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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
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
POST-EFFECTIVE AMENDMENT NO. 2
------------------------
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:
Nancy Kane, 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)
It is proposed that this filing become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485;
/X/ on May 1, 1997 pursuant to paragraph (b) of Rule 485;
/ / 60 days after filing pursuant to paragraph (a) of Rule 485;
/ / on (date) pursuant to paragraph (a)(i) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
registrant has previously registered an indefinite amount of securities under
the Securities Act of 1933. The Registrant filed a Rule 24f-2 Notice for the
year ended December 31, 1996 on February 28, 1997.
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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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<S> <C>
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>
<CAPTION>
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>
SUPPLEMENT DATED MAY 1, 1997
TO
PROSPECTUS DATED MAY 1, 1997
FOR
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE
AND FIXED LIFE INSURANCE POLICY
As of May 1, 1997, the Sub-Accounts of the Variable Account supported by
Funds of Oppenheimer Variable Account Funds, MFS-Registered Trademark- Variable
Insurance Trust, and Acacia Capital Corporation Calvert Responsibly Invested
Portfolios, as described on pages 13, 14 and 15 herein, are not yet available as
investment options under the Policies. Protective Life will notify Policy Owners
when these Sub-Accounts become available as investment options.
As of May 1, 1997, the Portfolio Rebalancing feature described on page 23
herein is not yet available. Protective Life will notify Policy Owners when the
Portfolio Rebalancing feature becomes available.
<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, Oppenheimer
Variable Account Funds, MFS-Registered Trademark- Variable Insurance Trust and
Acacia Capital Corporation Calvert Responsibly Invested Portfolios.
The prospectuses for the Funds describe 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 (EXCEPT FOR POLICIES ISSUED IN CERTAIN STATES) 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 each of the Funds
carefully and retain copies for future reference. This prospectus must be
accompanied or preceded by the current prospectus for each of 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
May 1, 1997
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
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PAGE
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DEFINITIONS OF TERMS....................................................................................... 5
SUMMARY AND DIAGRAM OF THE POLICY.......................................................................... 7
EXPENSE TABLES............................................................................................. 10
GENERAL INFORMATION ABOUT PROTECTIVE LIFE, THE VARIABLE ACCOUNT AND THE FUNDS.............................. 12
Protective Life Insurance Company........................................................................ 12
Protective Variable Life Separate Account................................................................ 13
The Funds................................................................................................ 13
- The PIC Funds........................................................................................ 14
- The Oppenheimer Funds................................................................................ 14
- The MFS Funds........................................................................................ 15
- The Calvert Responsibly Invested Portfolios.......................................................... 15
Other Investors in the Funds............................................................................. 16
Addition, Deletion or Substitution of Investments........................................................ 16
Voting Rights............................................................................................ 17
THE POLICY................................................................................................. 17
Purchasing a Policy...................................................................................... 17
Cancellation Privilege................................................................................... 18
Premium Payments......................................................................................... 18
- Minimum Initial Premium Payment...................................................................... 18
- Planned Periodic Premium Payments.................................................................... 19
- Unscheduled Premium Payments......................................................................... 19
- Premium Payment Limitations.......................................................................... 19
- No-Lapse Guarantee................................................................................... 19
- Premium Payments Upon Increase in Face Amount........................................................ 19
Net Premium Allocations.................................................................................. 20
Policy Lapse and Reinstatement........................................................................... 20
- Lapse................................................................................................ 20
- Reinstatement........................................................................................ 21
Special Transfer Privilege............................................................................... 21
CALCULATION OF POLICY VALUES............................................................................... 21
Variable Account Value................................................................................... 21
- Determination of Units............................................................................... 21
- Determination of Unit Value.......................................................................... 21
- Net Investment Factor................................................................................ 21
Fixed Account Value...................................................................................... 22
POLICY BENEFITS............................................................................................ 22
Transfers of Policy Values............................................................................... 22
- General.............................................................................................. 22
- Telephone Transfers.................................................................................. 22
- Reservation of Rights................................................................................ 22
- Dollar Cost Averaging................................................................................ 23
- Portfolio Rebalancing................................................................................ 23
Surrender Privilege...................................................................................... 23
Withdrawal Privilege..................................................................................... 24
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Policy Loans............................................................................................. 24
- General.............................................................................................. 24
- Loan Collateral...................................................................................... 24
- Loan Repayment....................................................................................... 24
- Interest............................................................................................. 25
- Non-Payment of Policy Loan........................................................................... 25
- Effect of a Policy Loan.............................................................................. 25
Maturity Benefits........................................................................................ 25
Death Benefit Proceeds................................................................................... 26
- Calculation of Death Benefit Proceeds................................................................ 26
- Death Benefit Options................................................................................ 26
- Changing the Death Benefit Option.................................................................... 26
- Changing the Face Amount............................................................................. 26
Payment Options.......................................................................................... 27
- Minimum Amounts...................................................................................... 28
- Other Requirements................................................................................... 28
THE FIXED ACCOUNT.......................................................................................... 28
The Fixed Account........................................................................................ 28
Interest Credited on Fixed Account Value................................................................. 28
Payments from the Fixed Account.......................................................................... 29
CHARGES AND DEDUCTIONS..................................................................................... 29
Premium Expense Charges.................................................................................. 29
- Sales Charge......................................................................................... 29
- Federal Tax Charge................................................................................... 29
- Other Taxes.......................................................................................... 29
- Premium Tax Charge................................................................................... 29
Monthly Deduction........................................................................................ 30
- Cost of Insurance Charge............................................................................. 30
- Legal Considerations Relating to Sex -- Distinct Premium Payments and Benefits....................... 31
- Monthly Administration Fee........................................................................... 31
- Supplemental Benefit and/or Rider Charges............................................................ 31
- Mortality and Expense Risk Charge.................................................................... 31
Transfer Fee............................................................................................. 32
Surrender Charge (Contingent Deferred Sales Charges)..................................................... 32
Withdrawal Charge........................................................................................ 33
Fund Expenses............................................................................................ 33
EXCHANGE PRIVILEGE......................................................................................... 33
Effect of the Exchange Offer............................................................................. 35
- Tax Considerations................................................................................... 35
- Sales Commissions.................................................................................... 35
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES, DEATH BENEFITS AND ACCUMULATED
PREMIUMS.................................................................................................. 35
OTHER POLICY BENEFITS AND PROVISIONS....................................................................... 45
Limits on Rights to Contest the Policy................................................................... 45
- Incontestability..................................................................................... 45
- Suicide Exclusion.................................................................................... 45
Changes in the Policy or Benefits........................................................................ 45
- Misstatement of Age or Sex........................................................................... 45
- Other Changes........................................................................................ 45
Suspension or Delay of Payments.......................................................................... 45
Reports to Policy Owners................................................................................. 45
Assignment............................................................................................... 45
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Arbitration.............................................................................................. 46
Supplemental Benefits and/or Riders...................................................................... 46
- Children's Term Life Insurance Rider................................................................. 46
- Accidental Death Benefit Rider....................................................................... 46
- Disability Benefit Rider............................................................................. 46
- Guaranteed Insurability Rider........................................................................ 46
- Protected Insurability Benefit Rider................................................................. 46
Reinsurance.............................................................................................. 46
USES OF THE POLICY......................................................................................... 47
TAX CONSIDERATIONS......................................................................................... 47
Introduction............................................................................................. 47
Tax Status of Protective Life............................................................................ 47
Taxation of Life Insurance Policies...................................................................... 48
- Tax Status of the Policy............................................................................. 48
-- Diversification Requirements....................................................................... 48
-- Ownership Treatment................................................................................ 48
- Tax Treatment of Life Insurance Death Benefit Proceeds............................................... 49
- Tax Deferral During Accumulation Period.............................................................. 49
Policies Which Are Not MEC's............................................................................. 49
-- Tax Treatment of Withdrawals Generally............................................................. 49
-- Certain Distributions Required by the Tax Law in the First 15 Policy Years......................... 49
-- Tax Treatment of Loans............................................................................. 49
Policies Which Are MEC's................................................................................. 50
-- Characterization of a Policy as a MEC.............................................................. 50
-- Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs............................ 50
-- Penalty Tax........................................................................................ 50
-- Aggregation of Policies............................................................................ 50
- Treatment of Maturity Benefits and Extension of Maturity Date........................................ 51
- Actions to Ensure Compliance with the Tax Law........................................................ 51
- Other Considerations................................................................................. 51
Federal Income Tax Withholding........................................................................... 51
OTHER INFORMATION ABOUT THE POLICIES AND PROTECTIVE LIFE................................................... 51
Sale of the Policies..................................................................................... 51
Protective Life Directors and Executive Officers......................................................... 52
State Regulation......................................................................................... 53
Additional Information................................................................................... 54
Experts.................................................................................................. 54
Legal Matters............................................................................................ 54
Financial Statements..................................................................................... 54
APPENDICES
A-Examples of Death Benefit Options...................................................................... A-1
</TABLE>
4
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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 -- A separate investment portfolio of an 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 in each month 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
5
<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.
PIC -- Protective Investment Company.
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.
SEC GUIDELINE ANNUAL PREMIUM -- 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.
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.
6
<PAGE>
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".
7
<PAGE>
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 PIC Money Market Fund or to
the Fixed Account. (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, 1-800-265-1545.
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 pages 18 and 19 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 19.
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 29.
- For federal taxes (1.25% of each premium payment in all Policy Years). See
page 29.
- For state and local premium taxes (2.25% of each premium payment). See page
29.
NET PREMIUM PAYMENTS
- You direct the allocation of Net Premium payments among seventeen
Sub-Accounts and the Fixed Account. See page 20 for rules and limits on Net
Premium payment allocations.
- The Sub-Accounts invest in corresponding Funds. See pages 13 through 15.
Funds available are the Goldman Sachs Funds, the Oppenheimer Funds, the MFS
Funds and the Calvert Responsibly Invested Portfolios.
- Interest is credited on amounts allocated to the Fixed Account at a minimum
guaranteed rate of 4%. See page 28 for rules and limits on Fixed Account
allocations.
8
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DEDUCTIONS FROM POLICY VALUE
- Monthly Deduction for cost of insurance, administration fees, mortality and
expense risk charges 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. Monthly Mortality
and Expense Risk Charges are currently equal to .075% multiplied by the
Variable Account Value, which is equivalent to an annual rate of 0.90% of
such amount during Policy Years 1 through 10; and in Policy Years 11 and
thereafter monthly Mortality and Expense Risk Charge is currently equal to
.021% multiplied by the Variable Account Value, which is equivalent to an
annual rate of .25% of such amount. This charge is not deducted from Fixed
Account Value. See pages 29 through 32.
DEDUCTIONS FROM ASSETS
- Investment advisory fees and fund operating expenses are also deducted from
the assets of each Fund. See page 33.
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 21.
- 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 19 and 20.
- 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 22 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 24 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 24 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 32.
- - Payment options are available. See page 27.
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 26.
- - Flexibility to change the Death Benefit option and Face Amount. See page
26 for rules and limits.
- - Supplemental benefits and/or riders may be available. See page 46.
9
<PAGE>
EXPENSE TABLES
The following expense information assumes that the entire Policy Value is
Variable Account Value.
<TABLE>
<CAPTION>
PIC FUNDS (1)
MONEY
MARKET
FUND
-----------
Management (Advisory) Fees............................................. 0.60%
<S> <C>
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 0.60%
<CAPTION>
CORE U.S.
EQUITY
FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 0.80%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 0.80%
<CAPTION>
CAPITAL
GROWTH
FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 0.80%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 0.80%
<CAPTION>
SMALL CAP
EQUITY FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 0.80%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 0.80%
<CAPTION>
INTERNATIONAL
EQUITY FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 1.10%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 1.10%
<CAPTION>
GROWTH AND
INCOME FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 0.80%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 0.80%
<CAPTION>
GLOBAL
INCOME
FUND
-----------
<S> <C>
Management (Advisory) Fees............................................. 1.10%
Other Expenses After Reimbursement.................................... 0.00%
-----
Total Annual Fund Expenses............................................
(after reimbursements) 1.10%
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
OPPENHEIMER FUNDS (2)
</TABLE>
<TABLE>
<CAPTION>
CAPITAL
APPRECIATION
FUND
------------
<S> <C>
Management (Advisory) Fees............................................................... 0.72%
Other Expenses After Reimbursement...................................................... 0.03% -----
Total Annual Fund Expenses..............................................................
(after reimbursements) 0.75%
<CAPTION>
GROWTH
FUND
------------
<S> <C>
Management (Advisory) Fees............................................................... 0.75%
Other Expenses After Reimbursement...................................................... 0.04% -----
Total Annual Fund Expenses(2)...........................................................
(after reimbursements) 0.79%
<CAPTION>
GROWTH &
INCOME
FUND
------------
<S> <C>
Management (Advisory) Fees............................................................... 0.75%
Other Expenses After Reimbursement...................................................... 0.25% -----
Total Annual Fund Expenses..............................................................
(after reimbursements) 1.00%
<CAPTION>
STRATEGIC
BOND
FUND
------------
<S> <C>
Management (Advisory) Fees............................................................... 0.75%
Other Expenses After Reimbursement...................................................... 0.10% -----
Total Annual Fund Expenses..............................................................
(after reimbursements) 0.85%
MFS FUNDS
<CAPTION>
MFS EMERGING
GROWTH
SERIES
------------
<S> <C>
Management (Advisory) Fees............................................................... 0.75%
Other Expenses After Reimbursement (3)(4)............................................... 0.25% -----
Total Annual Fund Expenses..............................................................
(after reimbursements) (4) 1.00%
<CAPTION>
MFS RESEARCH
SERIES
------------
<S> <C>
Management (Advisory) Fees............................................................... 0.75%
Other Expenses After Reimbursement (3)(4)............................................... 0.25% -----
Total Annual Fund Expenses..............................................................
(after reimbursements) (4) 1.00%
<CAPTION>
MFS GROWTH
WITH INCOME
SERIES
------------
<S> <C>
Management (Advisory) Fees............................................................... 0.75%
Other Expenses After Reimbursement (3)(4)............................................... 0.25% -----
Total Annual Fund Expenses..............................................................
(after reimbursements) (4) 1.00%
<CAPTION>
MFS TOTAL
RETURN
SERIES
------------
<S> <C>
Management (Advisory) Fees............................................................... 0.75%
Other Expenses After Reimbursement (3)(4)............................................... 0.25% -----
Total Annual Fund Expenses..............................................................
(after reimbursements) (4) 1.00%
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
CALVERT RESPONSIBLY INVESTED PORTFOLIOS (5)
<CAPTION>
CRI
STRATEGIC
GROWTH
PORTFOLIO
------------
<S> <C>
Management (Advisory) Fees............................................................... 1.71%
Other Expenses After Reimbursement...................................................... 0.59% -----
Total Annual Fund Expenses..............................................................
(after reimbursements) 2.30%
<CAPTION>
CRI BALANCED
PORTFOLIO
------------
<S> <C>
Management (Advisory) Fees............................................................... 0.71%
Other Expenses After Reimbursement...................................................... 0.13% -----
Total Annual Fund Expenses..............................................................
(after reimbursements) 0.84%
</TABLE>
- ------------------------------
* Protective Life reserves the right to charge a Transfer Fee in the future.
(See "Charges and Deductions".)
(1) The annual expenses listed for all of the PIC Funds are net of certain
reimbursements by PIC's investment manager. (See "The Funds".) Absent the
reimbursements, total expenses for the period ended December 31, 1996 were:
Money Market Fund 1.27%, CORE U.S. Equity Fund 0.91%, Small Cap Equity Fund
0.94%, International Equity Fund 1.38%, Growth and Income Fund 0.88%,
Capital Growth Fund 1.02%, and Global Income Fund 1.42%. PIC's investment
manager has voluntarily agreed to reimburse certain of each Fund's expenses
in excess of its management fees. Although this reimbursement may be ended
on 120 days notice to PIC, the investment manager has no present intention
of doing so.
(2) Oppenheimer Growth Fund expenses are net of certain reimbursements by the
investment manager. Absent the reimbursements, the Oppenheimer Growth Fund's
total expenses for the period ended December 31, 1996 were 0.81%.
(3) Each Series has an expense offset arrangement which reduces the Series'
custodian based fee based on the amount of cash maintained by the Series
with its custodian and dividend disbursing agent, and may enter into other
such arrangements and directed brokerage arrangements (which would also have
the effect of reducing the Series' expenses). Any such fee reductions are
not reflected under "Other Expenses."
(4) The investment advisor has agreed to bear expenses for each Series, subject
to reimbursement by each Series, such that each Series' "Other Expenses"
shall not exceed 0.25% of the average daily net assets of the Series during
the current fiscal year. See the Fund prospectus "Information Concerning
Shares of Each Series -- Expenses." Otherwise, "Other Expenses" for the
Emerging Growth Series, Research Series, Growth With Income Series and Total
Return Series would be 0.41%, 0.73%, 1.32% and 1.35%, respectively, and
"Total Operating Expenses" would be 1.16%, 1.48%, 2.07% and 2.10%,
respectively, for these Series.
(5) The figures above are based on expenses for fiscal year 1996, and have been
restated to reflect an increase in transfer agency expenses of 0.03% for
each Portfolio expected to be incurred in 1997. Management (Advisory) Fees
includes for CRI Balanced and CRI Strategic Growth, includes a performance
adjustment, which depending on performance, could cause the fee to be as
high as 0.85% or as low as 0.55% for CRI Balanced, and as high as 1.85% or
as low as 1.55% for CRI Strategic Growth. "Other Expenses" reflect an
indirect fee. Net fund operating expenses after reductions for fees paid
indirectly (again, restated) would be 0.81% for CRI Balanced and 1.84% for
CRI Strategic Growth. Management (Advisory) Fees for CRI Strategic Growth
includes an administrative service fee of 0.20% paid to Advisor's affiliate.
The above tables are intended to assist the owner in understanding the costs
and expenses that he or she will bear directly or indirectly. The tables reflect
the expenses for the Account and reflect the investment management fees and
other expenses and total expenses for each Fund for the period January 1, 1996
to December 31, 1996. For a more complete description of the various costs and
expenses see "Charges and Deductions" and the prospectuses for each of the
Funds, which accompany this prospectus. IN ADDITION TO THE EXPENSES LISTED
ABOVE, PREMIUM TAXES VARYING FROM 0 TO 3.5% MAY BE APPLICABLE IN CERTAIN STATES.
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
12
<PAGE>
investment contracts. Protective Life is currently licensed to transact life
insurance business in 49 states and the District of Columbia. As of December 31,
1996, Protective Life had total assets of approximately $8.2 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 consolidated assets of
approximately $8.3 billion at December 31, 1996.
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. Each Sub-Account invests exclusively
in shares of a corresponding Fund. Therefore, the investment experience of your
Policy depends on the experience of the Sub-Accounts you select. 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.
As of December 31, 1996, the Variable Account had seven Sub-Accounts: PIC
Money Market; PIC Select Equity (now called CORE U.S. Equity); PIC Capital
Growth; PIC Small Cap Equity; PIC International Equity; PIC Growth and Income;
and PIC Global Income. In 1997, ten additional Sub-Accounts are being added to
the Variable Account: Oppenheimer Capital Appreciation; Oppenheimer Growth;
Oppenheimer Growth & Income; Oppenheimer Strategic Bond; MFS Emerging Growth;
MFS Research; MFS Growth With Income; MFS Total Return; CRI Strategic Growth;
and CRI Balanced.
THE FUNDS
Each Sub-Account invests in a corresponding Fund. Each Fund is an investment
portfolio of one of the following investment companies: PIC (the "PIC Funds")
managed by Investment Distributions Advisory Services, Inc. and subadvised by
Goldman Sachs Asset Management or Goldman Sachs Asset Management International;
Oppenheimer Variable Account Funds (the "Oppenheimer Funds") managed by
OppenheimerFunds, Inc.; MFS Variable Insurance Trust (the "MFS Funds") managed
by Massachusetts Financial Services Company; or Acacia Capital Corporation
Calvert Responsibly Invested Portfolios (the "Calvert Responsibly Invested
Portfolios") managed by Calvert Asset Management Company, Inc. Shares of these
Funds are offered only to: (1) the Variable Account, (2) other separate accounts
of Protective Life supporting variable annuity contracts or variable life
insurance policies, (3) separate accounts of other life insurance companies
supporting variable annuity contracts
13
<PAGE>
or variable life insurance policies, and (4) certain qualified retirement plans.
Such shares are not offered directly to investors but are available only through
the purchase of such contracts or policies or through such plans. See the
prospectus for each Fund for details about that Fund.
There is no guarantee that any Fund will meet its investment objectives.
Please refer to the prospectus for each of the Funds you are considering for
more information.
THE PIC FUNDS
PIC 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.
PIC 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.
PIC 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.
PIC CORE U.S. EQUITY (formerly 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.
PIC 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.
PIC 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.
PIC 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.
THE OPPENHEIMER FUNDS
CAPITAL APPRECIATION FUND. This Fund seeks to achieve capital
appreciation by investing in "growth-type" companies.
GROWTH FUND. This Fund seeks to achieve capital appreciation by
investing in securities of well-known established companies.
GROWTH & INCOME FUND. This Fund seeks a high total return (which
includes growth in the value of its shares as well as current income) from
equity and debt securities. From time to time this Fund may focus on small
to medium capitalization common stocks, bonds and convertible securities.
14
<PAGE>
STRATEGIC BOND FUND. This Fund seeks a high level of current income
principally derived from interest on debt securities and seeks to enhance
such income by writing covered call options on debt securities.
THE MFS FUNDS
EMERGING GROWTH SERIES. This Fund seeks to provide long-term growth of
capital.
RESEARCH SERIES. This Fund seeks to provide long-term growth of capital
and future income.
GROWTH WITH INCOME SERIES. This Fund seeks to provide reasonable
current income and long-term growth of capital and income.
TOTAL RETURN SERIES. This Fund seeks primarily to provide above-average
income (compared to a portfolio invested entirely in equity securities)
consistent with the prudent employment of capital and secondarily to provide
a reasonable opportunity for growth of capital and income.
THE CALVERT RESPONSIBLY INVESTED PORTFOLIOS
CRI STRATEGIC GROWTH PORTFOLIO. This Fund seeks maximum long-term
growth through investments primarily in the equity securities of companies
that have little or no debt, high relative strength and substantial
management ownership. The Fund is designed to provide long-term growth of
capital by investing in enterprises that make a significant contribution to
society through their products and services and through the way they do
business.
CRI BALANCED PORTFOLIO. This Fund seeks to achieve a total return above
the rate of inflation through an actively managed, non-diversified portfolio
of common and preferred stocks, bonds, and money market instruments that
offer income and capital growth opportunity and that satisfy the social
concern criteria established for the Fund.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
MORE DETAILED INFORMATION CONCERNING THE INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS OF THE FUNDS, THE EXPENSES OF THE FUNDS, THE RISKS ATTENDANT TO
INVESTING IN THE FUNDS AND OTHER ASPECTS OF THEIR OPERATIONS CAN BE FOUND IN THE
CURRENT PROSPECTUSES FOR THE FUNDS, WHICH ACCOMPANY THIS PROSPECTUS, AND THE
CURRENT STATEMENT OF ADDITIONAL INFORMATION FOR EACH OF THE FUNDS. THE FUNDS'
PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING THE
ALLOCATION OF NET PREMIUMS OR TRANSFERS AMONG THE SUB-ACCOUNTS.
Each Fund sells its shares to the Variable Account in accordance with the
terms of a participation agreement between the appropriate investment company
and Protective Life. The termination provisions of these agreements vary. Should
a participation agreement relating to a Fund terminate, the Variable Account
would not be able to purchase additional shares of that Fund. In that event,
Owners would no longer be able to allocate Variable Account Value or Premium
Payments to Sub-Accounts investing in that Fund. In certain circumstances, it is
also possible that a Fund may refuse to sell its shares to the Variable Account
despite the fact that the participation agreement relating to that Fund has not
been terminated. Should a Fund decide to discontinue selling its shares to the
Variable Account, Protective Life would not be able to honor requests from
Owners to allocate Premium Payments or transfer Account Value to the Sub-Account
investing in shares of that Fund.
Protective Life has entered into agreements with the investment managers or
advisers of several of the Funds pursuant to which each such investment manager
or adviser pays Protective Life a servicing fee based upon an annual percentage
of the average daily net assets invested by the Variable Account (and other
separate accounts of Protective Life) in the Funds managed by that manager or
adviser. These fees are in consideration for administrative services provided to
the Funds by Protective Life. Payments of fees under these agreements by
managers or advisers do not increase the fees or expenses paid by the Funds or
their shareholders.
15
<PAGE>
OTHER INVESTORS IN THE FUNDS
PIC currently sells shares of its Funds only to Protective Life as the
underlying investment for the Variable Account as well as for variable annuity
contracts issued through Protective Life. PIC may in the future sell shares of
its Funds to other separate accounts of Protective Life or its life insurance
company affiliates supporting other variable annuity contracts or variable life
insurance 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 possible sale of shares to support its variable
annuity contracts or those of its affiliates or from the possible sale of shares
to such retirement plans. However, the board of directors of PIC will monitor
events in order to identify any material irreconcilable conflicts that might
possibly arise if such shares were also offered to support variable life
insurance contracts other than the Policies or variable annuity contracts or to
retirement plans. In event of such a conflict, the board of directors would
determine what action, if any, should be taken in response to the conflict. In
addition, if Protective Life believes that the PIC's response to any such
conflicts insufficiently protects Owners, it will take appropriate action on its
own, including withdrawing the Account's investment in the Fund. (See the PIC
Prospectus for more detail.)
Shares of the Oppenheimer Funds, MFS Funds and Calvert Responsibly Invested
Portfolios are sold to separate accounts of insurance companies, which may or
may not be affiliated with Protective Life or each other, a practice known as
"shared funding." They may also be sold to separate accounts to serve as the
underlying investment for both variable annuity contracts and variable life
insurance policies, a practice known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners
of Protective Life's Policies whose Policy Values are allocated to the Variable
Account and of owners of other contracts whose contract values are allocated to
one or more other separate accounts investing in any one of the Funds. Shares of
some of these Funds may also be sold to certain qualified pension and retirement
plans. As a result, there is a possibility that a material conflict may arise
between the interests of Policy Owners generally or certain classes of Policy
Owners, and such retirement plans or participants in such retirement plans. In
the event of any such material conflicts, Protective Life will consider what
action may be appropriate, including removing the Fund from the Variable Account
or replacing the Fund with another fund. As is the case with PIC, the board of
directors (or trustees) of each of the Oppenheimer Funds, MFS Funds and Calvert
Responsibly Invested Portfolios monitors events related to their Funds to
identify possible material irreconcilable conflicts among and between the
interests of the Fund's various investors. There are certain risks associated
with mixed and shared funding and with the sale of shares to qualified pension
and retirement plans, as disclosed in each Fund's prospectus.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Protective Life reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Variable Account or that the Variable Account may purchase. If the shares of
a Fund are no longer available for investment or if in Protective Life's
judgment further investment in any Fund should become inappropriate in view of
the purposes of the Variable Account, Protective Life may redeem the shares, if
any, of that Fund and substitute shares of another Fund. Protective Life will
not substitute any shares attributable to a Policy's interest in the Variable
Account without notice and any necessary approval of the SEC and state insurance
authorities.
Protective Life also reserves the right to establish additional Sub-Accounts
of the Variable Account, each of which would invest in shares corresponding to a
new Fund. Subject to applicable law and any required SEC approval, Protective
Life may, in its sole discretion, establish new Sub-Accounts or eliminate one or
more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new Sub-Accounts may be made available to existing
Owner(s) on a basis to be determined by Protective Life.
16
<PAGE>
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 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
alive. The number of votes for which an Owner may give instructions is
determined as of the date coincident with the date established by the Fund for
determining shareholders eligible to vote at the relevant meeting of that Fund.
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 Protective Life 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.
17
<PAGE>
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 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 Protective Life's 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 Protective
Life. 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.
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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 Protective Life.
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 Protective Life. 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. 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 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. In return for paying the Minimum Monthly Premium or
an amount equivalent thereto by the Monthly Anniversary Day, 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 period 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
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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, Protective Life returns at least your Premium Payments,
Protective Life reserves the right to allocate your initial Net Premium Payment
(and any subsequent Net Premium Payments made during the Cancellation Period) to
the PIC Money Market Sub-Account or the Fixed 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 PIC Money Market Sub-Account or the Fixed 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 PIC Money Market Sub-Account or
the Fixed Account until underwriting has been completed. When approved, the
Policy Value in the PIC Money Market Sub-Account or the Fixed 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.
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.
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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.
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 initially set at $10, except the PIC Money Market Sub-Account, which
was arbitrarily initially set at $1. 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), 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
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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.
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 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. Protective Life reserves the right
to limit transfers to 12 per Policy Year. For each additional transfer over 12
in any Policy Year, Protective Life reserves 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.
Protective Life 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. Protective Life
reserves the right to suspend telephone transfer privileges at any time for any
class of Policies.
RESERVATION OF RIGHTS. Protective Life reserves 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.
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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 or to the Fixed Account or 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, the 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. If no day is
selected, transfers will occur on the Monthly Anniversary Date.
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.
PORTFOLIO REBALANCING. At the time of application or at any time thereafter
by written notice to Protective Life, you may instruct Protective Life to
automatically transfer, on a quarterly, semi-annual or annual basis, your
Variable Account Value among specified Sub-Accounts to achieve a particular
percentage allocation of Variable Account Value among such Sub-Accounts
("Portfolio Rebalancing"). Such percentage allocations must be in whole numbers
and must allocate amounts only among the Sub-Accounts. No amounts will be
transferred to the Fixed Account as part of Portfolio Rebalancing. A minimum
Variable Account Value of $100 is required for Portfolio Rebalancing. Unless you
instruct otherwise when electing rebalancing, the percentage allocation of your
Variable Account Value for Portfolio Rebalancing will be based on your Purchase
Payment allocation instructions in effect at the time of rebalancing. Any
allocation instructions that you give us that differ from your then current
Purchase Payment allocation instructions will be deemed to be a request to
change your Purchase Payment allocation.
Once elected, Portfolio Rebalancing begins on the first quarterly,
semi-annual or annual anniversary following election. You may change or
terminate Portfolio Rebalancing by written instruction to Protective Life, or by
telephone if you have previously authorized us to take telephone instructions.
Portfolio Rebalancing transfers do not count as one of the 12 free transfers
available during any Contract Year. Protective Life reserves the right to assess
a processing fee for this service or to discontinue Portfolio Rebalancing 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 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.
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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.
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
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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 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".
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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 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
26
<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
Premium Payment(s) is received by Protective Life 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
attributable to such Net Premium Payment or transferred amount at the current
interest rate in effect. New current interest rates are effective for such Fixed
Account Value for 12 months from the time that they are first applied.
Protective Life, in Our sole discretion, may declare a new current interest rate
from time to time. The initial annual effective interest rate and the current
interest rates that Protective Life 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 fourteen 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 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.
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<PAGE>
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"), (3) mortality and expense risk charge (the
"Mortality and Expense Risk Charge") and (4) 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 or a graded
premium whole life contract or on exercise of a guaranteed option to increase
the Face Amount without underwriting. See "Supplemental Benefits and/or Riders".
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
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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 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>
SUPPLEMENTAL BENEFIT AND/OR RIDER CHARGES. See "Supplemental Benefits
and/or Riders".
MORTALITY AND EXPENSE RISK CHARGE. This charge compensates Protective Life
for the mortality risk it assumes which 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
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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.
Protective Life deducts a monthly 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 maximum monthly Mortality and Expense Risk
Charge to be deducted is equal to .075% multiplied by the Variable Account
Value, which is equivalent to an annual rate of 0.90% of such amount. In Policy
Years 11 and thereafter, the monthly Mortality and Expense Risk Charge is equal
to .021% multiplied by the Variable Account Value, which is equivalent to an
annual rate of .25% of such amount. Protective Life reserves the right to charge
less than the maximum charge.
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.
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 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.
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
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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".
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.
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.
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. 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.
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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 monthly charge equal to .075%
Charges multiplied by the Variable
Account Value, which is
equivalent to annual rate of
.90% of such amount during
Policy Years 1-10; in all
Policy Years thereafter is
equal to .021% multiplied by
the Variable Account Value,
which is equivalent to an
annual rate of .25% of such
amount.
Withdrawal Charges $25 The lesser 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>
34
<PAGE>
EFFECT OF THE EXCHANGE OFFER
1. This Policy will be issued to Existing Life Policy Owners. Evidence of
insurability may be required.
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. Evidence of insurability may be required. An increase or
addition of Riders &/or Supplemental Benefits will require full evidence of
insurability.
3. The Contestable and Suicide provisions in the Policy will begin again as
of the effective date of the exchange, if evidence of insurability is required.
If evidence of insurability is not required on the exchange, the Contestable and
Suicide provisions will not begin again.
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
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 0.94% of
the average daily net assets of the Funds available under the Policies.
35
<PAGE>
This average annual expense ratio is based on the expense ratios of each of the
Funds for the last fiscal year, adjusted, as appropriate, for any material
changes in expenses effective for the current fiscal year of a Fund. For
information on Fund expenses, see the prospectus for each of the Funds
accompanying this prospectus.
In addition, the illustrations reflect the monthly charge to the Variable
Account for assuming mortality and expense risks, which is equal to .075%
multiplied by the Variable Account Value, which is equivalent to a effective
annual charge of 0.90% of such amount during Policies Years 1-10; and in Policy
Years 11+ is equal to .021% multiplied by the Variable Account Value, which is
equivalent to an annual rate of .25% of such amount. 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 -1.84%, 4.16% and 10.16%, 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.
36
<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 1,044 571 100,000 1,123 651 100,000
2 3,875 2,187 1,714 100,000 2,415 1,943 100,000 2,653 2,181 100,000
3 5,958 3,363 2,890 100,000 3,820 3,347 100,000 4,316 3,843 100,000
4 8,146 4,492 4,020 100,000 5,259 4,786 100,000 6,123 5,651 100,000
5 10,443 5,573 5,101 100,000 6,730 6,258 100,000 8,089 7,617 100,000
6 12,856 6,605 6,133 100,000 8,236 7,764 100,000 10,230 9,758 100,000
7 15,388 7,583 7,163 100,000 9,771 9,351 100,000 12,559 12,139 100,000
8 18,048 8,501 8,134 100,000 11,332 10,965 100,000 15,092 14,725 100,000
9 20,840 9,358 9,043 100,000 12,918 12,603 100,000 17,849 17,534 100,000
10 23,772 10,145 9,883 100,000 14,522 14,259 100,000 20,851 20,588 100,000
11 26,851 11,142 10,932 100,000 16,451 16,241 100,000 24,465 24,255 100,000
12 30,083 12,217 12,059 100,000 18,566 18,408 100,000 28,568 28,410 100,000
13 33,478 13,202 13,097 100,000 20,716 20,611 100,000 33,068 32,963 100,000
14 37,041 14,102 14,049 100,000 22,908 22,856 100,000 38,020 37,967 100,000
15 40,783 14,904 14,904 100,000 25,136 25,136 100,000 43,476 43,476 100,000
16 44,713 15,569 15,569 100,000 27,370 27,370 100,000 49,481 49,481 100,000
17 48,838 16,137 16,137 100,000 29,650 29,650 100,000 56,142 56,142 100,000
18 53,170 16,599 16,599 100,000 31,975 31,975 100,000 63,548 63,548 100,000
19 57,719 16,945 16,945 100,000 34,346 34,346 100,000 71,806 71,806 100,000
20 62,495 17,166 17,166 100,000 36,763 36,763 100,000 81,042 81,042 100,000
21 67,509 17,248 17,248 100,000 39,228 39,228 100,000 91,333 91,333 108,686
22 72,775 17,176 17,176 100,000 41,739 41,739 100,000 102,679 102,679 121,161
23 78,304 16,928 16,928 100,000 44,297 44,297 100,000 115,185 115,185 134,766
24 84,109 16,484 16,484 100,000 46,904 46,904 100,000 128,966 128,966 149,600
25 90,204 15,817 15,817 100,000 49,561 49,561 100,000 144,150 144,150 165,773
26 96,604 14,896 14,896 100,000 52,273 52,273 100,000 160,878 160,878 181,792
27 103,325 13,690 13,690 100,000 55,049 55,049 100,000 179,363 179,363 199,093
28 110,381 12,163 12,163 100,000 57,900 57,900 100,000 199,814 199,814 217,797
29 117,790 10,305 10,305 100,000 60,857 60,857 100,000 222,477 222,477 238,051
30 125,569 8,022 8,022 100,000 63,920 63,920 100,000 247,623 247,623 260,004
31 133,738 5,238 5,238 100,000 67,109 67,109 100,000 275,574 275,574 289,353
32 142,315 1,859 1,859 100,000 70,450 70,450 100,000 306,396 306,396 321,716
33 151,321 * * * 73,996 73,996 100,000 340,374 340,374 357,392
34 160,777 * * * 77,779 77,779 100,000 377,798 377,798 396,687
35 170,705 * * * 81,880 81,880 100,000 419,006 419,006 439,957
36 181,131 * * * 86,371 86,371 100,000 464,337 464,337 487,554
37 192,077 * * * 91,368 91,368 100,000 514,165 514,165 539,873
38 203,571 * * * 96,988 96,988 101,837 568,924 568,924 597,371
39 215,640 * * * 102,857 102,857 108,000 629,029 629,029 660,480
40 228,312 * * * 108,927 108,927 114,374 694,972 694,972 729,721
41 241,617 * * * 115,189 115,189 120,949 767,204 767,204 805,564
42 255,588 * * * 121,642 121,642 127,724 846,264 846,264 888,577
43 270,257 * * * 128,279 128,279 134,692 932,698 932,698 979,333
44 285,660 * * * 135,092 135,092 141,847 1,027,078 1,027,078 1,078,432
45 301,833 * * * 142,074 142,074 149,178 1,130,013 1,130,013 1,186,514
46 318,815 * * * 149,217 149,217 155,186 1,242,153 1,242,153 1,291,839
47 336,646 * * * 156,838 156,838 161,543 1,367,032 1,367,032 1,408,043
48 355,368 * * * 165,023 165,023 168,323 1,506,677 1,506,677 1,536,810
49 375,026 * * * 173,872 173,872 175,611 1,663,532 1,663,532 1,680,167
50 395,668 * * * 183,506 183,506 183,506 1,840,558 1,840,558 1,840,558
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
(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 monthly mortality and
expense risk charge equal to .075% multiplied by the Variable Account Value,
which is equivalent to an annual rate of 0.90% of such amount during Policy
Years 1-10; and in Policy Years 11+ is equal to .021% multiplied by the
Variable Account Value, which is equivalent to an annual rate of .25% of
such amount.
(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
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>
12% HYPOTHETICAL
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL GROSS INVESTMENT
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
END OF AT ----------------------------------- ----------------------------------- ----------------------
POLICY 5% INTEREST POLICY CASH NET DEATH POLICY CASH NET DEATH POLICY CASH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ----------- ------------- --------- ----------- ----------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 941 469 100,000 1,019 547 100,000 1,098 625
2 3,875 2,139 1,667 100,000 2,364 1,892 100,000 2,600 2,127
3 5,958 3,292 2,820 100,000 3,742 3,270 100,000 4,231 3,759
4 8,146 4,399 3,927 100,000 5,153 4,681 100,000 6,005 5,532
5 10,443 5,457 4,985 100,000 6,596 6,123 100,000 7,933 7,460
6 12,856 6,467 5,995 100,000 8,070 7,598 100,000 10,031 9,559
7 15,388 7,423 7,003 100,000 9,573 9,153 100,000 12,313 11,893
8 18,048 8,320 7,952 100,000 11,100 10,733 100,000 14,794 14,427
9 20,840 9,154 8,840 100,000 12,650 12,335 100,000 17,494 17,179
10 23,772 9,920 9,658 100,000 14,216 13,954 100,000 20,431 20,169
11 26,851 10,649 10,439 100,000 15,834 15,624 100,000 23,671 23,461
12 30,083 11,299 11,142 100,000 17,465 17,307 100,000 27,204 27,047
13 33,478 11,868 11,764 100,000 19,106 19,001 100,000 31,066 30,961
14 37,041 12,352 12,300 100,000 20,757 20,705 100,000 35,297 35,244
15 40,783 12,742 12,742 100,000 22,411 22,411 100,000 39,938 39,938
16 44,713 13,028 13,028 100,000 24,063 24,063 100,000 45,039 45,039
17 48,838 13,202 13,202 100,000 25,706 25,706 100,000 50,659 50,659
18 53,170 13,249 13,249 100,000 27,331 27,331 100,000 56,866 56,866
19 57,719 13,151 13,151 100,000 28,927 28,927 100,000 63,740 63,740
20 62,495 12,889 12,889 100,000 30,482 30,482 100,000 71,378 71,378
21 67,509 12,445 12,445 100,000 31,985 31,985 100,000 79,902 79,902
22 72,775 11,803 11,803 100,000 33,428 33,428 100,000 89,406 89,406
23 78,304 10,942 10,942 100,000 34,802 34,802 100,000 99,822 99,822
24 84,109 9,840 9,840 100,000 36,097 36,097 100,000 111,221 111,221
25 90,204 8,467 8,467 100,000 37,298 37,298 100,000 123,696 123,696
26 96,604 6,777 6,777 100,000 38,383 38,383 100,000 137,345 137,345
27 103,325 4,658 4,658 100,000 39,285 39,285 100,000 152,324 152,324
28 110,381 2,142 2,142 100,000 40,035 40,035 100,000 168,804 168,804
29 117,790 * * * 40,551 40,551 100,000 186,952 186,952
30 125,569 * * * 40,780 40,780 100,000 206,974 206,974
31 133,738 * * * 40,670 40,670 100,000 229,124 229,124
32 142,315 * * * 40,161 41,691 100,000 253,372 253,372
33 151,321 * * * 39,182 39,182 100,000 279,905 279,905
34 160,777 * * * 37,646 37,646 100,000 308,922 308,922
35 170,705 * * * 35,431 35,431 100,000 340,636 340,636
36 181,131 * * * 32,363 32,363 100,000 375,272 375,272
37 192,077 * * * 28,196 28,196 100,000 413,062 413,062
38 203,571 * * * 22,589 22,589 100,000 454,247 454,247
39 215,640 * * * 15,067 15,067 100,000 499,073 499,073
40 228,312 * * * 4,994 4,994 100,000 547,804 547,804
41 241,617 * * * * * * 600,716 600,716
42 255,588 * * * * * * 658,108 658,108
43 270,257 * * * * * * 720,296 720,296
44 285,660 * * * * * * 787,621 787,621
45 301,833 * * * * * * 860,433 860,433
46 318,815 * * * * * * 939,088 939,088
47 336,646 * * * * * * 1,026,400 1,026,400
48 355,368 * * * * * * 1,123,767 1,123,767
49 375,026 * * * * * * 1,232,887 1,232,887
50 395,668 * * * * * * 1,355,842 1,355,842
<CAPTION>
END OF
POLICY NET DEATH
YEAR BENEFIT
- ----------- -----------
<S> <C>
1 100,000
2 100,000
3 100,000
4 100,000
5 100,000
6 100,000
7 100,000
8 100,000
9 100,000
10 100,000
11 100,000
12 100,000
13 100,000
14 100,000
15 100,000
16 100,000
17 100,000
18 100,000
19 100,000
20 100,000
21 100,000
22 105,499
23 116,791
24 129,016
25 142,250
26 155,200
27 169,079
28 183,997
29 200,038
30 217,322
31 240,580
32 266,041
33 293,900
34 324,368
35 357,668
36 394,035
37 433,715
38 476,959
39 524,027
40 575,194
41 630,752
42 691,014
43 756,311
44 827,002
45 903,454
46 976,651
47 1,057,192
48 1,146,242
49 1,245,216
50 1,355,842
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
(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 monthly mortality and
expense risk charge equal to .075% multiplied by the Variable Account Value,
which is equivalent to an annual rate of 0.90% of such amount during all
Policy Years.
(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
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 CASH NET DEATH POLICY CASH NET DEATH POLICY CASH NET 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 2,985 2,513 102,985 3,187 2,715 103,187 3,390 2,918 103,390
2 8,610 6,185 5,713 106,185 6,786 6,314 106,786 7,412 6,940 107,412
3 13,241 9,298 8,826 109,298 10,505 10,033 110,505 11,812 11,340 111,812
4 18,103 12,323 11,851 112,323 14,348 13,876 114,348 16,627 16,155 116,627
5 23,208 15,258 14,786 115,258 18,314 17,842 118,314 21,894 21,422 121,894
6 28,568 18,103 17,630 118,103 22,408 21,936 122,408 27,658 27,186 127,658
7 34,196 20,851 20,431 120,851 26,627 26,207 126,627 33,961 33,541 133,961
8 40,106 23,499 23,131 123,499 30,970 30,602 130,970 40,850 40,483 140,850
9 46,312 26,041 25,726 126,041 35,435 35,120 135,435 48,379 48,065 148,379
10 52,827 28,472 28,209 128,472 40,018 39,756 140,018 56,604 56,342 156,604
11 59,669 31,265 31,055 131,265 45,284 45,074 145,284 66,273 66,063 166,273
12 66,852 34,120 33,962 134,120 50,900 50,743 150,900 77,087 76,930 177,087
13 74,395 36,847 36,742 136,847 56,691 56,586 156,691 88,972 88,867 188,972
14 82,314 39,449 39,396 139,449 62,663 62,611 162,663 102,041 101,989 202,041
15 90,630 41,909 41,909 141,909 68,809 68,809 168,809 116,406 116,406 216,406
16 99,361 44,182 44,182 144,182 75,088 75,088 175,088 132,156 132,156 232,156
17 108,530 46,314 46,314 146,314 81,550 81,550 181,550 149,486 149,486 249,486
18 118,156 48,293 48,293 148,293 88,191 88,191 188,191 168,554 168,554 268,554
19 128,264 50,109 50,109 150,109 95,009 95,009 195,009 189,536 189,536 289,536
20 138,877 51,750 51,750 151,750 101,996 101,996 201,996 212,622 212,622 312,622
21 150,021 53,203 53,203 153,203 109,145 109,145 209,145 238,024 238,024 338,024
22 161,722 54,451 54,451 154,451 116,443 116,443 216,443 265,972 265,972 365,972
23 174,008 55,472 55,472 155,472 123,874 123,874 223,874 296,716 296,716 396,716
24 186,908 56,247 56,247 156,247 131,421 131,421 231,421 330,534 330,534 430,534
25 200,454 56,752 56,752 156,752 139,062 139,062 239,062 367,731 367,731 467,731
26 214,677 56,963 56,963 156,963 146,772 146,772 246,772 408,641 408,641 508,641
27 229,610 56,856 56,856 156,856 154,528 154,528 254,528 453,638 453,638 553,638
28 245,291 56,409 56,409 156,409 162,305 162,305 262,305 503,137 503,137 603,137
29 261,755 55,638 55,638 155,638 170,115 170,115 270,115 557,635 557,635 657,635
30 279,043 54,465 54,465 154,465 177,877 177,877 277,877 617,587 617,587 717,587
31 297,195 52,849 52,849 152,849 185,540 185,540 285,540 683,534 683,534 783,534
32 316,255 50,743 50,743 150,743 193,046 193,046 293,046 756,067 756,067 856,067
33 336,268 48,154 48,154 148,154 200,389 200,389 300,389 835,900 835,900 935,900
34 357,281 44,973 44,973 144,973 207,441 207,441 307,441 923,699 923,699 1,023,699
35 379,345 41,218 41,218 141,218 214,201 214,201 314,201 1,020,339 1,020,339 1,120,339
36 402,513 36,764 36,764 136,764 220,519 220,519 320,519 1,126,635 1,126,635 1,226,635
37 426,838 31,556 31,556 131,556 226,306 226,306 326,306 1,243,561 1,243,561 1,343,561
38 452,380 25,642 25,642 125,642 231,579 231,579 331,579 1,372,310 1,372,310 1,472,310
39 479,199 18,874 18,874 118,874 236,153 236,153 336,153 1,513,993 1,513,993 1,613,993
40 507,359 11,279 11,279 111,279 240,008 240,008 340,008 1,670,025 1,670,025 1,770,025
41 536,927 2,652 2,652 102,652 242,890 242,890 342,890 1,841,729 1,841,729 1,941,729
42 567,973 * * * 244,724 244,724 344,724 2,030,764 2,030,764 2,132,302
43 600,572 * * * 245,361 245,361 345,361 2,237,949 2,237,949 2,349,846
44 634,801 * * * 244,639 244,639 344,639 2,464,179 2,464,179 2,587,388
45 670,741 * * * 242,411 242,411 342,411 2,710,913 2,710,913 2,846,459
46 708,478 * * * 238,541 238,541 338,541 2,979,710 2,979,710 3,098,898
47 748,102 * * * 232,978 232,978 332,978 3,279,044 3,279,044 3,379,044
48 789,707 * * * 225,589 225,589 325,589 3,613,730 3,613,730 3,713,730
49 833,392 * * * 216,236 216,236 316,236 3,983,651 3,983,651 4,083,651
50 879,262 * * * 204,777 204,777 304,777 4,391,852 4,391,852 4,491,852
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable Premium Expense Charges, guaranteed 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 monthly mortality and
expense risk charge equal to .075% multiplied by the Variable Account Value,
which is equivalent to an annual rate of 0.90% of such amount during Policy
Years 1-10; and in Policy Years 11+ is equal to .021% multiplied by the
Variable Account Value, which is equivalent to an annual rate of .25% of
such amount.
(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
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 CASH NET DEATH POLICY CASH NET DEATH POLICY CASH NET 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 2,961 2,489 102,961 3,163 2,691 103,163 3,365 2,892 103,365
2 8,610 6,138 5,666 106,138 6,736 6,264 106,736 7,359 6,887 107,359
3 13,241 9,228 8,756 109,228 10,429 9,957 110,429 11,729 11,256 111,729
4 18,103 12,231 11,759 112,231 14,243 13,771 114,243 16,509 16,037 116,509
5 23,208 15,144 14,672 115,144 18,181 17,709 118,181 21,739 21,267 121,739
6 28,568 17,966 17,494 117,966 22,244 21,772 122,244 27,462 26,990 127,462
7 34,196 20,694 20,274 120,694 26,432 26,012 126,432 33,719 33,300 133,719
8 40,106 23,320 22,953 123,320 30,742 30,375 130,742 40,559 40,192 140,559
9 46,312 25,842 25,527 125,842 35,173 34,858 135,173 48,033 47,719 148,033
10 52,827 28,253 27,990 128,253 39,721 39,459 139,721 56,198 55,936 156,198
11 59,669 30,625 30,415 130,625 44,468 44,258 144,468 65,203 64,994 165,203
12 66,852 32,874 32,717 132,874 49,328 49,171 149,328 75,308 74,881 175,038
13 74,395 34,996 34,891 134,996 54,304 54,199 154,304 85,782 85,677 185,782
14 82,314 36,988 36,935 136,988 59,391 59,339 159,391 97,520 97,467 197,520
15 90,630 38,839 38,839 138,839 64,583 64,583 164,583 110,339 110,339 210,339
16 99,361 40,540 40,540 140,540 69,871 69,871 169,871 124,338 124,338 224,338
17 108,530 42,081 42,081 142,081 75,247 75,247 175,247 139,622 139,622 239,622
18 118,156 43,448 43,448 143,448 80,695 80,695 180,695 156,303 156,303 256,303
19 128,264 44,622 44,622 144,622 86,197 86,197 186,197 174,501 174,501 274,501
20 138,877 45,586 45,586 145,586 91,733 91,733 191,733 194,347 194,347 294,347
21 150,021 46,323 46,323 146,323 97,283 97,283 197,283 215,986 215,986 315,986
22 161,722 46,821 46,821 146,821 102,832 102,832 202,832 239,585 239,585 339,585
23 174,008 47,067 47,067 147,067 108,360 108,360 208,360 265,321 265,321 365,321
24 186,908 47,047 47,047 147,047 113,847 113,847 213,847 293,394 293,394 393,394
25 200,454 46,741 46,741 146,741 119,268 119,268 219,268 324,014 324,014 424,014
26 214,677 46,118 46,118 146,118 124,582 124,582 224,582 357,403 357,403 457,403
27 229,610 45,082 45,082 145,082 129,677 129,677 229,677 393,731 393,731 493,731
28 245,291 43,702 43,702 143,702 134,611 134,611 234,611 433,363 433,363 533,363
29 261,755 41,863 41,863 141,863 139,248 139,248 239,248 476,506 476,506 576,506
30 279,043 39,512 39,512 139,512 143,515 143,515 243,515 523,452 523,452 623,452
31 297,195 36,619 36,619 136,619 147,355 147,355 247,355 574,543 574,543 674,543
32 316,255 33,154 33,154 133,154 150,710 150,710 250,710 630,161 630,161 730,161
33 336,268 29,097 29,097 129,097 153,526 153,526 253,526 690,730 690,730 790,730
34 357,281 24,432 24,432 124,432 155,755 155,755 255,755 756,726 756,726 856,726
35 379,345 19,127 19,127 119,127 157,327 157,327 257,327 828,655 828,655 928,655
36 402,513 13,124 13,124 113,124 158,142 158,142 258,142 907,044 907,044 1,007,044
37 426,838 6,343 6,343 106,343 158,075 158,075 258,075 992,452 992,452 1,092,452
38 452,380 * * * 156,967 156,967 256,967 1,085,468 1,085,468 1,185,468
39 479,199 * * * 154,641 154,641 254,641 1,186,726 1,186,726 1,286,726
40 507,359 * * * 150,936 150,936 250,936 1,296,949 1,296,949 1,396,949
41 536,927 * * * 145,710 145,710 245,710 1,416,961 1,416,961 1,516,961
42 567,973 * * * 138,844 138,844 238,844 1,547,700 1,547,700 1,647,700
43 600,572 * * * 130,226 130,226 230,226 1,690,209 1,690,209 1,790,209
44 634,801 * * * 119,767 119,767 219,767 1,845,670 1,845,670 1,945,670
45 670,741 * * * 107,356 107,356 207,356 2,015,359 2,015,359 2,116,127
46 708,478 * * * 92,856 92,856 192,856 2,199,500 2,199,500 2,299,500
47 748,102 * * * 76,094 76,094 176,094 2,401,808 2,401,808 2,501,808
48 789,707 * * * 56,840 56,840 156,840 2,622,819 2,622,819 2,722,819
49 833,392 * * * 34,774 34,774 134,774 2,864,211 2,864,211 2,964,211
50 879,261 * * * 9,222 9,222 109,222 3,127,481 3,127,481 3,227,481
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable Premium Expense Charges, current 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 monthly mortality and
expense risk charge equal to .075% multiplied by the Variable Account Value,
which is equivalent to an annual rate of 0.90% of such amount during all
Policy Years.
(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
$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 CASH NET DEATH POLICY CASH NET DEATH POLICY CASH NET 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 2,097 1,705 102,097 2,244 1,852 102,244 2,392 1,999 102,392
2 6,458 4,433 4,041 104,433 4,869 4,476 104,869 5,322 4,929 105,322
3 9,930 6,705 6,312 106,705 7,579 7,187 107,579 8,527 8,134 108,527
4 13,577 8,911 8,518 108,911 10,378 9,986 110,378 12,032 11,639 112,032
5 17,406 11,051 10,658 111,051 13,269 12,876 113,269 15,866 15,474 115,866
6 21,426 13,124 12,731 113,124 16,249 15,856 116,249 20,060 19,668 120,060
7 25,647 15,127 14,778 115,127 19,322 18,973 119,322 24,648 24,299 124,648
8 30,080 17,060 16,754 117,060 22,488 22,182 122,488 29,665 29,359 129,665
9 34,734 19,072 18,810 119,072 25,904 25,642 125,904 35,314 35,052 135,314
10 39,620 21,094 20,876 121,094 29,511 29,292 129,511 41,587 41,369 141,587
11 44,751 23,254 23,079 123,254 33,499 33,324 133,499 48,810 48,636 148,810
12 50,139 25,348 25,217 125,348 37,639 37,508 137,639 56,773 56,642 156,773
13 55,796 27,371 27,283 127,371 41,929 41,842 141,929 65,545 65,458 165,545
14 61,736 29,297 29,253 129,297 46,351 46,307 146,351 75,190 75,146 175,190
15 67,972 31,147 31,147 131,147 50,931 50,931 150,931 85,820 85,820 185,820
16 74,521 32,877 32,877 132,877 55,629 55,629 155,629 97,494 97,494 197,494
17 81,397 34,521 34,521 134,521 60,486 60,486 160,486 110,362 110,362 210,362
18 88,617 36,075 36,075 136,075 65,505 65,505 165,505 124,546 124,546 224,546
19 96,198 37,546 37,546 137,546 70,697 70,697 170,697 140,193 140,193 240,193
20 104,158 38,916 38,916 138,916 76,054 76,054 176,054 157,444 157,444 257,444
21 112,516 40,181 40,181 140,181 81,576 81,576 181,576 176,464 176,464 276,464
22 121,291 41,331 41,331 141,331 87,261 87,261 187,261 197,435 197,435 297,435
23 130,506 42,370 42,370 142,370 93,120 93,120 193,120 220,569 220,569 320,569
24 140,181 43,277 43,277 143,277 99,136 99,136 199,136 246,077 246,077 346,077
25 150,340 44,055 44,055 144,055 105,319 105,319 205,319 274,215 274,215 374,215
26 161,007 44,673 44,673 144,673 111,644 111,644 211,644 305,235 305,235 405,235
27 172,208 45,129 45,129 145,129 118,114 118,114 218,114 339,444 339,444 439,444
28 183,968 45,380 45,380 145,380 124,689 124,689 224,689 377,139 377,139 477,139
29 196,317 45,418 45,418 145,418 131,363 131,363 231,363 418,684 418,684 518,684
30 209,282 45,184 45,184 145,184 138,079 138,079 238,079 464,432 464,432 564,432
31 222,897 44,665 44,665 144,665 144,820 144,820 244,820 514,819 514,819 614,819
32 237,191 43,820 43,820 143,820 151,541 151,541 251,541 570,298 570,298 670,298
33 252,201 42,600 42,600 142,600 158,190 158,190 258,190 631,366 631,366 731,366
34 267,961 40,915 40,915 140,915 164,662 164,662 264,662 698,525 698,525 798,525
35 284,509 38,751 38,751 138,751 170,931 170,931 270,931 772,412 772,412 872,412
36 301,884 36,057 36,057 136,057 176,927 176,927 276,927 853,694 853,694 953,694
37 320,129 32,783 32,783 132,783 182,580 182,580 282,580 943,111 943,111 1,043,111
38 339,285 28,879 28,879 128,879 187,814 187,184 287,814 1,041,483 1,041,483 1,141,483
39 359,399 24,224 24,224 124,224 192,476 192,476 292,476 1,149,639 1,149,639 1,249,639
40 380,519 18,834 18,834 118,834 196,547 196,547 296,547 1,268,646 1,268,646 1,368,646
41 402,695 12,660 12,660 112,660 199,937 199,937 299,937 1,399,615 1,399,615 1,499,615
42 425,980 5,633 5,633 105,633 202,534 202,534 302,534 1,543,755 1,543,755 1,643,755
43 450,429 * * * 204,236 204,236 304,236 1,702,425 1,702,425 1,802,425
44 476,100 * * * 204,935 204,935 304,935 1,877,129 1,877,129 1,977,129
45 503,055 * * * 204,516 204,516 304,516 2,069,470 2,069,470 2,172,943
46 531,358 * * * 202,861 202,861 302,861 2,280,189 2,280,189 2,380,189
47 561,076 * * * 199,873 199,873 299,873 2,513,616 2,513,616 2,613,616
48 592,280 * * * 195,426 195,426 295,426 2,770,921 2,770,921 2,870,921
49 625,044 * * * 189,387 189,387 289,387 3,054,620 3,054,620 3,154,620
50 659,446 * * * 181,617 181,617 281,617 3,367,502 3,367,502 3,467,502
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
(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 monthly mortality and
expense risk charge equal to .075% multiplied by the Variable Account Value,
which is equivalent to an annual rate of 0.90% of such amount during Policy
Years 1-10; and in Policy Years 11+ is equal to .021% multiplied by the
Variable Account Value, which is equivalent to an annual rate of .25% of
such amount.
(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>
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>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF --------------------------------- --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY CASH NET DEATH POLICY CASH NET DEATH POLICY CASH NET 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 2,074 1,681 102,074 2,220 1,827 102,220 2,367 1,974 102,367
2 6,458 4,386 3,993 104,386 4,818 4,426 104,818 5,269 4,876 105,269
3 9,930 6,635 6,242 106,635 7,503 7,110 107,503 8,443 8,050 108,443
4 13,577 8,818 8,425 108,818 10,274 9,881 110,274 11,914 11,521 111,914
5 17,406 10,937 10,544 110,937 13,135 12,742 113,135 15,711 15,319 115,711
6 21,426 12,987 12,595 112,987 16,086 15,693 116,086 19,864 19,471 119,864
7 25,647 14,970 14,621 114,970 19,128 18,778 119,128 24,407 24,057 124,407
8 30,080 16,881 16,576 116,881 22,260 21,955 122,260 29,373 29,068 129,373
9 34,734 18,717 18,455 118,717 25,481 25,219 125,481 34,802 34,540 134,802
10 39,620 20,478 20,260 120,478 28,794 28,575 128,794 40,738 40,519 140,738
11 44,751 22,220 22,046 122,220 32,260 32,086 132,260 47,295 47,121 147,295
12 50,139 23,886 23,755 123,886 35,824 35,693 135,824 54,471 54,340 154,471
13 55,796 25,475 25,387 125,475 39,489 39,402 139,489 62,327 62,240 162,327
14 61,736 26,991 26,947 126,991 43,262 43,219 143,262 70,935 70,891 170,935
15 67,972 28,433 28,433 128,433 47,144 47,144 147,144 80,368 80,368 180,368
16 74,521 29,794 29,794 129,794 51,131 51,131 151,131 90,702 90,702 190,702
17 81,397 31,066 31,066 131,066 55,218 55,218 155,218 102,017 102,017 202,017
18 88,617 32,233 32,233 132,233 59,391 59,391 159,391 114,395 114,395 214,395
19 96,198 33,277 33,277 133,277 63,633 63,633 163,633 127,923 127,923 227,923
20 104,158 34,181 34,181 134,181 67,926 67,926 167,926 142,697 142,697 242,697
21 112,516 34,939 34,939 134,939 72,263 72,263 172,263 158,832 158,832 258,832
22 121,291 35,541 35,541 135,541 76,636 76,636 176,636 176,458 176,458 276,458
23 130,506 35,990 35,990 135,990 81,043 81,043 181,043 195,723 195,723 295,723
24 140,181 36,288 36,288 136,288 85,485 85,485 185,485 216,792 216,792 316,792
25 150,340 36,426 36,426 136,426 89,954 89,954 189,954 239,838 239,838 339,838
26 161,007 36,385 36,385 136,385 94,426 94,426 194,426 265,037 265,037 365,037
27 172,208 36,132 36,132 136,132 98,865 98,865 198,865 292,570 292,570 392,570
28 183,968 35,622 35,622 135,622 103,217 103,217 203,217 322,622 322,622 422,622
29 196,317 34,801 34,801 134,801 107,419 107,419 207,419 355,385 355,385 455,385
30 209,282 33,618 33,618 133,618 111,408 111,408 211,408 391,076 391,076 491,076
31 222,897 32,030 32,030 132,030 115,121 115,121 215,121 429,939 429,939 529,939
32 237,191 30,002 30,002 130,002 118,505 118,505 218,505 472,251 472,251 572,251
33 252,201 27,507 27,507 127,507 121,509 121,509 221,509 518,324 518,324 618,324
34 267,961 24,520 24,520 124,520 124,081 124,081 224,081 568,505 568,505 686,505
35 284,509 20,997 20,997 120,997 126,151 126,151 226,151 623,156 623,156 723,156
36 301,884 16,874 16,874 116,874 127,620 127,620 227,620 682,652 682,652 782,652
37 320,129 12,065 12,065 112,065 128,363 128,363 228,363 747,380 747,380 847,380
38 339,285 6,461 6,461 106,461 128,225 128,225 228,225 817,745 817,745 917,745
39 359,399 * * * 127,030 127,030 227,030 894,175 894,175 994,175
40 380,519 * * * 124,618 124,618 224,618 977,166 977,166 1,077,166
41 402,695 * * * 120,824 120,824 220,824 1,067,267 1,067,267 1,167,267
42 425,980 * * * 115,499 115,499 215,499 1,165,107 1,165,107 1,265,107
43 450,429 * * * 108,480 108,480 208,480 1,271,369 1,271,369 1,371,369
44 476,100 * * * 99,611 99,611 199,611 1,386,821 1,386,821 1,486,821
45 503,055 * * * 88,708 88,708 188,708 1,512,285 1,512,285 1,612,285
46 531,358 * * * 75,577 75,577 175,577 1,648,668 1,648,668 1,748,668
47 561,076 * * * 59,983 59,983 159,983 1,796,930 1,796,930 1,896,930
48 592,280 * * * 41,624 41,624 141,624 1,958,074 1,958,074 2,058,074
49 625,044 * * * 20,083 20,083 120,083 2,133,095 2,133,095 2,233,095
50 659,446 * * * * * * 2,322,831 2,322,831 2,422,831
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
(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 monthly mortality and
expense risk charge equal to .075% multiplied by the Variable Account Value,
which is equivalent to an annual rate of 0.90% of such amount during all
Policy Years.
(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.
42
<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 CASH NET DEATH POLICY CASH NET DEATH POLICY CASH NET 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 1,575 717 324 100,717 780 387 100,780 843 450 100,843
2 3,229 1,698 1,305 101,698 1,878 1,485 101,878 2,066 1,673 102,066
3 4,965 2,639 2,246 102,639 3,000 2,607 103,000 3,391 2,998 103,391
4 6,788 3,540 3,147 103,540 4,144 3,751 104,144 4,825 4,432 104,825
5 8,703 4,399 4,006 104,399 5,310 4,917 105,310 6,379 5,986 106,379
6 10,713 5,213 4,820 105,213 6,494 6,102 106,494 8,060 7,667 108,060
7 12,824 5,982 5,633 105,982 7,697 7,348 107,697 9,879 9,529 109,879
8 15,040 6,702 6,397 106,702 8,914 8,608 108,914 11,846 11,540 111,846
9 17,367 7,525 7,263 107,525 10,301 10,039 110,301 14,135 13,873 114,135
10 19,810 8,379 8,161 108,379 11,794 11,575 111,794 16,708 16,490 116,708
11 22,376 9,271 9,096 109,271 13,424 13,250 113,424 19,650 19,476 119,650
12 25,069 10,113 9,982 110,113 15,093 14,962 115,093 22,869 22,738 122,869
13 27,898 10,897 10,810 110,897 16,794 16,706 116,794 26,385 26,298 126,385
14 30,868 11,600 11,557 111,600 18,502 18,458 118,502 30,205 30,161 130,205
15 33,986 12,242 12,242 112,242 20,236 20,236 120,236 34,380 34,380 134,380
16 37,261 12,777 12,777 112,777 21,953 21,953 121,953 38,903 38,903 138,903
17 40,699 13,241 13,241 113,241 23,685 23,685 123,685 43,845 43,845 143,845
18 44,309 13,630 13,630 113,630 25,428 25,428 125,428 49,247 49,247 149,247
19 48,099 13,948 13,948 113,948 27,187 27,187 127,187 55,162 55,162 155,162
20 52,079 14,180 14,180 114,180 28,946 28,946 128,946 61,630 61,630 161,630
21 56,258 14,320 14,320 114,320 30,697 30,697 130,697 68,702 68,702 168,702
22 60,646 14,359 14,359 114,359 32,429 32,429 132,429 76,431 76,431 176,431
23 65,253 14,300 14,300 114,300 34,145 34,145 134,145 84,894 84,894 184,894
24 70,091 14,122 14,122 114,122 35,819 35,819 135,819 94,143 94,143 194,143
25 75,170 13,827 13,827 113,827 37,451 37,451 137,451 104,266 104,266 204,266
26 80,504 13,386 13,386 113,386 39,007 39,007 139,007 115,323 115,323 215,323
27 86,104 12,795 12,795 112,795 40,478 40,478 140,478 127,411 127,411 227,411
28 91,984 12,012 12,012 112,012 41,813 41,813 141,813 140,594 140,594 240,594
29 98,158 11,028 11,028 111,028 42,996 42,996 142,996 154,977 154,977 254,977
30 104,641 9,784 9,784 109,784 43,955 43,955 143,955 170,627 170,627 270,627
31 111,448 8,267 8,267 108,267 44,664 44,664 144,664 187,662 187,662 287,662
32 118,596 6,436 6,436 106,436 45,062 45,062 145,062 206,184 206,184 306,184
33 126,100 4,242 4,242 104,242 45,084 45,084 145,084 226,299 226,299 326,299
34 133,980 1,594 1,594 101,594 44,611 44,611 144,611 248,078 248,078 348,078
35 142,255 * * * 43,600 43,600 143,600 271,680 271,680 371,680
36 150,942 * * * 41,966 41,966 141,966 297,242 297,242 397,242
37 160,064 * * * 39,621 39,621 139,621 324,916 324,916 424,916
38 169,643 * * * 36,474 36,474 136,474 354,868 354,868 454,868
39 179,700 * * * 32,351 32,351 132,351 387,210 387,210 487,210
40 190,260 * * * 27,214 27,214 127,214 422,207 422,207 522,207
41 201,348 * * * 20,954 20,954 120,954 460,084 460,084 560,084
42 212,990 * * * 13,437 13,437 113,437 501,070 501,070 601,070
43 225,215 * * * 4,538 4,538 104,538 545,434 545,434 645,434
44 238,050 * * * * * * 593,475 593,475 693,475
45 251,528 * * * * * * 645,524 645,524 745,524
46 265,679 * * * * * * 701,944 701,944 801,944
47 280,538 * * * * * * 763,171 763,171 863,171
48 296,140 * * * * * * 829,661 829,661 929,661
49 312,522 * * * * * * 901,919 901,919 1,001,919
50 329,723 * * * * * * 980,502 980,502 1,080,502
</TABLE>
- ----------------------------------
* In the absence of an additional premium, the Policy would lapse.
(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 monthly mortality and expense risk
charge equal to .075% multiplied by the Variable Account Value, which is
equivalent to an annual rate of 0.90% of such amount during Policy Years
1-10; and in Policy Years 11+ is equal to .021% multiplied by the Variable
Account Value, which is equivalent to an annual rate of .25% of such amount.
(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.
43
<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 CASH NET DEATH POLICY CASH NET DEATH POLICY CASH NET 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 1,575 693 300 100,693 755 362 100,755 817 425 100,817
2 3,229 1,651 1,258 101,651 1,828 1,435 101,828 2,013 1,620 102,013
3 4,965 2,569 2,176 102,569 2,923 2,530 102,923 3,307 2,914 103,307
4 6,788 3,447 3,054 103,447 4,039 3,646 104,039 4,707 4,315 104,707
5 8,703 4,284 3,891 104,284 5,176 4,783 105,176 6,224 5,831 106,224
6 10,713 5,077 4,684 105,077 6,331 5,938 106,331 7,863 7,471 107,863
7 12,824 5,825 5,475 105,825 7,502 7,153 107,502 9,637 9,288 109,637
8 15,040 6,524 6,219 106,524 8,687 8,381 108,687 11,555 11,249 111,555
9 17,367 7,170 6,908 107,170 9,878 9,616 109,878 13,623 13,362 113,623
10 19,810 7,763 7,544 107,763 11,077 10,858 111,077 15,858 15,640 115,858
11 22,376 8,329 8,155 108,329 12,310 12,136 112,310 18,306 18,132 118,306
12 25,069 8,840 8,709 108,840 13,548 13,417 113,548 20,954 20,823 120,954
13 27,898 9,296 9,209 109,296 14,791 14,704 114,791 23,823 23,736 123,823
14 30,868 9,701 9,657 109,701 16,040 15,997 116,040 26,937 26,893 126,937
15 33,986 10,051 10,051 110,051 17,294 17,294 117,294 30,317 30,317 130,317
16 37,261 10,340 10,340 110,340 18,543 18,543 118,543 33,984 33,984 133,984
17 40,699 10,560 10,560 110,560 19,778 19,778 119,778 37,954 37,954 137,954
18 44,309 10,695 10,695 110,695 20,981 20,981 120,981 42,242 42,242 142,242
19 48,099 10,726 10,726 110,726 22,129 22,129 122,129 46,857 46,857 146,857
20 52,079 10,635 10,635 110,635 23,199 23,199 123,199 51,812 51,812 151,812
21 56,258 10,416 10,416 110,416 24,180 24,180 124,180 57,131 57,131 157,131
22 60,646 10,060 10,060 110,060 25,056 25,056 125,056 62,842 62,842 162,842
23 65,253 9,568 9,568 109,568 25,822 25,822 125,822 68,981 68,981 168,981
24 70,091 8,942 8,942 108,942 26,471 26,471 126,471 75,591 75,591 175,591
25 75,170 8,173 8,173 108,173 26,989 26,989 126,989 82,709 82,709 182,709
26 80,504 7,242 7,242 107,242 27,345 27,345 127,345 90,362 90,362 190,362
27 86,104 6,116 6,116 106,116 27,498 27,498 127,498 98,566 98,566 198,566
28 91,984 4,748 4,748 104,748 27,385 27,385 127,385 107,324 107,324 207,324
29 98,158 3,085 3,085 103,085 26,937 26,937 126,937 116,632 116,632 216,632
30 104,641 1,076 1,076 101,076 26,081 26,081 126,082 126,483 126,483 226,483
31 111,448 * * * 24,749 24,749 124,749 136,881 136,881 236,881
32 118,596 * * * 22,878 22,878 122,878 147,836 147,836 247,836
33 126,100 * * * 20,407 20,407 120,407 159,367 159,367 259,367
34 133,980 * * * 17,278 17,278 117,278 171,496 171,496 271,496
35 142,255 * * * 13,409 13,409 113,409 184,229 184,229 284,229
36 150,942 * * * 8,692 8,692 108,692 197,548 197,548 297,548
37 160,064 * * * 2,992 2,992 102,992 211,407 211,407 311,407
38 169,643 * * * * * * 225,735 225,735 325,735
39 179,700 * * * * * * 240,434 240,434 340,434
40 190,260 * * * * * * 255,424 255,424 355,424
41 201,348 * * * * * * 270,614 270,614 370,614
42 212,990 * * * * * * 285,932 285,932 385,932
43 225,215 * * * * * * 301,287 301,287 401,287
44 238,050 * * * * * * 316,597 316,597 416,597
45 251,528 * * * * * * 331,745 331,745 431,745
46 265,679 * * * * * * 346,603 346,603 446,603
47 280,538 * * * * * * 360,994 360,994 460,994
48 296,140 * * * * * * 374,664 374,664 474,664
49 312,522 * * * * * * 387,229 387,229 487,229
50 329,723 * * * * * * 398,004 398,004 498,004
</TABLE>
- ----------------------------------
* In the absence of an additional premium, the Policy would lapse.
(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 monthly mortality and
expense risk charge equal to .075% multiplied by the Variable Account Value,
which is equivalent to an annual rate 0.90% of such amount during all Policy
Years.
(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.
44
<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
45
<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 in certain states.
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.
46
<PAGE>
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 Sub-Accounts 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. (The tax implications of using this Policy with these
applications can be complex and generally are not addressed in the discussion of
"Tax Considerations" below.) 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
47
<PAGE>
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). 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 variable contract owner will be considered the
owner of the assets of a segregated asset account if the owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. In addition, the Treasury Department
announced, in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of
a segregated asset account may cause the investor, rather than the insurance
company, to be treated as the owner of the assets in the account". This
announcement also stated that 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 guidance 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 and thus subject to current taxation on the
income and gains from those assets. In addition, Protective Life does not
know what standards will be set forth in
48
<PAGE>
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.
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 are not received in a lump sum and are,
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 are 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" generally is the aggregate Premium 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 treated first as non-taxable recovery of premium and then as income
from the Policy. Thus, a withdrawal from 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.
49
<PAGE>
Generally, interest paid on any loans under this Policy will not be tax
deductible. The non-deductibility of interest includes interest paid or
accrued on indebtedness with respect to one or more life insurance policies
owned by a taxpayer covering any individual who is or has been an officer or
employee of, or financially interested in, any trade or business carried on
by the taxpayer. A limited exception to this rule exists for certain
interest paid in connection with certain "key person" insurance. In the case
of interest paid in connection with a loan with respect to a Policy covering
the life of any key person, interest is deductible only to the 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. A "key person" is an individual who is either an officer or a
twenty percent owner of the taxpayer. The maximum number of individuals who
can be treated as key persons may not exceed the greater of (1) 5
individuals or (2) the lesser of 5 percent of the total number of officers
and employees of the taxpayer or 20 individuals. 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 treated
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 any 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 1/2, (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
50
<PAGE>
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
amount of a withdrawal (or a deemed withdrawal) that is taxable and the
amount which might be subject to the 10% penalty tax described above.
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. 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 95% 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 .25% 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.
51
<PAGE>
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. 56 Chairman of the Board and a Director
John D. Johns 45 President and a Director
Ormond L. Bentley 61 Executive Vice President and a Director
R. Stephen Briggs 47 Executive Vice President and a Director
Jim E. Massengale 54 Executive Vice President and a Director
A.S. Williams III 60 Executive Vice President, Treasurer and a Director
Danny L. Bentley 39 Senior Vice President, Group and a Director
Richard J. Bielen 36 Senior Vice President, Investments and a Director
Carolyn King 46 Senior Vice President, Investment Products and a Director
Deborah J. Long 43 Senior Vice President, General Counsel, Secretary and a Director
Steven A. Schultz 43 Senior Vice President, Financial Institutions and a Director
Wayne E. Stuenkel 43 Senior Vice President and Chief Actuary and a Director
Judy Wilson 38 Senior Vice President, Guaranteed Investment Contracts
Jerry W. DeFoor 44 Vice President and Controller, and Chief Accounting Officer
</TABLE>
Mr. Nabers has been Chairman of the Board and a Director of Protective Life
since August 1996. Mr. Nabers has been Chairman of the Board and Chief Executive
Officer of PLC and a Director since August 1996. From May 1994 to August 1996,
Mr. Nabers was Chairman of the Board, President and Chief Executive Officer and
a Director of PLC. From May 1992 to May 1994, he was President and Chief
Executive Officer and a Director of PLC. Mr. Nabers was President and Chief
Operating Officer and a Director of PLC from August 1982 until May 1992. From
July 1981 to August 1982, he was Senior Vice President of PLC. From August 1982
to August 1996, he was President of Protective Life and had been its Senior Vice
President from September 1981 to August 1982. From February 1980 to September
1981, he served as Senior Vice President, Operations of Protective Life. From
1979 to February 1980, he was Senior Vice President, Operations and General
Counsel of Protective Life. From February 1980 to March 1983, he served as
President of Empire General Life Insurance Company, a subsidiary, and from March
1983 to December 31, 1984, he was Chairman of the Executive Committee of Empire
General. He is also a director of Energen Corporation, National Bank of Commerce
of Birmingham, and Alabama National Bancorporation.
Mr. Johns has been President and Chief Operating Officer of PLC since August
1996 and President of Protective Life since August 1996. He was Executive Vice
President and Chief Financial Officer of PLC and of Protective Life from October
1993 to August 1996. From August 1988 to October 1993, he served as Vice
President and General Counsel of Sonat Inc. He is a director of National Bank of
Commerce of Birmingham and Alabama National Bancorporation.
Mr. Ormond L. Bentley has been Executive Vice President, Group of Protective
and PLC since August 1996. From December 1978 to August 1996 he served as Senior
Vice President, Group of Protective. He has also served as Senior Vice
President, Group of PLC from August 1988 to August 1996. Mr. Bentley has been
employed by Protective since October 1965.
Mr. Briggs has been Executive Vice President of PLC and Protective since
October 1993. From January 1993 to October 1993 he was Senior Vice President,
Life Insurance and Investment Products of Protective and PLC. Mr. Briggs had
been Senior Vice President, Ordinary Marketing of PLC since August 1988 and of
Protective since April 1986. From July 1983 to April 1986, he was President of
First Protective Insurance Group, Inc.
Mr. Massengale has been Executive Vice President, Acquisitions of Protective
and PLC since August 1996. From May 1992 to August 1996 he served as Senior Vice
President of Protective and
52
<PAGE>
PLC. From May 1989 to May 1992 Mr. Massengale was Senior Vice President,
Operations and Systems of Protective and PLC. From January 1983 to May 1989, he
was Senior Vice President, Corporate Systems of Protective and PLC.
Mr. Williams has been Executive Vice President, Investments and Treasurer of
Protective and PLC since August 1996. From July 1981 to August 1996 he was
Senior Vice President, Investments and Treasurer of PLC and Protective. Mr.
Williams has been employed by Protective since November 1964.
Mr. Danny L. Bentley has been Senior Vice President, Group of Protective and
PLC since August 1996. From May 1989 to August 1996, he was Vice President,
Group Marketing of Protective.
Mr. Bielen has been Senior Vice President, Investments of PLC and Protective
since August 1996. From August 1991 to August 1996, he was Vice President,
Investments of Protective.
Ms. King has been Senior Vice President, Investment Products Division of PLC
and of Protective since April 1995. From August 1994 to March 1995, she served
as Senior Vice President and Chief Investment Officer of Provident Life and
Accident Insurance Company and of its parent company, Provident Life and
Accident Insurance Company of America. She served as President of Provident
National Assurance Company from November 1987 to March 1995. From November 1986
to August 1994, she served as Vice President of Provident Life and Accident
Insurance Company of America.
Ms. Long has been Senior VP, Secretary and General Counsel of PLC since
November 1996 and of Protective since September 1996. Ms. Long was Senior Vice
President and General Counsel of PLC from February 1994 to November 1996 and of
Protective from February 1994 to September 1996. From August 1993 to January
1994, Ms. Long served as General Counsel of PLC and from February 1984 to
January 1994 she practiced law with the law firm of Maynard, Cooper & Gale, P.C.
Mr. Schultz has been Senior Vice President, Financial Institutions of
Protective and PLC since March 1993. Mr. Schultz served as Vice President,
Financial Institutions of Protective 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.
Mr. Stuenkel has been Senior Vice President and Chief Actuary of Protective
and PLC since March 1987. Mr. Stuenkel is a Fellow in the Society of Actuaries
and has been employed by Protective since September 1978.
Ms. Wilson has been Senior Vice President, Guaranteed Investment Contracts
of Protective and PLC since January 1995. From July 1991 to December 31, 1994,
she served as Vice President, Guaranteed Investment Contracts of Protective.
From October 1989 to July 1991, Ms. Wilson was employed by an affiliated
insurer.
Mr. DeFoor has been Vice President and Controller, and Chief Accounting
Officer of Protective and PLC since April 1989, Mr. DeFoor is a certified public
accountant and has been employed by Protective 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.
53
<PAGE>
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 audited statement of net assets of the Variable Account (comprised of
seven Sub-Accounts) as of December 31, 1996 and the related statements of
operations and changes in net assets for the period from June 19, 1996 (date of
inception) through December 31, 1996 and included in this Prospectus, have been
included herein in reliance on the report of Coopers and Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheets of Protective Life as of December 31, 1996
and 1995 and the consolidated statements of income, stockholder's equity and
cash flows for each of the three years in the period ended December 31, 1996 and
the related financial statement schedules included in this Prospectus, have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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, L.L.P. of Washington, D.C. has provided advice
on certain matters relating to the federal securities laws.
FINANCIAL STATEMENTS
The audited statement of net assets of the Protective Variable Life Separate
Account (comprised of seven Sub-Accounts) as of December 31, 1996 and the
related statements of operations and changes in net assets for the period ended
December 31, 1996 as well as the Report of Independent Accountants are contained
herein.
The audited consolidated balance sheets for Protective Life as of December
31, 1996 and 1995 and the related consolidated statements of income,
stockholder's equity, and cash flows for the years ended December 31, 1996, 1995
and 1994 as well as the Report of Independent Accountants are contained herein.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
Report of Independent Accountants............................................... F-2
Statement of Net Assets as of December 31, 1996................................. F-3
Statement of Operations for the period from June 19, 1996 (date of inception)
through December 31, 1996...................................................... F-4
Statement of Changes in Net Assets for the period from June 19, 1996 (date of
inception) through December 31, 1996........................................... F-5
Notes to Financial Statements................................................... F-6
PROTECTIVE LIFE INSURANCE COMPANY
Report of Independent Accountants............................................... F-10
Consolidated Statements of Income for the years ended December 31, 1996, 1995,
and 1994....................................................................... F-11
Consolidated Balance Sheets as of December 31, 1996 and 1995.................... F-12
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1996, 1995, and 1994.............................................. F-13
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995, and 1994................................................................. F-14
Notes to Consolidated Financial Statements...................................... F-15
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information........................... F-36
Schedule IV -- Reinsurance.................................................... F-37
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contractowners and Board of Directors
of Protective Life Insurance Company
We have audited the financial statements of the Protective Variable Life
Separate Account (comprised of seven subaccounts) included on pages F-3 through
F-8 of this registration statement on Form S-6. These financial statements are
the responsibility of the management of the Protective Variable Life Separate
Account. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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. Our procedures included
confirmation of shares owned as of December 31, 1996, with the transfer agent,
State Street Bank and Trust. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Protective Variable Life
Separate Account as of December 31, 1996, the results of its operations, and the
changes in its net assets for the period from June 19, 1996 (date of inception)
through December 31, 1996, in conformity with generally accepted accounting
principles.
Birmingham, Alabama
March 14, 1997
F-2
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERNATIONAL
MONEY MARKET GROWTH AND INCOME EQUITY GLOBAL INCOME SMALL CAP EQUITY SELECT EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------------ ------------ ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in Protective
Investment Company at
market value.......... $ 14,144 $ 149,418 $ 122,118 $ 21,153 $ 129,053 $ 76,118
------------- ---------- ------------ ------------- ---------------- -------------
TOTAL ASSETS............ $ 14,144 $ 149,418 $ 122,118 $ 21,153 $ 129,053 $ 76,118
------------- ---------- ------------ ------------- ---------------- -------------
------------- ---------- ------------ ------------- ---------------- -------------
<CAPTION>
CAPITAL GROWTH
SUB-ACCOUNT
--------------
<S> <C>
ASSETS
Investment in Protective
Investment Company at
market value.......... $ 105,334
--------------
TOTAL ASSETS............ $ 105,334
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JUNE 19, 1996 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERNATIONAL
MONEY MARKET GROWTH AND INCOME EQUITY GLOBAL INCOME SMALL CAP EQUITY SELECT EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ------------------- ------------- ----------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............. $ 115 $ 1,798 $ 45 $ 916 $ 322 $ 822
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain from
redemption of
investment shares..... 68 17 34 3 17
Capital gain
distribution.......... 8,973 2,300 331 12,584 1,684
----- -------- ------------- ----- ---------------- -------------
Net realized gain on
investments........... 9,041 2,317 365 12,587 1,701
Net unrealized
appreciation
(depreciation) on
investments during the
period................ 956 2,181 (749) (13,378) 631
----- -------- ------------- ----- ---------------- -------------
Net realized and
unrealized gain (loss)
on investments........ 9,997 4,498 (384) (791) 2,332
----- -------- ------------- ----- ---------------- -------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS............ $ 115 $ 11,795 $ 4,543 $ 532 ($ 469) $ 3,154
----- -------- ------------- ----- ---------------- -------------
----- -------- ------------- ----- ---------------- -------------
<CAPTION>
CAPITAL GROWTH
SUB-ACCOUNT
---------------
<S> <C>
INVESTMENT INCOME
Dividends............. $ 1,027
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain from
redemption of
investment shares..... 50
Capital gain
distribution.......... 1,302
-------
Net realized gain on
investments........... 1,352
Net unrealized
appreciation
(depreciation) on
investments during the
period................ 4,452
-------
Net realized and
unrealized gain (loss)
on investments........ 5,804
-------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS............ $ 6,831
-------
-------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM JUNE 19, 1996 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERNATIONAL SELECT
MONEY MARKET GROWTH AND INCOME EQUITY GLOBAL INCOME SMALL CAP EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------------ ------------ ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Investment income....... $ 115 $ 1,798 $ 45 $ 916 $ 322 $ 822
Net realized gain on
investments........... 9,041 2,317 365 12,587 1,701
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 956 2,181 (749) (13,378) 631
------------- ---------- ------------ ------------- ---------------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ 115 11,795 4,543 532 (469) 3,154
------------- ---------- ------------ ------------- ---------------- ------------
FROM VARIABLE LIFE
POLICY TRANSACTIONS
Contractowners' net
payments.............. 19,439 21,311 3,651 17,811 10,387
Mortality and expense
risk charges.......... (21) (215) (180) (35) (189) (100)
Cost of insurance and
administrative
charges............... (100) (7,846) (6,427) (697) (6,579) (2,868)
Surrenders.............. (314) (725) (949) (245) (576)
Transfers from other
portfolios............ 14,150 126,559 103,596 18,651 118,724 66,121
------------- ---------- ------------ ------------- ---------------- ------------
Net increase in net
assets resulting from
variable life policy
transactions.......... 14,029 137,623 117,575 20,621 129,522 72,964
------------- ---------- ------------ ------------- ---------------- ------------
Total increase in net
assets................ 14,144 149,418 122,118 21,153 129,053 76,118
NET ASSETS
Beginning of Year.......
------------- ---------- ------------ ------------- ---------------- ------------
End of Year............. $ 14,144 $ 149,418 $ 122,118 $ 21,153 $ 129,053 $ 76,118
------------- ---------- ------------ ------------- ---------------- ------------
------------- ---------- ------------ ------------- ---------------- ------------
<CAPTION>
CAPITAL GROWTH
SUB-ACCOUNT
--------------
<S> <C>
FROM OPERATIONS
Investment income....... $ 1,027
Net realized gain on
investments........... 1,352
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 4,452
--------------
Net increase (decrease)
in net assets
resulting from
operations............ 6,831
--------------
FROM VARIABLE LIFE
POLICY TRANSACTIONS
Contractowners' net
payments.............. 17,280
Mortality and expense
risk charges.......... (157)
Cost of insurance and
administrative
charges............... (5,933)
Surrenders.............. (307)
Transfers from other
portfolios............ 87,620
--------------
Net increase in net
assets resulting from
variable life policy
transactions.......... 98,503
--------------
Total increase in net
assets................ 105,334
NET ASSETS
Beginning of Year.......
--------------
End of Year............. $ 105,334
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Protective Variable Life Separate Account (Separate Account) was established
by Protective Life Insurance Company (Protective Life) under the provisions of
Tennessee law and commenced operations on June 19, 1996. The Separate Account is
a separate investment account to which assets are allocated to support the
benefits payable under flexible premium variable life insurance policies.
Protective Life has structured the Separate Account into a unit investment
trust form registered with the U.S. Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
the following sub-accounts: Money Market, Growth and Income, International
Equity, Global Income, Small Cap Equity, Select Equity, and Capital Growth.
Funds are transferred to Protective Investment Company (the Fund) in exchange
for shares of the corresponding portfolio of the Fund.
Gross premiums from the Contracts are allocated to the sub-accounts in
accordance with contract owner instructions and are recorded as life policy
contract transactions in the statement of changes in net assets. Such amounts
are used to provide money to pay contract values under the Contracts (Note 4).
The Separate Account's assets are the property of Protective Life.
Contractowners may allocate some or all of gross premiums or transfer some
or all of the contract value to the fixed account, which is part of Protective
Life's general account. The assets of Protective Life's general account support
its insurance and annuity obligations and are subject to Protective Life's
general liabilities from business operations.
Transfers to/from other portfolios, included in the statement of changes in
net assets, are transfers between the individual sub-accounts and the
sub-accounts and the fixed account.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION: Investments are made in shares and are valued at the
net asset values of the respective portfolios. Transactions with the Funds are
recorded on the trade date.
REALIZED GAINS AND LOSSES: Realized gains and losses on investments include
gains and losses on redemptions of the Fund's shares (determined on the
last-in-first-out (LIFO) basis) and capital gain distributions from the Fund.
DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS: Dividend income and capital
gain distributions are recorded on the ex-dividend date. Distributions are from
net investment income and net realized gains recorded in the Fund financials.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
various estimates that affect the reported amounts of assets and liabilities, at
the date of the financial statements, as well as the reported amounts of income
and expenses, during the reporting period. Actual results could differ from
those estimates.
FEDERAL INCOME TAXES: The operation of the Separate Account is included in
the Federal income tax return of Protective Life. Under the provisions of the
Contracts, Protective Life has the right to charge the Separate Account for
Federal income tax attributable to the Separate Account. No charge is currently
being made against the Separate Account for such tax.
F-6
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
At December 31, 1996, the investments by the respective sub-accounts were as
follows:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
--------- ----------- ------------
<S> <C> <C> <C>
Money Market............................................ 14,144 $ 14,144 $ 14,144
Growth and Income....................................... 10,535 $ 148,462 $ 149,418
International Equity.................................... 9,492 $ 119,937 $ 122,118
Global Income........................................... 2,078 $ 21,902 $ 21,153
Small Capital........................................... 12,878 $ 142,431 $ 129,053
Select Equity........................................... 4,931 $ 75,847 $ 76,118
Capital Growth.......................................... 8,329 $ 100,881 $ 105,334
</TABLE>
During the period from June 19, 1996 (date of inception) to December 31,
1996, transactions in shares were as follows:
<TABLE>
<CAPTION>
MONEY GROWTH & INTERNATIONAL GLOBAL SMALL SELECT CAPITAL
MARKET INCOME EQUITY INCOME CAPITAL EQUITY GROWTH
----------- ----------- ------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased...................... 14,150 10,744 9,922 2,419 12,553 5,028 9,228
Shares received from reinvestment of
dividends........................... 115 762 185 122 1,307 159 183
Total shares acquired................. 14,265 11,506 10,107 2,541 13,860 5,187 9,411
Shares redeemed....................... (121) (971) (615) (463) (982) (256) (1,082)
----------- ----------- ------------- ----------- --------- --------- ---------
Net increase in shares owned.......... 14,144 10,535 9,492 2,078 12,878 4,931 8,329
Shares owned, beginning of the
period.............................. -- -- -- -- -- -- --
----------- ----------- ------------- ----------- --------- --------- ---------
Shares owned, end of the period....... 14,144 10,535 9,492 2,078 12,878 4,931 8,329
----------- ----------- ------------- ----------- --------- --------- ---------
----------- ----------- ------------- ----------- --------- --------- ---------
Cost of shares acquired............... 14,265 162,293 127,758 26,787 153,488 79,410 113,977
----------- ----------- ------------- ----------- --------- --------- ---------
----------- ----------- ------------- ----------- --------- --------- ---------
Cost of shares redeemed............... (121) (13,831) (7,821) (4,885) (11,057) (3,923) (13,096)
----------- ----------- ------------- ----------- --------- --------- ---------
----------- ----------- ------------- ----------- --------- --------- ---------
</TABLE>
4. RELATED PARTY TRANSACTIONS
Contractowners' net payments represent premiums received from policyholders
less certain deductions made by Protective Life. These deductions may include
(1) sales charges, (2) federal tax charges, (3) premium tax charges, (4)
transfer fees, (5) surrender charges, and (6) withdrawal charges.
The sales charge is 2.75% of each Premium Payment in Policy Years 1 through
10, and 75% of each premium payment in Policy Years 11 and thereafter. The sales
charge partially compensates 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.
The federal tax 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.
A 2.25% charge of state and local premium taxes is deducted from each
premium payment. This charge reimburses Protective Life for premium taxes
associated with the Policies.
Protective Life has the right to charge $25 for each transfer after the
first twelve transfers in any contract year. No transfer fees were assessed
during the period from June 19, 1996 (date of inception) through December 31,
1996, as no customer has requested more than twelve transfers in a contract
year.
F-7
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
If a Contract has not been in force for fourteen years, upon surrender or
for certain withdrawals, a surrender charge is deducted from the proceeds.
Surrender charges may be decreased or waived on Contracts meeting certain
restrictions as determined by Protective Life. Surrender charges were waived
during this initial period; surrenders totaled $3,116 during the period from
June 19, 1996 (date of inception) through December 31, 1996.
Protective Life will deduct an administrative charge upon a withdrawal. This
charge is the lesser of 2% of the amount withdrawn or $25.
The Separate Account is also charged by Protective Life for the cost of
insurance protection. This charge compensates Protective Life for the expense of
underwriting the Death Benefit. 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.
An administrative charge is assessed on an monthly basis. The fee is a flat
charge of $31 per month during the first Policy Year, and $6 per month during
each Policy Year thereafter. 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 increase based on the amount
of the increase.
The Separate Account is charged a monthly mortality and expense risk charge
at an annual rate of 90% of the Variable Account Value, during the first 10
Policy Years. In Policy Years 11 and thereafter, the Separate Account will be
charged a monthly mortality and expense risk charge at an annual rate of .25%.
Protective Life assumes mortality risk in 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. The death benefit payment
has two options. Under 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
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 net assets of each sub-account of the Separate Account reflect the
investment management fees and other operating expenses incurred by the Funds.
Protective Life offers a loan privilege to contractowners of section 403(b)
policies that are not subject to Title I of ERISA. Such contractowners may
obtain loans using the Contract as the only security for the loan. Loans are
subject to provisions of The Internal Revenue Code of 1986, as amended, and to
applicable retirement program rules. There were no loans outstanding as of
December 31, 1996.
F-8
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-10
Consolidated Statements of Income for the years ended
December 31, 1996, 1995, and 1994................................................... F-11
Consolidated Balance Sheets as of December 31, 1996 and 1995......................... F-12
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1996, 1995, and 1994................................................... F-13
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994................................................... F-14
Notes to Consolidated Financial Statements........................................... F-15
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information................................ F-36
Schedule IV -- Reinsurance......................................................... F-37
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-9
<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-11 through F-37 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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.
COOPERS & LYBRAND L.L.P.
February 11, 1997
Birmingham, Alabama
F-10
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
<S> <C> <C> <C>
1996 1995 1994
----------- ----------- -----------
REVENUES
Premiums and policy fees (net of reinsurance ceded: 1996-$308,174;
1995-$333,173; 1994-$172,575).......................................... $ 462,050 $ 411,682 $ 402,772
Net investment income.................................................... 498,781 458,433 408,933
Realized investment gains (losses)....................................... 5,510 1,951 6,298
Other income............................................................. 5,010 1,355 11,977
----------- ----------- -----------
971,351 873,421 829,980
----------- ----------- -----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
1996-$215,424; 1995-$247,224; 1994-$112,922)........................... 626,893 553,100 517,110
Amortization of deferred policy acquisition costs........................ 91,001 82,700 88,089
Other operating expenses (net of reinsurance ceded: 1996-$81,839;
1995-$84,855; 1994-$14,326)............................................ 128,148 119,888 119,203
----------- ----------- -----------
846,042 755,688 724,402
----------- ----------- -----------
INCOME BEFORE INCOME TAX................................................... 125,309 117,733 105,578
INCOME TAX EXPENSE (BENEFIT)
Current.................................................................. 44,908 47,009 37,586
Deferred................................................................. (2,142) (6,972) (4,731)
----------- ----------- -----------
42,766 40,037 32,855
----------- ----------- -----------
NET INCOME................................................................. $ 82,543 $ 77,696 $ 72,723
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
<S> <C> <C>
1996 1995
---------- ----------
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1996-$4,648,525; 1995-$3,789,926)......... $4,662,997 $3,891,932
Equity securities, at market (cost: 1996-$31,669; 1995-$35,448)........................ 35,250 38,711
Mortgage loans on real estate.......................................................... 1,503,781 1,835,057
Investment real estate, net of accumulated depreciation (1996-$911; 1995-$1,032)....... 14,172 20,788
Policy loans........................................................................... 166,704 143,372
Other long-term investments............................................................ 29,193 43,875
Short-term investments................................................................. 101,215 46,891
---------- ----------
Total investments.................................................................... 6,513,312 6,020,626
Cash..................................................................................... 114,384 6,198
Accrued investment income................................................................ 70,541 61,004
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1996-$2,525; 1995-$2,342)............................................................. 43,469 35,492
Reinsurance receivables.................................................................. 332,614 271,018
Deferred policy acquisition costs........................................................ 488,201 410,183
Property and equipment, net.............................................................. 35,489 34,211
Receivables from related parties......................................................... 1,961
Other assets............................................................................. 14,636 13,096
Assets related to separate accounts...................................................... 550,697 324,904
---------- ----------
$8,163,343 $7,178,693
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims...................................................... $2,448,449 $1,928,154
Unearned premiums...................................................................... 257,553 193,767
---------- ----------
2,706,002 2,121,921
Guaranteed investment contract deposits.................................................. 2,474,728 2,451,693
Annuity deposits......................................................................... 1,331,067 1,280,069
Other policyholders' funds............................................................... 142,221 134,380
Other liabilities........................................................................ 117,847 109,538
Accrued income taxes..................................................................... 1,854 838
Deferred income taxes.................................................................... 37,722 67,420
Indebtedness to related parties.......................................................... 25,014 34,693
Liabilities related to separate accounts................................................. 550,697 324,904
---------- ----------
Total liabilities.................................................................... 7,387,152 6,525,456
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
REDEEMABLE PREFERRED STOCK, $1.00 par value, at redemption value Shares authorized and
issued: 2,000.......................................................................... 2,000
----------
STOCKHOLDER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation
preference $2,000...................................................................... 2
Common Stock, $1.00 par value............................................................ 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital............................................................... 237,992 144,494
Net unrealized gains on investments (net of income tax: 1996-$3,601; 1995-$31,157)....... 6,688 57,863
Retained earnings........................................................................ 532,088 449,645
Note receivable from PLC Employee Stock Ownership Plan................................... (5,579) (5,765)
---------- ----------
Total stockholder's equity........................................................... 776,191 651,237
---------- ----------
$8,163,343 $7,178,693
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTE
NET RECEIVABLE
ADDITIONAL UNREALIZED FROM
PREFERRED COMMON PAID-IN GAINS (LOSSES) RETAINED PLC
STOCK STOCK CAPITAL ON INVESTMENTS EARNINGS ESOP
--------------- ----------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.......... $ 5,000 $ 126,494 $ 39,284 $ 305,176 $ (5,964)
Net income for 1994............... 72,723
Preferred dividends ($425 per
share).......................... (850)
Decrease in net unrealized gains
on investments.................. (146,816)
Decrease in note receivable from
PLC ESOP........................ 28
--
----------- ----------- -------------- --------- -----------
Balance, December 31, 1994.......... 5,000 126,494 (107,532) 377,049 (5,936)
Net income for 1995............... 77,696
Common dividends ($1.00 per
share).......................... (5,000)
Preferred dividends ($50 per
share).......................... (100)
Increase in net unrealized gains
on investments.................. 165,395
Capital contribution from PLC..... 18,000
Decrease in note receivable from
PLC ESOP........................ 171
--
----------- ----------- -------------- --------- -----------
Balance, December 31, 1995.......... 5,000 144,494 57,863 449,645 (5,765)
Net income for 1996............... 82,543
Redemption feature of preferred
stock removed-Note I............ $ 2 1,998
Preferred dividends ($50 per
share).......................... (100)
Decrease in net unrealized gains
on investments.................. (51,175)
Capital contribution from PLC..... 91,500
Decrease in note receivable from
PLC ESOP........................ 186
--
----------- ----------- -------------- --------- -----------
Balance, December 31, 1996.......... $ 2 $ 5,000 $ 237,992 $ 6,688 $ 532,088 $ (5,579)
--
--
----------- ----------- -------------- --------- -----------
----------- ----------- -------------- --------- -----------
<CAPTION>
TOTAL
STOCKHOLDER'S
EQUITY
-------------
<S> <C>
Balance, December 31, 1993.......... $ 469,990
Net income for 1994............... 72,723
Preferred dividends ($425 per
share).......................... (850)
Decrease in net unrealized gains
on investments.................. (146,816)
Decrease in note receivable from
PLC ESOP........................ 28
-------------
Balance, December 31, 1994.......... 395,075
Net income for 1995............... 77,696
Common dividends ($1.00 per
share).......................... (5,000)
Preferred dividends ($50 per
share).......................... (100)
Increase in net unrealized gains
on investments.................. 165,395
Capital contribution from PLC..... 18,000
Decrease in note receivable from
PLC ESOP........................ 171
-------------
Balance, December 31, 1995.......... 651,237
Net income for 1996............... 82,543
Redemption feature of preferred
stock removed-Note I............ 2,000
Preferred dividends ($50 per
share).......................... (100)
Decrease in net unrealized gains
on investments.................. (51,175)
Capital contribution from PLC..... 91,500
Decrease in note receivable from
PLC ESOP........................ 186
-------------
Balance, December 31, 1996.......... $ 776,191
-------------
-------------
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
<S> <C> <C> <C>
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................. $ 82,543 $ 77,696 $ 72,723
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred policy acquisition costs..................... 91,001 84,501 88,089
Capitalization of deferred policy acquisition costs................... (77,078) (89,266) (127,566)
Depreciation expense.................................................. 5,333 4,317 4,280
Deferred income taxes................................................. (2,442) (6,971) (4,731)
Accrued income taxes.................................................. 893 5,537 (12,182)
Interest credited to universal life and investment products........... 280,377 286,710 260,081
Policy fees assessed on universal life and investment products........ (116,401) (100,840) (85,532)
Change in accrued investment income and other receivables............. (70,987) (161,924) (32,242)
Change in policy liabilities and other policyholder funds of
traditional life and health products................................ 133,621 201,353 61,322
Change in other liabilities........................................... 7,209 (3,270) 18,564
Other (net)........................................................... (4,281) (6,634) (1,475)
----------- ----------- -----------
Net cash provided by operating activities................................. 329,788 291,209 241,331
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale........................................ 1,327,323 2,014,060 386,498
Other................................................................. 168,898 78,568 153,945
Sale of investments:
Investment available for sale......................................... 1,569,119 1,523,454 630,095
Other................................................................. 568,218 141,184 59,550
Cost of investments acquired:
Investments available for sale........................................ (3,798,631) (3,626,877) (1,807,658)
Other................................................................. (400,322) (540,648) (220,839)
Acquisitions and bulk reinsurance assumptions........................... 264,126 106,435
Purchase of property and equipment...................................... (6,899) (5,629) (4,889)
Sale of property and equipment.......................................... 288 286 470
----------- ----------- -----------
Net cash used in investing activities..................................... (307,880) (415,602) (696,393)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt......... 941,438 1,162,700 572,586
Capital contribution from PLC........................................... 91,500 18,000
Principal payments on line of credit arrangements and long-term debt.... (941,438) (1,162,700) (572,704)
Principal payment on surplus note to PLC................................ (10,000) (4,750) (9,500)
Dividends to stockholder................................................ (100) (5,100) (850)
Investment product deposits and change in universal life deposits....... 949,122 908,063 1,417,980
Investment product withdrawals.......................................... (944,244) (785,622) (976,401)
----------- ----------- -----------
Net cash provided by financing activities................................. 86,278 130,591 431,111
----------- ----------- -----------
INCREASE(DECREASE) IN CASH................................................ 108,186 6,198 (23,951)
CASH AT BEGINNING OF YEAR................................................. 6,198 0 23,951
----------- ----------- -----------
CASH AT END OF YEAR....................................................... $ 114,384 $ 6,198 $ 0
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt...................................................... $ 4,633 $ 6,029 $ 5,029
Income taxes.......................................................... 43,478 $ 41,397 $ 49,765
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP................................ $ 186 $ 171 $ 28
Acquisitions and bulk reinsurance assumptions
Assets acquired....................................................... $ 296,935 $ 613 $ 117,349
Liabilities assumed................................................... (364,862) (21,800) (166,595)
----------- ----------- -----------
Net................................................................... $ (67,927) $ (21,187) $ (49,246)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life
Insurance Company and subsidiaries ("Protective") are prepared on the basis of
generally accepted accounting principles. Such accounting principles differ from
statutory reporting practices used by insurance companies in reporting to state
regulatory authorities. (See also Note B.)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make various estimates
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, as well as the reported amounts of revenues
and expenses.
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its
wholly-owned subsidiaries 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.
NATURE OF OPERATIONS
Protective markets individual life insurance; group life, health, dental,
and cancer insurance; annuities and investment products; credit life and
disability insurance; and guaranteed investment contracts. Its products are
distributed nationally through independent agents and brokers; through
stockbrokers and financial institutions to their customers; through company
sales representatives; and through other insurance companies. Protective also
seeks to acquire blocks of insurance policies from other insurers.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1995 Protective adopted Statement of Financial Accounting Standards
("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 these new standards, a loan is considered impaired,
based on current information and events, if it is probable that Protective 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. The adoption of this accounting standard did not have a
material effect on Protective's financial statements.
In 1995 PLC adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which changes the way stock-based compensation expense is measured and requires
additional disclosures relating to
F-15
<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)
PLC's stock-based compensation plans. The adoption of this accounting standard
did not have a material effect on PLC's or Protective's financial statements.
In 1996 Protective adopted SFAS No. 120, "Accounting and Reporting by Mutual
Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts;" SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of;"
and SFAS No. 122, "Accounting for Mortgage Servicing Rights." The adoption of
these accounting standards did not have a material effect on Protective's
financial statements.
INVESTMENTS
Protective has classified all of its investments in fixed maturities, equity
securities, and short-term investments as "available for sale."
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 $3.4 million in bank
deposits voluntarily restricted as to withdrawal.
As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," certain investments are recorded at their market values
with the resulting unrealized gains and losses reduced by a related adjustment
to deferred policy acquisition costs, net of income tax reported as a component
of stockholder's equity. The market values of fixed maturities increase or
decrease as interest rates fall or rise. Therefore, although the adoption of
SFAS No. 115 does not affect Protective's operations, its reported stockholder's
equity will fluctuate significantly as interest rates change.
F-16
<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)
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>
1996 1995
------------- -------------
<S> <C> <C>
Total investments............................................... $ 6,495,259 $ 5,915,357
Deferred policy acquisition costs............................... 495,965 426,432
All other assets................................................ 1,161,830 747,884
------------- -------------
$ 8,153,054 $ 7,089,673
------------- -------------
------------- -------------
Deferred income taxes........................................... $ 34,121 $ 36,263
All other liabilities........................................... 7,349,430 6,458,036
------------- -------------
7,383,551 6,494,299
Redeemable preferred stock...................................... 2,000
Stockholder's equity............................................ 769,503 593,374
------------- -------------
$ 8,153,054 $ 7,089,673
------------- -------------
------------- -------------
</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, mortgage-backed
securities, and liabilities arising from interest-sensitive products such as
guaranteed investment contracts and individual annuities. Realized investment
gains and losses on such contracts are deferred and amortized over the life of
the hedged asset. Net realized losses of $0.2 million and $15.2 million were
deferred in 1996 and 1995 respectively. At December 31, 1996 and 1995, options
and open futures contracts with notional amounts of $805.0 million and $25.0
million, respectively, had net unrealized losses of $1.9 million and $0.6
million respectively.
Protective uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1996, related open
interest rate swap contracts with a notional amount of $150.3 million were in a
$0.7 million net unrealized loss position. At December 31, 1995, related open
interest rate swap contracts with a notional amount of $170.3 million were in a
$1.3 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
F-17
<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)
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>
1996 1995
--------- ---------
<S> <C> <C>
Home office building................................................... $ 36,586 $ 35,284
Other, principally furniture and equipment............................. 35,401 30,356
--------- ---------
71,987 65,640
Accumulated depreciation............................................... 36,498 31,429
--------- ---------
$ 35,489 $ 34,211
--------- ---------
--------- ---------
</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.
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.
F-18
<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)
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Balance beginning of year................................. $ 73,642 $ 79,462 $ 77,191
Less reinsurance........................................ 3,330 5,024 3,973
----------- --------- ---------
Net balance beginning of year............................. 70,312 74,438 73,218
----------- --------- ---------
Incurred related to:
Current year.............................................. 288,816 217,366 203,453
Prior year................................................ (2,417) (8,337) (6,683)
----------- --------- ---------
Total incurred.......................................... 286,399 209,029 196,770
----------- --------- ---------
Paid related to:
Current year.............................................. 197,163 164,321 148,548
Prior year................................................ 57,812 48,834 47,002
----------- --------- ---------
Total paid.............................................. 254,975 213,155 195,550
----------- --------- ---------
Net balance end of year................................... 101,736 70,312 74,438
Plus reinsurance........................................ 6,423 3,330 5,024
----------- --------- ---------
Balance end of year....................................... $ 108,159 $ 73,642 $ 79,462
----------- --------- ---------
----------- --------- ---------
</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 1996.
At December 31, 1996, Protective estimates the fair value of its
guaranteed investment contracts to be $2,462.0 million using discounted
cash flows. The surrender value of Protective's annuities which
approximates fair value was $1,322.3 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
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. Under SFAS No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized
F-19
<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)
Gains and Losses from the Sale of Investments," Protective makes certain
assumptions regarding the mortality, persistency, expenses, and interest
rates it expects to experience in future periods. These assumptions are to
be best estimates and are to be periodically updated whenever actual
experience and/or expectations for the future change from initial
assumptions. Additionally, relating to SFAS No. 115, these costs have been
adjusted by an amount equal to the amortization that would have been
recorded if unrealized gains or losses on investments associated with
Protective's universal life and investment products had been realized.
The cost to acquire blocks of insurance representing the present value of
future profits from such blocks of insurance is also included in deferred policy
acquisition costs. 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 $138.2 million and $102.5 million at December 31,
1996 and 1995, respectively. During 1996 $57.6 million of present value of
future profits on acquisitions made during the year was capitalized, and $10.8
million was amortized. The unamortized present value of future profits for all
acquisitions was $155.9 million at December 31, 1996 and $123.9 million at
December 31, 1995.
PARTICIPATING POLICIES
Participating business comprises approximately 1% of the individual life
insurance in force and 2% of the individual life insurance premium income.
Policyholder dividends totaled $4.1 million in 1996 and $2.6 million in 1995 and
1994.
INCOME TAXES
Protective uses the asset and liability method of accounting for income
taxes. Income tax provisions are generally based on income reported for
financial statement purposes. Deferred federal income taxes arise from the
recognition of temporary differences between the bases of assets and liabilities
determined for financial reporting purposes and the bases determined for income
tax purposes. Such temporary differences are principally related to the deferral
of policy acquisition costs and the provision for future policy benefits and
expenses.
RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
net income, total assets, or stockholder's equity.
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principles ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The most significant differences are: (a) acquisition costs of
obtaining new business are deferred and amortized over the approximate life of
the policies rather than charged to operations as incurred, (b) benefit
liabilities are computed using a net level method and are based on realistic
estimates of expected mortality, interest, and withdrawals as adjusted to
provide for possible unfavorable deviation from such assumptions, (c) deferred
income taxes are
F-20
<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)
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.
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
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
In conformity with statutory reporting practices:
Protective Life Insurance Company.................... $ 97,779 $ 105,744 $ 54,812 $ 454,320 $ 322,416 $ 304,858
Wisconsin National Life Insurance Company............ 15,011 10,954 10,132 66,577 62,529 57,268
American Foundation Life Insurance Company........... 2,558 3,330 3,072 18,031 18,781 20,327
Capital Investors Life Insurance Company............. 81 182 170 1,458 1,315 1,125
Empire General Life Assurance Corporation............ 905 1,003 690 20,509 20,685 21,270
Protective Life Insurance Corporation of Alabama..... 484 546 69 2,660 2,675 2,133
Protective Life Insurance Company of Kentucky........ 19 3,030
Community National Assurance Company................. 5,100
Consolidation elimination............................ (14,500) (6,500) (115,365) (103,985) (100,123)
--------- --------- --------- --------- --------- ---------
102,337 115,259 68,945 456,320 324,416 306,858
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net of
amortization....................................... (2,830) (765) 41,718 488,201 410,183 434,200
Policy liabilities and accruals...................... (11,633) (48,330) (34,632) (192,628) (186,512) (140,298)
Deferred income tax.................................. 2,142 6,972 4,731 (37,722) (67,420) 14,667
Asset Valuation Reserve.............................. 64,233 105,769 24,925
Interest Maintenance Reserve......................... (2,142) (1,235) (1,716) 17,682 14,412 3,583
Nonadmitted items.................................... 21,610 20,603 21,445
Timing and valuation differences on mortgage loans on
real estate and fixed maturity investments......... 5,913 (619) (961) (1,708) 27,158 6,258
Net unrealized gains and losses on investments....... 4,361 55,765 (106,913)
Realized investment gains (losses)................... (468) 6,781 (6,664)
Noninsurance affiliates.............................. 11,104 (22) 154,143 (9) 0
Consolidation elimination............................ (16,858) 2,515 (4,415) (191,049) (46,222) (162,835)
Other adjustments, net............................... (5,022) (2,860) 5,717 (7,252) (4,906) (4,815)
--------- --------- --------- --------- --------- ---------
In conformity with generally accepted accounting
principles........................................... $ 82,543 $ 77,696 $ 72,723 $ 776,191 $ 653,237 $ 397,075
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
F-21
<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>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturities........................................................... $ 310,353 $ 272,942 $ 237,264
Equity securities.......................................................... 2,124 1,338 2,435
Mortgage loans on real estate.............................................. 153,463 162,135 141,751
Investment real estate..................................................... 1,875 1,855 1,950
Policy loans............................................................... 10,378 8,958 8,397
Other, principally short-term investments.................................. 51,637 40,348 35,062
----------- ----------- -----------
529,830 487,576 426,859
Investment expenses........................................................ 31,049 29,143 17,926
----------- ----------- -----------
$ 498,781 $ 458,433 $ 408,933
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<S> <C> <C> <C>
Fixed maturities............................................ $ (7,101) $ 6,118 $ (8,646)
Equity securities........................................... 1,733 44 7,735
Mortgage loans and other investments........................ 10,878 (4,211) 7,209
--------- --------- ---------
$ 5,510 $ 1,951 $ 6,298
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $30.9 million at December 31, 1996 and $32.7
million at December 31, 1995. Additions and reductions to the allowance are
included in realized investment gains (losses). Without such additions/
reductions, Protective had net realized investment gains of $3.7 million in
1996, net realized investment losses of $0.5 million in 1995, and net realized
investment gains of $6.3 million in 1994.
In 1996, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $6.9 million and
gross losses were $11.8 million. In 1995, gross gains were $18.0 million and
gross losses were $11.8 million. In 1994, gross gains on the sale of fixed
maturities were $15.2 million and gross losses were $16.4 million.
F-22
<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 ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1996 COST GAINS LOSSES VALUES
- ----------------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed........................................ $ 2,192,978 $ 29,925 $ 20,810 $ 2,202,093
United States Government and authorities............... 348,318 661 1,377 347,602
States, municipalities, and political subdivisions..... 5,515 47 9 5,553
Public utilities....................................... 364,692 2,205 337 366,560
Convertibles and bonds with warrants................... 679 0 158 521
All other corporate bonds.............................. 1,679,276 33,879 29,388 1,683,767
Bank loan participations................................. 49,829 0 0 49,829
Redeemable preferred stocks.............................. 7,238 60 226 7,072
------------- ----------- ----------- -------------
4,648,525 66,777 52,305 4,662,997
Equity securities.......................................... 31,669 9,570 5,989 35,250
Short-term investments..................................... 101,215 0 0 101,215
------------- ----------- ----------- -------------
$ 4,781,409 $ 76,347 $ 58,294 $ 4,799,462
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1995 COST GAINS LOSSES VALUES
- ---------------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed....................................... $ 2,006,858 $ 46,934 $ 4,017 $ 2,049,775
United States Government and authorities.............. 105,388 2,290 101 107,577
States, municipalities, and political subdivisions.... 10,888 702 0 11,590
Public utilities...................................... 322,110 5,904 770 327,244
Convertibles and bonds with warrants.................. 638 0 145 493
All other corporate bonds............................. 1,117,376 59,045 7,573 1,168,848
Bank loan participations................................ 220,811 0 0 220,811
Redeemable preferred stocks............................. 5,857 61 324 5,594
------------- ----------- ----------- -------------
3,789,926 114,936 12,930 3,891,932
Equity securities......................................... 35,448 6,438 3,175 38,711
Short-term investments.................................... 46,891 0 0 46,891
------------- ----------- ----------- -------------
$ 3,872,265 $ 121,374 $ 16,105 $ 3,977,534
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
F-23
<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>
ESTIMATED
AMORTIZED MARKET
COST VALUES
------------- -------------
<S> <C> <C>
1996
- ------------------------------------------------------------------------------------
Due in one year or less......................................................... $ 417,463 $ 420,774
Due after one year through five years........................................... 1,547,805 1,546,278
Due after five years through ten years.......................................... 2,090,149 2,095,781
Due after ten years............................................................. 593,108 600,164
------------- -------------
$ 4,648,525 $ 4,662,997
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUES
------------- -------------
<S> <C> <C>
1995
- ------------------------------------------------------------------------------------
Due in one year or less......................................................... $ 409,514 $ 411,839
Due after one year through five years........................................... 1,087,735 1,101,226
Due after five years through ten years.......................................... 1,477,807 1,524,555
Due after ten years............................................................. 814,870 854,312
------------- -------------
$ 3,789,926 $ 3,891,932
------------- -------------
------------- -------------
</TABLE>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1996 1995
- ---------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
AAA......................................................................................... 48.3% 56.1%
AA.......................................................................................... 4.4 4.5
A........................................................................................... 22.6 12.6
BBB
Bonds..................................................................................... 21.1 19.0
Bank loan participations.................................................................. 0.1 0.4
BB or Less
Bonds..................................................................................... 2.5 2.0
Bank loan participations.................................................................. 0.9 5.3
Redeemable preferred stocks................................................................. 0.1 0.1
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
At December 31, 1996 and 1995, Protective had bonds which were rated less
than investment grade of $117.5 million and $75.7 million, respectively, having
an amortized cost of $137.0 million and $82.2 million, respectively.
Additionally, Protective had bank loan participations which were rated less than
investment grade of $43.6 million and $206.0 million, respectively, having an
amortized cost of $43.6 million and $206.0 million, respectively.
F-24
<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 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>
1996 1995 1994
---------- ----------- ------------
<S> <C> <C> <C>
Fixed maturities.......................................................... $ (56,898) $ 199,024 $ (175,723)
Equity securities......................................................... $ 207 $ 2,740 $ (5,342)
</TABLE>
At December 31, 1996, all of Protective's mortgage loans were commercial
loans of which 78% were retail, 8% were office buildings, and 7% were
warehouses. Protective specializes in making mortgage loans on either
credit-oriented or credit-anchored commercial properties, most of which are
strip shopping centers in smaller towns and cities. No single tenant's leased
space represents more than 4% of mortgage loans. Approximately 84% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: South Carolina, Florida, Georgia, Tennessee,
Texas, North Carolina, Alabama, Virginia, Mississippi, Kentucky, Ohio, Indiana,
Arizona, and Washington.
Many of the mortgage loans have call provisions after five to seven years.
Assuming the loans are called at their next call dates, approximately $126.7
million would become due in 1997, $761.8 million in 1998 to 2001, and $250.8
million in 2002 to 2006.
At December 31, 1996, the average mortgage loan was $1.7 million, and the
weighted average interest rate was 9.3%. The largest single mortgage loan was
$13.6 million. While Protective's mortgage loans do not have quoted market
values, at December 31,1996 and 1995, Protective estimates the market value of
its mortgage loans to be $1,581.7 million and $2,001.1 million, respectively,
using discounted cash flows from the next call date.
At December 31, 1996 and 1995, Protective's problem mortgage loans and
foreclosed properties totaled $23.7 million and $26.1 million, respectively.
Protective's mortgage loans are collateralized by real estate, any assessment of
impairment is based upon the estimated fair value of the real estate. Based on
Protective's evaluation of its mortgage loan portfolio, Protective does not
expect any material losses on its mortgage loans.
Certain investments, principally real estate, with a carrying value of $18.8
million were nonincome producing for the twelve months ended December 31, 1996.
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.
F-25
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax income........................ 35.0% 35.0% 35.0%
Dividends received deduction and tax-exempt interest.............................. (0.4) (0.5) (0.4)
Low-income housing credit......................................................... (0.6) (0.7) (0.7)
Tax benefits arising from prior acquisitions and other adjustments................ 0.1 0.2 (2.8)
--- --- ---
Effective income tax rate......................................................... 34.1% 34.0% 31.1%
--- --- ---
--- --- ---
</TABLE>
The provision for federal income tax differs from amounts currently payable
due to certain items reported for financial statement purposes in periods which
differ from those in which they are reported for income tax purposes.
Details of the deferred income tax provision for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs........................................... $ (16,321) $ (11,606) $ 34,561
Benefit and other policy liability changes.................................. 15,542 52,496 (52,288)
Temporary differences of investment income.................................. (1,163) (34,175) 15,524
Other items................................................................. (200) (13,687) (2,528)
---------- ---------- ----------
$ (2,142) $ (6,972) $ (4,731)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred income tax assets
Policy and policyholder liability reserves............................................ $ 80,151 $ 63,830
Other................................................................................. 2,503 2,303
----------- -----------
82,654 66,133
----------- -----------
Deferred income tax liabilities:
Deferred policy acquisition costs..................................................... 117,696 102,154
Unrealized gain on investments........................................................ 2,680 31,399
----------- -----------
120,376 133,553
----------- -----------
Net deferred income tax liability..................................................... $ 37,722 $ 67,420
----------- -----------
----------- -----------
</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, 1996 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
$439 million, such excess would be subject
F-26
<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)
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.
Protective's income tax returns are included in the consolidated income tax
returns of PLC. The allocation of income tax liabilities among affiliates is
based upon separate income tax return calculations.
NOTE E -- DEBT
At December 31, 1996, 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.
Protective has arranged sources of credit to temporarily fund scheduled
investment commitments. Protective expects that the rate received on its
investments will equal or exceed its borrowing rate. Protective had no such
temporary borrowings outstanding at December 31, 1996 and 1995.
Included in indebtedness to related parties are three surplus debentures
issued by Protective to PLC. At December 31, 1996, the balance of the three
surplus debentures combined was $24.7 million. Future maturities of these
debentures are $4.7 million in 1997 and $20.0 million in 2003.
Interest expense on borrowed money totaled $4.6 million, $6.0 million, and
$5.0 million, in 1996, 1995, and 1994, respectively.
NOTE F -- ACQUISITIONS
In June 1995 Protective acquired through coinsurance a block of term life
insurance policies. In January 1996 Protective acquired through coinsurance a
block of life insurance policies. In June 1996 Protective acquired through
coinsurance a block of credit life insurance policies. In December 1996
Protective acquired a small life insurance company and acquired through
coinsurance a block of 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.
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 misconduct, failure to properly
supervise agents, and other matters. Increasingly these lawsuits have resulted
in the award of substantial judgments against the insurer that are
disproportionate to the
F-27
<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)
actual damages, including material amounts of punitive damages. In some states,
juries have substantial discretion in awarding punitive damages which creates
the potential for unpredictable material adverse judgments in any given punitive
damage suit. Protective and its subsidiaries, like other life and health
insurers, from time to time are involved in such litigation. Pending litigation
includes a class action filed in Jefferson County (Birmingham), Alabama with
respect to cancer premium refunds. Although the outcome of any litigation cannot
be predicted with certainty, Protective believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse effect on the financial position of Protective.
NOTE H -- STOCKHOLDER'S EQUITY AND RESTRICTIONS
At December 31, 1996, approximately $413 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. In general, dividends up to specified levels are considered
ordinary and may be paid thirty days after written notice to the insurance
commissioner of the state of domicile unless such commissioner objects to the
dividend prior to the expiration of such period. Dividends in larger amounts are
considered extraordinary and are subject to affirmative prior approval by such
commissioner. The maximum amount that would qualify as ordinary dividends to PLC
by Protective in 1997 is estimated to be $98 million.
NOTE I -- PREFERRED STOCK
PLC owns all of the 2,000 shares of preferred stock issued by Protective's
subsidiary, American Foundation. During 1996, American Foundation's articles of
incorporation were amended such that the preferred stock is redeemable solely at
the discretion of American Foundation. At December 31, 1995 the preferred stock
was reported "Redeemable Preferred Stock", whereas at December 31, 1996 it is
reported as a component of stockholder's equity. 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 $0.1 million, $0.1 million, and $0.9 million were paid to PLC in
1996, 1995, and 1994, respectively.
NOTE J -- RELATED PARTY MATTERS
Receivables from related parties consisted of receivables from affiliates
under control of PLC in the amount of $2.0 million at December 31, 1995.
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, $5.6 million at
December 31, 1996, 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.
F-28
<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)
Protective leases furnished office space and computers to affiliates. Lease
revenues were $3.7 million in 1996, $3.1 million in 1995, and $2.8 million in
1994. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $50.4 million, $38.1
million, and $29.8 million in 1996, 1995, and 1994, respectively. Commissions
paid to affiliated marketing organizations of $7.4 million, $10.9 million, and
$10.1 million in 1996, 1995, and 1994, respectively, were included in deferred
policy acquisition costs.
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 $31.2 million, $21.2 million, and $21.1
million in 1996, 1995, and 1994, respectively. Protective and/or PLC paid
commissions, interest, and service fees to these same corporations totaling $5.0
million, $5.3 million, and $4.9 million, in 1996, 1995, and 1994, 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. In the 1996 first quarter, Protective changed the way it allocates
certain expenses to its business segments. Accordingly, prior period segment
results have been restated to reflect the change.
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.
F-29
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- BUSINESS SEGMENTS (CONTINUED)
There are no significant intersegment transactions.
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
TOTAL REVENUES
Acquisitions......................................................... $ 213,199 $ 193,544 $ 171,259
Financial Institutions............................................... 87,320 72,758 107,481
Group................................................................ 174,971 159,263 148,835
Guaranteed Investment Contracts...................................... 206,407 199,468 184,212
Individual Life...................................................... 169,306 139,424 122,915
Investment Products.................................................. 110,821 104,984 80,076
Corporate and Other.................................................. 2,810 3,059 9,936
Unallocated Realized Investment Gains (Losses)....................... 6,517 921 5,266
------------- ------------- -------------
$ 971,351 $ 873,421 $ 829,980
------------- ------------- -------------
------------- ------------- -------------
Acquisitions......................................................... 21.9% 22.2% 20.7%
Financial Institutions............................................... 9.0 8.3 12.9
Group................................................................ 18.0 18.2 17.9
Guaranteed Investment Contracts...................................... 21.3 22.8 22.3
Individual Life...................................................... 17.4 16.0 14.7
Investment Products.................................................. 11.4 12.0 9.7
Corporate and Other.................................................. 0.3 0.4 1.2
Unallocated Realized Investment Gains (Losses)....................... 0.7 0.1 0.6
------------- ------------- -------------
100.0% 100.0% 100.0%
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-30
<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>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAX
Acquisitions......................................................... $ 53,564 $ 50,376 $ 37,719
Financial Institutions............................................... 8,966 7,701 7,544
Group................................................................ 821 9,107 10,122
Guaranteed Investment Contracts...................................... 32,130 28,979 31,933
Individual Life...................................................... 15,898 16,206 15,957
Investment Products.................................................. 9,823 10,933 (796)
Corporate and Other.................................................. (2,410) (6,490) (2,167)
Unallocated Realized Investment Gains (Losses)....................... 6,517 921 5,266
------------- ------------- -------------
$ 125,309 $ 117,733 $ 105,578
------------- ------------- -------------
------------- ------------- -------------
Acquisitions......................................................... 42.7% 42.8% 35.7%
Financial Institutions............................................... 7.2 6.5 7.1
Group................................................................ 0.7 7.7 9.6
Guaranteed Investment Contracts...................................... 25.6 24.6 30.2
Individual Life...................................................... 12.7 13.8 15.1
Investment Products.................................................. 7.8 9.3 (0.7)
Corporate and Other.................................................. (1.9) (5.5) (2.0)
Unallocated Realized Investment Gains (Losses)....................... 5.2 0.8 5.0
------------- ------------- -------------
100.0% 100.0% 100.0%
------------- ------------- -------------
------------- ------------- -------------
IDENTIFIABLE ASSETS
Acquisitions......................................................... $ 1,579,253 $ 1,255,542 $ 1,204,883
Financial Institutions............................................... 344,866 265,132 211,652
Group................................................................ 233,640 240,222 215,904
Guaranteed Investment Contracts...................................... 2,608,037 2,536,939 2,211,079
Individual Life...................................................... 1,034,960 887,927 752,168
Investment Products.................................................. 1,871,887 1,578,789 1,284,186
Corporate and Other.................................................. 490,700 414,142 230,832
------------- ------------- -------------
$ 8,163,343 $ 7,178,693 $ 6,110,704
------------- ------------- -------------
------------- ------------- -------------
Acquisitions......................................................... 19.3% 17.5% 19.7%
Financial Institutions............................................... 4.2 3.7 3.5
Group................................................................ 2.9 3.3 3.5
Guaranteed Investment Contracts...................................... 32.0 35.3 36.2
Individual Life...................................................... 12.7 12.4 12.3
Investment Products.................................................. 22.9 22.0 21.0
Corporate and Other.................................................. 6.0 5.8 3.8
------------- ------------- -------------
100.0% 100.0% 100.0%
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-31
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE L -- EMPLOYEE BENEFIT PLANS
PLC has a defined benefit pension plan covering substantially all of its
employees. The plan is not separable by affiliates participating in the plan.
However, approximately 80% of the participants in the plan are employees of
Protective. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. PLC's funding policy is
to contribute amounts to the plan sufficient to meet the minimum finding
requirements of ERISA plus such additional amounts as PLC may determine to be
appropriate from time to time. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future.
The actuarial present value of benefit obligations and the funded status of
the plan taken as a whole at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $14,720 in 1996 and $16,676 in
1995..................................................................................... $ 15,475 $ 17,415
--------- ---------
Projected benefit obligation for service rendered to date.................................. $ 25,196 $ 24,877
Plan assets at fair value (group annuity contract with Protective)......................... 19,779 18,254
--------- ---------
Plan assets less than the projected benefit obligation..................................... (5,417) (6,623)
Unrecognized net loss from past experience different from that assumed..................... 3,559 4,882
Unrecognized prior service cost............................................................ 705 805
Unrecognized net transition asset.......................................................... (67) (84)
--------- ---------
Net pension liability recognized in balance sheet.......................................... $ (1,220) $ (1,020)
--------- ---------
--------- ---------
</TABLE>
Net pension cost includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year................................. $ 1,908 $ 1,540 $ 1,433
Interest cost on projected benefit obligation................................... 1,793 1,636 1,520
Actual return on plan assets.................................................... (1,674) (1,358) (1,333)
Net amortization and deferral................................................... 374 114 210
--------- --------- ---------
Net pension cost................................................................ $ 2,401 $ 1,932 $ 1,830
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective's share of the net pension cost was $1.5 million, $1.2 million,
and $1.2 million, in 1996, 1995, and 1994, respectively.
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate....................................................... 7.75% 7.25% 8.00%
Rates of increase in compensation level.............................................. 5.75% 5.25% 6.00%
Expected long-term rate of return on assets.......................................... 8.50% 8.50% 8.50%
</TABLE>
Assets of the pension plan are included in the general assets of Protective.
Upon retirement, the amount of pension plan assets vested in the retiree is used
to purchase a single premium annuity from
F-32
<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)
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, 1996 and 1995, the projected benefit
obligation of this plan totaled $7.2 million and $5.7 million, respectively.
In addition to pension benefits, PLC provides limited healthcare benefits to
eligible retired employees until age 65. The postretirement benefit is provided
by an unfunded plan. At December 31, 1996 and 1995, the liability for such
benefits totaled $1.4 million and $1.5 million, respectively. The expense
recorded by PLC was $0.1 million in 1996 and $0.2 million in 1995 and 1994.
PLC's obligation is not materially affected by a 1% change in the healthcare
cost trend assumptions used in the calculation of the obligation.
Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation. This plan is partially funded at a maximum of $50,000 face amount
of insurance.
PLC sponsors a defined contribution plan which covers substantially all
employees. Employee contributions are made on a before-tax basis as provided by
Section 401(k) of the Internal Revenue Code. In 1990, PLC established an
Employee Stock Ownership Plan to match employee contributions to PLC's 401(k)
Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees who are
not otherwise under a bonus plan. Expense related to the ESOP consists of the
cost of the shares allocated to participating employees plus the interest
expense on the ESOP's note payable to Protective less dividends on shares held
by the ESOP. At December 31, 1996, PLC had committed 52,388 shares to be
released to fund employee benefits. The expense recorded by PLC for these
employee benefits was $1.0 million, $0.7 million and $0.6 million in 1996, 1995,
and 1994, respectively.
NOTE M -- STOCK BASED COMPENSATION
Certain Protective employees participate in PLC's Performance Share Plan and
receive stock appreciation rights (SARs) from PLC.
Since 1973 PLC has had a Performance Share Plan to motivate senior
management to focus on PLC's long-range earnings performance. The criterion for
payment of performance share awards is based upon a comparison of PLC's average
return on average equity over a four year award period (earlier upon the death,
disability or retirement of the executive, or in certain circumstances, of a
change in control of PLC) to that of a comparison group of publicly held life
insurance companies, multiline insurers, and insurance holding companies. If
PLC's results are below the median of the comparison group, no portion of the
award is earned. If PLC's results are at or above the 90th percentile, the award
maximum is earned. Under the plan approved by stockholders in 1992, up to
1,200,000 shares may be issued in payment of awards. The number of shares
granted in 1996, 1995, and 1994 were 52,290, 72,610, and 62,140 shares,
respectively, having an approximate market value on the grant date of $1.8
million, $1.6 million, and $1.4 million, respectively. At December 31, 1996,
outstanding awards measured at target and maximum payouts were 279,648 and
375,470 shares, respectively. The expense recorded by PLC for the Performance
Share Plan was $3.0 million, $2.9 million, and $3.6 million in 1996, 1995, and
1994, respectively.
F-33
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE M -- STOCK BASED COMPENSATION (CONTINUED)
During 1996, stock appreciation rights (SARs) were granted to certain
executives of PLC to provide long-term incentive compensation based on the
performance of PLC's Common Stock. Under this arrangement PLC will pay (in
shares of PLC Common Stock) an amount equal to the difference between the
specified base price of PLC's Common Stock and the market value at the exercise
date. The SARs are exercisable after five years (earlier upon the death,
disability or retirement of the executive, or in certain circumstances, of a
change in control of PLC) and expire in 2006 or upon termination of employment.
The number of SARs granted during 1996 and outstanding at December 31, 1996 was
337,500. The SARs have a base price of $34.875 per share of PLC Common Stock
(the market price on the grant date was $35.00 per share). The estimated fair
value of the SARs on the grant date was $3.0 million. This estimate was derived
using the Roll-Geske variation of the Black-Sholes option pricing model.
Assumptions used in the pricing model are as follows: expected volatility rate
of 15% (approximately equal to that of the S & P Life Insurance Index), a risk
free interest rate of 6.35%, a dividend yield rate of 1.97%, and an expected
exercise date of August 15, 2002. The expense recorded by PLC for the SARs was
$0.2 million in 1996.
NOTE N -- REINSURANCE
Protective assumes risks from and reinsures certain parts of its risks with
other insurers under yearly renewable term, coinsurance, and modified
coinsurance agreements. Yearly renewable term and coinsurance agreements are
accounted for by passing a portion of the risk to the reinsurer. Generally, the
reinsurer receives a proportionate part of the premiums less commissions and is
liable for a corresponding part of all benefit payments. Modified coinsurance is
accounted for similarly to coinsurance except that the 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,
generally, will not carry more than $500,000 individual life insurance on a
single risk.
Protective has reinsured approximately $18.8 billion, $17.5 billion, and
$8.6 billion, in face amount of life insurance risks with other insurers
representing $113.5 million, $116.1 million, and $46.0 million of premium income
for 1996,1995, and 1994, respectively. Protective has also reinsured accident
and health risks representing $194.7 million, $217.1 million, and $126.5
million, of premium income for 1996, 1995, and 1994, respectively. In 1996 and
1995, policy and claim reserves relating to insurance ceded of $325.9 million
and $266.9 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, 1996
and 1995, Protective had paid $6.7 million and $4.1 million, respectively, of
ceded benefits which are recoverable from reinsurers.
During 1995 Protective entered into a reinsurance agreement whereby most of
Protective's new credit insurance sales are being ceded to a reinsurer. Included
in the preceding paragraph are credit life and credit accident and health
insurance premiums of $47.7 million and $55.3 million respectively, and reserves
totaling $135.8 million which were ceded during 1996. Also included are credit
life and credit accident and health insurance premiums of $68.2 million and
$57.6 million, respectively, and reserves totaling $100.8 million which were
ceded during 1995.
F-34
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE O -- ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated market values of Protective's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
------------- ------------- ------------- -------------
Assets (see Notes A and C):
Investments:
Fixed maturities................................... $ 4,662,997 $ 4,662,997 $ 3,891,932 $ 3,891,932
Equity securities.................................. 35,250 35,250 38,711 38,711
Mortgage loans on real estate...................... 1,503,781 1,581,694 1,835,057 2,001,100
Short-term investments............................. 101,215 101,215 46,891 46,891
Cash................................................. 114,384 114,384 6,198 6,198
Other (see Note A):
Futures contracts.................................. (1,708) (633)
Interest rate swaps................................ (679) 1,299
</TABLE>
F-35
<PAGE>
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COL. A COL. B COL. C COL. D COL. E COL. F COL. G
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
GIC AND
FUTURE ANNUITY
DEFERRED POLICY DEPOSITS PREMIUMS REALIZED
POLICY BENEFITS AND OTHER AND NET INVESTMENT
ACQUISITION AND UNEARNED POLICYHOLDERS' POLICY INVESTMENT GAINS
SEGMENT COSTS COSTS PREMIUMS FUNDS FEES INCOME (1) (LOSSES)
- -------------------------------- ----------- ---------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Acquisitions.................. $ 156,172 $1,117,159 $ 1,087 $ 251,450 $ 106,543 $ 106,015 $ 0
Financial Institutions........ 32,040 119,242 253,154 1,880 73,422 13,898 0
Group......................... 27,944 119,010 2,572 83,632 156,530 16,249 0
Guaranteed Investment
Contracts................... 1,164 149,755 0 2,474,728 0 214,369 (7,963)
Individual Life............... 220,232 793,370 685 15,577 116,710 48,442 3,098
Investment Products........... 50,637 149,743 0 1,120,557 8,189 98,719 3,858
Corporate and Other........... 12 170 55 192 656 1,089 0
Unallocated Realized
Investment Gains (Losses)... 0 0 0 0 0 0 6,517
----------- ---------- ----------- ------------- ----------- ----------- -----------
TOTAL....................... $ 488,201 $2,448,449 $ 257,553 $ 3,948,016 $ 462,050 $ 498,781 $ 5,510
----------- ---------- ----------- ------------- ----------- ----------- -----------
----------- ---------- ----------- ------------- ----------- ----------- -----------
Year Ended December 31, 1995:
Acquisitions.................. $ 123,889 $ 851,994 $ 590 $ 250,550 $ 98,501 $ 95,018 $ 0
Financial Institutions........ 36,283 84,162 189,973 1,495 65,669 9,276 0
Group......................... 24,974 123,279 2,806 85,925 142,483 14,329 0
Guaranteed Investment
Contracts................... 993 68,704 0 2,451,693 0 203,376 (3,908)
Individual Life............... 186,496 672,569 336 14,709 99,018 40,237 0
Investment Products........... 37,534 127,104 0 1,061,507 4,566 95,661 4,938
Corporate and Other........... 14 342 62 263 1,445 536 0
Unallocated Realized
Investment Gains (Losses)... 0 0 0 0 0 0 921
----------- ---------- ----------- ------------- ----------- ----------- -----------
TOTAL....................... $ 410,183 $1,928,154 $ 193,767 $ 3,866,142 $ 411,682 $ 458,433 $ 1,951
----------- ---------- ----------- ------------- ----------- ----------- -----------
----------- ---------- ----------- ------------- ----------- ----------- -----------
Year Ended December 31, 1994:
Acquisitions.................. $ 110,203 $ 856,889 $ 381 $ 266,828 $ 86,376 $ 84,350 $ 532
Financial Institutions........ 68,060 43,198 99,798 2,758 98,027 9,451
Group......................... 22,685 116,324 2,905 84,689 131,096 14,903
Guaranteed Investment
Contracts................... 996 0 0 2,281,674 0 181,212 3,000
Individual Life............... 162,186 571,070 320 13,713 84,925 37,986
Investment Products........... 70,053 102,705 0 1,027,527 1,635 81,062 (2,500)
Corporate and Other........... 17 4,109 75 263 713 (31)
Unallocated Realized
Investment Gains (Losses)... 0 0 0 0 0 0 5,266
----------- ---------- ----------- ------------- ----------- ----------- -----------
TOTAL....................... $ 434,200 $1,694,295 $ 103,479 $ 3,677,452 $ 402,772 $ 408,933 $ 6,298
----------- ---------- ----------- ------------- ----------- ----------- -----------
----------- ---------- ----------- ------------- ----------- ----------- -----------
<CAPTION>
- --------------------------------
<S> <C> <C> <C>
COL. A COL. H COL. I COL. J
- --------------------------------
AMORTIZATION
BENEFITS OF DEFERRED
AND POLICY OTHER
SETTLEMENT ACQUISITION OPERATING
SEGMENT EXPENSES COSTS EXPENSES (1)
- -------------------------------- ----------- ------------- ------------
<S> <C> <C> <C>
Year Ended December 31, 1996:
Acquisitions.................. $ 118,181 $ 17,162 $ 24,292
Financial Institutions........ 42,781 24,900 10,673
Group......................... 125,797 5,326 43,027
Guaranteed Investment
Contracts................... 169,927 509 3,840
Individual Life............... 96,404 28,393 28,611
Investment Products........... 73,093 14,710 13,197
Corporate and Other........... 710 1 4,508
Unallocated Realized
Investment Gains (Losses)... 0 0 0
----------- ------------- ------------
TOTAL....................... $ 626,893 $ 91,001 $ 128,148
----------- ------------- ------------
----------- ------------- ------------
Year Ended December 31, 1995:
Acquisitions.................. $ 100,016 $ 20,601 $ 22,551
Financial Institutions........ 24,020 26,809 14,229
Group......................... 109,447 3,052 37,657
Guaranteed Investment
Contracts................... 165,963 386 4,140
Individual Life............... 80,067 20,403 22,748
Investment Products........... 72,111 11,446 10,494
Corporate and Other........... 1,476 3 8,069
Unallocated Realized
Investment Gains (Losses)... 0 0 0
----------- ------------- ------------
TOTAL....................... $ 553,100 $ 82,700 $ 119,888
----------- ------------- ------------
----------- ------------- ------------
Year Ended December 31, 1994:
Acquisitions.................. $ 97,649 $ 14,460 $ 21,431
Financial Institutions........ 46,360 36,592 16,984
Group......................... 98,930 2,724 37,059
Guaranteed Investment
Contracts................... 147,383 892 4,004
Individual Life............... 67,451 18,771 20,736
Investment Products........... 58,424 14,647 7,801
Corporate and Other........... 913 3 11,188
Unallocated Realized
Investment Gains (Losses)... 0 0 0
----------- ------------- ------------
TOTAL....................... $ 517,110 $ 88,089 $ 119,203
----------- ------------- ------------
----------- ------------- ------------
</TABLE>
- ------------------------
(1) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if
different methods were applied.
F-36
<PAGE>
SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COL. A COL. B COL. C COL. D COL. E COL. F
<CAPTION>
- ---------------------------------------------------------------------------------------------------
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, 1996:
Life insurance in force......... $53,052,020 $18,840,221 $16,275,386 $50,487,185 32.2%
----------- ----------- ----------- ----------- ---
----------- ----------- ----------- ----------- ---
Premiums and policy fees:
Life insurance.................. $ 272,331 $ 113,487 $ 129,717 $ 288,561 45.0%
Accident and health insurance... 338,709 194,687 29,467 173,489 17.0%
----------- ----------- ----------- -----------
TOTAL........................... $ 611,040 $ 308,174 $ 159,184 $ 462,050
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year Ended December 31, 1995:
Life insurance in force......... $50,346,719 $17,524,366 $11,537,144 $44,359,497 26.0%
----------- ----------- ----------- ----------- ---
----------- ----------- ----------- ----------- ---
Premiums and policy fees:
Life insurance.................. $ 308,422 $ 116,091 $ 66,565 $ 258,896 25.7%
Accident/health insurance....... 356,285 217,082 13,583 152,786 8.9%
----------- ----------- ----------- -----------
TOTAL........................... $ 664,707 $ 333,173 $ 80,148 $ 411,682
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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....... 283,884 126,546 3,591 160,929 2.2%
----------- ----------- ----------- -----------
TOTAL........................... $ 540,724 $ 172,575 $ 34,623 $ 402,772
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-37
<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 Section 26(e) of the Investment Company Act of
1940
Protective Life hereby represents that the fees and charges deducted under
the variable life insurance policies described herein are, in the aggregate,
reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by it under such policies.
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 54 pages.
The undertaking to file reports.
The Rule 484 undertaking.
Representations pursuant to Section 26(e) of the Investment Company Act of
1940.
The signatures.
Written consents of the following persons:
Nancy Kane, Esq.
Milliman & Robertson
Sutherland, Asbill & Brennan, L.L.P.
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)(a) Participation/Distribution Agreement.**
(9)(b) Participation Agreement (Oppenheimer Variable Account Funds).****
(9)(c) Participation Agreement (MFS Variable Insurance Trust).****
(9)(d) Participation Agreement (Acacia Capital Corporation).****
(10) Contract Application.***
</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.
**Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on December 22, 1995.
***Incorporated herein by reference to Post-Effective Amendment No. 1 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on April 10, 1996.
****Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form N-4 Registration Statement (File No. 33-70984) as filed with the
Commission on April 30, 1997.
II-3
<PAGE>
<TABLE>
<S> <C> <C>
2. Opinion and consent of Nancy Kane, Esq.
3. Not applicable.
4. Not applicable.
5. See Exhibit 27.
6. Notice of Withdrawal Right. (Not Applicable)
7. Opinion and consent of Milliman & Robertson.
8. Consent of Sutherland, Asbill & Brennan, L.L.P.
9(a). Consent of Coopers & Lybrand L.L.P.
10. Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) describing issue, transfer and redemption
procedures.
11. Powers of Attorney.
27. Financial Data Schedules.
</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.
**Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form
S-6 Registration Statement, (File No. 33-61599) as filed with the Commission
on December 22, 1995.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Protective Variable Life
Separate Account, certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Birmingham, State of Alabama on April
28, 1997.
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
By: /s/ JOHN D. JOHNS
------------------------------------------
John D. Johns, President
PROTECTIVE LIFE INSURANCE COMPANY
PROTECTIVE LIFE INSURANCE COMPANY
(Depositor)
By: /s/ JOHN D. JOHNS
------------------------------------------
John D. Johns, President
PROTECTIVE LIFE INSURANCE COMPANY
As required by the Securities Act of 1933, this Post-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>
Chairman of the
/s/ DRAYTON NABERS, JR. Board
------------------------------------------- (Principal April 28, 1997
Drayton Nabers, Jr. Executive
Officer)
President
/s/ JOHN D. JOHNS (Principal
------------------------------------------- Financial April 28, 1997
John D. Johns Officer)
Vice President,
Controller and
Chief
/s/ JERRY W. DEFOOR Accounting
------------------------------------------- Officer April 28, 1997
Jerry W. DeFoor (Principal
Accounting
Officer)
/s/ DRAYTON NABERS, JR.
------------------------------------------- Director April 28, 1997
Drayton Nabers, Jr.
/s/ JOHN D. JOHNS
------------------------------------------- Director April 28, 1997
John D. Johns
*
------------------------------------------- Director April 28, 1997
Ormond L. Bentley
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------- ---------------
<C> <S> <C>
*
------------------------------------------- Director April 28, 1997
R. Stephen Briggs
*
------------------------------------------- Director April 28, 1997
Jim E. Massengale
*
------------------------------------------- Director April 28, 1997
Wayne E. Stuenkel
*
------------------------------------------- Director April 28, 1997
A. S. Williams III
*
------------------------------------------- Director April 28, 1997
Steven A. Schultz
*
------------------------------------------- Director April 28, 1997
Deborah A. Long
*
------------------------------------------- Director April 28, 1997
Carolyn King
*
------------------------------------------- Director April 28, 1997
Richard J. Bielen
*
------------------------------------------- Director April 28, 1997
Danny L. Bentley
*By: /s/ NANCY KANE
--------------------------------------
Nancy Kane
Attorney-in-Fact April 28, 1997
</TABLE>
<PAGE>
EXHIBIT INDEX
<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) Protective insurability benefit rider.*
(6)(a) Charter of Protective Life Insurance Company.*
(b) By-Laws of Protective Life Insurance Company. *
(7) None.
(8) None.
(9)(a) Participation/Distribution Agreement.**
(9)(b) Participation Agreement (Oppenheimer Variable Account Funds).****
(9)(c) Participation Agreement (MFS Variable Insurance Trust).****
(9)(d) Participation Agreement (Acacia Capital Corporation).****
(10) Contract Application.***
2. Opinion and consent of Nancy Kane, Esq.
3. Not applicable.
4. Not applicable.
5. See Exhibit 27.
6. Notice of Withdrawal Right. (Not Applicable)
7. Opinion and consent of Milliman & Robertson.
8. Consent of Sutherland, Asbill & Brennan, L.L.P.
9(a). Consent of Coopers & Lybrand L.L.P.
10. Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) describing issue, transfer and redemption
procedures.
11. Powers of Attorney.
27. Financial Data Schedules.
</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.
**Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on December 22, 1995.
***Incorporated herein by reference to Post-Effective Amendment No. 1 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on April 10, 1996.
****Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form N-4 Registration Statement (File No. 33-70984) as filed with the
Commission on April 30, 1997.
<PAGE>
EXHIBIT 2
<PAGE>
Nancy Kane
Senior Associate Counsel
April 28, 1997
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,
/s/ Nancy Kane
--------------------------------------
Nancy Kane, Esq.
<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 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.
(2) 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 Post-Effective
Amendment No. 2 to the Registration Statement and to the use of my name under
the heading "Experts" in the prospectus.
/s/ TIMOTHY C. PFEIFER
--------------------------------------
Timothy C. Pfeifer, F.S.A., M.A.A.A.
Consulting Actuary
Milliman & Robertson, Inc.
April 28, 1997
<PAGE>
EXHIBIT 8
<PAGE>
[SUTHERLAND, ASBILL & BRENNAN LETTERHEAD]
April 21, 1997
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
Post-Effective Amendment Number 2 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, L.L.P.
By: /s/ STEPHEN E. ROTH
--------------------------------------
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 11, 1997, on our audits of the
consolidated financial statements and financial statement schedules of
Protective Life Insurance Company and Subsidiaries. We also consent to the
inclusion of our report dated March 14, 1997 on our audit of the financial
statements of the Protective Variable Life Separate Account. We also consent to
the reference to our Firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
April 28, 1997
<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. APPLICATION AND UNDERWRITING
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. The underwriting policies of the Company are
established by management. The Company uses information from the application
and, in some cases, inspection reports, attending physician statements, or
medical examinations to determine whether a Policy should be issued as applied
for, rated, or rejected. Medical examinations of applicants are required for
Policies in excess of certain prescribed amounts and for most insurance applied
for by applicants over age 50. Medical examinations are requested of any
applicant, regardless of age and amount of requested coverage, if an examination
is deemed necessary to underwrite the risk. Substandard risks may be referred to
reinsurers for full or partial reinsurance of the substandard risk.
The Company requires blood samples to be drawn with applications for
coverage over $100,000 (ages 16-50) or $150,000 (age 51 and over). Blood samples
are tested for a wide range of chemical values and are screened for antibodies
to the HIV virus. Applications also contain questions permitted by law regarding
the HIV virus which must be answered by the proposed insureds. 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, an initial minimum 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.
In order to obtain a more favorable Issue Age, the Company may permit Owners
to "backdate" a Policy by electing a Policy Effective Date which is up to six
months prior to the date of the original application. Charges will be deducted
as of the new Policy Effective Date for the backdated period for Monthly
Deductions.
B. INITIAL PREMIUM PROCESSING AND PREMIUM PAYMENTS
Premiums for the Policies will not be the same for all Owners. The Company
requires that the initial premium payment for a Policy be at least equal to the
minimum required for the mode of premium selected. For example, the initial
premium payment 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 months premiums upon issuance of their Policy. Premiums paid
on a preauthorized checking withdrawal basis can never be less than $50 per
month.
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
Protective Money Market Sub-Account or the Fixed 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 Protective Money Market Sub-Account or the Fixed Account
and all Net Premium Payments will be allocated according
<PAGE>
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.
Following the initial premium, the Owner may pay planned premiums in any
amount on a quarterly, semi-annual, and annual basis. For the first Policy Year,
the amount of the planned premiums can be no less than the minimum initial
premium payment calculated on an annual basis. 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, any supplemental
benefits and/or riders and the Plan, Periodic Premiums Selected. If the Owner
fails to pay the planned premiums, this will not cause the Policy to lapse.
An Owner may make unscheduled premium payments, at any time, in any amount.
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.
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 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.
However, 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.
2
<PAGE>
C. LAPSE AND REINSTATEMENT PROCEDURES
The Company offers a "No Lapse 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.
The Policy's No Lapse Guarantee Provision will be threatened if the Company
does not receive an amount equal to the minimum monthly guarantee premium
specified in the Policy.
Before the maturity date, 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 net premiums equal to (a) all monthly deductions
due upon lapse and (b) which are at least sufficient to keep the Reinstated
Policy in force for three months; and (4) 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.
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.
II. REDEMPTION PROCEDURES: SURRENDER AND RELATED TRANSACTIONS
The principal 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 prior to the maturity date while the insured is
living and while the Policy is in effect. The amount available for surrender is
the surrender value as of the valuation day on or next following the date the
written surrender request, the Policy and any other required documents are
submitted and received by the Company. If the Policy itself isn't returned to
the Company the request must be accompanied by completed affidavit of lost
policy. Amounts payable from the Variable Account upon surrender or a partial
withdrawal will be paid within seven calendar days of receipt of the written
request.
Upon surrender, the Company will pay in a lump sum the surrender value that
is equal to the cash value as of the valuation day less any outstanding Policy
Debt which includes accrued interest less any applicable surrender charges.
Coverage under a Policy will end as of the date of surrender.
The surrender charge ("Contingent Deferred Sales 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 any riders. The Surrender Charge Percentage in Policy Years
1 through 6 is equal to 27%. After the six completed policy year the Surrender
Charge Percentage decreases by 3% each Policy Year. After the 14th Policy Year,
there is no Surrender Charge for the initial face amount. 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. In the event of a
decrease in the Initial Face Amount, the pro-rated Surrender Charge will be
3
<PAGE>
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.
After the first Policy Year, the Owner may also request a partial withdrawal
by sending a written request to the Company. 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 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 on the valuation day immediately prior to the
withdrawal. 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 Company will deduct an administrative 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 and will be considered to be part of the withdrawal
amount. The withdrawal charge will be allocated in the manner described above
for the requested amount.
The death benefit will be affected by withdrawals. If death benefit option 1
is in effect, then the Company reserves the right to reduce the face amount by
the amount withdrawn (inclusive of withdrawal charge). 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 death
benefit option 2 is in effect, then the Company will not reduce the face amount.
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. If the Face Amount at the time of 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.
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 current 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 No-Lapse Guarantee provision is in effect, the minimum monthly
premium amount required to keep the Policy in force will generally
increase and additional premium payments may be required.
4
<PAGE>
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 if
compliance with 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 of the Policy. In
addition, the Company 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.
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 coincides with or next follows the date the Company
receives and accepts the request for change. If the Owner requests a change from
the Option 1 to Option 2, the face amount will be increased to equal the face
amount on the effective date of change. If the Owner requests a change from a
Option 2 to Option 1, 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 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 supplemental and/or riders
benefits 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 Death Benefit Option 1 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 Death Benefit Option 2 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.
5
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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.
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 received. The Owner must submit a
written request for a Policy loan. Any amount due 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 equal to the loan is transferred out
of the sub-account(s) and the fixed account and into the Policy's loan account.
The Owner can specify the Sub-Accounts and 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.
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 of 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.
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 repayments will be credited
as of the date they are 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/or the Fixed
Account in the same 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
A Policy's cash value, except amounts credited to the loan account, may be
transferred among the Sub-Accounts 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 (including telephone
transfers) are 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
6
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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. 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 be transferred from each.
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,
Although 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 or to
the Fixed Account or from or 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 unit
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;
(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.
The owner may direct the Company to systematically and automatically
transfer on a quarterly, semiannual, or annual basis, contract value among
specified Sub-Accounts. This is known as the portfolio rebalancing method of
investment and is done to achieve a particular percentage allocation among such
Sub-Accounts. 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 unit values. The Fixed Account
value will not be considered in the automatic transfer process. The Company
makes no guarantee that the portfolio rebalancing method will result in a
7
<PAGE>
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
portfolio rebalancing upon 30 days written notice.
The Applicant/Owner can elect portfolio rebalancing at the time of
application or any time thereafter by submitting a written request to the
Company. This feature is available on a quarterly, semiannual, and annual basis
and may commence on any day of the month that the Owner requests, except the
29th, 30th or 31st. Once elected, portfolio rebalancing will begin on the first
modal anniversary following the election.
The Company will continue to process these automatic transfers until the
earlier of the following:
(1) Sub-Account values are depleted;
(2) the Owner requests the company to cease the automatic transfers, by
written notice. This can also be requested by telephone if the owner
previously authorized us to take telephone instructions.
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 latest 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 the 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 Policy Effective 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 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.
C. SUICIDE
If the insured commits suicide, while sane or insane, within two years from
the Policy Effective Date, the death benefit will be limited to the premiums
paid before death, less any Policy debt and less
8
<PAGE>
any withdrawals. If the insured commits suicide, while sane or insane, within
two years after an increase in face amount, the death benefit 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 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. 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.
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
supplemental benefits and/or riders is not correct, the death benefit and any
benefits provided under any riders to this Policy will be adjusted to those that
would have been purchased by the most recent cost of insurance change and the
cost of any such supplemental benefits provided by such riders, at the correct
age and sex.
9
<PAGE>
EXHIBIT 11
<PAGE>
DIRECTORS' POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors of
Protective Life Insurance Company, a Tennessee corporation, ("Company") by his
execution hereof or upon an identical counterpart hereof, does hereby constitute
and appoint John D. Johns, Nancy Kane or Jerry W. DeFoor, and each or any of
them, his true and lawful attorney-in-fact and agent, for him and in his name,
place and stead, to execute and sign the Registration Statement on Form S-6 to
be filed by the Company with respect to variable life products with the
Securities and Exchange Commission, pursuant to the provisions of the Securities
Exchange Act of 1933 and the Investment Company Act of 1940 and, further, to
execute and sign any and all pre-effective and post-effective amendments to such
Registration Statement, and to file same, with all exhibits and schedules
thereto and all other documents in connection therewith, with the Securities and
Exchange Commission and with such state securities authorities as may be
appropriate, granting unto said attorney-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes of the undersigned might or could do in person, hereby
ratifying and confirming all the acts of said attorney-in-fact and agent or any
of them which they may lawfully do in the premises or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and
seal this 25th day of April, 1997.
WITNESS TO ALL SIGNATURES:
/s/ Deborah J. Long
- --------------------------------------
Deborah J. Long
/s/ Drayton Nabers, Jr. /s/ Danny L. Bentley
- -------------------------------------- --------------------------------------
Drayton Nabers, Jr. Danny L. Bentley
/s/ John D. Johns /s/ Richard J. Bielen
- -------------------------------------- --------------------------------------
John D. Johns Richard J. Bielen
/s/ R. Stephen Briggs /s/ Carolyn King
- -------------------------------------- --------------------------------------
R. Stephen Briggs Carolyn King
/s/ Ormond L. Bentley /s/ Jim E. Massengale
- -------------------------------------- --------------------------------------
Ormond L. Bentley Jim E. Massengale
/s/ Steven A. Schultz /s/ Wayne E. Stuenkel
- -------------------------------------- --------------------------------------
Steven A. Schultz Wayne E. Stuenkel
/s/ A. S. Williams III
- --------------------------------------
A. S. Williams III
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948923
<NAME> PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET SUB ACCOUNT
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-19-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 14,144
<INVESTMENTS-AT-VALUE> 14,144
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,144
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 14,144
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 14,144
<DIVIDEND-INCOME> 115
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 115
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,150
<NUMBER-OF-SHARES-REDEEMED> 121
<SHARES-REINVESTED> 115
<NET-CHANGE-IN-ASSETS> 14,144
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 121
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948923
<NAME> PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
<SERIES>
<NUMBER> 2
<NAME> GROWTH AND INCOME SUB ACCOUNT
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-19-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 148,462
<INVESTMENTS-AT-VALUE> 149,418
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 149,418
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 10,535
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 149,418
<DIVIDEND-INCOME> 1,798
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1,798
<REALIZED-GAINS-CURRENT> 9,041
<APPREC-INCREASE-CURRENT> 956
<NET-CHANGE-FROM-OPS> 11,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,744
<NUMBER-OF-SHARES-REDEEMED> 971
<SHARES-REINVESTED> 762
<NET-CHANGE-IN-ASSETS> 149,418
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,375
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.183
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948923
<NAME> PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
<SERIES>
<NUMBER> 3
<NAME> INTERNATIONAL EQUITY SUB ACCOUNT
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-19-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 119,937
<INVESTMENTS-AT-VALUE> 122,118
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122,118
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 9,492
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 122,118
<DIVIDEND-INCOME> 45
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 45
<REALIZED-GAINS-CURRENT> 2,317
<APPREC-INCREASE-CURRENT> 2,181
<NET-CHANGE-FROM-OPS> 4,543
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,922
<NUMBER-OF-SHARES-REDEEMED> 615
<SHARES-REINVESTED> 185
<NET-CHANGE-IN-ASSETS> 122,118
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,332
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.865
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANICAL STATEMENTS.
</LEGEND>
<CIK> 0000948923
<NAME> PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
<SERIES>
<NUMBER> 4
<NAME> GLOBAL INCOME SUB ACCOUNT
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-19-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 21,902
<INVESTMENTS-AT-VALUE> 21,153
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,153
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 2,078
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 21,153
<DIVIDEND-INCOME> 45
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 45
<REALIZED-GAINS-CURRENT> 365
<APPREC-INCREASE-CURRENT> (749)
<NET-CHANGE-FROM-OPS> 532
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,419
<NUMBER-OF-SHARES-REDEEMED> 463
<SHARES-REINVESTED> 122
<NET-CHANGE-IN-ASSETS> 21,153
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,681
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.179
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948923
<NAME> PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
<SERIES>
<NUMBER> 5
<NAME> SMALL CAP EQUITY SUB ACCOUNT
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-19-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 142,431
<INVESTMENTS-AT-VALUE> 129,053
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 129,053
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 12,878
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 129,053
<DIVIDEND-INCOME> 322
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 322
<REALIZED-GAINS-CURRENT> 12,587
<APPREC-INCREASE-CURRENT> (13,378)
<NET-CHANGE-FROM-OPS> (469)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,553
<NUMBER-OF-SHARES-REDEEMED> 982
<SHARES-REINVESTED> 1,307
<NET-CHANGE-IN-ASSETS> 129,053
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,013
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.021
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948923
<NAME> PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
<SERIES>
<NUMBER> 6
<NAME> SELECT EQUITY SUB ACCOUNT
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-19-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 75,847
<INVESTMENTS-AT-VALUE> 76,118
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,118
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 4,931
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 76,118
<DIVIDEND-INCOME> 822
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 822
<REALIZED-GAINS-CURRENT> 1,701
<APPREC-INCREASE-CURRENT> 631
<NET-CHANGE-FROM-OPS> 3,154
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,028
<NUMBER-OF-SHARES-REDEEMED> 256
<SHARES-REINVESTED> 159
<NET-CHANGE-IN-ASSETS> 76,118
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,544
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.437
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948923
<NAME> PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
<SERIES>
<NUMBER> 7
<NAME> CAPITAL GROWTH SUB ACCOUNT
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-19-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 100,881
<INVESTMENTS-AT-VALUE> 105,334
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 105,334
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 8,329
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 105,334
<DIVIDEND-INCOME> 1,027
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1,027
<REALIZED-GAINS-CURRENT> 1,352
<APPREC-INCREASE-CURRENT> 4,452
<NET-CHANGE-FROM-OPS> 6,831
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,228
<NUMBER-OF-SHARES-REDEEMED> 1,082
<SHARES-REINVESTED> 183
<NET-CHANGE-IN-ASSETS> 105,334
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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</TABLE>
