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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998
FILE NO. 333-45963
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 / /
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 7 /X/
------------------------
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:
<TABLE>
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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)
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the registration statement.
TITLE OF SECURITIES BEING REGISTERED:
Interests in a separate account issued through variable life insurance policies.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), SHALL
DETERMINE.
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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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<C> <S>
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; Settlement Options
10(d) Cancellation Privilege; Exchange Privilege; Withdrawal Privilege; Policy Loans; Settlement
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; Settlement Options; The Guaranteed
Account; Limits on the Right to Contest the Policy; Suspension or Delay of Payments;
Arbitration; Supplemental 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; Premium Allocations;
15 Purchasing a Policy; Cancellation Privilege; Premium Payments; 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
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
</TABLE>
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
REGISTRATION STATEMENT ON FORM S-6 (CONTINUED)
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
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<C> <S>
34 Sale of the Policies
35 Protective Life Insurance Company
36 Inapplicable
37 Inapplicable
38 Sale of the Policies
39 Sale of the Policies
40 Sale of the Policies
41(a) Sale of the Policies
42 Inapplicable
43 Inapplicable
44(a) Calculation of Policy Values; Premium Payments; Charges and Deductions
44(b) Charges and Deductions
44(c) Charges and Deductions
45 Inapplicable
46 Calculation of Policy Values; Surrender Privilege; Withdrawal Privilege; Charges and Deductions;
Illustrations of Policy Values, Surrender Values, Death Benefits and Accumulated Premiums
47 Inapplicable
48 Inapplicable
49 Inapplicable
50 Inapplicable
51 Summary and Diagram of the Policy; The Policy; Policy Benefits
52 Addition, Deletion and Substitution of Investments
53 Tax Considerations
54 Inapplicable
55 Inapplicable
56 Inapplicable
57 Inapplicable
58 Inapplicable
59 Financial Statements
</TABLE>
<PAGE>
PROSPECTUS
INDIVIDUAL MODIFIED SINGLE 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 modified single 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, by allowing the Owner
to pay a single premium, and, subject to certain restrictions, additional
premiums and 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 Policy is a modified endowment contract for federal income tax purposes,
except in certain cases described under "Tax Considerations". A loan,
distribution, or other amount received from a modified endowment contract during
the life of the Insured will be taxed to the extent of any accumulated income in
the contract. Amounts that are taxable withdrawals will be subject to a 10%
additional tax, with certain exceptions.
Generally, the minimum initial premium accepted by Protective Life is
$10,000. Protective Life reserves the right to allocate the initial premium to
the PIC Money Market Fund or to the Fixed Account during the Cancellation
Period. At the end of the Cancellation Period, the amount so allocated will be
transferred to the Funds specified in the Owner's application.
The Owner may, within limits, allocate 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 "Guaranteed
Accounts"). 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
Calvert Variable Series, Inc.
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 Accounts, 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.
POLICIES (EXCEPT FOR POLICIES ISSUED IN CERTAIN STATES) INCLUDE AN
ARBITRATION PROVISION THAT MANDATES RESOLUTION OF ALL DISPUTES ARISING UNDER THE
POLICY OTHER THAN THOSE ARISING UNDER THE FEDERAL SECURITIES LAWS 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.
June , 1998
<PAGE>
PROSPECTUS CONTENTS
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PAGE
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Definitions of Terms....................................................................................... 4
Summary and Diagram of the Policy.......................................................................... 6
Expense Tables............................................................................................. 9
General Information About Protective Life, the Variable Account and The Funds.............................. 13
Protective Life Insurance Company........................................................................ 13
Protective Variable Life Separate Account................................................................ 13
The Funds................................................................................................ 13
- The PIC Funds........................................................................................ 14
- The Oppenheimer Funds................................................................................ 14
- The MFS Funds........................................................................................ 15
- The Calvert Funds.................................................................................... 15
Other Investors in the Funds............................................................................. 16
Addition, Deletion or Substitution of Investments........................................................ 16
Voting Rights............................................................................................ 17
The Policy................................................................................................. 18
Purchasing a Policy...................................................................................... 18
Cancellation Privilege................................................................................... 18
Premium Payments......................................................................................... 19
- Minimum Initial Premium Payment...................................................................... 19
- Additional Premium Payments.......................................................................... 19
- Premium Payment Limitations.......................................................................... 19
Premium Allocations...................................................................................... 19
Policy Lapse and Reinstatement........................................................................... 20
- Lapse................................................................................................ 20
- Reinstatement........................................................................................ 20
Calculation of Policy Values............................................................................... 21
Variable Account Value................................................................................... 21
- Determination of Units................................................................................. 21
- Determination of Unit Value............................................................................ 21
- Net Investment Factor.................................................................................. 21
Guaranteed Account Value................................................................................. 21
Policy Benefits............................................................................................ 22
Transfers of Policy Values............................................................................... 22
- General.............................................................................................. 22
- Telephone Transfers.................................................................................. 22
- Reservation of Rights................................................................................ 22
- Dollar Cost Averaging................................................................................ 22
- Portfolio Rebalancing................................................................................ 23
Surrender Privilege...................................................................................... 23
Withdrawal Privilege..................................................................................... 24
- Withdrawals.......................................................................................... 24
- Annual Withdrawal Amounts............................................................................ 24
- Decreasing the Face Amount........................................................................... 24
Policy Loans............................................................................................. 25
- General.............................................................................................. 25
- Loan Collateral...................................................................................... 25
- Loan Repayment....................................................................................... 25
</TABLE>
1
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
- Interest............................................................................................. 25
- Non-Payment of Policy Loan........................................................................... 26
- Effect of a Policy Loan.............................................................................. 26
Death Benefit Proceeds................................................................................... 26
- Calculation of Death Benefit Proceeds................................................................ 26
- Death Benefit........................................................................................ 27
- Increasing the Face Amount........................................................................... 27
Settlement Options....................................................................................... 27
- Minimum Amounts...................................................................................... 28
- Other Requirements................................................................................... 28
The Guaranteed Account..................................................................................... 28
The Guaranteed Account................................................................................... 28
Interest Credited on Guaranteed Account.................................................................. 28
Guaranteed Account Value................................................................................. 29
Payments from the Guaranteed Account..................................................................... 29
Charges and Deductions..................................................................................... 29
Monthly Deductions....................................................................................... 29
- Cost of Insurance Charge............................................................................. 29
- Legal Considerations Relating to Sex - Distinct Premium Payments and Benefits........................ 30
- Monthly Policy Expense Charge........................................................................ 30
- Supplemental Rider Charges........................................................................... 30
- Mortality and Expense Risk Charge.................................................................... 30
Annual Maintenance Fee................................................................................... 31
Transfer Fee............................................................................................. 31
Surrender Charge (Contingent Deferred Sales Charges) and Premium Tax Recovery Charge..................... 31
Fund Expenses............................................................................................ 32
Exchange Privilege......................................................................................... 32
Effect of the Exchange Offer............................................................................. 34
- Tax Considerations................................................................................... 34
- Sales Commissions.................................................................................... 34
Illustrations of Policy Values, Surrender Values, Death Benefits and Accumulated Premium Payments.......... 35
Other Policy Benefits and Provisions....................................................................... 40
Limits on Rights to Contest the Policy................................................................... 40
- Incontestability..................................................................................... 40
- Suicide Exclusion.................................................................................... 40
Changes in the Policy or Benefits........................................................................ 40
- Misstatement of Age or Sex........................................................................... 40
- Other Changes........................................................................................ 40
Suspension or Delay of Payments.......................................................................... 40
Reports to Policy Owners................................................................................. 40
Assignment............................................................................................... 41
Arbitration.............................................................................................. 41
Supplemental Riders and Endorsements..................................................................... 41
Supplemental Riders
- Comprehensive Long-Term Care Accelerated Death Benefit Rider......................................... 41
- Tax Consequences of the ADBR......................................................................... 42
- Amount of the Accelerated Death Benefit.............................................................. 42
- Conditions for Receipt of the Accelerated Death Benefit.............................................. 42
- Operation of the ADBR................................................................................ 42
</TABLE>
2
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
- Effect on Existing Policy............................................................................ 42
Endorsements............................................................................................. 42
Reinsurance.............................................................................................. 42
Uses of the Policy......................................................................................... 43
Tax Considerations......................................................................................... 43
Introduction............................................................................................. 43
Tax Status of Protective Life............................................................................ 43
Taxation of Life Insurance Policies...................................................................... 44
- Tax Status of the Policy............................................................................. 44
- Diversification Requirements....................................................................... 44
- Ownership Treatment................................................................................ 44
- Tax Treatment of Life Insurance Death Benefit Proceeds............................................... 45
- Tax Deferral During Accumulation Period.............................................................. 45
Policies Which Are MEC's................................................................................. 45
- Characterization of a Policy as a MEC.............................................................. 45
- Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs............................ 45
- Penalty Tax........................................................................................ 46
- Aggregation of Policies............................................................................ 46
Policies Which Are Not MEC's............................................................................. 46
- Tax Treatment of Withdrawals Generally............................................................. 46
- Certain Distributions Required by the Tax Law in the First 15 Policy Years......................... 46
- Tax Treatment of Loans............................................................................. 46
- Tax Treatment of Comprehensive Long-Term Care Accelerated Death Benefit Rider........................ 46
- Actions to Ensure Compliance with the Tax Law........................................................ 47
- Other Considerations................................................................................. 47
Disallowance of Interest Deductions...................................................................... 47
Federal Income Tax Withholding........................................................................... 47
Other Information About the Policies and Protective Life................................................... 47
Sale of the Policies..................................................................................... 47
Corporate Purchasers..................................................................................... 48
Protective Life Directors and Executive Officers......................................................... 48
State Regulation......................................................................................... 50
Additional Information................................................................................... 50
Preparation for Year 2000................................................................................ 50
Experts.................................................................................................. 50
Legal Matters............................................................................................ 51
Financial Statements..................................................................................... 51
Appendices
A-Example of Death Benefit Computations.................................................................. A-1
</TABLE>
3
<PAGE>
DEFINITIONS OF TERMS
ALLOCATION OPTION--Any account within the Guaranteed Account or any Sub-Account
to which Purchase Payments may be allocated or Policy Value transfered under
this policy.
ANNUAL WITHDRAWAL AMOUNT--The annual amount you may withdraw during a Policy
Year, and not incur a surrender charge or premium tax recovery charge.
ATTAINED AGE--The Insured's age as of the last birthday on the Policy Effective
Date, plus the number of complete Policy Years since the Policy Effective Date.
BENEFICIARY--The person entitled to receive the Death Benefit Proceeds 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 and premium tax
recovery charge.
CODE--The Internal Revenue Code of 1986, as amended.
DCA FIXED ACCOUNT--Part of Protective Life's General Account. Only Premium
Payments may be allocated to this account, which is available only in connection
with dollar cost averaging. No transfers may be made to the DCA Fixed Account
from other Allocation Options.
DEATH BENEFIT--The greater of (i) the Face Amount on the Insured's date of death
or (ii) a specified percentage of the Policy Value on the date of the Insured's
death.
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 and any liens
for payments made under an accelerated death benefit rider 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 Premiums allocated under a Policy.
GUARANTEED ACCOUNT VALUE--The Policy Value in the Fixed Account and the DCA
Fixed Account.
FUND--An open-ended management investment company or a separate investment
portfolio thereof, or unit investment trust or series thereof, in which a
Sub-Account invests.
GUARANTEED ACCOUNT--The Fixed Account, the DCA Fixed Acount and any other
account that the Company may offer with interest rates guarantees.
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.
INITIAL PREMIUM--The initial Premium Payment made by the Owner equal to 100% of
the Code Section 7702 Guideline Single Premium for the Face Amount given the
Insured's age, sex and underwriting class.
INSURED--The person whose life is covered by the Policy.
ISSUE AGE--The Insured's age as of the last 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
Guaranteed Account Value and/or Variable Account Value is transferred as
collateral for Policy loans.
LOAN ACCOUNT VALUE--The Policy Value in the Loan Account.
MONTHLY ANNIVERSARY DAY--The same day in each month as the Policy Effective
Date.
4
<PAGE>
MONTHLY DEDUCTIONS--The fees and charges deducted monthly based on the Policy
Value and/ or Variable Account Value.
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 the Monthly Deductions).
NET ASSET VALUE PER SHARE--The value per share of any Fund as computed on any
Valuation Day.
OWNER, YOU, YOUR--The person(s) who own the Policy and are entitled to exercise
all rights and privileges provided in the Policy.
PIC--Protective Investment Company.
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--At any time, the sum of the Variable Account Value, the Guaranteed
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.
PREFERRED LOAN--That portion of the Loan Account up to the amount by which
Surrender Value exceeds total Premium Payments made.
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.
SETTLEMENT OPTION--Alternatives to a lump sum for payment by the Company under
the Death Benefit or surrender provisions of the Policy.
SUB-ACCOUNT--A separate division of the Variable Account. Each Sub-Account
invests in a corresponding Fund.
SUB-ACCOUNT VALUE--The Policy Value in a Sub-Account.
SURRENDER VALUE--The Cash Value minus any outstanding Policy Debt and any liens
made under an accelerated death benefit rider.
UNIT--A unit of measurement used to calculate Sub-Account Values.
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 to which Policy Value may be transferred
or Premiums allocated under a Policy.
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.
5
<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 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 and/or the DCA 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". 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. A level Death Benefit is available under the Policy.
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 the Policy Value is sufficient to pay the Monthly Deduction
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. Except in certain cases described under "Tax
Considerations" a Policy will be a "modified endowment contract" for federal tax
law. 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".
CANCELLATION PRIVILEGE. 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 Premium payments to the
Sub-Account investing in the PIC Money Market Fund or to the Fixed Account. (See
"Premium Allocations").
6
<PAGE>
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
- The Policy permits you to pay a large single premium and, subject to certain
restrictions, additional premium. See page 19 for rules and limits.
- The Policy's minimum Initial Premium Payment is $10,000 subject to the
Insured's age, sex and underwriting class, Face Amount selected, and any
riders.
- You direct the allocation of Premium payments among seventeen Sub-Accounts,
the Fixed Account and the DCA Fixed Account. See page 19 for rules and
limits on Premium Payment allocations.
- The Sub-Accounts invest in corresponding Funds. See pages 13 through 15.
Funds available are the PIC Funds, the Oppenheimer Funds, the MFS Funds and
the Calvert Funds (as defined below).
- Interest is credited on amounts allocated to the Fixed Account and the DCA
Fixed Account at a minimum guaranteed rate of 4%. See page 19 for rules and
limits on Fixed Account and the DCA Fixed Account allocations.
DEDUCTIONS FROM POLICY VALUE
- Monthly Deduction for cost of insurance, policy expense charges, mortality
and expense risk charges and charges for any rider benefits. The monthly
cost of insurance charges are currently equal to the lesser of (i) .054%
multiplied by the Policy Value during Policy Years 1 through 10 and .046%
multiplied by the Policy Value in Policy Years 11 and thereafter, which is
equivalent to an annual rate of .65% and .55%, respectively or (ii) the
Guaranteed Maximum Monthly Cost of Insurance Rates per $1,000 of the Net
Amount at Risk based on age, sex and underwriting class as identified on the
Policy Specification Page. The Company reserves the right to charge the
Guaranteed Maximum Monthly Cost of Insurance Rates in the future. Monthly
policy expense charges are equal to .058% multiplied by the Policy Value,
which is equivalent to an annual rate of 0.70% of such amount. The maximum
monthly mortality and expense risk charges are 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. The current mortality and expense
risk charge during Policy Years 1 through 10 is equal to .075% multiplied by
the Variable Account Value. In Policy Years 11 and thereafter the monthly
mortality and expense risk charge is currently equal to .042% multiplied by
the Variable Account Value, which is equivalent to an annual rate of .50% of
such amount. This charge is not deducted from Fixed Account Value. See pages
29 through 31.
- A policy fee of $35.00 will be deducted from the Policy Value on each Policy
Anniversary. The Company currently waives this fee if the Policy Value is
equal to or greater than $50,000 as of the Policy Anniversary.
DEDUCTIONS FROM ASSETS
- Investment advisory fees and fund operating expenses are also deducted from
the assets of each Fund. See pages 9 through 11.
7
<PAGE>
POLICY VALUE
- Is equal to Premiums, as adjusted each Valuation Day to reflect Sub-Account
investment experience, interest credited on Guaranteed 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 the Monthly
Deductions due. See pages 20 and 29 through 31 and .
- Can be transferred from the DCA Fixed Account to the Sub-Accounts and the
Fixed Account subject to certain restrictions and 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 (for loans other than Preferred Loans) of
6.0%. The portion of a loan equal to the amount, if any, by which the
Surrender Value exceeds total Premium Payments made will be considered a
preferred loan and will be charged an interest rate not to exceed 4.5%.
See page 25 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 9% and a declining
premium tax recovery charge of up to 2.5% of a Premium Payment made is
assessed on surrenders during the first 9 Policy Years following each
Premium Payment. See page 23.
- - An Owner may request a Withdrawal of the Surrender Value subject to
certain restrictions. A declining deferred sales charge of up to 9% and a
declining premium tax recovery charge up to 2.5% of a Premium Payment
will be assessed on amounts withdrawn in excess of the Annual Withdrawal
Amount. See page 24.
- - Settlement Options are available. See page 27.
DEATH BENEFITS
- - Available as lump sum or under a variety of Settlement Options.
- - For most Policies, the minimum Face Amount of $10,000.
- - Death Benefit equal to the Face Amount. See page 26.
- - Flexibility to increase the Face Amount. See page 27 for rules and
limits.
- - Supplemental riders may be available. See page 41.
8
<PAGE>
EXPENSE TABLES
The following expense information assumes that the entire Policy Value is
Variable Account Value.
ANNUAL FUND EXPENSES (AS PERCENTAGE OF AVERAGE NET ASSETS)
PIC FUNDS (1)
<TABLE>
<CAPTION>
MONEY MARKET
FUND
------------
<S> <C>
Management (Advisory) Fees...................................................... 0.60%
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
VALUE 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>
9
<PAGE>
OPPENHEIMER FUNDS
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH
FUND
------------
<S> <C>
Management (Advisory) Fees...................................................... 0.71%
Other Expenses.................................................................. 0.02%
------------
Total Annual Fund Expenses....................................................
(after reimbursements) 0.73%
<CAPTION>
GROWTH
FUND
------------
<S> <C>
Management (Advisory) Fees...................................................... 0.73%
Other Expenses.................................................................. 0.02%
------------
Total Annual Fund Expenses....................................................
(after reimbursements) 0.75%
<CAPTION>
GROWTH &
INCOME
FUND
------------
<S> <C>
Management (Advisory) Fees...................................................... 0.75%
Other Expenses.................................................................. 0.08%
------------
Total Annual Fund Expenses....................................................
(after reimbursements) 0.83%
<CAPTION>
STRATEGIC
BOND
FUND
------------
<S> <C>
Management (Advisory) Fees...................................................... 0.75%
Other Expenses.................................................................. 0.08%
------------
Total Annual Fund Expenses....................................................
(after reimbursements) 0.83%
</TABLE>
MFS FUNDS
<TABLE>
<CAPTION>
MFS EMERGING
GROWTH
SERIES
------------
<S> <C>
Management (Advisory) Fees...................................................... 0.75%
Other Expenses After Reimbursement (2).......................................... 0.15%
------------
Total Annual Fund Expenses....................................................
(after reimbursements) 0.90%
<CAPTION>
MFS RESEARCH
SERIES
------------
<S> <C>
Management (Advisory) Fees...................................................... 0.75%
Other Expenses After Reimbursement (2).......................................... 0.13%
------------
Total Annual Fund Expenses....................................................
(after reimbursements) 0.88%
<CAPTION>
MFS GROWTH
WITH INCOME
SERIES
------------
<S> <C>
Management (Advisory) Fees...................................................... 0.75%
Other Expenses After Reimbursement (2)(3)....................................... 0.25%
------------
Total Annual Fund Expenses....................................................
(after reimbursements) (3) 1.00%
<CAPTION>
MFS TOTAL
RETURN
SERIES
------------
<S> <C>
Management (Advisory) Fees...................................................... 0.75%
Other Expenses After Reimbursement (2)(3)....................................... 0.25%
------------
Total Annual Fund Expenses....................................................
(after reimbursements) (3) 1.00%
</TABLE>
10
<PAGE>
CALVERT VARIABLE SERIES (5)
<TABLE>
<CAPTION>
SOCIAL
SMALL-CAP
GROWTH
PORTFOLIO
------------
<S> <C>
Management (Advisory) Fees...................................................... 1.00%
Other Expenses After Reimbursement.............................................. 0.20%
------------
Total Annual Fund Expenses....................................................
(after reimbursements) (4) 1.20%
<CAPTION>
SOCIAL
BALANCED
PORTFOLIO
------------
<S> <C>
Management (Advisory) Fees...................................................... 0.69%
Other Expenses After Reimbursement.............................................. 0.12%
------------
Total Annual Fund Expenses....................................................
(after reimbursements) (4) 0.81%
</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, 1997 were:
Money Market Fund 1.42%, CORE U.S. Equity Fund 0.86%, Small Cap Value Fund
0.89%, International Equity Fund 1.37%, Growth and Income Fund 0.85%,
Capital Growth Fund 0.97%, and Global Income Fund 1.32%. 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) Each Series has an expense offset arrangement which reduces the Series'
custodian 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."
(3) The investment advisor has agreed to bear expenses for these Series, subject
to reimbursement by these Series, such that each such Series' "Other
Expenses" shall not exceed 0.25% of the average daily net assets of the
Series during the current fiscal year. See the Funds prospectus,
"Information Concerning Shares of Each Series--Expenses." Otherwise, "Other
Expenses" for the Growth With Income Series and Total Return Series would be
0.35% and 0.27%, respectively, and "Total Operating Expenses" would be 1.10%
and 1.02%, respectively, for these Series.
(4) The figures have been restated to reflect an increase in transfer agency
expenses of 0.01% for each portfolio expected to be incurred in 1998.
Management Fees includes for Calvert Social Balanced a performance
adjustment, which depending on performance, could cause the fee to be as
high as 0.85% or as low as 0.55%. Effective December 1, 1997, the Calvert
Social Small Cap Growth advisory fee was reduced from the annual rate of
1.50% to 0.90%, and the administrative services fee was reduced from the
annual rate of 0.20% to 0.10%. The Calvert Social Small Cap Growth expenses
have been restated to reflect the lower advisory fee and administrative
services fee. "Other Expenses" include the fee that could have been charged
by the portfolios' custodian, without reduction for an expense off-set by
the custodian of 0.03% for the Calvert Social Balanced portfolio, and 0.31%
for the Calvert Social Small Cap Growth portfolio. Total annual fund
expenses (restated) after reduction for the expense off-set would be 0.78%
for the Calvert Social Balanced portfolio, and 0.89% for the Calvert Social
Small Cap Growth portfolio. Management Fees for Calvert Social Small Cap
Growth include an administrative service fee of 0.10% paid to the Advisor's
affiliate.
11
<PAGE>
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, 1997
to December 31, 1997. 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.
12
<PAGE>
GENERAL INFORMATION ABOUT PROTECTIVE LIFE,
THE VARIABLE ACCOUNT AND THE FUNDS
PROTECTIVE LIFE INSURANCE COMPANY
Protective Life is a Tennessee stock life insurance company. Founded in
1907, Protective Life offers individual life and health insurance, annuities,
group life and health insurance, and guaranteed investment contracts. Protective
Life is currently licensed to transact life insurance business in 49 states and
the District of Columbia. As of December 31, 1997, Protective Life had total
assets of approximately $10.1 billion. Protective Life is the principal
operating subsidiary of Protective Life Corporation ("PLC"), an insurance
holding company whose stock is traded on the New York Stock Exchange. PLC, a
Delaware corporation, had consolidated assets of approximately $10.5 billion at
December 31, 1997.
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 or
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
and other variable life insurance policies issued by Protective Life).
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.
The Variable Account has seventeen Sub-Accounts: PIC Money Market; PIC CORE
U.S. Equity; PIC Capital Growth; PIC Small Cap Value; PIC International Equity;
PIC Growth and Income; PIC Global Income; Oppenheimer Aggressive Growth;
Oppenheimer Growth; Oppenheimer Growth & Income; Oppenheimer Strategic Bond; MFS
Emerging Growth; MFS Research; MFS Growth With Income; MFS Total Return; Calvert
Social Small Cap Growth; and Calvert Social 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
13
<PAGE>
by OppenheimerFunds, Inc.; MFS Variable Insurance Trust (the "MFS Funds")
managed by Massachusetts Financial Services Company; or Calvert Variable Series,
Inc. (the "Calvert Funds") 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 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 substantially
all, and at least 65% of total assets, in equity and equity-related securities
of companies that are organized outside the United States or whose securities
are primarily traded outside the United States.
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 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 expected return while
maintaining risk, style, capitalization and industry characteristics similar to
the S&P 500 Index.
PIC SMALL CAP VALUE (formerly 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 90%
of its total assets in a diversified portfolio of equity securities having
long-term capital appreciation potential.
THE OPPENHEIMER FUNDS
OPPENHEIMER AGGRESSIVE GROWTH (formerly Capital Appreciation) FUND. This
Fund seeks to achieve capital appreciation by investing in "growth-type"
companies.
14
<PAGE>
OPPENHEIMER GROWTH FUND. This Fund seeks to achieve capital appreciation by
investing in securities of well-known established companies.
OPPENHEIMER 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.
OPPENHEIMER 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
MFS EMERGING GROWTH SERIES. This Fund seeks to provide long-term growth of
capital.
MFS RESEARCH SERIES. This Fund seeks to provide long-term growth of capital
and future income.
MFS GROWTH WITH INCOME SERIES. This Fund seeks to provide reasonable
current income and long-term growth of capital and income.
MFS 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 FUNDS
SOCIAL SMALLCAP (formerly Strategic Growth) Portfolio. This Fund seeks to
achieve long-term capital appreciation by investing primarily in the equity
securities of small capitalized growth companies that have historically
exhibited exceptional growth characteristics and that, in the Fund advisor's
opinion, have strong earnings potential relative to the U.S. market as a whole.
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.
SOCIAL BALANCED PORTFOLIO. This Fund seeks to achieve a total return above
the rate of inflation through an actively managed, non-diversified portfolio of
common and preferred stocks, bonds, and money market instruments that offer
income and capital growth opportunity and that satisfy the social 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
15
<PAGE>
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.
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 Funds 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 OppenheimerFunds, MFS Funds and Calvert Funds 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
16
<PAGE>
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.
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.
17
<PAGE>
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. Generally, Protective
Life will issue a Policy covering an Insured up to age 85 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. If an application
for a Policy is rejected, any Initial Premium will be returned to the applicant.
With the consent of the Owner, a Policy may be issued on a basis other than that
applied for (I.E., on a higher premium class basis due to increased risk
factors). A POLICY IS ISSUED AFTER PROTECTIVE LIFE APPROVES THE APPLICATION.
PREMIUM IS NOT A REQUIREMENT TO ISSUE A POLICY. PREMIUM MAY BE COLLECTED AT THE
TIME OF POLICY DELIVERY.
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, the date requested in the application, or the date any
required medical examination is completed. Temporary life insurance coverage
(including various forms of conditional receipts) also may be provided under the
terms of a temporary insurance (or conditional receipt) agreement. In accordance
with the terms of the such agreements, the total amount of insurance which may
become effective prior to delivery of the Policy to the Owner may not exceed
$250,000 plus the amount of any Initial Premium paid (including the amount of
any life insurance and accidental death benefits then in force or applied for
with the Company) 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) 10 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
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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 riders requested by the applicant. Consult your sales
representative for information about the Initial Premium Payment required for
the coverage you desire.
ADDITIONAL PREMIUM PAYMENTS. After the first Policy Anniversary, The
Company will accept, subject to the limitations described below, additional
Premium Payments. The Company reserves the right to apply all additional Premium
Payments 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.
Unless otherwise determined by Protective Life, additional Premium Payments
must be at least $10,000 and must be received at the Home Office. See "Premium
Allocations". Protective Life also reserves the right to limit the amount of any
Premium Payment. Any additional Premium Payments made will generally require an
increase in the Face Amount of the Policy and therefor will be subject to
evidence of insurability. 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 exceeds such
limitations.
PREMIUM ALLOCATIONS
Owners must indicate in the application how Premium Payments are to be
allocated to the Sub-Accounts, the Fixed Account and/or the DCA Fixed Account.
These allocation instructions apply to both initial and subsequent 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 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 Premium Payment 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 Premium Payments
will be allocated according to your allocation instructions then in effect.
Additional Premium Payments not requiring additional underwriting will be
credited to the Policy and the 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 may 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 Premium Payment will be
credited to the Policy and allocated in accordance to your allocation
instructions then in effect. If an additional Premium Payment is rejected,
Protective Life will return the Premium Payment immediately, without any
adjustment for investment experience.
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POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike a conventional life insurance policy, whether a Policy lapses
depends on whether its Policy Value is sufficient to cover the Monthly
Deductions (See "Monthly Deductions"). If the Policy Value on a Monthly
Anniversary Day is less than the amount of the Monthly Deduction due on that
date, 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.
In the event of a Policy default, the Owner has a 61-day grace period to
make a Premium Payment sufficient to cover the current and past-due Monthly
Deductions. Protective Life will send to the Owner, at the last known address
and the last known address of any assignee of record, notice of the Premium
Payment required to prevent lapse. The grace period will begin when the notice
is sent. A Policy will remain in effect during the grace period. If the Insured
should die during the grace period, the Death Benefit proceeds payable to the
Beneficiary will reflect a reduction for the Monthly Deductions due on or before
the date of the Insured's death as well as any unpaid Policy Debt. See "Death
Benefit Proceeds". Unless the Premium Payment stated in the notice is paid
before the grace period ends, the Policy will lapse.
REINSTATEMENT. An Owner may reinstate a Policy within 5 years of its lapse
provided that: (1) a request for reinstatement is made by Written Notice, (2)
the Insured is still living, (3) the Owner pays Premiums equal to (a) all
Monthly Deductions that were due but unpaid during the grace period with
interest at a rate not to exceed an effective annual rate of 6%, if required by
the Company, and (b) which are at least sufficient to keep the reinstated Policy
in force for three months, (4) the Insured provides Protective Life with
satisfactory evidence of insurability, (5) the Owner repays or reinstates any
Policy Debt which existed at the end of the grace period; and (6) 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 1-6 above have been met.
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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 AND MONTHLY DEDUCTIONS FROM 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 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
Premium Payment(s) or transferred amount is invested in the Sub-Account.
Therefore, 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 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
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.
GUARANTEED ACCOUNT VALUE
The Guaranteed Account Value under a Policy at any time is equal to: (1)
that part of the Premium Payment(s) allocated to either the Fixed Account or the
DCA Fixed Account, plus (2) amounts transferred to the Fixed Account, plus (3)
interest credited to the Fixed Account or the DCA Fixed Account, less (4)
transfers from the Fixed Account or the DCA Fixed Account (including any
transfer fees deducted), less (5) withdrawals from the Fixed Account or the DCA
Fixed Account, less (6) surrender charges and premium tax recovery charges
deducted, less (7) certain Monthly Deductions. See "The Fixed Accounts," for a
discussion of how interest is credited to the Fixed Account and the DCA Fixed
Account.
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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 amounts
in a Sub-Account to other Sub-Accounts and/or the Fixed Account or subject to
certain restrictions, amounts from the Fixed Account and the DCA Fixed Account
to a SubAccount. Transfers (including telephone transfers -- described below)
are processed as of the end of the Valuation Period during which 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 or the DCA Fixed Account from which the
transfer is made. If, after the transfer, the Policy Value remaining in a
Sub-Account(s), the Fixed Account and/or the DCA Fixed Account would be less
than $100, Protective Life reserves the right to transfer the entire amount
instead of the requested amount. 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 which
will not exceed $25. The transfer fee, if any, is deducted from the amount being
transferred. See "Transfer Fee".
Transfers involving a Guaranteed Account are subject to additional
restrictions. The maximum amount that may be transferred from the Fixed Account
during a Policy Year is the greater of (1) $2,500 or (2) 25% of the Fixed
Account Value. No transfers may be made into the DCA Fixed Account.
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 the Company requires a form of personal identification prior to acting
on instructions received by telephone. The Company also makes a tape-recording
of the instructions given by telephone. If the Company follows these procedures
it is 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, the Company reserves the right not to honor transfer
requests by a third party holding a power of attorney from an Owner where that
third party requests simultaneous transfers on behalf of the Owners of two or
more Policies.
DOLLAR-COST AVERAGING. If you elect at the time of application or (other
than in connection with the DCA Fixed Account) at any time thereafter by Written
Notice, you may systematically and automatically transfer, on a monthly or
quarterly basis, specified dollar amounts from the DCA Fixed Account or any
other Allocation Option to any Allocation Option (except that no transfers may
be made to the DCA Fixed Account). This is known as the dollar-cost averaging
method of investment. By transferring equal amounts of Policy Value on a
regularly scheduled basis, as opposed to allocating a larger amount at one
particular time, an Owner may be less susceptible to the impact of market
fluctuations in 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.
You may generally elect dollar cost averaging for periods of at least 12
months, however, the maximum period for dollar cost averaging amounts from the
DCA Fixed Account is 12 months. In the DCA Fixed, dollar cost averaging must be
elected immediately. From time to time, we may offer different
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maximum periods for dollar cost averaging amounts from the DCA Fixed Account. At
least $100 must be transferred each month or 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 Day.
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 value in the source Fund 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. Any time dollar cost averaging transfers end, all Policy
Value remaining in the DCA Fixed Account will be transferred to the Fixed
Account.
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 or place restrictions on 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 or the DCA 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. Portfolio
Rebalancing 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, rebalancing will occur on the Monthly Anniversary Day.
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 while the Policy is in force and while the Insured is still
living, the Owner may surrender the Policy for its Surrender Value. Surrender
Value is determined as of the end of the Valuation Period during which the
Written Notice requesting the surrender is received, the Policy and any other
required documents are received by Protective Life. A surrender charge and
premium tax recovery charge may apply. See "Surrender Charge and Premium Tax
Recovery Charge". The Surrender Value is paid in a lump sum unless the Owner
requests payment under a Settlement Option. See "Settlement Options". Payment is
generally made within seven calendar days. See "Suspension or Delay of Payments"
and "Payments from the Guaranteed Account". A Policy terminates upon surrender.
A surrender will have tax consequences. See "Tax Considerations."
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WITHDRAWAL PRIVILEGE
At any time while the Policy is in force and prior to the Insured's death,
an Owner, by Written Notice, may request a Withdrawal of Surrender Value subject
to certain restrictions described below. Protective Life will withdraw the
amount requested, plus any applicable surrender charges and premium tax recovery
charges, from Policy Value as of the Valuation Day we receive the Written
Notice. A Withdrawal will have tax consequences. See "Tax Considerations."
The Owner may specify the amount of the Withdrawal to be made from any
Sub-Account or the Fixed Account and/or the DCA Fixed Account. Withdrawals will
result in the cancellation of Units from each applicable Sub-Account and/or the
reduction in the Guaranteed Account Value. If the Owner does not so specify, or
if the amount in the designated account(s) is insufficient to carry out the
request, the Withdrawal will be made from each Sub-Account, the Fixed Account
and the DCA Fixed Account based on the proportion that such Sub-Account Value(s)
and Guaranteed Account Value bears to the unloaned 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
Guaranteed Account". The Company reserves the right to decline to process a
Withdrawal if, after the Withdrawal, the Policy Value would be less than ten
percent of the current Face Amount.
WITHDRAWALS. At any time prior to the Insured's death and while this Policy
is in force, the Owner(s) may make a written request for a Withdrawal of the
Policy Value. In order to request a Withdrawal during the first Policy Year, the
Owner must have made an Initial Premium Payment of at least $10,000. On or after
the first Policy Anniversary, in order to request a Withdrawal the Policy Value
must be at least $10,000 as of the date that We receive the request. The Company
will withdraw the amount requested from the Policy Value as of the end of the
Valuation Period during which the written request is received. A surrender
charge and premium tax recovery charge may apply if the cumulative amount of the
Withdrawals exceeds the Annual Withdrawal Amount or the amount by which your
Policy Value exceeds Premium Payments made.
ANNUAL WITHDRAWAL AMOUNTS. The Annual Withdrawal Amount is the annual
amount the Owner may withdraw during a Policy Year, and not incur a surrender
charge or premium tax recovery charge. The Annual Withdrawal amount is:
(a) an amount equal to ten percent of the Initial Premium Payments
made if the Withdrawal request is received during the first Policy Year,
or
(b) the amount equal to ten percent of cumulative Premium Payments
made as of the last Policy Anniversary, net of all Premium Payments
withdrawn, if the Withdrawal is received after the first Policy Year.
In addition, surrender and premium tax recovery charges will not apply if
the aggregate amount withdrawn does not exceed the amount by which your Policy
Value exceeds Premium Payments made.
DECREASING THE FACE AMOUNT. In the event a Withdrawal is requested
Protective Life will reduce the Face Amount proportionately by the requested
Withdrawal amount (plus any surrender charges and premium tax recovery charges).
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.
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The proportionate face amount decrease will be determined by the following
formula:
F X (P - W)/P
<TABLE>
<S> <C> <C>
Where: F = Current Face Amount
P = Policy Value
W = Withdrawal Amount (including any applicable charges)
</TABLE>
POLICY LOANS
GENERAL. At any time while the Policy is in force 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
Guaranteed Account".
LOAN COLLATERAL. When a Policy loan is made, an amount equal to the loan is
transferred out of the Sub-Accounts and the Guaranteed Account and into a Loan
Account established for the Policy. Like the Guaranteed 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 Guaranteed 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 and/or the DCA 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 and DCA Fixed Account in the same proportion that the value of each of
the Sub-Account(s) and the Fixed Account and DCA Fixed Account bears to the
total unloaned Policy 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 and/or
DCA Fixed Account in the same proportion that each Sub-Account Value and the
Fixed Account Value and/or DCA Fixed Account 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
additional Premium Payments made while a loan is outstanding be applied as loan
repayments. 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 and/or the DCA 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 Guaranteed 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 and/or the DCA Fixed
Account in the same manner as Premium Payments are allocated.
INTEREST. Except in the case of a Preferred Loan, Protective Life will
charge interest daily on any outstanding loan at an effective annual rate of
6.0%. Interest is due and payable at the end of each Policy Year while a loan is
outstanding. Protective Life will notify the Owner 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. If the Surrender Value exceeds the total of
all Premium Payments made, a Preferred Loan will be available. The amount of
such Preferred Loan is the amount by which the Surrender Value exceeds total
Premium
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Payments made. The Preferred Loan portion of the outstanding Policy Debt will be
charged interest at a rate not to exceed 4.5%. The portion of loan that
qualifies as a Preferred Loan is determined as of the date a request for a loan
is received and on each Policy Anniversary.
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 for the
non-preferred portion, and 0.5% for the preferred portion of the loan, if any
(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 and/or
the DCA Fixed Account in the same manner as Premium Payments are allocated.
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, the Owner, and any assignee of record, will be sent notice of the
default. The Owner 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 Proceeds and Policy values because the investment
results of the Sub-Accounts and current interest rates credited on Guaranteed
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. Depending on the
investment results of the Sub-Accounts or credited interest rates for the Fixed
Account and/or the DCA 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. In addition, if your
Policy is a "modified endowment contract," loans may be currently taxable and
subject to a 10% penalty tax. See "Tax Considerations," for a discussion of the
tax treatment of policy loans.
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 "Settlement Options").
CALCULATION OF DEATH BENEFIT PROCEEDS. The Death Benefit Proceeds are equal
to the Death Benefit (as described below), plus any supplemental rider benefits,
minus any Policy Debt on that date and any liens for payments made under an
accelerated death benefit rider and, if the Insured died during a grace period,
minus any past due Monthly Deductions. Under certain circumstances, the amount
of the Death Benefit Proceeds may be further adjusted. See "Limits on Rights to
Contest the Policy" and "Misstatement of Age or Sex".
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If part or all of the Death Benefit Proceeds are 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. 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.
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. 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. A table showing these percentages for
Attained Ages 0 to 95 and an example of Death Benefit calculations are found in
Appendix A.
INCREASING THE FACE AMOUNT. On or after the first Policy Anniversary, the
Owner may request an increase in the Face Amount.
For any increase in the Face Amount the additional Premium Payment 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. 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 additional required
minimum Premium Payment is received. 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. See "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. See "Cancellation Privilege".
SETTLEMENT OPTIONS
The Policy offers a variety of ways of receiving proceeds payable under the
Death Benefit and surrender provisions of a Policy, other than in a lump sum.
These alternative Settlement 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 Settlement Option (other than Option 3), no surrender or
Withdrawal may be made once payments have begun.
The following settlement options may be elected.
OPTION 1--PAYMENT FOR A FIXED PERIOD. Equal monthly payments will be made
for any period of up to 30 years. The amount of each payment depends on the
total amount applied, the period selected and the monthly payment rates
Protective Life is using when the first payment is due.
OPTION 2--LIFE INCOME WITH PAYMENTS FOR A GUARANTEED PERIOD. Equal monthly
payments are based on the life of the named annuitant. Payments will continue
for the lifetime of the annuitant with payments guaranteed for 10 or 20 years.
Payments stop at the end of the selected guaranteed period or when the named
person dies, whichever is later.
OPTION 3--INTEREST INCOME. Protective Life will hold any amount applied
under this option. Interest on the unpaid balance will be paid each month at a
rate determined by Protective Life. This rate will not be less than the
equivalent of 3% per year.
27
<PAGE>
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. Settlement Options must be elected by Written Notice.
The Owner may elect payment options during the Insured's lifetime; Beneficiaries
may elect Settlement 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 Settlement Option is elected
options or rates on a more favorable basis than those guaranteed, the higher
benefits will apply.
THE GUARANTEED ACCOUNT
THE INTERESTS IN THE GUARANTEED ACCOUNT HAVE NOT BEEN, AND ARE NOT REQUIRED
TO BE, REGISTERED UNDER THE SECURITIES ACT OF 1933 AND NEITHER THE GUARANTEED
ACCOUNT NOR OTHER COMPONENTS OF THE COMPANY'S GENERAL ACCOUNT HAVE BEEN
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940.
ACCORDINGLY, NEITHER THE GUARANTEED ACCOUNT, THE COMPANY'S GENERAL 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 GUARANTEED ACCOUNT. THE DISCLOSURE
REGARDING THE GUARANTEED 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 GUARANTEED ACCOUNT
The Guaranteed Account is comprised of the Fixed Account and the DCA Fixed
Account which consist of assets owned by Protective Life with respect to the
Policies, other than those in the Variable Account. Both are 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 and the DCA Fixed Account.
Guarantees of Premium Payments allocated to the Fixed Account and the DCA Fixed
Account, and interest credited thereto, are backed by Protective Life. The
Guaranteed Account Value is calculated daily. See "Guaranteed Account Value".
INTEREST CREDITED ON GUARANTEED ACCOUNT
Protective Life guarantees that the interest credited during the first
Policy Year to the initial Premium Payment allocated to the Fixed Account or the
DCA Fixed Account will not be less than the rate shown in the Policy. The
interest rate credited to subsequent Premium Payments allocated to the Fixed
Account or the DCA Fixed Account or amounts transferred to the Fixed Account
will be the annual effective interest rate in effect on the date that the
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 Premium Payment(s) is allocated
or the date that the transfer is made.
After an interest rate guarantee expires as to a Premium Payment or amount
transferred, (I.E., 12 months after the Premium Payment(s) or transfer is placed
in the Guaranteed Account) we will credit
28
<PAGE>
interest on the Guaranteed Account Value attributable to such Premium Payment or
transferred amount remaining in the Fixed Account or the DCA Fixed Account at
the current interest rate in effect. New current interest rates are effective
for such Guaranteed Account Value for 12 months from the time that they are
first applied. Protective Life, in its 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%. Because Protective Life
anticipates changing the current interest rates for accounts within the
Guaranteed Account from time to time, allocations to accounts within the
Guaranteed Account may be credited with different current interest rates. For
purposes of crediting interest, amounts deducted, transferred or withdrawn from
the Guaranteed Account are accounted for on a "first-in-first-out" (FIFO) basis
independently applied to the Fixed Account and the DCA Fixed Account.
GUARANTEED ACCOUNT VALUE
The Guaranteed Account Value at any time is equal to: (1) that part of the
Premium Payment(s) allocated to the Fixed Account and the DCA Fixed Account;
plus (2) amounts transferred to the Fixed Account; plus (3) interest credited to
the Fixed Account and the DCA Fixed Account; less (4) transfers from the Fixed
Account or the DCA Fixed Account (including any transfer fees deducted) less (5)
withdrawals from the Fixed Account or the DCA Fixed Account, less (6) surrender
charges and premium tax recovery charges less (7) certain Monthly Deductions.
Because Protective Life, at its sole discretion, anticipates changing the
current interest rate from time to time, different allocations to the Fixed
Account and the DCA Fixed Account and transfers to the Fixed Account will be
credited with different current interest rates.
PAYMENTS FROM THE GUARANTEED ACCOUNT
Payments from the Fixed Account and/or the DCA 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 and/or the DCA 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
MONTHLY DEDUCTIONS
As of the Policy Effective Date, Protective Life will deduct the Monthly
Deductions from the Policy Value. Subsequent Monthly Deductions will be made on
each Monthly Anniversary Day thereafter. The Monthly Deductions consist of (1)
cost of insurance charges ("cost of insurance charge"), (2) policy expense
charge (the "policy expense charge"), (3) mortality and expense risk charge (the
"Mortality and Expense Risk Charge") and (4) any charges for supplemental
riders, as described below. The Monthly Deductions are 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 current charge may depend on a
number of variables and therefore may vary from Policy to Policy and from
Monthly Anniversary Day to Monthly Anniversary Day. For any Policy, the maximum
cost of insurance on a Monthly Anniversary Day is calculated by multiplying the
monthly cost of insurance rate for the Insured by the Policy Value under the
Policy for that Monthly Anniversary Day.
The current monthly cost of insurance charge is the lesser of (1) .054%
multiplied by the Policy Value during Policy Years 1 through 10 and .046%
multiplied by the Policy Value during Policy Year 11 and thereafter or (2) the
Guaranteed Maximum Monthly Cost of Insurance rates (as specified in the policy)
per $1,000 times the Net Amount at Risk.
29
<PAGE>
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 guarantees that the cost of insurance rates used to
calculate the monthly cost of insurance charge will not exceed the maximum cost
of insurance rates set forth in the Policies. The guaranteed rates for standard
classes are based on the 1980 Commissioners' Standard Ordinary Mortality Tables,
Age Last Birthdate, 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.
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 POLICY EXPENSE CHARGE. This charge compensates Protective Life for
sales and administrative expenses associated with the Policies and the Variable
Account. These expenses relate to recordkeeping, processing death benefit
claims, Policy loans, Policy changes, reporting and overhead costs, processing
applications, establishing Policy records and reports and other communication to
Policy Owners. The monthly policy expense charge is equal to .058% multiplied by
the Policy Value, which is equivalent to an annual rate of 0.70% of such amount.
SUPPLEMENTAL RIDER CHARGES. See "Supplemental Riders and Endorsements".
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 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 Guaranteed Account
assets attributable to the Policies. The maximum monthly Mortality and Expense
Risk Charge to be deducted in all Policy Years is equal to .075% multiplied by
the Variable Account Value, which is equivalent to an annual rate of 0.90% of
such amount. The Company reserves the right to charge less than the maximum
charge. Accordingly, during Policy Years 1 through 10, the monthly Mortality and
Expense Charge is .075% and in Policy Years 11 and thereafter, the monthly
Mortality and Expense Risk Charge is equal to .042% multiplied by the Variable
Account Value, which is equivalent to an annual rate of .50% of such amount.
30
<PAGE>
ANNUAL MAINTENANCE FEE
Protective Life deducts a $35.00 annual maintenance fee from the Policy
Value on each Policy Anniversary. Currently, the Company will waive the fee as
of a Policy Anniversary, if the Policy Value equals or exceeds $50,000.
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) AND PREMIUM TAX RECOVERY
CHARGE
If the Policy is surrendered, or if the Policy lapses, or if a Withdrawal of
an amount greater than the Annual Withdrawal Amount (or the amount by which your
Policy Value exceeds the aggregate of Premium Payments made) is requested by the
Owner, through the first nine Policy Years following each Premium Payment, a
Surrender Charge and a Premium Tax Recovery Charge will be deducted. The
Surrender Charge, which is a contingent deferred sales charge, and Premium Tax
Recovery Charge, is deducted before any Surrender Value or Withdrawal is paid.
See "Withdrawal Privilege" for rules for allocating the deduction.
The Surrender Charge and Premium Tax Recovery Charge for each Premium
Payment is equal to the Surrender Charge Percentage and Premium Tax Charge
Percentage for the Policy Year in which the surrender, lapse or Withdrawal of
such Premium Payment occurs, multiplied by the amount of such Premium Payment.
The Surrender Charge and Premium Tax Recovery Charge are separately
calculated and applied to each Premium Payment at any time that the Premium
Payment is withdrawn or surrendered or the Policy lapses. Withdrawals within a
given Policy Year are deemed to count first towards the Annual Withdrawal
Amount. Once the aggregate Withdrawals in a Policy Year exceed the Annual
Withdrawal Amount, the additional amount that may be withdrawn that Policy Year
without incurring a Surrender Charge and Premium Tax Recovery Charge is equal to
the remaining Policy Value that exceeds Premium Payments made. This
determination will be made as of the date the Withdrawal request is received at
our Home Office. The Surrender Charge and the Premium Tax Recovery Charge are
calculated using the assumptions that all Policy Value in excess of aggregate
Premium Payments is withdrawn or surrendered before any Premium Payments and
that Premium Payments are withdrawn or surrendered on a first-in-first-out
basis.
<TABLE>
<CAPTION>
POLICY YEAR SURRENDER CHARGE POLICY YEAR PREMIUM TAX RECOVERY CHARGE
FOLLOWING AS A PERCENTAGE OF EACH FOLLOWING AS A PERCENTAGE OF EACH
PREMIUM PAYMENT PREMIUM PAYMENT WITHDRAWN PREMIUM PAYMENT PREMIUM PAYMENT WITHDRAWN
- --------------------- --------------------------------- --------------------- -------------------------------
<S> <C> <C> <C>
1 9% 1 2.50%
2 8% 2 2.25%
3 7% 3 2.00%
4 6% 4 1.75%
5 5% 5 1.50%
6 4% 6 1.25%
7 3% 7 1.00%
8 2% 8 .75%
9 1% 9 .50%
10+ 0% 10+ 0
</TABLE>
31
<PAGE>
After the 10th Policy Year after each Premium Payment, there is no Surrender
Charge or Premium Tax Recovery Charge for such Premium Payment.
The purpose of the Surrender Charge and Premium Tax Recovery Charge is to
reimburse Protective Life for some of the expenses incurred in the distribution
of the Policies and the premium tax paid by Protective Life on each Premium
Payment.
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.
32
<PAGE>
A table which generally summarizes the different charges under the
respective policies is as follows. For more complete details owners of Existing
Life Policies should refer to their policy forms for a complete description.
<TABLE>
<CAPTION>
EXISTING LIFE POLICY POLICY
<S> <C> <C>
State and Local Premium Tax None None
Federal Tax Charge None None
Sales Charges/Premium Expense Ranges from 0% to 12% of premium None
Charge payments in all policy years.
The premium expense charge can
vary by age.
Administrative Fees Ranges from $4 to $5 monthly. None
Withdrawal Charges $25 None
Monthly Deductions A monthly deduction consisting A monthly deduction consisting
of: (1) cost of insurance of: (1) cost of insurance
charges (2) administrative fees currently equal to the lesser of
(3) any charges for supplemental (x) .054% multiplied by the
benefits and/or riders. (applies Policy Value in Policy Years 1
to Existing Life Policies which through 10 and .046% multiplied
are universal life plans) by the Policy Value in Policy
Year 11 and thereafter or (y)
the maximum monthly cost of
insurance charges guaranteed in
the Policy, (2) policy expense
charges equal to .058%
multiplied by the Policy Value,
which is the equivalent of an
annual rate of .70%, (3)
mortality and expense charges
equal to .075% 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 this charge is
currently equal to .042%
multiplied by the Variable
Account Value, which is
equivalent to an annual rate of
.50% of such amount and (4) any
charges for supplemental riders.
Annual Maintenance Fee None $35 deducted from the Policy
Value on each Policy Anniversary
(currently waived if Policy
Value is equal to or greater
than $50,000)
Surrender Charges Surrender charges vary by policy A declining deferred sales
type and are incurred during a charge of up to 9% and a
surrender charge period which declining premium tax recovery
ranges from 0 years up to 19 charge of up to 2.50% of each
years. premium payment is assessed on
surrender charges during the
first 9 Policy Years following
each Premium Payment.
Guaranteed Interest Rate Ranges from 4% to 5%. Guaranteed account only 4%.
</TABLE>
33
<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.
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")
34
<PAGE>
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 a single Premium Payment were made with
the application 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
Initial Premium 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 the Initial Premium is allocated equally among the
Sub-Accounts available under the Policy, and that no amounts are allocated to
the Fixed Account or the DCA 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 [0.92%] of
the average daily net assets of the Funds available under the Policies. This
average annual expense ratio is based on the expense ratios of each of the Funds
for the last fiscal year, 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 .042% multiplied by the Variable Account Value, which is
equivalent to an annual rate of .50% 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 for Policy Years 1-10 of -1.78%, 4.22% and 10.22%, respectively and
for Policy Years 11 and thereafter of -1.38%, 4.62% and 10.62% respectively.
The illustrations also reflect the deduction of the monthly policy expense
charge, annual maintenance fee and the monthly cost of insurance charge for the
hypothetical Insured. The surrender charge and premium tax recovery charge are
reflected in the column "Cash 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 rider
benefits.
The illustrations are based on Protective Life's sex distinct rates for
non-smokers. 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.
35
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$100,000 FACE AMOUNT
INITIAL PREMIUM 24,208.14
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 5% -------------------------- --------------------------- -----------------------------
POLICY INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- ------ ----------- ------ --------- ------- ------- --------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 25,419 23,462 20,678 100,000 24,882 22,098 100,000 26,302 23,518 100,000
47 2 26,689 22,704 20,222 100,000 25,540 23,059 100,000 28,543 26,061 100,000
48 3 28,024 21,969 19,790 100,000 26,216 24,038 100,000 30,977 28,799 100,000
49 4 29,425 21,257 19,381 100,000 26,911 25,035 100,000 33,623 31,746 100,000
50 5 30,896 20,567 18,993 100,000 27,626 26,052 100,000 36,497 34,923 100,000
51 6 32,441 19,898 18,627 100,000 28,360 27,090 100,000 39,619 38,348 100,000
52 7 34,063 19,250 18,282 100,000 29,115 28,147 100,000 43,012 42,044 100,000
53 8 35,766 18,622 17,956 100,000 29,891 29,226 100,000 46,699 46,033 100,000
54 9 37,555 18,013 17,650 100,000 30,689 30,326 100,000 50,739 50,376 100,000
55 10 39,433 17,423 17,423 100,000 31,509 31,509 100,000 55,133 55,133 100,000
56 11 41,404 16,934 16,934 100,000 32,511 32,511 100,000 60,199 60,199 100,000
57 12 43,474 16,459 16,459 100,000 33,547 33,547 100,000 65,747 65,747 100,000
58 13 45,648 15,995 15,995 100,000 34,617 34,617 100,000 71,857 71,857 100,000
59 14 47,930 15,544 15,544 100,000 35,722 35,722 100,000 78,567 78,567 105,280
60 15 50,327 15,104 15,104 100,000 36,863 36,863 100,000 85,910 85,910 111,683
61 16 52,843 14,676 14,676 100,000 38,042 38,042 100,000 93,949 93,949 120,255
62 17 55,486 14,259 14,259 100,000 39,260 39,260 100,000 102,728 102,728 129,437
63 18 58,260 13,853 13,853 100,000 40,517 40,517 100,000 112,313 112,313 139,269
64 19 61,173 13,458 13,458 100,000 41,817 41,817 100,000 122,780 122,780 149,792
65 20 64,231 13,072 13,072 100,000 43,159 43,159 100,000 134,212 134,212 161,054
66 21 67,443 12,697 12,697 100,000 44,545 44,545 100,000 146,702 146,702 174,576
67 22 70,815 12,332 12,332 100,000 45,977 45,977 100,000 160,318 160,318 189,176
68 23 74,356 11,976 11,976 100,000 47,456 47,456 100,000 175,161 175,161 204,939
69 24 78,074 11,629 11,629 100,000 48,984 48,984 100,000 191,340 191,340 221,955
70 25 81,977 11,291 11,291 100,000 50,597 50,597 100,000 208,973 208,973 240,320
71 26 86,076 10,962 10,962 100,000 52,263 52,263 100,000 228,178 228,178 257,841
72 27 90,380 10,642 10,642 100,000 53,984 53,984 100,000 249,202 249,202 276,614
73 28 94,899 10,330 10,330 100,000 55,762 55,762 100,000 272,257 272,257 296,760
74 29 99,644 10,026 10,026 100,000 57,598 57,598 100,000 297,573 297,573 318,403
75 30 104,626 9,730 9,730 100,000 59,495 59,495 100,000 325,441 325,441 341,713
76 31 109,857 9,442 9,442 100,000 61,454 61,454 100,000 356,208 356,208 374,018
77 32 115,350 9,161 9,161 100,000 63,477 63,477 100,000 389,757 389,757 409,245
78 33 121,118 8,888 8,888 100,000 65,568 65,568 100,000 426,323 426,323 447,639
79 34 127,174 8,621 8,621 100,000 67,727 67,727 100,000 466,153 466,153 489,461
80 35 133,532 8,362 8,362 100,000 69,957 69,957 100,000 509,509 509,509 534,985
81 36 140,209 8,109 8,109 100,000 72,261 72,261 100,000 556,662 556,662 584,496
82 37 147,220 7,863 7,863 100,000 74,640 74,640 100,000 607,890 607,890 638,284
83 38 154,581 7,624 7,624 100,000 77,098 77,098 100,000 663,747 663,747 696,935
84 39 162,310 7,390 7,390 100,000 79,637 79,637 100,000 724,737 724,737 760,974
85 40 170,425 7,163 7,163 100,000 82,260 82,260 100,000 791,332 791,332 830,898
86 41 178,946 6,941 6,941 100,000 84,969 84,969 100,000 864,045 864,045 907,247
87 42 187,894 6,726 6,726 100,000 87,767 87,767 100,000 943,440 943,440 990,612
88 43 197,288 6,516 6,516 100,000 90,657 90,657 100,000 1,030,130 1,030,130 1,081,637
89 44 207,153 6,311 6,311 100,000 93,642 93,642 100,000 1,124,786 1,124,786 1,181,025
90 45 217,510 6,112 6,112 100,000 96,726 96,726 101,562 1,228,140 1,228,140 1,289,547
91 46 228,386 5,918 5,918 100,000 99,911 99,911 103,908 1,340,990 1,340,990 1,394,630
92 47 239,805 5,729 5,729 100,000 103,201 103,201 106,297 1,464,210 1,464,210 1,508,137
93 48 251,795 5,544 5,544 100,000 106,600 106,600 108,732 1,598,753 1,598,753 1,630,728
94 49 264,385 5,365 5,365 100,000 110,110 110,110 111,211 1,745,658 1,745,658 1,763,115
95 50 277,604 5,191 5,191 100,000 114,004 114,004 114,004 1,910,552 1,910,552 1,910,552
96 51 291,485 5,020 5,020 100,000 118,411 118,411 118,411 2,097,670 2,097,670 2,097,670
97 52 306,059 4,855 4,855 100,000 122,988 122,988 122,988 2,303,113 2,303,113 2,303,113
98 53 321,362 4,693 4,693 100,000 127,742 127,742 127,742 2,528,676 2,528,676 2,528,676
99 54 337,430 4,536 4,536 100,000 132,680 132,680 132,680 2,776,332 2,776,332 2,776,332
100 55 354,301 4,383 4,383 100,000 137,809 137,809 137,809 3,018,012 3,018,012 3,018,012
</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 monthly policy expense charges equal to
.058% multiplied by the Policy Value which is equivalent to an annual rate
of 0.70% of such amount, annual maintenance fees, current cost of insurance
rates, 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 .042% multiplied by the Variable Account Value, which is
equivalent to an annual rate of .50% 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 only the Initial Premium is paid. Values would be different if
additional Premiums are paid.
(5) Assumes no riders are in effect.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
36
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$100,000 FACE AMOUNT
INITIAL PREMIUM 24,208.14
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 5% -------------------------- --------------------------- -------------------------------
POLICY INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- ------ ----------- ------ --------- ------- ------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 25,419 23,356 20,572 100,000 24,779 21,995 100,000 26,203 23,419 100,000
47 2 26,689 22,466 19,984 100,000 25,316 22,835 100,000 28,336 25,854 100,000
48 3 28,024 21,571 19,392 100,000 25,851 23,672 100,000 30,655 28,476 100,000
49 4 29,425 20,669 18,793 100,000 26,382 24,506 100,000 33,178 31,302 100,000
50 5 30,896 19,757 18,184 100,000 26,906 25,333 100,000 35,924 34,351 100,000
51 6 32,441 18,831 17,560 100,000 27,421 26,150 100,000 38,915 37,644 100,000
52 7 34,063 17,885 16,916 100,000 27,922 26,954 100,000 42,173 41,204 100,000
53 8 35,766 16,912 16,247 100,000 28,404 27,738 100,000 45,724 45,058 100,000
54 9 37,555 15,907 15,544 100,000 28,860 28,497 100,000 49,597 49,234 100,000
55 10 39,433 14,862 14,862 100,000 29,285 29,285 100,000 53,861 53,861 100,000
56 11 41,404 13,769 13,769 100,000 29,673 29,673 100,000 58,524 58,524 100,000
57 12 43,474 12,623 12,623 100,000 30,017 30,017 100,000 63,631 63,631 100,000
58 13 45,648 11,417 11,417 100,000 30,313 30,313 100,000 69,235 69,235 100,000
59 14 47,930 10,141 10,141 100,000 30,552 30,552 100,000 75,387 75,387 101,018
60 15 50,327 8,783 8,783 100,000 30,723 30,723 100,000 82,106 82,106 106,737
61 16 52,843 7,329 7,329 100,000 30,814 30,814 100,000 89,433 89,433 114,475
62 17 55,486 5,765 5,765 100,000 30,812 30,812 100,000 97,403 97,403 122,728
63 18 58,260 4,065 4,065 100,000 30,698 30,698 100,000 106,070 106,070 131,527
64 19 61,173 2,207 2,207 100,000 30,449 30,449 100,000 115,496 115,496 140,906
65 20 64,231 165 165 100,000 30,044 30,044 100,000 125,750 125,750 150,900
66 21 67,443 0 0 0 29,458 29,458 100,000 136,909 136,909 162,922
67 22 70,815 0 0 0 28,665 28,665 100,000 149,024 149,024 175,848
68 23 74,356 0 0 0 27,636 27,636 100,000 162,177 162,177 189,747
69 24 78,074 0 0 0 26,335 26,335 100,000 176,455 176,455 204,688
70 25 81,977 0 0 0 24,711 24,711 100,000 191,954 191,954 220,747
71 26 86,076 0 0 0 22,679 22,679 100,000 208,764 208,764 235,904
72 27 90,380 0 0 0 20,175 20,175 100,000 227,097 227,097 252,078
73 28 94,899 0 0 0 17,115 17,115 100,000 247,125 247,125 269,366
74 29 99,644 0 0 0 13,349 13,349 100,000 269,035 269,035 287,868
75 30 104,626 0 0 0 8,723 8,723 100,000 293,065 293,065 307,719
76 31 109,857 0 0 0 3,063 3,063 100,000 319,502 319,502 335,477
77 32 115,350 0 0 0 0 0 0 348,211 348,211 365,621
78 33 121,118 0 0 0 0 0 0 379,371 379,371 398,340
79 34 127,174 0 0 0 0 0 0 413,173 413,173 433,832
80 35 133,532 0 0 0 0 0 0 449,814 449,814 472,305
81 36 140,209 0 0 0 0 0 0 489,497 489,497 513,972
82 37 147,220 0 0 0 0 0 0 532,428 532,428 559,049
83 38 154,581 0 0 0 0 0 0 578,812 578,812 607,753
84 39 162,310 0 0 0 0 0 0 628,861 628,861 660,305
85 40 170,425 0 0 0 0 0 0 682,798 682,798 716,938
86 41 178,946 0 0 0 0 0 0 740,856 740,856 777,899
87 42 187,894 0 0 0 0 0 0 803,285 803,285 843,450
88 43 197,288 0 0 0 0 0 0 870,349 870,349 913,867
89 44 207,153 0 0 0 0 0 0 942,323 942,323 989,439
90 45 217,510 0 0 0 0 0 0 1,019,481 1,019,481 1,070,455
91 46 228,386 0 0 0 0 0 0 1,102,091 1,102,091 1,146,175
92 47 239,805 0 0 0 0 0 0 1,193,353 1,193,353 1,229,153
93 48 251,795 0 0 0 0 0 0 1,294,664 1,294,664 1,320,557
94 49 264,385 0 0 0 0 0 0 1,407,705 1,407,705 1,421,782
95 50 277,604 0 0 0 0 0 0 1,534,578 1,534,578 1,534,578
96 51 291,485 0 0 0 0 0 0 1,678,206 1,678,206 1,678,206
97 52 306,059 0 0 0 0 0 0 1,835,277 1,835,277 1,835,277
98 53 321,362 0 0 0 0 0 0 2,007,049 2,007,049 2,007,049
99 54 337,430 0 0 0 0 0 0 2,194,897 2,194,897 2,194,897
100 55 354,301 0 0 0 0 0 0 2,376,056 2,376,056 2,376,056
</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 monthly policy expense charges, equal
to .058% multiplied by the Policy Value, which is equivalent to an annual
rate of 0.70% of such amount, annual maintenance fees, guaranteed cost of
insurance rates, 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 only the Initial Premium is paid. Values would be different if
additional Premiums are paid.
(5) Assumes no riders are in effect.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
37
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$100,000 FACE AMOUNT
INITIAL PREMIUM 20,943.63
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 5% -------------------------- --------------------------- -------------------------------
POLICY INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- ------ ----------- ------ --------- ------- ------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 21,991 20,298 17,889 100,000 21,526 19,118 100,000 22,755 20,347 100,000
47 2 23,090 19,637 17,491 100,000 22,091 19,944 100,000 24,689 22,542 100,000
48 3 24,245 18,997 17,112 100,000 22,671 20,786 100,000 26,790 24,905 100,000
49 4 25,457 18,377 16,754 100,000 23,268 21,645 100,000 29,073 27,450 100,000
50 5 26,730 17,775 16,414 100,000 23,881 22,520 100,000 31,553 30,192 100,000
51 6 28,066 17,193 16,093 100,000 24,511 23,411 100,000 34,248 33,149 100,000
52 7 29,470 16,628 15,790 100,000 25,159 24,321 100,000 37,177 36,339 100,000
53 8 30,943 16,080 15,504 100,000 25,824 25,249 100,000 40,358 39,782 100,000
54 9 32,490 15,550 15,236 100,000 26,509 26,195 100,000 43,815 43,501 100,000
55 10 34,115 15,036 15,036 100,000 27,212 27,212 100,000 47,571 47,571 100,000
56 11 35,821 14,609 14,609 100,000 28,073 28,073 100,000 51,942 51,942 100,000
57 12 37,612 14,194 14,194 100,000 28,963 28,963 100,000 56,718 56,718 100,000
58 13 39,492 13,790 13,790 100,000 29,881 29,881 100,000 61,961 61,961 100,000
59 14 41,467 13,396 13,396 100,000 30,830 30,830 100,000 67,743 67,743 100,000
60 15 43,540 13,012 13,012 100,000 31,811 31,811 100,000 74,126 74,126 100,000
61 16 45,717 12,638 12,638 100,000 32,823 32,823 100,000 81,163 81,163 103,889
62 17 48,003 12,274 12,274 100,000 33,869 33,869 100,000 88,874 88,874 111,981
63 18 50,403 11,920 11,920 100,000 34,949 34,949 100,000 97,313 97,313 120,668
64 19 52,924 11,575 11,575 100,000 36,065 36,065 100,000 106,546 106,546 129,986
65 20 55,570 11,238 11,238 100,000 37,218 37,218 100,000 116,650 116,650 139,980
66 21 58,348 10,911 10,911 100,000 38,409 38,409 100,000 127,710 127,710 151,975
67 22 61,266 10,592 10,592 100,000 39,638 39,638 100,000 139,801 139,801 164,966
68 23 64,329 10,281 10,281 100,000 40,909 40,909 100,000 153,021 153,021 179,035
69 24 67,545 9,979 9,979 100,000 42,221 42,221 100,000 167,477 167,477 194,273
70 25 70,923 9,684 9,684 100,000 43,576 43,576 100,000 183,284 183,284 210,776
71 26 74,469 9,397 9,397 100,000 44,976 44,976 100,000 200,564 200,564 226,637
72 27 78,192 9,117 9,117 100,000 46,422 46,422 100,000 219,502 219,502 243,647
73 28 82,102 8,845 8,845 100,000 47,916 47,916 100,000 240,270 240,270 261,894
74 29 86,207 8,580 8,580 100,000 49,459 49,459 100,000 263,064 263,064 281,479
75 30 90,517 8,321 8,321 100,000 51,088 51,088 100,000 288,118 288,118 302,524
76 31 95,043 8,070 8,070 100,000 52,770 52,770 100,000 315,709 315,709 331,495
77 32 99,795 7,825 7,825 100,000 54,508 54,508 100,000 345,857 345,857 363,150
78 33 104,785 7,586 7,586 100,000 56,303 56,303 100,000 378,785 378,785 397,724
79 34 110,024 7,354 7,354 100,000 58,157 58,157 100,000 414,729 414,729 435,466
80 35 115,525 7,127 7,127 100,000 60,072 60,072 100,000 453,941 453,941 476,638
81 36 121,302 6,907 6,907 100,000 62,050 62,050 100,000 496,682 496,682 521,516
82 37 127,367 6,692 6,692 100,000 64,093 64,093 100,000 543,221 543,221 570,382
83 38 133,735 6,483 6,483 100,000 66,204 66,204 100,000 593,837 593,837 623,529
84 39 140,422 6,279 6,279 100,000 68,384 68,384 100,000 648,820 648,820 681,261
85 40 147,443 6,081 6,081 100,000 70,636 70,636 100,000 708,470 708,470 743,893
86 41 154,815 5,887 5,887 100,000 72,962 72,962 100,000 773,569 773,569 812,248
87 42 162,556 5,699 5,699 100,000 75,365 75,365 100,000 844,650 844,650 886,883
88 43 170,684 5,516 5,516 100,000 77,847 77,847 100,000 922,263 922,263 968,376
89 44 179,218 5,337 5,337 100,000 80,410 80,410 100,000 1,007,007 1,007,007 1,057,358
90 45 188,179 5,163 5,163 100,000 83,058 83,058 100,000 1,099,539 1,099,539 1,154,516
91 46 197,588 4,994 4,994 100,000 85,793 85,793 100,000 1,200,572 1,200,572 1,248,595
92 47 207,467 4,829 4,829 100,000 88,618 88,618 100,000 1,310,890 1,310,890 1,350,217
93 48 217,840 4,668 4,668 100,000 91,537 91,537 100,000 1,431,344 1,431,344 1,459,971
94 49 228,732 4,512 4,512 100,000 94,551 94,551 100,000 1,563,105 1,563,105 1,578,736
95 50 240,169 4,359 4,359 100,000 97,665 97,665 100,000 1,711,018 1,711,018 1,711,018
96 51 252,178 4,211 4,211 100,000 101,205 101,205 101,205 1,878,593 1,878,593 1,878,593
97 52 264,786 4,066 4,066 100,000 105,118 105,118 105,118 2,062,580 2,062,580 2,062,580
98 53 278,026 3,925 3,925 100,000 109,181 109,181 109,181 2,264,587 2,264,587 2,264,587
99 54 291,927 3,788 3,788 100,000 113,401 113,401 113,401 2,486,377 2,486,377 2,486,377
100 55 306,523 3,655 3,655 100,000 117,785 117,785 117,785 2,729,890 2,729,890 2,729,890
</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 monthly Policy expense charges equal to
.058% multiplied by the Policy Value, which is equivalent to an annual rate
of 0.70% of such amount, annual maintenance fees, guaranteed cost of
insurance rates, 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 .042% multiplied by the Variable Account Value, which
is equivalent to an annual rate of .50% 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 only the Initial Premium is paid. Values would be different if
additional Premiums are paid.
(5) Assumes no riders are in effect.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
38
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$100,000 FACE AMOUNT
INITIAL PREMIUM 20,943.63
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 5% -------------------------- --------------------------- -------------------------------
POLICY INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- ------ ----------- ------ --------- ------- ------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 21,991 20,188 17,780 100,000 21,419 19,011 100,000 22,650 20,241 100,000
47 2 23,090 19,398 17,252 100,000 21,861 19,715 100,000 24,470 22,324 100,000
48 3 24,245 18,607 16,722 100,000 22,302 20,417 100,000 26,450 24,565 100,000
49 4 25,457 17,812 16,189 100,000 22,741 21,118 100,000 28,604 26,981 100,000
50 5 26,730 17,013 15,651 100,000 23,175 21,814 100,000 30,949 29,587 100,000
51 6 28,066 16,205 15,105 100,000 23,603 22,503 100,000 33,502 32,402 100,000
52 7 29,470 15,386 14,548 100,000 24,022 23,184 100,000 36,284 35,446 100,000
53 8 30,943 14,551 13,975 100,000 24,428 23,852 100,000 39,315 38,739 100,000
54 9 32,490 13,697 13,383 100,000 24,818 24,504 100,000 42,621 42,307 100,000
55 10 34,115 12,823 12,823 100,000 25,191 25,191 100,000 46,231 46,231 100,000
56 11 35,821 11,925 11,925 100,000 25,543 25,543 100,000 50,213 50,213 100,000
57 12 37,612 11,004 11,004 100,000 25,876 25,876 100,000 54,571 54,571 100,000
58 13 39,492 10,059 10,059 100,000 26,189 26,189 100,000 59,350 59,350 100,000
59 14 41,467 9,090 9,090 100,000 26,480 26,480 100,000 64,596 64,596 100,000
60 15 43,540 8,091 8,091 100,000 26,747 26,747 100,000 70,361 70,361 100,000
61 16 45,717 7,055 7,055 100,000 26,979 26,979 100,000 76,700 76,700 100,000
62 17 48,003 5,966 5,966 100,000 27,167 27,167 100,000 83,652 83,652 105,402
63 18 50,403 4,807 4,807 100,000 27,295 27,295 100,000 91,233 91,233 113,129
64 19 52,924 3,558 3,558 100,000 27,345 27,345 100,000 99,494 99,494 121,383
65 20 55,570 2,202 2,202 100,000 27,302 27,302 100,000 108,498 108,498 130,198
66 21 58,348 729 729 100,000 27,156 27,156 100,000 118,315 118,315 140,795
67 22 61,266 0 0 0 26,896 26,896 100,000 129,004 129,004 152,225
68 23 64,329 0 0 0 26,514 26,514 100,000 140,644 140,644 164,554
69 24 67,545 0 0 0 25,999 25,999 100,000 153,322 153,322 177,853
70 25 70,923 0 0 0 25,328 25,328 100,000 167,128 167,128 192,197
71 26 74,469 0 0 0 24,468 24,468 100,000 182,161 182,161 205,842
72 27 78,192 0 0 0 23,372 23,372 100,000 198,573 198,573 220,416
73 28 82,102 0 0 0 21,976 21,976 100,000 216,500 216,500 235,985
74 29 86,207 0 0 0 20,205 20,205 100,000 236,101 236,101 252,628
75 30 90,517 0 0 0 17,976 17,976 100,000 257,564 257,564 270,442
76 31 95,043 0 0 0 15,198 15,198 100,000 281,112 281,112 295,168
77 32 99,795 0 0 0 11,769 11,769 100,000 306,738 306,738 322,075
78 33 104,785 0 0 0 7,566 7,566 100,000 334,612 334,612 351,342
79 34 110,024 0 0 0 2,433 2,433 100,000 364,914 364,914 383,160
80 35 115,525 0 0 0 0 0 0 397,835 397,835 417,727
81 36 121,302 0 0 0 0 0 0 433,570 433,570 455,249
82 37 127,367 0 0 0 0 0 0 472,319 472,319 495,935
83 38 133,735 0 0 0 0 0 0 514,286 514,286 540,000
84 39 140,422 0 0 0 0 0 0 559,678 559,678 587,662
85 40 147,443 0 0 0 0 0 0 608,713 608,713 639,149
86 41 154,815 0 0 0 0 0 0 661,617 661,617 694,698
87 42 162,556 0 0 0 0 0 0 718,620 718,620 754,551
88 43 170,684 0 0 0 0 0 0 779,959 779,959 818,957
89 44 179,218 0 0 0 0 0 0 845,870 845,870 888,164
90 45 188,179 0 0 0 0 0 0 916,584 916,584 962,413
91 46 197,588 0 0 0 0 0 0 992,320 992,320 1,032,013
92 47 207,467 0 0 0 0 0 0 1,075,641 1,075,641 1,107,910
93 48 217,840 0 0 0 0 0 0 1,167,772 1,167,772 1,191,127
94 49 228,732 0 0 0 0 0 0 1,270,222 1,270,222 1,282,924
95 50 240,169 0 0 0 0 0 0 1,384,917 1,384,917 1,384,917
96 51 252,178 0 0 0 0 0 0 1,514,537 1,514,537 1,514,537
97 52 264,786 0 0 0 0 0 0 1,656,290 1,656,290 1,656,290
98 53 278,026 0 0 0 0 0 0 1,811,309 1,811,309 1,811,309
99 54 291,927 0 0 0 0 0 0 1,980,837 1,980,837 1,980,837
100 55 306,523 0 0 0 0 0 0 2,166,233 2,166,233 2,166,233
</TABLE>
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* 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 monthly policy expense charges equal to
.058% multiplied by the Policy Value, which is equivalent to an annual rate
of 0.70%, of such amount, annual maintenance fees, guaranteed cost of
insurance rates, 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 only the Initial Premium is paid. Values would be different if
additional Premiums are paid.
(5) Assumes no riders are in effect.
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.
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OTHER POLICY BENEFITS AND PROVISIONS
LIMITS ON RIGHTS TO CONTEST THE POLICY
INCONTESTABILITY. Protective Life will not contest the Policy, or any
supplemental rider or reinstated benefit, after the Policy or rider or
reinstated benefit has been in force during the Insured's lifetime for two years
from the Policy Effective Date or the effective date of the rider or the date
Protective Life approves the reinstatement application, 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
riders is the amount which would have been provided at the Policy Effective
Date, 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 Proceeds, 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 Accounts".
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;
Guaranteed 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
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
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<PAGE>
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 (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, other than causes of action arising under Federal Securities laws,
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 RIDERS AND ENDORSEMENTS
SUPPLEMENTAL RIDERS
The following supplemental riders are available and may be added to your
Policy provided that they are authorized for use in your state. Monthly charges
for these riders will be deducted from your Policy Value as part of the monthly
deduction (see "Monthly Deduction"). The supplemental riders available with the
Policies provide fixed benefits that do not vary with the investment experience
of the Variable Account.
COMPREHENSIVE LONG-TERM CARE ACCELERATED DEATH BENEFIT RIDER. Applicants
residing in states that have approved the Comprehensive Long-Term Care
Accelerated Death Benefit Rider (the "ADBR") may elect to add it to their Policy
at issue, subject to Protective Life's receiving satisfactory additional
evidence of insurability. The ADBR is not yet available in all states and the
terms under which it is available may vary from state-to-state. There is no
assurance that the ADBR will be approved in all states or that it will be
approved under the terms described herein.
The ADBR permits the Owner to receive, at his or her request and upon
approval by Protective Life in accordance with the terms of the ADBR, an
accelerated payment of part of the Policy's Death Benefit (an "Accelerated Death
Benefit") when one of the following two events occurs:
1. CONFINEMENT TO A NURSING HOME FACILITY. The Insured is determined to be
Chronically Ill (as defined below) and has been confined to a Nursing
Home Facility for 90 consecutive days.
2. COMMUNITY CARE. The Insured is determined to be Chronically Ill (as
defined below) and has been receiving home health care, assisted living
care or adult day care (as defined in the rider) for at least 90 days.
Chronically Ill means that the Insured has been certified (within the
preceding 12-month period) by a Physician as (i) being unable to perform
(without substantial assistance from another individual) at least two Activities
of Daily Living or (ii) requiring Substantial Supervision to protect the Insured
from threats to health and safety due to Severe Cognitive Impairment (as such
terms are more fully described in the ADBR).
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<PAGE>
The monthly charge for this rider is .0125% (which is equivalent to an
annual rate of .15%) multiplied by the Policy Value up to $250,000. There is no
additional charge on Policy Value in excess of $250,000.
TAX CONSEQUENCES OF THE ADBR. Subject to certain limitations, the
Accelerated Death Benefit payable under the ADBR will generally be excludible
from income for Federal income tax purposes. See "Tax Considerations."
AMOUNT OF THE ACCELERATED DEATH BENEFIT. The ADBR provides for monthly
payments subject to an aggregate maximum Accelerated Death Benefit payment equal
to the lesser of (i) 90% of the Face Amount less any Policy debt or (ii)
$250,000, less any outstanding lien amount under any other accelerated death
benefit rider or endorsement attached to the Policy. The monthly Accelerated
Death Benefit under the ADBR will be 1% or 2% of the Initial Face Amount for
Community Care or Nursing Home Care, respectively, subject to a maximum monthly
benefit of $5,000.
CONDITIONS FOR RECEIPT OF THE ACCELERATED DEATH BENEFIT. In order to
receive an Accelerated Death Benefit payment, a Policy must be in force and an
Owner must submit a Proof of Claim and a Notice of the Claim to Protective Life
at its Home Office. Proof of Claim means written proof (described more fully in
the ADBR) in a form acceptable to Protective Life, that the Insured is
Chronically Ill and is receiving Community Care or Nursing Home Care.
Protective Life may request additional medical information from an Owner's
physician and/or may require an independent physical examination (at its
expense) before approving the claim for payment of the Accelerated Death
Benefit. Protective Life will not approve a claim for an Accelerated Death
Benefit payment if the Insured is not living at the time the Notice of the Claim
is received, if the claim is the result of intentionally self-inflicted injury
or participation in a felony or if the benefits are payable under Medicare or
services are provided outside of the United States. Any additional exclusions
may be noted in the ADBR.
OPERATION OF THE ADBR. A lien against the Death Benefit payable under the
Policy (the "death benefit lien") will be established in the aggregate amount of
any Accelerated Death Benefits paid under the ADBR.
EFFECT ON EXISTING POLICY. The Death Benefit Proceeds otherwise payable
under a Policy at the time of an Insured's death will be reduced by the amount
of any death benefit lien. If the Owner makes a request for a surrender, or a
Withdrawal, the Policy's Surrender Value will be reduced by the amount of any
outstanding death benefit lien. Therefore, depending upon the size of the death
benefit lien, this may result in the Surrender Value being reduced to zero. In
addition, once benefits under the ADBR have been requested and all other
conditions of eligibility have been satisfied, no new policy loans may be
requested.
ENDORSEMENTS. The Company may also issue as part of the Policy two
endorsements for which there are no charges. The Waiver of Surrender Charge
Endorsement provides for a waiver of surrender charges after the first Policy
Year in the event the Owner enters a nursing home (for a period of ninety days
or more) or is first diagnosed as having a terminal illness and has a life
expectancy of twelve months or less. Under the Terminal Illness Accelerated
Death Benefit Endorsement the Owner may request an acceleration of a portion of
the Death Benefit of the Policy if the Insured is diagnosed (while covered by
the Policy), with a terminal illness or injury and has a life expectancy of six
months or less.
Additional rules and limits apply to these supplemental riders and
endorsements. Not all such benefits may be available at any time, and
supplemental riders in addition to those listed above may be made available.
Please ask your Protective Life agent for further information, or contact the
Home Office.]
REINSURANCE
The Company may reinsure a portion of the risks assumed under the Policies.
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<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.
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<PAGE>
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 Value 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 earnings 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 tax purposes
and the Owner would generally be taxed 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 owner's 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 in
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 Funds 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 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.
44
<PAGE>
TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS
In general, the amount of the Death Benefit Proceeds payable under a Policy
by reason of the death of the Insured is excludable from gross income under
Section 101 of the Code. Certain transfers of the Policy for valuable
consideration, however, may result in a portion of the Death Benefit Proceeds
being taxable.
If the Death Benefit Proceeds is not received in a lump sum and is, instead,
applied under either Settlement Options 1, 2, or 4, payments generally 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 Cash Value over the "investment in the contract" generally will be
includible in the Owner's income. The "investment in the contract" generally is
the sum of Premium Payments less the aggregate amount previously received under
the Policy 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 MECS
CHARACTERIZATION OF A POLICY AS A MEC. Generally, a life insurance contract
will be considered a MEC for federal income tax purposes if (1) the life
insurance contract is received in exchange for a life insurance contract that
was a MEC, or (2) the life insurance contract is entered into after June 21,
1988 and premiums are paid into the life insurance contract more rapidly than
the rate defined by a "7-Pay Test." The Code generally provides that a life
insurance contract will fail this test (and thus be considered a MEC) if the
accumulated amount paid under the life insurance contract at any time during the
1st 7 years exceeds the cumulative sum of the net level premiums which would
have been paid to that time if the life insurance contract provided for paid-up
future benefits after the payment of 7 level annual premiums.
This Policy GENERALLY WILL BE A MEC unless (1) it was received in exchange
for another life insurance policy which was not a MEC and (2) no premium
payments or other consideration (other than the exchanged contract) are paid
into the Policy during the 1st 7 Policy Years. In addition, even if the Policy
initially is not a MEC, it may, in certain circumstances, become a MEC. These
circumstances would include a later increase in benefits, any other "material
change" of the Policy (within the meaning of the tax law), and a Withdrawal or
reduction in the Death Benefit during the 1st 7 Policy Years.
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 loan (and any interest thereon)
will be treated as a Withdrawal for tax purposes. In addition, the discussion of
lapses (and surrenders) 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,
although it is not affected by any other aspect of the assignment, pledge, or
loan (including its release or
45
<PAGE>
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 Withdrawal, including
any deemed Withdrawals such as loans) 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 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.
POLICIES WHICH ARE NOT MECS
TAX TREATMENT OF WITHDRAWALS GENERALLY. If the Policy is not a MEC, 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 the Withdrawal exceeds the investment in the
contract immediately before the Withdrawal.
CERTAIN DISTRIBUTIONS REQUIRED BY THE TAX LAW IN THE FIRST 15 POLICY
YEARS. As stated above, section 7702 of the Code places limitations on the
amount of premiums that may be paid and the Policy Value 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, if Withdrawals are made, and in
certain other instances. In particular, an Owner electing Withdrawals on a
regular basis should consider that such Withdrawals (like all other Withdrawals)
will reduce the death benefit and thus may result in some amounts being included
in income even though the Withdrawals are less than the investment in the
contract.
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 such a Policy will constitute
income to the Owner so long as the Policy remains in force. If a Policy lapses
(or is surrendered) when a loan is outstanding, the amount of the loan
outstanding will be treated as surrender proceeds for purposes of determining
whether any amounts are includible in the owner's income.
TAX TREATMENT OF COMPREHENSIVE LONG-TERM CARE ACCELERATED DEATH BENEFIT
RIDER
The Comprehensive Long-Term Care Accelerated Death Benefit Rider is intended
to constitute qualified long-term care insurance under Section 7702B(b) of the
Code. Nursing Home Care and Community Care benefits received pursuant to this
rider generally will be excludable from income. However, if the amount of such
benefits plus other per diem long-term care insurance benefits exceed $175 per
day, indexed for inflation (or the equivalent amount in the case of payments on
another periodic basis), such excess will be includible in income. It is
possible that charges for this rider assessed against the Policy Value may be
treated for tax purposes as a withdrawal from the Policy. In that event, part or
all of such charges might constitute income (and might also be subject to the
10% penalty tax if the Policy is a MEC).
46
<PAGE>
The Comprehensive Long-Term Care Accelerated Death Benefit Rider may be
issued in certain States as a "non-qualified" rider, I.E., it would not
constitute qualified long-term care insurance under section 7702B(b) of the
Code. (The first page of the rider will state whether it is issued as a
qualified rider.) The tax consequences associated with adding such a
non-qualified rider, and the tax treatment of benefits received from such a
rider, are uncertain. Accordingly, we urge you to consult a tax advisor before
adding a non-qualified rider to your Policy or requesting an Accelerated Death
Benefit from such a rider.
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 with interest to the
extent required by law. 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, and other changes under the
Policy may have tax consequences (other than those discussed herein) depending
on the circumstances of such change or Withdrawal.
DISALLOWANCE OF INTEREST DEDUCTIONS
The Policy generally will be characterized as a single premium life
insurance contract under section 264 of the Code and, as a result, interest paid
on any loans under the Policy will not be tax deductible, irrespective of
whether the owner is an individual or a non-natural entity, such as a
corporation or a trust. In addition, in the case of Policies issued to a
non-natural taxpayer, or held for the benefit of such an entity, a portion of
the taxpayer's otherwise deductible interest expenses may not be deductible as a
result of ownership of a Policy even if no loans are taken under the Policy. An
exception to the latter rule is provided for certain life insurance contracts
which cover the life of an individual who is a 20-percent owner, or an officer,
director, or employee, of a trade or business. Entities that are considering
purchasing the Policy, or entities that will be beneficiaries under a Policy,
should consult a tax advisor.
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
47
<PAGE>
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 ProEquities, 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 7.25% first year premium payment
and .35% on unloaned Policy Value. 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.
CORPORATE PURCHASERS
The Policy is available for individuals and for corporations and other
institutions. For corporate or other group or sponsored arrangements purchasing
one or more Policies, the Company may reduce the amount of the policy expense
charge, annual maintenance fee, or other charges where the expenses associated
with the sale of the Policy or Policies or the underwriting or other
administrative costs associated with the Policy or Policies are reduced. Sales,
underwriting or other administrative expenses may be reduced for reasons such as
expected economies resulting from a corporate purchase or a group or sponsored
arrangement, from the amount of the initial Premium Payment or Payments.
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.................. 57 Chairman of the Board and a Director
John D. Johns....................... 46 President and a Director
R. Stephen Briggs................... 48 Executive Vice President and a Director
Jim E. Massengale................... 55 Executive Vice President, Acquisitions and a
Director
A.S. Williams III................... 61 Executive Vice President, Investments,
Treasurer and a Director
Danny L. Bentley.................... 40 Senior Vice President, Group and a Director
Richard J. Bielen................... 37 Senior Vice President, Investments and a
Director
Carolyn King........................ 47 Senior Vice President, Investment Products
and a Director
Deborah J. Long..................... 44 Senior Vice President, General Counsel,
Secretary and a Director
Steven A. Schultz................... 44 Senior Vice President, Financial
Institutions and a Director
Wayne E. Stuenkel................... 44 Senior Vice President and Chief Actuary and
a Director
Judy Wilson......................... 40 Senior Vice President, Guaranteed Investment
Contracts
Jerry W. DeFoor..................... 45 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
48
<PAGE>
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 has served in various capacities with PLC and its subsidiaries since
1979. 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. Briggs has been Executive Vice President of PLC and Protective Life
since October 1993. From January 1993 to October 1993 he was Senior Vice
President, Life Insurance and Investment Products of Protective and PLC. Mr.
Briggs had been Senior Vice President, Ordinary Marketing of PLC since August
1988 and of Protective Life since April 1986. Mr. Briggs has been associated
with PLC and its subsidiaries since 1977.
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 Life and PLC. Mr. Massengale has been employed by PLC
and its subsidiaries since 1983.
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 Life. Mr.
Williams has been employed by Protective since 1964.
Mr. Danny L. Bentley has been Senior Vice President, Group of Protective
Life and PLC since August 1996. From May 1989 to August 1996, he was Vice
President, Group Marketing of Protective Life. Mr. Bentley has been employed by
PLC and its subsidiaries since 1980.
Mr. Bielen has been Senior Vice President, Investments of PLC and Protective
Life 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 Life 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 Life since September 1996. Ms. Long was Senior
Vice President and General Counsel of PLC from February 1994 to November 1996
and of Protective Life 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 Life and PLC since March 1993. Mr. Schultz served as Vice President,
Financial Institutions of Protective Life from February 1989 to March 1993 and
of PLC from February 1993 to March 1993. Mr. Schultz has been employed by PLC
and its subsidiaries since 1989.
Mr. Stuenkel has been Senior Vice President and Chief Actuary of Protective
Life and PLC since March 1987. Mr. Stuenkel is a Fellow in the Society of
Actuaries and has been employed by PLC and its subsidiaries since September
1978.
49
<PAGE>
Ms. Wilson has been Senior Vice President, Guaranteed Investment Contracts
of Protective Life and PLC since January 1995. From July 1991 to December 31,
1994, she served as Vice President, Guaranteed Investment Contracts of
Protective Life.
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 PLC and its subsidiaries since August 1982.
STATE REGULATION
Protective Life is subject to regulation by the Department of Insurance of
the State of Tennessee, which periodically examines the financial condition and
operations of Protective Life. Protective Life is also subject to the insurance
laws and regulations of all jurisdictions where it does business. The Policy
described in this prospectus has been filed with and, where required, approved
by, insurance officials in those jurisdictions where it is sold.
Protective Life is required to submit annual statements of operations,
including financial statements, to the insurance departments of the various
jurisdictions where it does business to determine solvency and compliance with
applicable insurance laws and regulations.
ADDITIONAL INFORMATION
A registration statement under the Securities Act of 1933 has been filed
with the SEC relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained at the SEC's principal office
in Washington, D.C. by paying the SEC's prescribed fees.
PREPARATION FOR YEAR 2000
Older computer hardware and software often denote the year using two digits
rather than four; for example, the year 1997 often is denoted by such hardware
and software as "97." It is probable that such hardware and software will
malfunction when calculations involving the year 2000 are attempted because the
hardware and/or software will interpret "00" as representing the year 1900
rather than the year 2000. This "Year 2000" issue potentially affects all
individuals and companies (including Protective Life, its customers, business
partners, suppliers, banks, custodians and administrators) who rely on computers
or devices containing computer chips.
Protective Life has developed and is implementing a Year 2000 transition
plan intended to identify and modify or replace primary hardware and/or software
systems on which it relies that have a Year 2000 issue. Protective Life is also
developing and implementing a plan to identify and modify or replace secondary
hardware and/or software systems on which it relies that have a Year 2000 issue.
Substantial resources are being devoted to this effort; however the costs to
develop and implement these plans are not expected to be material. Protective
Life is also confirming that its service providers are implementing plans to
identify and modify or replace their systems that have a Year 2000 issue.
Protective Life currently anticipates that its systems will be able to
process transactions dated beyond 1999 on or before December 31, 1999. There can
be no assurance, however, that Protective Life's efforts will be successful,
that interaction with other service providers with Year 2000 issues will not
impair Protective Life's operations, or that the Year 2000 issue will not
otherwise adversely affect Protective Life.
EXPERTS
The audited statement of assets and liabilities of the Protective Variable
Life Separate Account (comprised of seventeen Sub-Accounts) as of December 31,
1996 and December 31, 1997 and the related statements of operations and changes
in net assets for the period from June 19, 1996 (date of inception)
50
<PAGE>
through December 31, 1996 and for the year ended December 31, 1997 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, 1997
and 1996 and the consolidated statements of income, stockholder's equity and
cash flows for each of the three years in the period ended December 31, 1997 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 Stephen
Peeples 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 assets and liabilities of the Protective Variable
Life Separate Account (comprised of seventeen Sub-Accounts) as of December 31,
1996 and December 31, 1997 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 for the year ended December 31, 1997 as well as the Report
of Independent Accountants are contained herein.
The audited consolidated balance sheets for Protective Life as of December
31, 1997 and 1996 and the related consolidated statements of income,
stockholder's equity, and cash flows for the years ended December 31, 1997, 1996
and 1995 as well as the Report of Independent Accountants are contained herein.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
Report of Independent Accountants.................................................... F-2
Statement of Assets and Liabilities as of December 31, 1997.......................... F-3
Statement of Assets and Liabilities as of December 31, 1996.......................... F-5
Statement of Operations for the period ended December 31, 1997....................... F-6
Statement of Operations for the period from June 19, 1996 (date of inception) through
December 31, 1996................................................................... F-8
Statement of Changes in Net Assets for the period ended December 31, 1997............ F-9
Statement of Changes in Net Assets for the period from June 19, 1996 (date of
inception) through December 31, 1996................................................ F-11
Notes to Financial Statements........................................................ F-12
PROTECTIVE LIFE INSURANCE COMPANY
Report of Independent Accountants.................................................... F-19
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995.................................................... F-20
Consolidated Balance Sheets as of December 31, 1997 and 1996......................... F-21
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1997, 1996 and 1995.................................................... F-22
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.................................................... F-23
Notes to Consolidated Financial Statements........................................... F-24
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information.................................. S-1
Schedule IV -- Reinsurance........................................................... S-2
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the 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 seventeen subaccounts) included on pages F-3
through F-16 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 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. Our procedures included
confirmation of shares owned as of December 31, 1997 and 1996, by correspondence
with the transfer agents. 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 financial position of the Protective Variable Life
Separate Account as of December 31, 1997 and 1996, the results of its
operations, and the changes in its net assets for the year ended December 31,
1997, and for the period from June 19, 1996 (date of inception) through December
31, 1996, in conformity with generally accepted accounting principles.
Birmingham, Alabama
March 5, 1998
F-2
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC
MONEY GROWTH & INTERNAT'L GLOBAL SMALL CAP
MARKET INCOME EQUITY INCOME EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in Sub-accounts at market
value................................. $ 50,888 $ 997,651 $ 542,113 $ 112,638 $ 562,384
Receivable from Protective Life
Insurance Company..................... 5,779 5,792 5,263
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS............................ $ 50,888 $1,003,430 $ 547,905 $ 112,638 $ 567,647
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 1 32
----------- ----------- ----------- ----------- -----------
NET ASSETS.............................. $ 50,887 $1,003,430 $ 547,905 $ 112,606 $ 567,647
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
ACACIA
CAPITAL ACACIA
CORPORATION CAPITAL
PIC PIC CRI CORPORATION
CORE US CAPITAL SMALL CAP CRI
EQUITY GROWTH GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in Sub-accounts at market
value................................. $ 418,436 $ 631,283 $ 77 $ 86
Receivable from Protective Life
Insurance Company..................... 1,206 5,482
----------- ----------- --- ---
TOTAL ASSETS............................ $ 419,642 $ 636,765 $ 77 $ 86
----------- ----------- --- ---
----------- ----------- --- ---
LIABILITIES
Payable to Protective Life Insurance
Company............................... 7 7
----------- ----------- --- ---
NET ASSETS.............................. $ 419,642 $ 636,765 $ 70 $ 79
----------- ----------- --- ---
----------- ----------- --- ---
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS MFS
EMERGING MFS GROWTH W/ TOTAL
GROWTH RESEARCH INCOME RETURN
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investment in Sub-accounts at market
value................................. $ 59,898 $ 121,167 $ 7,004 $ 2,890
Receivable from Protective Life
Insurance Company.....................
----------- ----------- ----------- -----------
TOTAL ASSETS............................ $ 59,898 $ 121,167 $ 7,004 $ 2,890
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES
Payable to Protective Life Insurance
Company...............................
----------- ----------- ----------- -----------
NET ASSETS.............................. $ 59,898 $ 121,167 $ 7,004 $ 2,890
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
OPPENHEIMER OPPENHEIMER OPPENHEIMER
CAP OPPENHEIMER GROWTH & STRATEGIC
APPRECIATION GROWTH INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investment in Sub-accounts at market
value................................. $ 56,236 $ 74,477 $ 11,957 $ 10,236
Receivable from Protective Life
Insurance Company..................... 377 353
----------- ----------- ----------- -----------
TOTAL ASSETS............................ $ 56,236 $ 74,477 $ 12,334 $ 10,589
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES
Payable to Protective Life Insurance
Company...............................
----------- ----------- ----------- -----------
NET ASSETS.............................. $ 56,236 $ 74,477 $ 12,334 $ 10,589
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERNATIONAL
MONEY MARKET GROWTH AND INCOME EQUITY GLOBAL INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- ------------------ ------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investment in Protective Investment Company at
market value...................................... $ 14,144 $ 149,418 $ 122,118 $ 21,153
------- -------- ------------- -------
TOTAL ASSETS........................................ $ 14,144 $ 149,418 $ 122,118 $ 21,153
------- -------- ------------- -------
------- -------- ------------- -------
<CAPTION>
SMALL CAP EQUITY SELECT EQUITY CAPITAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ------------- ---------------
<S> <C> <C> <C>
ASSETS
Investment in Protective Investment Company at
market value...................................... $ 129,053 $ 76,118 $ 105,334
-------- ------------- ---------------
TOTAL ASSETS........................................ $ 129,053 $ 76,118 $ 105,334
-------- ------------- ---------------
-------- ------------- ---------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC
MONEY GROWTH & INTERNAT'L GLOBAL SMALL CAP
MARKET INCOME EQUITY INCOME EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................... $ 1,088 $ 7,094 $ 9,487 $ 9,209 $ 1,630
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain from redemption of
investment shares..................... 669 338 2 (211)
Capital gain distribution............... 132,504 29,384 1,394 61,983
----------- ----------- ----------- ----------- -----------
Net realized gain on investments........ 133,173 29,722 1,396 61,772
Net unrealized appreciation
(depreciation) on investments during
the period............................ (1) (19,493) (31,321) (4,150) 38,214
----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments........................ (1) 113,680 (1,599) (2,754) 99,986
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $ 1,087 $ 120,774 $ 7,888 $ 6,455 $ 101,616
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
ACACIA
CAPITAL ACACIA
CORPORATION CAPITAL
PIC PIC CRI CORPORATION
CORE US CAPITAL SMALL CAP CRI
EQUITY GROWTH GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................... $ 3,427 $ 3,803 $ 2
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain from redemption of
investment shares..................... 1 142
Capital gain distribution............... 33,252 39,296 $ 7 4
----------- ----------- --- ---
Net realized gain on investments........ 33,253 39,438 7 4
Net unrealized appreciation
(depreciation) on investments during
the period............................ 20,629 53,776 (8) (4)
----------- ----------- --- ---
Net realized and unrealized gain (loss)
on investments........................ 53,882 93,214 (1)
----------- ----------- --- ---
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $ 57,309 $ 97,017 $ (1) $ 2
----------- ----------- --- ---
----------- ----------- --- ---
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS OPPENHEIMER OPPENHEIMER OPPENHEIMER
EMERGING MFS GROWTH W/ MFS CAP OPPENHEIMER GROWTH & STRATEGIC
GROWTH RESEARCH INCOME TOTAL RETURN APPRECIATION GROWTH INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........... $ 28 $ 29 $ 199
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain
from redemption of
investment
shares............ $ (549) $ (176) 1 $ 89 $ (95) $ 67 (3)
Capital gain
distribution...... 132
------------ ------ ----- --- --- --- --- -----
Net realized gain on
investments....... (549) (176) 133 89 (95) 67 (3)
Net unrealized
appreciation
(depreciation) on
investments during
the period........ (656) 1,111 210 (13) 1
------------ ------ ----- --- --- --- --- -----
Net realized and
unrealized gain
(loss) on
investments....... (1,205) 935 343 76 (95) 67 (3) 1
------------ ------ ----- --- --- --- --- -----
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $(1,205) $ 935 $ 371 $ 76 $ (95) $ 67 $ 26 $ 200
------------ ------ ----- --- --- --- --- -----
------------ ------ ----- --- --- --- --- -----
</TABLE>
See accompanying notes to financial statements.
F-7
<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
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 115 $ 1,798 $ 45 $ 916
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gain from redemption of investment
shares............................................ 68 17 34
Capital gain distribution........................... 8,973 2,300 331
----- ------- ------ -----
Net realized gain on investments.................... 9,041 2,317 365
Net unrealized appreciation (depreciation) on
investments during the period..................... 956 2,181 (749)
----- ------- ------ -----
Net realized and unrealized gain (loss) on
investments....................................... 9,997 4,498 (384)
----- ------- ------ -----
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS........................................ $ 115 $ 11,795 $ 4,543 $ 532
----- ------- ------ -----
----- ------- ------ -----
<CAPTION>
SMALL CAP EQUITY SELECT EQUITY CAPITAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ------------- -----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 322 $ 822 $ 1,027
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gain from redemption of investment
shares............................................ 3 17 50
Capital gain distribution........................... 12,584 1,684 1,302
-------- ------ ------
Net realized gain on investments.................... 12,587 1,701 1,352
Net unrealized appreciation (depreciation) on
investments during the period..................... (13,378) 631 4,452
-------- ------ ------
Net realized and unrealized gain (loss) on
investments....................................... (791) 2,332 5,804
-------- ------ ------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS........................................ ($ 469) $ 3,154 $ 6,831
-------- ------ ------
-------- ------ ------
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC PIC
MONEY GROWTH & INTERNAT'L GLOBAL SMALL CAP CORE US
MARKET INCOME EQUITY INCOME 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....................... $ 1,088 $ 7,094 $ 9,487 $ 9,209 $ 1,630 $ 3,427
Net realized gain on investments........ 133,173 29,722 1,396 61,772 33,253
Net unrealized appreciation
(depreciation) of investments during
the period............................ (1) (19,493) (31,321) (4,150) 38,214 20,629
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations............. 1,087 120,774 7,888 6,455 101,616 57,309
----------- ----------- ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contractowners' net payments............ 35,259 321,067 215,507 30,685 187,628 136,656
Mortality and expense risk charges...... (168) (5,176) (3,190) (528) (3,317) (2,130)
Cost of insurance and administrative
charges............................... (1,092) (112,846) (76,380) (10,388) (77,291) (46,805)
Surrenders.............................. (6,520) (2,450) (5,949) (4,572)
Death benefits..........................
Net policy loan repayments
(withdrawals)......................... (18,635) (18,054)
Transfer from other portfolios.......... 1,657 536,713 284,412 65,229 254,542 221,120
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from variable life policy
transactions.......................... 35,656 733,238 417,899 84,998 336,978 286,215
----------- ----------- ----------- ----------- ----------- -----------
Total increase in net assets............ 36,743 854,012 425,787 91,453 438,594 343,524
NET ASSETS
Beginning of Year....................... 14,144 149,418 122,118 21,153 129,053 76,118
----------- ----------- ----------- ----------- ----------- -----------
End of Year............................. $ 50,887 $1,003,430 $ 547,905 $ 112,606 $ 567,647 $ 419,642
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
ACACIA
CAPITAL ACACIA
CORPORATION CAPITAL
PIC CRI CORPORATION
CAPITAL SMALL CAP CRI
GROWTH GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ ------------
<S> <C> <C> <C>
FROM OPERATIONS
Investment Income....................... $ 3,803 $ 2
Net realized gain on investments........ 39,438 $ 7 4
Net unrealized appreciation
(depreciation) of investments during
the period............................ 53,776 (8) (4)
----------- --- ---
Net increase (decrease) in net assets
resulting from operations............. 97,017 (1) 2
----------- --- ---
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contractowners' net payments............ 216,169 77 78
Mortality and expense risk charges...... (3,108)
Cost of insurance and administrative
charges............................... (78,798) (6) (6)
Surrenders.............................. (2,247)
Death benefits..........................
Net policy loan repayments
(withdrawals).........................
Transfer from other portfolios.......... 302,398 5
----------- --- ---
Net increase in net assets resulting
from variable life policy
transactions.......................... 434,414 71 77
----------- --- ---
Total increase in net assets............ 531,431 70 79
NET ASSETS
Beginning of Year....................... 105,334
----------- --- ---
End of Year............................. $ 636,765 $ 70 $ 79
----------- --- ---
----------- --- ---
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS MFS
EMERGING MFS GROWTH TOTAL
GROWTH RESEARCH W/INCOME RETURN
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Investment income....................... $ 28
Net realized gain on investments........ $ (549) $ (176) 133 $ 89
Net unrealized appreciation
(depreciation) of investments during
the period............................. (656) 1,111 210 (13)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.............. (1,205) 935 371 76
----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contractowners' net payments............ 18,430 31,577 196 656
Mortality and expense risk charges...... (118) (173) (14) (8)
Cost of insurance and administrative
charges................................ (4,009) (6,344) (274) (151)
Surrenders.............................. (4,062) (839)
Death benefits..........................
Net policy loan repayments
(withdrawals).......................... (16,061) (17,201)
Transfer from other portfolios.......... 66,923 113,212 6,725 2,317
----------- ----------- ----------- -----------
Net increase in net assets resulting
from variable life policy
transactions........................... 61,103 120,232 6,633 2,814
----------- ----------- ----------- -----------
Total increase in net assets............ 59,898 121,167 7,004 2,890
----------- ----------- ----------- -----------
NET ASSETS
Beginning of Year.......................
----------- ----------- ----------- -----------
End of Year............................. $ 59,898 $ 121,167 $ 7,004 $ 2,890
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
OPPENHEIMER OPPENHEIMER OPPENHEIMER
CAP OPPENHEIMER GROWTH & STRATEGIC
APPRECIATION GROWTH INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Investment income....................... $ 29 $ 199
Net realized gain on investments........ $ (95) $ 67 (3)
Net unrealized appreciation
(depreciation) of investments during
the period............................. 1
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.............. (95) 67 26 200
----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contractowners' net payments............ 16,910 22,365 2,485 1,135
Mortality and expense risk charges...... (80) (83) (22) (21)
Cost of insurance and administrative
charges................................ (3,993) (3,954) (571) (423)
Surrenders.............................. (3,835) (546)
Death benefits..........................
Net policy loan repayments
(withdrawals)..........................
Transfer from other portfolios.......... 47,329 56,628 10,416 9,698
----------- ----------- ----------- -----------
Net increase in net assets resulting
from variable life policy
transactions........................... 56,331 74,410 12,308 10,389
----------- ----------- ----------- -----------
Total increase in net assets............ 56,236 74,477 12,334 10,589
----------- ----------- ----------- -----------
NET ASSETS
Beginning of Year.......................
----------- ----------- ----------- -----------
End of Year............................. $ 56,236 $ 74,477 $ 12,334 $ 10,589
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-10
<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
MONEY MARKET GROWTH AND INCOME EQUITY GLOBAL INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- ------------------ ------------- ---------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Investment income......................................... $ 115 $ 1,798 $ 45 $ 916
Net realized gain on investments.......................... 9,041 2,317 365
Net unrealized appreciation (depreciation) of investments
during the period....................................... 956 2,181 (749)
------- -------- ------------- -------
Net increase (decrease) in net assets resulting from
operations.............................................. 115 11,795 4,543 532
------- -------- ------------- -------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contractowners' net payments.............................. 19,439 21,311 3,651
Mortality and expense risk charges........................ (21) (215) (180) (35)
Cost of insurance and administrative charges.............. (100) (7,846) (6,427) (697)
Surrenders................................................ (314) (725) (949)
Transfers from other portfolios........................... 14,150 126,559 103,596 18,651
------- -------- ------------- -------
Net increase in net assets resulting from variable life
policy transactions..................................... 14,029 137,623 117,575 20,621
------- -------- ------------- -------
Total increase in net assets.............................. 14,144 149,418 122,118 21,153
NET ASSETS
Beginning of Year.........................................
------- -------- ------------- -------
End of Year............................................... $ 14,144 $ 149,418 $ 122,118 $ 21,153
------- -------- ------------- -------
------- -------- ------------- -------
<CAPTION>
SELECT
SMALL CAP EQUITY EQUITY CAPITAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ------------ ---------------
<S> <C> <C> <C>
FROM OPERATIONS
Investment income......................................... $ 322 $ 822 $ 1,027
Net realized gain on investments.......................... 12,587 1,701 1,352
Net unrealized appreciation (depreciation) of investments
during the period....................................... (13,378) 631 4,452
-------- ------------ ---------------
Net increase (decrease) in net assets resulting from
operations.............................................. (469) 3,154 6,831
-------- ------------ ---------------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contractowners' net payments.............................. 17,811 10,387 17,280
Mortality and expense risk charges........................ (189) (100) (157)
Cost of insurance and administrative charges.............. (6,579) (2,868) (5,933)
Surrenders................................................ (245) (576) (307)
Transfers from other portfolios........................... 118,724 66,121 87,620
-------- ------------ ---------------
Net increase in net assets resulting from variable life
policy transactions..................................... 129,522 72,964 98,503
-------- ------------ ---------------
Total increase in net assets.............................. 129,053 76,118 105,334
NET ASSETS
Beginning of Year.........................................
-------- ------------ ---------------
End of Year............................................... $ 129,053 $ 76,118 $ 105,334
-------- ------------ ---------------
-------- ------------ ---------------
</TABLE>
See accompanying notes to financial statements.
F-11
<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 variable life insurance polices. During 1997, the
Separate Account supported the Protective Premiere product, variable life
insurance policies issued by Protective Life (each, a "Policy"). Protective Life
plans to begin issuing a new flexible premium variable life insurance policy and
a modified single premium variable life policy in 1998.
Protective Life has structured the Separate Account into a unit investment
trust form registered with the U.S. Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
seven proprietary sub-accounts and ten independent sub-accounts. The seven
proprietary sub-accounts are the Money Market, Growth and Income, International
Equity, Global Income, Small Cap Equity, CORE US Equity, and Capital Growth
sub-accounts. Funds are transferred to Protective Investment Company (the Fund)
in exchange for shares of the corresponding portfolio of the Fund.
The ten independent sub-accounts are the Acacia Capital Corporation CRI
Small Cap Growth, Acacia Capital Corporation CRI Balanced, MFS Emerging Growth,
MFS Research, MFS Growth with Income, MFS Total Return, Oppenheimer Capital
Appreciation, Oppenheimer Growth, Oppenheimer Growth & Income, and Oppenheimer
Strategic Bond sub-accounts. The Acacia Capital Corporation CRI Small Cap Growth
and Acacia Capital Corporation CRI Balanced subaccounts were added July 1, 1997,
with sales beginning July 1, 1997. The Acacia Capital Corporation CRI Small Cap
Growth and Balanced Funds were renamed Calvert Social Small Cap Growth and
Calvert Social Balanced Funds on January 1, 1998. The MFS Emerging Growth,
Research, Growth with Income, and Total Return subaccounts were added July 1,
1997, with sales beginning July 1, 1997. The Oppenheimer Capital Appreciation,
Growth, Growth & Income, and Strategic Bond subaccounts were added July 1, 1997,
with sales beginning July 1, 1997. The Fund invests contractholder's funds in
exchange for shares in the independent funds. The Fund then holds the shares for
the contractowners.
Gross premiums from the Contracts are allocated to the sub-accounts in
accordance with contractowner 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. Dividend income is recorded on the ex-dividend date.
F-12
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REALIZED GAINS AND LOSSES: Realized gains and losses on investments include
gains and losses on redemptions of the Fund's shares (determined on the
last-in-first-out (LIFO) basis) and capital gain distributions from the Fund.
DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS: Dividend income and capital
gain distributions are recorded on the ex-dividend date. Distributions are from
net investment income and net realized gains recorded in the Investment Company
financials.
USE OF ESTIMATES: The preparation of financial statements in conformity
with 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-13
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
At December 31, 1997, the investments by the respective sub-accounts were as
follows:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
--------- ------------ ------------
<S> <C> <C> <C>
Money Market............................................ 50,888 $ 50,888 $ 50,888
Growth and Income....................................... 63,291 $ 1,016,188 $ 997,651
International Equity.................................... 43,537 $ 571,254 $ 542,113
Global Income........................................... 11,115 $ 117,537 $ 112,638
Small Cap Equity........................................ 47,961 $ 537,548 $ 562,384
CORE US Equity.......................................... 22,731 $ 397,175 $ 418,436
Capital Growth.......................................... 39,905 $ 573,054 $ 631,283
Acacia Capital Corporation CRI Small Cap Growth......... 6 $ 85 $ 77
Acacia Capital Corporation CRI Balanced................. 43 $ 89 $ 86
MFS Emerging Growth..................................... 3,711 $ 60,271 $ 59,898
MFS Research............................................ 7,674 $ 120,606 $ 121,167
MFS Growth With Income.................................. 426 $ 7,013 $ 7,004
MFS Total Return........................................ 174 $ 2,785 $ 2,890
Oppenheimer Capital Appreciation........................ 1,373 $ 56,519 $ 56,236
Oppenheimer Growth...................................... 2,296 $ 73,927 $ 74,477
Oppenheimer Growth & Income............................. 581 $ 11,737 $ 11,957
Oppenheimer Strategic Bond.............................. 1,999 $ 10,355 $ 10,236
</TABLE>
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 Cap Equity........................................ 12,878 $ 142,431 $ 129,053
Select Equity........................................... 4,931 $ 75,847 $ 76,118
Capital Growth.......................................... 8,329 $ 100,881 $ 105,334
</TABLE>
F-14
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During the year ended December 31, 1997, transactions in shares were as
follows:
<TABLE>
<CAPTION>
PIC PIC PIC SMALL PIC PIC
PIC MONEY PIC GROWTH INTERNATIONAL GLOBAL CAP SELECT CAPITAL
MARKET & INCOME EQUITY INCOME EQUITY EQUITY GROWTH
----------- ----------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased....................... 87,115 47,611 35,341 8,494 35,094 19,091 32,867
Shares received from reinvestment of
dividends............................ 1,088 9,094 3,142 1,045 5,514 2,037 2,783
----------- ----------- ------------- --------- --------- --------- ---------
Total shares acquired.................. 88,203 56,705 38,483 9,539 40,608 21,128 35,650
Shares redeemed........................ (51,459) (3,949) (4,438) (502) (5,525) (3,328) (4,074)
----------- ----------- ------------- --------- --------- --------- ---------
Net increase in shares owned........... 36,744 52,756 34,045 9,037 35,083 17,800 31,576
Shares owned, beginning of the
period............................... 14,144 10,535 9,492 2,078 12,878 4,931 8,329
----------- ----------- ------------- --------- --------- --------- ---------
Shares owned, end of the period........ 50,888 63,291 43,537 11,115 47,961 22,731 39,905
----------- ----------- ------------- --------- --------- --------- ---------
----------- ----------- ------------- --------- --------- --------- ---------
Cost of shares acquired................ 88,203 935,011 510,945 101,056 461,282 383,087 532,941
----------- ----------- ------------- --------- --------- --------- ---------
----------- ----------- ------------- --------- --------- --------- ---------
Cost of Shares redeemed................ (51,459) (67,285) (59,628) (5,421) (66,165) (61,399) (60,768)
----------- ----------- ------------- --------- --------- --------- ---------
----------- ----------- ------------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
ACACIA ACACIA
CAPITAL CAPITAL
CORPORATION CORPORATION MFS MFS MFS OPPENHEIMER
CRI SMALL CRI EMERGING MFS GROWTH W/ TOTAL CAPTIAL
CAP GROWTH+ BALANCED+ GROWTH+ RESEARCH+ INCOME+ RETURN+ APPRECIATION+
------------ ------------ -------- ---------- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased................... 5 43 4,911 9,082 428 300 1,467
Shares received from reinvestment
of dividends..................... 1 3 0 0 10 0 0
--- --- -------- ---------- --------- -------- ------
Total shares acquired.............. 6 46 4,911 9,082 438 300 1,467
Shares redeemed.................... 0 (3) (1,200) (1,408) (12) (126) (94)
--- --- -------- ---------- --------- -------- ------
Net increase in shares owned....... 6 43 3,711 7,674 426 174 1,373
Shares owned, beginning of the
period........................... 0 0 0 0 0 0 0
--- --- -------- ---------- --------- -------- ------
Shares owned, end of the period.... 6 43 3,711 7,674 426 174 1,373
--- --- -------- ---------- --------- -------- ------
--- --- -------- ---------- --------- -------- ------
Cost of shares acquired............ 91 95 79,661 142,783 7,206 4,762 60,457
--- --- -------- ---------- --------- -------- ------
--- --- -------- ---------- --------- -------- ------
Cost of Shares redeemed............ (6) (6) (19,390) (22,177) (193) (1,977) (3,983)
--- --- -------- ---------- --------- -------- ------
--- --- -------- ---------- --------- -------- ------
<CAPTION>
OPPENHEIMER OPPENHEIMER
OPPENHEIMER GROWTH & STRATEGIC
GROWTH+ INCOME+ BOND+
----------- ----------- -----------
<S> <C> <C> <C>
Shares purchased................... 2,418 599 2,012
Shares received from reinvestment
of dividends..................... 0 1 39
----------- ----------- -----------
Total shares acquired.............. 2,418 600 2,051
Shares redeemed.................... (122) (19) (52)
----------- ----------- -----------
Net increase in shares owned....... 2,296 581 1,999
Shares owned, beginning of the
period........................... 0 0 0
----------- ----------- -----------
Shares owned, end of the period.... 2,296 581 1,999
----------- ----------- -----------
----------- ----------- -----------
Cost of shares acquired............ 77,973 12,131 10,623
----------- ----------- -----------
----------- ----------- -----------
Cost of Shares redeemed............ (4,046) (394) (268)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------------
+ date of inception, July 1, 1997
F-15
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During the period from June 19, 1996 (date of inception) to December 31,
1996, transactions in shares were as follows:
<TABLE>
<CAPTION>
PIC PIC SMALL PIC
PIC MONEY PIC GROWTH INTERNATIONAL PIC GLOBAL CAP PIC SELECT CAPITAL
MARKET & INCOME EQUITY INCOME EQUITY 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 following
discussion regarding charges relates only to the Policies issued by Protective
Life during 1997.
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 year ended December 31, 1997 or 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.
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 $31,020 and $3,116 during 1997
and 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.
F-16
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
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, 1997 or 1996.
F-17
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-19
Consolidated Statements of Income for the years ended December 31, 1997, 1996, and
1995............................................................................... F-20
Consolidated Balance Sheets as of December 31, 1997 and 1996......................... F-21
Consolidated Statements of Stockholder's Equity for the years ended December 31,
1997, 1996, and 1995............................................................... F-22
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996,
and 1995........................................................................... F-23
Notes to Consolidated Financial Statements........................................... F-24
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information................................ S-1
Schedule IV -- Reinsurance......................................................... S-2
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-18
<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 listed
in the index on page F-17 of this 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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.
/s/ COOPERS & LYBRAND L.L.P.
February 11, 1998
Birmingham, Alabama
F-19
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded:
1997-$334,899; 1996-$308,174; 1995-$333,173)............ $ 480,206 $ 462,050 $ 411,682
Net investment income..................................... 557,488 498,781 458,433
Realized investment gains................................. 1,824 5,510 1,951
Other income.............................................. 6,149 5,010 1,355
--------- --------- ---------
1,045,667 971,351 873,421
--------- --------- ---------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance
ceded: 1997-$180,605; 1996-$215,424; 1995-$247,224)..... 658,872 626,893 553,100
Amortization of deferred policy acquisition costs......... 107,175 91,001 82,700
Other operating expenses (net of reinsurance ceded:
1997-$90,045; 1996-$81,839; 1995-$84,855)............... 129,870 128,148 119,888
--------- --------- ---------
895,917 846,042 755,688
--------- --------- ---------
INCOME BEFORE INCOME TAX.................................... 149,750 125,309 117,733
INCOME TAX EXPENSE (BENEFIT)
Current................................................... 66,283 44,908 47,009
Deferred.................................................. (13,981) (2,142) (6,972)
--------- --------- ---------
52,302 42,766 40,037
--------- --------- ---------
NET INCOME.................................................. $ 97,448 $ 82,543 $ 77,696
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
---------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1997-$6,221,871; 1996-$4,648,525)......... $6,348,252 $4,662,997
Equity securities, at market (cost: 1997-$24,983; 1996-$31,669)........................ 15,006 35,250
Mortgage loans on real estate.......................................................... 1,313,478 1,503,781
Investment real estate, net of accumulated depreciation (1997-$671; 1996-$911)......... 13,469 14,172
Policy loans........................................................................... 194,109 166,704
Other long-term investments............................................................ 54,704 29,193
Short-term investments................................................................. 54,337 101,215
---------- ---------
Total investments.................................................................... 7,993,355 6,513,312
Cash..................................................................................... 39,197 114,384
Accrued investment income................................................................ 94,095 70,541
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1997-$5,292; 1996-$2,525)............................................................. 42,255 43,469
Reinsurance receivables.................................................................. 591,457 332,614
Deferred policy acquisition costs........................................................ 632,605 488,201
Property and equipment, net.............................................................. 36,407 35,489
Other assets............................................................................. 14,445 14,636
Assets related to separate accounts...................................................... 931,465 550,697
---------- ---------
$10,375,281 $8,163,343
---------- ---------
---------- ---------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims...................................................... $3,324,294 $2,448,449
Unearned premiums...................................................................... 396,696 257,553
---------- ---------
3,720,990 2,706,002
Guaranteed investment contract deposits.................................................. 2,684,676 2,474,728
Annuity deposits......................................................................... 1,511,553 1,331,067
Other policyholders' funds............................................................... 183,324 142,221
Other liabilities........................................................................ 246,081 117,847
Accrued income taxes..................................................................... 941 1,854
Deferred income taxes.................................................................... 49,417 37,722
Indebtedness to related parties.......................................................... 28,055 25,014
Liabilities related to separate accounts................................................. 931,465 550,697
---------- ---------
Total liabilities.................................................................... 9,356,502 7,387,152
---------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
STOCKHOLDER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation
preference $2,000...................................................................... 2 2
Common Stock, $1.00 par value............................................................ 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital............................................................... 327,992 237,992
Note receivable from PLC Employee Stock Ownership Plan................................... (5,378) (5,579)
Retained earnings........................................................................ 629,436 532,088
Accumulated other comprehensive income
Net unrealized gains on investments (net of income tax: 1997-$33,238; 1996-$3,601)..... 61,727 6,688
---------- ---------
Total stockholder's equity........................................................... 1,018,779 776,191
---------- ---------
$10,375,281 $8,163,343
---------- ---------
---------- ---------
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTE
ADDITIONAL RECEIVABLE NET UNREALIZED TOTAL
PREFERRED COMMON PAID-IN FROM PLC RETAINED GAINS (LOSSES) STOCKHOLDER'S
STOCK STOCK CAPITAL ESOP EARNINGS ON INVESTMENTS EQUITY
------------ ------- ---------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.............. $5,000 $126,494 $(5,936) $377,049 $(107,532) $ 395,075
-------------
Net income for 1995................... 77,696 77,696
Increase in net unrealized gains on
investments (net of income tax:
$89,742)............................ 166,663 166,663
Reclassification adjustment for
amounts included in net income (net
of income tax: $(683)).............. (1,268) (1,268)
-------------
Comprehensive income for 1995......... 243,091
-------------
Common dividends ($1.00 per share).... (5,000 ) (5,000)
Preferred dividends ($50 per share)... (100 ) (100)
Capital contribution from PLC......... 18,000 18,000
Decrease in note receivable form PLC
ESOP................................ 171 171
--- ------- ---------- ---------- -------- -------------- -------------
Balance, December 31, 1995.............. 5,000 144,494 (5,765) 449,645 57,863 651,237
-------------
Net income for 1996................... 82,543 82,543
Decrease in net unrealized gains on
investments (net of income tax:
$(25,627)........................... (47,593) (47,593)
Reclassification adjustment for
amounts included in net income (net
of income tax: $(1,928))............ (3,582) (3,582)
-------------
Comprehensive income for 1996......... 31,368
-------------
Redemption feature of preferred stock
removed-Note I...................... $ 2 1,998 2,000
Preferred dividends ($50 per share)... (100 ) (100)
Capital contribution from PLC......... 91,500 91,500
Decrease in note receivable from PLC
ESOP................................ 186 186
--- ------- ---------- ---------- -------- -------------- -------------
Balance, December 31, 1996.............. 2 5,000 237,992 (5,579) 532,088 6,688 776,191
-------------
Net income for 1997................... 97,448 97,448
Increase in net unrealized gains on
investments (net of income tax-
$30,275)............................ 56,225 56,225
Reclassification adjustment for
amounts included in net income (net
of income tax: $(638)).............. (1,186) (1,186)
-------------
Comprehensive income for 1997......... 152,487
-------------
Preferred dividends ($50 per share)... (100 ) (100)
Capital contribution from PLC......... 90,000 90,000
Decrease in note receivable from PLC
ESOP................................ 201 201
--- ------- ---------- ---------- -------- -------------- -------------
Balance, December 31, 1997.............. $ 2 $5,000 $327,992 $(5,378) $629,436 $ 61,727 $1,018,779
--- ------- ---------- ---------- -------- -------------- -------------
--- ------- ---------- ---------- -------- -------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................. $ 97,448 $ 82,543 $ 77,696
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred policy acquisition costs........................ 107,175 91,001 84,501
Capitalization of deferred policy acquisition costs...................... (135,211) (77,078) (89,266)
Depreciation expense..................................................... 5,124 5,333 4,317
Deferred income taxes.................................................... (17,918) (2,442) (6,971)
Accrued income taxes..................................................... (5,558) 893 5,537
Interest credited to universal life and investment products.............. 299,004 280,377 286,710
Policy fees assessed on universal life and investment products........... (131,582) (116,401) (100,840)
Change in accrued investment income and other receivables................ (158,798) (70,987) (161,924)
Change in policy liabilities and other policyholder funds of traditional
life and health products............................................... 279,522 133,621 201,353
Change in other liabilities.............................................. 65,393 7,209 (3,270)
Other (net).............................................................. (1,133) (4,281) (6,634)
----------- ----------- -----------
Net cash provided by operating activities.................................... 403,466 329,788 291,209
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale........................................... 6,462,663 1,327,323 2,014,060
Other.................................................................... 324,242 168,898 78,568
Sale of investments:
Investment available for sale............................................ 1,108,058 1,569,119 1,523,454
Other.................................................................... 695,270 568,218 141,184
Cost of investments acquired:
Investments available for sale........................................... (8,428,804) (3,798,631) (3,626,877)
Other.................................................................... (718,335) (400,322) (540,648)
Acquisitions and bulk reinsurance assumptions.............................. (169,124) 264,126
Purchase of property and equipment......................................... (6,087) (6,899) (5,629)
Sale of property and equipment............................................. 2,681 288 286
----------- ----------- -----------
Net cash used in investing activities........................................ (729,436) (307,880) (415,602)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt............ 1,159,538 941,438 1,162,700
Capital contribution from PLC.............................................. 90,000 91,500 18,000
Principal payments on line of credit arrangements and long-term debt....... (1,159,538) (941,438) (1,162,700)
Principal payment on surplus note to PLC................................... (4,693) (10,000) (4,750)
Dividends to stockholder................................................... (100) (100) (5,100)
Investment product deposits and change in universal life deposits.......... 910,659 949,122 908,063
Investment product withdrawals............................................. (745,083) (944,244) (785,622)
----------- ----------- -----------
Net cash provided by financing activities.................................... 250,783 86,278 130,591
----------- ----------- -----------
INCREASE (DECREASE) IN CASH.................................................. (75,187) 108,186 6,198
CASH AT BEGINNING OF YEAR.................................................... 114,384 6,198 0
----------- ----------- -----------
CASH AT END OF YEAR.......................................................... $ 39,197 $ 114,384 $ 6,198
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt......................................................... $ 4,343 $ 4,633 $ 6,029
Income taxes............................................................. $ 57,215 $ 43,478 $ 41,397
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP................................... $ 201 $ 186 $ 171
Acquisitions and bulk reinsurance assumptions
Assets acquired.......................................................... $ 1,114,832 $ 296,935 $ 613
Liabilities assumed...................................................... (902,267) (364,862) (21,800)
----------- ----------- -----------
Net...................................................................... $ 212,565 $ (67,927) $ (21,187)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life
Insurance Company and subsidiaries ("Protective") are prepared on the basis of
generally accepted accounting principles. Such accounting principles differ from
statutory reporting practices used by insurance companies in reporting to state
regulatory authorities. (See also Note B.)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make various estimates
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, as well as the reported amounts of revenues
and expenses.
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its
wholly-owned subsidiaries. Protective is a wholly-owned subsidiary of Protective
Life Corporation ("PLC"), an insurance holding company.
NATURE OF OPERATIONS
Protective produces, distributes, and services a diverse array of life
insurance, specialty insurance and retirement savings and investment products.
Protective markets individual life insurance, dental insurance and managed care
services, credit life and disability insurance, guaranteed investment contracts,
guaranteed funding agreements, and fixed and variable annuities throughout the
United States. Protective also maintains a separate division devoted exclusively
to the acquisition of insurance policies from other companies.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1996 Protective adopted Statement of Financial Accounting Standards
("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." In 1997 Protective adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities;"
SFAS No. 130, "Reporting Comprehensive Income;" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information."
SFAS No. 130 requires the presentation of comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Protective has reconfigured the Consolidated
Statements of Stockholder's Equity presented herein in accordance with this
Statement. SFAS No. 131 requires additional disclosures with respect to
Protective's operating segments.
The adoption of these accounting standards did not have a material effect on
Protective's financial statements but has resulted in changed disclosure and
financial statement presentation.
F-24
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
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 $3.1 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.
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>
1997 1996
------------- ------------
<S> <C> <C>
Total investments................................................ $ 7,876,952 $ 6,495,259
Deferred policy acquisition costs................................ 654,043 495,965
All other assets................................................. 1,749,321 1,161,830
------------- ------------
$ 10,280,316 $ 8,153,054
------------- ------------
------------- ------------
Deferred income taxes............................................ $ 16,179 $ 34,121
All other liabilities............................................ 9,307,085 7,349,430
------------- ------------
9,323,264 7,383,551
Stockholder's equity............................................. 957,052 769,503
------------- ------------
$ 10,280,316 $ 8,153,054
------------- ------------
------------- ------------
</TABLE>
F-25
<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)
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 gains of $1.5 million and net realized losses of
$0.2 million were deferred in 1997 and 1996 respectively. At December 31, 1997
and 1996, options and open futures contracts with notional amounts of $925.0
million and $805.0 million, respectively, had net unrealized losses of $0.4
million and $1.9 million respectively.
Protective uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1997, related open
interest rate swap contracts with a notional amount of $95.3 million were in a
$0.1 million net unrealized loss position. 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.
In connection with a commercial mortgage loan securitization, Protective
entered into interest rate swap contracts converting a fixed rate of interest to
a floating rate of interest and converting a floating rate of interest to a
fixed rate of interest with notional amounts at December 31, 1997, of $332.4
million and $200.0 million, respectively. In the aggregate, there were no net
unrealized gains or losses associated with these swap contracts at December 31,
1997.
CASH
Cash includes all demand deposits reduced by the amount of outstanding
checks and drafts.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost. Protective primarily uses the
straight-line method of depreciation based upon the estimated useful lives of
the assets. Major repairs or improvements are capitalized and depreciated over
the estimated useful lives of the assets. Other repairs are expensed as
incurred. The cost and related accumulated depreciation of property and
equipment sold or retired are removed from the accounts, and resulting gains or
losses are included in income.
F-26
<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)
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Home office building.................................................... $ 37,459 $ 36,586
Other, principally furniture and equipment.............................. 46,937 35,401
--------- ---------
84,396 71,987
Accumulated depreciation................................................ 47,989 36,498
--------- ---------
$ 36,407 $ 35,489
--------- ---------
--------- ---------
</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-27
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance beginning of year................................ $ 108,159 $ 73,642 $ 79,462
Less reinsurance....................................... 6,423 3,330 5,024
---------- ---------- ----------
Net balance beginning of year............................ 101,736 70,312 74,438
---------- ---------- ----------
Incurred related to:
Current year............................................. 258,322 275,524 216,839
Prior year............................................... (14,540) (2,417) (4,038)
---------- ---------- ----------
Total incurred......................................... 243,782 273,107 212,801
---------- ---------- ----------
Paid related to:
Current year............................................. 203,381 197,163 164,321
Prior year............................................... 58,104 57,812 48,834
---------- ---------- ----------
Total paid............................................. 261,485 254,975 213,155
---------- ---------- ----------
Other changes:
Acquisitions and reserve transfers..................... 3,415 13,292 (3,772)
---------- ---------- ----------
Net balance end of year.................................. 87,448 101,736 70,312
Plus reinsurance....................................... 18,673 6,423 3,330
---------- ---------- ----------
Balance end of year...................................... $ 106,121 $ 108,159 $ 73,642
---------- ---------- ----------
---------- ---------- ----------
</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 1997.
At December 31, 1997, Protective estimates the fair value of its
guaranteed investment contracts to be $2,687.3 million using discounted
cash flows. The surrender value of Protective's annuities which
approximates fair value was $1,494.6 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
F-28
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 $261.9 million and $149.9 million at December 31,
1997 and 1996, respectively. During 1996 $69.2 million of present value of
future profits on acquisitions made during the year was capitalized and $21.8
million was amortized. During 1997 $136.2 million of present value of future
profits on acquisitions made during the year was capitalized, and $24.2 million
was amortized. The unamortized present value of future profits for all
acquisitions was $274.9 million at December 31, 1997 and $167.6 million at
December 31, 1996.
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 $4.6 million in 1997, $4.1 million in 1996, and
$2.6 million in 1995.
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.
F-29
<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
Financial statements prepared in conformity with generally accepted
accounting principals ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The most significant differences are: (a) acquisition costs of
obtaining new business are deferred and amortized over the approximate life of
the policies rather than charged to operations as incurred, (b) benefit
liabilities are computed using a net level method and are based on realistic
estimates of expected mortality, interest, and withdrawals as adjusted to
provide for possible unfavorable deviation from such assumptions, (c) deferred
income taxes are provided for temporary differences between financial and
taxable earnings, (d) the Asset Valuation Reserve and Interest Maintenance
Reserve are restored to 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
------------------------------- -------------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory
reporting practices: (1)........... $ 134,417 $ 102,337 $ 115,259 $ 579,111 $ 456,320 $ 324,416
Additions (deductions) by adjustment:
Deferred policy acquisition costs,
net of amortization.............. 10,310 (2,830) (765) 632,605 488,201 410,183
Deferred income tax................ 13,981 2,142 6,972 (49,417) (37,722) (67,420)
Asset Valuation Reserve............ 67,369 64,233 105,769
Interest Maintenance Reserve....... (1,434) (2,142) (1,235) 9,809 17,682 14,412
Nonadmitted items.................. 30,500 21,610 20,603
Other timing and valuation
adjustments...................... (54,494) (11,210) (45,028) (215,448) (197,227) (108,495)
Noninsurance affiliates............ 17,530 11,104 (22) (4) 4 (9)
Consolidation elimination.......... (22,862) (16,858) 2,515 (35,746) (36,910) (46,222)
--------- --------- --------- --------- --------- ---------
In conformity with generally accepted
accounting principles.............. $ 97,448 $ 82,543 $ 77,696 $1,018,779 $ 776,191 $ 653,237
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Consolidated
F-30
<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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities......................................... $ 396,255 $ 310,353 $ 272,942
Equity securities........................................ 1,186 2,124 1,338
Mortgage loans on real estate............................ 161,604 153,463 162,135
Investment real estate................................... 2,004 1,875 1,855
Policy loans............................................. 11,370 10,378 8,958
Other, principally short-term investments................ 21,876 51,637 40,348
---------- ---------- ----------
594,295 529,830 487,576
Investment expenses...................................... 36,807 31,049 29,143
---------- ---------- ----------
$ 557,488 $ 498,781 $ 458,433
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<S> <C> <C> <C>
Fixed maturities.............................. $ (8,355) $ (7,101) $ 6,118
Equity securities............................. 5,975 1,733 44
Mortgage loans and other investments.......... 4,204 10,878 (4,211)
--------- --------- ---------
$ 1,824 $ 5,510 $ 1,951
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $23.0 million at December 31, 1997 and $30.9
million at December 31, 1996. Additions and reductions to the allowance are
included in realized investment gains (losses). Without such additions/
reductions, Protective had net realized investment losses of $6.1 million in
1997, net realized investment gains of $3.7 million in 1996, and net realized
investment losses of $0.5 million in 1995.
In 1997, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $21.3 million and
gross losses were $23.5 million. In 1996, gross gains were $6.9 million and
gross losses were $11.8 million. In 1995, gross gains were $18.0 million and
gross losses were $11.8 million.
F-31
<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
1997 COST GAINS LOSSES VALUES
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed.......................................... $ 2,982,266 $ 54,103 $ 16,577 $ 3,019,792
United States Government and authorities................. 160,484 1,366 0 161,850
States, municipalities, and political subdivisions....... 31,621 532 0 32,153
Public utilities......................................... 481,679 7,241 0 488,920
Convertibles and bonds with warrants..................... 694 0 168 526
All other corporate bonds................................ 2,559,186 80,903 1,019 2,639,070
Redeemable preferred stocks................................ 5,941 0 0 5,941
------------ ----------- ----------- ------------
6,221,871 144,145 17,764 6,348,252
Equity securities............................................ 24,983 300 10,277 15,006
Short-term investments....................................... 54,337 0 0 54,337
------------ ----------- ----------- ------------
$ 6,301,190 $ 144,445 $ 28,041 $ 6,417,595
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
<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>
F-32
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (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
1997 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 456,248 $ 460,994
Due after one year through five years............................. 2,774,769 2,815,553
Due after five years through ten years............................ 2,377,989 2,440,193
Due after ten years............................................... 612,865 631,512
------------ ------------
$ 6,221,871 $ 6,348,252
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1996 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
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>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1997 1996
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
AAA........................................................................ 41.1% 48.3%
AA......................................................................... 4.8 4.4
A.......................................................................... 29.1 22.6
BBB
Bonds.................................................................... 21.9 21.1
Bank loan participations................................................. 0.1
BB or Less
Bonds.................................................................... 3.0 2.5
Bank loan participations................................................. 0.9
Redeemable preferred stocks................................................ 0.1 0.1
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
At December 31, 1997 and 1996, Protective had bonds which were rated less than
investment grade of $195.2 million and $117.5 million, respectively, having an
amortized cost of $193.6 million and $137.0 million, respectively. At December
31, 1997, approximately $89.6 million of the bonds rates less than investment
grade were securities issued in company-sponsored commercial mortgage loan
securitizations. Additionally, Protective had bank loan participations at
December 31, 1996 which were rated less than investment grade of $43.6 million
having an amortized cost of $43.6 million.
F-33
<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>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Fixed maturities......................................... $ 72,741 $ (56,898) $ 199,024
Equity securities........................................ $ (8,813) $ 207 $ 2,740
</TABLE>
At December 31, 1997, all of Protective's mortgage loans were commercial
loans of which 75% were retail, 9% were apartments, 7% 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 5% of mortgage loans. Approximately 84% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: Florida, Georgia, Texas, North Carolina,
Alabama, Virginia, South Carolina, Tennessee, Kentucky, California, Maryland,
Mississippi, Ohio, Michigan, and Indiana.
Many of the mortgage loans have call provisions after five to seven years.
Assuming the loans are called at their next call dates, approximately $76.7
million would become due in 1998, $434.4 million in 1999 to 2002, and $129.7
million in 2003 to 2007.
At December 31, 1997, the average mortgage loan was $1.6 million, and the
weighted average interest rate was 8.8%. The largest single mortgage loan was
$12.8 million. While Protective's mortgage loans do not have quoted market
values, at December 31, 1997 and 1996, Protective estimates the market value of
its mortgage loans to be $1,405.5 million and $1,581.7 million, respectively,
using discounted cash flows from the next call date.
At December 31, 1997 and 1996, Protective's problem mortgage loans and
foreclosed properties totaled $17.7 million and $23.7 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 $6.7
million were nonincome producing for the twelve months ended December 31, 1997.
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-34
<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>
1997 1996 1995
----- ----- -----
<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........ (0.2) (0.4) (0.5)
Low-income housing credit................................... (0.6) (0.6) (0.7)
Tax benefits arising from prior acquisitions and other
adjustments............................................... 0.7 0.1 0.2
----- ----- -----
Effective income tax rate................................... 34.9% 34.1% 34.0%
----- ----- -----
----- ----- -----
</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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs............................................. $ 7,054 $ 15,542 $ (11,606)
Benefit and other policy liability changes.................................... (23,564) (16,321) 52,496
Temporary differences of investment income.................................... 2,516 (1,163) (34,175)
Other items................................................................... 13 (200) (13,687)
---------- ---------- ----------
$ (13,981) $ (2,142) $ (6,972)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves.............................................. $ 138,701 $ 80,151
Other................................................................................... 1,029 2,503
---------- ----------
139,730 82,654
---------- ----------
---------- ----------
Deferred income tax liabilities:
Deferred policy acquisition costs....................................................... 150,895 117,696
Unrealized gain on investments.......................................................... 38,252 2,680
---------- ----------
189,147 120,376
---------- ----------
Net deferred income tax liability....................................................... $ 49,417 $ 37,722
---------- ----------
---------- ----------
</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, 1997 was approximately $73 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
$727 million, such excess would be subject to federal income taxes at rates then
effective. Deferred income taxes have not been provided on amounts designated as
Policyholders' Surplus.
F-35
<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)
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, 1997, PLC had no borrowings outstanding 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, 1997 and 1996.
Included in indebtedness to related parties is a surplus debenture issued by
Protective to PLC. At December 31, 1997, the balance of the surplus debenture
was $20.0 million. The debenture matures in 2003.
Indebtedness to related parties also consists of payables to affiliates
under control of PLC in the amount of $8.1 million at December 31, 1997.
Protective routinely receives from or pays to affiliates under the control of
PLC reimbursements for expenses incurred on one another's behalf. Receivables
and payables among affiliates are generally settled monthly.
Interest expense on borrowed money totaled $4.3 million, $4.6 million, and
$6.0 million, in 1997, 1996, and 1995, respectively.
NOTE F -- RECENT ACQUISITIONS
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.
In June 1997, Protective acquired West Coast Life Insurance Company ("West
Coast"). In September 1997, Protective acquired the Western Diversified Group.
In October 1997, Protective coinsured a block of credit policies.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.
Summarized below are the consolidated results of operations of 1997 and
1996, on an unaudited pro forma basis, as if the West Coast and Western
Diversified Group acquisitions had occurred as of January 1, 1996. The pro forma
information is based on Protective's consolidated results of operations for 1997
and 1996 and on data provided by the respective companies, after giving effect
to certain pro forma adjustments. The pro forma financial information does not
purport to be indicative of results of operations that
F-36
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE F -- RECENT ACQUISITIONS (CONTINUED)
would have occurred had the transaction occurred on the basis assumed above nor
are they indicative of results of the future operations of the combined
enterprises.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Total revenues...................................................................... $ 1,133,962 $ 1,126,096
Net income.......................................................................... $ 100,621 $ 88,774
</TABLE>
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. Protective does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
A number of civil jury verdicts have been returned against life and health
insurers in the jurisdictions in which Protective does business involving the
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. Increasingly these lawsuits have resulted
in the award of substantial judgments against the insurer that are
disproportionate to the actual damages, including material amounts of punitive
damages. In addition, in some class action and other lawsuits involving
insurers' sales practices, insurers have made material settlement payments. In
some states (including Alabama), juries have substantial discretion in awarding
punitive damages which creates the potential for unpredictable material adverse
judgments in any given punitive damage suit. Protective and its subsidiaries,
like other life and health insurers, in the ordinary course of business, are
involved in such litigation. 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, results of operations, or liquidity of
Protective.
NOTE H -- STOCKHOLDER'S EQUITY AND RESTRICTIONS
At December 31, 1997, approximately $483 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 1998 is estimated to be $154 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. The stock pays, when and if declared,
annual minimum cumulative dividends of $50 per share, and noncumulative
participating
F-37
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE I -- PREFERRED STOCK (CONTINUED)
dividends to the extent American Foundation's statutory earnings for the
immediately preceding fiscal year exceed $1 million. Dividends of $0.1 million
were paid to PLC in 1997, 1996, and 1995.
NOTE J -- RELATED PARTY MATTERS
On August 6, 1990, PLC announced that its Board of Directors approved the
formation of an Employee Stock Ownership Plan ("ESOP"). On December 1, 1990,
Protective transferred to the ESOP 520,000 shares of PLC's common stock held by
it in exchange for a note. The outstanding balance of the note, $5.4 million at
December 31, 1997, is accounted for as a reduction to stockholder's equity. The
stock will be used to match employee contributions to PLC's existing 401(k)
Plan. The ESOP shares are dividend paying. Dividends on the shares are used to
pay the ESOP's note to Protective.
Protective leases furnished office space and computers to affiliates. Lease
revenues were $3.1 million in 1997, $3.7 million in 1996, and $3.1 million in
1995. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $51.6 million, $50.4
million, and $38.1 million, in 1997, 1996, and 1995, respectively. Commissions
paid to affiliated marketing organizations of $5.2 million, $7.4 million, and
$10.9 million, in 1997, 1996, and 1995, 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 $21.4 million, $31.2 million, and $21.2
million, in 1997, 1996, and 1995, respectively. Protective and/or PLC paid
commissions, interest, and service fees to these same corporations totaling $5.4
million, $5.0 million, and $5.3 million, in 1997, 1996, and 1995, respectively.
For a discussion of indebtedness to related parties, see Note E.
NOTE K -- OPERATING SEGMENTS
Protective operates seven divisions whose principal strategic focuses can be
grouped into three general categories: Life Insurance, Specialty Insurance
Products, and Retirement Savings and Investment Products. Each division has a
senior officer of Protective responsible for its operations. A division is
generally distinguished by products and/or channels of distribution. A brief
description of each division follows.
LIFE INSURANCE
ACQUISITIONS DIVISION. The Acquisitions Division focuses solely on
acquiring, converting, and servicing business acquired from other companies.
These acquisitions may be accomplished through acquisitions of companies or
through the assumption or reinsurance of life insurance and related policies.
INDIVIDUAL LIFE DIVISION. The Individual Life Division markets universal
life and other life insurance products on a national basis through a network of
independent insurance agents. The Division primarily utilizes a distribution
system based on experienced independent producing general agents who are
recruited by regional sales managers. In addition, the Division distributes
insurance products in the life insurance brokerage market.
WEST COAST DIVISION. The West Coast Division sells universal and
traditional ordinary life products in the life insurance brokerage market and in
the "bank owned life insurance" market. The Division primarily
F-38
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
utilizes a distribution system comprised of brokerage general agencies with a
network of independent life agents.
SPECIALTY INSURANCE PRODUCTS
DENTAL AND CONSUMER BENEFITS DIVISION. The Division (formerly known as the
Group Division) recently exited from the traditional group major medical
business, fulfilling the Division's strategy to focus primarily on dental and
related products. Accordingly, the Division was renamed the Dental and Consumer
Benefits Division. The Division's primary focus is on indemnity dental products.
The Division also markets group life and disability coverages, and administers
an essentially closed block of individual cancer insurance policies.
FINANCIAL INSTITUTIONS DIVISION. The Financial Institutions Division
specializes in marketing credit life and disability insurance products through
banks, consumer finance companies and automobile dealers. The Division markets
through employee field representatives, independent brokers, and an affiliate.
The Division also includes a small property casualty insurer that sells
automobile extended warranty coverages.
RETIREMENT SAVINGS AND INVESTMENT PRODUCTS
GUARANTEED INVESTMENT CONTRACTS DIVISION. The Guaranteed Investment
Contracts ("GIC") Divi-
sion markets GICs to 401(k) and other qualified retirement savings plans. The
Division also offers related products, including guaranteed funding agreements
offered to the trustees of municipal bond proceeds, floating rate contracts
offered to trust departments, and long-term annuity contracts offered to fund
certain state obligations.
INVESTMENT PRODUCTS DIVISION. The Investment Products Division
manufactures, sells, and supports fixed and variable annuity products. These
products are primarily sold through stockbrokers, but are also sold through
financial institutions and the Individual Life Division's agency sales force.
CORPORATE AND OTHER
Protective has an additional business segment herein referred to as
Corporate and Other. The Corporate and Other segment primarily consists of net
investment income and expenses not attributable to the Divisions above
(including net investment income on capital and interest on substantially all
debt).
Protective uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated net
income and assets. Operating segment income is generally income before income
tax. Premiums and policy fees, other income, benefits and settlement expenses,
and amortization of deferred policy acquisition costs are attributed directly to
each operating segment. Net investment income is allocated based on directly
related assets required for transacting the business of that segment. Realized
investment gains (losses) and other operating expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
Operating segment income and assets for the years ended December 31 are as
follows:
F-39
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
LIFE INSURANCE
-----------------------------------------
INDIVIDUAL
OPERATING SEGMENT INCOME ACQUISITIONS LIFE WEST COAST
- ------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
1997
Premiums and policy
fees................... $ 102,635 $ 127,480 $ 14,122
Net investment income.... 110,155 54,593 30,194
Realized investment gains
(losses)...............
Other income............. 10 617
------------- ----------- -----------
Total revenues....... 212,800 182,690 44,316
------------- ----------- -----------
Benefits and settlement
expenses............... 116,506 114,678 28,304
Amortization of deferred
policy acquisition
costs.................. 16,606 27,354 961
Other operating
expenses............... 23,016 18,178 6,849
------------- ----------- -----------
Total benefits and
expenses............ 156,128 160,210 36,114
------------- ----------- -----------
Income before income
tax.................... 56,672 22,480 8,202
Income tax expense.......
------------- ----------- -----------
Net income...............
------------- ----------- -----------
1996
Premiums and policy
fees................... $ 106,543 $ 116,710
Net investment income.... 106,015 48,442
Realized investment gains
(losses)............... 3,098
Other income............. 641 1,056
------------- ----------- -----------
Total revenues....... 213,199 169,306
------------- ----------- -----------
Benefits and settlement
expenses............... 118,181 96,404
Amortization of deferred
policy acquisition
costs.................. 17,162 28,393
Other operating
expenses............... 24,292 28,611
------------- ----------- -----------
Total benefits and
expenses............ 159,635 153,408
------------- ----------- -----------
Income before income
tax.................... 53,564 15,898
Income tax expense.......
------------- ----------- -----------
Net income...............
------------- ----------- -----------
1995
Premiums and policy
fees................... $ 98,501 $ 99,018
Net investment income.... 95,018 40,237
Realized investment gains
(losses)...............
Other income............. 25 169
------------- ----------- -----------
Total revenues....... 193,544 139,424
------------- ----------- -----------
Benefits and settlement
expenses............... 100,016 80,067
Amortization of deferred
policy acquisition
costs.................. 20,601 20,403
Other operating
expenses............... 22,551 22,748
------------- ----------- -----------
Total benefits and
expenses............ 143,168 123,218
------------- ----------- -----------
Income before income
tax.................... 50,376 16,206
Income tax expense.......
------------- ----------- -----------
Net income...............
------------- ----------- -----------
OPERATING SEGMENT ASSETS
- -------------------------
1997
Investments and other
assets................. $1,401,294 $ 960,316 $ 910,030
Deferred policy
acquisition costs...... 138,052 252,321 108,126
------------- ----------- -----------
Total assets............. $1,539,346 $ 1,212,637 $1,018,156
------------- ----------- -----------
1996
Investments and other
assets................. $1,423,081 $ 814,728
Deferred policy
acquisition costs...... 156,172 220,232
------------- ----------- -----------
Total assets............. $1,579,253 $ 1,034,960
------------- ----------- -----------
1995
Investments and other
assets................. $1,131,653 $ 701,431
Deferred policy
acquisition costs...... 123,889 186,496
------------- ----------- -----------
Total assets............. $1,255,542 $ 887,927
------------- ----------- -----------
</TABLE>
- ----------------------------------
(1) Adjustments represent the inclusion of unallocated realized investment
gains (losses) and the recognition of income tax expense. There are no
asset adjustments.
F-40
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
SPECIALTY INSURANCE RETIREMENT SAVINGS AND
PRODUCTS INVESTMENT PRODUCTS
--------------------------- ---------------------------
DENTAL AND GUARANTEED CORPORATE
CONSUMER FINANCIAL INVESTMENT INVESTMENT AND TOTAL
BENEFITS INSTITUTIONS CONTRACTS PRODUCTS OTHER ADJUSTMENTS(1) CONSOLIDATED
----------- ------------- ------------ ------------ ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Premiums and policy
fees................... $151,110 $ 72,263 $ 12,367 $ 229 $ 480,206
Net investment income.... 23,810 16,341 $ 211,915 105,196 5,284 557,488
Realized investment gains
(losses)............... (3,180) 589 $4,415 1,824
Other income............. 1,278 3,033 (192) 1,403 6,149
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 176,198 91,637 208,735 117,960 6,916 1,045,667
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 110,148 27,643 179,235 82,019 339 658,872
Amortization of deferred
policy acquisition
costs.................. 15,711 30,812 618 15,110 3 107,175
Other operating
expenses............... 38,572 20,165 3,945 12,312 6,833 129,870
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 164,431 78,620 183,798 109,441 7,175 895,917
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 11,767 13,017 24,937 8,519 (259) 149,750
Income tax expense....... 52,302 52,302
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 97,448
----------- ------------- ------------ ------------ ---------- ------ -------------
1996
Premiums and policy
fees................... $156,530 $ 73,422 $ 8,189 $ 656 $ 462,050
Net investment income.... 16,249 13,898 $ 214,369 98,719 1,089 498,781
Realized investment gains
(losses)............... (7,963) 3,858 $6,517 5,510
Other income............. 2,193 56 1,064 5,010
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 174,972 87,320 206,406 110,822 2,809 971,351
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 125,797 42,781 169,927 73,093 710 626,893
Amortization of deferred
policy acquisition
costs.................. 5,326 24,900 509 14,710 1 91,001
Other operating
expenses............... 43,028 10,673 3,840 13,196 4,508 128,148
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 174,151 78,354 174,276 100,999 5,219 846,042
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 821 8,966 32,130 9,823 (2,410) 125,309
Income tax expense....... 42,766 42,766
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 82,543
----------- ------------- ------------ ------------ ---------- ------ -------------
1995
Premiums and policy
fees................... $142,483 $ 65,669 $ 4,566 $ 1,445 $ 411,682
Net investment income.... 14,329 9,276 $ 203,376 95,661 536 458,433
Realized investment gains
(losses)............... (3,908) 4,938 $ 921 1,951
Other income............. 2,451 (2,187) (181) 1,078 1,355
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 159,263 72,758 199,468 104,984 3,059 873,421
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 109,447 24,020 165,963 72,111 1,476 553,100
Amortization of deferred
policy acquisition
costs.................. 3,052 26,809 386 11,446 3 82,700
Other operating
expenses............... 37,657 14,228 4,140 10,494 8,070 119,888
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 150,156 65,057 170,489 94,051 9,549 755,688
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 9,107 7,701 28,979 10,933 (6,490) 117,733
Income tax expense....... 40,037 40,037
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 77,696
----------- ------------- ------------ ------------ ---------- ------ -------------
OPERATING SEGMENT ASSETS
- -------------------------
1997
Investments and other
assets................. $208,071 $536,058 $2,887,732 $2,313,279 $525,896 $ 9,742,676
Deferred policy
acquisition costs...... 22,459 52,836 1,785 56,074 952 632,605
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $230,530 $588,894 $2,889,517 $2,369,353 $526,848 $10,375,281
----------- ------------- ------------ ------------ ---------- ------ -------------
1996
Investments and other
assets................. $205,696 $312,826 $2,606,873 $1,821,250 $490,688 $ 7,675,142
Deferred policy
acquisition costs...... 27,944 32,040 1,164 50,637 12 488,201
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $233,640 $344,866 $2,608,037 $1,871,887 $490,700 $ 8,163,343
----------- ------------- ------------ ------------ ---------- ------ -------------
1995
Investments and other
assets................. $215,248 $228,849 $2,535,946 $1,541,255 $414,128 $ 6,768,510
Deferred policy
acquisition costs...... 24,974 36,283 993 37,534 14 410,183
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $240,222 $265,132 $2,536,939 $1,578,789 $414,142 $ 7,178,693
----------- ------------- ------------ ------------ ---------- ------ -------------
</TABLE>
- ----------------------------------
F-41
<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 81% of the participants in the plan are employees of
Protective. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. PLC's funding policy is
to contribute amounts to the plan sufficient to meet the minimum finding
requirements of ERISA plus such additional amounts as PLC may determine to be
appropriate from time to time. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future.
The actuarial present value of benefit obligations and the funded status of
the plan taken as a whole at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $18,216 in 1997 and $14,720 in
1996...................................................................................... $ 19,351 $ 15,475
--------- ---------
Projected benefit obligation for service rendered to date................................... $ 30,612 $ 25,196
Plan assets at fair value (group annuity contract with Protective).......................... 21,763 19,779
--------- ---------
Plan assets less than the projected benefit obligation...................................... (8,849) (5,417)
Unrecognized net loss from past experience different from that assumed...................... 6,997 3,559
Unrecognized prior service cost............................................................. 605 705
Unrecognized net transition asset........................................................... (51) (67)
--------- ---------
Net pension liability recognized in balance sheet........................................... $ (1,298) $ (1,220)
--------- ---------
--------- ---------
</TABLE>
Net pension cost includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year................................... $ 2,112 $ 1,908 $ 1,540
Interest cost on projected benefit obligation..................................... 2,036 1,793 1,636
Actual return on plan assets...................................................... (1,624) (1,674) (1,358)
Net amortization and deferral..................................................... 66 374 114
--------- --------- ---------
Net pension cost.................................................................. $ 2,590 $ 2,401 $ 1,932
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective's share of the net pension cost was $1.8 million, $1.5 million,
and $1.2 million, in 1997, 1996, and 1995, respectively.
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate........................................................ 7.25% 7.75% 7.25%
Rates of increase in compensation level............................................... 5.25% 5.75% 5.25%
Expected long-term rate of return on assets........................................... 8.50% 8.50% 8.50%
</TABLE>
Assets of the pension plan are included in the general assets of Protective.
Upon retirement, the amount of pension plan assets vested in the retiree is used
to purchase a single premium annuity from
F-42
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
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, 1997 and 1996, the projected benefit
obligation of this plan totaled $10.0 million and $7.2 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, 1997 and 1996, the liability for such
benefits totaled $1.3 million and $1.4 million, respectively. The expense
recorded by PLC was $0.1 million in 1997 and 1996 and $0.2 million in 1995.
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, 1997, PLC had committed 47,523 shares to be
released to fund employee benefits. The expense recorded by PLC for these
employee benefits was less than $0.1 million, $1.0 million, and $0.7 million, in
1997, 1996, and 1995, 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
3,200,000 shares may be issued in payment of awards. The number of shares
granted in 1997, 1996, and 1995 were 49,390, 52,290, and 72,610 shares,
respectively, having an approximate market value on the grant date of $2.0
million, $1.8 million, and $1.6 million, respectively. At December 31, 1997,
outstanding awards measured at target and maximum payouts were 261,318 and
353,385 shares, respectively. The expense recorded by PLC for the Performance
Share Plan was $2.7 million, $3.0 million, and $2.9 million in 1997, 1996, and
1995, respectively.
During 1996, stock appreciation rights (SARs) were granted to certain
executives of PLC to provide long-term incentive compensation based on the
performance of PLC's Common Stock. Under this arrangement PLC will pay (in
shares of PLC Common Stock) an amount equal to the difference between the
specified base price of PLC's Common Stock and the market value at the exercise
date. The SARs are
F-43
<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)
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, 1997 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 $0.6 million in 1997 and
$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. In many cases, the retention is less.
Protective has reinsured approximately $34.1 billion, $18.8 billion, and
$17.5 billion in face amount of life insurance risks with other insurers
representing $147.2 million, $113.5 million, and $116.1 million of premium
income for 1997, 1996, and 1995, respectively. Protective has also reinsured
accident and health risks representing $187.7 million, $194.7 million, and
$217.1 million of premium income for 1997, 1996, and 1995, respectively. In 1997
and 1996, policy and claim reserves relating to insurance ceded of $485.8
million and $325.9 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, 1997 and 1996, Protective had paid $25.6 million and $6.7 million,
respectively, of ceded benefits which are recoverable from reinsurers. In
addition, at December 31, 1997, Protective had receivables of $80.3 million
related to insurance assumed.
A substantial portion of Protective's new credit insurance sales are being
reinsured. Included in the preceding paragraph are credit life and credit
accident and health insurance premiums of $96.7 million, $103.0 million, and
$125.8 million for 1997, 1996 and 1995, respectively, and reserves which were
ceded of $238.8 million and $135.8 million during 1997 and 1996, respectively.
F-44
<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>
1997 1996
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities............................ $6,348,252 $6,348,252 $4,662,997 $4,662,997
Equity securities........................... 15,006 15,006 35,250 35,250
Mortgage loans on real estate............... 1,313,478 1,405,474 1,503,781 1,581,694
Short-term investments...................... 54,337 54,337 101,215 101,215
Cash.......................................... 39,197 39,197 114,384 114,384
Liabilities (see Notes A and E):
Guaranteed investment contract deposits..... 2,684,676 2,687,331 2,474,728 2,462,036
Annuity deposits............................ 1,511,553 1,494,600 1,331,067 1,322,304
Other (see Note A):
Futures contracts........................... (1,708)
Interest rate swaps......................... (145) (679)
Options..................................... 234
</TABLE>
F-45
<PAGE>
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H
- ------------------------------------------------------------------------------------------------------------------------------
GIC AND
ANNUITY
DEFERRED FUTURE DEPOSITS AND PREMIUMS REALIZED BENEFITS
POLICY POLICY OTHER AND NET INVESTMENT AND
ACQUISITION BENEFITS UNEARNED POLICYHOLDERS' POLICY INVESTMENT GAINS SETTLEMENT
SEGMENT COSTS AND COSTS PREMIUMS FUNDS FEES INCOME (1) (LOSSES) EXPENSES
- ------------------------ ----------- ---------- -------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1997:
Life Insurance
Acquisitions.......... $138,052 $1,025,340 $ 1,437 $ 311,150 $102,635 $110,155 $ 0 $116,506
Individual Life....... 252,321 920,924 356 16,334 127,480 54,593 0 114,678
West Coast............ 108,126 739,463 0 95,495 14,122 30,194 0 28,304
Specialty Insurance
Products
Dental and Consumer
Benefits............ 22,459 120,925 2,536 80,654 151,110 23,810 0 110,148
Financial
Institutions........ 52,836 159,422 391,085 6,791 72,263 16,341 0 27,643
Retirement Savings and
Investment Products
Guaranteed Investment
Contracts........... 1,785 180,690 0 2,684,676 0 211,915 (3,180) 179,235
Investment Products... 56,074 177,150 0 1,184,268 12,367 105,196 589 82,019
Corporate and Other..... 952 380 1,282 185 229 5,284 0 339
Unallocated Realized
Investment Gains
(Losses).............. 0 0 0 0 0 0 4,415 0
----------- ---------- -------- -------------- --------- ---------- ---------- ----------
TOTAL............... $632,605 $3,324,294 $396,696 $4,379,553 $480,206 $557,488 $ 1,824 $658,872
----------- ---------- -------- -------------- --------- ---------- ---------- ----------
----------- ---------- -------- -------------- --------- ---------- ---------- ----------
Year Ended December 31,
1996:
Life Insurance
Acquisitions.......... $156,172 $1,117,159 $ 1,087 $ 251,450 $106,543 $106,015 $ 0 $118,181
Individual Life....... 220,232 793,370 685 15,577 116,710 48,442 3,098 96,404
Specialty Insurance
Products
Dental and Consumer
Benefits............ 27,944 119,010 2,572 83,632 156,530 16,249 0 125,797
Financial
Institutions........ 32,040 119,242 253,154 1,880 73,422 13,898 0 42,781
Retirement Savings and
Investment Products
Guaranteed Investment
Contracts........... 1,164 149,755 0 2,474,728 0 214,369 (7,963) 169,927
Investment Products... 50,637 149,743 0 1,120,557 8,189 98,719 3,858 73,093
Corporate and Other..... 12 170 55 192 656 1,089 0 710
Unallocated Realized
Investment Gains
(Losses).............. 0 0 0 0 0 0 6,517 0
----------- ---------- -------- -------------- --------- ---------- ---------- ----------
TOTAL............... $488,201 $2,448,449 $257,553 $3,948,016 $462,050 $498,781 $ 5,510 $626,893
----------- ---------- -------- -------------- --------- ---------- ---------- ----------
----------- ---------- -------- -------------- --------- ---------- ---------- ----------
Year Ended December 31,
1995:
Life Insurance
Acquisitions.......... $123,889 $ 851,994 $ 590 $ 250,550 $ 98,501 $ 95,018 $ 0 $100,016
Individual Life....... 186,496 672,569 336 14,709 99,018 40,237 0 80,067
Specialty Insurance
Products
Dental and Consumer
Benefits............ 24,974 123,279 2,806 85,925 142,483 14,329 0 109,447
Financial
Institutions........ 36,283 84,162 189,973 1,495 65,669 9,276 0 24,020
Retirement Savings and
Investment Products
Guaranteed Investment
Contracts........... 993 68,704 0 2,451,693 0 203,376 (3,908) 165,963
Investment Products... 37,534 127,104 0 1,061,507 4,566 95,661 4,938 72,111
Corporate and Other..... 14 342 62 263 1,445 536 0 1,476
Unallocated Realized
Investment Gains
(Losses).............. 0 0 0 0 0 0 921 0
----------- ---------- -------- -------------- --------- ---------- ---------- ----------
TOTAL............... $410,183 $1,928,154 $193,767 $3,866,142 $411,682 $458,433 $ 1,951 $553,100
----------- ---------- -------- -------------- --------- ---------- ---------- ----------
----------- ---------- -------- -------------- --------- ---------- ---------- ----------
<CAPTION>
- ------------------------
COL. A COL. I COL. J
- ------------------------
AMORTIZATION
OF DEFERRED
POLICY OTHER
ACQUISITION OPERATING
SEGMENT COSTS EXPENSES (1)
- ------------------------ ------------ ------------
<S> <C> <C>
Year Ended December 31,
1997:
Life Insurance
Acquisitions.......... $16,606 $ 23,016
Individual Life....... 27,354 18,178
West Coast............ 961 6,849
Specialty Insurance
Products
Dental and Consumer
Benefits............ 15,711 38,572
Financial
Institutions........ 30,812 20,165
Retirement Savings and
Investment Products
Guaranteed Investment
Contracts........... 618 3,945
Investment Products... 15,110 12,312
Corporate and Other..... 3 6,833
Unallocated Realized
Investment Gains
(Losses).............. 0 0
------------ ------------
TOTAL............... $107,175 $129,870
------------ ------------
------------ ------------
Year Ended December 31,
1996:
Life Insurance
Acquisitions.......... $17,162 $ 24,292
Individual Life....... 28,393 28,611
Specialty Insurance
Products
Dental and Consumer
Benefits............ 5,326 43,027
Financial
Institutions........ 24,900 10,673
Retirement Savings and
Investment Products
Guaranteed Investment
Contracts........... 509 3,840
Investment Products... 14,710 13,197
Corporate and Other..... 1 4,508
Unallocated Realized
Investment Gains
(Losses).............. 0 0
------------ ------------
TOTAL............... $91,001 $128,148
------------ ------------
------------ ------------
Year Ended December 31,
1995:
Life Insurance
Acquisitions.......... $20,601 $ 22,551
Individual Life....... 20,403 22,748
Specialty Insurance
Products
Dental and Consumer
Benefits............ 3,052 37,657
Financial
Institutions........ 26,809 14,229
Retirement Savings and
Investment Products
Guaranteed Investment
Contracts........... 386 4,140
Investment Products... 11,446 10,494
Corporate and Other..... 3 8,069
Unallocated Realized
Investment Gains
(Losses).............. 0 0
------------ ------------
TOTAL............... $82,700 $119,888
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if
different methods were applied.
S-1
<PAGE>
SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------------------------------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Life insurance in force............... $78,240,282 $34,139,554 $11,013,202 $55,113,930 20.0%
----------- ----------- ----------- ----------- -----
----------- ----------- ----------- ----------- -----
Premiums and policy fees:
Life insurance........................ $ 387,108 $ 147,184 $ 74,738 $ 314,662 23.8%
Accident and health insurance......... 336,575 187,715 10,656 159,546 6.7%
Property and liability insurance...... 6,139 176 35 5,998 0.6%
----------- ----------- ----------- -----------
TOTAL................................. $ 729,822 $ 335,075 $ 85,459 $ 480,206
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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 and health insurance......... 356,285 217,082 13,583 152,786 8.9%
----------- ----------- ----------- -----------
TOTAL................................. $ 664,707 $ 333,173 $ 80,148 $ 411,682
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
S-2
<PAGE>
APPENDIX A
EXAMPLE OF DEATH BENEFIT COMPUTATIONS
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. 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).
TABLE OF FACE AMOUNT PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED ATTAINED
AGE PERCENTAGE AGE PERCENTAGE 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-1
<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 will, unless in the opinion of its
II-1
<PAGE>
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 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 50 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.
Stephen Peeples, F.S.A., M.A.A.A.
Sutherland, Asbill & Brennan L.L.P.
Coopers & Lybrand, L.L.P.
II-3
<PAGE>
The following exhibits:
<TABLE>
<C> <S> <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 (the "Underwriting Agreement").**
(3)(a)(1) Amendment I to the Underwriting Agreement.
(3)(b) Form of Distribution Agreement between Investment Distributors, Inc. and
selling broker-dealers.**
(4) None.
(5)(a) Form of Contract.****
(5)(b) Form of Long-Term Care Accelerated Death Benefit Rider.
(5)(c) Form of Waiver of Surrender Charges Endorsement.
(6)(a) Charter of Protective Life Insurance Company.*
(6)(b) By-Laws of Protective Life Insurance Company.*
(7) None
(8) None
(9)(a) Participation/Distribution Agreement (Protective Investment Company).**
(9)(a)(1) Amendment I to the 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. Not applicable.
7. Opinion and consent of Stephen Peeples, F.S.A., M.A.A.A.
8. Consent of Sutherland, Asbill & Brennan L.L.P.
9. 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 for Protective Life's Flexible Premium Variable and
Fixed Life Insurance Policy, (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. 5 to the
Form N-4 Registration Statement (File No. 33-70984) as filed with the
Commission on April 30, 1997.
**** Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement, (File No. 333-45963) as filed with the Commission
on February 10, 1998.
***** Incorporated herein by reference to Post-Effective Amendment No. 3 to the
Form S-6 Registration Statement (File No. 33-61599) as filed with the
Commission on April 30, 1998.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
pre-effective amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Birmingham, State
of Alabama on May 29, 1998.
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 pre-effective amendment to
the Registration Statement on Form S-6 has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------- ---------------
<C> <S> <C>
Chairman of the
Board and
/s/ DRAYTON NABERS, JR. Director
------------------------------------------- (Principal May 29, 1998
Drayton Nabers, Jr. Executive
Officer)
President and
/s/ JOHN D. JOHNS Director
------------------------------------------- (Principal May 29, 1998
John D. Johns Financial
Officer)
Vice President,
Controller and
Chief
/s/ JERRY W. DEFOOR Accounting
------------------------------------------- Officer May 29, 1998
Jerry W. DeFoor (Principal
Accounting
Officer)
*
------------------------------------------- Director May 29, 1998
R. Stephen Briggs
/s/ JIM E. MASSENGALE
------------------------------------------- Director May 29, 1998
Jim E. Massengale
/s/ A.S. WILLIAMS III
------------------------------------------- Director May 29, 1998
A.S. Williams III
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------- ---------------
<C> <S> <C>
/s/ DANNY L. BENTLEY
------------------------------------------- Director May 29, 1998
Danny L. Bentley
/s/ RICHARD J. BIELEN
------------------------------------------- Director May 29, 1998
Richard J. Bielen
*
------------------------------------------- Director May 29, 1998
Carolyn King
*
------------------------------------------- Director May 29, 1998
Deborah J. Long
*
------------------------------------------- Director May 29, 1998
Steven A. Schultz
/s/ WAYNE E. STUENKEL
------------------------------------------- Director May 29, 1998
Wayne E. Stuenkel
*By: /s/ NANCY KANE
--------------------------------------
Nancy Kane
Attorney-in-Fact May 29, 1998
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S> <C>
1.A. (3)(a)(1) Amendment I to the Underwriting Agreement.
(5)(b) Form of Comprehensive Long-Term Care Accelerated Death Benefit Rider
(5)(c) Form of Waiver of Surrender Charges Endorsement
9(a)(1) Amendment I to the Participation/Distribution Agreement
(10) Contract Application
2. Opinion and consent of Nancy Kane, Esq.
7. Opinion and consent of Stephen Peeples, F.S.A., M.A.A.A.
8. Consent of Sutherland, Asbill & Brennan, L.L.P.
9. Consent of Coopers & Lybrand L.L.P.
10. Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) describing issue, transfer
and redemption procedures.
</TABLE>
<PAGE>
EXHIBIT 1.A.(3)(a)(1)
<PAGE>
EXHIBIT 1.A.(3)(a)(1)
AMENDMENT I
TO THE UNDERWRITING AGREEMENT
DATED DECEMBER , 1995
AMONG PROTECTIVE LIFE INSURANCE COMPANY AND
INVESTMENT DISTRIBUTORS, INC.
WHEREAS, Protective Life Insurance Company ("Protective") and Investment
Distributors, Inc. ("IDI") have entered into an Underwriting Agreement, dated
December , 1995, (the "Agreement"), providing, amongst other things, for IDI
to act as principal underwriter in connection with the offers and sales of
certain individual flexible premium variable and fixed life insurance policies
("Flexible Premium Policies") to be offered by Protective;
WHEREAS, Protective proposes to offer to the public certain modified single
premium variable and fixed life insurance policies ("Single Premium Policies")
and Protective and IDI have agreed that IDI will act as principal underwriter in
connection with offers and sales of such Single Premium Policies;
NOW THEREFORE, in consideration of the foregoing, Protective and IDI hereby
agree as follows:
That the first WHEREAS clause of the Agreement be replaced in its entirety
with the following language:
WHEREAS, the Account has been established by Protective pursuant to the
Tennessee Insurance Code in connection with certain individual flexible premium
variable and fixed life insurance policies and certain modified single premium
variable and fixed life insurance policies (collectively, the "Policies")
proposed to be issued to the public by Protective; and
IN WITNESS WHEREOF, the parties hereto have caused the Amendment to the
Agreement to be duly executed and attested effective June 1, 1998.
PROTECTIVE LIFE INSURANCE COMPANY
ON BEHALF OF ITSELF AND PROTECTIVE
VARIABLE LIFE SEPARATE ACCOUNT
Attest:
/s/ EMILY AMBERSON__ By: /s/ ROBERT STEPHEN BRIGGS___________________________
INVESTMENT DISTRIBUTORS, INC.
Attest:
/s/ EMILY AMBERSON__ By: /s/ ROBERT STEPHEN BRIGGS___________________________
30552
<PAGE>
EXHIBIT 1.A.(5)(b)
<PAGE>
EXHIBIT 1.A.(5)(b)
[LOGO]
PROTECTIVE LIFE INSURANCE COMPANY / P. O. BOX 2606 / BIRMINGHAM, ALABAMA 35202
COMPREHENSIVE LONG-TERM CARE ACCELERATED DEATH BENEFIT RIDER
NOTICE: This rider is intended to be a Qualified Long-Term Care Insurance
contract under Section 7702B(b) of the Internal Revenue Code. As with all tax
matters, you should consult a personal tax advisor to assess the impact of any
benefits received under this rider.
Any benefit received under this rider may impact the recipient's eligibility for
Medicaid or other government benefits.
Any benefit paid under this rider will impact the Policy. The impact on the
Policy is discussed in the Impact On The Policy section of this rider.
This rider may not cover all of the Community Care and Nursing Home Care expense
incurred by the Insured during the period of coverage. You are advised to review
carefully all rider limitations.
CAUTION: The issuance of this long-term care insurance rider is based upon all
statements made by or for the Insured in the application. A copy of the
application is attached to the Policy. If the statements are incorrect or
untrue, we have the right to deny benefits or rescind this rider. The best time
to clear up any questions is now, before a claim arises. If, for any reason, any
of the statements are incorrect or untrue, contact us at the address shown
above.
YOU HAVE THE RIGHT TO RETURN THIS RIDER: You may cancel this rider after its
delivery by returning the Policy and rider to our Home Office, or to any Agent
of the Company, with a written request for cancellation within 30 days of its
delivery The returned rider will be treated as if we had never issued it. We
will reissue the Policy without this rider. We will refund any premium paid or
credit the Policy with the cost of insurance charge for the rider, whichever is
applicable.
RENEWABILITY
Prior to attained age 100 of the Insured, this rider is guaranteed renewable as
long as the rider remains in force.
CONSIDERATION
This rider is part of the Policy. It is issued in consideration of the
application and payment of the cost of insurance charge for the rider. This
rider is subject to all of the Policy's provisions, except those provisions that
are inconsistent with this rider. If inconsistencies occur, the provisions of
this rider apply.
COST OF INSURANCE
The monthly cost of insurance charge for the rider is shown on the Policy
Specifications Page. Any changes in the cost of insurance rate will be by class
and will be based upon changes in future expectations of such factors as
mortality, morbidity, investment earnings, persistency, expenses and taxes. The
maximum monthly cost of insurance charge for the rider is shown on the Policy
Specifications Page.
L575 3-98 Page 1
<PAGE>
DEFINITIONS
"You" or "your" means the owner of the Policy. "Insured" means the person named
as such on the Policy Specifications Page. "We," "our," "us" or "company" means
Protective Life Insurance Company.
ACTIVITIES OF DAILY LIVING. Mean the basic human functional abilities which
relate to the Insured's ability to live independently. They are as follows:
(a)Bathing -- The ability to wash oneself by sponge bath or in either a tub
or shower, including the task of getting into or out of the tub or
shower.
(b)Continence -- The ability to maintain control of bowel and bladder
function, or, when unable to maintain control of bowel or bladder
function, the ability to perform associated personal hygiene, including
caring for the catheter or colostomy bag.
(c)Dressing -- The ability to put on and take off all items of clothing and
any necessary braces, fasteners or artificial limbs.
(d)Eating -- The ability to feed oneself by getting food into the body from
a receptacle, such as a plate, cup, or table, or by feeding tube or
intravenously.
(e)Toileting -- The ability to get to and from the toilet, getting on and
off the toilet, and performing associated personal hygiene.
(f)Transferring -- The ability to move into or out of a bed, chair or
wheelchair.
ADULT DAY CARE. Means a program for 6 or more individuals of Qualified
Long-Term Care Services provided by an Adult Day Care Facility during the day,
on less than a 24 hour basis.
ADULT DAY CARE FACILITY. Means an organization which is state licensed, if the
state in which it is located licenses Adult Day Care Facilities. If the state
does not license Adult Day Care Facilities, the facility must meet all of the
following criteria:
(a)Be operated as an Adult Day Care Facility;
(b)Be operated at least 6 days a week for a minimum of 5 hours per day and
is not an overnight facility;
(c)Maintains a written record for each client which includes a plan of care
prescribed by a Physician and a record of all services provided;
(d)Have established procedures for obtaining appropriate aid in the event of
a medical emergency;
(e)Have formal arrangements for providing services of a:
(1) dietitian,
(2) licensed physical therapist,
(3) licensed speech therapist or
(4) licensed occupational therapist; and
(f)Have on its staff all of the following:
(1) a full-time director,
(2) one or more nurses in attendance during operating hours for at least
4 hours a day and
(3) enough full-time staff members to maintain a client-to-staff ratio of
8 or less to 1.
ASSISTED LIVING CARE. Means Qualified Long-Term Care Services provided in an
Assisted Living Facility.
ASSISTED LIVING FACILITY. Means a facility that meets all of the following
criteria:
(a)It is licensed by the appropriate licensing agency, if the state in which
it is located licenses;
L575 3-98 Page 2
<PAGE>
(b)It is primarily engaged in providing ongoing care and related services to
at least ten inpatients in one location;
(c)It provides 24 hour a day care and services sufficient to support needs
resulting from a Chronic Illness;
(d)Has a trained and ready to respond employee on duty at all times to
provide care;
(e)Provides three meals a day and accommodates special dietary needs;
(f)Has formal arrangements with a Physician or nurses to furnish medical
care in case of an emergency; and
(g)Has appropriate methods and procedures for handling and administering
drugs and biologicals.
CHRONICALLY ILL OR CHRONIC ILLNESS. Means that the Insured has been certified,
within the preceding 12 months, by a Physician as:
(a)Being unable to perform (without Substantial Assistance from another
individual) at least 2 Activities of Daily Living for a period of at
least 90 days due to loss of functional capacity; or
(b)Requiring Substantial Supervision to protect the Insured from threats to
health and safety due to Severe Cognitive Impairment.
COMMUNITY CARE. Means Home Health Care, Assisted Living Care or Adult Day Care.
COMPREHENSIVE CARE. Means Community Care or Nursing Home Care.
FAMILY MEMBER. Means the Insured's spouse and anyone who is related to the
Insured or the Insured's spouse by the following degree by blood, marriage,
adoption or operation of law: parents, grandparents, brothers, sisters,
children, grandchildren, aunts, uncles, nephews and nieces.
HOME. Means the Insured's private residence, a residential care facility, a
rest home, a boarding home, a home for the aged, a community living center or a
place that provides domiciliary or retirement care. It does not include a
Nursing Home Facility, a hospital or a hospice care facility.
HOME HEALTH CARE. Means Qualified Long-Term Care Services provided by a Home
Health Care Practitioner at the Insured's Home because the Insured is
Chronically Ill. An expense for Home Health Care is incurred on the date the
service is performed.
HOME HEALTH CARE AGENCY. Means an agency or organization which meets all of the
following criteria:
(a)Provides care and services in the Home;
(b)Is licensed to provide such care or services by the appropriate state
licensing agency or authority where the service is performed or is
Medicare certified as a Home Health Care Agency;
(c)Maintains a complete medical record and plan of care for each patient;
and
(d)Is operating within the scope of its license or certification.
HOME HEALTH CARE PRACTITIONER. Means an individual who is qualified to provide
Home Health Care. A Home Health Care Practitioner includes the following: a home
health aide, certified nurse assistant, medical social worker, occupational
therapist, speech therapist, physical therapist, total parenteral nutrition
specialist, enterostomal specialist, chemotherapy specialist, licensed visiting
nurse, licensed vocational nurse (LVN), licensed practical nurse (LPN), or a
licensed graduate nurse (RN). A practitioner whose specialty is not listed here
may be used if approved by us prior to the practitioner providing the service.
A Home Health Care Practitioner:
(a)Is licensed in the state or recognized as such by the state in which the
care is given; and
(b)Is not a Family Member; and
L575 3-98 Page 3
<PAGE>
(c)Does not reside at the Insured's address; and
(d)Does present a charge for the care given which the Insured is legally
responsible to pay; and
(e)Is employed or contracted by a Home Health Care Agency.
HOME OFFICE. 2801 Highway 280 South, Birmingham, Alabama, 35223.
MAINTENANCE OR PERSONAL CARE SERVICES. Means any care the primary purpose of
which is to provide needed assistance with any of the disabilities as a result
of which the Insured is Chronically Ill, including the protection from threats
to health and safety due to Severe Cognitive Impairment.
MAXIMUM ACCELERATED DEATH BENEFIT. Is equal to (a) minus (b) where:
(a)Lesser of 90% of the Net Face Amount or $250,000;
(b)Any outstanding lien amount against the Policy resulting from any other
accelerated death benefit rider or endorsement attached to the Policy.
MEDICARE. Means Title 18 of the Social Security Act.
MONTHLY ACCELERATED DEATH BENEFIT. Is the lesser of:
(a)An amount equal to a percentage of the Initial Face Amount; or
(b)$5,000.
The Initial Face Amount is shown on the Policy Specifications Page. The
percentage is equal to 1% or 2% depending on the type of care the Insured
received for which you are filing a claim. The Community Care percentage is 1%.
The Nursing Home Care percentage is 2%.
NET FACE AMOUNT. Is equal to (a), plus (b), minus (c), minus (d) where:
(a)Initial Face Amount as shown on the Policy Specifications Page;
(b)Any increase in the face amount for which you submit a supplemental
application and that is approved by us;
(c)Any decrease in the face amount resulting from a withdrawal under the
Policy;
(d)Any outstanding Policy Debt.
NURSING HOME CARE. Means Qualified Long-Term Care Services provided in a
Nursing Home Facility.
NURSING HOME FACILITY. Means a facility that meets all of the following
criteria:
(a)It is licensed by the state in which it is located;
(b)It is a separate facility or a distinct part of another facility
physically separated from the rest of such facility;
(c)It provides confined nursing care to individuals who are not able to care
for themselves and who require nursing care;
(d)Its primary function is to provide continuous 24 hours a day nursing
care, and room and board. The facility charges for these services. The
care must be performed under the direction of a licensed Physician, or
registered graduate professional nurse (RN), or licensed practical nurse
(LPN); and
(e)It is not, other than incidentally, a hospital, an Assisted Living
Facility, a home for the aged, a retirement home, a rest home, a
community living center, or a place mainly for the treatment of
alcoholism, mental illness or drug abuse.
PHYSICIAN. Means any physician as defined in Section 1861 (r)(1) of the Social
Security Act, who is a duly licensed physician practicing within the scope of
his or her license. It does not include the Insured or a Family Member.
L575 3-98 Page 4
<PAGE>
POLICY. Is the base policy to which this rider is attached (the "Policy").
POLICY DEBT. Is the sum of all outstanding policy loans plus accrued interest.
QUALIFIED LONG-TERM CARE SERVICES. Means necessary diagnostic, preventative,
therapeutic, curing, treating, mitigating, and rehabilitative services, and
Maintenance or Personal Care Services which are:
(a)Required by the Insured because he or she is Chronically Ill; and
(b)Provided pursuant to a plan of care prescribed by the attending
Physician.
SEVERE COGNITIVE IMPAIRMENT. Means a loss or deterioration in the Insured's
intellectual capacity that is (a) comparable to (and includes) Alzheimer's
disease and similar forms of irreversible dementia, and (b) measured by clinical
evidence and standardized tests that reliably measure impairment in the
following areas:
(1)The Insured's short or long term memory;
(2)The Insured's orientation as to person (such as who they are), place
(such as their location) or time (such as day, date and year); and
(3)The Insured's deductive or abstract reasoning.
SUBSTANTIAL ASSISTANCE. Means Hands-On Assistance and Standby Assistance which
are defined as follows:
HANDS-ON ASSISTANCE. Means the physical assistance of another person
without which the Insured would be unable to perform the Activities of Daily
Living.
STANDBY ASSISTANCE. Means the presence of another person within arm's reach
of the Insured that is necessary to prevent by physical intervention, injury
to the Insured while the Insured is performing the Activities of Daily
Living.
SUBSTANTIAL SUPERVISION. Means continual supervision by another person that
is necessary to protect the Insured from threats to his or her health or
safety due to Severe Cognitive Impairment.
BENEFIT
If this rider is in force and the Eligibility for the Payment of Benefits
conditions are satisfied, you may request an acceleration of a portion of the
death benefit of the Policy. The amount we pay is called the Adjusted Monthly
Accelerated Death Benefit.
The Adjusted Monthly Accelerated Death Benefit is equal to the Monthly
Accelerated Death Benefit less any unpaid monthly deductions within the grace
period of the Policy. The monthly deductions are shown on the Policy
Specifications Pages.
LIMITATIONS OR CONDITIONS ON ELIGIBILITY FOR BENEFITS
ELIGIBILITY FOR THE PAYMENT OF BENEFITS. All of the following conditions must
be met to qualify for benefits under this rider:
(a)The Insured must be Chronically Ill, as determined, and certified at
least once every 12 months by the attending Physician;
(b)The care provided must constitute Qualified Long-Term Care Services;
(c)The care must be provided pursuant to a plan of care, as prescribed, and
reconfirmed in writing, at least once every 12 months by the attending
Physician;
(d)The Insured must incur expense for care, covered by this rider;
L575 3-98 Page 5
<PAGE>
(e)For the Community Care benefit only,
(1) The Insured's Community Care began after the Effective Date of
Coverage and while this rider and Policy were in force and
(2) The Insured has been receiving Community Care for at least 90 days;
(f)For the Nursing Home Care benefit only,
(1) The Insured's Nursing Home Care began after the Effective Date of
Coverage and while this rider and Policy were in force and
(2) The Insured has been receiving Nursing Home Care for at least 90
consecutive days;
(g)Written consent from any irrevocable beneficiaries and collateral
assignees is received by us;
(h)Timely Notice of Claim is received by us; and
(i)Timely Proof of Claim is received by us.
We reserve the right to independently assess the Insured's Chronic Illness and
your benefit eligibility periodically, but no more than once every 31 days. As
part of this assessment, we have the right to require that the Insured be
examined by a Physician chosen by us. We will pay for this examination.
You are not eligible for a Community Care and Nursing Home Care benefit in the
same month.
WAITING PERIOD CONDITION. A period of Community Care due to the same or related
cause as that of a prior period of Community Care may be a continuation of the
prior period. This depends on how much time has passed from the end of the prior
period to the date the current Community Care began.
If less than 30 days have passed:
(a)We will consider it to be a continuation of the prior period; and
(b)A new 90 day waiting period condition will not have to be satisfied.
If 30 days or more have passed:
(a)We will consider it to be a new period of Community Care; and
(b)A new 90 day waiting period condition will have to be satisfied.
The 90 day waiting period condition for the Community Care benefit is explained
under the Eligibility for the Payment of Benefits section.
A period of Nursing Home Care due to the same or related cause as that of a
prior period of Nursing Home Care may be a continuation of the prior period.
This depends on how much time has passed from the end of the prior period to the
date the current Nursing Home Care began.
If less than 30 days have passed:
(a)We will consider it to be a continuation of the prior period; and
(b)A new 90 day waiting period condition will not have to be satisfied.
If 30 days or more have passed:
(a)We will consider it to be a new period of Nursing Home Care; and
(b)A new 90 day waiting period condition will have to be satisfied. The 90
day waiting period condition for the Nursing Home Care benefit is
explained under the Eligibility for the Payment of Benefits section.
L575 3-98 Page 6
<PAGE>
GENERAL EXCLUSIONS AND LIMITATIONS
EXCLUSIONS. This rider does not cover:
(a)Loss to the extent that benefits are payable under Medicare (including
that which would have been payable but for the application of a
deductible or coinsurance amount);
(b)Illness, treatment or medical condition arising out of an attempt (while
sane or insane) at suicide or an intentionally self-inflicted injury;
(c)Illness, treatment or medical condition arising out of war while the
Insured is in the military forces of any country at war or in any
civilian noncombatant unit serving with those forces. "War" includes
undeclared war or any act of war. "Country" includes any international
organization or group of countries;
(d)Illness, treatment or medical condition arising out of participation in a
felony, riot or insurrection;
(e)Confinement or care received outside the United States;
(f)Services provided by a facility, agency or practitioner that does not
meet the requirements of this rider; and
(g)Services provided by a Family Member or for which no charge is normally
made in the absence of insurance.
LIMITATIONS. The benefit, if any, stops when:
(a)This rider terminates;
(b)Any one of the conditions (a)-(d) of the Eligibility for the Payment of
Benefits are not met;
(c)For the Community Care benefit only, the Insured stops receiving
Community Care;
(d)For the Nursing Home Care benefit only, the Insured stops receiving
Nursing Home Care; or
(e)As part of our independent assessment, if any, of the Insured's Chronic
Illness, the Insured refuses or fails to have an examination that is
required by us.
IMPACT ON THE POLICY
A lien will be established against the Policy in the amount of (a) plus (b)
where:
(a)Monthly Accelerated Death Benefit for Community Care multiplied times the
number of months a Community Care benefit has been paid under this rider;
(b)Monthly Accelerated Death Benefit for Nursing Home Care multiplied times
the number of months a Nursing Home Care benefit has been paid under this
rider.
Once the lien is established it will continue against the Policy until the
earlier of the Policy termination date or the lien repayment date. The effect of
a lien is as follows:
(a)The amount of any lien is subtracted from the death benefit proceeds of
the Policy. The death benefit proceeds is the amount payable to the
beneficiary of the Policy if the Insured dies while the Policy in force;
(b)Access to the surrender value for full surrender or withdrawal is limited
to the surrender value of the Policy less any lien amount;
(c)After the date the Eligibility for the Payment of Benefits conditions are
first satisfied for either a Community Care or Nursing Home Care benefit,
we cannot process a new policy loan request under the Policy; and
L575 3-98 Page 7
<PAGE>
(d)If the Policy terminates at the end of the grace period of the Policy,
reinstatement of the Policy shall be subject to:
(1) The requirement that we receive payment of or reinstatement of any
lien amount which existed at the end of the grace period of the
Policy; and
(2) The reinstatement requirements of the Policy.
CLAIMS
NOTICE OF THE CLAIM. Written notice of claim must be given to us at our Home
Office. Notice of claim means notice that the Insured is Chronically Ill and
that a claim may be made under this rider. The notice should include at least
the Insured's name, the Policy number shown on the Policy Specifications Page,
and the address to which claim forms should be sent. Notice given by or for you
shall be notice of claim.
There are two time limits for giving notice of claim. First, no benefit will be
allowed unless the notice is given to us while the Insured is living and during
continuance of Chronic Illness. Second, no benefit will be paid for care that
occurred more than one year before we were given the notice.
However, if it was not reasonably possible to give us notice of claim within the
time limit, the delay will not reduce the benefit if notice is given as soon as
it is reasonably possible to do so.
PROOF OF CLAIM. Written proof of claim must be given to us at our Home Office.
Proof must be given by or for you. Proof of claim means satisfactory written
proof that the Insured is Eligible for the Payment of Benefits. As part of the
proof of claim, we have the right to require that the Insured be examined by a
Physician chosen by us. We will pay for this examination.
We have forms which are to be used to make a claim. We will send these forms to
you or your legal representative within 15 days of the date we receive notice of
a claim.
WHEN PROOF OF CLAIM MUST BE MADE. Proof of claim must be received at our Home
Office while the Insured is living and during the continuance of Chronic
Illness. Also, it must be received within one year after the termination of this
rider. However, if it was not reasonably possible to give us proof of claim in
time, the delay will not reduce the benefit if proof is given as soon as it is
reasonably possible to do so.
CHRONIC ILLNESS RECERTIFICATION. At least once every 12 months, we will ask the
attending Physician to provide us with a current written assessment of the
Insured's condition and recertification of the Insured's Chronic Illness.
PLAN OF CARE RECONFIRMATION. At least once every 12 months, we will ask the
attending Physician to provide us with a written reconfirmation of the Insured's
plan of care.
NOTIFICATION OF CHANGE IN ATTENDING PHYSICIAN. If there is a change in the
attending Physician, you must notify us of the change in writing at our Home
Office. The notice should include the name, address and telephone number of the
new attending Physician.
PAYMENT OF CLAIMS. After all of the conditions of this rider are met, the
Adjusted Monthly Accelerated Death Benefit will be paid for each full calendar
month, defined herein as 30 days, the Insured receives care as follows:
(a)If you are the Insured, we will pay the benefit to you, if living,
otherwise to the beneficiary of the Policy; or
(b)If you are not the Insured, we will pay the benefit to you, if living,
otherwise to your estate.
You may request in writing for the benefit to be paid other than as described in
(a) or (b) above no later than the time you file the Proof of Claim. To make a
change, we must receive a written request satisfactory to us at our Home Office.
Any change is effective on the date the request was received at our Home Office.
L575 3-98 Page 8
<PAGE>
Provided, however, we will not be liable for any payment we make before such
request has been received and acknowledged at our Home Office. All remaining
death benefit proceeds of the Policy, if any, are paid to the beneficiary of the
Policy at the Insured's death.
CLAIM APPEAL. If a claim is denied, we will notify you in writing of the denial
and the claim review process available to you.
TERMINATION
This rider terminates on the earliest of:
(a)The date of the Insured's death;
(b)The date the Policy terminates;
(c)The date we receive written request from you to terminate this rider;
(d)The date the lien against the Policy equals or exceeds the Maximum
Accelerated Death Benefit; or
(e)Attained age 100 of the Insured.
However, we are still responsible for any continuance of a claim for Assisted
Living Care or Nursing Home Care which began while this rider was in force and
continues without interruption after termination, provided that, the aggregate
amount of benefits payable shall not exceed the Maximum Accelerated Death
Benefit reduced by any death benefit or surrender proceeds paid. In the event
you are entitled to receive and choose to receive such an extension of monthly
benefits, the rider and the cost of insurance charge for the rider will not
terminate until such benefit payments cease.
GRACE PERIOD
The Grace Period clause of the Policy shall apply to this rider. A grace notice
shall also be mailed to the address of any person designated by you to receive
notice at least 30 days prior to the end of the Grace Period.
REINSTATEMENT
If the Policy is reinstated, then this rider may also be reinstated. The
reinstatement of this rider shall be subject to evidence of good health and
insurability satisfactory to us unless:
(a)The Insured was Chronically Ill when this rider lapsed; and
(b)The reinstatement is requested within 5 months after the date of lapse.
If these two requirements are met, you may submit a statement from the attending
Physician certifying that the Insured is Chronically Ill in lieu of submitting
evidence of good health and insurability satisfactory to us. The reinstated
rider will only provide benefits for care which began after the date of
reinstatement and will be subject to all of the conditions of the rider.
CONTESTABILLTY
This rider is contestable on the same basis as the Policy, except as noted
below:
(a)If this rider has been in force for less than 6 months, we may rescind
the rider or deny a claim upon a showing of misrepresentation that is
material to the acceptance of coverage.
(b)If this rider has been in force for at least 6 months but less than 2
years, we may rescind the rider or deny a claim upon a showing of
misrepresentation that is both material to the acceptance for coverage
and which pertains to the condition for which benefits are sought.
L575 3-98 Page 9
<PAGE>
(c)After this rider has been in force for 2 years or more, it is not
contestable upon the grounds of misrepresentation alone. It may be
contested only upon a showing that the Insured knowingly and
intentionally misrepresented relevant facts relating to the Insured's
health.
ARBITRATION
The Arbitration clause of the Policy shall apply to this rider to the extent it
applies in the Policy.
EFFECTIVE DATE OF COVERAGE
The effective date of coverage under this rider shall be as follows:
(1)The Policy Effective Date shall be the effective date for all coverage
provided in the original application.
(2)For any rider issued after the Policy Effective Date, the effective date
shall be the Monthly Anniversary Day, as defined in the Policy, that
falls on or next following the date we approve the supplemental
application.
(3)For any insurance that has been reinstated, the effective date shall be
the date we approve the reinstatement.
This rider is executed on behalf of PROTECTIVE LIFE INSURANCE COMPANY by its
Secretary at its Home Office in Birmingham, Alabama.
PROTECTIVE LIFE INSURANCE COMPANY
/s/ Deborah J. Long
SECRETARY
L575 3-98 Page 10
<PAGE>
EXHIBIT 1.A.(5)(c)
<PAGE>
EXHIBIT 1.A.(5)(c)
[LOGO]
PROTECTIVE LIFE INSURANCE COMPANY / P. O. BOX 2606 / BIRMINGHAM, ALABAMA 35202
- --------------------------------------------------------------------------------
WAIVER OF SURRENDER CHARGES ENDORSEMENT
We have issued this endorsement as a part of the policy to which it is attached.
The policy is amended by adding the following:
We will waive any applicable Surrender Charge if at any time after the first
Policy Year:
(1) The Owner* is first diagnosed as having a Terminal Illness by a
physician that is not related to or affiliated with the Owner or the
Insured; or
(2) The Owner* enters for a period of at least ninety (90) days a facility
which is:
(a) licensed by the state, and
(b) qualifies as a skilled nursing home facility under Medicare or
Medicaid;
provided however, that the Owner* is not in such facility as of the date the
policy is applied for or becomes effective.
The term "Terminal Illness" means that the Owner* is diagnosed as having a
non-correctable medical condition that, with a reasonable degree of medical
certainty, will result in the Owner's* death in less than 12 months. Written
proof of a Terminal Illness satisfactory to the Company must be submitted. The
Company reserves the right to require an examination by a physician of its
choice. The Company will pay for this examination.
*In the event that the Owner is not a natural person, the term "Owner" in this
Endorsement shall refer to the Insured.
Signed for the Company as of the Policy Effective Date.
PROTECTIVE LIFE INSURANCE COMPANY
/s/ Deborah J. Long
Secretary
<PAGE>
EXHIBIT 1.A.(9)(a)(1)
<PAGE>
EXHIBIT 1.A.(9)(a)(1)
AMENDMENT I
TO THE PARTICIPATION/DISTRIBUTION AGREEMENT
DATED DECEMBER , 1995
AMONG PROTECTIVE LIFE INSURANCE COMPANY, PROTECTIVE
INVESTMENT COMPANY AND INVESTMENT DISTRIBUTORS, INC.
WHEREAS, Protective Life Insurance Company ("Protective Life") for itself
and on behalf of the Protective Variable Life Separate Account (the "Account"),
Protective Investment Company (the "Company") and Investment Distributors, Inc.
("IDI") have entered into a Participation/Distribution Agreement, dated December
, 1995, (the "Agreement"), providing for, amongst other things, the use of the
Account in connection with certain individual flexible premium variable and
fixed life insurance policies ("Flexible Premium Policies") to be offered by
Protective Life;
WHEREAS, Protective Life proposes to offer to the public certain modified
single premium variable and fixed life insurance policies ("Single Premium
Policies") and, in connection with such Single Premium Policies desires to offer
certain sub-accounts of the Account for investment relating to the various
investment portfolios offered by the Company;
WHEREAS, Protective Life desires to have the Single Premium Policies funded
through the Account and underwritten and distributed by IDI pursuant to the
terms of the Agreement;
NOW THEREFORE, in consideration of the foregoing, Protective Life, the
Account, IDI and the Company hereby agree as follows:
That the first WHEREAS clause of the Agreement be replaced in its entirety
with the following language:
WHEREAS, the Account has been established by Protective Life pursuant to the
Tennessee Insurance Code in connection with certain individual flexible premium
variable and fixed life insurance policies and modified single premium variable
and fixed life insurance policies (collectively, the "Policies") proposed to be
issued to the public by Protective Life; and
IN WITNESS WHEREOF, the parties hereto have caused the Amendment to the
Agreement to be duly executed and attested effective June 1, 1998.
PROTECTIVE LIFE INSURANCE COMPANY
ON BEHALF OF ITSELF AND PROTECTIVE
VARIABLE LIFE SEPARATE ACCOUNT
Attest:
/s/ EMILY AMBERSON__ By: /s/ ROBERT STEPHEN BRIGGS___________________________
PROTECTIVE INVESTMENT COMPANY
Attest:
/s/ EMILY AMBERSON__ By: /s/ RICHARD J. BIELEN_______________________________
INVESTMENT DISTRIBUTORS, INC.
Attest:
/s/ EMILY AMBERSON__ By: /s/ ROBERT STEPHEN BRIGGS___________________________
28268
<PAGE>
EXHIBIT 1.A.(10)
<PAGE>
<TABLE>
<S> <C>
PLEASE MAKE CHECK PAYABLE TO:
PROTECTIVE LIFE INSURANCE COMPANY
THE PROTECTIVE SPVL - Application P.O. BOX 830771 BIRMINGHAM, AL 35283-0771
</TABLE>
<TABLE>
<S> <C> <C> <C>
1. PROPOSED INSURED 2. OWNER (If other than Proposed Insured)
/ / Male / / Female / / Male / / Female
----------------------------------------------------- -----------------------------------------------------
NAME NAME
------------------------------------------------------- -------------------------------------------------------
STREET ADDRESS STREET ADDRESS
------------------------------------------------------- -------------------------------------------------------
CITY STATE ZIP CITY STATE ZIP
------------------------------------------------------- -------------------------------------------------------
PHONE NUMBER TAX I.D./SOCIAL PHONE NUMBER TAX I.D./SOCIAL
SECURITY NO. SECURITY NO.
------------------------------------------------------- -------------------------------------------------------
BIRTHDATE MO./DAY/YR. BIRTHPLACE MARITAL BIRTHDATE MO./DAY/YR. RELATIONSHIP TO PROPOSED
STATUS INSURED
</TABLE>
<TABLE>
<S> <C> <C> <C>
3. PRIMARY BENEFICIARY 4. PLAN INFORMATION
NAME, ADDRESS, RELATIONSHIP & PERCENTAGE Purchase Payment $ ---------------------
Initial Face Amount $ ---------------------
PROPOSED INSURED: Have you used tobacco or nicotine
CONTINGENT BENEFICIARY (IF ANY) of any kind over the last 12 months? / / Yes / / No
Long-Term Care Rider? / / Yes / / No
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
5. SIMPLIFIED UNDERWRITING: IF ALL THE ANSWERS TO QUESTION 5 ARE "NO", DO NOT COMPLETE QUESTIONS 6-8. IF ANY
ANSWERS ARE "YES", PLEASE GIVE DETAILS UNDER QUESTION 8 AND CONTINUE ANSWERING QUESTIONS 6-7. YES NO
a. Have you ever had or been treated for cancer, diabetes, cardiovascular disease, stroke, Alzheimers,
central nervous system disorders, Parkinsons, Multiple Sclerosis, paraplegia or respiratory
disorders? / / / /
b. In the past 5 years have you been diagnosed with or treated for a nervous or psychological disorder,
attempted suicide, epilepsy, emphysema, kidney disease, liver disorder or been advised to limit or
receive treatment for alcohol or drug abuse? / / / /
c. Have you ever been diagnosed as having AIDS, AIDS Related Complex or other immune deficiency
disorders? / / / /
d. Have you ever been declined for life insurance? / / / /
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
6. FULL UNDERWRITING:
PLEASE ANSWER ALL QUESTIONS. EXPLAIN "YES" ANSWERS UNDER QUESTION 8. YES NO
a. During the past 5 years have you consulted a physician or visited a clinic or hospital as a patient? / / / /
b. Has any life or health insurance applied for ever been declined, postponed, or offered other than
applied for? / / / /
c. Do you have any intention of traveling or residing outside the U.S. or Canada within the next two
years? (If yes, state when, where and how long.) / / / /
d. Have you participated in the past 2 years in any type of aviation other than as a passenger, vehicle
racing, sky or scuba diving or hang gliding? / / / /
e. Have you in the past 2 years had any motor vehicle moving violations or your license suspended? (If
yes, give date, violation, license number and state of license.) / / / /
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
7. HAVE YOU EVER BEEN TREATED FOR: YES NO
a. Heart murmur, high blood pressure or other heart, blood or circulatory disorder, or diabetes
(whether or not on Insulin)? / / / /
b. Convulsions, brain or spinal cord disorders? / / / /
c. Any disease of the bones, lymph glands, stomach, intestines or any immune disorder? / / / /
</TABLE>
8. DETAILS OF ALL "YES" ANSWERS
<TABLE>
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
Question Date of Details, Diagnosis, Names & Addresses of Doctors, Hospitals &
Number Occurrence Treatment, Medication, Results Duration Medical Facilities Consulted
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
VUL-1034-A 2/98
<PAGE>
9. LIFE INSURANCE IN FORCE (INCLUDING BUSINESS INSURANCE): IF NONE, INSERT
"NONE"
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Year Life Accidental Death Existing Loan? To Be
Company Issued Amount Amount State Amount Replaced?
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10. COMPLETE IF APPLYING FOR LONG-TERM CARE RIDER:
Long-term care, accident and disability or health insurance inforce (IF
NONE, INSERT "NONE")
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Year
Company Issued Benefit Provisions/Amounts
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
11. PURCHASE PAYMENT ALLOCATION: Select the allocation
for your purchase payments. (MAXIMUM OF 10 FUND SELECTIONS. IF NO ALLOCATION IS
SPECIFIED, ALL PROCEEDS WILL BE ALLOCATED TO THE MONEY MARKET FUND. A MINIMUM OF
10% MUST BE ALLOCATED TO AN INVESTMENT CHOICE.)
TOTAL ALLOCATION MUST EQUAL 100%
PIC/GOLDMAN SACHS CALVERT
- -----% International Equity -----% Calvert Social
- -----% Small Cap Value Small-Cap Growth
- -----% Capital Growth -----% Calvert Social Balanced
- -----% CORE U.S. Equity
- -----% Growth & Income OPPENHEIMER
- -----% Global Income -----% Aggressive Growth
- -----% Money Market -----% Growth
-----% Growth & Income
MFS -----% Strategic Bond
- -----% Emerging Growth
- -----% Research OTHER
- -----% Growth with Income -----% ---------------------
- -----% Total Return -----% ---------------------
MODEL PORTFOLIOS
- -----% Growth Portfolio
- -----% Balanced Portfolio
- -----% Aggressive Growth Portfolio
PROTECTIVE LIFE GENERAL ACCOUNT
- -----% Fixed Account
- -----% DCA Fixed Account (FOR DOLLAR COST AVERAGING AS
"SOURCE FUND" ONLY.)
12. DOLLAR COST AVERAGING
<TABLE>
<S> <C>
Transfer the amount indicated below (MINIMUM $100)
/ / Monthly / / Quarterly --------------------- Months (MINIMUM 12 MONTHS)
Day of Month --------------------- (1ST-28TH, PLEASE)
From Source Fund: --------------------- Amt. $ ---------------------
To Destination Fund Amount
(MAY NOT INCLUDE DCA FIXED ACCOUNT)
- ----------------------------------------------------- $ ---------------------
- ----------------------------------------------------- $ ---------------------
- ----------------------------------------------------- $ ---------------------
- ----------------------------------------------------- $ ---------------------
- ----------------------------------------------------- $ ---------------------
</TABLE>
<TABLE>
<S><C>
13. TELEPHONE TRANSFERS
PROTECTIVE LIFE WILL NOT BE HELD LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING ON TELEPHONE INSTRUCTIONS.
/ / By checking this box, I authorize the Company to honor telephone instructions to transfer account values among
Sub-Accounts, subject to the conditions of the prospectus.
/ / By checking this box, I authorize the Registered Representative who signs this application to transfer account values
among Sub-Accounts, subject to the conditions of the prospectus.
</TABLE>
Mothers Maiden Name
- ---------------------
<TABLE>
<S> <C>
14. PORTFOLIO REBALANCING
Rebalancing to begin on --------/ --------/ -------- (DATE) (REBALANCING DATE CAN ONLY BE DAYS 1-28)
Rebalancing should occur: / / Quarterly / / Semi-Annually / / Annually
THE VARIABLE POLICY VALUE WILL BE AUTOMATICALLY REBALANCED TO THE CURRENT ALLOCATIONS. THEREFORE, PURCHASES MADE TO SPECIFIC
FUNDS WILL ALSO BE REBALANCED.
</TABLE>
REMARKS:
- ----------------------------------------------------------------
- ----------------------------------------------------------------
HOME OFFICE ENDORSEMENT: (NOT TO BE USED IN KY, MD, MN, OR, PA, WV OR WI)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
VUL-1034-A 2/98
<PAGE>
REGISTERED REPRESENTATIVE REPORT
COMPLETE FOR ALL APPLICATIONS AND SEND TO HOME OFFICE
<TABLE>
<S> <C> <C> <C> <C>
1. QUESTIONS FOR REGISTERED REPRESENTATIVE TO ANSWER:
a. Is this insurance being purchased to replace any inforce life
insurance, annuities, long-term care insurance or health insurance / / / /
policies? IF YES, PLEASE INCLUDE ALL REQUIRED REPLACEMENT FORMS. Yes No
If Yes, Company(ies) ---------------------
b. I have explained to the Applicant that this policy is not effective
until a policy is issued and all of the terms of the Conditional / / / /
Receipt are satisfied. Yes No
c. Have you complied with all relevant state requirements, including any / / / /
"disclosure and comparison statements"? Yes No
d. On the basis of the Applicant's circumstances (including annual
income, net worth, marital status, dependent status and current life
insurance program) and their purpose for acquiring this insurance, is / / / /
the purchase of this insurance suitable? Yes No
</TABLE>
<TABLE>
<S> <C>
2. PRINT REGISTERED REPRESENTATIVE NAME, BROKER DEALER, ADDRESS
AND AGENT NO.
---------------------
NAME
------------------------
BROKER DEALER
------------------------
STREET ADDRESS
------------------------
CITY STATE ZIP
------------------------
PHONE NUMBER AGENT
NUMBER
</TABLE>
3. WHEN CONDITIONAL RECEIPT CAN BE USED
a. The premium is equal to the full INITIAL PREMIUM
b. The answers to Question 5 ARE ALL "NO" and maximum amount of cash
which can be submitted is for $250,000 of net amount at risk, and
maximum age 80.
c. The Conditional Receipt is given and the premium is collected ONLY AT
THE TIME THE APPLICATION IS TAKEN and signed.
d. The application does not contain a request for POSTDATING.
4. PROCESSING INSTRUCTIONS
a. Each applicant must be given the Description of Information Practices.
b. If cash is submitted with the application, complete and sign the
Conditional Receipt on the last page of this application and give to
the applicant.
c. Complete and sign any additional forms (i.e. 1035 exchange or state
replacement forms, if applicable).
d. Advise the Proposed Insured that they will be contacted by a Company
Representative to collect medical information and/or arrange a time
for a paramedical exam; if full underwriting.
e. Contact your Broker Dealer to determine where to send the completed
paperwork. There may be special processing procedures. If you are
sending the business directly to Protective, use the following
address:
<TABLE>
<S> <C>
REGULAR MAIL OVERNIGHT MAIL
Protective Life Insurance Co. Protective Life Insurance Co.
Variable Life Services Variable Life Services
P.O. Box 830771 2801 Highway 280 South
Birmingham, Alabama 35283-0771 Birmingham, Alabama 35223
FAX (205) 803-7065 Telephone (205) 879-9230
</TABLE>
VUL-1034-A 2/98
<PAGE>
DECLARATIONS: I represent that all statements and answers made in all parts of
this application are full, complete and true to the best of my knowledge and
belief. It is agreed that:
(a) All such statements and answers shall be the basis of any insurance
issued.
(b) No agent or medical examiner can make, alter or discharge any contract,
accept risks, or waive the Company's rights or requirements.
(c) No insurance shall take effect unless: (1) a policy is delivered to the
Owner; (2) the full first premium is paid while the Proposed Insured is
alive; and (3) there has been no change in health and insurability from
that described in this application. However, if the premium is paid as
set forth in the attached Conditional Receipt Agreement and that
Agreement is delivered to the Owner, the terms of Conditional Receipt
Agreement shall apply.
(d) Acceptance of a policy by the Owner shall constitute ratification of any
changes made by the Company under "Home Office Endorsements." In those
states where it is required, changes as to plan, amount, age at issue,
classification or benefits will be made only with the Owner's written
consent.
AUTHORIZATION: The Proposed Insured hereby authorizes any licensed physician,
medical practitioner, hospital, clinic, or other medically related facility,
insurance company, the Medical Information Bureau (MIB), consumer reporting
agencies (CRA) or other organization, institution or person, that has any
records or knowledge of my health, to give to Protective Life Insurance Company,
its CRA or its reinsurer any such information. A photographic copy of this
authorization shall be as valid as the original. Protective Life Insurance
Company can give information to its affiliates, MIB, consumer reporting
agencies, and its reinsurers. Protective Life Insurance Company can also give it
to persons doing services for it, or to other insurers. This is true only if it
is in connection with my application. I also hereby authorize Protective Life
Insurance Company to draw and test my blood and urine as may be necessary to
underwrite my application for insurance coverage. These tests to be performed,
may include, but are not limited to, tests for cholesterol and related blood
lipids, diabetes, liver or kidney disorders, the presence of antibodies to the
Human Immunodeficiency Virus (HIV) that has been associated with Acquired Immune
Deficiency Syndrome (AIDS). Protective Life Insurance Company can disclose
non-sensitive information to the agent representing me on this application only
when it is necessary to provide an explanation of the reasons for the Company's
decision to require special underwriting requirements or whenever my application
cannot be approved as applied.
DO YOU BELIEVE THAT THIS POLICY WILL MEET YOUR INSURANCE
NEEDS AND FINANCIAL OBJECTIVES? / / YES / / NO
DID YOU RECEIVE THE PROSPECTUS FOR THE POLICY APPLIED FOR
AND THE PROSPECTUS FOR EACH OF THE FUNDS? / / YES / / NO
DO YOU UNDERSTAND THAT THE AMOUNT AND DURATION OF THE DEATH
BENEFIT AND AMOUNT OF POLICY VALUES MAY VARY, DEPENDING ON
THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNTS? / / YES / / NO
ARE YOU PURCHASING THIS INSURANCE TO REPLACE ANY INFORCE
LIFE INSURANCE, ANNUITIES, LONG-TERM CARE INSURANCE OR
HEALTH INSURANCE POLICIES? / / YES / / NO
IF YES, COMPANY(IES) ---------------------
IF LIFE INSURANCE OR ANNUITIES, ESTIMATED TRANSFER
AMOUNT $ ---------------------
IF WE ARE UNABLE TO ISSUE A LIFE INSURANCE POLICY, DO YOU
WISH TO APPLY FOR A DEFERRED ANNUITY? / / YES / / NO
ANY PERSON WHO KNOWINGLY WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY OR OTHER
PERSON, FILES AN APPLICATION FOR INSURANCE OR STATEMENT OF CLAIM CONTAINING ANY
MATERIALLY FALSE INFORMATION OR CONCEALS FOR THE PURPOSE OF MISLEADING,
INFORMATION CONCERNING ANY FACT MATERIAL THERETO COMMITS A FRAUDULENT INSURANCE
ACT, WHICH IS A CRIME AND SUBJECTS SUCH PERSON TO CRIMINAL AND CIVIL PENALTIES.
YOUR POLICY IS SUBJECT TO A BINDING ARBITRATION PROVISION.
SEE YOUR POLICY FOR COMPLETE DETAILS.
<TABLE>
<S> <C>
Signed At (X) -----------------------------------------------------
- -----------------------------------------------------
(City and State) Proposed Insured (Sign Name in Full)
Date ----------------------------------------------------- (X) -----------------------------------------------------
Applicant/Owner(s) (if other than Proposed Insured)
(X) ----------------------------------------------------- (X) -----------------------------------------------------
Witness to All Signatures Signature of Parent or Guardian (if applicable)
</TABLE>
CAUTION: IF YOUR ANSWERS ON THIS APPLICATION ARE UNTRUE,
PROTECTIVE LIFE HAS THE RIGHT TO DENY BENEFITS OR RESCIND YOUR POLICY.
If the Owner is Corporation, Partnership or Trust a Corporate Officer, Partner
or the Trustee must sign and state title.
If Joint Owner(s), both Owner(s) must sign.
VUL-1034-A 2/98
<PAGE>
EXHIBIT 2
<PAGE>
Nancy Kane
Senior Associate Counsel
June 1, 1998
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,
modified single premium variable and fixed 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>
STATEMENT OF OPINION REGARDING ASPECTS OF
PROTECTIVE LIFE INSURANCE COMPANY FILING OF A
MODIFIED SINGLE PREMIUM VARIABLE AND FIXED LIFE INSURANCE POLICY
(FILE NUMBERS 333-45963 AND 811-7337)
In my capacity as 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 modified single premium variable and fixed 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 example 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 the Registration
Statement and to the use of my name under the heading "Experts" in the
prospectus.
/s/ STEPHEN PEEPLES
--------------------------------------
Stephen Peeples, F.S.A., M.A.A.A.
Actuary and 2nd Vice President
Protective Life Insurance Company
May 29, 1998
<PAGE>
EXHIBIT 8
<PAGE>
[SUTHERLAND, ASBILL & BRENNAN LETTERHEAD]
May 28, 1998
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 prospectus filed as part of pre-effective amendment number 1 to
the Registration Statement on Form S-6 filed by Protective Life Insurance
Company and Protective Variable Life Account with the Securities and Exchange
Commission. In giving this consent, we do not admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of
1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/ STEPHEN E. ROTH
--------------------------------------
Stephen E. Roth
<PAGE>
EXHIBIT 9
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this registration statement on Form S-6 (File
No. 333-45963) of our report dated February 11, 1998, 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 5, 1998 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
June 1, 1998
<PAGE>
EXHIBIT 10
<PAGE>
EXHIBIT 10
PROTECTIVE LIFE INSURANCE COMPANY
DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES FOR
INDIVIDUAL MODIFIED SINGLE 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 Modified Single Premium Variable and
Fixed Life Insurance Policy (the "Policy"), the transfer of assets held
thereunder, and the redemption by owner(s) of the Policy ("Owner") 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 net amount at risk (ages 16-50) or $150,000 net amount at
risk (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 however, an initial premium is submitted
with the application and the Policy is issued as applied for in the 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 (including various forms of conditional receipt) may be
provided under the terms of a temporary insurance (or conditional receipt)
agreement. In accordance with the terms of such agreements, the total amount of
insurance coverage with the Company which may become effective prior to delivery
of the Policy to the Owner shall not exceed $250,000 of net amount at risk
(including the amount of any life insurance and accidental death benefits then
in force or applied for with the Company) 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 $10,000.
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 premium payment to the
Protective Money Market sub-account or the fixed account until the expiration of
<PAGE>
the number of days in the cancellation period plus six days starting from the
date the Policy is mailed from the Company's home office.
Upon expiration of this period, the Policy value in the Protective
Investment Company Money Market sub-account or the fixed account and any
additional premium payments will be allocated according to the Owner's
allocation instructions then in effect. In all other states, the Company will
allocate the initial premium payment in accordance with the Owner's
instructions.
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 and any supplemental riders.
A policy will remain in force while the cash surrender value is sufficient
to pay the monthly deduction. 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.
The total of all premiums paid in any Policy year may not 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.
Protective Life places the insured in a rate class when the Policy is
issued, based on Protective's Life's underwriting of the application. This
original rate class applies to the initial face amount of the Policy.
C. REINSTATEMENT PROCEDURES
The Policy may be reinstated within five years after lapse and while the
insured is still living unless the Policy has been surrendered. A Policy will be
reinstated upon receipt by the Company of: (1) a written application for
reinstatement; (2) evidence of insurability satisfactory to the Company; (3)
payment of net premiums equal to (a) all monthly deductions due upon lapse (with
interest at a rate not to exceed 6%, if required by the Company) 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
minus any applicable surrender charges and premium tax recovery charges. A full
monthly deduction will be charged for the month of reinstatement.
II. REDEMPTION PROCEDURES: MONTHLY DEDUCTIONS, SURRENDER AND RELATED
TRANSLATIONS
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 for mutual funds and contractual plans.
A. MONTHLY CHARGES AND DEDUCTIONS FROM POLICY VALUE
On each Policy monthly anniversary day and Policy anniversary, the Company
will deduct charges and fees from the Policy value. The monthly and annual
deductions from Policy value include:
1. Cost of Insurance Charge--This charge compensates Protective Life for the
expense of underwriting the death benefit. The charge may depend on a number of
variables and therefore may vary from Policy to Policy and from monthly
anniversary day to monthly anniversary day. For any Policy, the cost of
2
<PAGE>
insurance on a monthly anniversary day is calculated by multiplying the current
cost of insurance rates for the Insured by the Policy value for that monthly
anniversary day. The current monthly charges are the lesser of: (a) .054%
multiplied by the Policy value during years 1-10 and .046% multiplied by the
Policy value during years 11 and thereafter; or (b) the Guaranteed Maximum
Monthly Cost of Insurance Rates per $1,000 of Net Amount of Risk. The Company
reserves the right to charge the Guaranteed Maximum Monthly Cost of Insurance.
The guaranteed maximum rates for standard classes are based on the 1980
Commissioners' Standard Ordinary Mortality Tables, Male or Female, Smoker or
Non-Smoker Mortality Rates ("1980 CSO Tables"). The guaranteed rates for
substandard classes are based on multiples of or additions to the 1980 CSO
Tables.
The guaranteed 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: Smoker
class (ages 15-85) or Non-Smoker (ages 0-85), and substandard rate classes,
which involve a higher mortality risk than the Smoker or Non-Smoker classes.
2. Monthly Policy Expense Charge--This charge compensates Protective Life
for sales and administive expenses associated with the Policies and the Variable
Account. These expenses relate to record keeping, processing death benefit
claims, Policy loans, Policy changes, reporting, and overhead costs, processing
applications and establishing Policy records and reports and other
communications to Policy Owners. The current monthly policy expense charge is
equal to .058% multiplied by the Policy value, which is equivalent to an annual
rate of 0.70% of such amounts.
3. Mortality and Expense Risk Charge--This monthly charge compensates
Protective Life for the mortality risk it assumes if the Insured on the Policies
die sooner than anticipated. The expense risk assumed is that expenses could
exceed the amounts realized from charges assessed for issuing and administering
the Policies and the Variable Account. This charge is deducted from assets in
the sub-accounts attributable to the Policies. The maximum monthly mortality and
expense charge is equal to .075% multiplied by the Variable Account Value which
is equivalent to an annual rate of 0.90% of such amounts for all years.
Currently in Policy years 11 and thereafter, this charge is equal to .042%
multiplied by the Variable Account Value which is equivalent to an annual rate
of 0.50% of such amounts.
4. Annual Maintainance Fee--The Company reserves the right to deduct a
$35.00 fee from the Policy value on each Policy anniversary. Currently the
Company will waive this fee at each Policy anniversary if the Policy value
equals or exceeds $50,000.
5. Charges for Benefits under Riders--The Company will deduct a monthly
charge for each rider to the Policy.
B. SURRENDERS AND PARTIAL WITHDRAWALS
An Owner of a Policy may submit a written request to the Company to
surrender the Policy or 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 end of the valuation period during which the
written surrender request is received, 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, unless the Owner elects an available alternative settlement
option 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
3
<PAGE>
outstanding Policy debt which includes accrued interest less any applicable
surrender charges and premium tax recovery charges. Coverage under a Policy will
end as of the date of surrender.
Through the first nine Policy years following each premium payment, a
surrender charge ("contingent deferred sales charge") and premium tax recovery
charge will be deducted from the Policy value if a Policy is surrendered, if a
withdrawal is taken in excess of the "Annual Withdrawal Amount" or the amount by
which the Policy Value exceeds premium payments made, or if a Policy lapses.
These charges will be deducted before any surrender or withdrawal value is paid.
The Annual Withdrawal Amount is the annual amount the Owner may withdraw
during a Policy year and not incur a surrender charge or premium tax recovery
charge. The Annual Withdrawal Amount is (i) an amount equal to ten percent of
all premium payments made if the withdrawal request is received during the first
policy year or (ii) is an amount equal to 10% of all premium payments made as of
the last policy anniversary, net of all premium payments withdrawn, if the
withdrawal request is received after the first policy year.
The surrender charge and premium tax recovery charge for each premium
payment is equal to the surrender charge percentage or premium tax charge
percentage for the Policy year in which the surrender, withdrawal, or lapse of
such premium payment occurs, multiplied by the aggregate amount of premium
payments. The surrender charge in the first Policy year is 9% grading down to 0%
in the 10th Policy year. The premium tax recovery charge in the first Policy
year is 2.50% grading down to 0% in the 10th Policy year.
The Policy Owner may request withdrawal of the Policy value by sending a
written request to the Company. The Company will withdraw the amount requested
plus any applicable surrender charges and premium tax recovery charge, as of the
date the request is received in the Company's home office. The Owner may elect
to deduct the amount of the withdrawal from any sub-account or fixed account. If
the Owner does not specify an allocation, or if the sub-account value or
guaranteed 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.
The death benefit will be affected by withdrawals. For each amount
withdrawn, there will be a proportionate decrease in face amount inclusive of
surrender and premium tax recovery charges. In order to request a withdrawal
during the first Policy Year the Owner must have made an initial premium payment
of at least $10,000. In order to request a withdrawal on or after the first
policy anniversary the Policy value as of the date the Company receives the
request must be at least $10,000.
In the event a withdrawal is requested by the Owner, the Company will reduce
the face amount proportionately by the withdrawn amount plus any applicable
surrender charges and premium tax recovery charges. The Company will refuse to
process a withdrawal request if the effect of the withdrawal would reduce the
face amount below the minimum amount in effect for Policies issued under
then-current rules or if the withdrawal would cause the Policy to be
disqualified as a life insurance contract under applicable tax laws, as
interpreted by Protective Life.
The decrease in the face amount will be in effect on the date the withdrawal
is processed. The formula used to determine the proportionate decrease in face
amount is as follows:
Decreased Face Amount = F times (P minus W) divided by P
where F = Current Face Amount
P = Policy Value
W = Withdrawal Amount and any applicable charges
4
<PAGE>
C. INCREASING THE FACE AMOUNT
An Owner may increase the face amount of the Policy after the first policy
anniversary by submitting a written request to the Company. Any increase in face
amount must be at least $10,000. The Company reserves the right to require
satisfactory evidence of insurability. An increase in face amount will not be
accepted unless the insured's attained age is less than the current maximum
issue age for the Policy.
D. DEATH BENEFIT CLAIMS
While the Policy remains in force, the Company will pay the death benefit
proceeds to the named beneficiary as elected by the Owner. The Company will pay
the death benefit proceeds within seven calendar days after receipt in its home
office of all necessary proof of death of the insured. Payment of a death
benefit proceeds 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 described below; plus
2. any additional benefits due under any supplemental riders attached to
this Policy; less
3. any policy debt or lien; less
4. any unpaid monthly deductions if the insured dies during the grace
period.
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.
E. POLICY LOANS
At any time, while the insured is still living, an Owner(s) may borrow not
more than 90% of the Policy surrender value on the date the loan request is
received by the Company. Any policy loan must be for at least $500. 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 accounts and into the Policy's loan account.
The Owner can specify the sub-accounts and fixed accounts from which collateral
is transferred to the loan account. If no allocation is specified, collateral is
transferred from each sub-account and guaranteed account in the same proportion
that the cash value in each sub-account and guaranteed account bears to the
total unloaned policy value on the date that the loan is made.
Like the guaranteed account, a Policy's loan account is part of Protective
Life's general account. Except as described below, the Company will charge
interest daily on any outstanding loan at an effective annual rate of 6.0%.
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 interest is added to the loan
principal and becomes part of the Policy debt. An amount equal to any Policy
loan interest will be deducted from the sub-accounts and guaranteed account in
the same proportion that each sub-account value and guaranteed account value
bear to the total unloaned Policy value.
The loan account is credited with interest at an effective annual rate of
not less than the guaranteed interest rate for the guaranteed account. On each
Policy anniversary, the interest earned on the loan account will be transferred
to the sub-account(s) and the guaranteed account in the same proportion that
premium payments are allocated. 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.
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The Owner may request a preferred loan of that portion of the Policy
surrender value that exceeds the total of all premium payments made since issue.
The amount of a loan that qualifies as a preferred loan is calculated as of the
date a request for a loan is received and on each policy anniversary. The
Company will charge interest on the preferred loan at a rate not to exceed the
rate specified in the Policy at issue.
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 Company's 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 accounts in accordance with current premium payment allocations unless
the owner specifies otherwise. Amounts paid while a Policy loan is outstanding
will be treated as repayment of indebtedness.
III. TRANSFERS
A Policy's policy 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 follows: (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 guaranteed account
from which the transfer is made. If, after the transfer, the Policy value
remaining in a sub-account or guaranteed 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 imposed, the fee will be deducted from the sub-accounts and
guaranteed account on a proportionate basis. If an amount is being transferred
from more than one sub-account or guaranteed account, the transfer fee will be
deducted proportionately from the amount being transferred from each.
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. Protective Life requires 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 or 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 guaranteed account or any sub-account(s). (However, amounts may not be
transferred to a dollar cost averaging segment of the guaranteed account.) 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
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processing fee for this service. The Company reserves the right to stop offering
dollar cost averaging upon 30 days written notice.
The Owner may elect dollar cost averaging for periods of at least 12 months.
At least $100 must be transferred on a monthly or 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 account value in the source fund 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, account 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 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 unless otherwise directed by the Owner.
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) 10 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) guaranteed 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.
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B. 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 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.
C. REPRESENTATIONS AND CONTESTABILITY
The Company cannot bring any legal action to contest the validity of this
Policy or a supplemental rider after it has been in force during the lifetime of
the Insured for the Policy or any supplemental rider 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 after the benefits have been in force during
the lifetime of the Insured for two years from the effective date of the
addition of the benefit or from the date the Company approves the reinstatement
application unless fraud is involved.
D. 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 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 at issue (or, in the case of an increase in face amount, at the
effective date of such increase) at the correct age and sex.
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