, it will bear interest at a rate of 4% per year (or an alternative rate if
required by applicable state insurance law), compounded annually while payment
is deferred.
CHARGES AND DEDUCTIONS
PREMIUM EXPENSE CHARGES
Premium Expense Charges currently consist of a sales charge, a charge for
federal taxes and a premium tax charge.
SALES CHARGE. Protective Life deducts a sales charge from each Premium
Payment. This charge is 2.75% of each Premium Payment in Policy Years 1 through
10, and 0.75% of each Premium Payment in Policy Years 11 and thereafter. The
Sales Charge is deducted from a Premium Payment before allocating the Net
Premium Payment to the Policy Value. An additional sales charge is deducted on
surrender of a Policy during the first fifteen Policy Years. See "Surrender
Charge". The Sales Charges partially compensate Protective Life for the expenses
of selling and distributing the Policies, including paying sales commissions,
printing prospectuses, preparing sales literature and paying for other
promotional activities.
FEDERAL TAX CHARGE. Protective Life also deducts a charge for federal taxes
from each Premium Payment. This charge is 1.25% of all Premium Payments in all
Policy Years and compensates Protective Life for its federal income tax
liability resulting from Section 848 of the Code. The amount of this charge,
which may be increased or decreased, is reasonable in relation to Protective
Life's increased federal tax burden under Section 848 resulting from the receipt
of Premium Payments under the Policies.
OTHER TAXES. Currently a charge for federal income taxes is not deducted
from the Variable Account or the Policy's Cash Value. The Company reserves the
right in the future to make a charge to
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the Variable Account or the Policy's Cash Value for any federal, state or local
income taxes that the Company incurs that it determines to be properly
attributable to the Variable Account or the Policies. We will notify You
promptly of any such charge.
PREMIUM TAX CHARGE. A 2.25% charge for state and local premium taxes is
also deducted from each Premium Payment. The state and local premium tax charge
reimburses Protective Life for premium taxes associated with the Policies.
Protective Life expects to pay an average state and local premium tax rate of
approximately 2.25% of Premium Payments for all states.
MONTHLY DEDUCTION
On the Issue Date, Protective Life will deduct the monthly deduction from
the Policy Value. Subsequent monthly deductions will be made on each Monthly
Anniversary Day thereafter. The Monthly Deduction consists of (1) cost of
insurance charges ("cost of insurance charge"), (2) administration charges (the
"monthly administration fee"), and (3) any charges for supplemental benefits
and/or riders ("supplemental charges"), as described below. The monthly
deduction is deducted from the Sub-Accounts and the Fixed Account pro-rata on
the basis of the relative Policy Value in each.
COST OF INSURANCE CHARGE. This charge compensates Protective Life for the
expense of underwriting the Death Benefit. The charge depends on a number of
variables and therefore will vary from Policy to Policy and from Monthly
Anniversary Day to Monthly Anniversary Day. For any Policy, the cost of
insurance on a Monthly Anniversary Day is calculated by multiplying the current
cost of insurance rate for the Insured by the Net Amount at Risk under the
Policy for that Monthly Anniversary Day.
The cost of insurance rate for a Policy is based on and varies with the
Issue Age, duration, sex and rate class of the Insured and on the number of
years that a Policy has been in force. Protective Life currently places Insureds
in the following rate classes, based on underwriting: Standard Smoker (ages
15-75) or Standard Nonsmoker (ages 0-75), or Preferred Nonsmoker (ages 18-75),
and substandard rate classes, which involve a higher mortality risk than the
Standard Smoker or Standard Nonsmoker classes.
Protective Life will determine a cost of insurance rate for increments of
Face Amount above the Initial Face Amount based on the Issue Age, duration, sex
and rate class of the Insured at the time of the request for an increase. The
following rules will apply for purposes of determining the Net Amount at Risk
for each rate.
Protective Life places the Insured in a rate class when the Policy is
issued, based on Protective Life's underwriting of the application. This
original rate class applies to the Initial Face Amount. When an increase in Face
Amount is requested, Protective Life conducts underwriting before approving the
increase (except as noted below) to determine whether a different rate class
will apply to the increase. If the rate class for the increase has lower cost of
insurance rates than the original rate class, the rate class for the increase
also will be applied to the Initial Face Amount. If the rate class for the
increase has a higher cost of insurance rate than the original rate class, the
rate class for the increase will apply only to the increase in Face Amount, and
the original rate class will continue to apply to the Initial Face Amount.
Protective Life does not conduct underwriting for an increase in Face Amount
if the increase is requested as part of a conversion from a term contract or on
exercise of a guaranteed option to increase the Face Amount without
underwriting. See "Supplemental Benefits and/or Riders".
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In the case of a term conversion, the rate class that applies to the increase is
the same rate class that applied to the term contract. In the case of a
guaranteed option, the Insured's rate class for an increase will be the class in
effect when the guaranteed option rider was issued.
Where, as in Death Benefit Option 1, the Net Amount at Risk is equal to the
Death Benefit less Policy Value, the entire Policy Value is applied first to
offset the Death Benefit derived from the Initial Face Amount. Only if the
Policy Value exceeds the Initial Face Amount is the excess applied to offset the
portion of the Death Benefit derived from increases in Face Amount in the order
of the increases. If there is the decrease in Face Amount after an increase, the
decrease is applied first to decrease any prior increases in Face Amount,
starting with the most recent increase and then each prior increase.
Protective Life guarantees that the cost of insurance rates used to
calculate the monthly cost of insurance charge will not exceed the maximum cost
of insurance rates set forth in the Policies. The guaranteed rates for standard
classes are based on the 1980 Commissioners' Standard Ordinary Mortality Tables,
Male or Female, Smoker or Nonsmoker Mortality Rates ("1980 CSO Tables"). The
guaranteed rates for substandard classes are based on multiples of or additions
to the 1980 CSO Tables.
Protective Life's current cost of insurance rates may be less than the
guaranteed rates that are set forth in the Policy. Current cost of insurance
rates will be determined based on Protective Life's expectations as to future
mortality, investment earnings, expenses, taxes, and persistency experience.
These rates may change from time to time. The cost of insurance rates are
currently less for Policies that have a Face Amount in excess of $99,999.00.
However, guaranteed rates do not change if the Face Amount exceeds $99,999.00.
Cost of insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker standard class are lower than guaranteed rates for an Insured of the
same age and sex in a smoker standard class. Cost of insurance rates (whether
guaranteed or current) for an Insured in a nonsmoker or smoker standard class
are generally lower than guaranteed rates for an Insured of the same age and sex
and smoking status in a substandard class.
LEGAL CONSIDERATIONS RELATING TO SEX -- DISTINCT PREMIUM PAYMENTS AND
BENEFITS. Mortality tables for the Policies generally distinguish between males
and females. Thus, Premium Payments and benefits under Policies covering males
and females of the same age will generally differ.
Protective Life does, however, also offer Policies based on unisex mortality
tables if required by state law. Employers and employee organizations
considering purchase of a Policy should consult with their legal advisors to
determine whether purchase of a Policy based on sex-distinct actuarial tables is
consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Upon request, Protective Life may offer Policies with unisex mortality
tables to such prospective purchasers.
MONTHLY ADMINISTRATION FEE. This charge compensates Protective Life for
administration expenses associated with the Policies and the Variable Account.
These expenses relate to premium payment billing and collection, recordkeeping,
processing death benefit claims, Policy loans, Policy changes, reporting and
overhead costs, processing applications and establishing Policy records. The
monthly administration fee is a flat charge of $31 per month during the first
Policy Year (guaranteed not to exceed $33 per month), and $6 per month during
each Policy Year thereafter (guaranteed not to exceed $8 per month). In
addition, for the first twelve months following the effective date of an
increase in Face Amount, the monthly administration fee will also include an
administration charge for the
27
<PAGE>
increase, based on the amount of the increase. The administration charge for an
increase is equal to a fee per $1,000 of increase in face amount, and is set
forth in your Policy. Representative administration charges per $1,000 of
increase are set forth below for Insureds at each specified Issue Age:
<TABLE>
<CAPTION>
ADMINISTRATIVE CHARGE
ISSUE AGE PER $1,000 INCREASE
- -------------- -----------------------
<S> <C>
35 0.11
40 0.14
45 0.16
50 0.20
55 0.24
60 0.29
65 0.35
70 0.43
75+ 0.45
</TABLE>
Protective Life does not anticipate making any profit on the monthly
administration fee.
SUPPLEMENTAL BENEFIT AND/OR RIDER CHARGES. See "Supplemental Benefits
and/or Riders".
DAILY MORTALITY AND EXPENSE RISK CHARGE
Protective Life deducts a daily charge from assets in the Sub-Accounts
attributable to the Policies. This charge does not apply to Fixed Account assets
attributable to the Policies. The current charge is at an annual rate of 0.90%
of net assets, and is guaranteed not to increase for the duration of a Policy.
Protective Life may realize a profit from this charge.
The mortality risk Protective Life assumes is that the Insureds on the
Policies may die sooner than anticipated and therefore Protective Life will pay
an aggregate amount of death benefits greater than anticipated. The expense risk
Protective Life assumes is that expenses incurred in issuing and administering
the Policies and the Variable Account will exceed the amounts realized from the
administrative charges assessed against the Policies.
TRANSFER FEE
Protective Life reserves the right to impose a $25 transfer fee on any
transfer of Policy Value between or among the Sub-Accounts or the Fixed Account
in excess of the 12 free transfers permitted each Policy Year. If the fee is
imposed, it will be deducted from the amount requested to be transferred. If an
amount is being transferred from more than one Sub-Account or the Fixed Account,
the transfer fee will be deducted proportionately from the amount being
transferred from each. This fee, if imposed, will reimburse Protective Life for
administrative expenses incurred in effecting transfers. Protective Life does
not anticipate making any profit on this fee.
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
If the Policy is surrendered, or if the Initial Face Amount is reduced,
through the first fourteen Policy Years, a Surrender Charge will be deducted for
the Initial Face Amount (or the reduction thereof). The Surrender Charge, which
is a contingent deferred sales charge, will be deducted before any Surrender
Value is paid.
The Surrender Charge for the Initial Face Amount is equal to the Surrender
Charge Percentage for the Policy Year in which the surrender or reduction in
Initial Face Amount occurs, multiplied by the aggregate amount of Premium
Payments made in Policy Year 1, including Premium Payments for
28
<PAGE>
any riders. The Surrender Charge Percentage in Policy Years 1 through 6 is equal
to 27%, as shown below. After the sixth completed Policy Year, the Surrender
Charge Percentage decreases by 3% each Policy Year in accordance with the
following table.
<TABLE>
<CAPTION>
SURRENDER DURING SURRENDER CHARGE
POLICY YEAR PERCENTAGE
<S> <C>
- ------------------------------------------
1 - 6 27%
----------------------------------
7 24%
----------------------------------
8 21%
----------------------------------
9 18%
----------------------------------
10 15%
----------------------------------
11 12%
----------------------------------
12 9%
----------------------------------
13 6%
----------------------------------
14 3%
----------------------------------
15 0%
</TABLE>
After the 14th Policy Year, there is no Surrender Charge for the Initial
Face Amount.
In no event will the Surrender Charge exceed the Maximum Surrender Charge
(expressed in dollars), which is set forth in the Policy. The Maximum Surrender
Charge is equal to 27% of a "SEC guideline annual premium," as defined in
applicable SEC regulations. A "SEC guideline annual premium" is a hypothetical
level amount that would be payable through the Maturity Date for the benefits
provided under the Policy, assuming cost of insurance rates equal to those
guaranteed in the Policy, net investment earnings under the Policy at an
effective annual rate of 5%, and sales and other charges imposed under the
Policy.
If the Initial Face Amount is decreased during the first fourteen Policy
Years, the Surrender Charge imposed will equal the portion of the total
Surrender Charge that corresponds to the percentage by which the Initial Face
Amount is decreased. In the event of a decrease in the Initial Face Amount, the
pro-rated Surrender Charge will be allocated to each Sub-Account and to the
Fixed Account based on the proportion of Policy Value in each Sub-Account and in
the Fixed Account. A Surrender Charge imposed in connection with a reduction in
the Initial Face Amount reduces the remaining Surrender Charge that may be
imposed in connection with a surrender of the Policy.
The purpose of the Surrender Charge is to reimburse Protective Life for some
of the expenses incurred in the distribution of the Policies. Protective Life
also deducts a sales charge from each premium payment. See "Premium Expense
Charges". The Surrender Charge, together with the sales charge imposed on
Premium Payments, may be insufficient to recover distribution expenses related
to the sale of the Policies. Unrecovered expenses are borne by Protective Life's
general assets which may include profits, if any, from the mortality and expense
risk charge and mortality gains from cost of insurance charges. See "Daily
Mortality and Expense Risk Charge," and "Cost of Insurance Charge".
WITHDRAWAL CHARGE
Protective Life will deduct an administrative charge upon a withdrawal. This
charge is the lesser of 2% of the amount withdrawn or $25. This charge will be
deducted from the Policy Value in addition to the amount requested to be
withdrawn and will be considered to be part of the withdrawn amount. See
"Withdrawal Privilege" for rules for allocating the deduction. Protective Life
does not anticipate making a profit on this charge.
FUND EXPENSES
The value of the net assets of each Sub-Account reflects the investment
advisory fees and other expenses incurred by the corresponding Fund in which the
Sub-Account invests. See the prospectus for the Funds.
29
<PAGE>
EXCHANGE PRIVILEGE
The Company is offering, where allowed by law, to owners of certain existing
life policies (the "Existing Life Policy" and/or "Existing Life Policies")
issued by it the opportunity to exchange such a life policy for this Policy. The
Company reserves the right to modify, amend, terminate or suspend the Exchange
Privilege at any time or from time to time. Owners of Existing Life Policies
may, exchange their Existing Life Policies for this Policy. Owners of Existing
Life Policies may also make a partial or full surrender from their Existing Life
Policies and use the proceeds to purchase this Policy. Policies are offered to
owners of Existing Life Policies on the same basis as the Policies are offered
to any other purchaser. In particular, all charges and deductions described in
this prospectus are equally applicable to Policies purchased in an exchange. All
charges and deductions may not be assessed under an Existing Life Policy in
connection with an exchange, surrender, or partial surrender of an Existing Life
Policy.
The Policy differs from the Existing Life Policies in many significant
respects. Most importantly, the Policy Value under this Policy may consist,
entirely or in part, of Variable Account Value which fluctuates in response to
the net investment return of the Variable Account. In contrast, the policy
values under the Existing Life Policies always reflect interest credited by the
Company. While a minimum rate of interest (typically 4 or 4 1/2 percent) is
guaranteed, the Company in the past has credited interest at higher rates.
Accordingly, policy values under the Existing Life Policies reflect changing
current interest rates and do not vary with the investment performance of a
Variable Account.
Other significant differences between the Policy and the Existing Life
Policies include: (1) additional charges applicable under the Policy not found
in the Existing Life Policies; (2) different surrender charges; (3) different
death benefits; and (4) differences in federal and state laws and regulations
applicable to each of the types of policies.
30
<PAGE>
A table which generally summarizes the different charges under the
respective policies is as follows. For more complete details owners of Existing
Life Policies should refer to their policy forms for a complete description.
<TABLE>
<CAPTION>
<S> <C> <C>
EXISTING LIFE POLICY POLICY
State and Local Premium None 2.25% of each premium payment.
Tax
Federal Tax Charge None 1.25% of each premium payment in
all policy years.
Sales Charges/Premium Ranges from 0% to 12% of premium 2.75% of each Premium payment in
Expense Charge payments in all policy years. policy years 1 through 10;
The premium expense charge can 0.75% of each premium payment
vary by age. in policy year 11 and
thereafter.
Administrative Fees Ranges from $4 to $5 monthly. $31 per month the first policy
year and $6 per month
thereafter.
Mortality and Expense None A daily charge at an annual rate
Charges of .90% of the variable
account's average net assets.
Withdrawal Charges $25 The lessor of $25 or 2% of the
withdrawal amount requested.
Monthly Deductions A monthly deduction consisting A monthly deduction consisting
of: (1) cost of insurance of: (1) cost of insurance
charges (2) administrative fees charges (2) administrative fees
(see above) and (3) any charges (see above) and (3) any charges
for supplemental benefits for supplemental benefits
and/or riders. (applies to and/or riders.
Existing Life Policies which
are universal life plans)
Surrender Charges Surrender charges vary by policy A declining deferred sales
type and are incurred during a charge of up to 27% of premium
surrender charge period which payments made in the first
ranges from 0 years up to 19 policy year (or 27% of a "SEC
years. guideline annual premium if
less) is assessed on surrender
charges during the first 14
policy years.
Guaranteed Interest Rate Ranges from 4% to 5%. Fixed account only 4%.
</TABLE>
EFFECT OF THE EXCHANGE OFFER
1. This Policy will be issued to Existing Life Policy Owners without
additional evidence of insurability of the insured for the same amount of
insurance. Evidence of insurability may be required in all other instances;
2. If an Existing Life Policy owner is within current issue age limits, the
Owner may carry over existing Riders and/or Supplement Benefits if available
with the Policy; and
31
<PAGE>
3. The Incontestable and Suicide provisions in the Policy will begin again
as of the effective date of the exchange.
TAX CONSIDERATIONS. Owners of Existing Life Policies should carefully
consider whether it will be advantageous to replace an Existing Life Policy with
a Policy. IT MAY NOT BE ADVANTAGEOUS TO EXCHANGE AN EXISTING LIFE POLICY FOR A
POLICY (OR TO SURRENDER IN FULL OR IN PART AN EXISTING LIFE POLICY AND USE THE
SURRENDER OR PARTIAL SURRENDER PROCEEDS TO PURCHASE A POLICY.)
The Company believes that an exchange of an Existing Life Policy for a
Policy generally should be treated as a nontaxable exchange within the meaning
of Section 1035 of the Code. A Policy purchased in exchange will generally be
treated as a newly issued contract as of the effective date of the Policy. This
could have various tax consequences. (See "Federal Tax Matters".)
IF YOU SURRENDER YOUR EXISTING LIFE POLICY IN WHOLE OR IN PART AND AFTER
RECEIPT OF THE PROCEEDS YOU USE THE SURRENDER PROCEEDS OR PARTIAL SURRENDER
PROCEEDS TO PURCHASE A POLICY IT WILL NOT BE TREATED AS A NON-TAXABLE EXCHANGE.
THE SURRENDER PROCEEDS WILL GENERALLY BE INCLUDIBLE IN INCOME.
Owners of Existing Life Policies should consult their tax advisers before
exchanging an Existing Life Policy for this Policy, or before surrendering in
whole or in part their Existing Life Policy and using the proceeds to purchase
this Policy.
SALES COMMISSIONS. Sales representatives offering the Policies to Existing
Life Policies Owners will receive a sales commission. In most cases, this sales
commission will be somewhat less than that paid in connection with sales of the
Policies to other purchasers. A standard sales commission will be paid. (See
"Sale of Policies")
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES,
DEATH BENEFITS AND ACCUMULATED PREMIUM PAYMENTS
The following tables have been prepared to illustrate hypothetically how
certain values under a Policy change with investment performance over an
extended period of time. The tables illustrate how Policy Values, Surrender
Values and Death Benefits under a Policy covering an Insured of a given age on
the Issue Date, would vary over time if planned premium payments were paid
annually and the return on the assets in each of the Funds were an assumed
uniform gross annual rate of 0%, 6% and 12%. The values would be different from
those shown if the returns averaged 0%, 6% or 12% but fluctuated over and under
those averages throughout the years shown. The tables also show Planned Periodic
Premiums accumulated at 5% interest compounded annually. THE HYPOTHETICAL
INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. Actual rates of
return for a particular Policy may be more or less than the hypothetical
investment rates of return and will depend on a number of factors including the
investment allocations made by an Owner and prevailing rates. These
illustrations assume that Net Premiums are allocated equally among the seven
Sub-Accounts available under the Policy, and that no amounts are allocated to
the Fixed Account.
The illustrations reflect the fact that the net investment return on the
assets held in the Sub-Accounts is lower than the gross after tax return of the
selected Funds. The tables assume an average annual expense ratio of 0.86% of
the average daily net assets of the Funds available under the Policies. This
average annual expense ratio is based on the expense ratios of each of the Funds
for the last fiscal year (except the Protective Capital Growth Fund), adjusted,
as appropriate, for any material changes in expenses effective for the current
fiscal year of a Fund. Expenses for the Protective Capital Growth Fund are based
on the estimated average annual expense ratio for this Fund's first year of
operations. For information on Fund expenses, see the prospectus for the Funds
accompanying this prospectus.
32
<PAGE>
In addition, the illustrations reflect the daily charge to the Variable
Account for assuming mortality and expense risks, which is equivalent to an
effective annual charge of 0.90%. After deduction of Fund expenses and the
mortality and expense risk charge, the illustrated gross annual investment rates
of return of 0%, 6% and 12% would correspond to approximate net annual rates of
1.76%, 4.24% and 10.24%, respectively.
The illustrations also reflect the deduction of the Premium Expense Charges,
the Monthly Expense Charge and the monthly cost of insurance charge for the
hypothetical Insured. The Surrender Charge is reflected in the column "Surrender
Value". Protective Life's current cost of insurance charges, and the guaranteed
maximum cost of insurance charges that Protective Life has the contractual right
to charge, are reflected in separate illustrations on each of the following
pages. All the illustrations reflect the fact that no charges for federal or
state income taxes are currently made against the Variable Account and assume no
Policy Debt or charges for supplemental and/or rider benefits.
The illustrations are based on Protective Life's sex distinct rates for
nonsmokers. Upon request, Owner(s) will be furnished with a comparable
illustration based upon the proposed Insured's individual circumstances. Such
illustrations may assume different hypothetical rates of return in addition to
those illustrated in the following tables.
33
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$1,800 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT --------------------------------- --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ------------- --------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 965 493 100,000 1,044 572 100,000 1,123 651 100,000
2 3,875 2,189 1,717 100,000 2,417 1,945 100,000 2,655 2,183 100,000
3 5,958 3,368 2,896 100,000 3,825 3,353 100,000 4,321 3,849 100,000
4 8,146 4,501 4,029 100,000 5,268 4,796 100,000 6,134 5,662 100,000
5 10,443 5,586 5,114 100,000 6,746 6,274 100,000 8,106 7,634 100,000
6 12,856 6,623 6,151 100,000 8,258 7,786 100,000 10,256 9,784 100,000
7 15,388 7,607 7,187 100,000 9,802 9,382 100,000 12,596 12,176 100,000
8 18,048 8,533 8,165 100,000 11,374 11,007 100,000 15,144 14,777 100,000
9 20,840 9,396 9,081 100,000 12,971 12,656 100,000 17,919 17,604 100,000
10 23,772 10,192 9,929 100,000 14,589 14,327 100,000 20,943 20,680 100,000
11 26,851 11,122 10,912 100,000 16,430 16,220 100,000 24,438 24,228 100,000
12 30,083 12,124 11,967 100,000 18,441 18,284 100,000 28,388 28,231 100,000
13 33,478 13,033 12,928 100,000 20,470 20,366 100,000 32,695 32,590 100,000
14 37,041 13,851 13,798 100,000 22,523 22,471 100,000 37,407 37,355 100,000
15 40,783 14,566 14,566 100,000 24,592 24,592 100,000 42,568 42,568 100,000
16 44,713 15,141 15,141 100,000 26,646 26,646 100,000 48,210 48,210 100,000
17 48,838 15,616 15,616 100,000 28,722 28,722 100,000 54,432 54,432 100,000
18 53,170 15,981 15,981 100,000 30,819 30,819 100,000 61,307 61,307 100,000
19 57,719 16,229 16,229 100,000 32,933 32,933 100,000 68,926 68,926 100,000
20 62,495 16,348 16,348 100,000 35,064 35,064 100,000 77,395 77,395 100,000
21 67,509 17,332 17,332 100,000 37,122 37,122 100,000 81,884 81,884 100,000
22 72,775 18,213 18,213 100,000 39,180 39,180 100,000 86,576 86,576 103,026
23 78,304 18,971 18,971 100,000 41,231 41,231 100,000 91,421 91,421 107,877
24 84,109 19,581 19,581 100,000 43,271 43,271 100,000 96,422 96,422 112,814
25 90,204 20,017 20,017 100,000 45,294 45,294 100,000 101,584 101,584 117,838
26 96,604 20,244 20,244 100,000 47,293 47,293 100,000 106,912 106,912 122,949
27 103,325 20,229 20,229 100,000 49,267 49,267 100,000 112,447 112,447 127,065
28 110,381 19,933 19,933 100,000 51,212 51,212 100,000 118,209 118,209 131,213
29 117,790 19,340 19,340 100,000 53,145 53,145 100,000 124,230 124,230 135,411
30 125,569 18,354 18,354 100,000 55,042 55,042 100,000 130,532 130,532 139,669
31 133,738 16,895 16,895 100,000 56,895 56,895 100,000 137,152 137,152 144,010
32 142,315 14,860 14,860 100,000 58,695 58,695 100,000 143,984 143,984 151,183
33 151,321 12,174 12,174 100,000 60,456 60,456 100,000 151,032 151,032 158,584
34 160,777 8,633 8,633 100,000 62,149 62,149 100,000 158,292 158,292 166,206
35 170,705 4,110 4,110 100,000 63,792 63,792 100,000 165,767 165,767 174,055
36 181,131 0 0 0 65,353 65,353 100,000 173,449 173,449 182,122
37 192,077 66,824 66,824 100,000 181,334 181,334 190,401
38 203,571 68,233 68,233 100,000 189,427 189,427 198,898
39 215,640 69,544 69,544 100,000 197,713 197,713 207,598
40 228,312 70,773 70,773 100,000 206,191 206,191 216,501
41 241,617 71,866 71,866 100,000 214,839 214,839 225,581
42 255,588 72,821 72,821 100,000 223,648 223,648 234,831
43 270,257 73,606 73,606 100,000 232,603 232,603 244,233
44 285,660 74,183 74,183 100,000 241,684 241,684 253,768
45 301,833 74,501 74,501 100,000 250,873 250,873 263,416
46 318,815 74,492 74,492 100,000 260,151 260,151 273,159
47 336,646 74,079 74,079 100,000 270,064 270,064 280,866
48 355,368 73,125 73,125 100,000 280,735 280,735 289,157
49 375,026 71,424 71,424 100,000 292,311 292,311 298,158
50 395,668 68,664 68,664 100,000 304,962 304,962 304,962
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable Premium Expense Charges, current cost of
insurance rates, a monthly administrative charge of $31.00 per month in
Policy Year 1 and $6.00 per month thereafter, and a mortality and expense
risk charge of 0.90% of net assets.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
34
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$1,800 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT --------------------------------- --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ------------- --------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 942 469 100,000 1,020 547 100,000 1,098 626 100,000
2 3,875 2,142 1,670 100,000 2,367 1,895 100,000 2,602 2,130 100,000
3 5,958 3,297 2,825 100,000 3,748 3,276 100,000 4,237 3,765 100,000
4 8,146 4,408 3,936 100,000 5,163 4,691 100,000 6,016 5,544 100,000
5 10,443 5,471 4,999 100,000 6,612 6,139 100,000 7,951 7,479 100,000
6 12,856 6,486 6,014 100,000 8,093 7,621 100,000 10,059 9,587 100,000
7 15,388 7,447 7,028 100,000 9,605 9,185 100,000 12,353 11,934 100,000
8 18,048 8,351 7,984 100,000 11,142 10,775 100,000 14,850 14,483 100,000
9 20,840 9,193 8,879 100,000 12,704 12,389 100,000 17,569 17,254 100,000
10 23,772 9,967 9,705 100,000 14,284 14,022 100,000 20,530 20,267 100,000
11 26,851 10,705 10,495 100,000 15,918 15,708 100,000 23,797 23,587 100,000
12 30,083 11,364 11,207 100,000 17,567 17,409 100,000 27,365 27,207 100,000
13 33,478 11,943 11,838 100,000 19,229 19,124 100,000 31,268 31,163 100,000
14 37,041 12,436 12,384 100,000 20,902 20,850 100,000 35,548 35,495 100,000
15 40,783 12,836 12,836 100,000 22,582 22,582 100,000 40,247 40,247 100,000
16 44,713 13,133 13,133 100,000 24,262 24,262 100,000 45,417 45,417 100,000
17 48,838 13,318 13,318 100,000 25,937 25,937 100,000 51,119 51,119 100,000
18 53,170 13,376 13,376 100,000 27,598 27,598 100,000 57,422 57,422 100,000
19 57,719 13,289 13,289 100,000 29,232 29,232 100,000 64,410 64,410 100,000
20 62,495 13,039 13,039 100,000 30,830 30,830 100,000 72,184 72,184 100,000
21 67,509 13,405 13,405 100,000 32,304 32,304 100,000 76,231 76,231 100,000
22 72,775 13,595 13,595 100,000 33,715 33,715 100,000 80,482 80,482 100,000
23 78,304 13,579 13,579 100,000 35,052 35,052 100,000 84,965 84,965 100,259
24 84,109 13,328 13,328 100,000 36,307 36,307 100,000 89,623 89,623 104,859
25 90,204 12,804 12,804 100,000 37,464 37,464 100,000 94,427 94,427 109,535
26 96,604 11,948 11,948 100,000 38,500 38,500 100,000 99,380 99,380 114,287
27 103,325 10,637 10,637 100,000 39,348 39,348 100,000 104,519 104,519 118,107
28 110,381 8,879 8,879 100,000 40,040 40,040 100,000 109,878 109,878 121,965
29 117,790 6,505 6,505 100,000 40,490 40,490 100,000 115,473 115,473 125,865
30 125,569 3,377 3,377 100,000 40,646 40,646 100,000 121,335 121,335 129,828
31 133,738 0 0 0 40,456 40,456 100,000 127,506 127,506 133,881
32 142,315 0 0 0 39,857 39,857 100,000 133,863 133,863 140,556
33 151,321 0 0 0 38,777 38,777 100,000 140,406 140,406 147,427
34 160,777 0 0 0 37,126 37,126 100,000 147,136 147,136 154,493
35 170,705 0 0 0 34,782 34,782 100,000 154,051 154,051 161,753
36 181,131 0 0 0 31,564 31,564 100,000 161,147 161,147 169,204
37 192,077 27,224 27,224 100,000 168,416 168,416 176,837
38 203,571 21,414 21,414 100,000 175,848 175,848 184,641
39 215,640 13,650 13,650 100,000 183,428 183,428 192,600
40 228,312 3,286 3,286 100,000 191,143 191,143 200,700
41 241,617 0 0 0 198,978 198,978 208,927
42 255,588 0 0 0 206,921 206,921 217,267
43 270,257 0 0 0 214,960 214,960 225,708
44 285,660 0 0 0 223,084 223,084 234,238
45 301,833 0 0 0 231,280 231,280 242,844
46 318,815 0 0 0 239,531 239,531 251,507
47 336,646 0 0 0 248,410 248,410 258,347
48 355,368 0 0 0 258,040 258,040 265,781
49 375,026 0 0 0 268,563 268,563 273,934
50 395,668 0 0 0 280,151 280,151 280,151
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable Premium Expense Charges, guaranteed
cost of insurance rates, a monthly administrative charge of $33.00 per month
in Policy Year 1 and $8.00 per month thereafter, and a mortality and expense
risk charge of 0.90% of net assets.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
35
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$4,000 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT --------------------------------- --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ------------- --------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 2,963 2,491 102,963 3,165 2,693 103,165 3,367 2,895 103,367
2 8,610 6,146 5,674 106,146 6,744 6,272 106,744 7,367 6,895 107,367
3 13,241 9,243 8,771 109,243 10,445 9,973 110,445 11,746 11,274 111,746
4 18,103 12,256 11,784 112,256 14,271 13,799 114,271 16,541 16,069 116,541
5 23,208 15,181 14,708 115,181 18,224 17,752 118,224 21,790 21,318 121,790
6 28,568 18,018 17,545 118,018 22,307 21,835 122,307 27,538 27,065 127,538
7 34,196 20,761 20,341 120,761 26,518 26,098 126,518 33,828 33,408 133,828
8 40,106 23,406 23,038 123,406 30,855 30,488 130,855 40,708 40,341 140,708
9 46,312 25,947 25,633 125,947 35,318 35,004 135,318 48,233 47,918 148,233
10 52,827 28,379 28,117 128,379 39,903 39,641 139,903 56,458 56,196 156,458
11 59,669 30,775 30,565 130,775 44,692 44,482 144,692 65,538 65,328 165,538
12 66,852 33,048 32,891 133,048 49,600 49,443 149,600 75,462 75,304 175,462
13 74,395 35,196 35,091 135,196 54,629 54,524 154,629 86,311 86,206 186,311
14 82,314 37,215 37,163 137,215 59,776 59,724 159,776 98,174 98,122 198,174
15 90,630 39,094 39,094 139,094 65,035 65,035 165,035 111,141 111,141 211,141
16 99,361 40,824 40,824 140,824 70,396 70,396 170,396 125,312 125,312 225,312
17 108,530 42,396 42,396 142,396 75,852 75,852 175,852 140,797 140,797 240,797
18 118,156 43,793 43,793 143,793 81,388 81,388 181,388 157,712 157,712 257,712
19 128,264 44,998 44,998 144,998 86,986 86,986 186,986 176,181 176,181 276,181
20 138,877 45,993 45,993 145,993 92,627 92,627 192,627 196,340 196,340 296,340
21 150,021 49,563 49,563 149,563 98,061 98,061 198,061 205,923 205,923 305,923
22 161,722 53,043 53,043 153,043 103,482 103,482 203,482 215,657 215,657 315,657
23 174,008 56,411 56,411 156,411 108,867 108,867 208,867 225,530 225,530 325,530
24 186,908 59,644 59,644 159,644 114,198 114,198 214,198 235,527 235,527 335,527
25 200,454 62,711 62,711 162,711 119,447 119,447 219,447 245,629 245,629 345,629
26 214,677 65,568 65,568 165,568 124,574 124,574 224,574 255,803 255,803 355,803
27 229,610 68,101 68,101 168,101 129,467 129,467 229,467 265,945 265,945 365,945
28 245,291 70,362 70,362 170,362 134,182 134,182 234,182 276,119 276,119 376,119
29 261,755 72,211 72,211 172,211 138,585 138,585 238,585 286,199 286,199 386,199
30 279,043 73,573 73,573 173,573 142,601 142,601 242,601 296,119 296,119 396,119
31 297,195 74,384 74,384 174,384 146,173 146,173 246,173 305,832 305,832 405,832
32 316,255 74,584 74,584 174,584 149,244 149,244 249,244 315,289 315,289 415,289
33 336,268 74,114 74,114 174,114 151,761 151,761 251,761 324,447 324,447 424,447
34 357,281 72,921 72,921 172,921 153,674 153,674 253,674 333,267 333,267 433,267
35 379,345 70,932 70,932 170,932 154,915 154,915 254,915 341,692 341,692 441,692
36 402,513 68,042 68,042 168,042 155,384 155,384 255,384 349,631 349,631 449,631
37 426,838 64,120 64,120 164,120 154,955 154,955 254,955 356,973 356,973 456,973
38 452,380 59,004 59,004 159,004 153,473 153,473 253,473 363,571 363,571 463,571
39 479,199 52,514 52,514 152,514 150,761 150,761 250,761 369,262 369,262 469,262
40 507,359 44,482 44,482 144,482 146,659 146,659 246,659 373,900 373,900 473,900
41 536,927 34,763 34,763 134,763 141,027 141,027 241,027 377,357 377,357 477,357
42 567,973 23,235 23,235 123,235 133,749 133,749 233,749 379,532 379,532 479,532
43 600,572 9,779 9,779 109,779 124,713 124,713 224,713 380,327 380,327 480,327
44 634,801 0 0 0 113,836 113,836 213,836 379,674 379,674 479,674
45 670,741 0 0 0 101,008 101,008 201,008 377,479 377,479 477,479
46 708,478 0 0 0 86,094 86,094 186,094 373,624 373,624 473,624
47 748,102 0 0 0 68,928 68,928 168,928 367,959 367,959 467,959
48 789,707 0 0 0 49,282 49,282 149,282 360,273 360,273 460,273
49 833,392 26,840 26,840 126,840 350,270 350,270 450,270
50 879,262 935 935 100,935 337,302 337,302 437,302
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable Premium Expense Charges, guaranteed
cost of insurance rates, a monthly administrative charge of $33.00 per month
in Policy Year 1 and $8.00 per month thereafter, and a mortality and expense
risk charge of 0.90% of net assets.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
36
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$4,000 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT --------------------------------- --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ------------- --------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 2,987 2,515 102,987 3,189 2,717 103,189 3,392 2,920 103,392
2 8,610 6,193 5,720 106,193 6,794 6,321 106,794 7,419 6,947 107,419
3 13,241 9,313 8,841 109,313 10,521 10,049 110,521 11,828 11,356 111,828
4 18,103 12,348 11,875 112,348 14,375 13,903 114,375 16,656 16,184 116,656
5 23,208 15,294 14,822 115,294 18,357 17,884 118,357 21,942 21,469 121,942
6 28,568 18,152 17,680 118,152 22,469 21,997 122,469 27,729 27,256 127,729
7 34,196 20,917 20,497 120,917 26,711 26,291 126,711 34,062 33,642 134,062
8 40,106 23,582 23,214 123,582 31,081 30,713 131,081 40,989 40,622 140,989
9 46,312 26,144 25,829 126,144 35,577 35,262 135,577 48,566 48,251 148,566
10 52,827 28,595 28,333 128,595 40,197 39,935 140,197 56,849 56,586 156,849
11 59,669 31,203 30,993 131,203 45,221 45,011 145,221 66,196 65,986 166,196
12 66,852 33,860 33,702 133,860 50,556 50,398 150,556 76,602 76,444 176,602
13 74,395 36,377 36,272 136,377 56,021 55,916 156,021 87,973 87,868 187,973
14 82,314 38,756 38,703 138,756 61,621 61,568 161,621 100,408 100,356 200,408
15 90,630 40,984 40,984 140,984 67,345 67,345 167,345 114,000 114,000 214,000
16 99,361 43,014 43,014 143,014 73,149 73,149 173,149 128,814 128,814 228,814
17 108,530 44,895 44,895 144,895 79,081 79,081 179,081 145,024 145,024 245,024
18 118,156 46,616 46,616 146,616 85,134 85,134 185,134 162,757 162,757 262,757
19 128,264 48,168 48,168 148,168 91,299 91,299 191,299 182,158 182,158 282,158
20 138,877 49,539 49,539 149,539 97,569 97,569 197,569 203,381 203,381 303,381
21 150,021 53,741 53,741 153,741 103,693 103,693 203,693 213,741 213,741 313,741
22 161,722 57,918 57,918 157,918 109,869 109,869 209,869 224,322 224,322 324,322
23 174,008 62,044 62,044 162,044 116,075 116,075 216,075 235,109 235,109 335,109
24 186,908 66,096 66,096 166,096 122,289 122,289 222,289 246,087 246,087 346,087
25 200,454 70,041 70,041 170,041 128,483 128,483 228,483 257,237 257,237 357,237
26 214,677 73,847 73,847 173,847 134,629 134,629 234,629 268,535 268,535 368,535
27 229,610 77,482 77,482 177,482 140,696 140,696 240,696 279,963 279,963 379,963
28 245,291 80,911 80,911 180,911 146,656 146,656 246,656 291,497 291,497 391,497
29 261,755 84,139 84,139 184,139 152,515 152,515 252,515 303,153 303,153 403,153
30 279,043 87,073 87,073 187,073 158,186 158,186 258,186 314,854 314,854 414,854
31 297,195 89,655 89,655 189,655 163,615 163,615 263,615 326,553 326,553 426,553
32 316,255 91,816 91,816 191,816 168,736 168,736 268,736 338,196 338,196 438,196
33 336,268 93,542 93,542 193,542 173,541 173,541 273,541 349,784 349,784 449,784
34 357,281 94,696 94,696 194,696 177,897 177,897 277,897 361,194 361,194 461,194
35 379,345 95,267 95,267 195,267 181,798 181,798 281,798 372,432 372,432 472,432
36 402,513 95,097 95,097 195,097 185,092 185,092 285,092 383,356 383,356 483,356
37 426,838 94,090 94,090 194,090 187,686 187,686 287,686 393,886 393,886 493,886
38 452,380 92,252 92,252 192,252 189,595 189,595 289,595 404,049 404,049 504,049
39 479,199 89,392 89,392 189,392 190,631 190,631 290,631 413,668 413,668 513,668
40 507,359 85,483 85,483 185,483 190,774 190,774 290,774 422,738 422,738 522,738
41 536,927 80,263 80,263 180,263 189,769 189,769 289,769 431,017 431,017 531,017
42 567,973 73,653 73,653 173,653 187,542 187,542 287,542 438,447 438,447 538,447
43 600,572 65,498 65,498 165,498 183,945 183,945 283,945 444,893 444,893 544,893
44 634,801 55,634 55,634 155,634 178,822 178,822 278,822 450,214 450,214 550,214
45 670,741 43,908 43,908 143,908 172,027 172,027 272,027 454,282 454,282 554,282
46 708,478 30,186 30,186 130,186 163,433 163,433 263,433 456,986 456,986 556,986
47 748,102 14,412 14,412 114,412 152,993 152,993 252,993 458,295 458,295 558,295
48 789,707 0 0 0 140,583 140,583 240,583 458,105 458,105 558,105
49 833,392 126,076 126,076 226,076 456,307 456,307 556,307
50 879,262 109,337 109,337 209,337 452,787 452,787 552,787
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable Premium Expense Charges, current cost of
insurance rates, a monthly administrative charge of $31.00 per month in
Policy Year 1 and $6.00 thereafter, and a mortality and expense risk charge
of 0.90% of net assets.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
37
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$3,000 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT --------------------------------- --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ------------- --------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,066 1,594 102,066 2,212 1,740 102,212 2,358 1,886 102,358
2 6,458 4,367 3,895 104,367 4,798 4,326 104,798 5,247 4,774 105,247
3 9,930 6,598 6,126 106,598 7,463 6,991 107,463 8,400 7,928 108,400
4 13,577 8,760 8,288 108,760 10,211 9,738 110,211 11,843 11,371 111,843
5 17,406 10,849 10,377 110,849 13,038 12,566 113,038 15,603 15,130 115,603
6 21,426 12,864 12,392 112,864 15,948 15,476 115,948 19,708 19,235 119,708
7 25,647 14,801 14,381 114,801 18,936 18,517 118,936 24,186 23,767 124,186
8 30,080 16,653 16,286 116,653 21,999 21,632 121,999 29,070 28,702 129,070
9 34,734 18,416 18,101 118,416 25,134 24,819 125,134 34,393 34,078 134,393
10 39,620 20,082 19,820 120,082 28,334 28,071 128,334 40,192 39,929 140,192
11 44,751 21,900 21,690 121,900 31,857 31,647 131,857 46,779 46,569 146,779
12 50,139 23,780 23,623 123,780 35,627 35,470 135,627 54,141 53,984 154,141
13 55,796 25,534 25,429 125,534 39,462 39,357 139,462 62,158 62,053 162,158
14 61,736 27,164 27,111 127,164 43,362 43,309 143,362 70,896 70,844 170,896
15 67,972 28,655 28,655 128,655 47,314 47,314 147,314 80,412 80,412 180,412
16 74,521 29,962 29,962 129,962 51,271 51,271 151,271 90,733 90,733 190,733
17 81,397 31,133 31,133 131,133 55,278 55,278 155,278 101,989 101,989 201,989
18 88,617 32,155 32,155 132,155 59,323 59,323 159,323 114,263 114,263 214,263
19 96,198 33,021 33,021 133,021 63,397 63,397 163,397 127,644 127,644 227,644
20 104,158 33,719 33,719 133,719 67,486 67,486 167,486 142,233 142,233 242,233
21 112,516 36,292 36,292 136,292 71,411 71,411 171,411 149,149 149,149 249,149
22 121,291 38,775 38,775 138,775 75,298 75,298 175,298 156,149 156,149 256,149
23 130,506 41,139 41,139 141,139 79,125 79,125 179,125 163,211 163,211 263,211
24 140,181 43,358 43,358 143,358 82,864 82,864 182,864 170,316 170,316 270,316
25 150,340 45,397 45,397 145,397 86,484 86,484 186,484 177,437 177,437 277,437
26 161,007 47,221 47,221 147,221 89,953 89,953 189,953 184,546 184,546 284,546
27 172,208 48,794 48,794 148,794 93,236 93,236 193,236 191,616 191,616 291,616
28 183,968 50,080 50,080 150,080 96,301 96,301 196,301 198,618 198,618 298,618
29 196,317 51,077 51,077 151,077 99,148 99,148 199,148 205,561 205,561 305,561
30 209,282 51,693 51,693 151,693 101,688 101,688 201,688 212,360 212,360 312,360
31 222,896 51,862 51,862 151,862 103,859 103,859 203,859 218,960 218,960 318,960
32 237,191 51,515 51,515 151,515 105,593 105,593 205,593 225,301 225,301 325,301
33 252,201 50,632 50,632 150,632 106,874 106,874 206,874 231,374 231,374 331,374
34 267,961 49,073 49,073 149,073 107,566 107,566 207,566 237,049 237,049 337,049
35 284,509 46,822 46,822 146,822 107,657 107,657 207,657 242,322 242,322 342,322
36 301,884 43,717 43,717 143,717 106,986 106,986 206,986 247,042 247,042 347,042
37 320,129 39,657 39,657 139,657 105,459 105,459 205,459 251,121 251,121 351,121
38 339,285 34,645 34,645 134,645 103,081 103,081 203,081 254,573 254,573 354,573
39 359,399 28,483 28,483 128,483 99,658 99,658 199,658 257,214 257,214 357,214
40 380,519 21,140 21,140 121,140 95,164 95,164 195,164 259,026 259,026 359,026
41 402,695 12,349 12,349 112,349 89,336 89,336 189,336 259,757 259,757 359,757
42 425,980 2,025 2,025 102,025 82,093 82,093 182,093 259,335 259,335 359,335
43 450,429 0 0 0 73,280 73,280 173,280 257,617 257,617 357,617
44 476,100 62,732 62,732 162,732 254,446 254,446 354,446
45 503,055 50,294 50,294 150,294 249,682 249,682 349,682
46 531,358 35,832 35,832 135,832 243,200 243,200 343,200
47 561,076 19,288 19,288 119,288 234,957 234,957 334,957
48 592,280 531 531 100,531 224,832 224,832 324,832
49 625,044 0 0 0 212,702 212,702 312,702
50 659,446 198,434 198,434 298,434
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable Premium Expense Charges, current cost of
insurance rates, a monthly administrative charge of $31.00 per month in
Policy Year 1 and $6.00 per month thereafter, and a mortality and expense
risk charge of 0.90% of net assets.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
38
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$3,000 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT --------------------------------- --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ------------- --------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,042 1,570 102,042 2,188 1,715 102,188 2,333 1,861 102,333
2 6,458 4,320 3,848 104,320 4,748 4,276 104,748 5,194 4,722 105,194
3 9,930 6,529 6,056 106,529 7,387 6,915 107,387 8,317 7,845 108,317
4 13,577 8,668 8,196 108,668 10,107 9,634 110,107 11,728 11,255 111,728
5 17,406 10,735 10,263 110,735 12,906 12,433 112,906 15,450 14,978 115,450
6 21,426 12,729 12,257 112,729 15,786 15,313 115,786 19,515 19,043 119,515
7 25,647 14,644 14,225 114,644 18,743 18,323 118,743 23,950 23,530 123,950
8 30,080 16,476 16,109 116,476 21,773 21,406 121,773 28,786 28,418 128,786
9 34,734 18,219 17,904 118,219 24,874 24,559 124,874 34,056 33,741 134,056
10 39,620 19,866 19,603 119,866 28,039 27,777 128,039 39,797 39,534 139,797
11 44,751 21,470 21,260 121,470 31,326 31,116 131,326 46,115 45,905 146,115
12 50,139 22,967 22,809 122,967 34,670 34,513 134,670 52,994 52,837 152,994
13 55,796 24,352 24,247 124,352 38,068 37,963 138,068 60,488 60,383 160,488
14 61,736 25,620 25,568 125,620 41,515 41,462 141,515 68,650 68,598 168,650
15 67,972 26,763 26,763 126,763 45,001 45,001 145,001 77,538 77,538 177,538
16 74,521 27,770 27,770 127,770 48,515 48,515 148,515 87,213 87,213 187,213
17 81,397 28,630 28,630 128,630 52,045 52,045 152,045 97,742 97,742 197,742
18 88,617 29,329 29,329 129,329 55,574 55,574 155,574 109,193 109,193 209,193
19 96,198 29,848 29,848 129,848 59,079 59,079 159,079 121,638 121,638 221,638
20 104,158 30,169 30,169 130,169 62,538 62,538 162,538 135,156 135,156 235,156
21 112,516 32,110 32,110 132,110 65,774 65,774 165,774 141,296 141,296 241,296
22 121,291 33,896 33,896 133,896 68,907 68,907 168,907 147,450 147,450 247,450
23 130,506 35,503 35,503 135,503 71,913 71,913 171,913 153,598 153,598 253,598
24 140,181 36,903 36,903 136,903 74,770 74,770 174,770 159,723 159,723 259,723
25 150,340 38,065 38,065 138,065 77,447 77,447 177,447 165,797 165,797 265,797
26 161,007 38,941 38,941 138,941 79,898 79,898 179,898 171,782 171,782 271,782
27 172,208 39,413 39,413 139,413 82,008 82,008 182,008 177,567 177,567 277,567
28 183,968 39,530 39,530 139,530 83,829 83,829 183,829 183,210 183,210 283,210
29 196,317 39,151 39,151 139,151 85,222 85,222 185,222 188,578 188,578 288,578
30 209,282 38,194 38,194 138,194 86,107 86,107 186,107 193,598 193,598 293,598
31 222,896 36,594 36,594 136,594 86,424 86,424 186,424 198,215 198,215 298,215
32 237,191 34,287 34,287 134,287 86,110 86,110 186,110 202,372 202,372 302,372
33 252,201 31,209 31,209 131,209 85,105 85,105 185,105 206,017 206,017 306,017
34 267,961 27,305 27,305 127,305 83,356 83,356 183,356 209,104 209,104 309,104
35 284,509 22,495 22,495 122,495 80,789 80,789 180,789 211,567 211,567 311,567
36 301,884 16,672 16,672 116,672 77,297 77,297 177,297 213,306 213,306 313,306
37 320,129 9,699 9,699 109,699 72,750 72,750 172,750 214,198 214,198 314,198
38 339,285 1,411 1,411 101,411 66,983 66,983 166,983 214,090 214,090 314,090
39 359,399 0 0 0 59,816 59,816 159,816 212,807 212,807 312,807
40 380,519 0 0 0 51,080 51,080 151,080 210,190 210,190 310,190
41 402,695 0 0 0 40,630 40,360 140,630 206,104 206,104 306,104
42 425,980 0 0 0 28,340 28,340 128,340 200,433 200,433 300,433
43 450,429 0 0 0 14,093 14,093 114,093 193,069 193,069 293,069
44 476,100 0 0 0 183,930 183,930 283,930
45 503,055 0 0 0 172,910 172,910 272,910
46 531,358 0 0 0 159,877 159,877 259,877
47 561,076 0 0 0 144,666 144,666 244,666
48 592,280 0 0 0 127,053 127,053 227,053
49 625,044 0 0 0 106,726 106,726 206,726
50 659,446 83,021 83,021 183,021
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable Premium Expense Charges, guaranteed
cost of insurance rates, a monthly administrative charge of $33.00 per month
in Policy Year 1 and $8.00 per month thereafter, and a mortality and expense
risk charge of 0.90% of net assets.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
39
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$1,500 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT --------------------------------- --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ------------- --------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 688 283 100,000 750 345 100,000 812 407 100,000
2 3,229 1,639 1,234 100,000 1,815 1,410 100,000 2,000 1,595 100,000
3 4,965 2,547 2,142 100,000 2,901 2,496 100,000 3,285 2,880 100,000
4 6,788 3,414 3,009 100,000 4,007 3,602 100,000 4,675 4,270 100,000
5 8,703 4,236 3,831 100,000 5,130 4,725 100,000 6,180 5,775 100,000
6 10,713 5,013 4,608 100,000 6,271 5,866 100,000 7,810 7,405 100,000
7 12,824 5,739 5,379 100,000 7,425 7,065 100,000 9,574 9,214 100,000
8 15,040 6,409 6,094 100,000 8,586 8,271 100,000 11,481 11,166 100,000
9 17,367 7,018 6,748 100,000 9,752 9,482 100,000 13,543 13,273 100,000
10 19,810 7,561 7,336 100,000 10,914 10,689 100,000 15,772 15,547 100,000
11 22,376 8,238 8,058 100,000 12,276 12,096 100,000 18,386 18,206 100,000
12 25,069 8,994 8,859 100,000 13,788 13,653 100,000 21,366 21,231 100,000
13 27,898 9,656 9,566 100,000 15,291 15,201 100,000 24,590 24,500 100,000
14 30,868 10,226 10,181 100,000 16,786 16,741 100,000 28,093 28,048 100,000
15 33,986 10,693 10,693 100,000 18,263 18,263 100,000 31,900 31,900 100,000
16 37,261 11,015 11,015 100,000 19,682 19,682 100,000 36,018 36,018 100,000
17 40,699 11,234 11,234 100,000 21,084 21,084 100,000 40,528 40,528 100,000
18 44,309 11,339 11,339 100,000 22,457 22,457 100,000 45,476 45,476 100,000
19 48,099 11,321 11,321 100,000 23,797 23,797 100,000 50,919 50,919 100,000
20 52,079 11,168 11,168 100,000 25,094 25,094 100,000 56,926 56,926 100,000
21 56,258 11,551 11,551 100,000 26,276 26,276 100,000 59,936 59,936 100,000
22 60,646 11,784 11,784 100,000 27,385 27,385 100,000 63,045 63,045 100,000
23 65,253 11,840 11,840 100,000 28,404 28,404 100,000 66,264 66,264 100,000
24 70,091 11,688 11,688 100,000 29,314 29,314 100,000 69,605 69,605 100,000
25 75,170 11,288 11,288 100,000 30,095 30,095 100,000 73,085 73,085 100,000
26 80,504 10,596 10,596 100,000 30,722 30,722 100,000 76,726 76,726 100,000
27 86,104 9,563 9,563 100,000 31,169 31,169 100,000 80,555 80,555 100,000
28 91,984 8,134 8,134 100,000 31,407 31,407 100,000 84,606 84,606 100,000
29 98,158 6,277 6,277 100,000 31,431 31,431 100,000 88,927 88,927 100,000
30 104,641 3,867 3,867 100,000 31,164 31,164 100,000 93,562 93,562 100,112
31 111,448 787 787 100,000 30,549 30,549 100,000 98,495 98,495 103,420
32 118,596 0 0 0 29,508 29,508 100,000 103,585 103,586 108,766
33 126,100 27,991 27,991 100,000 108,840 108,840 114,282
34 133,980 25,846 25,846 100,000 114,252 114,252 119,965
35 142,254 22,986 22,986 100,000 119,827 119,827 125,818
36 150,942 19,183 19,183 100,000 125,557 125,557 131,835
37 160,064 14,202 14,202 100,000 131,440 131,440 138,012
38 169,643 7,839 7,839 100,000 137,479 137,479 144,353
39 179,700 0 0 0 143,664 143,664 150,848
40 190,260 149,996 149,996 157,495
41 201,348 156,455 156,455 164,278
42 212,990 163,037 163,037 171,189
43 225,215 169,731 169,731 178,218
44 238,050 176,522 176,522 185,348
45 251,528 183,396 183,396 192,566
46 265,679 190,341 190,341 199,858
47 280,538 197,755 197,755 205,665
48 296,140 205,730 205,730 211,901
49 312,522 214,372 214,372 218,660
50 329,723 223,809 223,809 223,809
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable Premium Expense Charges, current cost of
insurance rates, a monthly administrative charge of $31.00 per month in
Policy Year 1 and $6.00 thereafter, and a mortality and expense risk charge
of 0.90% of net assets.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
40
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$1,500 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT --------------------------------- --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ------------- --------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 664 259 100,000 726 321 100,000 787 382 100,000
2 3,229 1,591 1,186 100,000 1,765 1,360 100,000 1,947 1,542 100,000
3 4,965 2,477 2,072 100,000 2,824 2,419 100,000 3,201 2,796 100,000
4 6,788 3,321 2,916 100,000 3,902 3,497 100,000 4,557 4,152 100,000
5 8,703 4,121 3,716 100,000 4,996 4,591 100,000 6,024 5,619 100,000
6 10,713 4,875 4,470 100,000 6,106 5,701 100,000 7,613 7,208 100,000
7 12,824 5,579 5,219 100,000 7,227 6,867 100,000 9,330 8,970 100,000
8 15,040 6,227 5,912 100,000 8,355 8,040 100,000 11,186 10,871 100,000
9 17,367 6,815 6,545 100,000 9,484 9,214 100,000 13,192 12,922 100,000
10 19,810 7,336 7,111 100,000 10,609 10,384 100,000 15,357 15,132 100,000
11 22,376 7,815 7,635 100,000 11,755 11,575 100,000 17,732 17,552 100,000
12 25,069 8,216 8,081 100,000 12,888 12,753 100,000 20,301 20,166 100,000
13 27,898 8,535 8,445 100,000 14,002 13,912 100,000 23,087 22,997 100,000
14 30,868 8,769 8,724 100,000 15,095 15,050 100,000 26,114 26,069 100,000
15 33,986 8,906 8,906 100,000 16,156 16,156 100,000 29,407 29,407 100,000
16 37,261 8,938 8,938 100,000 17,175 17,175 100,000 32,994 32,994 100,000
17 40,699 8,852 8,852 100,000 18,142 18,142 100,000 36,911 36,911 100,000
18 44,309 8,634 8,634 100,000 19,041 19,041 100,000 41,194 41,194 100,000
19 48,099 8,263 8,263 100,000 19,855 19,855 100,000 45,889 45,889 100,000
20 52,079 7,719 7,719 100,000 20,562 20,562 100,000 51,052 51,052 100,000
21 56,258 7,449 7,449 100,000 21,091 21,091 100,000 53,479 53,479 100,000
22 60,646 6,947 6,947 100,000 21,472 21,472 100,000 55,953 55,953 100,000
23 65,253 6,178 6,178 100,000 21,679 21,679 100,000 58,480 58,480 100,000
24 70,091 5,101 5,101 100,000 21,689 21,689 100,000 61,069 61,069 100,000
25 75,170 3,666 3,666 100,000 21,468 21,468 100,000 63,731 63,731 100,000
26 80,504 1,800 1,800 100,000 20,968 20,968 100,000 66,472 68,472 100,000
27 86,104 0 0 0 20,079 20,079 100,000 69,285 69,285 100,000
28 91,984 0 0 0 18,815 18,815 100,000 72,217 72,217 100,000
29 98,158 0 0 0 17,029 17,029 100,000 75,271 75,271 100,000
30 104,641 0 0 0 14,602 14,602 100,000 78,473 78,473 100,000
31 111,448 0 0 0 11,409 11,409 100,000 81,867 81,867 100,000
32 118,596 0 0 0 7,293 7,293 100,000 85,510 85,510 100,000
33 126,100 2,066 2,055 100,000 89,471 89,471 100,000
34 133,980 0 0 0 93,844 93,844 100,000
35 142,254 0 0 0 98,568 98,568 103,496
36 150,942 0 0 0 103,418 103,418 108,589
37 160,064 0 0 0 108,390 108,390 113,809
38 169,643 0 0 0 113,476 113,476 119,150
39 179,700 0 0 0 118,668 118,668 124,602
40 190,260 123,956 123,956 130,154
41 201,348 129,332 129,332 135,799
42 212,900 134,787 134,787 141,526
43 225,215 140,312 140,312 147,328
44 238,050 145,902 145,902 153,197
45 251,528 151,546 151,546 159,124
46 265,679 157,235 157,235 165,096
47 280,538 163,344 163,344 169,878
48 296,140 169,955 169,955 175,054
49 312,522 177,164 177,164 180,707
50 329,723 185,085 185,085 185,085
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable Premium Expense Charges, guaranteed
cost of insurance rates, a monthly administrative charge of $33.00 per month
in Policy Year 1 and $8.00 per month thereafter, and a mortality and expense
risk charge of 0.90% of net assets.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
41
<PAGE>
OTHER POLICY BENEFITS AND PROVISIONS
LIMITS ON RIGHTS TO CONTEST THE POLICY
INCONTESTABILITY. Protective Life will not contest the Policy, or any
supplemental benefit and/or rider, after the Policy or rider has been in force
during the Insured's lifetime for two years from the Policy Effective Date or
the effective date of the rider, unless fraud is involved. Any increase in the
Face Amount will be incontestable with respect to statements made in the
evidence of insurability for that increase after the increase has been in force
during the life of the Insured for two years after the effective date of the
increase.
SUICIDE EXCLUSION. If the Insured dies by suicide, while sane or insane,
within two years after the Policy Effective Date, the Death Benefit will be
limited to the premium payments made before death, less any Policy Debt and any
withdrawals. If the Insured dies by suicide within two years after an increase
in Face Amount, the Death Benefit with respect to the increase will be limited
to the sum of the monthly cost of insurance charges made for that increase.
CHANGES IN THE POLICY OR BENEFITS
MISSTATEMENT OF AGE OR SEX. If the Insured's age or sex has been misstated
in the application for the Policy or in any application for supplemental
benefits and/or riders, the Death Benefit under the Policy or such supplemental
benefits and/or riders is the amount which would have been provided by the most
recent cost of insurance charge, and the cost of such supplemental benefits
and/or riders, at the correct age and sex.
OTHER CHANGES. At any time Protective Life may make such changes in the
Policy as are necessary to assure compliance with any applicable laws,
regulations or rulings issued by a government agency. This includes, but is not
limited to, changes necessary to comply at all times with the definition of life
insurance prescribed by the Code. Any such changes will apply uniformly to all
affected Policies and Owners will receive notification of such changes.
SUSPENSION OR DELAY IN PAYMENTS
Protective Life will ordinarily pay any Death Benefit proceeds, Policy
loans, withdrawals, or surrenders within seven calendar days after receipt at
the Home Office of all the documents required for such a payment. Other than the
Death Benefit, which is determined as of the date of death, the amount will be
determined as of the date of receipt of all required documents. However,
Protective Life may delay making a payment or processing a transfer request if
(1) the New York Stock Exchange is closed for other than a regular holiday or
weekend, trading on the Exchange is restricted by the SEC, or the SEC declares
that an emergency exists as a result of which the disposal or valuation of
Variable Account assets is not reasonably practicable; or (2) the SEC by order
permits postponement of payment to protect Owners. See also "Payments from the
Fixed Account".
REPORTS TO POLICY OWNERS
Each year you will be sent a report at your last known address showing, as
of the end of the current report period: the Death Benefit; Policy Value; Fixed
Account Value; Variable Account Value; Loan Account Value; Sub-Account Values;
premiums paid since the last report; withdrawals since the last report; any
Policy loans and accrued interest; Surrender Value; current Net Premium
allocations; charges deducted since the last report; and any other information
required by law. You will also be sent an annual and a semi-annual report for
each Fund underlying a Sub-Account to which you have allocated Policy Value,
including a list of the securities held in each Fund, as required by the 1940
Act. In addition, when you pay Premium Payments or request any other financial
transaction under your Policy you will receive a written confirmation of these
transactions.
ASSIGNMENT
The Policy may be assigned in accordance with its terms. In order for any
assignment to be binding upon Protective Life, it must be in writing and filed
at the Home Office. Once Protective Life has received a signed copy of the
assignment, the Owner's rights and the interest of any Beneficiary
42
<PAGE>
(or any other person) will be subject to the assignment. Protective Life assumes
no responsibility for the validity or sufficiency of any assignment. An
assignment is subject to any Policy Debt. An assignment may result in certain
amounts being subject to income tax and a 10% penalty tax. See "Tax
Considerations".
ARBITRATION
The Policy provides that any controversy, dispute or claim by any Owner(s),
Insured, or Beneficiary (a "claimant") arising out of insurance provided under
the Policy will be submitted to binding arbitration pursuant to the Federal
Arbitration Act. Arbitration will be binding upon any claimant as well as
Protective Life and may not be set aside in later litigation except upon the
limited circumstances set forth in the Federal Arbitration Act. Arbitration
expenses will be borne by the losing party or in such proportion as the
arbitrator(s) shall decide. Consult the Policy for additional information. This
provision does not apply to Policies issued to residents of the State of
Tennessee.
SUPPLEMENTAL BENEFITS AND/OR RIDERS
The following supplemental benefits and/or riders are available and may be
added to your Policy. Monthly charges for these benefits and/or riders will be
deducted from your Policy Value as part of the monthly deduction (see "Monthly
Deduction"). The supplemental benefits and/or riders available with the Policies
provide fixed benefits that do not vary with the investment experience of the
Variable Account.
CHILDREN'S TERM LIFE INSURANCE RIDER. Provides a death benefit payable on
the death of a covered child. More than one child can be covered. There is no
cash value for this benefit.
ACCIDENTAL DEATH BENEFIT RIDER. Provides an additional death benefit
payable if the Insured's death results from certain accidental causes. There is
no cash value for this benefit.
DISABILITY BENEFIT RIDER. Provides for the crediting of a specific Premium
Payment to a Policy on each Monthly Anniversary during the total disability of
the Insured. After the Insured has been totally disabled (as defined in the
rider) for six months, the Company will credit Premium Payments to the Policy
equal to the disability benefit amount shown in the Policy multiplied by the
number of Monthly Anniversary Days that have occurred since the onset of total
disability. Monthly Anniversary Days that occur more than one calendar year
prior to the date that We receive a claim under a rider are not included for the
purpose of this calculation. Subsequent to the time that the Insured has been
totally disabled for six months, We will credit a Premium Payment equal to the
disability benefit amount on each Monthly Anniversary Day. The Owner may change
the disability benefit amount by Written Notice at any time before the Insured
becomes totally disabled.
GUARANTEED INSURABILITY RIDER. Provides the right to increase the Face
Amount of your Policy under two options. The Option exercise date depends on the
rider selected: Variable Option or Survivor's Choice. Under the Variable Option
you can increase the Face Amount at designated future points in time (selected
at issue) without evidence of insurability. Under the Survivor's Choice Option,
you specify (at issue) a designated life (other than the Insured). When the
designated person dies, the Owner has the option to increase the Face Amount
without evidence of insurability. See "Changing the Face Amount".
PROTECTED INSURABILITY BENEFIT RIDER. Provides the right to increase the
Face Amount of your Policy at designated option dates at age 25, 28, 31, 34, 37
and 40 without evidence of insurability.
Additional rules and limits apply to these supplemental benefits and/or
riders. Not all such benefits may be available at any time, and supplemental
benefits and/or riders in addition to those listed above may be made available.
Please ask your Protective Life agent for further information, or contact the
Home Office.
REINSURANCE
The Company may reinsure a portion of the risks assumed under the Policies.
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USES OF THE POLICY
Life insurance, including variable life insurance, can be used to provide
for many individual and business needs, in addition to providing a death
benefit. Possible applications of a variable life insurance policy, such as this
Policy include: (1) serving as vehicle for accumulating funds for a college
education, (2) estate planning, (3) serving as an investment vehicle on various
types of deferred compensation arrangements, (4) buy-sell arrangements, (5)
split dollar arrangements, and (6) a supplement to other retirement plans.
As with any investment, using this Policy under these or other applications
entails certain risks. For example, if investment performance of subaccounts to
which Policy Value is allocated is poorer than expected or if sufficient
premiums are not paid, the Policy may lapse or may not accumulate Cash Value or
Surrender Value sufficient to adequately fund the application for which the
Policy was purchased. Similarly, certain transactions under a Policy entail
risks in connection with the application for which the Policy is purchased.
Withdrawals, policy loans and interest paid on policy loans may significantly
affect current and future Policy Value, Cash Value, Surrender Value or Death
Benefit Proceeds. If, for example, a policy loan is taken but not repaid prior
to the death of the Insured, the Policy Debt is subtracted from the Death
Benefit in computing the Death Benefit Proceeds to be paid to a Beneficiary.
Prior to utilizing this Policy or the above applications you should consider
whether the anticipated duration of the Policy is appropriate for the
application for which you intend to purchase it.
In addition, you need to consider the tax implications of using the Policy
with these applications. Loans and withdrawals will affect the Policy Value and
Death Benefit. There may be penalties and taxes if the policy is withdrawn,
surrendered, lapses or matures. BECAUSE OF THESE RISKS, YOU NEED TO CAREFULLY
CONSIDER HOW YOU USE THIS POLICY. THIS POLICY MAY NOT BE SUITABLE FOR ALL
PERSONS, UNDER ANY OF THESE APPLICATIONS.
TAX CONSIDERATIONS
INTRODUCTION
The following discussion of the federal income tax treatment of the Policy
is not exhaustive, does not purport to cover all situations, and is not intended
as tax advice. The federal income tax treatment of the Policy is unclear in
certain circumstances, and a qualified tax adviser should always be consulted
with regard to the application of law to individual circumstances. This
discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Department 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 Policy. In addition, PROTECTIVE LIFE MAKES NO GUARANTEE
REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY POLICY OR OF
ANY TRANSACTION INVOLVING A POLICY.
TAX STATUS OF PROTECTIVE LIFE
Protective Life is taxed as a life insurance company under the Code. Since
the operations of the Variable Account are a part of, and are taxed with, the
operations of Protective Life, the Variable Account is not separately taxed as a
"regulated investment company" under the Code. Under existing federal income tax
laws, Protective Life is not taxed on investment income and realized capital
gains of the Variable Account, although Protective Life's federal taxes are
increased in respect of the Policies because of the federal tax law's treatment
of deferred acquisition costs. Currently, a charge for federal income taxes is
not deducted from the Sub-Accounts or the Policy's Cash Value. However,
Protective Life does deduct a charge of 1.25% of each Premium Payment in all
Policy Years to compensate it for the federal tax treatment of deferred
acquisition costs. Protective Life reserves the right in the future
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to make a charge against the Variable Account or the Cash Values, of a Policy
for any federal, state, or local income taxes that it incurs and determines to
be properly attributable to the Variable Account or the Policy. Protective Life
will promptly notify You of any such charge.
TAXATION OF LIFE INSURANCE POLICIES
TAX STATUS OF THE POLICY. Section 7702 of the Code establishes a statutory
definition of life insurance for federal tax purposes. Protective Life believes
that the Policy will meet the current statutory definition of life insurance,
which places limitations on the amount of premiums that may be paid and the
Policy Values that can accumulate relative to the Death Benefit. As a result,
the Death Benefit payable under the Policy will generally be excludable from the
Beneficiary's gross income, and interest and other income credited under the
Policy will not be taxable unless certain withdrawals are made (or are deemed to
be made) from the Policy prior to the Insured's death, as discussed below. This
tax treatment will only apply, however, if (1) the investments of the Variable
Account are "adequately diversified" in accordance with Treasury Department
regulations, and (2) Protective Life, rather than the Owner, is considered the
owner of the assets of the Variable Account for federal income tax purposes.
DIVERSIFICATION REQUIREMENTS. The Code and Treasury Department
regulations prescribe the manner in which the investments of a segregated
asset account, such as the Variable Account, are to be "adequately
diversified". If the Variable Account fails to comply with these
diversification standards, the Policy will not be treated as a life
insurance contract for federal income tax purposes and the Owner would
generally be taxable currently on the income on the contract (as defined in
the tax law) beginning with the period of non-diversification. Protective
Life expects that the Variable Account, through the Funds, will comply with
the diversification requirements
prescribed by the Code and Treasury Department regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable life insurance
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 includible in the contract
owners' gross income. The Internal Revenue Service (the "IRS") has stated in
published rulings that a vari-able 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 Trea-sury 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 invest-ments
of a segregated asset account may cause the investor, rather than the
insurance company, to be treated as the owner of the assets in the account".
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct
their investments to particular sub-accounts [of a segregated asset account]
without being treated as owners of the underlying assets". As of the date of
this Prospectus, no such guid-ance has been issued.
The ownership rights under the Policy 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 Policy has the
choice of more investment options to which to allocate premium 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 Policy Owner being treated as the owner of a portion of the
assets of the Variable Account. In addition, Protective Life 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 Policy as necessary to attempt to
prevent Owners from being considered the owners of the assets of the
Variable Account. However, there is no assurance that such efforts would be
successful.
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The remainder of this discussion assumes that the Policy will be treated as
a life insurance contract for federal tax purposes.
TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS. In general, the
amount of the Death Benefit Proceeds payable from a Policy by reason of the
death of the Insured is excludable from gross income under Section 101 of the
Code. Certain transfers of the Policy for valuable consideration, however, may
result in a portion of the Death Benefit Proceeds being taxable.
If the Death Benefit Proceeds is not received in a lump sum and is, instead,
applied under either settlement Options 1, 2, or 4, generally payments will be
prorated between amounts attributable to the Death Benefit which will be
excludable from the Beneficiary's income and amounts attributable to interest
(accruing after the Insured's death) which will be includible in the
Beneficiary's income. If the Death Benefit Proceeds is applied under Option 3
(Interest Income), the interest payments will be includible in the Beneficiary's
income.
TAX DEFERRAL DURING ACCUMULATION PERIOD. Under existing provisions of the
Code, except as described below, any increase in an Owner's Policy Value is
generally not taxable to the Owner unless amounts are received (or are deemed to
be received) from the Policy prior to the Insured's death. If there is a
surrender of the Policy, an amount equal to the excess of the Surrender Value
over the "investment in the contract" will be includible in the Owner's income.
The "investment in the contract" is the aggregate Premiums Payments less the
aggregate amount received under the Policy previously to the extent such amounts
received were excludable from gross income. Whether withdrawals (or other
amounts deemed to be distributed) from the Policy constitute income to the Owner
depends, in part, upon whether the Policy is considered a "modified endowment
contract" ("MEC") for federal income tax purposes.
POLICIES WHICH ARE NOT MECS
TAX TREATMENT OF WITHDRAWALS GENERALLY. If the Policy is not a MEC
(described below), the amount of any withdrawal from the Policy generally
will be considered first as non-taxable recovery of premium and then income
from the Policy. Thus, a withdrawal under a Policy that is not a MEC
generally will not be includible in income except to the extent it exceeds
the investment in the contract immediately before the withdrawal.
CERTAIN DISTRIBUTIONS REQUIRED BY THE TAX LAW IN THE FIRST 15 POLICY
YEARS. As indicated above, section 7702 places limitations on the amount of
premiums that may be paid and the Policy Values that can accumulate relative
to the Death Benefit. Where cash distributions are required under section
7702 in connection with a reduction in benefits during the first 15 years
after the Policy is issued (or if withdrawals are made in anticipation of a
reduction in benefits, within the meaning of the tax law, during this
period), some or all of such amounts may be includible in income
notwithstanding the general rule described in the preceding paragraph. A
reduction in benefits may result upon a decrease in the face amount, a
change from an Increasing Death Benefit to a Level Death Benefit, if
withdrawals are made, and in certain other instances.
TAX TREATMENT OF LOANS. If a Policy is not classified as a MEC, a loan
received under the Policy generally will be treated as indebtedness of the
Owner. As a result, no part of any loan under a Policy will constitute
income to the Owner so long as the Policy remains in force. However, in
those situations where the interest rate credited to the Loan Account equals
the interest rate charged for the loan, it is possible that some or all of
the loan proceeds may be includible in income. If a Policy lapses when a
loan is outstanding, the amount of the loan outstanding will be treated as
the proceeds of a surrender for purposes of determining whether any amounts
are includable in the Owner's income.
Generally, interest paid on any loans under this Policy will not be tax
deductible unless paid in connection with a taxpayer's trade or business. In
the case of interest paid in connection with a loan with respect to a Policy
covering the life of any individual who is an officer or employee or is
financially interested in the trade or business, interest is deductible
under current law only to the
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extent that the aggregate amount of loans under one or more life insurance
policies does not exceed $50,000. Further, even as to such loans up to
$50,000, interest would not be deductible if the Policy were deemed for
federal tax purposes to be a single premium life insurance policy or, in
certain circumstances, if the loans were treated as "systematic borrowing"
within the meaning of the tax law. Moreover, as of the date of this
prospectus, Congress is considering legislation which would disallow the
deduction of such interest even where the amount of the loan is less than
$50,000. (It is possible that if the interest paid deduction on such loans
is repealed, a narrow exception may be retained for senior employees.) This
legislation would be effective generally for interest paid or accrued on or
after January 1, 1996. Owners should consult a tax advisor regarding the
deductibility of interest incurred in connection with this Policy.
POLICIES WHICH ARE MECS
CHARACTERIZATION OF A POLICY AS A MEC. In general, a Policy will be
considered a MEC for federal income tax purposes if (1) the Policy is
received in exchange for a life insurance contract that was a MEC, or (2)
the Policy is entered into after June 21, 1988 and premiums are paid into
the Policy more rapidly than the rate defined by a "7-Pay Test". This test
generally provides that a Policy will fail this test (and thus be considered
a MEC) if the accumulated amount paid under the Policy at any time during
the 1st 7 Policy Years exceeds the cumulative sum of the net level premiums
which would have been paid to that time if the Policy provided for paid-up
future benefits after the payment of 7 level annual premiums. A material
change of the Policy (as defined in the tax law) will generally result in a
re-application of the 7-Pay Test. In addition, any reduction in benefits
during the 7-Pay period will affect the application of this test. Protective
Life will monitor the Policies and will attempt to notify Owners on a timely
basis if a Policy is in jeopardy of becoming a MEC.
TAX TREATMENT OF WITHDRAWALS, LOANS, ASSIGNMENTS AND PLEDGES UNDER
MECS. If the Policy is a MEC, withdrawals from the Policy will be
considered first as withdrawals of income and then as a recovery of premiums
paid. Thus, withdrawals will be includible in income to the extent the
Policy Value exceeds the investment in the contract. The amount of any
Policy Debt will be treated as a withdrawal for tax purposes. In addition,
the discussion of interest on loans and of lapses while loans are
outstanding under the caption "Policies Which Are Not MECs" also applies to
Policies which are MECs.
If the Owner assigns or pledges any portion of the Policy Value (or
agrees to assign or pledge any portion), such portion will be treated as
a withdrawal for tax purposes. The Owner's investment in the contract is
increased by the amount includible in income with respect to such
assignment, pledge, or loan, though it is not affected by any other
aspect of the assignment, pledge, or loan (including its release or
repayment). Before assigning, pledging, or requesting a loan under a
Policy treated as a MEC, an Owner should consult a qualified tax
advisor.
PENALTY TAX. Generally, proceeds of a surrender or a withdrawals (or
the amount of any deemed withdrawal) from a MEC are subject to a penalty tax
equal to 10% of the portion of the proceeds that is includible in income,
unless the surrender or withdrawal is made (1) after the Owner attains age
59 , (2) because the Owner has become disabled (as defined in the tax law),
or (3) as substantially equal periodic payments over the life or life
expectancy of the Owner (or the joint lives or life expectancies of the
Owner and his or her beneficiary, as defined in the tax law).
AGGREGATION OF POLICIES. All life insurance contracts which are treated
as MECs and which are purchased by the same person from Protective Life or
any of its affiliates within the same calendar year will be aggregated and
treated as one contract for purposes of determining the tax on withdrawals
(including deemed withdrawals). The effects of such aggregation are not
clear; however, it could affect the time when income is taxable and the
amount which might be subject to the 10% penalty tax described above.
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TREATMENT OF MATURITY BENEFITS AND EXTENSION OF MATURITY DATE. At the
Maturity Date, the Surrender Value will be paid to the Owner. This payment will
be taxable in the same manner as a surrender of the Policy. If the Owner elects
to extend the Maturity Date (which must be done prior to the Maturity Date) and
such extension is approved, it is possible that the IRS could treat the Owner as
being in constructive receipt of the Cash Value when the insured reaches age 95.
If this were the case, an amount equal to the excess of the Cash Value over the
investment in the contract could be includible in the Owner's income at that
time.
ACTIONS TO ENSURE COMPLIANCE WITH THE TAX LAW. Protective Life believes
that the maximum amount of premiums it has determined for the Policies will
comply with the federal tax definition of life insurance. Protective Life will
monitor the amount of premiums paid, and, if the premiums paid exceed those
permitted by the tax definition of life insurance, Protective Life will
immediately refund the excess premiums. Protective Life also reserves the right
to increase the Death Benefit (which may result in larger charges under a
Policy) or to take any other action deemed necessary to ensure the compliance of
the Policy with the federal tax definition of life insurance.
OTHER CONSIDERATIONS. Changing the Owner, exchanging the Policy, changing
from one Death Benefit option to another, and other changes under the Policy may
have tax consequences (other than those discussed herein) depending on the
circumstances of such change or withdrawal.
FEDERAL INCOME TAX WITHHOLDING
Protective Life will withhold and remit to the federal government a part of
the taxable portion of a surrender and withdrawal made under a Policy unless the
Owner notifies Protective Life in writing at or before the time of the surrender
or withdrawal that he or she elects not to have any amounts withheld. Regardless
of whether the Owner requests that no taxes be withheld or whether Protective
Life withholds a sufficient amount of taxes, the Owner will be responsible for
the payment of any taxes including any penalty tax that may be due on the
amounts received. The Owner may also be required to pay penalties under the
estimated tax rules, if the Owner's withholding and estimated tax payments are
insufficient to satisfy the Owner's total tax liability.
OTHER INFORMATION ABOUT THE POLICIES AND PROTECTIVE LIFE
SALE OF THE POLICIES
Investment Distributors, Inc. ("IDI"), a wholly-owned subsidiary of
Protective Life Corporation, acts as a principal underwriter of the Policies.
IDI also acts as principal underwriter of variable annuity contracts issued
through Protective Variable Annuity Separate Account, and of the Fund. IDI is a
registered broker-dealer under the Securities Exchange Act of 1934 and a member
of the National Association of Securities Dealers, Inc. The Policies are sold by
certain registered representatives of broker-dealers (including Pro Equities,
Inc., an affiliate of Protective Life and IDI) that have entered into selling
agreements with IDI, who are also appointed and licensed as insurance agents of
Protective Life. Registered representatives may be paid commissions on Policies
they sell based on Premium Payments paid in amounts up to 50% of a targeted
first year premium payment. A targeted first year premium payment is
approximately equal to your minimum initial premium on an annual basis. For
Premium Payments paid in the first policy year which exceed this targeted
amount, registered representatives may receive up to 5% on Premium Payments in
excess of target. For Premium Payments received during policy years two through
ten, the registered representatives may be paid up to 5% on Premium Payments,
and .025% on unloaned Policy Value after the first ten Policy Years. Other
allowances and overrides, and non-cash compensation, also may be paid.
Registered representatives who meet certain productivity and profitability
standards may be eligible for additional compensation.
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PROTECTIVE LIFE DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age, address and principal
occupations during the past five years of each of Protective Life's directors
and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH PROTECTIVE LIFE
- -------------------- --- -------------------------------------------------------------------
<S> <C> <C>
Drayton Nabers, Jr. 54 President and a Director
R. Stephen Briggs 45 Executive Vice President and a Director
John D. Johns 41 Executive Vice President and Chief Financial Officer and a Director
Ormond L. Bentley 59 Senior Vice President, Group and a Director
Deborah J. Long 40 Senior Vice President and General Counsel
Jim E. Massengale 52 Senior Vice President and a Director
Steven A. Schultz 41 Senior Vice President, Financial Institutions and a Director
Wayne E. Stuenkel 41 Senior Vice President and Chief Actuary and a Director
A. S. Williams III 58 Senior Vice President, Investments and Treasurer and a Director
Judy Wilson 36 Senior Vice President, Guaranteed Investment Contracts
Carolyn King 45 Senior Vice President, Investment Products
Jerry W. DeFoor 42 Vice President and Controller, and Chief Accounting Officer
</TABLE>
All executive officers and directors are elected annually. Executive
officers serve at the pleasure of the Board of Directors and directors are
elected by PLC at the annual meeting of shareholders of Protective Life.
Since May 1992, Mr. Nabers has been President and Chief Executive Officer of
PLC. Mr. Nabers had been President of Protective Life and PLC since August 1982,
and had been Senior Vice President of each from September 1981 to August 1982.
From February 1980 to September 1981, he served as Senior Vice President,
Operations of Protective. From 1979 to February 1980, he was Senior Vice
President, Operations and General Counsel of Protective.
Mr. Briggs has been Executive Vice President of PLC and Protective Life
since October 1993. From January 1993 to October 1993 he was Senior Vice
President, Life Insurance and Investment Products of Protective Life and PLC.
Mr. Briggs had been Senior Vice President, Ordinary Marketing of PLC since
August 1988 and of Protective Life since April 1986. From July 1983 to April
1986, he was President of First Protective Insurance Group, Inc.
Mr. Johns has been Executive Vice President and Chief Financial Officer of
PLC and Protective Life since October 1993. From August 1988 to October 1993, he
served as Vice President and General Counsel of Sonat, Inc.
Mr. Bentley has been Senior Vice President, Group of Protective Life since
December 1978. He has also served as Senior Vice President, Group of PLC since
August 1988. Mr. Bentley has been employed by Protective Life since October
1965.
Ms. Long has been Senior Vice President and General Counsel of PLC and
Protective Life since February 1, 1994. From August 2, 1993 to January 31, 1994,
Ms. Long served as General Counsel of PLC and from February 1984 to January 31,
1994 she practiced law with the law firm of Maynard, Cooper & Gale, P.C.
Mr. Massengale has been Senior Vice President of Protective Life and PLC
since June 1992. From May 1989 to June 1992 Mr. Massengale was Senior Vice
President, Operations and Systems of Protective Life and PLC. From January 1983
to May 1989, he was Senior Vice President, Corporate Systems of Protective Life
and PLC.
Mr. Schultz has been Senior Vice President, Financial Institutions of
Protective Life and PLC since March 1993. Mr. Schultz served as Vice President,
Financial Institutions of Protective Life from February 1989 to March 1993 and
of PLC from February 1993 to March 1993. From June 1977 through January 1989, he
was employed by and served in a number of capacities with The Minnesota Mutual
Life Insurance Company, finally serving as Director, Group Sales.
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Mr. Stuenkel has been Senior Vice President and Chief Actuary of Protective
Life and PLC since March 1987. From June 1986 to March 1987, he was Vice
President and Chief Actuary of Protective Life and PLC. From January 1982 to
June 1986, he served as Vice President and Ordinary Actuary of Protective Life.
Mr. Stuenkel is a Fellow in the Society of Actuaries and has been employed by
Protective Life since September 1978.
Mr. Williams has been Senior Vice President, Investments and Treasurer of
PLC since July 1981. Mr. Williams also serves as Senior Vice President,
Investments and Treasurer of Protective Life. Mr. Williams has been employed by
Protective Life since November 1964.
Ms. Wilson has been Senior Vice President, Guaranteed Investment Contracts
of PLC and Protective Life since January 1995. From October 1989 to January
1995, she was Vice President of Guaranteed Investment Contracts of PLC and
Protective Life.
Ms. King has been Senior Vice President, Investment Products since March,
1995. From August, 1994 to March, 1995, Ms. King was Senior Vice President and
Chief Investment Officer of Provident Life & Accident Insurance Company. From
November 1987 until March 1995, Ms. King served as President of Provident
National Assurance Company.
Mr. DeFoor has been Vice President and Controller, and Chief Accounting
Officer of Protective Life and PLC since April 1989. Mr. DeFoor is a certified
public accountant and has been employed by Protective Life since August 1982.
STATE REGULATION
Protective Life is subject to regulation by the Department of Insurance of
the State of Tennessee, which periodically examines the financial condition and
operations of Protective Life. Protective Life is also subject to the insurance
laws and regulations of all jurisdictions where it does business. The Policy
described in this prospectus has been filed with and, where required, approved
by, insurance officials in those jurisdictions where it is sold.
Protective Life is required to submit annual statements of operations,
including financial statements, to the insurance departments of the various
jurisdictions where it does business to determine solvency and compliance with
applicable insurance laws and regulations.
ADDITIONAL INFORMATION
A registration statement under the Securities Act of 1933 has been filed
with the SEC relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained at the SEC's principal office
in Washington, D.C. by paying the SEC's prescribed fees.
EXPERTS
The consolidated balance sheets of Protective Life as of December 31, 1994
and 1993 and the consolidated statements of income, stockholder's equity and
cash flows for each of the three years in the period ended December 31, 1994 and
the related financial statement schedules included in this Prospectus, have been
included herein in reliance on the report, which includes an explanatory
paragraph with respect to changes in the Company's methods of accounting for
certain investments in debt and equity securities in 1993 and postretirement
benefits other than pensions in 1992, of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
With respect to the unaudited interim financial information of Protective
Life for the three-month and nine-month periods ended September 30, 1994 and
1993, included in this Prospectus, the independent accountants have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report,
which includes an explanatory paragraph with respect to changes in the Company's
methods of accounting in certain investments in debt and equity securities in
1993 and postretirement benefits other than pensions in 1992, included in this
S-6 Registration Statement states that they did not audit and they
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do not express an opinion on that interim financial information. Accordingly,
the degree of reliance on their report on such information should be restricted
in light of the limited nature of the review procedures applied. The accountants
are not subject to the liability provisions of Section 11 of the Securities Act
of 1933 for their report on the unaudited interim financial information because
that report is not a "report" or a "part" of the Registration Statement prepared
or certified by the accountants within the meaning of Sections 7 and 11 of the
Act.
Actuarial matters included in this Prospectus have been examined by Milliman
& Robertson whose opinion is filed as an exhibit to the registration statement.
LEGAL MATTERS
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws.
FINANCIAL STATEMENTS
No financial statements of the Variable Account are included herein because,
as of the date of this Prospectus, the Variable Account had not yet commenced
operations, had no assets, and had incurred no liabilities. The financial
statements of Protective Life appear on the following pages. The financial
statements of Protective Life should be distinguished from financial statements
of the Variable Account and should be considered only as bearing upon Protective
Life's ability to meet its obligations under the Policies.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PROTECTIVE LIFE INSURANCE COMPANY
Report of Independent Accountants.................................................... F-2
Consolidated Statements of Income for the years ended December 31, 1994, 1993, and
1992................................................................................ F-3
Consolidated Balance Sheets as of December 31, 1994 and 1993......................... F-4
Consolidated Statements of Stockholder's Equity for the years ended December 31,
1994, 1993, and 1992................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993,
and 1992............................................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
Report of Independent Accountants.................................................... F-26
Consolidated Condensed Statements of Income for the Three and Nine Months ended
September 30, 1995 and 1994 (unaudited)............................................. F-27
Consolidated Condensed Balance Sheets as of September 30, 1995 (unaudited) and
December 31, 1994................................................................... F-28
Consolidated Condensed Statements of Cash Flows for the Nine Months ended September
30, 1995 and 1994 (unaudited)....................................................... F-29
Notes to Consolidated Condensed Financial Statements................................. F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholder
Protective Life Insurance Company
Birmingham, Alabama
We have audited the consolidated financial statements and the financial
statement schedules of Protective Life Insurance Company and subsidiaries,
included on pages F-3 through F-25 and S-1 through S-3, respectively, of this
registration statement on Form S-6. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Protective Life
Insurance Company and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As discussed in Note A to the consolidated financial statements, the Company
changed its method of accounting for certain investments in debt and equity
securities in 1993. Also, as discussed in Note L to the consolidated financial
statements, the Company changed its method of accounting for postretirement
benefits other than pensions in 1992.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
February 13, 1995
F-2
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded: 1994 - $172,575; 1993
- $126,912; 1992 - $109,355)............................................ $ 402,772 $ 351,423 $ 323,136
Net investment income.................................................... 408,933 354,165 274,991
Realized investment gains (losses)....................................... 6,298 5,054 (154)
Other income............................................................. 11,977 4,756 10,675
----------- ----------- -----------
829,980 715,398 608,648
----------- ----------- -----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: 1994 -
$112,922; 1993 - $84,949; 1992 - $67,436)............................... 517,110 461,636 409,557
Amortization of deferred policy acquisition costs........................ 88,089 73,335 48,403
Other operating expenses (net of reinsurance ceded: 1994 - $14,326; 1993
- $10,759; 1992 - $7,468)............................................... 119,203 94,315 91,925
----------- ----------- -----------
724,402 629,286 549,885
----------- ----------- -----------
INCOME BEFORE INCOME TAX................................................... 105,578 86,112 58,763
INCOME TAX EXPENSE
Current.................................................................. 37,586 33,039 19,475
Deferred................................................................. (4,731) (3,082) (2,082)
----------- ----------- -----------
32,855 29,957 17,393
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST............................................ 72,723 56,155 41,370
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARIES............... 90
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.......... 72,723 56,155 41,280
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (NET OF INCOME TAX:
$542)..................................................................... 1,053
----------- ----------- -----------
NET INCOME................................................................. $ 72,723 $ 56,155 $ 40,227
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1994-$3,698,370;
1993-$2,985,670)............................................................. $3,493,646 $3,051,292
Equity securities, at market (cost: 1994-$45,958; 1993-$33,331)............... 45,005 40,596
Mortgage loans on real estate................................................. 1,488,495 1,408,444
Investment real estate, net of accumulated depreciation (1994-$695;
1993-$3,126)................................................................. 20,170 21,928
Policy loans.................................................................. 147,608 141,136
Other long-term investments................................................... 50,751 22,760
Short-term investments........................................................ 54,683 79,772
---------- ----------
Total investments........................................................... 5,300,358 4,765,928
Cash............................................................................ 23,951
Accrued investment income....................................................... 55,630 51,330
Accounts and premiums receivable, net of allowance for uncollectible
amounts (1994-$2,464; 1993-$5,024)............................................. 28,928 20,473
Reinsurance receivables......................................................... 122,175 102,559
Deferred policy acquisition costs............................................... 434,200 299,307
Property and equipment, net..................................................... 33,185 33,046
Receivables from related parties................................................ 281 382
Other assets.................................................................... 11,802 7,473
Assets related to separate accounts............................................. 124,145 3,400
---------- ----------
$6,110,704 $5,307,849
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims............................................. $1,694,295 $1,380,845
Unearned premiums............................................................. 103,479 88,785
---------- ----------
1,797,774 1,469,630
Guaranteed investment contract deposits......................................... 2,281,673 2,015,075
Annuity deposits................................................................ 1,251,318 1,005,742
Other policyholders' funds...................................................... 144,461 141,975
Other liabilities............................................................... 94,181 74,375
Accrued income taxes............................................................ (4,699) 7,483
Deferred income taxes........................................................... (14,667) 69,118
Short-term debt................................................................. -- 20
Long-term debt.................................................................. -- 98
Indebtedness to related parties................................................. 39,443 48,943
Liabilities related to separate accounts........................................ 124,145 3,400
---------- ----------
Total liabilities......................................................... 5,713,629 4,835,859
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
REDEEMABLE PREFERRED STOCK, $1.00 par value, at redemption value
Shares authorized and issued: 2,000............................................ 2,000 2,000
---------- ----------
STOCKHOLDER'S EQUITY
Common Stock, $1.00 par value................................................... 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital...................................................... 126,494 126,494
Net unrealized gains (losses) on investments (Net of income tax: 1994-$(57,902);
1993-$19,774).................................................................. (107,532) 39,284
Retained earnings............................................................... 377,049 305,176
Note receivable from PLC Employee Stock Ownership Plan.......................... (5,936) (5,964)
---------- ----------
Total stockholder's equity................................................ 395,075 469,990
---------- ----------
$6,110,704 $5,307,849
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET NOTE
ADDITIONAL UNREALIZED RECEIVABLE TOTAL
COMMON PAID-IN GAINS (LOSSES) RETAINED FROM PLC STOCKHOLDER'S
STOCK CAPITAL ON INVESTMENTS EARNINGS ESOP EQUITY
------ ---------- --------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991................... $5,000 $ 84,737 $ 3,981 $211,013 $ (6,263) $ 298,468
Net income for 1992........................ 40,227 40,227
Common dividends ($.38 per share).......... (1,904) (1,904)
Preferred dividends ($675 per share)....... (1,350) (1,350)
Decrease in net unrealized gains on
investments............................... (825) (825)
Sale of PLC Stock to PLC ESOP (728
shares)................................... 16 16
Sale of PLC Stock to PLC (39,688 shares)... 643 643
Transfer of assets from PLC................ 98 98
Decrease in note receivable from PLC
ESOP...................................... 143 143
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1992................... 5,000 85,494 3,156 247,986 (6,120) 335,516
Net income for 1993........................ 56,155 56,155
Preferred dividends ($750 per share)....... (1,500) (1,500)
Transfer of Southeast Health Plan, Inc.
common stock to PLC....................... 2,535 2,535
Increase in net unrealized gains on
investments............................... 36,128 36,128
Capital contribution from PLC.............. 41,000 41,000
Decrease in note receivable from PLC
ESOP...................................... 156 156
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1993................... 5,000 126,494 39,284 305,176 (5,964) 469,990
Net income for 1994........................ 72,723 72,723
Preferred dividends ($425 per share)....... (850) (850)
Decrease in net unrealized gains on
investments............................... (146,816) (146,816)
Decrease in note receivable from PLC
ESOP...................................... 28 28
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1994................. $5,000 $ 126,494 $ (107,532) $377,049 $ (5,936) $ 395,075
------ ---------- --------------- -------- ---------- -------------
------ ---------- --------------- -------- ---------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 72,723 $ 56,155 $ 40,227
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition
costs........................................ 88,089 73,335 48,403
Capitalization of deferred policy acquisition
costs........................................ (127,566) (92,935) (81,160)
Depreciation expense.......................... 4,280 2,660 2,974
Deferred income taxes......................... (4,731) 16,987 (3,280)
Accrued income taxes.......................... (12,182) 5,040 2,368
Interest credited to universal life and
investment products.......................... 260,081 220,772 173,658
Policy fees assessed on universal life and
investment products.......................... (85,532) (67,314) (46,383)
Change in accrued investment income and other
receivables.................................. (32,242) (91,864) (2,135)
Change in policy liabilities and other
policyholder funds of traditional life and
health products.............................. 61,322 47,212 4,307
Change in other liabilities................... 18,564 11,970 6,230
Other (net)................................... (1,475) 10,517 (3,377)
---------- ---------- ----------
Net cash provided by operating activities......... 241,331 192,535 141,832
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of
investments:
Investments available for sale................ 386,498
Other......................................... 153,945 1,319,590 881,795
Sale of investments:
Investment available for sale................. 630,095
Other......................................... 59,550 244,683 338,850
Cost of investments acquired:
Investments available for sale................ (1,807,658)
Other......................................... (220,839) (2,320,628) (1,997,470)
Acquisitions and bulk reinsurance assumptions... 106,435 14,170 23,274
Principal payments on subordinated debenture of
PLC............................................ 3,678
Purchase of property and equipment.............. (4,889) (3,451) (2,679)
Sale of property and equipment.................. 470 1,817 181
---------- ---------- ----------
Net cash used in investing activities............. (696,393) (743,819) (752,371)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing under line of credit
arrangements and long-term debt................ 572,586 574,423 297,300
Proceeds from borrowing from PLC................ 4,700
Proceeds from surplus note to PLC............... 35,000 15,000
Capital contribution from PLC................... 41,000
Principal payments on line of credit
arrangements and long-term debt................ (572,704) (577,767) (297,331)
Principal payment on surplus note to PLC........ (9,500) (22,500) (4,500)
Dividends to stockholder........................ (850) (1,500) (3,254)
Investment product deposits and change in
universal life deposits........................ 1,417,980 1,198,263 871,251
Investment product withdrawals.................. (976,401) (683,251) (263,530)
---------- ---------- ----------
Net cash provided by financing activities......... 431,111 563,668 619,636
---------- ---------- ----------
INCREASE(DECREASE) IN CASH........................ (23,951) 12,384 9,097
CASH AT BEGINNING OF YEAR......................... 23,951 11,567 2,470
---------- ---------- ----------
CASH AT END OF YEAR............................... $ 0 $ 23,951 $ 11,567
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on notes and mortgages payable....... $ 5,029 $ 3,803 $ 326
Income taxes.................................. $ 49,765 $ 27,432 $ 17,278
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Minority interest in consolidated subsidiary.... $ (1,311) $ 90
Sale of PLC stock to PLC........................ $ 643
Sale of PLC stock to ESOP....................... $ 16
Reduction of principal on note from ESOP........ $ 28 $ 156 $ 143
Acquisitions and bulk reinsurance assumptions
Assets acquired............................... $ 117,349 $ 423,140 $ 103,557
Liabilities assumed........................... (166,595) (429,580) (130,008)
---------- ---------- ----------
Net........................................... $ (49,246) $ (6,440) $ (26,451)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life
Insurance Company and subsidiaries ("Protective") are prepared on the basis of
generally accepted accounting principles. Such accounting principles differ from
statutory reporting practices used by insurance companies in reporting to state
regulatory authorities. (See also Note B.)
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its
wholly-owned subsidiaries including Wisconsin National Life Insurance Company
("Wisconsin National") and American Foundation Life Insurance Company ("American
Foundation"). Protective is a wholly-owned subsidiary of Protective Life
Corporation ("PLC"), an insurance holding company.
Additionally, the financial statements include the accounts of
majority-owned subsidiaries. The ownership interest of the other stockholders of
these subsidiaries is called a minority interest and is reported as a liability
of Protective and as an adjustment to income.
PLC has from time to time merged other life insurance companies it has
acquired (or formed) into Protective. Acquisitions have been accounted for as
purchases by PLC. The results of such mergers have been included in the
accompanying financial statements as if the mergers into Protective had occurred
on the dates the merged companies were acquired (or formed) by PLC. Such mergers
into Protective have been accounted for in a manner similar to that in
pooling-of-interests accounting.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1992, Protective adopted Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS No. 106 was accounted for as a change in accounting principle
with the cumulative effect reported as a reduction to income.
Protective adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," at December 31, 1993, which requires Protective to carry
its investment in fixed maturities and certain other securities at market value
instead of amortized cost. As prescribed by SFAS No. 115, these investments are
recorded at their market values with the resulting unrealized gains and losses,
net of income tax, reported as a component of stockholder's equity reduced by a
related adjustment to deferred policy acquisition costs. The market values of
fixed maturities increase or decrease as interest rates fall or rise. Therefore,
although the adoption of SFAS No. 115 does not affect Protective's operations,
its reported stockholder's equity will fluctuate significantly as interest rates
change.
In 1994, Protective adopted SFAS No. 119 "Disclosure about Derivative
Financial Instruments and Fair Values of Financial Instruments," which requires
additional disclosures related to derivative financial instruments. Also, in
1994, Protective adopted new disclosure requirements required by Statement of
Position 94-4 of the Accounting Standards Division of the American Institute of
Certified Public Accountants concerning disclosures related to Protective's
liability for unpaid claims. The adoption of these accounting standards had no
effect on Protective's financial statements.
INVESTMENTS
For purposes of adopting SFAS No. 115 Protective has classified all of its
investments in fixed maturities, equity securities, and short-term investments
as "available for sale."
F-7
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments are reported on the following bases less allowances for
uncollectible amounts on investments, if applicable:
-Fixed maturities (bonds, bank loan participations, and redeemable
preferred stocks) -- at current market value.
-Equity securities (common and nonredeemable preferred stocks) --
at current market value.
-Mortgage loans on real estate -- at unpaid balances, adjusted for
loan origination costs, net of fees, and amortization of premium
or discount.
-Investment real estate -- at cost, less allowances for
depreciation computed on the straight-line method. With respect
to real estate acquired through foreclosure, cost is the lesser
of the loan balance plus foreclosure costs or appraised value.
-Policy loans -- at unpaid balances.
-Other long-term investments -- at a variety of methods similar to
those listed above, as deemed appropriate for the specific
investment.
-Short-term investments -- at cost, which approximates current
market value.
Substantially all short-term investments have maturities of three months or
less at the time of acquisition and include approximately $9.7 million in bank
deposits voluntarily restricted as to withdrawal.
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>
1994 1993
------------- -------------
<S> <C> <C>
Total investments............................................... $ 5,499,511 $ 4,693,041
Deferred policy acquisition costs............................... 400,480 311,757
All other assets................................................ 376,146 242,614
------------- -------------
$ 6,276,137 $ 5,247,412
------------- -------------
------------- -------------
Deferred income taxes........................................... $ 43,235 $ 47,965
All other liabilities........................................... 5,728,296 4,766,741
------------- -------------
5,771,531 4,814,706
Redeemable preferred stock...................................... 2,000 2,000
Stockholder's equity............................................ 502,606 430,706
------------- -------------
$ 6,276,137 $ 5,247,412
------------- -------------
------------- -------------
</TABLE>
Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.
DERIVATIVE FINANCIAL INSTRUMENTS
Protective does not use derivative financial instruments for trading
purposes.
Combinations of futures contracts and options on treasury notes are
currently being used as hedges for asset/liability management of certain
investments, primarily mortgage loans on real estate, and liabilities arising
from interest-sensitive products such as guaranteed investment contracts and
F-8
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
individual annuities. Realized investment gains and losses on such contracts are
deferred and amortized over the life of the hedged asset. Net realized gains of
$7.9 million were deferred in 1994. At December 31, 1994, open futures contracts
with a notional amount of $137.5 million were in a $0.4 million net unrealized
loss position.
Protective uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1994, related open
interest rate swap contracts with a notional amount of $230.0 million were in an
$8.9 million net unrealized loss position. At December 31, 1993, related open
interest rate swap contracts with a notional amount of $245.0 million were in a
$9.0 million net unrealized gain position.
CASH
Cash includes all demand deposits reduced by the amount of outstanding
checks and drafts.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost. Protective uses both
accelerated and straight-line methods 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>
1994 1993
--------- ---------
<S> <C> <C>
Home office building................................................... $ 35,321 $ 35,284
Other, principally furniture and equipment............................. 25,687 21,576
--------- ---------
61,008 56,860
Accumulated depreciation............................................... 27,823 23,814
--------- ---------
$ 33,185 $ 33,046
--------- ---------
--------- ---------
</TABLE>
SEPARATE ACCOUNTS
Protective operates separate accounts, some in which Protective bears the
investment risk and others in which the investments risk rests with the
contractholder. The assets and liabilities related to separate accounts in which
Protective does not bear the investment risk are valued at market and reported
separately as assets and liabilities related to separate accounts in the
accompanying consolidated financial statements.
REVENUES, BENEFITS, CLAIMS, AND EXPENSES
-Traditional Life and Health Insurance Products -- Traditional life
insurance products consist principally of those products with fixed and
guaranteed premiums and benefits and include whole life insurance policies,
term life insurance policies, limited-payment life insurance policies, and
certain annuities with life contingencies. Life insurance and immediate
annuity premiums are recognized as revenue when due. Health insurance
premiums are recognized as revenue over the terms of the policies. Benefits
and expenses are associated with earned premiums so that profits are
recognized over the life of the contracts. This is accomplished by means of
the provision for liabilities for future policy benefits and the
amortization of deferred policy acquisition costs.
F-9
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Liabilities for future policy benefits on traditional life insurance
products have been computed using a net level method including assumptions
as to investment yields, mortality, persistency, and other assumptions
based on Protective's experience modified as necessary to reflect
anticipated trends and to include provisions for possible adverse
deviation. Reserve investment yield assumptions are graded and range from
2.5% to 7.0%. The liability for future policy benefits and claims on
traditional life and health insurance products includes estimated unpaid
claims that have been reported to Protective and claims incurred but not
yet reported. Policy claims are charged to expense in the period that the
claims are incurred.
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Balance beginning of year.............................. $ 77,191 $ 68,203 $ 49,851
Less reinsurance..................................... 3,973 3,809 3,685
----------- ----------- -----------
Net balance beginning of year.......................... 73,218 64,394 46,166
----------- ----------- -----------
Incurred related to:
Current year........................................... 203,453 194,394 178,604
Prior year............................................. (6,683) (5,123) 5,753
----------- ----------- -----------
Total incurred..................................... 196,770 189,271 184,357
----------- ----------- -----------
Paid related to:
Current year........................................... 148,548 141,361 127,859
Prior year............................................. 47,002 39,086 38,270
----------- ----------- -----------
Total paid......................................... 195,550 180,447 166,129
----------- ----------- -----------
Net balance end of year................................ 74,438 73,218 64,394
Plus reinsurance..................................... 5,024 3,973 3,809
----------- ----------- -----------
Balance end of year.................................... $ 79,462 $ 77,191 $ 68,203
----------- ----------- -----------
----------- ----------- -----------
</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. That is, universal life and
investment product deposits are not considered revenues in accordance with
generally accepted accounting principles. Benefit reserves for universal
life and investment products represent policy account balances before
applicable surrender charges plus certain deferred policy initiation fees
that are recognized in income over the term of the policies. Policy
benefits and claims that are charged to expense include benefit claims
incurred in the period in excess of related policy account balances and
interest credited to policy account balances. Interest credit rates for
universal life and investment products ranged from 3.0% to 9.4% in 1994.
At December 31, 1994, Protective estimates the fair value of its guaranteed
investment contracts to be $2,200 million using discounted cash flows. The
surrender value of Protective's annuities which approximates fair value was
$1,221 million.
-Policy Acquisition Costs -- Commissions and other costs of acquiring
traditional life and health insurance, universal life insurance, and
investment products that vary with and are primarily related to the
production of new business have been deferred. Traditional life and health
F-10
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
insurance acquisition costs are amortized over the premium-payment period
of the related policies in proportion to the ratio of annual premium income
to total anticipated premium income. Acquisition costs for universal life
and investment products are being amortized over the lives of the policies
in relation to the present value of estimated gross profits from surrender
charges and investment, mortality, and expense margins. 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.
At the time it adopted SFAS No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," Protective made certain assumptions
regarding the mortality, persistency, expenses, and interest rates it
expected to experience in future periods. Under SFAS No. 97, these
assumptions are to be best estimates and are to be periodically updated
whenever actual experience and/or expectations for the future change from
initial assumptions. Accordingly, Protective has substituted its actual
experience to date for that previously assumed.
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, discounted at interest rates averaging 15%. For
acquisitions occurring after 1988, Protective amortizes the present value
of future profits over the premium payment period including accrued
interest at 8%. The unamortized present value of future profits for such
acquisitions was approximately $84.4 million and $39.4 million at December
31, 1994 and 1993, respectively. During 1994 $56.0 million of present value
of future profits on acquisitions made during the year was capitalized, and
$11.0 million was amortized. The unamortized present value of future
profits for all acquisitions was $110.3 million at December 31, 1994 and
$69.9 million at December 31, 1993.
PARTICIPATING POLICIES
Participating business comprises approximately 4% of the individual life
insurance in force and 4% of the individual life insurance premium income.
Policyholder dividends totaled $2.6 million in 1994, 1993, and 1992.
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 income determined for financial
reporting purposes and income tax purposes. Such temporary differences are
principally related to the deferral of policy acquisition costs and the
provision for future policy benefits and expenses.
RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
net income, total assets, or stockholder's equity.
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principals ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by
F-11
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES (CONTINUED)
insurance regulatory authorities. The most significant differences are: (a)
acquisition costs of obtaining new business are deferred and amortized over the
approximate life of the policies rather than charged to operations as incurred,
(b) benefit liabilities are computed using a net level method and are based on
realistic estimates of expected mortality, interest, and withdrawals as adjusted
to provide for possible unfavorable deviation from such assumptions, (c)
deferred income taxes are provided for temporary differences between financial
and taxable earnings, (d) the Asset Valuation Reserve and Interest Maintenance
Reserve are restored to stockholder's equity, (e) furniture and equipment,
agents' debit balances, and prepaid expenses are reported as assets rather than
being charged directly to surplus (referred to as nonadmitted items), (f)
certain items of interest income, principally accrual of mortgage and bond
discounts are amortized differently, and (g) bonds are stated at market instead
of amortized cost.
F-12
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES (CONTINUED)
The reconciliations of net income and stockholder's equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<TABLE>
<CAPTION>
NET INCOME STOCKHOLDER'S EQUITY
------------------------------- -----------------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory reporting
practices:
Protective Life Insurance Company....... $ 54,812 $ 41,471 $ 25,138 $ 304,858 $ 263,075 $ 206,476
Wisconsin National Life Insurance
Company................................ 10,132 9,591 57,268 50,885
American Foundation Life Insurance
Company................................ 3,072 1,415 2,155 20,327 18,290 18,394
Capital Investors Life Insurance
Company................................ 170 207 1,125 824
Empire General Life Assurance
Corporation............................ 690 408 (201) 21,270 10,588 5,178
National Deposit Life Insurance
Company(1)............................. 5,386
Protective Life Insurance Acquisition
Corporation(2)......................... 22
Protective Life Insurance Corporation of
Alabama................................ 69 16 2,133 2,064
Consolidation elimination............... 30 (74) (100,123) (80,651) (21,572)
--------- --------- --------- ----------- ---------- ----------
68,945 53,138 32,426 306,858 265,075 208,476
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net
of amortization........................ 41,718 25,686 33,476 434,200 299,307 274,923
Policy liabilities and accruals......... (34,632) (15,586) (26,486) (140,298) (69,844) (45,583)
Deferred income tax..................... 4,731 3,081 2,082 14,667 (69,118) (51,842)
Asset Valuation Reserve................. 24,925 43,398 25,341
Interest Maintenance Reserve............ (1,716) (1,432) (93) 3,583 10,489 1,634
Nonadmitted items....................... 21,445 7,742 (10,178)
Timing differences on mortgage loans on
real estate and fixed maturity
investments............................ (961) 1,645 1,296 6,877 7,350 (11,608)
Net unrealized gains and losses on
investments, net of income tax......... (107,532) 39,284 3,156
Realized investment losses.............. (6,664) (7,860) (2,565)
Noninsurance affiliates................. (12) 934 31 (2,535)
Consolidation elimination............... (4,415) (2,107) (5,310) (162,835) (65,620) (53,450)
Minority interest in consolidated
subsidiaries........................... (90) (1,311)
Other adjustments, net.................. 5,717 (398) 4,557 (4,815) 1,896 (1,507)
--------- --------- --------- ----------- ---------- ----------
In conformity with generally accepted
accounting principles.................. $ 72,723 $ 56,155 $ 40,227 $ 397,075 $ 469,990 $ 335,516
--------- --------- --------- ----------- ---------- ----------
--------- --------- --------- ----------- ---------- ----------
<FN>
- --------------------------
(1) Merged into Protective in September 1992.
(2) Formed to facilitate Protective's acquisition of Employers National Life
Insurance Company. See Note F.
</TABLE>
F-13
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturities....................................... $ 237,264 $ 211,566 $ 174,051
Equity securities...................................... 2,435 1,519 939
Mortgage loans on real estate.......................... 141,751 130,262 108,128
Investment real estate................................. 1,950 2,119 1,848
Policy loans........................................... 8,397 7,558 6,781
Other, principally short-term investments.............. 35,062 18,779 3,799
----------- ----------- -----------
426,859 371,803 295,546
Investment expenses.................................... 17,926 17,638 20,555
----------- ----------- -----------
$ 408,933 $ 354,165 $ 274,991
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ----------
<S> <C> <C> <C>
Fixed maturities.......................................... $ (8,646) $ 10,508 $ 8,163
Equity securities......................................... 7,735 2,230 3,688
Mortgage loans and other investments...................... 7,209 (7,684) (12,005)
--------- --------- ----------
$ 6,298 $ 5,054 $ (154)
--------- --------- ----------
--------- --------- ----------
</TABLE>
Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $35.2 million at December 31, 1994 and 1993.
Additions to the allowance are included in realized investment losses. Without
such additions, Protective had realized investment gains of $6.3 million, $13.8
million, and $9.5 million in 1994, 1993, and 1992, respectively.
In 1994, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $15.2 million and
gross losses were $16.4 million. In 1993, gross gains were $8.3 million and
gross losses were less than $0.4 million. In 1992, gross gains on the sale of
fixed maturities were $12.8 million and gross losses were $1.7 million.
F-14
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
1994 COST GAINS LOSSES MARKET VALUES
- -------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities........ $ 2,002,842 $ 7,538 $ 112,059 $ 1,898,321
United States Government and
authorities...................... 90,468 290 8,877 81,881
States, municipalities, and
political subdivisions........... 10,902 5 1,230 9,677
Public utilities.................. 414,011 1,091 36,982 378,120
Convertibles and bonds with
warrants......................... 687 0 302 385
All other corporate bonds......... 927,779 3,437 56,788 874,428
Bank loan participations............ 244,881 0 0 244,881
Redeemable preferred stocks......... 6,800 37 884 5,953
------------- ----------- ----------- -------------
3,698,370 12,398 217,122 3,493,646
Equity securities..................... 45,958 3,994 4,947 45,005
Short-term investments................ 54,683 0 0 54,683
------------- ----------- ----------- -------------
$ 3,799,011 $ 16,392 $ 222,069 $ 3,593,334
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
1993 COST GAINS LOSSES MARKET VALUES
- --------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities......... $ 1,531,012 $ 31,532 $ 957 $ 1,561,587
United States Government and
authorities....................... 89,372 2,818 0 92,190
States, municipalities, and
political subdivisions............ 15,024 133 2 15,155
Public utilities................... 339,613 4,262 252 343,623
Convertibles and bonds with
warrants.......................... 1,421 0 167 1,254
All other corporate bonds.......... 822,505 28,799 688 850,616
Bank loan participations............. 151,278 0 0 151,278
Redeemable preferred stocks.......... 35,445 226 82 35,589
------------- ----------- ----------- -------------
2,985,670 67,770 2,148 3,051,292
Equity securities...................... 33,331 8,560 1,295 40,596
Short-term investments................. 79,772 0 0 79,772
------------- ----------- ----------- -------------
$ 3,098,773 $ 76,330 $ 3,443 $ 3,171,660
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
F-15
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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>
AMORTIZED ESTIMATED
COST MARKET VALUES
------------- -------------
<S> <C> <C>
1994
- ---------------------------------------------------------------------
Due in one year or less............................................ $ 577,146 $ 540,223
Due after one year through five years.............................. 1,351,435 1,299,248
Due after five years through ten years............................. 994,994 929,764
Due after ten years................................................ 774,795 724,411
------------- -------------
$ 3,698,370 $ 3,493,646
------------- -------------
------------- -------------
1993
- ---------------------------------------------------------------------
Due in one year or less............................................ $ 517,179 $ 524,100
Due after one year through five years.............................. 1,118,089 1,142,613
Due after five years through ten years............................. 777,058 797,093
Due after ten years................................................ 573,344 587,486
------------- -------------
$ 2,985,670 $ 3,051,292
------------- -------------
------------- -------------
</TABLE>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1994 1993
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
AAA......................................................... 57.6% 52.5%
AA.......................................................... 5.5 7.8
A........................................................... 12.5 15.1
BBB
Bonds..................................................... 14.9 16.2
Bank loan participations.................................. 1.4 1.0
BB or Less
Bonds..................................................... 2.3 2.2
Bank loan participations.................................. 5.6 4.0
Redeemable preferred stocks................................. 0.2 1.2
------ ------
100.0% 100.0%
------ ------
------ ------
</TABLE>
At December 31, 1994 and 1993, Protective had bonds which were rated less
than investment grade of $82.5 million and $67.3 million, respectively, having
an amortized cost of $89.4 million and $66.7 million, respectively.
Additionally, Protective had bank loan participations which were rated less than
investment grade of $195.1 million and $121.7 million, respectively, having an
amortized cost of $195.1 million and $121.7 million, respectively.
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>
1994 1993 1992
------------ --------- ---------
<S> <C> <C> <C>
Fixed maturities............................................. $ (175,723) $ 1,198 $ 76
Equity securities............................................ $ (5,342) $ 1,565 $ (825)
</TABLE>
F-16
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
At December 31, 1994, all of Protective's mortgage loans were commercial
loans of which 79% were retail, 8% were warehouses, and 7% were office
buildings. Protective specializes in making mortgage loans on either
credit-oriented or credit-anchored commercial properties, most of which are
strip shopping centers in smaller towns and cities. No single tenant's leased
space represents more than 5% of mortgage loans. Approximately 84% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: Alabama, South Carolina, Tennessee, Texas,
Georgia, North Carolina, Florida, Mississippi, Virginia, California, Colorado,
Louisiana, Illinois, Ohio, Kentucky, and Indiana.
Many of the mortgage loans have call provisions after five to seven years.
Assuming the loans are called at their next call dates, approximately $107.9
million would become due in 1995, $478.0 million in 1996 to 1999, and $233.9
million in 2000 to 2004.
At December 31, 1994, the average mortgage loan was $1.5 million, and the
weighted average interest rate was 9.6%. The largest single mortgage loan was
$11.9 million. While Protective's mortgage loans do not have quoted market
values, at December 31, 1994 and 1993, Protective estimates the market value of
its mortgage loans to be $1,535.3 million and $1,524.2 million, respectively,
using discounted cash flows from the next call date.
At December 31, 1994 and 1993, Protective's problem mortgage loans and
foreclosed properties totaled $24.0 million and $27.1 million, respectively.
Protective expects no significant loss of principal.
Certain investments, principally real estate, with a carrying value of $6.7
million were nonincome producing for the twelve months ended December 31, 1994.
Mortgage loans to Fletcher Bright and Edens & Avant, totaling $99.4 million
and $65.6 million, respectively, exceeded ten percent of stockholder's equity at
December 31, 1994.
Mortgage-backed securities consist primarily of sequential and planned
amortization class (PAC) securities. Mortgage-backed securities issued by
Independent National Mortgage Corporation totaling $54.9 million exceeded ten
percent of stockholder's equity at December 31, 1994.
Protective believes it is not practicable to determine the fair value of its
policy loans since there is no stated maturity, and policy loans are often
repaid by reductions to policy benefits. Policy loan interest rates generally
range from 4.5% to 8.0%. The fair values of Protective's other long-term
investments approximate cost.
NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax
income..................................................... 35.0% 35.0% 34.0%
Amortization of nondeductible goodwill...................... 0.4
Dividends received deduction and tax-exempt interest........ (0.4) (0.5) (1.0)
Low-income housing credit................................... (0.7)
Tax benefits arising from prior acquisitions and other
adjustments................................................ (2.8) (1.1) (3.8)
------ ------ ------
Effective income tax rate................................... 31.1% 33.4% 29.6%
------ ------ ------
------ ------ ------
</TABLE>
F-17
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
In August 1993, the corporate income tax rate was increased from 34% to 35%
which resulted in a one-time increase to income tax expense of $1.2 million due
to a recalculation of Protective's deferred income tax liability. The effective
income tax rate for 1993 of 33.4% excludes the one-time increase.
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>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs......................... $ 34,561 $ 8,861 $ 7,351
Benefit and other policy liability changes................ (52,288) (10,416) (9,005)
Temporary differences of investment income................ 15,524 336
Other items............................................... (2,528) (1,527) (764)
---------- ---------- ---------
$ (4,731) $ (3,082) $ (2,082)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
----------- ---------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves......................... $ 116,326 $ 25,123
Unrealized loss on investments..................................... 23,485
Other.............................................................. 4,484
----------- ---------
139,811 29,607
----------- ---------
Deferred income tax liabilities:
Deferred policy acquisition costs.................................. 113,760 79,199
Unrealized gain on investments..................................... 19,526
Other.............................................................. 11,384
----------- ---------
125,144 98,725
----------- ---------
Net deferred income tax liability.................................. $ (14,667) $ 69,118
----------- ---------
----------- ---------
</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, 1994 was approximately $50.7 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
$248 million, such excess would be subject to federal income taxes at rates then
effective. Deferred income taxes have not been provided on amounts designated as
Policyholders' Surplus. Protective does not anticipate involuntarily paying
income tax on amounts in the Policyholders' Surplus accounts.
At December 31, 1994 Protective has no material unused income tax loss
carryforwards.
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.
F-18
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All dollar amounts in tables are in thousands)
NOTE E -- DEBT
Short-term and long-term debt at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Short-term debt:
Current portion of mortgage and other notes payable......................................................... None $ 20
---- ----
---- ----
Long-term debt:
Mortgage and other notes payable less current portion....................................................... None $ 98
---- ----
---- ----
</TABLE>
At December 31, 1994, PLC had borrowed 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.
Included in indebtedness to related parties are three surplus debentures
issued by Protective to PLC. At December 31, 1994, the balance of the three
surplus debentures combined was $39.4 million.
Interest expense totaled $5.0 million, $5.0 million, and $3.3 million, in
1994, 1993, and 1992, respectively.
NOTE F -- ACQUISITIONS
In July 1993, Protective acquired Wisconsin National Life Insurance Company
("Wisconsin National"). Also in 1993, Protective acquired through reinsurance a
block of universal life policies.
In April 1994, Protective acquired through reinsurance a block of payroll
deduction policies. In October 1994, Protective acquired through reinsurance a
block of individual life insurance policies.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.
Summarized below are the consolidated results of operations for 1993 and
1992, on an unaudited pro forma basis, as if the Wisconsin National acquisition
had occurred as of January 1, 1992. The pro forma information is based on
Protective's consolidated results of operations for 1993 and 1992 and on data
provided by Wisconsin National, after giving effect to certain pro forma
adjustments. The pro forma financial information does not purport to be
indicative of results of operations that would have occurred had the transaction
occurred on the basis assumed above nor are they indicative of results of the
future operations of the combined enterprises.
<TABLE>
<CAPTION>
1993 1992
----------- -----------
(UNAUDITED)
<S> <C> <C>
Total revenues................................................................ $ 747,157 $ 676,572
Net income.................................................................... $ 58,033 $ 44,109
</TABLE>
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. Protective does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
A number of civil jury verdicts have been returned against life and health
insurers in the jurisdictions in which Protective does business involving the
insurers' sales practices, alleged agent
F-19
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
misconduct, failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against the
insurer, including material amounts of punitive damages. In some states, juries
have substantial discretion in awarding punitive damages in these circumstances.
Protective and its subsidiaries, like other life and health insurers, from time
to time are involved in such litigation. To date, no such lawsuit has resulted
in the award of any significant amount of damages against Protective. Among the
litigation currently pending is a class action filed in the state of Alabama
concerning the sale of credit insurance for which a proposed settlement
agreement has been filed with the supervising court for approval. Although the
outcome of any litigation cannot be predicted with certainty, Protective
believes that such litigation will not have a material adverse effect on the
financial position of Protective.
NOTE H -- STOCKHOLDER'S EQUITY AND RESTRICTIONS
At December 31, 1994, approximately $321 million of consolidated
stockholder's equity excluding net unrealized gains and losses represented net
assets of Protective that cannot be transferred in the form of dividends, loans,
or advances to PLC. Generally, the net assets of Protective available for
transfer to PLC are limited to the amounts that Protective's net assets, as
determined in accordance with statutory accounting practices, exceed certain
minimum amounts. However, payments of such amounts as dividends may be subject
to approval by regulatory authorities.
NOTE I -- REDEEMABLE PREFERRED STOCK
PLC owns all of the 2,000 shares of redeemable preferred stock issued by
Protective's subsidiary, American Foundation. The entire issue was reissued in
1991 and will be redeemed September 30, 1996 for $1 thousand per share, or $2
million. The stock pays, when and if declared, annual minimum cumulative
dividends of $50 per share, and noncumulative participating dividends to the
extent American Foundation's statutory earnings for the immediately preceding
fiscal year exceed $1 million. Dividends of $0.9 million, $1.5 million, and $1.4
million were paid to PLC in 1994, 1993, and 1992, respectively.
NOTE J -- RELATED PARTY MATTERS
Receivables from related parties consisted of receivables from affiliates
under control of PLC in the amounts of $0.3 million and $0.4 million at December
31, 1994 and 1993, respectively. 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.
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, $5.9 million at
December 31, 1994, is accounted for as a reduction to stockholder's equity. The
stock will be used to match employee contributions to PLC's existing 401(k)
Plan. The ESOP shares are dividend paying. Dividends on the shares are used to
pay the ESOP's note to Protective.
Protective leases furnished office space and computers to affiliates. Lease
revenues were $2.8 million in 1994, $2.8 million in 1993, and $2.6 million in
1992. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $29.8 million, $20.4
million, and $27.5 million in 1994, 1993, and 1992, respectively. Commissions
paid to affiliated marketing organizations of $10.1 million, $5.8 million, and
$4.8 million in 1994, 1993, and 1992, respectively, were included in deferred
policy acquisition costs.
F-20
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE J -- RELATED PARTY MATTERS (CONTINUED)
Certain corporations with which PLC's directors were affiliated paid
Protective premiums and policy fees for various types of group insurance. Such
premiums and policy fees amounted to $21.1 million, $10.3 million, and $10.9
million in 1994, 1993, and 1992, respectively.
For a discussion of indebtedness to related parties, see Note E.
NOTE K -- BUSINESS SEGMENTS
Protective operates predominantly in the life and accident and health
insurance industry. The following table sets forth total revenues, income before
income tax, and identifiable assets of Protective's business segments. The
primary components of revenues are premiums and policy fees, net investment
income, and realized investment gains and losses. Premiums and policy fees are
attributed directly to each business segment. Net investment income is allocated
based on directly related assets required for transacting that segment of
business.
Realized investment gains (losses) and 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.
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
TOTAL REVENUES
Acquisitions............................................... $ 170,659 $ 123,855 $ 93,634
Financial Institutions..................................... 107,194 96,443 63,041
Group...................................................... 148,313 143,423 129,778
Guaranteed Investment Contracts............................ 183,591 167,233 138,617
Individual Life............................................ 122,248 111,497 90,516
Investment Products........................................ 79,773 69,550 47,678
Corporate and Other........................................ 12,936 1,521 46,973
Unallocated Realized Investment Gains (Losses)............. 5,266 1,876 (1,589)
------------- ------------- -------------
$ 829,980 $ 715,398 $ 608,648
------------- ------------- -------------
------------- ------------- -------------
Acquisitions............................................... 20.6% 17.3% 15.4%
Financial Institutions..................................... 12.9 13.5 10.4
Group...................................................... 17.9 20.0 21.3
Guaranteed Investment Contracts............................ 22.1 23.4 22.8
Individual Life............................................ 14.7 15.6 14.9
Investment Products........................................ 9.6 9.7 7.8
Corporate and Other........................................ 1.6 0.2 7.7
Unallocated Realized Investment Gains (Losses)............. 0.6 0.3 (0.3)
------------- ------------- -------------
100.0% 100.0% 100.0%
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-21
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAX
Acquisitions............................................... $ 39,176 $ 29,845 $ 20,031
Financial Institutions..................................... 8,176 7,220 4,669
Group...................................................... 11,169 10,435 7,762
Guaranteed Investment Contracts............................ 33,197 27,218 18,266
Individual Life............................................ 17,223 20,324 12,976
Investment Products........................................ 107 3,402 4,191
Corporate and Other*....................................... (8,736) (14,208) (7,543)
Unallocated Realized Investment Gains (Losses)............. 5,266 1,876 (1,589)
------------- ------------- -------------
$ 105,578 $ 86,112 $ 58,763
------------- ------------- -------------
------------- ------------- -------------
Acquisitions............................................... 37.1% 34.6% 34.1%
Financial Institutions..................................... 7.7 8.4 7.9
Group...................................................... 10.6 12.1 13.2
Guaranteed Investment Contracts............................ 31.5 31.6 31.1
Individual Life............................................ 16.3 23.6 22.1
Investment Products........................................ 0.1 4.0 7.1
Corporate and Other........................................ (8.3) (16.5) (12.8)
Unallocated Realized Investment Gains (Losses)............. 5.0 2.2 (2.7)
------------- ------------- -------------
100.0% 100.0% 100.0%
------------- ------------- -------------
------------- ------------- -------------
IDENTIFIABLE ASSETS
Acquisitions............................................... $ 1,282,478 $ 1,145,357 $ 599,022
Financial Institutions..................................... 211,652 189,943 145,014
Group...................................................... 215,904 208,790 161,445
Guaranteed Investment Contracts............................ 2,211,079 2,041,463 1,696,786
Individual Life............................................ 752,168 641,992 507,449
Investment Products........................................ 1,160,041 876,691 683,450
Corporate and Other........................................ 277,382 203,613 206,991
------------- ------------- -------------
$ 6,110,704 $ 5,307,849 $ 4,000,157
------------- ------------- -------------
------------- ------------- -------------
Acquisitions............................................... 21.0% 21.6% 15.0%
Financial Institutions..................................... 3.5 3.6 3.6
Group...................................................... 3.5 3.9 4.0
Guaranteed Investment Contracts............................ 36.2 38.5 42.4
Individual Life............................................ 12.3 12.1 12.7
Investment Products........................................ 19.0 16.5 17.1
Corporate and Other........................................ 4.5 3.8 5.2
------------- ------------- -------------
100.0% 100.0% 100.0%
------------- ------------- -------------
------------- ------------- -------------
<FN>
- ------------------------
* Income before income tax for the Corporate and Other segment has not been
reduced by pretax minority interest of $90 in 1992.
</TABLE>
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 80% of the participants in the
F-22
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
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 funding 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 is as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $11,992 in 1994 and
$12,406 in 1993................................................................. $ 12,348 $ 12,692
--------- ---------
Projected benefit obligation for service rendered to date........................ $ 20,302 $ 20,480
Plan assets at fair value (group annuity contract with Protective)............... 15,679 15,217
--------- ---------
Plan assets less than the projected benefit obligation........................... (4,623) (5,263)
Unrecognized net loss from past experience different from that assumed........... 2,400 2,244
Unrecognized prior service cost.................................................. 905 2,069
Unrecognized net transition asset................................................ (101) (118)
--------- ---------
Net pension liability recognized in balance sheet................................ $ (1,419) $ (1,068)
--------- ---------
--------- ---------
</TABLE>
Net pension cost includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 1,433 $ 1,191 $ 970
Interest cost on projected benefit obligation............... 1,520 1,396 1,257
Actual return on plan assets................................ (1,333) (1,270) (1,172)
Net amortization and deferral............................... 210 704 130
--------- --------- ---------
Net pension cost............................................ $ 1,830 $ 2,021 $ 1,185
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective's share of the net pension cost was $1.2 million, $1.5 million,
and $0.8 million, in 1994, 1993, and 1992, respectively.
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate....................................... 8.0% 7.5% 8.0%
Rates of increase in compensation level.............................. 6.0% 5.5% 6.0%
Expected long-term rate of return on assets.......................... 8.5% 8.5% 8.5%
</TABLE>
Assets of the pension plan are included in the general assets of Protective.
Upon retirement, the amount of pension plan assets vested in the retiree is used
to purchase a single premium annuity from Protective in the retiree's name.
Therefore, amounts presented above as plan assets exclude assets relating to
retirees.
PLC also sponsors an unfunded Excess Benefits Plan, which is a nonqualified
plan that provides defined pension benefits in excess of limits imposed by
federal income tax law. At December 31, 1994, the projected benefit obligation
of this plan totaled $4.7 million.
F-23
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
In addition to pension benefits, PLC provides limited health care benefits
to eligible retired employees until age 65. At January 1, 1992, PLC recognized a
$1.6 million accumulated postretirement benefit obligation, of which $0.9
million relates to current retirees and $0.7 million relates to active
employees. The $1.6 million (representing Protective's entire liability for such
benefits), net of $0.5 million tax, was accounted for as a cumulative effect of
a change in accounting principle and shown as a reduction to income. The
postretirement benefit is provided by an unfunded plan. At December 31, 1994,
the liability for such benefits totaled $1.6 million. The expense recorded by
Protective was $0.2 million in 1994, 1993 and 1992. PLC's obligation is not
materially affected by a 1% change in the health care cost trend assumptions
used in the calculation of the obligation.
Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation. This plan is partially funded at a maximum of $50,000 face amount
of insurance.
In 1990, PLC established an Employee Stock Ownership Plan to match employee
contributions to PLC's existing 401(k) Plan. Previously, PLC matched employee
contributions in cash. 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, 1994, PLC had committed 33,250 shares
to be released to fund employee benefits. The expense recorded by PLC for this
employee benefit was $0.6 million, $0.2 million and $0.4 million in 1994, 1993,
and 1992, respectively.
NOTE M -- REINSURANCE
Protective assumes risks from and reinsures certain parts of its risks with
other insurers under yearly renewable term, coinsurance, and modified
coinsurance agreements. Yearly renewable term and coinsurance agreements are
accounted for by passing a portion of the risk to the reinsurer. Generally, the
reinsurer receives a proportionate part of the premiums less commissions and is
liable for a corresponding part of all benefit payments. Modified coinsurance is
accounted for similarly to coinsurance except that the liability for future
policy benefits is held by the original company, and settlements are made on a
net basis between the companies. While the amount retained on an individual life
will vary based upon age and mortality prospects of the risk, Protective will
not carry more than $500,000 individual life insurance on a single risk.
Protective has reinsured approximately $8.6 billion, $7.5 billion, and $7.0
billion in face amount of life insurance risks with other insurers representing
$46.0 million, $37.9 million, and $34.8 million of premium income for 1994,
1993, and 1992, respectively. Protective has also reinsured accident and health
risks representing $126.5 million, $88.9 million, and $74.6 million of premium
income for 1994, 1993, and 1992, respectively. In 1994 and 1993, policy and
claim reserves relating to insurance ceded of $120.0 million and $97.8 million
respectively are included in reinsurance receivables. Should any of the
reinsurers be unable to meet its obligation at the time of the claim, obligation
to pay such claim would remain with Protective. At December 31, 1994 and 1993,
Protective had paid $5.4 million and $4.8 million, respectively, of ceded
benefits which are recoverable from reinsurers.
F-24
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE N -- ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated market values of Protective's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities................................... $ 3,493,646 $ 3,493,646 $ 3,051,292 $ 3,051,292
Equity securities.................................. 45,005 45,005 40,596 40,596
Mortgage loans on real estate...................... 1,488,495 1,535,300 1,408,444 1,524,200
Short-term investments............................. 54,683 54,683 79,772 79,772
Cash................................................. 23,951 23,951
Other (see Note A):
Futures contracts.................................... (416)
Interest rate swaps.................................. (8,952) 9,038
</TABLE>
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholder
Protective Life Insurance Company
Birmingham, Alabama
We have reviewed the accompanying consolidated condensed balance sheet of
Protective Life Insurance Company and subsidiaries as of September 30, 1995, and
the related consolidated condensed statements of income for the three-month and
nine-month periods ended September 30, 1995 and 1994 and consolidated condensed
statements of cash flows for the nine-month periods ended September 30, 1995 and
1994. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated condensed financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and the
related consolidated statements of income, stockholder's equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
13, 1995, we expressed an unqualified opinion which contains an explanatory
paragraph regarding the changes in accounting for certain investments in debt
and equity securities in 1993 and postretirement benefits other than pensions in
1992 on those consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated condensed balance sheet as of
December 31, 1994, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
October 25, 1995
F-26
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded: three
months: 1995 - $79,908; 1994 - $50,714 nine months: 1995 -
$222,351; 1994 - $121,462)................................. $ 93,213 $ 101,876 $ 277,460 $ 289,362
Net investment income....................................... 118,162 101,283 342,017 295,978
Realized investment gains (losses).......................... 1,337 3,122 3,443 4,855
Other income................................................ 799 643 4,992 2,871
----------- ----------- ----------- -----------
213,511 206,924 627,912 593,066
----------- ----------- ----------- -----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
three months: 1995 - $54,638; 1994 - $31,118 nine months:
1995 - $159,760; 1994 - $80,541)........................... 134,111 134,208 383,039 376,536
Amortization of deferred policy acquisition costs........... 17,643 20,485 63,193 60,194
Other operating expenses (net of reinsurance ceded: three
months: 1995 - $23,173; 1994 - $3,793 nine months: 1995 -
$58,645; 1994 - $9,842).................................... 30,040 24,859 93,297 81,457
----------- ----------- ----------- -----------
181,794 179,552 539,529 518,187
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX...................................... 31,717 27,372 88,383 74,879
INCOME TAX EXPENSE............................................ 11,352 8,728 30,052 23,960
----------- ----------- ----------- -----------
NET INCOME.................................................... $ 20,365 $ 18,644 $ 58,331 $ 50,919
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated condensed financial statements
F-27
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
------------ -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Investments:
Fixed maturities............................................................................. $3,909,874 $3,493,646
Equity securities............................................................................ 47,456 45,005
Mortgage loans on real estate................................................................ 1,718,900 1,488,495
Investment in real estate, net............................................................... 21,040 20,170
Policy loans................................................................................. 145,655 147,608
Other long-term investments.................................................................. 46,193 50,751
Short-term investments....................................................................... 90,974 54,683
------------ -----------
Total investments.......................................................................... 5,980,092 5,300,358
Cash........................................................................................... 808
Accrued investment income...................................................................... 61,701 55,630
Accounts and premiums receivable, net.......................................................... 38,333 28,928
Reinsurance receivables........................................................................ 223,457 122,175
Deferred policy acquisition costs.............................................................. 412,283 434,200
Property and equipment, net.................................................................... 34,699 33,185
Receivables from related parties............................................................... 582 281
Other assets................................................................................... 13,790 11,802
Assets held in separate accounts............................................................... 277,493 124,145
------------ -----------
Total assets............................................................................... $7,043,238 $6,110,704
------------ -----------
------------ -----------
LIABILITIES
Policy liabilities and accruals................................................................ $2,021,324 $1,797,774
Guaranteed investment contract deposits........................................................ 2,483,669 2,281,673
Annuity deposits............................................................................... 1,298,167 1,251,318
Other policyholders' funds..................................................................... 144,468 144,461
Other liabilities.............................................................................. 102,584 94,181
Accrued income taxes........................................................................... 5,973 (4,699)
Deferred income taxes.......................................................................... 49,471 (14,667)
Indebtedness to related parties................................................................ 39,443 39,443
Debt........................................................................................... 17,000
Liabilities related to separate accounts....................................................... 277,493 124,145
------------ -----------
Total liabilities.......................................................................... 6,439,592 5,713,629
------------ -----------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE B
REDEEMABLE PREFERRED STOCK, $1 par value, at redemption value; Shares authorized and issued:
2,000......................................................................................... 2,000 2,000
------------ -----------
STOCKHOLDER'S EQUITY
Common Stock, $1 par value Shares authorized and issued: 5,000,000............................. 5,000 5,000
Additional paid-in capital..................................................................... 144,494 126,494
Net unrealized gains (losses) on investments (Net of income tax: 1995 - $12,189; 1994 -
$(57,902)).................................................................................... 22,637 (107,532)
Retained earnings.............................................................................. 435,280 377,049
Note receivable from PLC Employee Stock Ownership Plan......................................... (5,765) (5,936)
------------ -----------
Total stockholder's equity................................................................. 601,646 395,075
------------ -----------
$7,043,238 $6,110,704
------------ -----------
------------ -----------
</TABLE>
See notes to consolidated condensed financial statements
F-28
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................................... $ 58,331 $ 50,919
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred policy acquisition costs................................. 63,194 60,194
Capitalization of deferred policy acquisition costs............................... (61,286) (89,295)
Depreciation expense.............................................................. 3,233 3,409
Deferred income taxes............................................................. (5,952) (11,084)
Accrued income taxes.............................................................. 10,672 (2,642)
Interest credited to universal life and investment products....................... 213,303 183,642
Policy fees assessed on universal life and investment products.................... (74,772) (58,887)
Change in accrued investment income and other receivables......................... (116,522) 9,636
Change in policy liabilities and other policyholders' funds of traditional life
and health products.............................................................. 131,225 84,215
Change in other liabilities....................................................... (10,224) 6,502
Other (net)....................................................................... (3,515) (2,168)
------------ ------------
Net cash provided by operating activities............................................. 207,687 234,441
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments
Investments available for sale.................................................... 219,760 325,243
Other............................................................................. 49,536 129,296
Sale of investments
Investments available for sale.................................................... 863,479 349,944
Other............................................................................. 4,243 16,183
Cost of investments acquired
Investments available for sale.................................................... (1,329,735) (1,336,274)
Other............................................................................. (243,788) (112,964)
Acquisitions and bulk reinsurance assumptions....................................... 39,328
Purchase of property and equipment.................................................. (4,859) (2,933)
Sale of property and equipment...................................................... 112 1,817
------------ ------------
Net cash used in investing activities................................................. (441,252) (590,360)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution from PLC....................................................... 18,000
Proceeds from borrowings under line of credit arrangements and debt................. 981,000 373,186
Principal payments on line of credit arrangements and debt.......................... (964,100) (373,258)
Principal payment on surplus note to PLC............................................ (4,750)
Dividends to PLC.................................................................... (100) (50)
Investment product deposits and change in universal life deposits................... 734,707 1,064,910
Investment product withdrawals...................................................... (535,234) (728,070)
------------ ------------
Net cash provided by financing activities............................................. 234,373 331,968
------------ ------------
DECREASE IN CASH...................................................................... 808 (23,951)
CASH AT BEGINNING OF PERIOD........................................................... 0 23,951
------------ ------------
CASH AT END OF PERIOD................................................................. $ 808 $ 0
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest on notes and mortgages payable........................................... $ 2,579 $ (3,713)
Income taxes...................................................................... $ 25,332 $ (37,687)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP............................................ $ 171 $ 28
Acquisitions and bulk reinsurance assumptions
Assets acquired................................................................... $ 613 $ 41,818
Liabilities assumed............................................................... (21,800) (49,049)
------------ ------------
Net............................................................................... $ (21,187) $ (7,231)
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated condensed financial statements
F-29
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Protective Life Insurance Company ("Protective Life") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the disclosures required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 1995 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1995. For further information, refer to the consolidated financial statements
and notes thereto included in Protective Life's annual report on Form 10-K for
the year ended December 31, 1994.
Protective Life is a wholly-owned subsidiary of Protective Life Corporation
("PLC").
NOTE B -- 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 Life 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.
Protective Life and its subsidiaries, like other life and health insurers,
from time to time are involved in lawsuits, in which the plaintiff may seek
punitive damage awards as well as compensatory damage awards. To date, no such
lawsuit has resulted in the award of any material amount of damages against
Protective Life. Although the outcome of any litigation cannot be predicted with
certainty, Protective Life believes that such litigation will not have a
material adverse effect on the financial position of Protective Life.
NOTE C -- STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principles (i.e., GAAP) differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. At September 30, 1995 and for the nine months then ended,
Protective Life and its life insurance subsidiaries had consolidated
stockholder's equity and net income prepared in conformity with statutory
reporting practices of $325.5 million and $74.0 million, respectively.
NOTE D -- RECENTLY ADOPTED ACCOUNTING STANDARDS
At December 31, 1993, Protective Life adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." For purposes of adopting SFAS No. 115 Protective
Life has classified all of its investments in fixed maturities, equity
securities, and short-term investments as "available for sale." As prescribed in
SFAS No. 115, these investments are recorded at their market values with the
resulting net unrealized gain or loss, net of income tax and a related
adjustment to deferred policy acquisition costs, recorded as a component of
stockholder's equity.
F-30
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE D -- RECENTLY ADOPTED ACCOUNTING STANDARDS (CONTINUED)
Protective Life's balance sheets at September 30, 1995 and December 31,
1994, prepared on the basis of reporting investments at amortized cost rather
than at market values, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Total investments............................................... $ 5,937,790 $ 5,499,511
Deferred policy acquisition costs............................... 419,759 400,480
All other assets................................................ 650,863 376,146
------------- -------------
$ 7,008,412 $ 6,276,137
------------- -------------
------------- -------------
Deferred income taxes........................................... $ 37,282 $ 43,235
All other liabilities........................................... 6,390,121 5,728,296
------------- -------------
6,427,403 5,771,531
Redeemable preferred stock...................................... 2,000 2,000
Stockholder's equity............................................ 579,009 502,606
------------- -------------
$ 7,008,412 $ 6,276,137
------------- -------------
------------- -------------
</TABLE>
On January 1, 1995 Protective Life adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures." Under the new
standards, a loan is considered impaired, based on current information and
events, if it is probable that Protective Life will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired loans is
generally based on the present value of expected future cash flows discounted at
the historical effective interest rate, except that all collateral-dependent
loans are measured for impairment based on the fair value of the collateral.
Since Protective Life'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 Life's evaluation of its mortgage loan portfolio,
Protective Life does not expect any material losses on its mortgage loans, and
therefore no allowance for losses is required under SFAS No. 114 at January 1,
1995 or September 30, 1995.
F-31
<PAGE>
SCHEDULE I -- SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- -----------------------------------------------------------------------------------------------------------------
AMOUNT AT
WHICH SHOWN
IN BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
- ------------------------------------------------------------------ ------------- ------------- ---------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities.................................... $ 2,002,842 $ 1,898,321 $ 1,898,321
United States Government and government agencies and
authorities.................................................. 90,468 81,881 81,881
States, municipalities, and political subdivisions............ 10,902 9,677 9,677
Public utilities.............................................. 414,011 378,120 378,120
Convertibles and bonds with warrants attached................. 687 385 385
All other corporate bonds..................................... 927,779 874,428 874,428
Bank loan participations........................................ 244,881 244,881 244,881
Redeemable preferred stocks..................................... 6,800 5,953 5,953
------------- ------------- ---------------
TOTAL FIXED MATURITIES...................................... 3,698,370 3,493,646 3,493,646
------------- ------------- ---------------
Equity securities:
Common stocks -- Industrial, miscellaneous, and all other....... 22,768 24,797 24,797
Nonredeemable preferred stocks.................................. 23,190 20,208 20,208
------------- ------------- ---------------
TOTAL EQUITY SECURITIES..................................... 45,958 45,005 45,005
------------- ------------- ---------------
Mortgage loans on real estate..................................... 1,488,495 1,488,495
Investment real estate............................................ 20,170 20,170
Policy loans...................................................... 147,608 147,608
Other long-term investments....................................... 50,751 50,751
Short-term investments............................................ 54,683 54,683
------------- ---------------
TOTAL INVESTMENTS........................................... $ 5,506,035 $ 5,300,358
------------- ---------------
------------- ---------------
</TABLE>
S-1
<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
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GIC AND
FUTURE ANNUITY
DEFERRED POLICY DEPOSITS PREMIUMS
POLICY BENEFITS AND OTHER AND
ACQUISITION AND UNEARNED POLICYHOLDERS' POLICY
SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES
- -------------------------------------------------- ----------- ---------- --------- -------------- --------
Year Ended
December 31, 1994:
Acquisitions.................................... $110,203 $ 856,889 $ 381 $ 266,828 $86,376
Financial Institutions.......................... 68,060 43,198 99,798 2,758 98,027
Group........................................... 22,685 116,324 2,905 84,689 131,096
Guaranteed Investment Contracts................. 996 0 0 2,281,674 0
Individual Life................................. 162,186 571,070 320 13,713 84,925
Investment Products............................. 70,053 102,705 0 1,027,527 1,635
Corporate and Other............................. 17 4,109 75 263 713
Unallocated Realized Investment Gains
(Losses)....................................... 0 0 0 0 0
----------- ---------- --------- -------------- --------
TOTAL......................................... $434,200 $1,694,295 $103,479 $3,677,452 $402,772
----------- ---------- --------- -------------- --------
----------- ---------- --------- -------------- --------
Year Ended
December 31, 1993:
Acquisitions.................................... $ 69,942 $ 705,487 $ 501 $ 259,513 $58,562
Financial Institutions.......................... 59,163 39,508 85,042 2,913 87,355
Group........................................... 20,520 99,412 2,786 83,522 126,027
Guaranteed Investment Contracts................. 1,464 0 0 2,015,075 0
Individual Life................................. 129,265 483,604 368 11,762 77,338
Investment Products............................. 18,934 52,516 0 789,668 856
Corporate and Other............................. 19 318 88 339 1,285
Unallocated Realized Investment Gains
(Losses)....................................... 0 0 0 0 0
----------- ---------- --------- -------------- --------
TOTAL......................................... $299,307 $1,380,845 $ 88,785 $3,162,792 $351,423
----------- ---------- --------- -------------- --------
----------- ---------- --------- -------------- --------
Year Ended
December 31, 1992:
Acquisitions.................................... $ 65,868 $ 428,991 $ 655 $ 80,458 $48,068
Financial Institutions.......................... 49,684 20,207 71,878 3,246 56,990
Group........................................... 14,801 66,551 2,422 77,671 112,985
Guaranteed Investment Contracts................. 2,256 0 0 1,694,530 0
Individual Life................................. 110,408 382,025 2 8,847 62,776
Investment Products............................. 30,228 27,051 0 626,171 586
Corporate and Other............................. 1,678 4,767 220 439 41,731
Unallocated Realized Investment Gains
(Losses)....................................... 0 0 0 0 0
----------- ---------- --------- -------------- --------
TOTAL......................................... $274,923 $ 929,592 $ 75,177 $2,491,362 $323,136
----------- ---------- --------- -------------- --------
----------- ---------- --------- -------------- --------
<CAPTION>
- -------------------------------------------------- ------------------------------------------------------------------
COL. A COL. G COL. H COL. I COL. J
- -------------------------------------------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMORTIZATION
REALIZED BENEFITS OF DEFERRED
NET INVESTMENT AND POLICY OTHER
INVESTMENT GAINS SETTLEMENT ACQUISITION OPERATING
SEGMENT INCOME (1) (LOSSES) EXPENSES COSTS EXPENSES (1)
- -------------------------------------------------- ---------- --------- ---------- ------------ -------------
Year Ended
December 31, 1994:
Acquisitions.................................... $ 83,750 $ 532 $ 97,649 $14,460 $ 19,374
Financial Institutions.......................... 9,164 46,360 36,592 16,065
Group........................................... 14,381 98,930 2,724 35,490
Guaranteed Investment Contracts................. 180,591 3,000 147,383 892 2,119
Individual Life................................. 37,319 67,451 18,771 18,803
Investment Products............................. 80,759 (2,500) 58,424 14,647 6,595
Corporate and Other............................. 2,969 913 3 20,757
Unallocated Realized Investment Gains
(Losses)....................................... 0 5,266 0 0 0
---------- --------- ---------- ------------ -------------
TOTAL......................................... $408,933 $6,298 $517,110 $88,089 $119,203
---------- --------- ---------- ------------ -------------
---------- --------- ---------- ------------ -------------
Year Ended
December 31, 1993:
Acquisitions.................................... $ 65,290 $ 73,463 $ 7,831 $ 12,715
Financial Institutions.......................... 8,921 42,840 31,202 15,181
Group........................................... 14,522 101,266 2,272 29,450
Guaranteed Investment Contracts................. 166,058 $1,175 137,380 1,170 1,466
Individual Life................................. 34,153 55,972 18,069 17,133
Investment Products............................. 66,691 2,003 49,569 12,788 3,790
Corporate and Other............................. (1,470) 1,146 3 14,580
Unallocated Realized Investment Gains
(Losses)....................................... 0 1,876 0 0 0
---------- --------- ---------- ------------ -------------
TOTAL......................................... $354,165 $5,054 $461,636 $73,335 $ 94,315
---------- --------- ---------- ------------ -------------
---------- --------- ---------- ------------ -------------
Year Ended
December 31, 1992:
Acquisitions.................................... $ 45,543 $ 56,901 $ 7,404 $ 9,299
Financial Institutions.......................... 6,051 25,342 21,605 11,426
Group........................................... 12,620 93,380 1,664 26,972
Guaranteed Investment Contracts................. 137,654 $ 962 117,321 1,267 1,763
Individual Life................................. 27,723 49,755 11,493 16,292
Investment Products............................. 46,618 473 37,021 4,485 1,980
Corporate and Other............................. (1,218) 29,837 485 24,193
Unallocated Realized Investment Gains
(Losses)....................................... 0 (1,589) 0 0 0
---------- --------- ---------- ------------ -------------
TOTAL......................................... $274,991 $ (154) $409,557 $48,403 $ 91,925
---------- --------- ---------- ------------ -------------
---------- --------- ---------- ------------ -------------
<FN>
- ------------------------------
(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.
</TABLE>
S-2
<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, 1994:
Life insurance in force............. $ 40,909,454 $ 8,639,272 $ 8,968,166 $ 41,238,348 21.7%
-------------- ------------- ------------- -------------- ---
-------------- ------------- ------------- -------------- ---
Premiums and policy fees:
Life insurance.................... $ 256,840 $ 46,029 $ 31,032 $ 241,843 12.8%
Accident/health insurance......... 283,883 126,545 3,591 160,929 2.2%
-------------- ------------- ------------- --------------
TOTAL........................... $ 540,723 $ 172,574 $ 34,623 $ 402,772
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Year Ended December 31, 1993:
Life insurance in force............. $ 40,149,017 $ 7,484,566 $ 2,301,577 $ 34,966,028 6.6%
-------------- ------------- ------------- -------------- ---
-------------- ------------- ------------- -------------- ---
Premiums and policy fees:
Life insurance.................... $ 230,706 $ 37,995 $ 8,329 $ 201,040 4.1%
Accident/health insurance......... 254,672 88,917 3,963 169,718 2.3%
-------------- ------------- ------------- --------------
TOTAL........................... $ 485,378 $ 126,912 $ 12,292 $ 370,758
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Year Ended December 31, 1992:
Life insurance in force............. $ 33,811,280 $ 6,982,127 $ 665,733 $ 27,494,886 2.4%
-------------- ------------- ------------- -------------- ---
-------------- ------------- ------------- -------------- ---
Premiums and policy fees:
Life insurance.................... $ 180,018 $ 34,824 $ 16,092 $ 161,286 10.0%
Accident/health insurance......... 228,192 74,531 8,189 161,850 5.1%
-------------- ------------- ------------- --------------
TOTAL........................... $ 408,210 $ 109,355 $ 24,281 $ 323,136
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
</TABLE>
S-3
<PAGE>
APPENDIX A
EXAMPLES OF DEATH BENEFIT COMPUTATIONS UNDER OPTIONS 1 AND 2
OPTION 1 EXAMPLE. For purposes of this example, assume that the Insured's
Attained Age is between 0 and 40 and that there is no outstanding Policy Debt.
Under Option 1, a Policy with a $50,000 Face Amount will generally pay $50,000
in Death Benefits. However, because the Death Benefit must be equal to or be
greater than 250% of the Policy Value, any time that the Policy Value exceeds
$20,000, the Death Benefit will exceed the $50,000 Face Amount. Each additional
dollar added to Policy Value above $20,000 will increase the Death Benefit by
$2.50. A Policy with a $50,000 Face Amount and a Policy Value of $30,000 will
provide Death Benefit of $75,000 ($30,000 x 250%); a Policy Value of $40,000
will provide a Death Benefit of $100,000 ($40,000 x 250%); a Policy Value of
$50,000 will provide a Death Benefit of $125,000 ($50,000 x 250%).
Similarly, so long as Policy Value exceeds $20,000, each dollar taken out of
Policy Value will reduce the Death Benefit by $2.50. If, for example, the Policy
Value is reduced from $25,000 to $20,000 because of partial surrenders, charges,
or negative investment performance, the Death Benefit will be reduced from
$62,500 to $50,000. If at any time, however, the Policy Value multiplied by the
Face Amount percentage is less than the Face Amount, the Death Benefit will
equal the current Face Amount of the Policy.
The Face Amount percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than between 0 and 40), the specified amount factor would be
185%. The Death Benefit would not exceed the $50,000 Face Amount unless the
Policy Value exceeded approximately $27,028 (rather than $20,000), and each
dollar then added to or taken from the Policy Value would change the life
insurance proceeds by $1.85 (rather than $2.50).
OPTION 2 EXAMPLE. For purposes of this example, assume that the Insured's
Attained Age is between 0 and 40 and that there is no outstanding Policy Debt.
Under Option 2, a Policy with a Face Amount of $50,000 will generally provide a
Death Benefit of $50,000 plus Policy Value. Thus, for example, a Policy with a
Policy Value of $5,000 will have a Death Benefit of $55,000 ($50,000 + $5,000);
a Policy Value of $10,000 will provide a Death Benefit of $60,000 ($50,000 +
$10,000). The Death Benefit, however, must be at least 250% of the Policy Value.
As a result, if the Policy Value exceeds $33,333, the Death Benefit will be
greater than the Face Amount plus Policy Value. Each additional dollar of Policy
Value above $33,333 will increase the Death Benefit by $2.50. A Policy with a
Face Amount of $50,000 and a Policy Value of $40,000 will provide a Death
Benefit of $100,000 ($40,000 x 250%); a Policy Value of $60,000 will provide a
Death Benefit of $150,000 ($60,000 X 250%).
Similarly, any time Policy Value exceeds $33,333, each dollar taken out of
Policy Value will reduce the Death Benefit by $2.50. If, for example, the Policy
Value is reduced from $40,000 to $35,000 because of partial surrenders, charges,
or negative investment performance, the Death Benefit will be reduced from
$100,000 to $87,500. If at any time, however, Policy Value multiplied by the
Face Amount percentage is less than the Face Amount plus the Policy Value, then
the Death Benefit will be the current Face Amount plus Policy Value of the
Policy.
The Face Amount percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than under 40), the Face Amount factor would be 185%. The
amount of the Death Benefit would be the sum of the Policy Value plus $50,000
unless the Policy Value exceeded $58,824 (rather than $33,333), and each dollar
then added to or taken from the Policy Value would change the Death Benefit by
$1.85 (rather than $2.50).
A-1
<PAGE>
TABLE OF FACE AMOUNT PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE PERCENTAGE ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE AGE PERCENTAGE
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
0-40 250% 50 185% 60 130% 70 115%
41 243% 51 178% 61 128% 71 113%
42 236% 52 171% 62 126% 72 111%
43 229% 53 164% 63 124% 73 109%
44 222% 54 157% 64 122% 74 107%
45 215% 55 150% 65 120% 75-90 105%
46 209% 56 146% 66 119% 91 104%
47 203% 57 142% 67 118% 92 103%
48 197% 58 138% 68 117% 93 102%
49 191% 59 134% 69 116% 94 101%
95+ 100%
</TABLE>
A-2
<PAGE>
PART II -- OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
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 may be against public policy as expressed in the Act and
may be, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than 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
II-1
<PAGE>
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.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the Contracts described in the
Prospectus.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk charge is within the range
of industry practice for comparable flexible premium variable life
insurance contracts.
(3) Registrant has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the Separate Account will benefit
the Separate Account and contract owners and will keep and make available
to the Commission on request a memorandum setting forth the basis for
this representation.
(4) The Separate Account will invest only in management investment companies
which have undertaken to have a board of directors, a majority of whom
are not interested persons of the company, formulate and approve any plan
under Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2)
above is based on an analysis of the mortality and expense risk charge contained
in other flexible premium variable life insurance contracts. Registrant
undertakes to keep and make available to the Commission on request the documents
used to support the representation in paragraph (2) above.
II-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement consists of the following papers and documents:
The facing sheet.
A reconciliation and tie of the information shown in the prospectus with the
items of Form N-8B-2.
The prospectus consisting of 50 pages.
The undertaking to file reports.
The Rule 484 undertaking.
Representations pursuant to Rule 6e-3(T).
The signatures.
Written consents of the following persons:
Lizabeth R. Nichols, Esq.
Milliman & Robertson
Sutherland, Asbill & Brennan
Coopers & Lybrand L.L.P.
The following exhibits:
<TABLE>
<S> <C> <C>
1.A. (1) Certified resolutions of the board of directors of Protective Life Insurance Company establishing
Protective Variable Life Separate Account.*
(2) None.
(3)(a) Form of Underwriting Agreement among Protective Life Insurance Company, Investment Distributors,
Inc. and Protective Variable Life Separate Account.
(b) Form of Distribution Agreement between Investment Distributors, Inc. and selling broker-dealers.
(4) None.
(5)(a) Form of Contract.
(b) Children's term life rider.*
(c) Accidental death benefit rider.*
(d) Disability benefit rider.*
(e) Guaranteed insurability rider.*
(f) Protected insurability benefit rider.*
(6)(a) Charter of Protective Life Insurance Company.*
(b) By-Laws of Protective Life Insurance Company.*
(7) None
(8) None
(9) Participation/Distribution Agreement.
(10) Contract Application.*
2. Opinion and consent of Lizabeth R. Nichols, Esq.
3. Not applicable.
</TABLE>
- ------------------------
*Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement, (File No. 33-61599) as filed with the Commission on
August 4, 1995.
II-3
<PAGE>
<TABLE>
<S> <C> <C>
4. Not applicable.
5. Financial data schedule. (Not Applicable)
6. Notice of Withdrawal Right. (Not Applicable)
7. Opinion and consent of Milliman & Robertson.
8. Consent of Sutherland, Asbill & Brennan.
9(a). Consent of Coopers & Lybrand L.L.P.
9(b). Letter re: Unaudited Interim Financial Statements
10. Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) describing issue, transfer and redemption
procedures.
11. Powers of attorney.*
</TABLE>
- ------------------------
*Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement, (File No. 33-61599) as filed with the Commission on
August 4, 1995.
II-4
<PAGE>
As required by the Securities Act of 1933, the registrant has caused this
Pre-Effective Amendment No. 1 to the Form S-6 registration statement to be
signed on its behalf, in the City of Birmingham, and the State of Alabama, on
this day of December, 1995.
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
By: *
------------------------------------------
Drayton Nabers, Jr., President
PROTECTIVE LIFE INSURANCE COMPANY
PROTECTIVE LIFE INSURANCE COMPANY
(Depositor)
By: *
------------------------------------------
Drayton Nabers, Jr., President
As required by the Securities Act of 1933, this Pre-Effective Amendment No.
1 to the Form S-6 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>
President and
Director
* (Principal December ,
------------------------------------------- Executive 1995
Officer)
Executive Vice
/s/ JOHN D. JOHNS President
------------------------------------------- (Principal December ,
John D. Johns Financial 1995
Officer)
Vice President
/s/ JERRY W. DEFOOR (Principal December ,
------------------------------------------- Accounting 1995
Jerry W. DeFoor Officer)
*
------------------------------------------- Director December ,
Drayton Nabers, Jr. 1995
/s/ JOHN D. JOHNS
------------------------------------------- Director December ,
John D. Johns 1995
*
------------------------------------------- Director December ,
Ormond L. Bentley 1995
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------- ---------------
<C> <S> <C>
*
------------------------------------------- Director December ,
R. Stephen Briggs 1995
*
------------------------------------------- Director December ,
Jim E. Massengale 1995
*
------------------------------------------- Director December ,
Wayne E. Stuenkel 1995
*
------------------------------------------- Director December ,
A. S. Williams III 1995
*
------------------------------------------- Director December ,
Steven A. Schultz 1995
*
------------------------------------------- Director December ,
Deborah A. Long 1995
*
------------------------------------------- Director December ,
Carolyn King 1995
*By: /s/ LIZABETH R. NICHOLS
--------------------------------------
Lizabeth R. Nichols
December ,
Attorney-in-Fact 1995
</TABLE>
<PAGE>
EXHIBIT 1.A.(3)(a)
<PAGE>
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT ("Agreement") is entered into on this day of
,1995, between Protective Life Insurance Company a life insurance
company organized and existing under the laws of the State of Tennessee, for
itself and on behalf of the Protective Variable Life Separate Account
("Protective") and Investment Distributors, Inc. ("IDI"), a broker-dealer
organized and existing under the laws of the State of Tennessee.
WITNESSETH:
WHEREAS, the Board of Directors of PROTECTIVE has registered interests in a
certain individual flexible premium variable and fixed life insurance policies
(the "Policies") with the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment
Company Act of 1940, as amended;
WHEREAS, IDI is a broker-dealer registered as such under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. ("NASD"); and
WHEREAS, IDI has agreed to act as principal underwriter in connection with
offers and sales of the Policies under the terms and conditions set forth in
this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants
and conditions set forth herein, PROTECTIVE and IDI agree as follows:
A. DISTRIBUTION SERVICES
1. IDI represents that it is duly registered as a broker-dealer under the
Securities Exchange Act of 1934 Act and is a member in good standing of the NASD
and, to the extent necessary to offer the Policies, shall be duly registered or
otherwise qualified under the securities laws of any state or other
jurisdiction.
2. IDI shall act as the principal underwriter for the sale of Policies to
the public, during the term of this Agreement, in each state and other
jurisdiction in which such Policies may lawfully be sold. IDI shall offer the
Policies for sale and distribution under guidelines established by PROTECTIVE.
IDI agrees to use its best efforts to solicit applications for the Policies at
its own expense, and otherwise perform all duties and functions which are
necessary and proper for the distribution of the Policies; provided, however,
IDI shall not be obligated to sell any specific number of Policies. Completed
applications for Policies shall be transmitted directly to PROTECTIVE for
acceptance or rejection in accordance with underwriting rules established by
PROTECTIVE. All premium payments under the Policies shall be made by check
payable to PROTECTIVE and shall be transmitted promptly in full by IDI or its
representatives to PROTECTIVE.
3. IDI shall be fully responsible for training, supervising and controlling
its representatives soliciting applications for Policies, for taking all
necessary and appropriate steps to ensure compliance by IDI and its
representatives on a continuous basis with the NASD Rules of Fair Practice,
federal and state securities law requirements and all other applicable laws and
regulations concerning the offer and sale of Policies (and the riders and other
contracts offered in connection therewith), and for ensuring that its
representatives are duly and appropriately licensed or otherwise qualified for
the offer and sale of the Policies under the federal securities laws and any
applicable securities, insurance or other laws of each state or other
jurisdiction in which the Policies may be lawfully sold.
4. PROTECTIVE agrees that during the term of this Agreement it will take
any action which is required to cause the Policies to comply as insurance
products and a registered security with all applicable federal and state laws
and regulations.
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5. IDI agrees that it will execute such documents and do such acts as shall
from time to time be reasonably requested by PROTECTIVE for the purpose of (a)
maintaining the registration of the Policies under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, and
(b) qualifying and maintaining qualification of the Policies for sale under the
applicable laws of any state or other jurisdiction.
6. IDI is hereby authorized to enter into separate written agreements, on
such terms and conditions as IDI may determine which are not inconsistent with
this Agreement, with one or more organizations which agree to participate in the
distribution of the Policies. Such organization (hereafter "Brokers") shall be
registered both as a broker/dealer under the 1934 Act and as a member of the
NASD. All such sales agreements shall provide that each Broker will assume full
responsibility for continued compliance by itself and its representatives with
applicable federal and state securities laws, including but not limited to
training, supervision and control of its representatives engaged in the
distribution of the Policies. IDI shall obtain the approval of PROTECTIVE prior
to entering into an agreement with any such organization. All Brokers shall act
as independent contractors and nothing herein shall constitute such Brokers or
their agents or employees as employees of PROTECTIVE in connection with the sale
of the Policies.
7. IDI shall take reasonable steps to ensure that any Broker and its
representatives soliciting applications for Policies shall be duly and
appropriately licensed, registered or otherwise qualified for the sale of such
Policies (and the riders and other contracts offered in connection therewith)
under the state insurance laws, the federal securities laws, and any applicable
blue-sky laws of each state or other jurisdiction in which PROTECTIVE is
licensed to sell the Policies.
8. IDI shall take reasonable steps to ensure that each Broker trains,
supervises and controls its representatives in compliance with applicable laws
and regulations including, but not limited to (a) conducting such training
(including the preparation and utilization of training materials) as in the
opinion of IDI is necessary to accomplish the purposes of this Agreement and (b)
establish and implement reasonable written procedures for supervision of sales
practices of agents, representatives or brokers selling the Policies. Each
Broker shall assume any legal responsibilities of PROTECTIVE for the acts,
commissions, omissions, or declarations of such representatives in so far as
they relate to the sale of the Policies. Applications for Policies solicited by
a Broker through its agents or representatives shall be transmitted directly to
PROTECTIVE, and if received by IDI, shall be forwarded to PROTECTIVE. All
premium payments under the Policies shall be made by check payable to PROTECTIVE
and remitted promptly to PROTECTIVE as agent for IDI.
9. PROTECTIVE shall undertake to appoint the qualified representatives of
IDI or any Broker appointed by IDI as life insurance agents of PROTECTIVE and
shall apply for proper licenses in the appropriate states or jurisdictions for
these proposed agents. PROTECTIVE reserves the right to refuse to appoint any
proposed agent, or once appointed to terminate the same.
B. COMPLIANCE AND RECORDKEEPING
1. IDI is authorized to appoint the organizations described in paragraph 6
of Article A above as independent agents of PROTECTIVE for the sale of the
Policies. IDI is responsible for ensuring that Brokers are duly qualified, under
the insurance laws of the applicable jurisdictions, to sell the Policies.
2. PROTECTIVE and IDI wish to ensure that Policies sold by IDI will be
issued to purchasers for whom the Policies will be suitable. IDI shall take
reasonable steps to ensure that the various representatives appointed by it
shall not make recommendations to an applicant to purchase a Policy in the
absence of reasonable grounds to believe that the purchase of the Policies is
suitable for such applicant. While not limited to the following, a determination
of suitability shall be based on information furnished to a representative after
reasonable inquiry of such applicant concerning the applicant's retirement and
financial needs, objectives and situation. IDI is not authorized to give any
information or to make any representations concerning the Policies other than
those contained in the current prospectus filed with the SEC or in such sales
literature as may be authorized by PROTECTIVE.
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3. PROTECTIVE, at its sole expense, shall have the responsibility for
furnishing IDI and its representatives with prospectuses, financial statements,
sales promotion materials as well as individual sales proposals related to the
sale of the Policies, and other documents which IDI reasonably requests for use
in connection with the distribution of the Policies. PROTECTIVE shall have
responsibility for preparing, filing with the appropriate federal and state
regulatory authorities and printing all required prospectuses and/or
registration statements in connection with the Policies and the payments of all
related expenses. IDI shall not use any sales materials that have not been
approved by PROTECTIVE; provided, however, that IDI shall have responsibility
for approving and filing all sales literature and advertisements with the NASD
and the SEC as required by law or rule.
4. On behalf of IDI, PROTECTIVE shall cause to be maintained and preserved,
for the periods prescribed, such accounts, books and other documents as are
required of PROTECTIVE and IDI by the Securities Act of 1933, Securities
Exchange Act of 1934, and the Investment Company Act of 1940, any applicable
releases issued by the SEC under the federal securities laws, and any other
applicable laws and regulations in connection with the offer and sale of the
Policies. The books, accounts and records of PROTECTIVE and IDI as to all
transactions hereunder shall be maintained so as to disclose clearly and
accurately the nature and details of the transactions. PROTECTIVE shall
maintain, on behalf of and as agent for IDI, such books and records of IDI
pertaining to the offer and sale of the Policies and required by the Securities
Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act
of 1940, as may be mutually agreed upon from time to time by PROTECTIVE and IDI,
including but not limited to maintaining a record of representatives licensed,
registered and otherwise qualified under the federal securities laws to sell the
Policies and of the payments of commissions and service fees made to such
representatives; provided that such books and records shall be the property of
IDI and shall at all times be subject to such reasonable periodic, special or
other inspection or examination by the SEC and all other regulatory bodies
having jurisdiction. PROTECTIVE, on behalf of and as agent for IDI, shall be
responsible for sending all required confirmations on customer transactions upon
or before completion thereof in compliance with applicable laws and regulations,
as modified by an exemption or other relief obtained by PROTECTIVE, and any
applicable releases issued by the SEC under the federal securities laws. Such
confirmation, unless modified by an exemption or other relief obtained by
PROTECTIVE, shall reflect the facts of the transaction, and the form thereof
will show that it is being sent on behalf of IDI acting in the capacity of agent
for PROTECTIVE.
5. PROTECTIVE shall own and control all pertinent records relating to the
Policies. IDI agrees that all accounts and records which it maintains for
PROTECTIVE shall be the property of PROTECTIVE and that it will surrender
promptly to the designated officers of PROTECTIVE any or all such accounts and
records upon request. PROTECTIVE, or its authorized representative shall have
the right to copy any such records in the possession of IDI. Such accounts and
records shall be available to properly constituted government authorities as
required by federal and state law and/or regulation. IDI shall cause PROTECTIVE
to be furnished with such reports as PROTECTIVE may reasonably request for the
purpose of meeting its reporting and recordkeeping requirements under the
insurance laws of the State of Tennessee and any other applicable states or
jurisdictions.
6. IDI and PROTECTIVE agree to cooperate fully in any insurance regulatory
investigation or proceeding or judicial proceeding arising in connection with
Policies distributed under this Agreement. IDI and PROTECTIVE further agree to
cooperate fully in any securities regulatory inspection, inquiry, investigation
or proceeding or judicial proceeding with respect to PROTECTIVE, IDI, their
affiliates and their agents or representatives to the extent that such
inspection, inquiry, investigation or proceeding is in connection with Policies
distributed under this Agreement. Without limitation:
(a) IDI will be notified promptly of any customer complaint or notice of any
regulatory inspection, inquiry, investigation or proceeding or judicial
proceeding received by PROTECTIVE with respect to IDI or any agent or
representative or which may affect PROTECTIVE's issuance of any Policy
marketed under this Agreement.
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(b) IDI will promptly notify PROTECTIVE of any customer complaint or notice
of any regulatory inspection, inquiry, investigation or proceeding
received by IDI or its affiliates with respect to IDI or any agent or
representative in connection with any Policy distributed under this
Agreement or any activity in connection with any such Policy.
(c) In the case of a substantive customer complaint, IDI and PROTECTIVE will
cooperate in investigating such complaint and any response to such
complaint will be sent to the other party to this Agreement for approval
not less than [five] business days prior to its being sent to the
customer or regulatory authority, except that, if a more prompt response
is required, the proposed response shall be communicated by telephone or
telecopy.
C. COMPENSATION
1. On behalf of IDI, PROTECTIVE shall arrange for the payment of
commissions directly to those registered representatives of IDI who are entitled
thereto in connection with the sale of the Policies in the amounts and on such
terms and conditions as PROTECTIVE and IDI shall determine. PROTECTIVE will pay
the difference between the amount of the commissions payable with respect to a
Policy and the amount paid to the registered representative for such Policy to
IDI for expenses associated with distribution and marketing of Policies and
supervision of its registered representatives. (See Schedule A.)
2. PROTECTIVE shall arrange for the payment of commissions directly to
those Brokers who sell Policies under written agreements entered into pursuant
to paragraph 6 of Article A above, in amounts as may be agreed to by PROTECTIVE
and specified in such written agreements.
3. PROTECTIVE shall reimburse IDI for the costs and expenses incurred by
IDI in furnishing or obtaining the services, materials and supplies required by
the terms of this Agreement in the initial sales efforts and the continuing
obligations hereunder.
4. Notwithstanding anything in this Agreement to the contrary, no
representative of IDI or any Broker shall have an interest in any deductions or
other fees payable to IDI.
D. MISCELLANEOUS
1. This Agreement shall be effective upon the execution hereof. This
Agreement:
(a) shall automatically terminate in the event of its assignment, unless
prior written consent of PROTECTIVE to such assignment is obtained;
(b) may be terminated by either party at any time upon 60 days' written
notice to the other party;
(c) may be terminated upon written notice of a party to the other party in
the event of bankruptcy or insolvency of such party to which notice is
given; and
(d) may be terminated at any time upon the mutual written consent of either
party;
(e) may be terminated for "cause" at any time by PROTECTIVE. "Cause" is
defined and limited for this purpose to mean willful misfeasance, bad
faith, or gross negligence by IDI in the performance of its duties or
reckless disregard by it of its obligations and duties under this
Agreement.
Upon termination of this Agreement, all authorizations, rights, and obligations
shall cease except the obligations to settle accounts hereunder, including
payments or premiums or contributions subsequently received for Policies in
effect at the time of termination or issued pursuant to applications received by
PROTECTIVE prior to termination, and all commissions attributable thereto.
2. In the event of termination for any reason, all records shall promptly
be returned to PROTECTIVE free from any claim or retention of rights by IDI.
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3. IDI shall not disclose or use any records of information obtained
pursuant to this Agreement in any manner whatsoever except as expressly
authorized herein and, further, IDI will keep confidential any information
obtained pursuant to the service relationship set forth herein and disclose such
information only if PROTECTIVE has authorized such disclosure or such disclosure
is expressly required by applicable federal or state regulatory authorities.
4. IDI shall submit to all regulatory and administrative bodies having
jurisdiction over the operations of PROTECTIVE, present or future, any materials
reasonably related to the administrative and marketing services provided
hereunder and any other information, reports or other material, as may be
requested or required by any government agency having jurisdiction.
5. IDI shall act as an independent contractor and nothing herein contained
shall constitute IDI or its agents or employees as employees of PROTECTIVE in
connection with the sale of the Policies.
6. IDI shall be liable for its own misconduct and negligence.
7. The services of IDI hereunder are not to be deemed exclusive and IDI
shall be free to render similar services to others so long as its services
hereunder are not impaired or interfered with thereby.
8. This Agreement shall be subject to the provisions of the 1934 Act and
the rules, regulations, and rulings thereunder and of the applicable rules and
regulations of the NASD, from time to time in effect, and the terms hereof shall
be interpreted and construed in accordance therewith.
9. A copy of this Agreement shall be furnished to the SEC.
10. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Tennessee.
11. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
INVESTMENT DISTRIBUTORS, INC.
ATTEST: By:
- ---------------------------------- --------------------------------------
PROTECTIVE LIFE INSURANCE COMPANY
ATTEST: By:
- ---------------------------------- --------------------------------------
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EXHIBIT 1.A.(3)(b)
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DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") dated as of December , 1995, by
and among PROTECTIVE LIFE INSURANCE COMPANY ("Insurer"), a Tennessee life
insurance company, INVESTMENT DISTRIBUTORS, INC. ("Principal Underwriter"), a
Tennessee corporation, and ("Broker-Dealer"), and its
affiliates.
RECITALS:
A. Pursuant to an agreement with Principal Underwriter (the "Underwriting
Agreement"), the Insurer has appointed Principal Underwriter as the principal
underwriter of the class or classes of individual variable life insurance
contracts identified in Schedule 1 to this Agreement at the time that this
Agreement is executed, and such other class or classes of insurance products
that may be added to Schedule 1 from time to time in accordance with Section 11
of this Agreement (each, a "Class of Contracts"; all such classes, the
"Contracts"). Each Class of Contracts will be issued by Insurer through one or
more separate accounts of Insurer ("Separate Accounts"). Pursuant to the
Underwriting Agreement, Insurer has authorized Principal Underwriter to enter
into separate written agreements with broker-dealers pursuant to which such
broker-dealers would be authorized to participate in the sale of the Contracts
and would agree to use their best efforts to solicit applications for the
Contracts.
B. Broker-Dealer is engaged in the business of selling various investment
products, including variable insurance products and investment oriented
insurance products.
C. The parties to this Agreement desire that Broker-Dealer be authorized to
solicit applications for the sale of the Contracts, subject to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
(a) REGISTRATION STATEMENT -- With respect to each class of Contracts, the
most recent effective registration statement(s) filed with the SEC or the
most recent effective post-effective amendment(s) thereto, including
financial statements included therein and all exhibits thereto.
(b) PROSPECTUS -- With respect to each class of Contracts, the prospectus
for such class of Contracts included within the Registration Statement
for such class of Contracts; provided, however, that, if the most
recently filed prospectus filed pursuant to Rule 424 or Rule 497 under
the 1933 Act, 1934 Act and 1940 Act subsequent to the date on which the
Registration Statement became effective differs from the prospectus on
file at the time the Registration Statement became effective, the term
"Prospectus" shall refer to the most recently filed prospectus filed
under Rule 424 or Rule 497, as appropriate, from and after the date on
which it shall have been filed.
(c) 1933 ACT -- The Securities Act of 1933, as amended.
(d) 1934 ACT -- The Securities Exchange Act of 1934, as amended.
(e) 1940 ACT -- The Investment Company Act of 1940, as amended.
(f) BROKER-DEALER AND/OR AGENT(S) -- The Broker-Dealer and any individual
associated with Broker-Dealer who is appointed by Insurer as an agent for
the purpose of soliciting applications for the contracts.
(g) PREMIUM -- A premium payment made under a Contract to purchase benefits
under such Contract.
(h) SEC -- The Securities and Exchange Commission.
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(i) NASD -- The National Association of Securities Dealers, Inc.
(j) FUND -- An investment portfolio of Protective Investment Company, or as
otherwise defined in any variable life insurance contract listed in
schedule 1.
2. AUTHORIZATION OF BROKER-DEALER AND INSURANCE AGENT
(a) Pursuant to the authority granted to it in the Underwriting Agreement,
Principal Underwriter hereby authorizes Broker-Dealer under the
securities laws, and Insurer hereby authorizes Insurance Agent under the
insurance laws, each in a non-exclusive capacity, to sell the Contracts.
Broker-Dealer accepts such authorization and shall use its best efforts
to find purchasers for the Contracts in each case acceptable to Insurer.
Principal Underwriter and Insurer acknowledge that Broker-Dealer is an
independent contractor in the performance of its respective duties and
obligations under this Agreement. Accordingly, Broker-Dealer is not
obliged or expected to give full time and energy to the performance of
its obligations hereunder, nor is Broker-Dealer obliged or expected to
represent Principal Underwriter or Insurer exclusively. Nothing herein
contained shall constitute Broker-Dealer, or any agents or
representatives of Broker-Dealer as employees of Principal Underwriter or
Insurer in connection with the solicitation of applications and premiums
for the Contracts.
(b) Broker-Dealer acknowledges that no territory is exclusively assigned
hereunder, and that Insurer and Principal Underwriter may in their sole
discretion establish or appoint one or more agencies in any jurisdiction
in which Broker-Dealer transacts business.
(c) Broker-Dealer is authorized under this Agreement with power and
authority to select and recommend individuals associated with
Broker-Dealer for appointment as Agents of the Insurer, and only such
individuals so recommended by Broker-Dealer shall become Agents, provided
that the conditions of Section 3 are satisfied. Provided further that
Insurer reserves the right to refuse to appoint any proposed agent or,
once appointed, to terminate same at any time with or without cause.
Initial and renewal state appointment fees for Agents of Insurer will be
paid by Insurer in accordance with its then-applicable requirements.
(d) Broker-Dealer shall not expend or contract for the expenditure of the
funds of Principal Underwriter or Insurer, except as they may otherwise
agree in writing. Broker-Dealer shall pay all expenses incurred by it in
the performance of this Agreement, unless otherwise specifically provided
for in this Agreement or unless Principal Underwriter and Insurer shall
have agreed in advance in writing to share the cost of any such expenses.
Broker-Dealer shall not possess or exercise any authority on behalf of
Insurer or Principal Underwriter other than that expressly conferred on
Broker-Dealer by this Agreement. In particular, and without limiting the
foregoing, Broker-Dealer shall not have any authority, nor shall it grant
such authority to any agent, on behalf of Insurer: to make, alter or
discharge any insurance policy or annuity entered into pursuant to a
Contract; to waive any Contract provision; to extend the time of paying
any Premiums; or to receive any monies or Premiums from applicants for or
purchasers of the Contracts (except for the sole purpose of forwarding
monies or Premiums to Insurer).
(e) Broker-Dealer acknowledges that Insurer has the right in its sole
discretion to reject any applications or Premiums received by it and to
return or refund to an applicant such applicant's Premium.
3. LICENSING AND REGISTRATION OF BROKER-DEALER, INSURANCE AGENT AND AGENTS
(a) Broker-Dealer represents and warrants that it is a broker-dealer
registered with the SEC under the 1934 Act, and is a member in good
standing of the NASD. Broker-Dealer must, at all times when performing
its functions and fulfilling its obligations under this Agreement, be
duly registered as a broker-dealer under the 1934 Act and in each state
or other jurisdiction in which Broker-Dealer intends to perform its
functions and fulfill its obligations hereunder, and be a member in good
standing of the NASD.
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(b) Broker-Dealer represents and warrants that it and its individual agents
are licensed insurance agents where required to solicit applications for
Contracts as identified in schedule 1. Broker-Dealer and its individual
agents must, at all times when performing their functions and fulfilling
their obligations under this Agreement, be duly licensed to sell the
Contracts in each state or other jurisdiction in which Broker-Dealer and
its individual agents intend to perform their functions and fulfill their
obligations hereunder.
(c) Broker-Dealer shall ensure that no individual shall offer or sell the
Contracts on its behalf in any state or other jurisdiction in which the
Contracts may lawfully be sold unless (i) such individual is an
associated person of Broker-Dealer (as that term is defined in Section
3(a)(18) of the 1934 Act) and duly registered with the NASD and any
applicable state securities regulatory authority as a registered person
of Broker-Dealer qualified to sell the Contracts in such state or
jurisdiction, (ii) duly licensed, registered or otherwise qualified to
offer and sell the Contracts to be offered and sold by such individual
under the insurance laws of such state or jurisdiction, and (iii) duly
appointed by Insurer with respect to such Contracts and such state or
jurisdiction. Broker-Dealer shall be solely responsible for background
investigations of its individual agents to determine their
qualifications, good character, and moral fitness to sell the Contracts.
All matters concerning the licensing of any individuals recommended for
appointment by Broker-Dealer under any applicable state insurance law
shall be a matter directly between Broker-Dealer and such individual, and
Broker-Dealer shall furnish Insurer with proof of proper licensing of
such individual or other proof, reasonably acceptable to Insurer, of
satisfaction by such individual of licensing requirements prior to
Insurer appointing any such individual as an Agent. Insurer and
Broker-Dealer shall notify Insurer and Principal Underwriter immediately
upon termination (for whatever reason) of an Agent's association with
Broker-Dealer.
(d) Without limiting any other provision herein, Broker-Dealer represents
that it is in compliance with the terms and conditions of letters issued
by the Staff of the SEC with respect to the non-registration of an
insurance agency associated with a registered broker-dealer.
Broker-Dealer shall notify Insurer immediately in writing if
Broker-Dealer fails to comply with any such terms and conditions.
4. BROKER-DEALER COMPLIANCE
(a) Broker-Dealer shall be responsible for securities training, supervision
and control of its individual Agents in connection with their
solicitation activities with respect to the Contracts and shall supervise
Agents' compliance with applicable federal and state securities law and
applicable state insurance laws and regulations and NASD requirements in
connection with such solicitation activities.
(b) Broker-Dealer hereby represents and warrants that it is duly in
compliance with all applicable federal and state securities laws and
regulations, and all applicable insurance laws and regulations.
Broker-Dealer shall carry out its obligations under this Agreement in
continued compliance with such laws and regulations. Further,
Broker-Dealer shall comply, and shall ensure that Agents comply, with the
rules and procedures provided by Insurer, and Broker-Dealer shall be
solely responsible for such compliance.
(i) Broker-Dealer, and its individual Agents shall not offer or attempt
to offer the Contracts, nor solicit applications for the Contracts,
nor deliver Contracts, in any state or jurisdiction in which the
Contracts have not been approved for sale. For purposes of
determining where the Contracts may be offered and applications
solicited, Broker-Dealer may rely on written notification, as
revised from time to time, that they receive from Insurer pursuant
to this Agreement.
(ii) Broker-Dealer, and its individual agents shall not solicit
applications for the Contracts without delivering the Prospectus
for the Contracts, and, where applicable or required
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by state insurance law, the then currently effective statement of
additional information for the Contracts, and the then currently
effective prospectus(es) for the Fund(s) or any other forms
specifically required by Insurer.
(iii) Broker-Dealer, and its individual Agents shall not recommend the
purchase of a Contract to an applicant unless each has reasonable
grounds to believe that such purchase is suitable for the applicant
in accordance with, among other things, applicable regulations of
any state insurance regulatory authority, the SEC and the NASD.
While not limited to the following, a determination of suitability
shall be based on information supplied by the applicant after a
reasonable inquiry concerning the applicant's insurance and
investment objectives and financial situation and needs and shall
entail a review by Broker-Dealer of all applications for
suitability and completeness and correctness as to form as well as
review and endorsement on an internal record of Broker-Dealer.
(iv) Broker-Dealer, and its individual Agents shall not encourage a
prospective purchaser to surrender or exchange an insurance policy
or contract in order to purchase a Contract or, conversely, to
surrender or exchange a Contract in order to purchase another
insurance policy or contract, subject to applicable NASD Rules of
Fair Practice and any other applicable laws, regulations and
regulatory guidelines.
(v) Broker-Dealer, and its individual agents shall accept initial
Premiums in the form of a check or money order only if made payable
to "Protective Life Insurance Company" and signed by the applicant
for the Contract. Broker-Dealer, and its individual Agents shall not
accept third-party checks or cash for Premiums.
(vi) Broker-Dealer and its individual agents shall ensure that all checks
and money orders and applications for the Contracts received by
either of them shall be remitted promptly, and in any event not
later than 2 business days after receipt, to the Insurer. In the
event that any other Premiums are sent to an Agent or Broker-Dealer,
rather than to the Insurer, Broker-Dealer shall promptly (and in any
event, not later than 2 business days) remit such Premiums to the
Insurer. Broker-Dealer acknowledges that if any Premium is held at
any time, such Premium shall be held on behalf of Insurer, and
Broker-Dealer shall segregate such Premium from its own funds and
promptly (and in any event, within 2 business days) remit such
Premium to the Insurer. All such Premiums, whether by check, money
order or wire, shall at all times be the property of Insurer.
(vii) Upon issuance of a Contract by Insurer and delivery of such
Contract to Broker-Dealer and/or its individual Agents.
Broker-Dealer and/or its individual Agents shall promptly deliver
such Contracts to its purchasers. For purposes of this provision,
"promptly" shall be deemed to mean not later than five calendar
days. Broker-Dealer shall return promptly to Insurer all receipts
all undelivered Contracts and all receipts for cancellation, in
accordance with Insurer's instructions.
(viii) Broker-Dealer and its individual Agents in connection with the
offer or sale of the Contracts, shall not give any information or
make any representations or statements, written or oral, concerning
the Contracts, a Fund or Fund Shares, other than or inconsistent
with information or representations contained in the Prospectuses,
statements of additional information and Registration Statements
for the Contracts, or a Fund, or in reports or proxy statements
therefor, or in promotional, sales or advertising material or other
information supplied and approved in writing by Principal
Underwriter and Insurer.
(c) Broker-Dealer shall promptly furnish to Insurer any reports and
information that Insurer may reasonably request for the purpose of
meeting Insurer's reporting and recordkeeping requirements under the
insurance laws of any state or under any applicable federal and state
securities laws, rules and regulations.
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(d) Broker-Dealer shall secure and maintain a fidelity bond (including
coverage for larceny and embezzlement), issued by a reputable bonding
company, covering all of its directors, officers, agents and employees
who have access to funds of Insurer or Principal Underwriter. This bond
shall be maintained at Broker-Dealer's expense in at least the amount
prescribed under Article III, Section 32 of the NASD Rules of Fair
Practice.
5. SALES MATERIALS
(a) During the term of this Agreement, Principal Underwriter and Insurer
will provide Broker-Dealer, without charge, with as many copies of
Prospectuses (and any supplements thereto), current Fund prospectus(es)
(and any supplements thereto), and applications for the Contracts, as
Broker-Dealer may reasonably request. Upon termination of this Agreement,
Broker-Dealer will promptly return to Principal Underwriter any
Prospectuses, applications, Fund prospectuses, and other materials and
supplies furnished by Principal Underwriter or Insurer to Broker-Dealer.
(b) During the term of this Agreement, Principal Underwriter will be
responsible for providing and approving all promotional, sales and
advertising material to be used by Broker-Dealer and its individual
Agents in the course of their solicitation activities hereunder.
Principal Underwriter will file such materials or will cause such
materials to be filed with the SEC, the NASD, and/or with any state
securities and insurance regulatory authorities, as appropriate.
Broker-Dealer and its individual Agents shall not use or implement, nor
shall they allow any individual Agent to use or implement, any
promotional, sales or advertising material relating to the Contracts or
otherwise advertise the Contracts without the prior written approval of
Principal Underwriter and Insurer.
6. COMMISSIONS AND EXPENSES
(a) During the term of this Agreement, Insurer shall pay to Broker-Dealer as
compensation for Contracts for which it is the Broker-of-Record, the
commissions and fees set forth in Schedule 2 to this Agreement, as such
Schedule 2 may be amended or modified upon 30 days prior notice. Any
amendment to Schedule 2 will be applicable to any Contract for which an
application or premium is received by the Insurer on or after the
effective date of such amendment or which is in effect after the
effective date of such amendment. Compensation with respect to any
Contract shall be paid to Broker-Dealer only for so long as Broker-Dealer
and/or its individual Agents is the Broker-of-Record for such Contract.
(b) Broker-Dealer recognizes that all compensation payable to Broker-Dealer
and/or its individual Agents hereunder will be disbursed by or on behalf
of Insurer after Premiums are received and accepted by Insurer and that
no compensation of any kind other than that described in this Agreement
is payable for the performance of its obligations hereunder.
(c) REFUND OF COMPENSATION. No compensation shall be payable, and
Broker-Dealer agrees to reimburse Principal Underwriter for any
compensation paid to Broker-Dealer or its individual Agents under each of
the following conditions: (i) if Insurer, in its sole discretion,
determines not to issue the Contact applied for; (ii) if Insurer refunds
the Premiums upon the applicant's surrender or withdrawal pursuant to any
"free-look" privilege; (iii) if Insurer refunds the Premiums paid by
applicant as a result of a complaint by applicant, recognizing that
Insurer has sole discretion to refund Premiums; and (iv) if Insurer
determines that any person signing an application who is required to be
licensed or any other person or entity receiving compensation for
soliciting purchase of the Contracts is not duly licensed to sell the
Contracts in the jurisdiction of such sale or attempted sale.
5
<PAGE>
(d) INDEBTEDNESS AND RIGHT OF SETOFF. Nothing contained herein shall be
construed as giving Broker-Dealer the right to incur any indebtedness on
behalf of Insurer or Principal Underwriter. Broker-Dealer hereby
authorizes Insurer and Principal Underwriter to set off liabilities of
Broker-Dealer to Insurer and Principal Underwriter against any and all
amounts otherwise payable to Broker-Dealer.
(e) Broker-Dealer represents that no commissions or other compensation will
be paid for services rendered in soliciting the purchase of the Contracts
by any person or entity not duly registered or licensed by the required
authorities and appointed by Insurer to sell the Contracts in the state
in which such solicitation occurred; provided however, that this
provision shall not prohibit the payment of compensation of the surviving
spouse or other beneficiary of a person entitled to receive such
compensation pursuant to a bona fide contract calling for such payment.
7. INTERESTS IN AGREEMENT
Individual agents of Broker-Dealer shall have no interest in this Agreement
or right to any commissions to be paid to Broker-Dealer hereunder. Broker-Dealer
shall be solely responsible for the payment of any commission or consideration
of any kind to individual Agents. Broker-Dealer shall be solely responsible
under applicable tax laws for the reporting of compensation paid to individual
Agents. Broker-Dealer and its individual agents shall have no interest in any
compensation paid by Insurer to Principal Underwriter, now or hereafter, in
connection with the sale of any Contracts hereunder.
8. TERM AND EXCLUSIVITY OF AGREEMENT
This Agreement may not be assigned except by written mutual consent and
shall continue for an indefinite term, subject to the termination by any party
by ten days' advance written notice to the other parties, except that in the
event Principal Underwriter or Broker-Dealer ceases to be a registered
broker-dealer or a member of the NASD, this Agreement shall immediately
terminate. Upon its termination, all authorizations, rights and obligations
shall cease, except the payment of any accrued but unpaid compensation to
Broker-Dealer.
9. COMPLAINTS AND INVESTIGATIONS
(a) Principal Underwriter, Insurer, Broker-Dealer and its individual Agents
each shall cooperate fully in any securities or insurance regulatory
investigation or proceeding or judicial proceeding arising in connection
with the Contracts marketed under this Agreement. Broker-Dealer will be
notified promptly of any customer complaint or notice of any regulatory
investigation or proceeding or judicial proceeding received by Principal
Underwriter or Insurer with respect to Broker-Dealer, or any of its
individual Agents; and Broker-Dealer will promptly notify Principal
Underwriter and the Insurer of any written customer complaint or notice
of any regulatory investigation or proceeding or judicial proceeding
received by Broker-Dealer or any of its individual agents with respect to
themselves in connection with this Agreement or any Contract.
(b) In the case of a customer complaint, Principal Underwriter, Insurer and
Broker-Dealer will cooperate in investigating such complaint and any
response by Broker-Dealer or any of its individual Agents to such
complaint will be sent to Principal Underwriter for approval not less
than five business days prior to its being sent to the customer or
regulatory authority, except that if a more prompt response is required,
the proposed response shall be communicated by telephone or facsimile.
10. ASSIGNMENT
This Agreement shall be nonassignable by the parties hereto without the
prior written consent of all other parties.
6
<PAGE>
11. MODIFICATION OF AGREEMENT
This Agreement supersedes all prior agreements, either oral or written,
between the parties relating to the Contracts and, except for any amendment of
Schedule 1 pursuant to the terms of Section 2 hereof or Schedule 2 pursuant to
the terms of Section 6 hereof, may not be modified in any way unless by written
agreement signed by all of the parties.
12. INDEMNIFICATION
(a) Broker-Dealer shall indemnify and hold harmless Principal Underwriter
and Insurer and each person who controls or is associated with Principal
Underwriter or Insurer within the meaning of such terms under the federal
securities laws, and any officer, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities,
joint or several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon:
(i) violation(s) by Broker-Dealer, its individual Agents, of federal or
state securities law or regulation(s), insurance law or
regulation(s), or any rule or requirement of the NASD;
(ii) any unauthorized use of promotional, sales or advertising material,
any oral or written misrepresentations, or any unlawful sales
practices concerning the Contracts, by Broker-Dealer, or its
individual Agents;
(iii) claims by Agents or representatives of Broker-Dealer for
commissions or other compensation or remuneration of any type;
(iv) any failure on the part of Broker-Dealer, or its individual Agents
to submit Premiums or applications to Insurer, or to submit the
correct amount of a Premium, on a timely basis and in accordance
with this Agreement and Insurer's written procedures, subject to
applicable law;
(v) any failure on the part of Broker-Dealer, or its individual Agents
to deliver Contracts to purchasers thereof on a timely basis and in
accordance with Insurer's procedures; or
(vi) a breach by Broker-Dealer or its individual Agents of any provision
of this Agreement.
This indemnification will be in addition to any liability which
Broker-Dealer and its individual Agents may otherwise have.
(b) Principal Underwriter and Insurer, jointly and severally, shall
indemnify and hold harmless Broker-Dealer and each person who controls or
is associated with Broker-Dealer within the meaning of such terms under
the federal securities laws, and any officer, director, employee or agent
of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and
other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they or any of them may become subject under any
statute or regulation, NASD rule or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise
out of or are based upon any breach by Principal Underwriter or Insurer
of any provision of this Agreement. This indemnification will be in
addition to any liability which Principal Underwriter and Insurer,
jointly and severally, may otherwise have.
(c) Promptly after receipt by a party entitled to indemnification
("indemnified person") under this Section 12 of notice of the
commencement of any action as to which a claim will be made against any
person obligated to provide indemnification under this Section 12
("indemnifying party"), such indemnified person shall notify the
indemnifying party in writing of the
7
<PAGE>
commencement thereof as soon as practicable thereafter, but failure to so
notify the indemnifying party shall not relieve the indemnifying party
from any liability which it may have to the indemnified person otherwise
than on account of this Section 12. The indemnifying party will be
entitled to participate in the defense of the indemnified person but such
participation will not relive such indemnifying party of the obligation
to reimburse the indemnified person for reasonable legal and other
expenses incurred by such indemnified person in defending himself or
itself.
The indemnification provisions contained in this Section 12 shall remain
operative in full force and effect, regardless of any termination of this
Agreement. A successor by law of Principal Underwriter or Insurer, as the
case may be, shall be entitled to the benefits of the indemnification
provisions contained in this Section 12. After receipt by a party
entitled to indemnification ("indemnified party") under this Section 12
of notice of the commencement of any action, if a claim in respect
thereof is to be made against any person obligated to provide
indemnification under this Section 12 ("indemnifying party"), such
indemnified party will notify the indemnifying party in writing of the
commencement thereof as soon as practicable thereafter, provided that the
omission so to notify the indemnifying party will not relieve it from any
liability under this Section 12, except to the extent that the omission
results in a failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to give
such notice. The indemnifying party, upon the request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the indemnifying
party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests
between them. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
such proceeding is settled with such consent or if final judgment is
entered in such proceeding for the plaintiff, the indemnifying party
shall indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
This Section 12 shall survive termination of this Agreement.
13. RIGHTS, REMEDIES, ETC. ARE CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws. Failure of a party to insist upon strict compliance with any of
the conditions of this Agreement shall not be construed as a waiver of any of
the conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute, a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
14. NOTICES
All notices hereunder are to be made in writing and shall be given:
If to Insurer, to:
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Attention: Lizabeth R. Nichols
8
<PAGE>
if to Principal Underwriter, to:
Investment Distributors, Inc.
2801 Highway 280 South
Birmingham, Alabama 35223
Attention: R. Stephen Briggs
if to Broker-Dealer, to:
- ---------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
or such other address as such party may hereafter specify in writing. Each such
notice to a party shall be either hand delivered or transmitted by registered or
certified United States mail with return receipt requested, or by overnight mail
by a nationally recognized courier, and shall be effective upon delivery.
15. INTERPRETATION, JURISDICTION, ETC.
This Agreement constitutes the whole agreement between the parties hereto
with respect to the subject matter hereof, and supersedes all prior oral or
written understandings, agreements or negotiations between the parties with
respect to the subject matter hereof. No prior writings by or between the
parties hereto with respect to the subject matter hereof shall be used by a
party in connection with the interpretation of any provision of this Agreement.
This Agreement shall be construed and its provisions interpreted under and in
accordance with the internal laws of the State of Alabama without giving effect
to principles of conflict of laws.
16. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or
the breach hereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
17. HEADINGS
The headings in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
18. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
19. SEVERABILITY
This is a severable Agreement. In the event that any provision of this
Agreement would require a party to take action prohibited by applicable federal
or state law or prohibit a party from taking action required by applicable
federal or state law, then it is the intention of the parties hereto that such
provision shall be enforced to the extent permitted under the law, and, in any
event, that all other provisions of this Agreement shall remain valid and duly
enforceable as if the provision at issue had never been a part hereof.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
PROTECTIVE LIFE INSURANCE COMPANY
By:
----------------------------------------
Name:
-------------------------------------
Title:
--------------------------------------
INVESTMENT DISTRIBUTORS, INC.
By:
----------------------------------------
Name:
-------------------------------------
Title:
--------------------------------------
BROKER-DEALER
By:
----------------------------------------
Name:
-------------------------------------
Title:
--------------------------------------
10
<PAGE>
SCHEDULE 1
CONTRACTS SUBJECT TO THIS AGREEMENT
EFFECTIVE
11
<PAGE>
SCHEDULE 2
EFFECTIVE
12
<PAGE>
EXHIBIT 1.A.(5)(a)
<PAGE>
[PROTECTIVE LIFE LETTERHEAD]
VARIABLE LIFE INSURANCE POLICY
JOHN DOE
POLICY NUMBER SPECIMEN
This is an Individual Flexible Premium Variable and Fixed Life Insurance
Policy ("Policy") which has been issued to the Owner(s). This Policy provides a
death benefit.
THE OWNER(S) HAVE THE RIGHT TO RETURN THIS POLICY. The Owner(s) may cancel this
Policy after receipt by returning the Policy to our Home Office, or to the Agent
who sold the policy, with a written request for cancellation dated no later than
(a) ten (10) days after receipt; or (b) 45 days after the Application was
signed, or (c) 10 days after we mail or deliver a Notice of Right of Withdrawal.
Return of this Policy by mail is effective on receipt by us. The returned Policy
will be treated as if we had never issued it. In states where permitted, we will
promptly refund an amount equal to the sum of: (a) the difference between the
premiums paid (including any policy fees and or other charges deducted) and the
amounts allocated to the Fixed Account or the Sub-Accounts, plus (b) the value
of the amounts allocated to the Fixed Account, including any interest credited
on such amounts accumulated to the date that the Policy is returned to us, plus
(c) the value of the amounts allocated to the Sub-Accounts, adjusted to reflect
the net investment experience of such Sub-Accounts, to the date that the Policy
is returned to us. This amount may be more or less than the premium payment(s).
In states where required, we will promptly refund the premium payment(s).
The amount of the death benefit or the duration of the insurance coverage,
or both, may be variable or fixed.
This is a legal contract. Please read your Policy carefully.
<TABLE>
<S> <C>
President Secretary
</TABLE>
THE VALUES PROVIDED IN THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF A VARIABLE ACCOUNT, ARE VARIABLE, MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE FLUCTUATIONS IN THE NET INVESTMENT FACTOR, AND ARE NOT
GUARANTEED AS TO DOLLAR AMOUNTS. THERE IS NO GUARANTEED MINIMUM FOR THE PORTION
OF YOUR POLICY VALUE IN THE SUB-ACCOUNTS.
READ YOUR CONTRACT CAREFULLY
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
1
<PAGE>
INDEX
<TABLE>
<S> <C>
POLICY SPECIFICATIONS PAGES............................................................ 3
TABLE OF GUARANTEED MONTHLY MAXIMUM INSURANCE RATES.................................... 6
</TABLE>
<TABLE>
<S> <C>
DEFINITIONS............................ 7
GENERAL PROVISIONS..................... 9
Entire Contract...................... 9
Modification of the Contract......... 9
Misstatement of Age or Sex........... 9
Suicide Exclusion.................... 9
Termination.......................... 9
Representations and Contestability... 9
Reports.............................. 9
Arbitration.......................... 10
CONTROL PROVISIONS..................... 10
The Parties Involved................. 10
Rights of Owner...................... 10
Contingent Owner..................... 10
Beneficiary.......................... 11
Changing the Owner................... 11
Assignment........................... 11
Protection of Proceeds............... 11
Suspension or Delay in Payment....... 11
Tax Considerations................... 11
Changes in Policy Cost Factors....... 12
Coverage Limitations................. 12
PREMIUMS............................... 12
Premium Payment(s)................... 12
Planned Premiums..................... 12
Unscheduled Premium Payments......... 12
Minimum Monthly Premium Guarantee.... 12
Premium Expense Charge............... 13
Allocation of Net Premium
Payment(s).......................... 13
Grace Period......................... 13
Reinstatement........................ 13
DEDUCTIONS FROM POLICY VALUE........... 14
Monthly Deductions................... 14
Monthly Cost of Insurance Charge..... 14
Cost of Insurance Rates.............. 14
Cost of Riders....................... 14
Other Deductions..................... 14
Basis of Computations................ 14
FIXED ACCOUNT.......................... 14
Calculation of the Fixed Account
Value............................... 14
Interest Credited.................... 15
VARIABLE ACCOUNT....................... 15
General Description.................. 15
Sub-Accounts of the Variable
Account............................. 15
Valuation of Assets.................. 16
Calculation of Sub-Account Values.... 16
Net Investment Factor................ 16
Transfers............................ 17
Special Transfer Right............... 17
DEATH BENEFIT.......................... 17
Amount of Death Benefit Proceeds..... 17
Payment of Death Benefits............ 18
Suspension of Payment................ 18
Creditor Claims...................... 18
SURRENDERS AND WITHDRAWALS............. 18
Surrenders........................... 18
Withdrawals.......................... 18
POLICY LOANS........................... 18
Right to Make Loans, Policy Debt..... 18
Maximum Loan......................... 19
Interest............................. 19
Collateral........................... 19
Repaying Policy Debt................. 19
CHANGING THIS POLICY................... 19
Increasing the Face Amount........... 19
Premium Payments Required for a Face
Amount Increase..................... 20
Cancellation of an Increase of Face
Amount.............................. 20
Decreasing the Face Amount........... 20
Changing the Death Benefit Option.... 20
Changing the Maturity Date........... 20
Change Approval...................... 20
SETTLEMENT OPTIONS..................... 20
Availability of Options.............. 20
Minimum Amounts...................... 21
Electing a Payment Option............ 21
Effective Date and Payment Date...... 21
Description of Options............... 21
Death of Payee....................... 22
</TABLE>
2
<PAGE>
POLICY SPECIFICATIONS
POLICY NUMBER: SPECIMEN
POLICY ISSUE DATE: MARCH 1, 1995
INSURED: JOHN Q. DOE
INITIAL FACE AMOUNT: $100,000
INITIAL PREMIUM PAYMENT: $665.00
MINIMUM MONTHLY PREMIUM PAYMENT
FIRST POLICY YEAR: $55.41
POLICY YEARS 2 AND AFTER: $50.00
PLANNED PREMIUM: $665.00 PAYABLE
ANNUALLY
OWNER: JOHN Q. DOE
POLICY EFFECTIVE DATE: MARCH 1, 1995
MATURITY DATE: MARCH 1, 2055
ISSUE AGE: 35 SEX: MALE
MINIMUM FACE AMOUNT: $100,000
MONTHLY ANNIVERSARY DAY: 1
DEATH BENEFIT OPTION: INCREASING
RATE CLASS: PREFERRED NON-SMOKER
<TABLE>
<CAPTION>
MONTHLY
RIDER CHARGE DURING
NUMBER SCHEDULE OF ADDITIONAL BENEFITS FIRST YEAR
- --------- ---------------------------------------------------------------------------------------- -------------
<C> <S> <C>
None
</TABLE>
MONTHLY GUARANTEED INTEREST RATE FOR FIXED ACCOUNT 4% ANNUALLY (.3274% MONTHLY)
INITIAL ANNUAL EFFECTIVE INTEREST RATE FOR FIXED ACCOUNT 6%
THIS POLICY PROVIDES LIFE INSURANCE COVERAGE ON THE INSURED UNTIL THE
MATURITY DATE, PROVIDED THAT THE POLICY VALUE IS SUFFICIENT TO COVER THE
DEDUCTIONS TO THAT DATE FOR THE COST OF THE BENEFITS OF THIS POLICY AND OF ANY
RIDERS. YOU MAY HAVE TO PAY MORE THAN THE PLANNED PREMIUMS SHOWN ABOVE TO KEEP
THIS POLICY AND ANY ADDITIONAL RIDERS IN FORCE TO THAT DATE.
3
<PAGE>
POLICY SPECIFICATIONS (CONTINUED)
ALLOCATION OF PREMIUM PAYMENTS:
Protective Variable Life Separate Account
<TABLE>
<CAPTION>
SUB-ACCOUNTS:
- -------------------------------------------------------------------------------------
<S> <C>
Growth and Income Sub-Account........................................................ %
International Equity Sub-Account..................................................... %
Global Income Sub-Account............................................................ %
Select Equity Sub-Account............................................................ %
Small Cap Equity Sub-Account......................................................... %
Money Market Sub-Account............................................................. %
Capital Growth Sub-Account........................................................... %
Fixed Account...................................................................... %
</TABLE>
CHARGES
PREMIUM EXPENSE CHARGES. Consist of the following:
1. A Premium Tax Charge of 2.25% which will be deducted from each Premium
Payment for state and local premium taxes. We reserve the right to change this
percentage if premium tax rates change or the Insured's residence changes.
2. A Sales Charge, which equals 2.75%, will be deducted from each Premium
Payment during the first ten (10) Policy Years. In Policy Years 11 and greater,
a Sales Charge of .75% will be deducted from each Premium Payment.
3. A charge for federal taxes for deferred acquisition costs equal to 1.25%
will be deducted from each Premium Payment during all years.
Currently, a charge for federal income tax is not deducted from the
Sub-Accounts or the Policy's Cash Value. The Company reserves the right in the
future to make a charge to the Sub-Accounts or the Cash Value for any Federal,
state or local taxes that the Company incurs that it determines to be properly
attributable to the Sub-Accounts or the policies. We will notify you promptly of
any such charge.
MONTHLY DEDUCTIONS
ADMINISTRATION FEE. During the first Policy Year, the maximum
Administration Fee to be deducted monthly from the Policy Value is $33. During
other Policy Years, the maximum Administration Fee to be deducted monthly from
the Policy Value is $8.
We reserve the right to decrease these Administration Fees. Accordingly the
Administration Fee in the first Policy Year will be $31 per month and the
Administration Fees in other Policy Years will be $6 per month.
ADMINISTRATION CHARGE FOR INCREASE IN FACE AMOUNT. An administration charge
of $0.11 per every $1,000 of increase in additional face amount is deducted from
the Policy Value monthly in connection with an increase in face amount during
the twelve month period following the effective date of the increase.
CHARGE FOR BENEFITS UNDER RIDERS. Every month the Company deducts a charge
for any Riders.
COST OF INSURANCE CHARGE. Every month the Company deducts a charge for the
Cost of Insurance, which varies and is calculated in accordance with the policy
provisions.
4
<PAGE>
POLICY SPECIFICATIONS (CONTINUED)
OTHER DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE. A Mortality and Expense Risk Charge
guaranteed not to exceed .90% annually to be deducted daily from the
Sub-Accounts.
WITHDRAWAL CHARGE. A Withdrawal Charge equal to the lesser of: (a) 2% of
the amount withdrawn; or (b) $25 is deducted from the Policy Value whenever you
make a withdrawal.
TRANSFER FEE. A $25 charge may be deducted from the Policy Value being
transferred for each transfer request in excess of 12 during a Policy Year.
SURRENDER CHARGES
If this Policy is surrendered or you reduce the initial face amount during
the first fifteen Policy Years, we will deduct a Surrender Charge from the
Policy Value.
The Surrender Charge for the initial Face Amount is equal to the Surrender
Charge Percentage indicated in the table for the Policy Year in which the
surrender or reduction in initial Face Amount occurs, multiplied by the
aggregate amount of premium payments made in Policy Year 1 (including premium
payments for any riders). The Maximum Surrender Charge for any Policy Year is
$283.64.
<TABLE>
<CAPTION>
SURRENDER CHARGE
POLICY YEARS PERCENTAGE
- ------------- -------------------
<S> <C>
1 27%
2 27%
3 27%
4 27%
5 27%
6 27%
7 24%
8 21%
<CAPTION>
SURRENDER CHARGE
POLICY YEARS PERCENTAGE
- ------------- -------------------
<S> <C>
9 18%
10 15%
11 12%
12 9%
13 6%
14 3%
15+ 0%
</TABLE>
If the initial face amount of this Policy is decreased during the first
fourteen Policy Years, the Surrender Charge imposed will equal the portion of
the total Surrender Charge that corresponds to the percentage by which the
initial Face Amount is reduced. In the event of a Face Amount decrease, we will
allocate the Surrender Charge to each Sub-Account and the Fixed Account based on
the proportion that the value of the Fixed Account and the value of the
Sub-Account(s) bear to the total unloaned Policy Value in each Sub-Account and
the Fixed Account.
5
<PAGE>
MAXIMUM MONTHLY COST OF INSURANCE RATES
PER $1,000 OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
ATTAINED AGE RATE
- --------------- ------------
<S> <C>
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
<CAPTION>
ATTAINED AGE RATE
- --------------- ------------
<S> <C>
26
27
28
29
30
31
32
33
34
35 $ .14085
36 .14752
37 .15669
38 .16669
39 .17836
40 .19086
41 .20587
42 .22088
43 .23839
44 .25589
45 .27674
46 .29925
47 .32343
48 .34928
49 .37847
50 .40933
51 .44603
<CAPTION>
ATTAINED AGE RATE
- --------------- ------------
<S> <C>
52 $ .48857
53 .53612
54 .59118
55 .65209
56 .71968
57 .79145
58 .86908
59 .95674
60 1.05444
61 1.16301
62 1.28665
63 1.42786
64 1.58751
65 1.76393
66 1.95380
67 2.15965
68 2.38065
69 2.62185
70 2.89418
71 3.25304
72 3.55929
73 3.96902
74 4.42953
75 4.92412
76 5.45122
77 6.00585
<CAPTION>
ATTAINED AGE RATE
- --------------- ------------
<S> <C>
78 $ 6.58220
79 7.19472
80 7.86724
81 8.61695
82 9.46542
83 10.42335
84 11.47262
85 12.58986
86 13.75325
87 14.95279
88 16.16463
89 17.40526
90 18.69215
91 20.04733
92 21.51567
93 23.16008
94 25.25983
</TABLE>
6
<PAGE>
DEFINITIONS
ATTAINED AGE. The Insured's age as of the nearest birthday on the Policy
Effective Date plus the number of complete Policy Years since the Policy
Effective Date.
BENEFICIARY. The Beneficiary is the person entitled to receive the Death
Benefit proceeds upon the death of the Insured.
PRIMARY. Where a Primary Beneficiary is living, such person is the
Beneficiary. The Primary Beneficiary is the person named as the "Primary
Beneficiary" in the Application, unless changed.
CONTINGENT. Where no Primary Beneficiary is living, the "Contingent
Beneficiary", as named in the Application, is the Beneficiary, unless
changed. If the Contingent Beneficiary is not living, we will pay the
Owner(s) or Owner's estate.
IRREVOCABLE. An Irrevocable Beneficiary is one whose consent is
necessary to change the Beneficiary or exercise certain other rights.
CASH VALUE. It is equal to the Policy Value minus any applicable Surrender
Charge.
FIXED ACCOUNT. Part of our General Account to which Policy Value may be
transferred or Net Premiums allocated under a Policy.
FIXED ACCOUNT VALUE. The Policy Value in the Fixed Account.
FUND. An investment portfolio of Protective Investment Company or any other
open-end management investment company or unit investment trust in which a
Sub-Account invests.
GENERAL ACCOUNT. The assets of the Company other than those allocated to
the Variable Account or another separate account.
HOME OFFICE. 2801 Highway 280 South, Birmingham, Alabama 35223.
INITIAL FACE AMOUNT. The Face Amount on the Policy Effective Date.
INSURED. The person whose life is covered by the Policy.
ISSUE AGE. The Insured's age as of the nearest birthday on the Policy
Effective Date.
ISSUE DATE. The date the Policy is issued. The Issue Date may be a later
date than the Policy Effective Date if the initial premium payment is received
at the Home Office before the Issue Date.
LAPSE. Termination of the Policy at the expiration of the Grace Period
while the Insured is still living.
LOAN ACCOUNT. An account within the Company's General Account to which the
Fixed Account Value and/or Variable Account Value is transferred as collateral
for policy loans.
LOAN ACCOUNT VALUE. The Policy Value in the Loan Account.
MATURITY DATE. The date shown on the Policy Specifications Page. It is the
date on which we will pay the Owner(s) the Surrender Value, if any, provided the
insured is still living. It is the Policy Anniversary nearest the Insured's 95th
birthday. The Maturity Date may be changed provided it is not less than 20 years
from the Policy Effective Date.
MINIMUM MONTHLY PREMIUM. For policies issued on Insured's Issue Age below
70, the minimum amount of premium payments that must be paid in order for the
No-Lapse Guarantee to remain in effect.
MONTHLY ANNIVERSARY DAY. The same day of the month as the Policy Effective
Date. The Monthly Anniversary Day is shown on the Policy Specifications Page.
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NET AMOUNT AT RISK. As of any Monthly Anniversary Day, the Death Benefit
under this Policy (discounted for the upcoming Policy Month) less the Policy
Value (before deduction of the monthly Administration Fee and monthly rider
charges on that day).
NET ASSET VALUE PER SHARE. The value per share of any Fund as computed on
any Valuation Day as described in the Fund Prospectus.
NET PREMIUM. The premium payment after deduction of the Premium Expense
Charges.
OWNER. The person(s) who own the Policy. Herein referred to as "you" or
"your".
PLANNED PERIODIC PREMIUM PAYMENT. The premium determined by the Owner as a
level amount that he or she (or they) plan to pay at fixed intervals over a
specified period of time.
POLICY ANNIVERSARY. The same day in each Policy Year as the Policy
Effective Date.
POLICY DEBT. The sum of all outstanding policy loans plus accrued interest.
POLICY EFFECTIVE DATE. The date shown on the Policy Specifications Page and
on which coverage takes effect. Policy Years are measured from the Policy
Effective Date. For any increase, decrease, additions, or changes to coverage,
the effective date shall be the monthly anniversary day on or next following the
date the supplemental application is approved by the Company. The Policy
Effective Date will never be the 29th, 30th, or the 31st of a month.
POLICY VALUE. The sum of the Variable Account Value, the Fixed Account
Value and the Loan Account Value.
POLICY YEAR. Each period of 12 months commencing with the Policy Effective
Date.
PREMIUM PAYMENT(S). The amount(s) paid by the Owner(s) to purchase this
Policy.
PROTECTIVE LIFE INSURANCE COMPANY. Herein referred to as "We", "Us", "Our"
and "Company".
SETTLEMENT. Any payment by us under this Policy which is payable from our
Home Office.
SUB-ACCOUNT. A separate division of the Variable Account. Each Sub-Account
invests in a corresponding Fund.
SUB-ACCOUNT VALUE. The Policy Value in a Sub-Account.
SURRENDER VALUE. The Cash Value minus any outstanding Policy Debt.
UNIT. A unit of measurement used to calculate the Sub-Account Values.
UNSCHEDULED PREMIUM PAYMENT. Any Premium Payment other than a Planned
Periodic Premium Payment.
VALUATION DAY. Each day the New York Stock Exchange is open for business
except Federal and other holidays and days when the Company is not otherwise
open for business.
VALUATION PERIOD. The period commencing at the close of regular trading on
the New York Stock Exchange on any Valuation Day and ending at the close of
regular trading on the New York Stock Exchange on the next succeeding Valuation
Day.
VARIABLE ACCOUNT. The Protective Variable Life Separate Account, a separate
investment account of the Company into which Net Premiums may be allocated.
VARIABLE ACCOUNT VALUE. The sum of all Sub-Account Values.
WITHDRAWAL. A withdrawal by the Owner(s) of an amount of Cash Value that is
less than the Surrender Value.
WRITTEN NOTICE. A written notice or request that is received by the Company
at the Home Office.
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GENERAL PROVISIONS
ENTIRE CONTRACT. This Policy, any riders and/or endorsements attached
hereto, and the Application, a copy of which is attached, and all subsequent
applications, constitute the entire contract. Any application for reinstatement
becomes part of this Policy if the reinstatement is approved by the Company. The
Policy is issued in consideration of payment of the Initial Premium shown on the
Policy Specifications Page.
MODIFICATION OF THE CONTRACT. No change or waiver of the terms of this
Policy is valid unless made by us, in writing, and approved by an Officer of the
Company. We reserve the right to change the provisions of this Policy to conform
to any applicable laws, or applicable regulations or rulings issued by a
government agency.
MISSTATEMENT OF AGE OR SEX. Questions in the Application concern the
Insured's date of birth and sex. If the date of birth or sex given in the
Application or any Application for Riders is not correct, the Death Benefit and
any benefits provided under any Riders to this Policy will be adjusted to those
which would be purchased by the most recent deduction for the cost of insurance
and the cost of any benefits provided by such riders, at the correct age and
sex.
SUICIDE EXCLUSION. If the Insured commits suicide, while sane or insane,
within two years from the Policy Effective Date, the Company's total liability
shall be limited to the premiums paid before death, less any Policy Debt and
less any withdrawals. If the Insured commits suicide, while sane or insane,
within two years from the effective date of any increase in the face amount, the
Company's total liability with respect to such increase shall be limited to the
sum of the monthly cost of insurance charges deducted for such increase.
TERMINATION. All coverage under this Policy shall terminate when any one of
the following events occurs:
(1) The Owner(s) requests a full surrender. A surrender will require a
return of this Policy.
(2) The Insured dies.
(3) The Policy reaches its Maturity Date.
(4) The Grace Period ends without payment of premiums as described in "Grace
Period".
REPRESENTATIONS AND CONTESTABILITY. In issuing this Policy, the Company
relies on all statements made by or for the Insured in the Application or in a
supplemental application. Legally, these statements are considered to be
representations and not warranties, unless fraud is involved. The Company can
contest the validity of this Policy or resist a claim for any material
misrepresentation of a fact made on the Application or in a supplemental
application for this Policy. We also have the right to contest the validity of
any policy change based on material misstatements made in any application for
that change. To do so, however, the representation must have been made in the
Application, or in a supplemental application. Also, a copy of such application
must have been attached to this Policy when issued or made a part of the policy
when changes in coverage became effective.
The Company cannot bring any legal action to contest the validity of this
Policy after it has been in force during the lifetime of the Insured for two
years from the Policy Effective Date unless fraud is involved.
If there was a rider or endorsement added to this Policy after the Policy
Effective Date, or benefits added by a supplemental Policy Specifications Page,
the Company can contest the validity of any benefits so added within two years
during the lifetime of the Insured after they were added. The Company can
contest the validity of any reinstated benefits within two years during the
lifetime of the Insured after the reinstatement has been approved.
REPORTS. At least once a year we will send to you at your last known
address, a report for this Policy. The report will show as of the end of the
report period: (1) the current Death Benefit; (2) the
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current Policy Value; (3) the current Fixed Account Value; (4) the current
Variable Account Value; (5) the current Loan Account Value; (6) the current
Sub-Account Values; (7) premiums paid since the last report; (8) any withdrawals
since the last report; (9) any policy loans and accrued interest; (10) the
current Surrender Value; (11) your current premium allocations; (12) charges
deducted since the last report; and (13) any other information required by law.
ARBITRATION. The parties hereby acknowledge that the provision of insurance
pursuant to this Policy takes place in and substantially affects interstate
commerce and that the Federal Arbitration Act permits and promotes the use of
arbitration as a means of dispute resolution in matters arising from interstate
commerce.
Any controversy, dispute or claim by any Owner(s), Insured or Beneficiary,
or their respective assigns (each referred to herein as "Claimant"), arising out
of or relating in any way to this Policy or the solicitation or sale thereof
shall be submitted to binding arbitration pursuant to the provisions of the
Federal Arbitration Act, 9 U.S.C. Section 1, et seq. Absent consolidation of
arbitration as provided for below, such arbitration shall be governed by the
rules and provisions of the Dispute Resolution Program for Insurance Claims of
the American Arbitration Association ("AAA"). The arbitration panel shall
consist of three (3) arbitrators, one (1) selected by the Company, one (1)
selected by the Claimant and one (1) selected by the arbitrators previously
selected.
If a Claimant, the Company or a third-party have any dispute between or
among them or any of them that is directly or indirectly related to any dispute
governed by this arbitration provision, the Claimant and the Company consent to
the consolidation of the dispute governed by this arbitration provision with
such other dispute; if such other dispute is governed by an arbitration
agreement that selects the forum and rules of the National Association of
Securities Dealers, Inc. or the New York Stock Exchange, Inc., the Claimant and
the Company shall be deemed to have consented to the jurisdiction of such other
forum to the extent allowed by law and will abide by the rules, provisions and
interpretations thereof, including those for selection of arbitrators.
It is understood and agreed that the arbitration shall be binding upon the
parties, that the parties are waiving their right to seek remedies in court,
including the right to jury trial; and that an arbitration award may not be set
aside in later litigation except upon the limited circumstances set forth in the
Federal Arbitration Act.
Judgement upon the award rendered by the arbitrator(s) may be entered in any
Court having jurisdiction thereof. The arbitration expenses shall be borne by
the losing party or in such proportion as the arbitrator(s) shall decide.
CONTROL PROVISIONS
THE PARTIES INVOLVED. The Owner(s) is the person(s) who owns this Policy as
shown on the Policy Specifications Page, on an endorsement or on an amendment to
the Application. The Owner is the Insured unless someone else is named as the
Insured. The Insured is the person whose life this Policy insures.
RIGHTS OF OWNER. While the Insured is living, the Owner(s) may exercise all
rights and benefits contained in the Policy or allowed by the Company. These
rights include assigning this Policy, changing beneficiaries, changing
ownership, enjoying all benefits and exercising all policy provisions. The use
of these rights may be subject to the consent of any assignee or irrevocable
Beneficiary.
If a Partnership has any rights under this Policy, such rights shall belong
to the Partnership as it exists when the right is exercised.
CONTINGENT OWNER. If the Owner is not the Insured, the Owner(s) may name a
Contingent Owner provided such request is made in writing on a form acceptable
to us. The Contingent Owner will become the Owner if the Owner(s) die. If there
is not a Contingent Owner named when the Owner(s) die, the estate of the last
Owner to die will become the Owner.
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BENEFICIARY. A Beneficiary is any person named by the Owner(s) on the
Company's records to receive the Death Benefit proceeds on the Insured's death.
There may be different classes of Beneficiaries such as primary and contingent.
These classes set the order of payment of the Death Benefit. The Owner(s) may
change the Beneficiary at any time prior to the Insured's death. To make a
change, we must receive a written request satisfactory to us at our Home Office.
If an irrevocable Beneficiary has been designated however, such designation
cannot be changed or revoked without the irrevocable Beneficiary's written
consent. Any change of Beneficiaries is effective on the date the request was
signed. Provided, however, we will not be liable for any payment we make before
such request has been received and acknowledged at our Home Office.
CHANGING THE OWNER. The Owner(s) may be changed at any time prior to the
Insured's death. To make a change, we must receive from the Owner(s) a written
request satisfactory to us at our Home Office. Any such change will be effective
on the date the request was signed. Provided, however, we will not be liable for
any payment we make before such request has been received and acknowledged at
our Home Office.
ASSIGNMENT. Upon notice to us, the Owner(s) may assign his or her rights
under this Policy. However, for this assignment to be binding on the Company, it
must be in writing and filed at the Home Office. We assume no responsibility for
the validity of any assignment. Any claim under any assignment shall be subject
to proof of interest and the extent of assignment. Once the Company receives a
signed copy of the assignment, the Owner's rights and the interest of any
Beneficiary or any other person will be subject to the assignment. An assignment
is subject to any Policy Debt.
PROTECTION OF PROCEEDS. To the extent permitted by law, any payment of
Death Benefit proceeds, surrender value or any withdrawal shall be free from
legal process from the claim of any creditor of the person entitled to them.
SUSPENSION OR DELAY IN PAYMENT. The Company has the right to suspend or
delay the date of payment of a withdrawal, loan, surrender, or the Death Benefit
proceeds for any period:
1) when the New York Stock Exchange is closed; or
2) when trading on the New York Stock Exchange is restricted; or
3) when an emergency exists (as determined by the Securities & Exchange
Commission) as a result of which (a) the disposal of securities in the
Variable Account is not reasonably practicable; or (b) it is not
reasonably practicable to determine fairly the value of the net assets of
the Variable Account; or
4) when the Securities & Exchange Commission, by order, so permits for the
protection of security holders.
As to amounts allocated to the Fixed Account, we may defer payment of any
withdrawal, surrender or the making of a policy loan for up to six months after
we receive a written request.
TAX CONSIDERATIONS. In order to receive the tax treatment afforded to life
insurance contracts under federal tax laws, this Policy must qualify and
continue to qualify as a life insurance contract under the Internal Revenue Code
of 1986, as amended. The Company reserves the right to decline to: (a) accept a
Premium Payment; or (b) change the Death Benefit Option; or (c) process a
withdrawal; or (d) refund a Premium Payment if the change or request would cause
this Policy to fail to qualify as a life insurance contract.
We also reserve the right to make changes to this Policy or to any riders or
to make distributions from this Policy to the extent we consider necessary for
this Policy to continue to qualify as a life insurance contract. Such changes
will apply uniformly to all affected policies. You will receive advance written
notification of such changes.
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CHANGES IN POLICY COST FACTORS. Changes in credited rates, cost of
insurance charges, mortality and expense risk charges, and Administration Fees
will be by class and will be based upon changes in future expectations of such
factors as investment earnings, mortality, persistency, expenses, and taxes.
COVERAGE LIMITATIONS. Unless the health and other conditions of the Insured
on the date that the Policy is delivered to the Owner(s) is the same as that
indicated in the application, the Company reserves the right to cancel the
Policy or re-underwrite the Policy and make appropriate adjustments to the
monthly cost of insurance charge.
PREMIUMS
PREMIUM PAYMENT(S). Premium Payment(s) are payable at our Home Office.
Premium Payment(s) must be made by check payable to Protective Life Insurance
Company or by any other method which the Company deems acceptable. The minimum
monthly Premium Payment(s) that we will accept is: (1) $50 if paid by a
pre-authorized payment arrangement; or (2) $150 for any other mode of payment
accepted by the Company.
The Company has the right not to accept any Premium Payment in the event
that it is determined in the Company's discretion that the Premium Payment will
cause the Policy to fail to qualify as a life insurance contract under federal
tax laws. The Company will immediately return the amount of any such Premium
Payment that would cause the Policy to fail to so qualify.
No insurance will take effect until the Initial Premium Payment is paid and
the health and other conditions of the Insured are determined to be the same as
that described in the Application on the date the Policy is delivered.
PLANNED PREMIUMS. The amounts and frequency of the Planned Premium payments
in effect on the Policy Effective Date are shown on the Policy Specifications
Page. You do not have to pay the Planned Premium. Subject to the limits
described above, you may change the frequency and amount of the Planned Premium
Payments at any time.
The Company will send Planned Premium reminder notices to you unless
otherwise requested. You can choose to have them sent at 12, 6, or 3 month
intervals. If desired, the Company will also arrange for payment of Planned
Premiums on a monthly basis under a pre-authorized payment arrangement.
UNSCHEDULED PREMIUM PAYMENTS. Subject to the limits described above, while
this Policy is in force, Premium Payment(s) other than the Planned Premiums will
be accepted by the Company at any time prior to the Maturity Date. The Owner(s)
may specify in writing, that all Unscheduled Premium Payments are to be applied
against Policy Debt, if any, as a loan repayment.
MINIMUM MONTHLY PREMIUM GUARANTEE. In return for paying the Minimum Monthly
Premium shown on the Policy Specifications Page or an amount equivalent thereto,
the Company guarantees, to the extent outlined herein, that the Policy will not
Lapse.
If the Insured's Issue Age is 0 through 64, this Policy will not terminate
during the first ten Policy Years if for each month that the Policy has been in
force (a) equals or exceeds (b).
If the Insured's Issue Age is 65 through 69, this Policy will not terminate
during the first five Policy Years, if for each month that the Policy has been
in force (a) equals or exceeds (b).
For purposes of the Minimum Monthly Premium Guarantee:
(a) is the total Premiums paid less any Withdrawals and Policy Debt
(b) is the Minimum Monthly Premium as shown on the Policy Specifications
Page multiplied by the number of complete policy months since the Policy
Effective Date, including the current month.
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The Minimum Monthly Premium Guarantee does not apply to Insureds with an
issue age of 70 and greater.
PREMIUM EXPENSE CHARGE. The Premium Expense Charges are shown on the Policy
Specifications Page.
ALLOCATION OF NET PREMIUM PAYMENT(S). Net Premiums will be allocated to the
Sub-Accounts and the Fixed Account on the date we receive them according to the
instructions of the Owner(s) in the Application or subsequent written notice.
Owner(s) may change the allocations in effect at any time by Written Notice.
Allocations must be made in whole percentages. The minimum amount that can be
allocated to any Sub-Account or the Fixed Account is 10% of any Net Premiums,
and the sum of allocations must add up to 100%.
If the Contract is issued in a state where, upon cancellation during the
ten-day cancellation period, we return the Premium Payment(s) made, we reserve
the right to allocate the Initial Premium Payment and any additional Premium
Payments made during the ten-day cancellation period to the Money Market
Sub-Account until the expiration of ten days from the date the Policy is mailed
from the Home Office. Thereafter, allocations will be made as shown in the
Policy Specifications Page in accordance with the selections made by the
Owner(s).
GRACE PERIOD. Unless this Policy is otherwise continued under the Minimum
Monthly Premium Guarantee, if the Policy Value on a Monthly Anniversary Day is
insufficient to cover the monthly deductions due on that Monthly Anniversary
Day, this Policy will stay in force for 61 days. This 61 day period is called
the Grace Period.
If the Owner(s) does not pay sufficient premiums (less Premium Expense
Charges) to cover the current and past due monthly deductions by the end of the
Grace Period, this Policy will terminate without value and all coverage under
this Policy will terminate. At the beginning of the Grace Period, the Company
will mail a notice of such premiums due to the Owner's last known address and to
the address of any assignee of record. Coverage continues during the Grace
Period. The Company will deduct unpaid Monthly Deductions and Policy Debt from
any Death Benefit payable if death occurs during the Grace Period.
REINSTATEMENT. Prior to the Insured's death if this Policy has lapsed, it
can be reinstated. Reinstatement means to restore the Policy when the Policy has
terminated at the end of the Grace Period. We will not reinstate this Policy if
it has been surrendered. The Company will reinstate the Policy if the Company
receives:
(1) the Owner's written request within five years after the end of the Grace
Period and before the Maturity Date.
(2) evidence of insurability satisfactory to the Company.
(3) payment of Net Premiums equal to all Monthly Deductions that were due
and unpaid during the Grace Period, payment of Premiums at least
sufficient to keep the Policy in force for three months (we may accept
premiums larger than this amount), and
(4) payment of or reinstatement of any Policy Debt which existed at the end
of the Grace Period.
The effective date of a reinstated policy will be the day the Company
approves the reinstatement and all of the above requirements have been received.
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DEDUCTIONS FROM POLICY VALUE
MONTHLY DEDUCTIONS. The monthly deduction is a charge made as of the Policy
Effective Date and on each Monthly Anniversary Day thereafter. Monthly
deductions will reduce the Sub-Account Value(s) and/or Fixed Account Value in
the proportion that each Sub-Account Value and the Fixed Account Value bears to
the Policy Value. Beginning as of the Policy Effective Date, we will deduct the
monthly deductions described on the Policy Specifications Page.
MONTHLY COST OF INSURANCE CHARGE. The monthly cost of insurance charge is
determined at the end of each policy month. The monthly cost of insurance charge
is computed as follows:
(1) divide the Death Benefit at the beginning of the policy month by the sum
of 1 plus the monthly guaranteed interest rate which is shown on the
Policy Specifications page.
(2) reduce the result by the amount of the Policy Value (prior to deducting
the monthly deductions) at the beginning of the policy month;
(3) multiply the difference by the cost of insurance rate as described
below.
The Monthly Cost of Insurance Charge is computed separately for the initial
face amount and for each increase in face amount.
COST OF INSURANCE RATES. The monthly cost of insurance rate is based on the
sex, issue age, duration and rate class of the Insured and on the number of
years that a Policy has been in force. For each face amount increase, we will
use the issue age, sex, rate class and duration of this policy at the time of
the request. Monthly cost of insurance rates will be determined by the Company,
based on its expectations as to future mortality experience, investment
earnings, mortality, persistency, expenses and taxes.
Any change in the monthly cost of insurance rates will be on a uniform basis
for insureds of the same class such as age, sex, rate class, and policy year.
However, the cost of insurance rates will never be greater than those shown in
the Table of Maximum Monthly Cost of Insurance Rates.
COST OF RIDERS. The cost of additional benefits provided by riders will be
determined as provided in such riders.
OTHER DEDUCTIONS. We also make the following other deductions as they
occur:
(1) Withdrawal Charge for withdrawals;
(2) Surrender Charge if you surrender this Policy, decrease its initial face
amount, or if this Policy lapses at the end of a Grace Period;
(3) Transfer fee for certain transfers of the Policy Value.
BASIS OF COMPUTATIONS. Minimum Surrender Values and maximum cost of
insurance rates are based on the Commissioner's 1980 Standard Ordinary Smoker or
Non-Smoker, Male or Female Mortality Table (age nearest birthday) and the rate
class of the Insured. Surrender Values are at least equal to those required by
law. Reserves are computed by the Commissioner's Reserve Valuation Method.
FIXED ACCOUNT
CALCULATION OF THE FIXED ACCOUNT VALUE. The value of the Fixed Account at
any time is equal to:
(a) the Net Premiums allocated to the Fixed Account; plus
(b) Policy Value transferred to the Fixed Account; plus
(c) interest credited to the Fixed Account; less
(d) any withdrawals including any Withdrawal Charges deducted or transfers
from the Fixed Account including any Transfer Fees deducted from the
Fixed Account; less
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(e) any Surrender Charges deducted in the event of a decrease of Face
Amount; less
(f) Monthly Deductions.
INTEREST CREDITED. The Company guarantees that the interest credited during
the first Policy Year to the Initial Net Premium Payment allocated to the Fixed
Account will be at a rate not less than the Initial Annual Effective Interest
Rate for the Fixed Account shown on the Policy Specifications Page.
For subsequent Net Premiums allocated to or Policy Value transferred to the
Fixed Account, the guaranteed interest rate applicable will be the annual
effective interest rate in effect on the date the subsequent Net Premium is
received by us or the date the transfer is made. Such guaranteed interest rate
will apply to such amounts for a twelve month period which begins on the date
the Net Premium is allocated or the date the transfer is made.
After the guaranteed interest rate expires, (i.e., 12 months after the Net
Premium or transfer is placed in the Fixed Account) we will credit interest on
the Fixed Account Value attributable to such Net Premiums and transfers at the
current interest rate in effect. New current interest rates are effective for
such Fixed Account Value for 12 months from the time they are first applied. The
Initial Annual Effective Interest Rate and the current interest rates the
Company will credit are annual effective interest rates of not less than 4.00%.
We may declare a new current interest rate from time to time but in no event
more frequently than once per year. For purposes of crediting interest, amounts
deducted, transferred or withdrawn from the Fixed Account will be accounted for
on a "first-in, first-out" (FIFO) basis.
VARIABLE ACCOUNT
GENERAL DESCRIPTION. The variable benefits under the Policy are provided
through the Variable Account. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The portion of the assets of the Variable
Account equal to the reserves and other contract liabilities of the Variable
Account are not chargeable with the liabilities arising out of any other
business we may conduct. We have the right to transfer to our General Account
any assets of the Variable Account which are in excess of such reserves and
other liabilities.
SUB-ACCOUNTS OF THE VARIABLE ACCOUNT. The assets of the Variable Account
are divided into a series of Sub-Accounts that are listed on the Policy
Specifications Page and in the current Prospectus you received. Each Sub-Account
invests exclusively in shares of a corresponding Fund. Any amounts of income,
dividends, and gains distributed from the shares of a Fund will be reinvested in
additional shares of that Fund at its net asset value.
When permitted by law, we may:
(1) create new variable accounts;
(2) combine variable accounts, including the Variable Account;
(3) add new Sub-Accounts to or remove existing Sub-Accounts from the
Variable Account or combine Sub-Accounts;
(4) make new Sub-Accounts or other Sub-Accounts available to such classes of
the Policies as we may determine;
(5) add new Funds or remove existing Funds;
(6) if shares of a Fund are no longer available for investment or if we
determine that investment in a Fund is no longer appropriate in light of
the purposes of the Variable Account, substitute a different Fund for any
existing Fund;
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(7) deregister the Variable Account under the Investment Company Act of 1940
if such registration is no longer required;
(8) operate the Variable Account as a management investment company under
the Investment Company Act of 1940 or in any other form permitted by law;
and
(9) make any changes to the Variable Account or its operations as may be
required by the Investment Company Act of 1940 or other applicable law or
regulations.
The investment policy of the Variable Account will not be changed without
approval pursuant to the insurance laws of the State of Tennessee. If required,
approval of or change of investment policy will be filed with the insurance
department of the state where this Policy is delivered.
The values and benefits of this Policy provided by the Variable Account
depend on the investment performance of the Funds in which your selected
Sub-Accounts are invested. We do not guarantee the investment performance of the
Funds. The Owner(s) bear the full investment risk for Net Premiums allocated or
Policy Value transferred to the Sub-Accounts.
VALUATION OF ASSETS. Assets of Funds held by each Sub-Account will be
valued at their Net Asset Value per share on each Valuation Day. The Prospectus
the Owner(s) received for the Funds defines the Net Asset Value per share of the
Funds and describes each Fund.
CALCULATION OF SUB-ACCOUNT VALUES. The Sub-Account Value for any
Sub-Account is equal to the number of Units this Policy then has in that
Sub-Account, multiplied by the value of such units at that time. Amounts
allocated, transferred or added to a Sub-Account are used to purchase Units of
that Sub-Account. Units are redeemed when amounts are deducted, transferred, or
withdrawn. The number of Units in a Sub-Account at any time is equal to the
number of Units purchased minus the number of Units redeemed up to such time.
For each Sub-Account, the Net Premiums allocated to or Policy Value
transferred to the Sub-Account are converted into Units. The number of Units
credited is determined by dividing the dollar amount directed to each
Sub-Account by the value of the Unit for that Sub-Account for the Valuation Day
on which the Net Premiums allocated to or Policy Value transferred are credited
to the Sub-Account. The Unit value at the end of every Valuation Day is the Unit
value at the end of the previous Valuation Day times the Net Investment Factor,
as described below.
NET INVESTMENT FACTOR. The Unit value for each Sub-Account for any
Valuation Period is determined by the Net Investment Factor. The Net Investment
Factor is an index applied to measure the investment performance of a
Sub-Account from one Valuation Period to the next. The Net Investment Factor for
a Sub-Account for any Valuation Period is determined by dividing (1) by (2) and
subtracting (3) from the result, where:
(1) is the result of:
a. the Net Asset Value per share of the Fund held in the Sub-Account,
determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
made by the Fund to the Sub-Account, if the "ex-dividend" date occurs
during the current Valuation Period; plus or minus
c. a per share charge or credit for any taxes reserved for, which is
determined by the Company to have resulted from the 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 daily factor representing the Mortality and Expense Risk Charge
deducted from the Sub-Account adjusted for the number of days in
Valuation Period. Such factor is equal on an annual compounded basis to
.90%.
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TRANSFERS. On or after the later of thirty days after the Policy Effective
Date or six days after the ten-day cancellation period, upon receipt of Written
Notice the Owner(s) may transfer the Fixed Account Value or any Sub-Account
Value to other Sub-Accounts and/or the Fixed Account. The transfer will be
effected as of the date we receive Written Notice from the Owner(s).
The amount transferred must be at least $100 or, if less, the entire amount
in the Fixed Account or the Sub-Account(s) each time a transfer is made. If,
after the transfer, the amount remaining in the Fixed Account or Sub-Account(s)
from which the transfer is made is less than $100, we reserve the right to
transfer the entire amount instead of the requested amount. The maximum amount
which may be transferred from the Fixed Account is the greater of (1) $2,500 or
(2) 25% of the Fixed Account Value in any Policy Year.
The Policy Value on the effective date of the transfer will not be affected
except to the extent of the Transfer Fee. We reserve the right to limit transfer
requests to no more than 12 per year. For each additional transfer request over
12 during each Policy Year, we reserve the right to charge a Transfer Fee which
is indicated on the Policy Specifications Page. The Transfer Fee, if any, will
be deducted from the amount being transferred.
We reserve the right, at any time and without prior notice, to terminate,
suspend or modify the transfer privileges described above.
SPECIAL TRANSFER RIGHT. The Owner(s) have the right once during the first
two Policy Years following the Policy Effective Date, to request one transfer of
the Variable Account Value to the Fixed Account. This request will not count
towards the twelve free transfer requests in a Policy Year and is not subject to
a Transfer Fee.
DEATH BENEFIT
DEATH BENEFIT. On the Insured's death, provided this Policy is in force, we
will pay the Death Benefit proceeds when we receive satisfactory proof of death
of the Insured.
AMOUNT OF DEATH BENEFIT PROCEEDS. The Death Benefit proceeds will be
determined as of the date of the Insured's death and will be equal to:
(1) the Death Benefit under the Death Benefit option selected; plus
(2) any additional benefits due under any riders attached to this Policy;
less
(3) any Policy Debt; less
(4) any unpaid monthly deductions if the Insured dies during the Grace
Period.
The Death Benefit proceeds shall be determined under the Level Death Benefit
or Increasing Death Benefit, whichever is chosen by the Owner(s) and indicated
on the Policy Specifications Page, or any supplemental Policy Specifications
Page.
Level Death Benefit --
The death benefit will be the greater of:
(a) The face amount of insurance on the Insured's date of death; or
(b) a specified percentage of the Policy Value on the date of the Insured's
death as indicated on the Table of Percentages below.
Increasing Death Benefit --
The death benefit will be the greater of:
(a) the face amount of insurance on the Insured's date of death plus the
Policy Value on the Insured's date of death; or
17
<PAGE>
(b) a specified percentage of the Policy Value on the Insured's date of
death as indicated on the Table of Percentages below.
TABLE OF PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE PERCENTAGE ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE AGE PERCENTAGE
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
0-40 250% 50 185% 60 130% 70 115%
41 243% 51 178% 61 128% 71 113%
42 236% 52 171% 62 126% 72 111%
43 229% 53 164% 63 124% 73 109%
44 222% 54 157% 64 122% 74 107%
45 215% 55 150% 65 120% 75-90 105%
46 209% 56 146% 66 119% 91 104%
47 203% 57 142% 67 118% 92 103%
48 197% 58 138% 68 117% 93 102%
49 191% 59 134% 69 116% 94 101%
95+ 100%
</TABLE>
PAYMENT OF DEATH BENEFITS. We will pay the Death Benefit proceeds to the
Beneficiary in a lump sum, unless a Payment Option has been selected.
SUSPENSION OF PAYMENT. Payment of Death Benefit proceeds may be suspended
or delayed under the circumstances described herein for suspension or delay of
payment of surrenders or withdrawals.
CREDITOR CLAIMS. To the extent permitted by applicable laws, no right or
benefit under this Policy shall be subject to claims of creditors, except as may
be provided by an assignment.
SURRENDERS AND WITHDRAWALS
SURRENDERS. Prior to the Insured's death, and while the Policy is in force,
this Policy may be surrendered for its Surrender Value. The surrender will be
effective as of the Valuation Day on which we receive a Written Notice
requesting surrender of the Policy. If the Policy is surrendered during the
first fifteen Policy Years, the applicable Surrender Charge will be imposed.
Once the surrender is effective, all benefits provided by the Policy cease and
the Policy cannot be reinstated.
WITHDRAWALS. After the first Policy Year, the Owner(s) may make a written
request for a withdrawal of the Surrender Value, subject to certain
restrictions. The minimum withdrawal request is $500. As of the date we receive
Written Notice from the Owner(s), we will reduce the Policy Value by the amount
withdrawn (including the withdrawal charge). If a Level Death Benefit is in
effect, we reserve the right to reduce the face amount of the Policy by the
amount of the withdrawal (exclusive of the withdrawal charge). Face amount
reductions will be effective as provided in the provision "Decreasing the Face
Amount". The Owner(s) may specify how the Withdrawal and Withdrawal Charge are
to be deducted from the Policy Value. In the event an allocation is not
specified, we will allocate the Withdrawal and Withdrawal Charge based on the
proportion that the value in the Fixed Account and the value in the Sub-Accounts
bear to the Policy Value.
We reserve the right to decline a withdrawal request if the remaining face
amount would be below the minimum amount for which we would then issue the
Policy under our rules; or we determine that the withdrawal would cause this
Policy to fail to qualify as a life insurance contract under applicable tax
laws, as interpreted by us.
POLICY LOANS
RIGHT TO MAKE LOANS, POLICY DEBT. After the first Policy Anniversary and
before the Insured's death, loans can be made on this Policy provided it has
Surrender Value greater than zero. However, the
18
<PAGE>
Policy must be properly assigned to the Company before any policy loan is made.
No other collateral is needed. Any policy loan must be for at least a minimum
loan amount of $500. The Company may delay making any policy loan from the Fixed
Account for up to six months.
MAXIMUM LOAN. The most the Owner(s) can borrow is an amount that equals 90%
of the Surrender Value of the Policy on the date the policy loan request is
received.
INTEREST. The interest charged on any policy loan during the first ten
Policy Years is at an effective annual rate of 6%, compounded yearly on the
Policy Anniversary Date. The interest charged on any policy loan during Policy
Years 11 and greater will be at an effective annual rate of 4% compounded yearly
on the Policy Anniversary Date. Interest payments are due for the prior Policy
Year on each Policy Anniversary. If interest is not paid when due, it will be
added to the amount of the policy loan and will bear interest at the rate
payable on the policy loan. Interest is charged in arrears from the date of the
policy loan.
COLLATERAL. When a policy loan is made, an amount of Cash Value sufficient
to secure the policy loan is transferred out of the Sub-Account(s) and the Fixed
Account and into the Policy's Loan Account. The Owner(s) can specify how to
allocate the Cash Value to be transferred to the Loan Account as collateral from
among the Sub-Account(s) and the Fixed Account. If an allocation is not
specified, the Cash Value will be allocated in the same proportion that the
policy's Cash Value in the Fixed Account and each Sub-Account bear to the total
Cash Value on the date we make the policy loan. An amount of Cash Value equal to
any policy loan interest will also be transferred on each Policy Anniversary if
the interest is not paid when due. We will allocate the unpaid interest based on
the proportion that the value of your Fixed Account and the value of your
Sub-Account(s) bear to the total unloaned Policy Value. The Loan Account Value
will be recalculated: (1) when policy interest is added to the amount of the
loan; (2) when a loan repayment is made; or (3) when a new policy loan is made.
We will credit the Loan Account with interest at an effective annual rate of
not less than 4%. We will determine such rate in advance of each calendar year.
This rate will apply to the calendar year which follows the date of
determination. On each Policy Anniversary, the interest earned on the Loan
Account since the preceding Policy Anniversary will be transferred to the
Sub-Account(s) and the Fixed Account. Unless you tell us otherwise, the interest
will be transferred to the Sub-Account(s) and the Fixed Account in the same
manner as collateral is transferred to the Loan Account.
If the Loan Account Value exceeds the Cash Value on any Valuation Day the
Owner(s) must pay the excess. We will send you a notice of the amount the
Owner(s) must pay. This amount must be paid within 31 days after we send the
notice, or the Policy will lapse. We will send the notice to you and to any
assignee of record.
REPAYING POLICY DEBT. Policy Debt can be repaid in part or in full any time
during the Insured's life while this Policy is in force. When a loan repayment
is made, Policy Value in the Loan Account in an amount equal to that payment
will be transferred to the Sub-Account(s) and the Fixed Account. The Owner(s)
may tell us how to allocate this transfer among the Sub-Account(s) and the Fixed
Account. If no allocation is specified, we will allocate that amount among the
Sub-Account(s) and the Fixed Account in the same proportion that Premium
Payments are allocated.
CHANGING THIS POLICY
The Owner(s) can request any one of the following changes subject to certain
conditions. The Owner's request must be received in writing at the Company's
Home Office.
INCREASING THE FACE AMOUNT. On or after the first Policy Anniversary, the
Owner(s) may submit a supplemental application for an increase in face amount.
The Company reserves the right to require satisfactory proof of insurability in
connection with evaluating any requested increase in face amount. The Insured's
current Attained Age must be less than the maximum issue age. The amount of any
increase must be at least $10,000. Any increase approved by the Company will be
effective on the
19
<PAGE>
effective date shown on the supplemental Policy Specifications Page which will
be issued and attached to the Policy and will be subject to monthly cost of
insurance deductions for the increase from the Policy Value of this Policy.
PREMIUM PAYMENTS REQUIRED FOR A FACE AMOUNT INCREASE. Additional premium
payments may be required in connection with an increase in Face Amount. We will
notify the Owner(s) if additional premiums are required and specify the premium
payments required on the supplemental policy specifications page.
CANCELLATION OF AN INCREASE OF FACE AMOUNT. The cancellation provision on
the cover of this Policy applies equally to any increase in face amount except
that where no additional premium payments are required in order to increase the
face amount, only the first monthly cost of insurance deduction and the
Administration Fee for increases in face amount will be refunded if the increase
is cancelled.
DECREASING THE FACE AMOUNT. On or after the first Policy Anniversary, you
can request in writing a decrease in face amount subject to the following rules.
After any change the Face Amount must be at least $50,000 (standard smoker or
standard non-smoker class) or $100,000 (preferred non-smoker class). Any
decrease will go into effect on the monthly anniversary day that falls on or
next following the date the Company receives and accepts the request for change.
The decrease will first be applied against increases in face amount in the
reverse order in which they occurred. It will then be applied against the
initial face amount. The Company reserves the right to prohibit any decrease:
(1) for the three years following an increase in face amount; and (2) for one
Policy Year following the last decrease in face amount.
The face amount remaining in effect after any decrease cannot be less than
the Minimum Face Amount shown on the Policy Specifications Page. Decreasing the
face amount may result in lower monthly deductions. Decreasing the initial face
amount may result in a Surrender Charge.
CHANGING THE DEATH BENEFIT OPTION. On or after the first Policy
Anniversary, the Owner(s) may request in writing a change in the Death Benefit
option. The change will go into effect on the monthly anniversary day that falls
on or next following the date the Company receives and accepts the request for
change. If the Owner(s) requests a change from Increasing Death Benefit to Level
Death Benefit, the face amount will be increased to equal the Death Benefit on
the effective date of change. If the Owner(s) requests a change from Level Death
Benefit to Increasing Death Benefit, the face amount will be decreased so that
it equals the Death Benefit less the Policy Value on the date of the change. The
Company reserves the right to require satisfactory proof of insurability before
permitting a change in Death Benefit options.
CHANGING THE MATURITY DATE. You may request a change in the Maturity Date,
subject to the approval of the Company.
CHANGE APPROVAL. All changes must be approved by the Home Office. No agent
has the authority to make any changes or waive any of the terms of this Policy.
SETTLEMENT OPTIONS
Optional Methods of Settlement provide alternative ways in which payment can
be made. Payment under these Optional Methods of Settlement will not be affected
by the investment experience of any Sub-Account after the proceeds are applied
under such option.
AVAILABILITY OF OPTIONS. Upon written request, all or part of the Death
Benefit or Surrender Value may be applied under any payment option we offer on
the option date. The option date is any date this Policy terminates under the
termination provision. If this Policy is assigned, either before or after the
choice of an option, any amount due to the assignee will be paid in one sum. The
balance, if any, may be applied under any payment option.
20
<PAGE>
MINIMUM AMOUNTS. If the amount to be applied under any payment option for
any one person is less than $5,000, the Company may pay that amount in one sum
instead. If the payments under any option come to less than $50 each, the
Company has the right to make payments at less frequent intervals.
ELECTING A PAYMENT OPTION. To elect any payment option, the Company
requires that a written request, satisfactory to it, be received at its Home
Office. The Owner(s) may elect a payment option during the Insured's lifetime.
If the Death Benefit is payable in one sum when the Insured dies, the
Beneficiary may elect a payment option with the Company's consent.
EFFECTIVE DATE AND PAYMENT DATE. The effective date of a payment option is
the date the amount is applied under that option. For a Death Benefit, this is
the date that due proof of the Insured's death is received at the Company's Home
Office. For the Surrender Value, it is the effective date of surrender.
A later date for the first payment may be requested in the payment option
election. All payment dates will fall on the same day of the month as the first
one. No payment will become due until a payment date. No partial payment will be
made for any period shorter than the time between payment dates.
If the Surrender Value is applied under any option, the Company may delay
payment of any withdrawal for up to six months. Interest at the rate in effect
for Option 3 during this period will be paid on the amount withdrawn.
DESCRIPTION OF OPTIONS. The Company's payment options are described below.
Any other payment option agreed to by the Company may be elected. The payment
options are described in terms of monthly payments.
OPTION 1 -- PAYMENT FOR A FIXED PERIOD. Equal monthly payments will be made
for any period selected up to 30 years. The amount of each payment depends on
the total amount applied, the period selected and the monthly payment rates the
Company is using when the first payment is due. The rate of any payment for each
$1,000 of proceeds applied will not be less than shown in the Option 1 Table.
The payments shown in this table are based on an interest rate of 3% per year.
OPTION 1 TABLE
MINIMUM MONTHLY PAYMENT RATES FOR EACH $1,000 APPLIED
<TABLE>
<CAPTION>
MONTHLY MONTHLY MONTHLY
YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT
<S> <C> <C> <C> <C> <C>
1 $ 84.47 11 $ 8.86 21 $ 5.32
2 42.86 12 8.24 22 5.15
3 28.99 13 7.71 23 4.99
4 22.06 14 7.26 24 4.84
5 17.91 15 6.87 25 4.71
6 15.14 16 6.53 26 4.59
7 13.16 17 5.23 27 4.47
8 11.68 18 5.96 28 4.37
9 10.53 19 5.73 29 4.27
10 9.61 20 5.51 30 4.18
</TABLE>
OPTION 2 -- LIFE INCOME WITH PAYMENTS FOR A GUARANTEED PERIOD. Equal
monthly payments are based on the life of the named person. Payments will
continue for the lifetime of that person with payments guaranteed for 10 or 20
years. Payments stop at the end of the selected guaranteed period or when the
named person dies, whichever is later.
21
<PAGE>
The Option 2 Table shows the minimum monthly payment for each $1,000
applied. The actual payments will be based on the monthly payment rates the
Company is using when the first payment is due. They will not be less than shown
in the Table, which is based on an interest rate of 3% per year. The age of the
payee is the age at the birthday nearest to the effective date of the option.
<TABLE>
<CAPTION>
GUARANTEED PERIOD
AGE OF PAYEE
- ---------------------------- ------------------------
MALE FEMALE 10 YRS 20 YRS
- ------------- ------------- ----------- -----------
<S> <C> <C> <C>
0-30 0-34 3.32 3.31
31 35 3.35 3.34
32 36 3.39 3.37
33 37 3.43 3.41
34 38 3.46 3.44
35 39 3.50 3.48
36 40 3.55 3.52
37 41 3.59 3.56
38 42 3.64 3.60
39 43 3.69 3.65
40 44 3.74 3.69
41 45 3.79 3.74
42 46 3.85 3.79
43 47 3.90 3.84
44 48 3.97 3.89
45 49 4.03 3.95
46 50 4.10 4.00
47 51 4.17 4.06
48 52 4.25 4.12
49 53 4.33 4.18
50 54 4.41 4.25
51 55 4.50 4.31
52 56 4.59 4.38
53 57 4.69 4.44
54 58 4.79 4.51
55 59 4.90 4.58
56 60 5.01 4.65
<CAPTION>
GUARANTEED PERIOD
AGE OF PAYEE
- ---------------------------- ------------------------
MALE FEMALE 10 YRS 20 YRS
- ------------- ------------- ----------- -----------
<S> <C> <C> <C>
57 61 5.13 4.72
58 62 5.25 4.79
59 63 5.39 4.85
60 64 5.52 4.92
61 65 5.67 4.99
62 66 5.82 5.05
63 67 5.97 5.11
64 68 6.13 5.16
65 69 6.30 5.21
66 70 6.48 5.26
67 71 6.66 5.31
68 72 6.84 5.34
69 73 7.03 5.38
70 74 7.22 5.41
71 75 7.41 5.43
72 76 7.60 5.45
73 77 7.79 5.47
74 78 7.98 5.48
75 79 8.17 5.49
76 80 8.35 5.50
77 & Over 8.52 5.50
78 8.68 5.51
79 8.83 5.51
80 8.96 5.51
& Over
</TABLE>
OPTION 3 -- INTEREST INCOME. The Company will hold any amount applied under
this option. Interest on the unpaid balance will be paid each month at a rate
determined by it. This rate will be not less than the equivalent of 3% per year.
OPTION 4 -- PAYMENTS OF A FIXED AMOUNT. Equal monthly payments will be for
an agreed fixed amount. The amount of each payment may not be less than $10 for
each $1,000 applied. Interest will be credited each month on the unpaid balance
and added to it. This interest will be at a rate set by us, but not less than an
effective interest rate of 3% per year. Payments continue until the amount we
hold runs out. The last payment will be for the balance only.
DEATH OF PAYEE. If the payee dies while there are any unpaid installments
under Option 1 or before the end of the guaranteed period under Option 2, the
Company will pay the commuted value of the remaining payments in a lump sum. The
commuted value or any balance held under Option 3 or Option 4 will be paid to
the payee's executors or administrators unless the written election of the
Option directed the Company differently. Any commuted value will be calculated
using 3% interest per year.
22
<PAGE>
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23
<PAGE>
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24
<PAGE>
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
25
<PAGE>
EXHIBIT 1.A.(9)
<PAGE>
PARTICIPATION/DISTRIBUTION AGREEMENT
THIS AGREEMENT, is hereby entered into on this day of December, 1995,
between Protective Life Insurance Company (Protective Life), a life insurance
company organized under the laws of the State of Tennessee, for itself and on
behalf of Protective Variable Life Separate Account (the "Account"), a separate
account established by Protective Life in accordance with the laws of the State
of Tennessee; Protective Investment Company (the "Company"), an open-end
management investment company organized under the laws of the State of Maryland
and Investment Distributors, Inc. ("IDI"), a broker-dealer.
WITNESSETH:
WHEREAS, the Account has been established by Protective Life pursuant to the
Tennessee Insurance Code in connection with certain individual flexible premium
variable and fixed life insurance policies ("Policies") proposed to be issued to
the public by Protective Life; and
WHEREAS, the Account has been registered as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the income, if any, and gains and losses, realized and unrealized,
from assets allocated to the Account are, in accordance with the applicable
policies, to be credited to or charged against Account without regard to other
income, gains or losses of Protective Life; and
WHEREAS, the Account is subdivided into various subaccounts ("sub-accounts")
as to which income, if any, and gains and losses, realized and unrealized, from
assets allocated to each such sub-account are to be credited to or charged
against such sub-accounts without regard to other income, gains or losses of
other sub-accounts; and
WHEREAS, the Company is registered as an open-end management investment
company organized under the laws of the State of Maryland and will operate in
accordance with the 1940 Act; and
WHEREAS, the Company is divided into various investment portfolio's (each, a
"Fund"), each being subject to certain fundamental investment policies and
restrictions that may not be changed without a majority vote of the shareholders
of such Fund; and
WHEREAS, the shares of each Fund will be offered to a corresponding
sub-account; and
WHEREAS, IDI is the principal underwriter for the Policies and is a
broker-dealer registered as such under the Securities Exchange Act of 1934 and
is a member of the National Association of Securities Dealers ("NASD");
NOW THEREFORE, in consideration of the foregoing and of mutual covenants and
conditions set forth herein Protective Life, the Account, IDI and the Company
hereby agree as follows:
1. The Policies funded through the Account will provide for the allocation
of premium payments among certain sub-accounts for investment in such shares of
the Funds as may be offered from time to time in the prospectus for the
Policies. The selection of the particular sub-account is to be made by the
policy owner and such selection may be changed or the cash value may be
transferred among or between sub-accounts in accordance with the terms of the
Policies.
2. No representation is made as to the number or amount of such Policies to
be sold; however, Protective Life, through IDI, will make reasonable efforts to
market such Policies.
3. The Company hereby appoints IDI as its principal underwriter and
exclusive distributor to sell its shares to the Account. The Company reserves
the right to sell its shares to other persons and to appoint additional
underwriters and distributors.
1
<PAGE>
4. IDI accepts such appointment. IDI shall offer shares of the Company only
on the terms set forth in the Company's currently effective registration
statement.
5. The Company agrees to sell to Protective Life those shares of the
Company which the Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Company or its designated
agent of the order for the shares of the Company. For purposes of this Section,
Protective Life shall be the designated agent of the Company for receipt of such
orders from policy owners and receipt by such designated agent shall constitute
receipt by the Company; provided that the Company's transfer agent receives
notice of such order by 9:30 a.m. New York time on the next following business
day. "Business day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Company calculates the net asset value of the
Funds as described in its registration statement.
The Company agrees to make shares of each Fund available indefinitely for
purchase at the applicable net asset value per share by the Account on those
days on which the Company calculates its net asset value as described in its
registration statement and the Company shall use reasonable efforts to calculate
such net asset value on each business day as defined above. Notwithstanding the
foregoing, the Board of Directors of the Company (hereinafter the "Board") may
refuse to sell shares of any Fund to Protective Life, or suspend or terminate
the offering of shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws necessary in the best interests of the
Shareholders of such Fund or policy owners indirectly invested in such Fund.
Protective Life shall pay for the such shares by 9:30 am. New York time on
the next business day after an order to purchase shares is made in accordance
with the provisions of this Section 5. Payment shall be in federal funds
transmitted by wire to the Company's transfer agent or by a credit for any
shares redeemed.
6. The Company agrees to redeem for cash, on Protective Life's request, any
full or fractional shares of the Company held by Protective Life, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Company or its designated agents of the request for redemption by policy
owners. For purposes of this Section, Protective Life shall be the designated
agent of the Company for receipt of requests for redemption from policy owners
and receipt by such designated agent shall constitute receipt by the Company;
provided that the Company receives notice of such request for redemption by 9:30
a.m. New York time on the next following business day.
The Company ordinarily shall make payment to Protective Life or shares
redeemed on the day the Company receives notice from Protective Life, but the
Company may delay payment for up to seven calendar days after the request is
received. Payment shall be in federal funds transmitted by wire or by a credit
for any shares purchased.
7. Transfer of shares will be by book entry. No stock certificates will be
issued to the Account. Shares of each Fund will be recorded in an appropriate
title for the corresponding sub-account on the books of Protective Life. If,
however, state law requires transfer other than by book entry, then the Company
agrees to provide the required form of transfer.
8. The Company shall make the net asset value per share for each Fund
available to Protective Life on a daily basis as soon as reasonably practicable
after the net asset value per share is calculated and shall use its best efforts
to make such net asset value per share available to Protective Life by 7 p.m.
New York time.
9. The Company or its transfer agent shall furnish notice on the
ex-dividend date to Protective Life of any dividend or distribution payable on
any shares. All of such dividends and distributions as are payable on shares of
a Fund shall be automatically reinvested in additional shares of that Fund. The
Company shall notify Protective Life of the number of shares so issued.
2
<PAGE>
10. The Company shall pay all its expenses incidental to its performance
under this Agreement. The Company shall see to it that all of its shares are
registered and authorized for issue in accordance with applicable federal and
state laws prior to their purchase by Protective Life for the Account. The
Company shall bear the expenses for the cost of registration of its shares,
preparation of its prospectus, proxy materials and reports, the printing and
distribution of such items to each policy owner who has allocated net amounts to
any sub-account, the preparation of all statements and notices required by any
federal or state law, and taxes imposed upon the Company on the issue or
transfer of the Company's shares subject to this Agreement. The parties shall
cooperate in the printing of the prospectuses of the Policies and the Company.
The Company shall provide Protective Life with a reasonable quantity of Company
prospectuses and reports to be sent to existing policy owners.
11. The Company does not charge a load or redemption fee in connection with
the sale or redemption of its shares and IDI will not charge any load or
redemption fee in connection with the sale of shares to or redemption of shares
from the Account. Notwithstanding this, IDI assumes and will pay, from its own
resources, all expenses related to distribution of the Company's shares and will
bear other costs and expenses attributable to any activity primarily intended to
result in the sale of shares. Such expenses include, but are not limited to:
(a) printing and distribution of the Company's prospectus to prospective
investors;
(b) preparation, printing and distribution of advertising and sales
literature for use in the offering of the Company's shares (in connection
with the offering of the Policies or otherwise) and printing and
distribution of reports to shareholders used as sales literature; and
(c) the qualification of IDI as a distributor or broker or dealer under any
applicable federal or state securities laws;
12. In selling shares of the Company, IDI shall use its best efforts in all
respects duly to conform with the requirements of all federal and state laws and
regulations and the less of the NASD, relating to the sales of the Company's
shares or the Policies.
13. IDI shall act as an independent contractor and nothing contained herein
shall be construed to make it, its agents or representatives, or any employees,
employees of the Company. In addition, IDI shall remain fully responsible for
its own conduct and that of its agents, representatives and employees under
applicable law.
14. Protective Life and IDI shall make no representations concerning the
Company or its shares except those contained in the then-current prospectus of
the Company and in printed information subsequently issued on behalf of the
Company and approved in writing by the Company as supplemental to such
prospectus, or otherwise approved by the Company in writing.
15. The Company represents that each Fund of the Company shall comply with
Section 817(h) of the Internal Revenue Code of 1986, as amended, (the "Code")
and the regulations issued thereunder (Reg. Section 1.817-5), relating to the
diversification requirements for variable annuity, endowment, and life insurance
contracts, and any amendments or other modifications to such Section or
regulations.
The Company represents that each Fund of the Company is currently qualified
or will be qualified as a Regulated Investment Company under Subchapter M of the
Code and that every effort will be made to maintain such qualification (under
Subchapter M or a successor or similar provision) and that the Company will
notify Protective Life orally (followed by written notice) or by wire
immediately upon having a reasonable basis for believing that any Series might
not so qualify in the future.
16. It is understood among the parties to this Agreement that, subject to
obtaining any applicable regulatory approvals which may be conditioned on the
parties complying with certain requirements, shares of the Funds may be offered
in the future to the separate accounts of various insurance companies in
addition to Protective Life and in connection with variable life insurance
contracts or variable annuity contracts other than the Policies. It is also
understood among the parties that shares
3
<PAGE>
of the Funds only may be offered to the other persons identified in paragraph
(f) of Regulation Section 1.817-5, in order that the Account can rely on the
"look-through" provisions of that paragraph.
17. The Company represents and warrants that all of its officers, employees,
investment advisers, and other individuals or entities having access to the
assets of the Company are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Company in an
amount not less than the minimal coverage as required currently by Section 17(g)
of the 1940 Act and Rule 17g-l or related provisions as may be promulgated from
time to time.
18. This Agreement shall terminate:
(a) at any time on six months' written notice by the Company to Protective
Life and IDI or on six months' written notice by Protective Life to the
Company and IDI or on six months written notice by IDI to Protective Life
and the Company without the payment of any penalty (provided, however,
that if Protective Life is not able, acting in good faith, to obtain
suitable substitute investment media within six months, this Agreement
shall terminate one year from the date of the notice of termination); or
(b) at the option of any party hereto upon institution of formal enforcement
proceedings against the Company, the Company's investment manager,
Protective Life or IDI by the Securities and Exchange Commission, or if
Protective Life or the Company is determined by the other to have failed
to perform its obligations under this Agreement in a satisfactory manner;
or
(c) upon a vote of the holders of a majority of the votes attributed to the
shares supporting the Policies having an interest in a particular
sub-account to substitute the shares of another investment company or
Fund for the Company shares then being held by that sub-account in
accordance with the terms of the Policies. Protective Life will give 60
days' prior written notice to the Company upon becoming aware of a
proposed policy owner vote; or
(d) in the event the shares of the Company are not registered, issued, or
sold in accordance with applicable state and/or federal law or such law
prohibits the use of such shares as an underlying investment for the
Policies issued or to be issued by Protective Life. Prompt notice of such
an event shall be given by each party to the other in the event the
conditions of this provision occur; or
(e) upon assignment of this Agreement, at the option of any party not
assigning this Agreement.
19. Each notice required by this Agreement shall be given in writing to:
R. Stephen Briggs, Executive Vice President
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Lizabeth R. Nichols, Esq.
Protective Investment Company
2801 Highway 280 South
Birmingham, Alabama 35223
Lizabeth R. Nichols, Esq.
Investment Distributors, Inc.
2801 Highway 280 South
Birmingham, Alabama 35223
20. Each party hereto shall cooperate with each other party and all
appropriate government authorities and shall permit such authorities reasonable
access to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
4
<PAGE>
The Company agrees that all records and other data pertaining to the
Policies are the exclusive property of Protective Life and that any such records
and other data shall be furnished to Protective Life by the Company upon
termination of this Agreement for any reason whatsoever. Protective Life shall
have the right to inspect, audit and copy all pertinent records pertaining to
the Policies. This shall not preclude the Company from keeping copies of such
data or records for its own files subject to the provisions of this section.
21. Protective Life, the Account and IDI agree to look solely to the assets
of the Company for the satisfaction of any liability of the Company, with
respect to this Agreement and will not seek recourse against the members of the
Board or its officers, employees, agents, or shareholders, or any of them, or
any of their personal assets for such satisfaction.
22. The Company agrees to indemnify and hold harmless Protective Life, each
member of its Board of Directors, each of its officers, and any person that
controls Protective Life within the meaning of Section 15 of the Securities Act
of 1933 against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses) to which Protective Life may
become subject under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements arise as a result of Protective Life's reliance on an information
contained in a then current prospectus, statement of additional information, or
report of the Company; or any current information communicated to Protective
Life in writing by the Company.
The Company shall, at all times, have the right, but not the obligation, to
take over and conduct, in the name of Protective Life, the Account and/or IDI,
the investigation and defense of any claim by a third party for which
indemnification may be sought, and in such event, Protective Life, the Account
and/or IDI shall cooperate in every way with the Company.
23. The Company agrees to indemnify and hold harmless IDI, each member of
its Board of Directors, each of its officers, and any person that controls IDI
within the meaning of Section 15 of the Securities Act of 1933 against any and
all losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Company) or litigation (including legal and
other expenses) to which IDI may become subject under any statute, at common law
or otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements arise as a result of IDI's
reliance on an information contained in a then current prospectus, statement of
additional information, or report of the Company; or any current information
communicated to IDI in writing by the Company.
The Company shall, at all times, have the right, but not the obligation, to
take over and conduct, in the name of IDI, or any controlling person of IDI, the
investigation and defense of any claim by a third party for which
indemnification may be sought, and in such event, IDI shall cooperate in every
way with the Company.
24. Protective Life agrees to indemnify and hold harmless the Company, each
member of its Board, each of its officers, and each person that controls the
Company within the meaning of the Securities Act of 1933 against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of Protective Life) or litigation (including legal and other
expenses) to which the Company may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements arise as result of the
Company's reliance on any information contained in the then current prospectus,
statement of additional information, or contract of the Account; or any
information communicated to the Company in writing by Protective Life.
Protective Life shall, at all times, have the right, but not the obligation,
to take over and conduct, in the name of the Company, the investigation and
defense of any claim by a third party for which indemnification may be sought,
and in such event, the Company shall cooperate in every way with Protective
Life.
5
<PAGE>
25. IDI agrees to indemnify and hold harmless the Company, each member of
its Board, each of its officers, and each person that controls the Company
within the meaning of the Securities Act of 1933 against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of IDI) or litigation (including legal and other expenses) to
which the Company may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements arise as a result of the Company's
reliance on any information communicated to the Company in writing by IDI (for
inclusion in the Company's registration statement or otherwise), as a result of
any misrepresentation or omission to state a material fact by IDI (or any agent
or employee of IDI) unless such misrepresentation or omission was made in
reliance on written information furnished by the Company or as a result of IDI's
wilful misconduct or failure to exercise reasonable care and diligence
(including supervision of its agents representatives and employees) in providing
the services the Company specified herein.
IDI shall, at all times, have the right, but not the obligation, to take
over and conduct, in the name of the Company, the investigation and defense of
any claim by a third party for which indemnification may be sought, and in such
event, the Company shall cooperate in every way with IDI.
26. This Agreement shall be construed in accordance with the laws of the
State of Maryland.
27. This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant and the terms hereof shall be interpreted and
construed in accordance therewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and attested as of the date shown on the first page.
<TABLE>
<S> <C>
PROTECTIVE LIFE INSURANCE
COMPANY ON BEHALF OF ITSELF
AND PROTECTIVE VARIABLE LIFE
ATTEST: SEPARATE ACCOUNT
By: ----------------------------------------
- --------------------------------------------
PROTECTIVE INVESTMENT COMPANY
ATTEST:
By: ----------------------------------------
- --------------------------------------------
INVESTMENT DISTRIBUTORS, INC.
ATTEST:
By: ----------------------------------------
- --------------------------------------------
</TABLE>
6
<PAGE>
EXHIBIT 2
<PAGE>
[PROTECTIVE LIFE INSURANCE COMPANY LETTERHEAD]
December 21, 1995
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Gentlemen:
With respect to the registration statement on Form S-6 to be filed by
Protective Life Insurance Company (the "Company") and Protective Variable Life
Separate Account (the "Account") with the Securities and Exchange Commission for
the purpose of registering under the Securities Act of 1933, as amended,
flexible premium fixed and variable life insurance policies (the "Policies"), 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 Policies.
2. The Account is a duly authorized and existing separate account
established pursuant to the provisions of Section 56-3-501 of the
Tennessee Code.
3. To the extent so provided under the Policies, 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 Policies, when issued as contemplated by the Form S-6 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 S-6
registration statement for the Policies and the Account.
Sincerely,
Lizabeth Reynolds Nichols, Esq.
LRN/ag/
<PAGE>
EXHIBIT 7
<PAGE>
[MILLIMAN & ROBERTSON, INC. LETTERHEAD]
STATEMENT OF OPINION REGARDING ASPECTS OF
PROTECTIVE LIFE INSURANCE COMPANY FILING OF AN INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE AND FIXED LIFE INSURANCE POLICY
(FILE NUMBERS 33-61599 AND 811-7337)
In my capacity as Consulting Actuary for Protective Life Insurance Company, I
have provided actuarial advice concerning (a) the Registration Statement
describing the offer and sale of the above captioned flexible premium variable
life insurance policies ("Policies") and (b) policy forms for the Policies.
It is my professional opinion that:
(1) The sales load, as defined in paragraph (c)(4) of Rule 6e-3(T) under the
Investment Company Act of 1940, will not exceed 9% of the sum of the
guideline annual premiums that would be paid during the period equal to
the lesserof 20 years or the life expectancy based on the appropriate
1980 Commissioners Standard Ordinary Mortality Table.
(2) The illustrations of policy values, surrender values, death benefits and
accumulated premiums in the prospectus contained in the Registration
Statement are based on the assumptions stated in the illustrations, and
are consistent with the provisions of the Policies. The rate structure of
the policies have not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear to
be more favorable to prospective non-smoker purchasers of Policies at age
45 than to prospective purchasers of Policies, for males or females,
smokers or non-smokers, at other issue ages.
(3) The information contained in the examples set forth in Appendix A of the
prospectus covering death benefit calculations is based on the
assumptions stated in the examples, and is consistent with the provisions
of the Policies.
I hereby consent to the filing of this opinion as an exhibit to Pre-Effective
Amendment No. 1 to the Registration Statement and to the use of my name under
the heading "Experts" in the prospectus.
--------------------------------------
Timothy C. Pfeifer, F.S.A., M.A.A.A.
Consulting Actuary
Milliman & Robertson, Inc.
December 21, 1995
<PAGE>
EXHIBIT 8
<PAGE>
[SUTHERLAND, ASBILL & BRENNAN LETTERHEAD]
December 21, 1995
Board of Directors
Protective Life Insurance Company
2801 Highway 280 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 S-6 filed
by Protective Life Insurance Company and Protective Variable Life Account with
the Securities and Exchange Commission. In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By:
--------------------------------------
Stephen E. Roth
<PAGE>
EXHIBIT 9(A)
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-6 (File No.
33-61599) of our report dated February 13, 1995, which includes an explanatory
paragraph with respect to changes in the Company's methods of accounting for
certain investments in debt and equity securities in 1993 and postretirement
benefits other than pensions in 1992, on our audits of the consolidated
financial statements and financial statement schedules of Protective Life
Insurance Company and subsidiaries. We also consent to the reference to our firm
under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
December 22, 1995
<PAGE>
EXHIBIT 9(B)
<PAGE>
LETTER RE: UNAUDITED INTERIM FINANCIAL STATEMENTS
Securities and Exchange Commission
Washington, D.C. 20549
Re: Protective Life Insurance Company
Registration on Form S-6
We are aware that our report dated October 25, 1995, on our review of
interim financial information of Protective Life Insurance Company and
Subsidiaries for the three-month and nine-month periods ended September 30, 1995
and 1994, is included in this Registration Statement. Pursuant to Rule 436(c)
under the Securities Act of 1933, this report should not be considered a part of
the Registration Statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
<PAGE>
EXHIBIT 10
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES FOR FLEXIBLE
PREMIUM VARIABLE AND FIXED LIFE INSURANCE POLICIES
PURSUANT TO RULE *6E-3(T)(B)(12)(III)
This document sets forth the administrative procedures that will be followed by
Protective Life Insurance Company ("Protective Life" or the "Company")
concerning the issuance of an individual Flexible Premium Variable and Fixed
Life Insurance Policy (the "Policy"), the transfer of assets held thereunder,
and the redemption by Owners of their interests in such Policy.
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF POLICIES
A. PREMIUM PAYMENTS AND UNDERWRITING
Premiums for the Policies will not be the same for all owners ("Owners") of
the Policies. The Company requires that the minimum initial premium for a Policy
be at least equal to one quarter of the minimum first year annual premium for
the Policy. The minimum initial premium can never be less than $150 quarterly.
Owners who request to pay premiums on a preauthorized checking withdrawal basis
are required to pay an amount equal to two twelfths of the minimum first year
annual premium upon issuance of their Policy. Premiums paid on a preauthorized
checking withdrawal basis can never be less than $50 per month. The minimum
first year annual premium is the amount specified for each Policy based on the
requested initial face amount and the charges under the Policy, which vary
according to the issue age, sex, underwriting risk class, and smoker status of
the insured.
An Owner may make unscheduled premium payments, at any time, in any amount,
or skip planned premium payments, subject to the following limitations. In no
event may the total of all premiums paid in any Policy year exceed the current
maximum premium limitations for that year established by Federal tax laws or by
the Company.
If the Owner pays a premium that would result in total premiums exceeding
the current maximum premium limitations, the Company will only accept that
portion of the premium that will make total premiums equal the maximum. Any
premium in excess of that amount will be returned or applied as otherwise agreed
and no further premiums will be accepted until allowed by the current maximum
premium limitations prescribed by Federal tax law.
If any premium payment would cause an increase in the Policy's death benefit
exceeding the premium received, the Company may require additional evidence of
insurability before accepting any premium payment.
A Policy will remain in force while the cash surrender value is sufficient
to pay the monthly deduction unless the Policy is otherwise protected by the No
Lapse Guarantee provision. The amount of premium, if any, which must be paid to
keep the Policy in force depends upon the cash surrender value of the Policy,
which in turn depends on such factors as the investment experience and the
amount of monthly deductions which includes cost of insurance. While not every
insured is subject to the same cost of insurance rate, there will be a single
"rate" for every Insured in a given actuarial category.
Current cost of insurance rates will be determined by the Company based upon
its expectations as to future mortality experience, investment earnings,
mortality, persistency, expenses and taxes. Any change in the monthly cost of
insurance rates will be on a uniform basis for all insureds of the same class.
Changes in monthly cost of insurance rates are based on age, sex, rate class,
and policy year. Provided, however, cost of insurance rates will never be
greater than those shown in the Table of Maximum Monthly Cost of Insurance Rates
in the Policy.
Following the initial premium, subject to the limitations described below,
the Owner may pay planned premiums in any amount on a quarterly, semi-annual,
and annual basis. Owners of Policies electing preauthorized checking withdrawals
from their checking account may pay premiums monthly. For the first Policy year,
the amount of the planned premiums can be no less than the minimum first year
annual premium. If the Owner fails to pay the planned premiums, this will not
<PAGE>
cause the Policy to lapse. It will, however, threaten the Policy's No Lapse
Guarantee Provision (described below) if the Company does not receive an amount
equal to the minimum monthly guarantee premium specified in the Policy.
The Company offers a "No Lapse Guarantee" ("Guarantee") to all Owners of
Policies for a specified period of time from the policy effective date. The
specified period for this "Guarantee" is established based on the age of the
insured as of the Policy Effective Date. This guarantee offers continued life
insurance coverage for the requested initial face amount provided the Owner of
the Policy continues to pay minimum monthly premiums equivalent to one twelfth
of the minimum first year annual premium, and after that, pays premiums
equivalent to a minimum monthly guarantee premium throughout the Guarantee
period. The minimum monthly guarantee premium in the second year and later is
equal to the minimum renewal annual premium divided by 12 and multiplied by the
number of months left in the Guarantee period.
B. APPLICATION AND INITIAL PREMIUM PROCESSING
Upon receipt of a completed application, the Company will follow
underwriting (e.g., evaluation of risks) procedures designed to determine
whether the applicant is insurable. This process may involve such procedures as
medical examinations and may require that further information be provided by the
proposed insured before a determination can be made. The Company will not issue
a Policy until the underwriting procedures have been completed.
Insurance coverage under a Policy will begin as of the Policy Effective
Date, which is generally the Issue Date. If, a minimum initial premium is
received with an application, the Policy Effective Date will be the later of the
date that the application is signed or any required medical examination is
completed. Temporary life insurance coverage may be provided under the terms of
the temporary life insurance agreement. In accordance with the terms of the
temporary life insurance agreement, temporary life insurance coverage may not
exceed $250,000 and may not be in effect for more than 90 days.
For Policies issued in states where, upon cancellation during the
Cancellation Period, the Company returns at least the Owner's Premium Payments,
the Company reserves the right to allocate the initial Net Premium Payment (and
any subsequent Net Premium Payments made during the Cancellation Period) to the
Money Market Sub-Account until the expiration of the number of days in the
Cancellation Period plus six days starting from the date the Policy is mailed
from the Home Office. Upon expiration of this period, the Policy Value in the
Money Market Sub-Account and all Net Premium Payments will be allocated
according to the Owner's allocation instructions then in effect. In all other
states, the Company will allocate the initial Net Premium Payment (and any
subsequent Net Premium Payments made during the Cancellation Period) in
accordance with the Owner's instructions.
C. REINSTATEMENT PROCEDURES
The Policy may be reinstated within five years after lapse and while the
Insured is still living unless the Policy has been surrendered. A Policy will be
reinstated upon receipt by the Company of: (1) a written application for
reinstatement; (2) evidence of insurability satisfactory to the Company; (3)
payment of sufficient premiums to cover the monthly deductions due upon lapse;
(4) sufficient premiums to keep the policy in force for three months; and (5)
the Owner repays or reinstates any outstanding policy debt as of the date of
lapse.
The amount of cash value in the Policy on the date the Policy is approved
for reinstatement will be equal to the amount of any Policy Debt reinstated or
repaid at the time of reinstatement plus the Net Premiums paid at reinstatement.
Any surrender charge in effect at the time of lapse will be reinstated in
proportion to the face amount of the Policy reinstated. The effective date of
reinstatement will be the date the Company approves the application for
reinstatement. A full monthly deduction will be charged for the month of
reinstatement.
2
<PAGE>
II. REDEMPTION PROCEDURES: SURRENDER AND RELATED TRANSACTIONS
The principle Policy provisions and administrative procedures regarding
"redemption" transactions are summarized below. Due to the insurance nature of
the Policies, the procedures that will be followed may be different from the
redemption procedures for mutual funds and contractual plans.
A. SURRENDERS AND PARTIAL WITHDRAWALS
An Owner of a Policy may submit a written request to the Company to
surrender the Policy at any time during the lifetime of the insured and while
the Policy is in effect. After the first Policy year, the Owner may also request
a partial withdrawal by sending a written request to the Company. The amount
available for surrender is the cash surrender value minus any outstanding Policy
Debt at the end of the valuation period on or next following the date the
surrender request is received at the Company's home office. Amounts payable from
the Separate Account upon surrender or a partial withdrawal will be paid within
seven calendar days of receipt of the written request.
If the Owner surrenders the Policy, either the Policy itself must be
returned to the Company along with the request, or the request must be
accompanied by completed affidavit of lost policy. Upon surrender, the Company
will pay in a lump sum the cash surrender value that is equal to the cash value
as of the valuation date less any Policy debt which includes accrued loan
interest less a deduction for any applicable surrender charges. Coverage under a
Policy will end as of the date of surrender.
The surrender charge ("Contingent Deferred Sales Charge") is calculated
based on the initial specified face amount as described in the prospectus for
the Policy. There are no additional surrender charges calculated for increases
in face amount. If the initial face amount is decreased at any time during the
first fourteen Policy Years, a Contingent Deferred Sales Charge will be imposed
which will be equal to the portion of the total Contingent Deferred Sales Charge
that corresponds to the percentage by which the initial face amount is
decreased.
After the first Policy year, an Owner may make a partial withdrawal of an
amount equal to or greater than $500. The request must be submitted in writing
to the Company. The Company will withdraw the amount requested, plus a
withdrawal charge, as of the date the request is received in the Home Office.
The Owner may elect to deduct the amount of the withdrawal from any
sub-account of the Separate Account or the fixed account. If the Owner does not
specify an allocation, or if the sub-account value or fixed account value is
insufficient to carry out the request, the withdrawal will be based on the
proportion that such sub-account value(s) and fixed account value, bear to the
Policy Value less the cash value in the loan account as of the valuation date
the request is received by the Company.
The Company will deduct a charge upon a withdrawal. This charge is the
lesser of 2% of the amount withdrawn or $25. This withdrawal charge will be
deducted from the policy value in addition to the amount requested to be
withdrawn. The withdrawal charge will be allocated in the manner described above
for the requested amount.
No withdrawal amounts will be processed if the withdrawal would result in
there being insufficient cash value to pay any surrender charges applicable upon
a full surrender.
The death benefit will be affected by withdrawals. If the death benefit in
effect is the option where the death benefit equals the face amount, then the
Company will reduce the face amount by the amount withdrawn. If the Owner
requests that the initial face amount be retained, the Company will honor this
request provided the amount of withdrawal does not exceed $2,000. If the request
for withdrawal exceeds $2,000, then the Company will request that satisfactory
evidence of insurability be provided with the withdrawal request. If the death
benefit in effect is the option where the death benefit equals the face amount
plus the cash value, then the Company will not reduce the face amount.
3
<PAGE>
The face amount after a partial withdrawal may not be less than the minimum
amount for which the Policy would be issued under the Company's current rules.
If the withdrawal causes the Policy to fail to qualify as a life insurance
contract under applicable tax laws, as interpreted by the Company it will not be
processed.
B. CHANGES IN FACE AMOUNT
An Owner may increase or decrease the face amount of the Policy after the
first Policy anniversary by submitting a written request to the Company. A
supplemental application is required for an increase in face amount. The Company
reserves the right to require satisfactory evidence of insurability for the
requested increase portion. Face Amount increases and decreases are subject to
the following rules:
1. For increases in face amount, the insured's attained age must be less
than the maximum issue age for the Policies, as determined by the Company
from time to time.
2. The amount of the requested increase must be at least $10,000.
3. Any increase in face amount will be effective on the monthly anniversary
day on or next following the date the request for the increase is
received and approved by the Company.
4. If the Guarantee provision is in effect under the Policy, the minimum
monthly premium required to keep the Policy in force will increase and
additional premium payments may be required.
5. The monthly cost of insurance charge will be adjusted as of the next
monthly anniversary day following the date of the written request.
6. There will be an administrative charge assessed based on a rate per
$1,000 of increased coverage. This administrative charge will be deducted
from the policy value monthly during the twelve month period following
the effective date of the increase. This administrative charge is based
on the original issue age, duration, sex , and rate class of the insured.
7. A decrease in face amount will not be accepted by the Company, if the
amount requested would decrease the face amount below $50,000 (standard
smoker or standard nonsmoker class), or $100,000 (preferred nonsmoker
class).
8. A proportionate Contingent Deferred Sales Charge will be imposed for
decreases in face amount (please note previous section on "Surrenders and
Partial Withdrawals").
The Company reserves the right to not process any decrease in Face Amount in
accordance with the limits as specified in the Prospectus.
C. CHANGE IN DEATH BENEFIT OPTION
On or after the first Policy anniversary, the Owner may request in writing a
change in the death benefit option. Any change will go into effect on the
monthly anniversary day that falls on or next following the date the Company
accepts the request for change. If the Owner requests a change from the variable
death benefit to a level death benefit, the face amount will be increased to
equal the death benefit on the effective date of change. If the Owner requests a
change from a level death benefit to a variable death benefit, the face amount
will be decreased so that it equals the death benefit less the policy value on
the date of the change. The Company reserves the right to require satisfactory
proof of insurability before allowing a change in death benefit options.
D. DEATH BENEFIT CLAIMS
While the Policy remains in force, the Company will pay a death benefit to
the named beneficiary in accordance with the death benefit option elected by the
Owner. The Company will pay the death benefit within seven calendar days after
receipt in its home office of all necessary proof of death of the insured.
Payment of a death benefit may be postponed under certain circumstances, such as
the New
4
<PAGE>
York Stock Exchange being closed for reasons other than customary weekend and
holiday closings. The death benefit proceeds will be determined as of the date
of the insured's death and will be equal to:
1. the death benefit under the option elected; plus
2. any additional benefits due under any riders attached to this Policy;
less
3. any policy debt; less
4. any unpaid monthly deductions if the insured dies during the grace
period.
The death benefit proceeds will be determined based on the death benefit
option elected by the Owner on the application for insurance or any request for
change in death benefits. If the level death benefit is chosen, the death
benefit will be the greater of (a) the face amount of insurance on the insured's
date of death; or (b) a specified percentage of the policy value on the date of
the insured's death as indicated on the table of percentages included in the
Policy. If the variable death benefit is chosen, the death benefit will be the
greater of (a) the face amount of insurance on the insured's date of death plus
the policy value on the insured's date of death: or (b) a specified percentage
of the policy value on the insured's date of death as indicated on the Table of
Percentages included in the Policy.
E. POLICY LOANS
After the first Policy anniversary and while the insured is still living, an
Owner may borrow from the Company no less than $500 and not more than 90% of the
Surrender Value on the date the loan is paid. The Owner must submit a written
request for a Policy loan. Any amount due to an Owner under a loan will
generally be paid within seven calendar days after the Company receives a loan
request.
When a Policy loan is made, an amount of cash value sufficient to secure the
policy loan is transferred out of the sub-account(s) and the fixed account and
into the Policy's loan account. The Owner can specify how to allocate the cash
value to be transferred to the loan account as collateral from the
sub-account(s) and the fixed account. If no allocation is specified, collateral
is transferred from each sub-account and from the fixed account in the same
proportion that the cash value in each sub-account and the fixed account bears
to the total cash value on the date that the loan is processed.
Like the fixed account, a Policy's loan account is part of Protective Life's
General Account. During the first ten Policy years, the Company will charge
interest daily on any outstanding loan at an effective annual rate 6.0%. During
Policy Years 11 and after, the Company will charge interest daily on any
outstanding loan at an effective annual rate of 4.0%. Interest is due and
payable at the end of each Policy Year while a loan is outstanding. If interest
is not paid when due, the amount of the interest is added to the loan and
becomes part of the Policy debt.
Cash value in the loan account is credited with interest at an effective
annual rate of not less than 4.0%. The maximum net cost of a loan is 2.0% per
year during Policy Years 1 through 10, and 0% thereafter. During the first ten
Policy years and on each Policy anniversary, the net difference between interest
earned and interest charged will be transferred to the loan account and deducted
from the sub-account(s) and the fixed account in the same proportion that each
sub-account value and the fixed account value bears to the total unloaned Policy
value. The Company determines the rate of interest to be credited to the loan
account in advance of each calendar year. The rate, once determined, is applied
to the calendar year that follows the date of determination.
If the Insured dies while a loan is outstanding, the Policy debt is deducted
from the death benefit in calculating the death benefit proceeds.
A Policy loan may be repaid in whole or in part at any time while the
insured is living and the Policy is in force. Loan repayment will be credited as
of the date it is received in the Home Office. When a loan repayment is made,
Policy value in the loan account in an amount equal to the repayment will be
transferred from the loan account to the sub-accounts and the fixed account in
the same
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manner as loan collateral is transferred to the loan account. Amounts paid while
a Policy loan is outstanding will be treated as premiums unless the Owner
requests in writing that these payments be treated as repayment of indebtedness.
III. TRANSFERS
The Separate Account currently has seven Sub-Accounts . Under the Company's
current rules, a Policy's cash value, except amounts credited to the loan
account, may be transferred among the Sub-Accounts of the Separate Account and
between the fixed account which is a part of the Company's General Account and
the Sub-Accounts.
Upon receipt of written notice or a telephone request from the Owner, the
Company will accept transfer requests subject to the limitations described
below. Transfer requests will be accepted at any time on or after the later of
the following: (1) thirty days after the Policy effective date, or (2) six days
after the expiration of the cancellation period. Transfers will be processed as
of the date the request is received by the Company. The minimum amount of Policy
value that may be transferred is the lesser of: (1) $100; or (2) the entire
Policy value in any Sub-Account or the Fixed Account from which the transfer is
made. If, after the transfer, the Policy Value remaining in a Sub-Account(s) or
the Fixed Account is less than $100, the Company reserves the right to transfer
the entire amount instead of the requested amount. The Company also reserves the
right to limit transfers to 12 per Policy year and to charge a transfer fee for
each additional transfer over 12 in any Policy year.
The maximum amount that may be transferred from the Fixed Account in any
Policy Year is the greater of: (1) $2,500; or (2) 25% of the fixed account
value.
Telephone transfers may be made upon instructions given by telephone,
provided the appropriate election has been made on the application or written
authorization is provided. We require a form of personal identification before
acting on these telephone instructions. All transfer requests made by telephone
instruction will be recorded as a method of documenting authenticity. A
confirmation of all instructions received by telephone will be mailed to the
Owner to determine if they are genuine.
The Company currently intends to allow transfers for the foreseeable future.
The Prospectus provides that the Company may at any time, for any class of
Policies, modify, restrict, suspend, or eliminate the transfer privilege
(including telephone transfers). In particular, we reserve the right not to
honor transfer requests by a third party holding a power of attorney from an
Owner where that third party requests simultaneous transfers on behalf of the
Owners of two or more Policies.
The Owner may direct the Company to systematically and automatically
transfer, on a monthly or quarterly basis, specified dollar amounts from the
fixed account to any sub-account(s). This is known as the dollar cost averaging
method of investment. By transferring on a regularly scheduled basis as opposed
to allocating the total amount at one time, an Owner may be less susceptible to
the impact of market fluctuations in sub-account values. The Company makes no
guarantee that the dollar cost averaging method will result in a profit or
protect against loss. The Company reserves the right to assess a processing fee
for this service. The Company reserves the right to stop offering dollar cost
averaging upon 30 days written notice.
To elect dollar-cost averaging, the fixed account value must be at least
$5,000 at the time of election. The Owner may elect dollar cost averaging for
periods of at least 12 months but no longer than 48 months. At least $100 must
be transferred on a monthly basis and a minimum of $300 on a quarterly basis.
Dollar-cost averaging transfers may commence on any day of the month that the
Owner requests, except the 29th, 30th, or 31st.
The Company will continue to process dollar cost averaging transfers until
the earlier of the following:
(1) the designated number of transfers has been completed;
(2) the fixed account value is depleted;
(3) the Owner, by written notice, instructs the Company to cease the
automatic transfers;
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(4) a grace period begins under the Policy; or
(5) the maximum amount of Policy value has been transferred under a dollar
cost averaging election.
IV. REFUNDS
The right to examine and cancel the policy is as defined in the Policy. The
Owner may cancel a Policy for a refund during the cancellation period by
returning it to the Company's home office or to the sales representative who
sold it along with a written request. The cancellation Period is determined by
the law of the state in which the application is signed and is shown in the
Policy. In most states, it expires at the later of: (1) ten days after the Owner
receives the Policy; (2) 45 days after the Owner signs the application; or (3)
10 days after the Company mails or delivers a Notice of Right of Withdrawal.
Return of the Policy by mail is effective when it is received at the home
office.
Within seven calendar days after receiving the returned Policy, the Company
will refund (i) the difference between premiums paid and amounts allocated to
the fixed account or the variable account, plus (ii) fixed account value
determined as of the date the returned Policy is received, plus (iii) variable
account value determined as of the date the returned Policy is received. This
amount may be more or less than the aggregate Premium Payments. In states where
required, the Company will refund Premium Payments to the Owner of the Policy.
An increase in Face Amount may also be cancelled by the Owner in accordance
with the Policy's cancellation period provisions. The amount refunded will be
calculated in accordance with such provisions described above. If no additional
Premium Payments are required in connection with the Face Amount increase, the
amount refunded is limited to that portion of the first monthly deduction
following the increase and will be reallocated to the sub-account(s) and the
fixed account in the same proportion that each sub-account value and the fixed
account value bears to the total unloaned Policy Value as of the effective date
of the cancellation. The effective date of this cancellation will be equal to
the effective date of the face increase.
B. SPECIAL TRANSFER PRIVILEGE
During the first 24 Policy months following the issue date, the Owner may
exercise a one-time special transfer privilege by requesting that all the
variable account value be transferred to the fixed account. Exercise of the
special transfer privilege does not count toward the 12 transfers that are
permitted each Policy year and is not subject to a transfer fee. Unless the
Owner specifies otherwise, all subsequent Net Premium Payments are allocated to
the fixed account after the exercise of the special transfer privilege. Owners
may, however, change this allocation by subsequent written notice.
C. SUICIDE
If the insured commits suicide, while sane or insane, within two years from
the Policy Effective Date, the Company's total liability shall be limited to the
premiums paid before death, less any Policy debt and less any withdrawals. If
the insured commits suicide, while sane or insane, within two years from the
effective date of any increase in face amount, the Company's total liability
with respect to such increase shall be limited to the sum of the monthly cost of
insurance charges deducted for such increase.
D. REPRESENTATIONS AND CONTESTABILITY
The Company can contest the validity of this Policy or resist a claim for
any material misrepresentation of a fact made on the application or in a
supplemental application for this Policy. The Company also has the right to
contest the validity of any policy change based on material misstatements made
in any application for that change and any reinstatement of benefits within two
years during the lifetime of the insured after the reinstatement has been
approved.
The Company cannot bring any legal action to contest the validity of this
Policy after it has been in force during the lifetime of the insured for two
years from the Policy Effective Date unless fraud is involved.
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E. MISSTATEMENT OF AGE OR SEX
Questions in the application concern the insured's date of birth and sex. If
the date of birth or sex given in the application or any application for riders
is not correct, the death benefit and any benefits provided under any riders to
this Policy will be adjusted to those that would be purchased by the most recent
deduction for the cost of insurance and the cost of any benefits provided by
such riders, at the correct age and sex.
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