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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1999
FILE NO. 333-72775
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 /X/
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 15 /X/
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PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
PROTECTIVE LIFE INSURANCE COMPANY
(Name of Depositor)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
COPY TO:
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NANCY KANE, ESQUIRE STEPHEN E. ROTH, ESQUIRE
2801 Highway 280 South Sutherland Asbill & Brennan LLP
Birmingham, Alabama 35223 1275 Pennsylvania Avenue, N.W.
(Name and Address of Agent Washington, D.C. 20004-2404
for Service of Process)
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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)
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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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PROSPECTUS
P R O T E C T I V E L I F E ' S
T R A N S I T I O N S
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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 Transitions, an individual flexible premium
variable and fixed life insurance policy (the "Policy") offered by Protective
Life Insurance Company ("Protective Life"). The Policy is designed to provide
insurance protection on the life of the Insured named in the Policy, and at the
same time provide the purchaser of the policy (the "Owner") with the flexibility
to vary the amount and timing of premium payments and, within certain limits, to
change the amount of death benefits payable under the Policy. This flexibility
permits the Owner to provide for changing insurance needs with a single
insurance policy. This Policy may not be available in all jurisdictions.
The Owner may, within limits, allocate premiums and Policy Value to one or
more Sub-Accounts of the Protective Variable Life Separate Account (the
"Variable Account") and Protective Life's general account (the "Fixed Account").
Discussions of values under the Policy in this prospectus generally relate only
to the values allocated to the Variable Account. The assets of each Sub-Account
of the Variable Account are invested in a corresponding investment portfolio
(each, a "Fund") of Protective Investment Company, Oppenheimer Variable Account
Funds, MFS-Registered Trademark- Variable Insurance Trust(SM), Calvert Variable
Series, Inc. and Van Eck Worldwide Insurance Trust.
The prospectuses for the Funds describe the investment objective(s) and
risks of investing in the Sub-Account corresponding to each. The Owner bears the
entire investment risk for Policy Value allocated to a Sub-Account.
Consequently, except as to Policy Value allocated to the Fixed Account, the
Policy has no guaranteed minimum Surrender Value.
It may not be advantageous to replace existing insurance with this Policy.
Within certain limits, you may return the Policy.
POLICIES (EXCEPT FOR POLICIES ISSUED IN CERTAIN STATES) INCLUDE AN
ARBITRATION PROVISION THAT MANDATES RESOLUTION OF ALL DISPUTES ARISING UNDER THE
POLICY THROUGH BINDING ARBITRATION. THIS PROVISION IS INTENDED TO RESTRICT AN
OWNER'S ABILITY TO LITIGATE SUCH DISPUTES. SEE "ARBITRATION".
Please read this prospectus and the prospectus for each of the Funds
carefully and retain copies for future reference. This prospectus must be
accompanied or preceded by the current prospectus for each of the Funds.
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.
The date of this Prospectus is May - , 1999
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PROSPECTUS CONTENTS
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DEFINITIONS........................................................... 4
SUMMARY AND DIAGRAM OF THE POLICY..................................... 5
EXPENSE TABLES........................................................ 8
GENERAL INFORMATION ABOUT PROTECTIVE LIFE, THE VARIABLE ACCOUNT AND
THE FUNDS............................................................ 10
Protective Life Insurance Company................................... 10
Protective Variable Life Separate Account........................... 10
The Funds........................................................... 10
- The PIC Funds................................................... 11
- The MFS Funds................................................... 11
- The Oppenheimer Funds........................................... 12
- The Calvert Funds............................................... 12
- The Van Eck Funds............................................... 12
Other Investors in the Funds........................................ 13
Addition, Deletion or Substitution of Investments................... 14
Voting Rights....................................................... 14
THE POLICY............................................................ 15
Purchasing a Policy................................................. 15
Cancellation Privilege.............................................. 16
Premiums............................................................ 16
- Minimum Initial Premium......................................... 16
- Planned Periodic Premiums....................................... 16
- Unscheduled Premiums............................................ 16
- Premium Limitations............................................. 16
- No-Lapse Guarantee.............................................. 17
- Premium Payments Upon Increase in Face Amount................... 17
Premium Allocations................................................. 17
Policy Lapse and Reinstatement...................................... 18
- Lapse........................................................... 18
- Reinstatement................................................... 18
CALCULATION OF POLICY VALUES.......................................... 18
Variable Account Value.............................................. 18
- Determination of Units.......................................... 19
- Determination of Unit Value..................................... 19
- Net Investment Factor........................................... 19
Fixed Account Value................................................. 19
POLICY BENEFITS....................................................... 19
Transfers of Policy Values.......................................... 19
- General......................................................... 19
- Telephone Transfers............................................. 20
- Reservation of Rights........................................... 20
- Dollar-Cost Averaging........................................... 20
- Portfolio Rebalancing........................................... 21
Surrender Privilege................................................. 21
Withdrawal Privilege................................................ 21
Policy Loans........................................................ 22
- General......................................................... 22
- Loan Collateral................................................. 22
- Loan Repayment.................................................. 22
- Interest........................................................ 22
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1
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- Non-Payment of Policy Loan...................................... 23
- Effect of a Policy Loan......................................... 23
Death Benefit Proceeds.............................................. 23
- Calculation of Death Benefit Proceeds........................... 23
- Death Benefit Options........................................... 23
- Changing the Death Benefit Option............................... 24
- Changing the Face Amount........................................ 24
- Additional Coverage from Term Rider for Covered Insured
("CIR").......................................................... 25
Settlement Options.................................................. 25
- Minimum Amounts................................................. 26
- Other Requirements.............................................. 26
THE FIXED ACCOUNT..................................................... 26
The Fixed Account................................................... 26
Interest Credited on Fixed Account Value............................ 26
Payments from the Fixed Account..................................... 27
CHARGES AND DEDUCTIONS................................................ 27
Monthly Deduction................................................... 27
- Cost of Insurance Charge........................................ 27
- Cost of Insurance Charge under a CIR............................ 28
- Legal Considerations Relating to Sex -- Distinct Premium
Payments and Benefits............................................ 28
- Monthly Administration Fee...................................... 28
- Supplemental Rider Charges...................................... 28
- Mortality and Expense Risk Charge............................... 29
Transfer Fee........................................................ 29
Withdrawal Charge................................................... 29
Fund Expenses....................................................... 29
EXCHANGE PRIVILEGE.................................................... 29
Effect of the Exchange Offer........................................ 31
- Tax Matters..................................................... 31
- Sales Commissions............................................... 31
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES, DEATH BENEFITS AND
ACCUMULATED
PREMIUMS............................................................. 31
OTHER POLICY BENEFITS AND PROVISIONS.................................. 41
Limits on Rights to Contest the Policy.............................. 41
- Incontestability................................................ 41
- Suicide Exclusion............................................... 41
Changes in the Policy or Benefits................................... 41
- Misstatement of Age or Sex...................................... 41
- Other Changes................................................... 41
Suspension or Delay of Payments..................................... 41
Reports to Policy Owners............................................ 41
Assignment.......................................................... 42
Arbitration......................................................... 42
Supplemental Riders................................................. 42
- Children's Term Life Insurance Rider............................ 42
- Accidental Death Benefit Rider.................................. 42
- Disability Benefit Rider........................................ 42
- Guaranteed Insurability Rider................................... 42
- Protected Insurability Benefit Rider............................ 42
</TABLE>
2
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- Term Rider for Covered Insured.................................. 43
Reinsurance......................................................... 43
USES OF THE POLICY.................................................... 43
TAX CONSIDERATIONS.................................................... 43
Introduction........................................................ 43
Tax Status of Protective Life....................................... 44
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 Not Owned by Individuals............................... 45
- Policies Which Are Not MEC's.................................... 46
-- Tax Treatment of Withdrawals Generally........................ 46
-- Certain Distributions Required by the Tax Law in the First 15
Policy Years..................................................... 46
-- Tax Treatment of Loans........................................ 46
- Policies Which Are MEC's........................................ 46
-- Characterization of a Policy as a MEC......................... 46
-- Tax Treatment of Withdrawals, Loans, Assignments and Pledges
under MECs....................................................... 47
-- Penalty Tax................................................... 47
-- Aggregation of Policies....................................... 47
- Actions to Ensure Compliance with the Tax Law................... 47
- Other Considerations............................................ 47
Federal Income Tax Withholding...................................... 47
OTHER INFORMATION ABOUT THE POLICIES AND PROTECTIVE LIFE.............. 48
Sale of the Policies................................................ 48
Corporate Purchasers................................................
Protective Life Directors and Executive Officers.................... 48
State Regulation.................................................... 50
Additional Information.............................................. 50
Preparation for Year 2000........................................... 50
Independent Public Accountants...................................... 51
Experts............................................................. 52
IMSA................................................................ 52
Legal Matters....................................................... 52
Financial Statements................................................ 52
INDEX TO FINANCIAL STATEMENTS......................................... F-1
APPENDICES
A-Examples of Death Benefit Options................................. A-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE.
3
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DEFINITIONS
"We", "us", "our", "Protective Life", and "Company" refer to Protective Life
Insurance Company. "You" and "your" refer to the person(s) who have been issued
a Policy.
ATTAINED AGE -- The Insured's age as of the nearest birthday on the Policy
Effective Date, plus the number of complete Policy Years since the Policy
Effective Date.
CANCELLATION PERIOD -- Period shown in the Policy during which the Owner may
exercise the cancellation privilege and return the Policy for a refund.
CIR -- Optional Term Rider for Covered Insured.
DEATH BENEFIT -- The amount of insurance provided under the Policy as determined
by the Death Benefit Option. The amount payable on the death of the Insured will
be the Death Benefit proceeds.
DEATH BENEFIT OPTION -- One of two options that an Owner may select for the
computation of Death Benefit Proceeds. Face Amount (Option 1), or Face Amount
Plus Policy Value (Option 2).
DEATH BENEFIT PROCEEDS -- The amount payable to the Beneficiary if the Insured
dies while the Policy is in force and is equal to the Death Benefit plus any
death benefit under any rider to the Policy less any Policy Debt less unpaid
monthly deductions if the Insured dies during a grace period.
FACE AMOUNT -- A dollar amount selected by the Owner and shown in the Policy.
FIXED ACCOUNT -- Part of Protective Life's General Account to which Policy Value
may be transferred or premiums allocated under a Policy.
FIXED ACCOUNT VALUE -- The Policy Value in the Fixed Account.
FUND -- A separate investment portfolio of an open-end management investment
company or unit investment trust in which a Sub-Account invests.
HOME OFFICE -- 2801 Highway 280 South, Birmingham, Alabama 35223.
INITIAL FACE AMOUNT -- The Face Amount on the Policy Effective Date.
INSURED -- The person whose life is covered by the Policy.
ISSUE AGE -- The Insured's age as of the nearest birthday on the Policy
Effective Date.
ISSUE DATE -- The date the Policy is issued.
LAPSE -- Termination of the Policy at the expiration of the grace period while
the Insured is still living.
LOAN ACCOUNT -- An account within Protective Life's general account to which
Fixed Account Value and/or Variable Account Value is transferred as collateral
for Policy loans.
MINIMUM MONTHLY PREMIUM -- For Policies issued on Insured's Issue Age up to 75,
the cumulative minimum amount of premium payments that must be paid in order for
the No-Lapse Guarantee to remain in effect.
MONTHLY ANNIVERSARY DAY -- The same day in each month as the Policy Effective
Date.
MONTHLY DEDUCTION -- The fees and charges deducted monthly from the Policy Value
and/or Variable Account Value as described on the Policy Specifications Page of
the Policy.
POLICY ANNIVERSARY -- The same day and month 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 VALUE -- The sum of the Variable Account Value, the Fixed Account Value,
and the Loan Account Value.
POLICY YEAR -- Each period of twelve months commencing with the Policy Effective
Date and each Policy Anniversary thereafter.
SUB-ACCOUNT -- A separate division of the Variable Account established to invest
in a particular Fund.
SUB-ACCOUNT VALUE -- The Policy Value in a Sub-Account.
SURRENDER VALUE -- The Policy Value minus any outstanding Policy Debt.
VALUATION DAY -- Each day the New York Stock Exchange and the Home Office are
open for business except for a day that a Sub-Account's corresponding Fund does
not value its shares.
VALUATION PERIOD -- The period commencing with the close of regular trading on
the New York Stock Exchange on any Valuation Day and ending at the close of
regular trading on the New York Stock Exchange on the next succeeding Valuation
Day.
VARIABLE ACCOUNT -- Protective Variable Life Separate Account, a separate
investment account of Protective Life into which premiums may be allocated.
VARIABLE ACCOUNT VALUE -- The sum of all Sub-Account Values.
4
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SUMMARY AND DIAGRAM OF THE POLICY
THE FOLLOWING SUMMARY OF PROSPECTUS INFORMATION AND DIAGRAM OF THE POLICY
SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE DESCRIPTION OF THE POLICY IN
THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN FORCE AND THERE IS NO OUTSTANDING
POLICY DEBT.
PURPOSE OF THE POLICY. The Policy is designed to be a long-term investment
providing insurance benefits. A prospective Owner should consider 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).
COMPARISON WITH UNIVERSAL LIFE INSURANCE. The Policy is similar in many
ways to fixed-benefit life insurance. As with fixed-benefit life insurance: the
Owner of a Policy pays premiums for insurance coverage on the person insured;
the Policy provides for accumulation of a Surrender Value which is payable if
the Policy is surrendered during the Insured's lifetime; and the Surrender Value
during the early Policy Years is likely to be substantially lower than the
aggregate premiums paid. However, the Policy differs from fixed-benefit life
insurance in several important respects. Unlike fixed-benefit life insurance,
the Death Benefit may and the Policy Value will increase or decrease to reflect
the investment performance of any Sub-Accounts to which Policy Value is
allocated. Also, unless the entire Policy Value is allocated to the Fixed
Account, there is no guaranteed minimum Surrender Value. If Policy Value is
insufficient to pay charges due, then, after a grace period, the Policy will
lapse without value. (See "Policy Lapse and Reinstatement".) However, Protective
Life guarantees that the Policy will remain in force during the first 5 Policy
Years, as long as certain requirements related to the Minimum Monthly Premium
have been met. (See "Premiums -- No-Lapse Guarantee," and "Policy Loans".) If a
Policy lapses while loans are outstanding, certain amounts may become subject to
income tax and a 10% penalty tax. (See "Tax Considerations".)
DEATH BENEFIT OPTIONS. Two Death Benefit options are available under the
Policy: a level death benefit ("Option 1") and a variable death benefit ("Option
2"). Protective Life guarantees that the Death Benefit Proceeds will never be
less than the Face Amount of insurance (less any outstanding Policy Debt and
past due charges) as long as sufficient premiums are paid to keep the Policy in
force. The Policy provides for a Surrender Value that can be obtained by
surrendering the Policy. The Policy also permits loans and withdrawals, within
limits.
ILLUSTRATIONS. Illustrations in this prospectus or used in connection with
the purchase of a Policy are based on HYPOTHETICAL rates of return. THESE RATES
ARE NOT GUARANTEED. They are illustrative only and SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE PERFORMANCE. Actual rates of return may be
higher or lower than those reflected in Policy illustrations, and therefore,
actual Policy values will be different from those illustrated.
TAX CONSIDERATIONS. Protective Life intends for the Policy to satisfy the
definition of a life insurance contract under Section 7702 of the Internal
Revenue Code of 1986, as amended. A Policy may be a "modified endowment
contract" under federal tax law depending upon the amount of premiums paid in
relation to the Death Benefit provided under the Policy. Protective Life will
monitor Policies and will attempt to notify you on a timely basis if your Policy
is in jeopardy of becoming a modified endowment contract. For further discussion
of the tax status of a Policy and the tax consequences of being treated as a
life insurance contract or a modified endowment contract, see "Tax
Considerations".
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
Oppenheimer Money Fund Sub-Account or to the Fixed Account. (See "Premium
Allocations".)
5
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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.
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 PAID
(PRINCIPAL).
DIAGRAM OF POLICY
PREMIUM PAYMENTS
- You select a payment plan but are not required to pay premiums according to
the plan. You can vary the amount and frequency and can skip planned premium
payments. See "Premiums" pages 16 and 17 for rules and limits.
- The Policy's minimum initial premium and planned premium payments depend on
the Insured's age, sex and underwriting class, Face Amount selected, and any
supplemental riders.
- Unscheduled premium payments may be made, within limits. See page 16.
- Under certain circumstances, extra premiums may be required to prevent
lapse. See "Policy Lapse and Reinstatement" page 18.
ALLOCATION OF PREMIUM PAYMENTS
- You direct the allocation of premium among 23 Sub-Accounts and the Fixed
Account. See pages 17 and 18 for rules and limits on premium allocations.
- The Sub-Accounts invest in corresponding Funds. See pages 10 through 13.
Funds available are the PIC Funds, the Oppenheimer Funds, the MFS Funds, the
Calvert Funds and the Van Eck Funds.
- Interest is credited on amounts allocated to the Fixed Account at a rate
determined by Protective Life, but not less than an annual effective rate of
4%. See pages 17 through 18 and 27 through 28 for rules and limits on Fixed
Account allocations.
DEDUCTIONS FROM POLICY VALUE
- Monthly Deduction is made for cost of insurance, administration fees,
mortality and expense risk charges and charges for any supplemental rider.
Administration fees are $3.00 per month. Monthly mortality and expense risk
charges are currently equal to .062% multiplied by the value of the assets
in the Variable Account (which is equivalent to an annual rate of
approximately 0.75% of such amount) during Policy Years 1 through 10 and
.021% multiplied by the value of the assets in the Variable Account (which
is equivalent to an annual rate of approximately 0.25%) in Policy Years 11
and thereafter. The guaranteed monthly mortality and expense risk charge is
.075% multiplied by the value of the assets in the Variable Account (which
is equivalent to an annual rate of approximately 0.90%) on all years. The
mortality and expense risk charge is not deducted from Fixed Account. See
"Monthly Deduction" pages 27 through 29.
DEDUCTIONS FROM ASSETS
- Investment advisory fees and Fund operating expenses are also deducted from
the assets of each Fund.
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POLICY VALUE
- Is the amount in the Sub-Accounts and in the Fixed Account credited to your
Policy plus the value held in the general account to secure the Policy Debt.
- Varies from day to day to reflect Sub-Account investment experience,
interest credited on any Fixed Account allocations, charges deducted and any
other Policy transactions (such as Policy loans, transfers and withdrawals).
See "Calculation of Policy Value" pages 18 and 19. There is no minimum
guaranteed Policy Value. The Policy may lapse if the Policy Value is
insufficient to cover a Monthly Deduction due. See page 18.
- Can be transferred between and among the Sub-Accounts and the Fixed Account.
A transfer fee of $25 may apply if more than 12 transfers are made in a
Policy Year. See pages 19 and 20 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 Surrender Value and the Death Benefit used to determine Death Benefit
Proceeds.
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CASH BENEFITS DEATH BENEFITS
- - After the first Policy Year, loans may be - Available as lump sum or under a variety
taken for amounts up to 90% of Surrender of settlement options.
Value, at an effective annual interest - The minimum Face Amount is $250,000.
rate of 6.0% during the first 10 Policy - Two Death Benefit Options are available:
Years and currently 4.00% (4.25% guaranteed) Option 1, equal to the Face Amount, and
thereafter. See "Policy Loans" pages 22 Option 2, equal to the Face Amount plus
and 23 for rules and limits. Policy Value. See pages 23 and 24.
- - After the first Policy Year, withdrawals - Flexibility to change the Death Benefit
generally can be made provided there is Option and Face Amount. See pages 24 and 25
sufficient remaining Surrender Value. A for rules and limits.
withdrawal charge of the lesser of $25 or - The No-Lapse Guarantee keeps the Policy in
2% of the withdrawal amount requested will force regardless of the sufficiency of
apply to each withdrawal. See "Withdrawal Surrender Value so long as cumulative
Privilege" on pages 21 and 22 for rules premiums paid on the Policy, less any
and limits. withdrawals and Policy Debt, are at least
- - The Policy may be surrendered in full at equal to the Minimum Monthly Premium. See
any time for its Surrender Value. "No-Lapse Guarantee" page 17.
- - A variety of settlement options are - Supplemental riders may be available. See
available. See pages 25 and 26. pages 42 and 43.
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EXPENSE TABLES
The Sub-Accounts invest in corresponding Funds. (See "The Funds" pages
10-14.) The current Funds available and the investment advisory fees and other
expenses are as follows:
ANNUAL FUND EXPENSES
(AFTER REIMBURSEMENT AND AS PERCENTAGE OF AVERAGE NET ASSETS)
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MANAGEMENT OTHER TOTAL ANNUAL
(ADVISORY) EXPENSES AFTER FUND EXPENSES
FEES REIMBURSEMENT (AFTER REIMBURSEMENTS)
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PROTECTIVE INVESTMENT COMPANY (PIC) (1)
International Equity Fund................................. 1.10% 0.00% 1.10%
Small Cap Value Fund...................................... 0.80% 0.00% 0.80%
Capital Growth Fund....................................... 0.80% 0.00% 0.80%
CORE U.S. Equity Fund..................................... 0.80% 0.00% 0.80%
Growth & Income Fund...................................... 0.80% 0.00% 0.80%
Global Income Fund........................................ 1.10% 0.00% 1.10%
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
(2)(3)
New Discovery Series...................................... 0.90% 0.27% 1.17%
Emerging Growth Series.................................... 0.75% 0.10% 0.85%
Research Series........................................... 0.75% 0.11% 0.86%
Growth With Income Series................................. 0.75% 0.13% 0.88%
Utilities Series.......................................... 0.75% 0.26% 1.01%
Total Return Series....................................... 0.75% 0.16% 0.91%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Aggressive Growth Fund/VA................................. 0.69% 0.02% 0.71%
Global Securities Fund/VA................................. 0.68% 0.06% 0.74%
Capital Appreciation Fund/VA.............................. 0.72% 0.03% 0.75%
Main Street Growth & Income Fund/VA....................... 0.74% 0.05% 0.79%
High Income Fund/VA....................................... 0.74% 0.04% 0.78%
Strategic Bond Fund/VA.................................... 0.74% 0.06% 0.80%
Money Fund/VA............................................. 0.45% 0.05% 0.50%
CALVERT VARIABLE SERIES, INC. (4)
Social Small Cap Growth Portfolio......................... 1.00% 0.33% 1.33%
Social Balanced Portfolio................................. 0.70% 0.18% 0.88%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund................................ 1.00% 0.16% 1.16%
Worldwide Real Estate Fund (5)............................ 0.00% 0.89% 0.89%
</TABLE>
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(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, 1998 were:
CORE U.S. Equity Fund 0.85%, Small Cap Value Fund 0.89%, International
Equity Fund 1.39%, Growth and Income Fund 0.85%, Capital Growth Fund 0.86%,
and Global Income Fund 1.28%. PIC's investment manager has voluntarily
agreed to reimburse certain of each Fund's expenses in excess of its
management fees. Although this reimbursement may be ended on 120 days notice
to PIC, the investment manager has no present intention of doing so.
(2) MFS has agreed to bear expenses for these series, subject to reimbursement
by these series, such that each series' "Other Expenses" shall not exceed
0.25% of the average daily net assets of these series during the current
fiscal year. The payments made by MFS on behalf of each series under this
arrangement are subject to reimbursement by the series to MFS, which will be
accomplished
8
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by the payment of an expense reimbursement fee by the series to MFS computed
and paid monthly at a percentage of the series' average daily net assets for
its then current fiscal year, with a limitation that immediately after such
payment the series' "Other Expenses" will not exceed the percentage set
forth above for that series. The obligation of MFS to bear a series "Other
Expenses" pursuant to this arrangement, and the series' obligation to pay
the reimbursement fee to MFS, terminates on the earlier of the date on which
payments made by the series equal the prior payment of such reimbursable
expenses by MFS, or December 31, 2004 (May 1, 2001 in the case of the New
Discovery Series). MFS may, in its discretion, terminate this arrangement at
an earlier date, provided that the arrangement will continue for each series
until at least May 1, 2000, unless terminated with the consent of the board
of trustees which oversees the series. Absent the reimbursements, total
expenses for the New Discovery Series for the period ended December 31, 1998
were 5.22%.
(3) Each Series has an expense offset arrangement which reduces the Series'
custodian based fee based on the amount of cash maintained by the Series
with its custodian and dividend disbursing agent. Each Series may enter into
other such arrangements and directed brokerage arrangements which would also
have the effect of reducing the Series' expenses. Expenses do not take into
account these expense reductions and are therefore higher than the actual
expenses of the Series.
(4) The figures have been restated to reflect an increase in transfer agency
expenses (the addition of 0.01%) for the Calvert Social Balanced Portfolio
expected to be incurred in 1999. "Other Expenses" reflect an indirect fee.
Net fund operating expenses after reductions for fees paid indirectly
(again, restated for the Calvert Social Balanced Portfolio) would be 0.86%
for Calvert Social Balanced and 1.12% for Calvert Social Small Cap Growth.
(5) Van Eck Associates Corporation (the "Adviser") earned fees for investment
management and advisory services. The fee is based on an annual rate of 1%
of the average daily net assets. The Adviser agreed to waive its management
fees and assume all expenses of the fund except interest, taxes, brokerage
commissions and extraordinary expenses for the period January 1, 1998 to
February 28, 1998. The Adviser also agreed to assume expenses exceeding 1%
of average daily net assets except interest, taxes, brokerage commissions
and extraordinary expenses for the period March 1, 1998 to December 31,
1998. For the year ended December 31, 1998, the Adviser assumed expenses in
the amount of $49,729. Certain of the officers and trustees of the Trust are
officers, directors or stockholders of the Adviser and Van Eck Securities
Corporation. As of December 31, 1998, the Adviser owned 39% of the
outstanding shares of beneficial interest of the Fund.
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 investment management fees and other expenses and total expenses for each
Fund for the period January 1, 1998 to December 31, 1998. For a more complete
description of the various costs and expenses see "Charges and Deductions" and
the prospectus for each of the Funds, which accompany this prospectus.
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GENERAL INFORMATION ABOUT PROTECTIVE LIFE,
THE VARIABLE ACCOUNT AND THE FUNDS
PROTECTIVE LIFE INSURANCE COMPANY
Protective Life is a Tennessee stock life insurance company. Founded in
1907, Protective Life offers individual life and health insurance, annuities,
group life and health insurance, and guaranteed investment contracts. Protective
Life is currently licensed to transact life insurance business in 49 states and
the District of Columbia. As of December 31, 1998, Protective Life had total
assets of approximately $11.6 billion. Protective Life is the principal
operating subsidiary of Protective Life Corporation ("PLC"), an insurance
holding company whose stock is traded on the New York Stock Exchange. PLC, a
Delaware corporation, had consolidated assets of approximately $12.0 billion at
December 31, 1998.
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
Protective Variable Life Separate Account is a separate investment account
of Protective Life established under Tennessee law by the board of directors of
Protective Life on February 22, 1995. The Variable Account is registered with
the Securities and Exchange Commission ("SEC") as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act") and is a "separate account"
within the meaning of the federal securities laws. This registration does not
involve supervision by the SEC of the management or investment policies of
practices or the Variable Account.
Protective Life owns the assets of the Variable Account. These assets are
held separate from other assets and are not part of Protective Life's General
Account. Assets of the Variable Account equal to the reserves or other contract
liabilities of the Variable Account will not be charged with liabilities that
arise from any other business that Protective Life conducts. Protective Life may
transfer to its General Account any assets of the Variable Account which exceed
the reserves and other contract liabilities of the Variable Account (which
always are at least equal to the aggregate Surrender Values under the Policies).
Protective Life may accumulate in the Variable Account the charge for mortality
and expense risks and investment results applicable to those assets that are in
excess of the reserves and other contract liabilities related to the Policies.
Protective Life is obligated to pay all benefits provided under the Policies.
The Variable Account is divided into Sub-Accounts. The income, gains or
losses, whether or not realized, from the assets of each Sub-Account are
credited to or charged against that Sub-Account without regard to any other
income, gains or losses of Protective Life. Each Sub-Account invests exclusively
in shares of a corresponding Fund. Therefore, the investment experience of your
Policy depends on the experience of the Sub-Accounts you select. In the future,
the Variable Account may include other Sub-Accounts that are not available under
the Policies and are not otherwise discussed in this Prospectus.
Currently, twenty-three Sub-Accounts of the Variable Account are available
under the Policies: PIC International Equity; PIC Small Cap Value; PIC Capital
Growth; PIC CORE U.S. Equity; PIC Growth and Income; PIC Global Income; MFS New
Discovery; MFS Emerging Growth; MFS Research; MFS Growth With Income; MFS
Utilities; MFS Total Return; Oppenheimer Aggressive Growth; Oppenheimer Global
Securities: Oppenheimer Capital Appreciation; Oppenheimer Main Street Growth &
Income; Oppenheimer High Income; Oppenheimer Strategic Bond; Oppenheimer Money
Fund; Calvert Social Small Cap Growth; Calvert Social Balanced; Van Eck
Worldwide Hard Assets; and Van Eck Worldwide Real Estate.
THE FUNDS
Each Sub-Account invests in a corresponding Fund. Each Fund is an investment
portfolio of one of the following investment companies: Protective Investment
Company (the "PIC Funds") managed by Protective Investment Advisors, Inc.
(formerly Investment Distributions Advisory Services, Inc.) and subadvised by
Goldman Sachs Asset Management or Goldman Sachs Asset Management International;
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Oppenheimer Variable Account Funds (the "Oppenheimer Funds") managed by
OppenheimerFunds, Inc.; MFS-Registered Trademark- Variable Insurance Trust-SM-
(the "MFS Funds") managed by MFS Investment Management; Calvert Variable Series,
Inc. (the "Calvert Funds") managed by Calvert Asset Management Company, Inc.; or
Van Eck Worldwide Insurance Trust (the "Van Eck Funds") managed by Van Eck
Associates Corporation. Shares of these Funds are offered only to: (1) the
Variable Account, (2) other separate accounts of Protective Life supporting
variable annuity contracts or variable life insurance policies, (3) separate
accounts of other life insurance companies supporting variable annuity contracts
or variable life insurance policies, and (4) certain qualified retirement plans.
Such shares are not offered directly to investors but are available only through
the purchase of such contracts or policies or through such plans. See the
prospectus for each Fund for details about that Fund.
There is no guarantee that any Fund will meet its investment objectives.
Please refer to the prospectus for each of the Funds you are considering for
more information.
PROTECTIVE INVESTMENT COMPANY (PIC)
INTERNATIONAL EQUITY FUND. This Fund seeks long-term capital appreciation.
This Fund will pursue its objectives 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.
SMALL CAP VALUE FUND. This Fund seeks long-term capital growth. This Fund
will pursue its objectives by investing, under normal circumstances, at least
65% of its total assets in equity securities of companies with public stock
market capitalizations of $1 billion or less at the time of investment.
CAPITAL GROWTH FUND. This Fund seeks long-term 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.
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 in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar to
the S&P 500 Index.
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.
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.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
NEW DISCOVERY SERIES. This Fund seeks to provide capital appreciation.
EMERGING GROWTH SERIES. This Fund seeks to provide long-term growth of
capital.
RESEARCH SERIES. This Fund seeks to provide long-term growth of capital and
future income.
GROWTH WITH INCOME SERIES. This Fund seeks to provide reasonable current
income and long-term growth of capital and income.
UTILITIES SERIES. This Fund seeks to provide capital growth and current
income above that available from a portfolio invested entirely in equity
securities.
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TOTAL RETURN SERIES. This Fund seeks primarily to provide above-average
income (compared to a portfolio invested entirely in equity securities)
consistent with the prudent employment of capital and secondarily to provide a
reasonable opportunity for growth of capital and income.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
AGGRESSIVE GROWTH FUND/VA. This Fund seeks to achieve long-term capital
appreciation by investing in "growth-type" companies.
GLOBAL SECURITIES FUND/VA. This Fund seeks long-term capital appreciation
by investing in securities of foreign issuers, "growth-type" companies and
cyclical industries.
CAPITAL APPRECIATION FUND/VA. This Fund seeks to achieve long-term capital
appreciation by investing in securities of well-known established companies.
MAIN STREET GROWTH & INCOME FUND/VA. This Fund seeks a high total return
(which includes growth in the value of its shares as well as current income)
from equity and debt securities. From time to time this Fund may focus on small
to medium capitalization common stocks, bonds and convertible securities.
HIGH INCOME FUND/VA. This Fund seeks a high level of current income from
investment in high yield fixed-income securities.
STRATEGIC BOND FUND/VA. 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.
MONEY FUND/VA. This Fund seeks maximum current income from investments in
"money market" securities consistent with low capital risk and the maintenance
of liquidity. AN INVESTMENT IN THE MONEY FUND IS NOT INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
CALVERT VARIABLE SERIES, INC.
SOCIAL SMALL CAP GROWTH PORTFOLIO. This Fund seeks to provide long-term
capital appreciation by investing in the equity securities of companies that
have small market capitalization.
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 criteria
established for the Fund.
VAN ECK WORLDWIDE INSURANCE TRUST
WORLDWIDE HARD ASSETS FUND. This Fund seeks long-term capital appreciation
by investing primarily in "Hard Asset Securities". Hard Asset Securities are the
stocks, bonds and other securities of companies that derive at least 50% of
gross revenue or profit from the exploration, development, production or
distribution of (together "Hard Assets"):
- (i) precious metals,
- (ii) natural resources,
- (iii) real estate; and
- (iv) commodities.
WORLDWIDE REAL ESTATE FUND. This Fund seeks a high return by investing in
equity securities of companies that own real estate or that principally do
business in real estate.
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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 OF INVESTING IN
THE FUNDS AND OTHER ASPECTS OF THEIR OPERATIONS CAN BE FOUND IN THE CURRENT
PROSPECTUS FOR EACH OF 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 PREMIUMS OR TRANSFERS AMONG THE SUB-ACCOUNTS.
Certain Funds may have investment objectives and policies similar to other
mutual funds (sometimes having similar names) that are managed by the same
investment adviser or manager. The investment results of the Funds, however, may
be more or less favorable than the results of such other mutual funds.
Protective Life does not guarantee or make any representation that the
investment results of any Fund is, or will be, comparable to any other mutual
fund, even one with the same investment adviser or manager.
Each Fund sells its shares to the Variable Account under the terms of a
participation agreement between the appropriate investment company and
Protective Life. The termination provisions of these agreements vary. The
Variable Account would not be able to purchase additional shares of a Fund if
the participation agreement relating to the Fund terminates. Owners would not be
able to allocate assets in the Variable Account or premiums to Sub-Accounts
investing in that Fund. In certain circumstances, it is also possible that a
Fund may refuse to sell its shares to the Variable Account despite the fact that
the participation agreement relating to that Fund has not been terminated.
Should a Fund decide to discontinue selling its shares to the Variable Account,
Protective Life would not be able to honor requests from Owners to allocate
premiums 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 under which the 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
Protective Investment Company (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 and its
subsidiary Protective Life and Annuity Insurance Company. PIC may in the future
sell shares of its Funds to other separate accounts of Protective Life or its
life insurance company affiliates supporting other variable annuity contracts or
variable life insurance policies. In addition, upon obtaining regulatory
approval, PIC may sell shares to certain retirement plans qualifying under
Section 401 of the Internal Revenue Code. 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 policies 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 PIC's
response to any such conflicts does not provide enough protection for Owners, it
will take appropriate action on its own, including withdrawing the Variable
Account's investment in the Fund. (See the PIC prospectus for more detail.)
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Shares of the Oppenheimer Funds, MFS Funds, Calvert Funds and Van Eck 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." 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 among and between the
interests of Policy Owners and other of the Fund's various investors. In the
event of any such material conflicts, Protective Life will consider what action
may be appropriate, including removing the Fund from the Variable Account or
replacing the Fund with another fund. As is the case with PIC, the board of
directors (or trustees) of each of the Oppenheimer Funds, MFS Funds, Calvert
Funds and Van Eck 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 may make additions to, deletions from, or substitutions for
the shares that are held in or purchased by the Variable Account. 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 of
that Fund and substitute shares of another Fund. Protective Life will not
substitute any shares 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, which would each invest in shares corresponding to a
new Fund. Subject to applicable law and any required SEC approval, Protective
Life may 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).
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), 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 may 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 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 Protective Life determine 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.
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 based on the Owner's percentage interest of a Sub-
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Account determined as of the date established by the Fund for determining
shareholders eligible to vote at the relevant meeting of that Fund.
Shares as to which no timely instructions are received and shares held
directly by Protective Life are voted by Protective Life in proportion to the
voting instructions that are received with respect to all Policies participating
in a Sub-Account. Voting instructions to abstain on any item are applied to
reduce the votes eligible to be cast on that item.
Protective Life may, if required by state insurance officials, disregard
Owner voting instructions if such instructions would require shares to be voted
so as to cause a change in sub-classification or investment objectives of one or
more of the Funds, or to approve or disapprove the investment management
agreement or an investment advisory agreement. In addition, Protective Life may
under certain circumstances disregard voting instructions that would require
changes in the investment management agreement, investment manager, an
investment advisory agreement or an investment adviser of one or more of the
Funds, provided that Protective Life reasonably disapproves of such changes in
accordance with applicable regulations under the 1940 Act. If Protective Life
ever disregards voting instructions, Owners will be advised of that action and
of the reasons for such action in the next semiannual report.
THE POLICY
PURCHASING A POLICY
To purchase a Policy, a prospective Owner must submit a completed
application and at least the minimum 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"). (See "Premiums".) Protective Life requires satisfactory evidence of the
Insured's insurability, which may include a medical examination of the Insured.
Generally, Protective Life will issue a Policy covering an Insured up to age 75
if evidence of insurability satisfies Protective Life's underwriting rules.
Acceptance of an application depends on Protective Life's underwriting rules,
and Protective Life may reject an application for any reason. With the consent
of the Owner, a Policy may be issued on a basis other than that applied for
(I.E., on 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.
Temporary life insurance coverage also may be provided under the terms of a
temporary insurance agreement. Under such agreements, the total amount of
insurance which may become effective prior to delivery of the Policy may not
exceed $500,000 (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 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 received by Protective Life at the Home Office
while the Insured is living, the Owner may name a Contingent Owner or a new
Owner. If there are joint Owners, all Owners must authorize the exercise of any
right under the Policy. 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".)
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CANCELLATION PRIVILEGE
You may cancel your Policy for a refund during the Cancellation Period by
returning it to Protective Life's Home Office or to the sales representative who
sold it along with a written cancellation request. The Cancellation Period is
determined by the law of the state in which the application is signed and is
shown in your Policy. In most states it expires at the latest of
(1) ten days after you receive your Policy,
(2) 45 days after you sign your application, or
(3) 10 days after Protective Life mails or delivers a Notice of Right of
Withdrawal.
Return of the Policy by mail is effective upon receipt by Protective Life.
We will treat the Policy as if it had never been issued. Within seven calendar
days after receiving the returned Policy, Protective Life will refund the sum of
(1) the difference between premiums paid and amounts allocated to the Fixed
Account or the Variable Account,
(2) Fixed Account Value determined as of the date the returned Policy is
received, and
(3) Variable Account Value determined as of the date the returned Policy is
received.
This amount may be more or less than the aggregate premiums paid. In states
where required, Protective Life will refund premiums paid.
PREMIUMS
MINIMUM INITIAL PREMIUM. The minimum initial premium 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 and the planned periodic premiums that the
applicant selects. See "Planned Periodic Premiums," below. Consult your sales
representative for information about the initial premium required for the
coverage you desire.
PLANNED PERIODIC PREMIUMS. In the application the Owner selects a plan for
paying level premiums at specified intervals (e.g., quarterly, semi-annually or
annually). At the Owner's election, Protective Life will also arrange for
payment of planned periodic premiums on a monthly basis (on any day except the
29th, 30th, or 31st of a month) under a pre-authorized payment arrangement. You
are not required to pay premiums in accordance with these plans. You can pay
more or less than planned or skip a planned periodic premium entirely. (See,
however, "Policy Lapse and Reinstatement".) Subject to the limits described
below, you can change the amount and frequency of planned periodic premiums
whenever you want by written notice to Protective Life at the Home Office.
Unless you have arranged to pay planned periodic premiums by pre-authorized
payment arrangement or have otherwise requested, you will be sent reminder
notices for planned periodic premiums.
UNSCHEDULED PREMIUMS. Subject to the limitations described below,
additional unscheduled premiums may be paid in any amount and at any time. By
written notice to Protective Life at the Home Office, the Owner may specify that
all unscheduled premiums are to be applied as repayments of Policy Debt, if any.
PREMIUM LIMITATIONS. Premiums may be paid 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.
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Additional limitations apply to premiums. Premium payments must be at least
$150 ($50 if paid monthly by a pre-authorized payment arrangement) and must be
remitted to the Home Office. (See "Premium Allocations.") Protective Life also
reserves the right to limit the amount of any premium payment. In addition, at
any point in time aggregate premiums paid under a Policy may not exceed
guideline premium payment limitations for life insurance policies set forth in
the Internal Revenue Code. Protective Life will immediately refund any portion
of any premium payment that is determined to be in excess of the limits
established by law to qualify a Policy as a contract for life insurance.
Protective Life will monitor Policies and will attempt to notify the Owner on a
timely basis if his or her Policy is in jeopardy of becoming a modified
endowment contract under the Internal Revenue Code. (See "Tax Considerations".)
NO-LAPSE GUARANTEE. In return for paying the Minimum Monthly Premium or an
amount equivalent thereto by the Monthly Anniversary Day, Protective Life
guarantees that a Policy will remain in force during the first 5 Policy Years
regardless of the Policy Value, if, for each month that the Policy has been in
force since the Policy Effective Date, the total premiums paid less any
withdrawals and Policy Debt is greater than or equal to the Minimum Monthly
Premium (shown in the Policy) multiplied by the number of complete policy months
since the Policy Effective Date, including the current policy month. The Minimum
Monthly Premium is calculated for each Policy based on the age, sex and rate
class of the Insured, the requested Face Amount and any supplemental riders. The
Company will NOT notify you in the event the No-Lapse Guarantee is no longer in
effect.
If you increase your Policy's Face Amount while the No-Lapse Guarantee is in
effect, Protective Life will NOT EXTEND the period of this guarantee beyond the
5th Policy Year. The guarantee period is based on the Initial Face Amount.
However, upon an increase in Face Amount, Protective Life will recalculate the
Minimum Monthly Premium, which will generally also increase. Protective Life
will notify you of any increase in the Minimum Monthly Premium and will amend
your Policy to reflect the change.
PREMIUM PAYMENTS UPON INCREASE IN FACE AMOUNT. Depending on the Policy
Value at the time of an increase in the Face Amount and the amount of the
increase requested, an additional premium payment may be necessary or a change
in the amount of planned periodic premiums may be advisable. (See "Death Benefit
Proceeds".) You will be notified if a premium payment is necessary or a change
appropriate.
PREMIUM ALLOCATIONS
Owners must indicate in the application how premium is to be allocated to
the Sub-Accounts and/ or to the Fixed Account. These allocation instructions
apply to both initial and subsequent Net Premiums. Owners may change the
allocation instructions in effect at any time by written notice to Protective
Life at the Home Office. 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 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 premiums, Protective
Life reserves the right to allocate your initial premium (and any subsequent
premium paid during the Cancellation Period) to the Oppenheimer Money Fund
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 Oppenheimer
Money Fund Sub-Account or the Fixed Account and all premiums will be allocated
according to your allocation instructions then in effect.
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Planned periodic premiums and unscheduled premiums not requiring additional
underwriting will be credited to the Policy and the premiums will be invested as
requested as of the Valuation Date they are received by the Home Office.
However, any premium paid in connection with an increase in Face Amount will be
allocated to the Fixed Account until underwriting has been completed. When
approved, the Policy Value in the Fixed Account attributable to the resulting
premium will be reallocated in accordance to your allocation instructions then
in effect. If an additional premium payment is rejected, Protective Life will
return the entire premium immediately, without any adjustment for investment
experience.
Unless designated by the Owner as a loan repayment, premiums received from
Owners (other than planned periodic premiums) are treated as unscheduled
premiums.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike a conventional life insurance policy, failure to pay planned
periodic premiums will not necessarily cause a Policy to lapse. Conversely,
paying all planned periodic premiums will not necessarily prevent a Policy from
lapsing. Except when the No-Lapse Guarantee is in effect, a Policy will lapse if
its Policy Value is insufficient to cover the Monthly Deduction (see "Monthly
Deduction") on the Monthly Anniversary Day.
If the Policy Value on a Monthly Anniversary Day is less than the amount of
the Monthly Deduction due on that date and the No-Lapse Guarantee is not in
effect, the Policy will be in default and a grace period will begin. This could
happen if investment experience has been sufficiently unfavorable that it has
resulted in a decrease in Policy Value or the Policy Value has decreased because
you have not paid sufficient premium to offset prior Monthly Deductions.
In the event of a Policy default, the Owner has a 61-day grace period to
make a payment of premium 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
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 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
received by Protective Life at the Home Office, (2) the Insured is still living,
(3) the Owner pays premium equal to (a) all Monthly Deductions that were due but
unpaid during the grace period, and (b) which are at least sufficient to keep
the reinstated Policy in force for three months, (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.
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 PREMIUMS ALLOCATED TO THE
SUB-ACCOUNTS, TRANSFERS IN OR OUT OF THE SUB-ACCOUNTS, OR ANY WITHDRAWALS OF
VARIABLE ACCOUNT VALUE. THERE IS NO GUARANTEED MINIMUM VARIABLE ACCOUNT VALUE. A
POLICY'S VARIABLE ACCOUNT VALUE THEREFORE DEPENDS UPON A NUMBER OF FACTORS. THE
VARIABLE ACCOUNT VALUE FOR A
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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(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 as of which the
premium(s) or transferred amount is invested in the Sub-Account. Therefore,
premiums 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.
FIXED ACCOUNT VALUE
The Fixed Account Value under a Policy at any time is equal to: (1) the
premium allocated to the Fixed Account, plus (2) amounts transferred to the
Fixed Account, plus (3) interest credited to the Fixed Account, less (4)
transfers from the Fixed Account (including any transfer fees deducted), less
(5) withdrawals from the Fixed Account (including any withdrawal charges
deducted), less (6) Monthly Deductions. See "The Fixed Account," for a
discussion of how interest is credited to the Fixed Account.
POLICY BENEFITS
TRANSFERS OF POLICY VALUES
GENERAL. Upon receipt of written notice to Protective Life at the Home
Office at any time on or after the later of the following: (1) thirty days after
the Policy Effective Date, or (2) six days after the expiration of the
Cancellation Period, you may transfer the Fixed Account Value or any Policy
Value in a Sub-Account to other Sub-Accounts or the Fixed Account, subject to
certain restrictions. Transfers (including telephone transfers -- described
below) are processed as of the date a request is received at the Home Office.
Protective Life may, however defer transfers under the same conditions that
payment of Death Benefit Proceeds, withdrawals and surrenders may be delayed.
(See "Suspension or Delay of
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Payments".) The minimum amount that may be transferred is the lesser of $100 or
the entire Policy Value in any Sub-Account or the Fixed Account from which the
transfer is made. If, after the transfer, the Policy Value remaining in a
Sub-Account(s) or the Fixed Account would be less than $100, Protective Life
reserves the right to transfer the entire amount instead of the requested
amount. The maximum amount which may be transferred from the Fixed Account in
any Policy Year is the greater of (1) $2500, or (2) 25% of the Fixed Account
Value. Protective Life reserves the right to limit transfers to 12 per Policy
Year. For each additional transfer over 12 in any Policy Year, Protective Life
reserves the right to charge a transfer fee. The transfer fee, if any, is
deducted from the amount being transferred. (See "Transfer Fee".)
TELEPHONE TRANSFERS. Transfers may be made upon instructions given by
telephone, provided the appropriate election has been made on the application or
written authorization is provided.
Protective Life will send you a confirmation of all instructions
communicated by telephone to determine if they are genuine. For telephone
transfers we require a form of personal identification prior to acting on
instructions received by telephone. We also make a tape-recording of the
instructions given by telephone. If we follow these procedures we are not liable
for any losses due to unauthorized or fraudulent instructions. Protective Life
reserves the right to suspend telephone transfer privileges at any time for any
class of Policies.
RESERVATION OF RIGHTS. Protective Life reserves the right without prior
notice to modify, restrict, suspend or eliminate the transfer privileges
(including telephone transfers) at any time, for any class of Policies, for any
reason. In particular, we reserve the right not to honor transfer requests by a
third party holding a power of attorney from an Owner where that third party
requests simultaneous transfers on behalf of the Owners of two or more Policies.
DOLLAR-COST AVERAGING. If you elect at the time of application or at any
time thereafter by written notice to the Home Office, you may systematically and
automatically transfer, on a monthly or quarterly basis, specified dollar
amounts from or to the Fixed Account or any of the Sub-Account(s). This is known
as the dollar-cost averaging method of investment. By transferring on a
regularly scheduled basis as opposed to allocating the total amount at one
particular time, an Owner may be less susceptible to the impact of market
fluctuations in Sub-Account unit values. Protective Life, however, makes no
guarantee that the dollar-cost averaging method will result in a profit or
protect against loss.
To elect dollar-cost averaging, Policy Value in the source Sub-Account or
the Fixed Account Value must be at least $5,000 at the time of election.
Automatic transfers for dollar-cost averaging are subject to all transfer
restrictions other than the maximum transfer amount from the Fixed Account
restriction. You may elect dollar cost averaging for periods of at least 12
months but no longer than 48 months. At least $100 must be transferred each
month or $300 each quarter. Dollar-cost averaging transfers may commence on any
day of the month that you request following six days after the end of the
Cancellation Period, except the 29th, 30th, or 31st. If no day is selected,
transfers will occur on the Monthly Anniversary 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 Policy Value in the source Sub-Account
or the Fixed Account is depleted, (3) the Owner, by written notice received by
Protective Life at the Home Office, instructs Protective Life to cease the
automatic transfers, (4) a grace period begins under the Policy, or (5) the
maximum amount of Policy Value has been transferred under a dollar-cost
averaging election.
Automatic transfers made to facilitate dollar-cost averaging will not count
toward the 12 transfers permitted each Policy Year if Protective Life elects to
limit the number of transfers or impose the transfer fee. Protective Life
reserves the right to discontinue offering automatic dollar-cost averaging
transfers upon 30 days' written notice to the Owner.
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PORTFOLIO REBALANCING. At the time of application or at any time thereafter
by written notice to Protective Life, you may instruct Protective Life to
automatically transfer, on a quarterly, semi-annual or annual basis, your
Variable Account Value among specified Sub-Accounts to achieve a particular
percentage allocation of Variable Account Value among such Sub-Accounts
("Portfolio Rebalancing"). Such percentage allocations must be in whole numbers
and must allocate amounts only among the Sub-Accounts. No amounts will be
transferred to the Fixed Account as part of Portfolio Rebalancing. A minimum
Variable Account Value of $100 is required for Portfolio Rebalancing. Unless you
instruct otherwise when electing rebalancing, the percentage allocation of your
Variable Account Value for Portfolio Rebalancing will be based on your premium
allocation instructions in effect at the time of rebalancing. Any allocation
instructions that you give us that differ from your then current premium
allocation instructions will be deemed to be a request to change your premium
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 each
applicable 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 received by Protective
Life at the Home Office, 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 Policy 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 still in force and while the Insured is
still living, You may surrender your 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 at the Home Office, the
Policy and any other required documents are received by Protective Life. 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 Fixed Account".) A Policy which terminates upon surrender cannot later be
reinstated.
WITHDRAWAL PRIVILEGE
At any time after the first Policy Year, an Owner, by written notice
received at the Home Office, may make a withdrawal of Surrender Value in minimum
amounts of $500. Protective Life will withdraw the amount requested, plus a
withdrawal charge, from Policy Value as of the end of the Valuation Period
during which the written request is received. (See "Withdrawal Charge".)
The Owner may specify the amount of the withdrawal to be made from any
Sub-Account or the Fixed Account. If the Owner does not so specify, or if the
Sub-Account Value or Fixed Account Value is insufficient to carry out the
request, the withdrawal from each Sub-Account and the Fixed Account is based on
the proportion that such Sub-Account Value(s) and Fixed Account Value bears to
the total 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 Fixed Account".)
If Death Benefit Option 1 is in effect, Protective Life reserves the right
to reduce the Face Amount by the withdrawn amount. Protective Life may reject a
withdrawal request if the withdrawal would reduce the Face Amount below the
minimum amount for which the Policy would be issued under Protective Life's
then-current rules, or if the withdrawal would cause the Policy to fail to
qualify as a life insurance contract under applicable tax laws, as interpreted
by Protective Life. If the Face
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Amount at the time of the withdrawal includes increases from the Initial Face
Amount and the withdrawal requires a decrease of Face Amount, the reduction is
made first from the most recent increase, then from prior increases, if any, in
reverse order of their being made and finally from the Initial Face Amount.
POLICY LOANS
GENERAL. After the first Policy Anniversary and while the Insured is still
living, an Owner may borrow $500 or more from Protective Life using the Policy
as the security for the loan. Policy loans must be requested by written notice
received by Protective Life at the Home Office and the maximum amount that an
Owner may borrow is an amount equal to 90% of the Policy's Surrender Value on
the date that the loan request is received. Outstanding Policy loans therefore
reduce the amount available for new Policy loans. Loan proceeds generally are
mailed within seven calendar days of the loan being approved. (See "Suspension
or Delay of Payments", and "Payments from the Fixed Account".)
LOAN COLLATERAL. When a Policy loan is made, an amount equal to the loan is
transferred out of the Sub-Accounts and the Fixed Account and into a Loan
Account established for the Policy. Like the Fixed Account, a Policy's Loan
Account is part of Protective Life's General Account and amounts therein earn
interest as credited by Protective Life from time to time. Because Loan Account
values are part of Policy Value, a loan will have no immediate effect on the
Policy Value. In contrast, Surrender Value (including, as applicable, Variable
Account Value and Fixed Account Value) under a Policy is reduced immediately by
the amount transferred to the Loan Account. The Owner(s) can specify the
Sub-Accounts and the Fixed Account from which collateral is transferred to the
Loan Account. If no allocation is specified, collateral is transferred from each
Sub-Account and from the Fixed Account in the same proportion that the value in
each Sub-Account and the 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 in the
same proportion that each Sub-Account Value and the Fixed Account Value bears to
the total unloaned Policy Value.
LOAN REPAYMENT. You may repay all or part of your Policy Debt (the amount
borrowed plus unpaid interest) at any time while the Insured is living and the
Policy is in force. Loan repayments must be sent to the Home Office and are
credited as of the date received. The Owner may specify in writing that any
unscheduled premiums paid 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. Thus, a loan repayment will have no
immediate effect on the Policy Value, but the Surrender Value (including, as
applicable, Variable Account Value and Fixed Account Value) under a Policy is
increased immediately by the amount transferred from the Loan Account. Unless
specified otherwise by the Owner(s), amounts are transferred to the Sub-Accounts
and the Fixed Account in the same proportion that premium is allocated.
INTEREST. During Policy Years 2 through 10, Protective Life will charge
interest daily on any outstanding loan at an effective annual rate of 6.0%.
During Policy Years 11 and thereafter, Protective Life currently charges
interest daily on any outstanding loan at an effective annual rate of 4.0% (with
a maximum guaranteed rate of 4.25%). Interest is due and payable at the end of
each Policy Year while a loan is outstanding. We will notify you of the amount
due. If interest is not paid when due, the amount of the interest is added to
the loan and becomes part of the Policy Debt.
The Loan Account is credited with interest at an effective annual rate of
not less than 4%. Thus, the net cost of a loan is 2.0% per year during Policy
Years 2 through 10, and currently 0.00% thereafter (the difference between the
rate of interest charged on Policy loans and the amount credited on the
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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. The interest is transferred and allocated
to the Sub-Accounts and the Fixed Account in the same proportion that premium is
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 Policy Value (I.E., the Surrender
Value becomes zero) on any Valuation Date, the Policy may be in default. If this
occurs, you, and any assignee of record, will be sent notice of the default. You
will have a 31-day grace period to submit a sufficient payment to avoid a lapse
(I.E., termination) of the Policy. The notice will specify the amount that must
be repaid to prevent lapse.
EFFECT OF A POLICY LOAN. A loan, whether or not repaid, has a permanent
effect on the Death Benefit and Policy values because the investment results of
the Sub-Accounts and current interest rates credited on Fixed Account Value do
not apply to Policy Value in the Loan Account. The larger the loan and longer
the loan is outstanding, the greater will be the effect of Policy Value being
held as collateral in the Loan Account. (See "No Lapse Guarantee".) Depending on
the investment results of the Sub-Accounts or credited interest rates for the
Fixed Account while the loan is outstanding, the effect could be favorable or
unfavorable. Policy loans also may increase the potential for Lapse if
investment results of the Sub-Accounts to which Surrender Value is allocated is
unfavorable. If a Policy lapses with loans outstanding, certain amounts may be
subject to income tax. 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
settlement option. (See "Settlement Options".)
CALCULATION OF DEATH BENEFIT PROCEEDS. The Death Benefit Proceeds are equal
to the Death Benefit under the Death Benefit Option selected calculated as of
the date of the Insured's death, plus any supplemental rider benefits, minus any
Policy Debt on that date and, if the Insured died during a grace period, minus
any past due Monthly Deductions. Under certain circumstances, the amount of the
Death Benefit may be further adjusted. (See "Limits on Rights to Contest the
Policy" and "Misstatement of Age or Sex".)
If part or all of the Death Benefit is paid in one sum, Protective Life will
pay interest on this sum as required by applicable state law from the date of
receipt of due proof of the Insured's death to the date of payment.
DEATH BENEFIT OPTIONS. The Policy Owner may choose one of two Death Benefit
Options for use in determining the Death Benefit. Under Death Benefit Option 1,
the Death Benefit is the greater of: (1) the Face Amount under the Policy on the
date of the Insured's death, or (2) a specified percentage of Policy Value on
the date of the Insured's death. Under Death Benefit Option 2, the Death Benefit
is the greater of: (1) the Face Amount under the Policy plus the Policy Value on
the date of the Insured's death, or (2) the same specified percentage of the
Policy Value on the date of the Insured's death.
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The specified percentage is 250% when the Insured has reached an "Attained
Age" of 40 or less by date of death, and decreases each year thereafter to 100%
when the Insured has reached an "Attained Age" of 95 at death. A table showing
these percentages for Attained Ages 0 to 95 and examples of Death Benefit
calculations for both Death Benefit Options are found in Appendix A.
Under Death Benefit Option 1, the Death Benefit remains level at the Face
Amount unless the Policy Value multiplied by the specified percentage exceeds
that Face Amount, in which event the Death Benefit will vary as the Policy Value
varies. Owners who are satisfied with the amount of their insurance coverage
under the Policy and who prefer to have favorable investment performance and
additional premiums reflected in higher Policy Value, rather than increased
Death Benefits, generally should select Option 1. Under Death Benefit Option 2,
the Death Benefit always varies as the Policy Value varies (although it is never
less than the Face Amount). Owners who prefer to have favorable investment
performance and additional premiums reflected in increased Death Benefits
generally should select Option 2.
CHANGING THE DEATH BENEFIT OPTION. On or after the first Policy
Anniversary, you may change the Death Benefit option on your Policy subject to
the following rules. After any change, the Face Amount must be at least
$250,000. The effective date of the change will be the Monthly Anniversary Day
that coincides with or next follows the day that Protective Life receives and
accepts the request. Protective Life may require satisfactory evidence of
insurability.
When a change from Option 1 to Option 2 is made, the Face Amount after the
change is effected will be equal to the Face Amount before the change less the
Policy Value on the effective date of the change. When a change from Option 2 to
Option 1 is made, the Face Amount after the change will be equal to the Face
Amount before the change is effected plus the Policy Value on the effective date
of the change.
CHANGING THE FACE AMOUNT. On or after the first Policy Anniversary, you may
request a change in the Face Amount. If a change in the Face Amount would result
in total premiums paid exceeding the premium limitations prescribed under
current tax law to qualify your Policy as a life insurance contract, Protective
Life will immediately return to you the amount of such excess above the premium
limitations.
Protective Life reserves the right to decline a requested decrease in the
Face Amount if compliance with the guideline premium limitations under current
tax law resulting from such a decrease would result in immediate termination of
the Policy, or if to effect the requested decrease, payments to the Owner would
have to be made from Policy Value for compliance with the guideline premium
limitations, and the amount of such payments would exceed the Surrender Value
under the Policy.
Any increase in the Face Amount must be at least $10,000 and an application
must be submitted. Protective Life reserves the right to require satisfactory
evidence of insurability. In addition, the Insured's Attained Age must be less
than the current maximum Issue Age for the Policies, as determined by Protective
Life from time to time. A change in planned periodic premiums may be advisable.
(See "Premiums Upon Increase in Face Amount".) The increase in Face Amount will
become effective on the date shown on the supplemental Policy Specifications
Page which will be issued and attached to the Policy, and the Policy Value will
be adjusted to the extent necessary to reflect a monthly deduction as of the
effective date based on the increase in Face Amount. When the No-Lapse Guarantee
is in effect, the Policy's Minimum Monthly Premium amount is also generally
increased. (See "No-Lapse Guarantee," and "Premiums Upon Increase in Face
Amount".)
An increase in Face Amount may be cancelled by the Owner in accordance with
the Policy's cancellation privilege provisions, which also apply to increases in
Face Amount. In such case, the amount refunded will be calculated in accordance
with such provisions described above, except that if no additional premiums are
required in connection with the Face Amount increase, then the amount
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refunded is limited to that portion of the first Monthly Deduction following the
increase that is attributable to cost of insurance charges for the increase and
the monthly administration fee for the increase. (See "Cancellation Privilege".)
The Face Amount after any decrease must be at least $250,000. Protective
Life reserves the right to prohibit any decrease in Face Amount (i) for three
years following an increase in Face Amount; and (ii) for one Policy Year
following the last decrease in Face Amount. If the Initial Face Amount of the
Policy has been increased prior to the requested decrease, then the decrease
will first be applied against any previous increases in Face Amount in the
reverse order in which they occurred. The decrease will then be applied to the
Initial Face Amount. A decrease in Face Amount will become effective on the
Monthly Anniversary Day that coincides with or next follows receipt and
acceptance of a request at the Home Office.
Decreasing the Face Amount of the Policy may have the effect of decreasing
monthly cost of insurance charges. Decreasing the Face Amount also may have tax
consequences. (See "Tax Considerations".)
ADDITIONAL COVERAGE FROM TERM RIDER FOR COVERED INSURED ("CIR"). An owner
may also obtain additional insurance coverage by purchasing a CIR at the time
the Policy is issued (or later, subject to availability and additional
underwriting). A CIR increases the Death Benefit under the Policy by the face
amount of the CIR. The face amount of the CIR does not vary with the investment
experience of the Variable Account. (See "Supplemental Riders".) In addition, a
CIR may be canceled separately from the Policy (I.E., it can be canceled without
causing the Policy to be canceled or to Lapse). The cost of insurance charge for
the CIR will be deducted from the Policy Value as part of the Monthly Deduction.
(See "Monthly Deduction -- Cost of Insurance Charge under a CIR".) No additional
premium expense charge is assessed in connection with a CIR.
Owners may increase or decrease the face amount of a CIR separately from the
Face Amount of a Policy. Likewise, the Face Amount of a Policy may be increased
or decreased without affecting the face amount of a CIR. Coverage on an
increment of Face Amount may have a cost of insurance charge that is higher than
the same increment of face amount under the CIR. Owners should consult their
sales representative before deciding whether to increase or decrease the Face
Amount of the Policy or the CIR face amount.
Owners should consult their sales representative when deciding whether or
not to purchase a CIR.
SETTLEMENT OPTIONS
The Policy offers a variety of ways of receiving proceeds payable under the
Policy, such as on surrender or death, 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 settlement options upon
request. All of these settlement 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.
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OPTION 3 -- INTEREST INCOME. Protective Life will hold any amount applied
under this option. Interest on the unpaid balance will be paid each month at a
rate determined by Protective Life. This rate will not be less than the
equivalent of 3% per year.
OPTION 4 -- PAYMENTS FOR A FIXED AMOUNT. Equal monthly payments will be
made of an agreed fixed amount. The amount of each payment may not be less than
$10 for each $1,000 applied. Interest will be credited each month on the unpaid
balance and added to it. This interest will be at a rate set by us, but not less
than an effective rate of 3% per year. Payments continue until the amount
Protective Life holds runs out. The last payment will be for the balance only.
MINIMUM AMOUNTS. Protective Life reserves the right to pay the total amount
of the Policy in one lump sum, if less than $5,000. If monthly payments are less
than $50, payments may be made quarterly, semi-annually, or annually at
Protective Life's option.
OTHER REQUIREMENTS. Settlement options must be elected by written notice
received by Protective at the Home Office. The Owner may elect settlement
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 FIXED ACCOUNT
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED
ACCOUNT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR HAS THE
FIXED ACCOUNT BEEN REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT
COMPANY ACT OF 1940. ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS
THEREIN ARE SUBJECT TO THE PROVISIONS OF THESE ACTS AND, AS A RESULT, THE STAFF
OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN
THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT. THE DISCLOSURE REGARDING THE
FIXED ACCOUNT MAY, HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE
PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND
COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
THE FIXED ACCOUNT
The Fixed Account consists of assets owned by Protective Life with respect
to the Policies, other than those in the Variable Account. It is part of
Protective Life's general account assets. Protective Life's general account
assets are used to support its insurance and annuity obligations other than
those funded by separate accounts, and are subject to the claims of Protective
Life's general creditors. Subject to applicable law, Protective Life has sole
discretion over the investment of the assets of the Fixed Account. The Loan
Account is part of the Fixed Account. Guarantees of premium allocated to the
Fixed Account, and interest credited thereto, are backed by Protective Life. The
Fixed Account Value is calculated daily. (See "Fixed Account Value".)
INTEREST CREDITED ON FIXED ACCOUNT VALUE
Protective Life guarantees that the interest credited during the first
Policy Year to the initial premium allocated to the Fixed Account will not be
less than the initial annual effective interest rate shown in the Policy. The
interest rate credited to subsequent premium allocated to or amounts transferred
to the Fixed Account will be the annual effective interest rate in effect on the
date that the premium is received by Protective Life or the date that the
transfer is made. The interest rate is
26
<PAGE>
guaranteed to apply to such amounts for a twelve month period which begins on
the date that the premium is allocated or the date that the transfer is made.
After an interest rate guarantee expires as to a premium or amount
transferred, (I.E., 12 months after the premium or transfer is placed in the
Fixed Account) Protective Life will credit interest on the Fixed Account Value
attributable to such premium or transferred amount at the current interest rate
in effect. New current interest rates are effective for such Fixed Account Value
for 12 months from the time that they are first applied. Protective Life, in 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%. For purposes of crediting interest, amounts deducted, transferred or
withdrawn from the Fixed Account are accounted for on a "first-in-first-out"
(FIFO) basis.
PAYMENTS FROM THE FIXED ACCOUNT
Payments from the Fixed Account for a withdrawal, surrender or loan request
may be deferred for up to six months from the date Protective Life receives the
written request. If a payment from the Fixed Account is deferred for 30 days or
more, it will bear interest at a rate of 4% per year (or an alternative rate if
required by applicable state insurance law), compounded annually while payment
is deferred.
CHARGES AND DEDUCTIONS
MONTHLY DEDUCTION
On the Issue Date, Protective Life will deduct the Monthly Deduction from
the Policy Value. Subsequent Monthly Deductions will be made on each Monthly
Anniversary Day thereafter. The Monthly Deduction consists of (1) cost of
insurance charges ("cost of insurance charge"), (2) administration charges (the
"monthly administration fee"), (3) mortality and expense risk charge (the
"mortality and expense risk charge") and (4) any charges for supplemental riders
("supplemental charges"), as described below. The Monthly Deduction is deducted
from the Sub-Accounts and the Fixed Account pro-rata on the basis of the
relative Policy Value in each.
COST OF INSURANCE CHARGE. This charge compensates Protective Life for the
expense of underwriting the Death Benefit. The charge depends on a number of
variables and therefore will vary from Policy to Policy and from Monthly
Anniversary Day to Monthly Anniversary Day. For any Policy, the cost of
insurance on a Monthly Anniversary Day is calculated by multiplying the current
cost of insurance rate for the Insured by the net amount at risk under the
Policy for that Monthly Anniversary Day.
The cost of insurance rate for a Policy is based on and varies with the
Issue Age, duration, sex and rate class of the Insured and on the number of
years that a Policy has been in force. Protective Life currently places Insureds
in the following rate classes, based on underwriting: Preferred (ages 18-75) or
Nonsmoker (ages 0-75), or Tobacco (ages 15-75) or Smoker (ages 15-75), and
substandard rate classes, which involve a higher mortality risk than the Smoker,
Tobacco or Nonsmoker classes.
Protective Life will determine a cost of insurance rate for increments of
Face Amount above the Initial Face Amount based on the Issue Age, duration, sex
and rate class of the Insured at the time of the request for an increase. The
following rules will apply for purposes of determining the net amount at risk
for each rate.
Protective Life places the Insured in a rate class when the Policy is
issued, based on Protective Life's underwriting of the application. This
original rate class applies to the Initial Face Amount. When an increase in Face
Amount is requested, Protective Life conducts underwriting before approving the
increase (except as noted below) to determine whether a different rate class
will apply to the increase. If the rate class for the increase has lower cost of
insurance rates than the original rate class, the rate class for the increase
also will be applied to the Initial Face Amount. If the rate class for the
increase has a higher cost of insurance rate than the original rate class, the
rate class for the increase will apply
27
<PAGE>
only to the increase in Face Amount, and the original rate class will continue
to apply to the Initial Face Amount.
Protective Life does not conduct underwriting for an increase in Face Amount
if the increase is requested as part of a conversion from a term or a graded
premium whole life contract or on exercise of a guaranteed option to increase
the Face Amount without underwriting. (See "Supplemental Riders".)
In the case of a term conversion, the rate class that applies to the
increase is the same rate class that applied to the term contract. In the case
of a guaranteed option, the Insured's rate class for an increase will be the
class in effect when the guaranteed option rider was issued.
Where, as in Death Benefit Option 1, the net amount at risk is equal to the
Death Benefit less Policy Value, the entire Policy Value is applied first to
offset the Death Benefit derived from the Initial Face Amount. Only if the
Policy Value exceeds the Initial Face Amount is the excess applied to offset the
portion of the Death Benefit derived from increases in Face Amount in the order
of the increases. If there is the decrease in Face Amount after an increase, the
decrease is applied first to decrease any prior increases in Face Amount,
starting with the most recent increase and then each prior increase.
Protective Life guarantees that the cost of insurance rates used to
calculate the monthly cost of insurance charge will not exceed the maximum cost
of insurance rates set forth in the Policies. The guaranteed rates for standard
classes are based on the 1980 Commissioners' Standard Ordinary Mortality Tables,
Male or Female, Smoker or Nonsmoker Mortality Rates ("1980 CSO Tables"). [The
guaranteed rates for substandard classes are based on multiples of or additions
to the 1980 CSO Tables.]
Protective Life's current cost of insurance rates may be less than the
guaranteed rates that are set forth in the Policy. Current cost of insurance
rates will be determined based on Protective Life's expectations as to future
mortality, investment earnings, expenses, taxes, and persistency experience.
Cost of insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker standard class are lower than guaranteed rates for an Insured of the
same age and sex in a smoker standard class. Cost of insurance rates (whether
guaranteed or current) for an Insured in a nonsmoker or smoker standard class
are generally lower than guaranteed rates for an Insured of the same age and sex
and smoking status in a substandard class.
COST OF INSURANCE CHARGE UNDER A CIR. The cost of insurance charge is
determined in a similar manner for the face amount under a CIR and for any
increase in the face amount under a CIR. Generally, both the current and the
guaranteed cost of insurance rates under a CIR are substantially the same as the
current and guaranteed cost of insurance rates on the Face Amount of the Policy.
LEGAL CONSIDERATIONS RELATING TO SEX -- DISTINCT PREMIUM PAYMENTS AND
BENEFITS. Mortality tables for the Policies generally distinguish between males
and females. Thus, premiums and benefits under Policies covering males and
females of the same age will generally differ.
Protective Life does, however, also offer Policies based on unisex mortality
tables if required by state law. Employers and employee organizations
considering purchase of a Policy should consult with their legal advisors to
determine whether purchase of a Policy based on sex-distinct actuarial tables is
consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Upon request, Protective Life may offer Policies with unisex mortality
tables to such prospective purchasers.
MONTHLY ADMINISTRATION FEE. This charge compensates Protective Life for
administration expenses associated with the Policies and the Variable Account.
These expenses relate to premium billing and collection, recordkeeping,
processing death benefit claims, Policy loans, Policy changes, reporting and
overhead costs, processing applications and establishing Policy records. The
monthly administration fee is a flat charge of $3 per month.
SUPPLEMENTAL RIDER CHARGES. See "Supplemental Riders".
28
<PAGE>
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 Fixed Account assets
attributable to the Policies. The maximum monthly mortality and expense risk
charge to be deducted is equal to .075% multiplied by the Variable Account
Value, which is equivalent to an annual rate of approximately 0.90% of such
amount. Protective Life reserves the right to charge less than the maximum
charge. The monthly mortality and expense risk charge is currently equal to
.062% multiplied by the Variable Account Value, (which is equivalent to an
annual rate of approximately 0.75% of such amount) during policy years 1 through
10 and .021% multiplied by the Variable Account Value (which is equivalent to an
annual rate of approximately 0.25% of such amount) in Policy Years 11 and
thereafter.
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.
WITHDRAWAL CHARGE
Protective Life will deduct an administrative charge upon a Withdrawal. This
charge is the lesser of 2% of the amount withdrawn or $25. This charge will be
deducted from the amount withdrawn unless the Owner requests the charge to be
deducted from the Policy Value in addition to the amount requested to be
withdrawn. (See "Withdrawal Privilege" for rules for allocating the deduction.)
FUND EXPENSES
The value of the net assets of each Sub-Account reflects the investment
advisory fees and other expenses incurred by the corresponding Fund in which the
Sub-Account invests. See the prospectus for each of 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
29
<PAGE>
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) no surrender charges under the Policy; (3)
different death benefits; and (4) differences in federal and state laws and
regulations applicable to each of the types of policies.
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>
Sales Charges/Premium Ranges from 0% to 12% of premium None
Expense Charge payments in all policy years.
The premium expense charge can
vary by age.
Administrative Fees Ranges from $4 to $5 monthly. $3 per month in all Policy Years
Mortality and Expense None A monthly charge equal to .062%
Charges multiplied by the Variable
Account Value, (which is
equivalent to annual rate of
0.75% of such amount) during
Policy Years 1-10; and
currently a monthly charge
equal to .021% multiplied by
the Variable Account (which is
equivalent to 0.25% of such
amount) in Policy Years 11 and
thereafter. The guaranteed
monthly mortality and expense
risk charge is .075% multiplied
by the Variable Account Value
(which is equivalent to an
annual rate of approximately
0.90%) in all years.
Withdrawal Charges $25 The lesser of $25 or 2% of the
withdrawal amount requested.
Monthly Deductions A monthly deduction consisting A monthly deduction consisting
of: (1) cost of insurance of: (1) cost of insurance
charges (2) administrative fees charges (2) administrative fees
(see above) (3) any charges for (see above) (3) monthly
supplemental riders. (applies mortality and expense charges
to Existing Life Policies which (see above) and (4) any charges
are universal life plans) for supplemental riders.
Surrender Charges Surrender charges vary by policy None
type and are incurred during a
surrender charge period which
ranges from 0 years up to 19
years.
Guaranteed Interest Ranges from 4% to 5%. Only Fixed Account : 4%.
Rate
</TABLE>
30
<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 if available with the Policy. Evidence of
insurability may be required. An increase or addition of riders 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 MATTERS. 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 Internal Revenue Code. A Policy purchased in an exchange
will generally be treated as a newly issued contract as of the effective date of
the Policy. This could have various tax consequences. (See "Tax
Considerations".)
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 standardized 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. (See "Sale of Policies".)
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES,
DEATH BENEFITS AND ACCUMULATED PREMIUM PAYMENTS
The following tables have been prepared to illustrate hypothetically how
certain values under a Policy change with investment performance over an
extended period of time. The tables illustrate how Policy Values, Surrender
Values and Death Benefits under a Policy covering an Insured of a given age on
the Issue Date, would vary over time if planned premium payments were paid
annually and the return on the assets in each of the Funds were an assumed
uniform gross annual rate of 0%, 6% and 12%. The values would be different from
those shown if the returns averaged 0%, 6% or 12% but fluctuated over and under
those averages throughout the years shown. The tables also show planned periodic
premiums accumulated at 5% interest compounded annually. THE HYPOTHETICAL
INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. Actual rates of
return for a particular Policy may be more or less than the hypothetical
investment rates of return and will depend on a number of factors including the
investment allocations made by an Owner and prevailing rates. These
illustrations assume that net premium is allocated equally among the
Sub-Accounts available under the Policy, and that no amounts are allocated to
the Fixed Account.
The illustrations reflect the fact that the net investment return on the
assets held in the Sub-Accounts is lower than the gross after tax return of the
selected Funds. The tables assume an average annual expense ratio of 0.89% of
the average daily net assets of the Funds available under the Policies.
31
<PAGE>
This average annual expense ratio is based on the expense ratios of each of the
Funds for the last fiscal year, adjusted, as appropriate, for any material
changes in expenses effective for the current fiscal year of a Fund. For
information on Fund expenses, see the prospectus for each of the Funds
accompanying this prospectus.
In addition, the illustrations reflect the monthly charge to the Variable
Account for assuming mortality and expense risks, which is currently equal to
.062% multiplied by the Variable Account Value, (which is equivalent to an
annual rate of approximately 0.75% of such amount) during Policies Years 1-10
and .021% multiplied by the Variable Account Value (which is equivalent to an
annual rate of approximately 0.25% of such amount) in Policy Years 11 and
thereafter. The guaranteed monthly mortality and expense risk charge is equal to
.075% multiplied by the Variable Account Value (which is equivalent to 0.90% 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 -1.64%, 4.36% and 10.36%, respectively and for Policy Years 11 and thereafter
- -1.14%, 4.86% and 10.86%, respectively.
The illustrations also reflect the deduction of the monthly administration
fee and the monthly cost of insurance charge for the hypothetical Insured.
Protective Life's current cost of insurance charges, and the guaranteed maximum
cost of insurance charges that Protective Life has the contractual right to
charge, are reflected in separate illustrations on each of the following pages.
All the illustrations reflect the fact that no charges for federal or state
income taxes are currently made against the Variable Account and assume no
Policy Debt or charges for supplemental riders.
The illustrations are based on Protective Life's sex distinct rates for
nonsmokers. Upon request, Owner(s) will be furnished with a comparable
illustration based upon the proposed Insured's individual circumstances. Such
illustrations may assume different hypothetical rates of return in addition to
those illustrated in the following tables.
32
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$4,500 ANNUAL PLANNED PREMIUM
$250,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------- ---------------------------- -------------------------------
POLICY 5% 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 4,725 3,986 3,986 250,000 4,239 4,239 250,000 4,494 4,494 250,000
47 2 9,686 7,882 7,882 250,000 8,638 8,638 250,000 9,425 9,425 250,000
48 3 14,896 11,642 11,642 250,000 13,154 13,154 250,000 14,790 14,790 250,000
49 4 20,365 15,315 15,315 250,000 17,840 17,840 250,000 20,683 20,683 250,000
50 5 26,109 18,833 18,833 250,000 22,633 22,633 250,000 27,088 27,088 250,000
51 6 32,139 22,258 22,258 250,000 27,604 27,604 250,000 34,128 34,128 250,000
52 7 38,471 25,459 25,459 250,000 32,626 32,626 250,000 41,737 41,737 250,000
53 8 45,120 28,413 28,413 250,000 37,679 37,679 250,000 49,958 49,958 250,000
54 9 52,101 31,097 31,097 250,000 42,745 42,745 250,000 58,844 58,844 250,000
55 10 59,431 34,323 34,323 250,000 48,613 48,613 250,000 69,221 69,221 250,000
56 11 67,127 37,537 37,537 250,000 54,878 54,878 250,000 80,965 80,965 250,000
57 12 75,208 40,511 40,511 250,000 61,269 61,269 250,000 93,854 93,854 250,000
58 13 83,694 43,220 43,220 250,000 67,777 67,777 250,000 108,023 108,023 250,000
59 14 92,604 45,718 45,718 250,000 74,466 74,466 250,000 123,687 123,687 250,000
60 15 101,959 47,911 47,911 250,000 81,271 81,271 250,000 140,989 140,989 250,000
61 16 111,782 49,724 49,724 250,000 88,151 88,151 250,000 160,134 160,134 250,000
62 17 122,096 51,372 51,372 250,000 95,307 95,307 250,000 181,507 181,507 250,000
63 18 132,926 52,814 52,814 250,000 102,734 102,734 250,000 205,384 205,384 254,676
64 19 144,297 54,107 54,107 250,000 110,504 110,504 250,000 231,849 231,849 282,856
65 20 156,237 55,228 55,228 250,000 118,634 118,634 250,000 261,105 261,105 313,326
66 21 168,773 56,610 56,610 250,000 127,451 127,451 250,000 293,590 293,590 349,373
67 22 181,937 57,718 57,718 250,000 136,640 136,640 250,000 329,455 329,455 388,757
68 23 195,759 58,523 58,523 250,000 146,235 146,235 250,000 369,041 369,041 431,779
69 24 210,272 58,992 58,992 250,000 156,275 156,275 250,000 412,731 412,731 478,768
70 25 225,511 59,088 59,088 250,000 166,810 166,810 250,000 460,941 460,941 530,083
71 26 241,511 58,766 58,766 250,000 177,901 177,901 250,000 514,136 514,136 580,974
72 27 258,312 57,985 57,985 250,000 189,627 189,627 250,000 572,971 572,971 635,997
73 28 275,952 56,696 56,696 250,000 202,080 202,080 250,000 638,097 638,097 695,526
74 29 294,475 54,900 54,900 250,000 215,390 215,390 250,000 710,284 710,284 760,003
75 30 313,924 52,462 52,462 250,000 229,678 229,678 250,000 790,366 790,366 829,885
76 31 334,345 49,282 49,282 250,000 245,024 245,024 257,275 879,337 879,337 923,304
77 32 355,787 45,238 45,238 250,000 261,059 261,059 274,112 977,578 977,578 1,026,457
78 33 378,301 40,278 40,278 250,000 277,783 277,783 291,672 1,086,032 1,086,032 1,140,333
79 34 401,941 34,146 34,146 250,000 295,209 295,209 309,970 1,205,684 1,205,684 1,265,968
80 35 426,763 26,758 26,758 250,000 313,363 313,363 329,031 1,337,663 1,337,663 1,404,546
81 36 452,827 17,764 17,764 250,000 332,252 332,252 348,864 1,483,129 1,483,129 1,557,286
82 37 480,193 6,868 6,868 250,000 351,890 351,890 369,485 1,643,375 1,643,375 1,725,544
83 38 508,928 * * * 372,306 372,306 390,921 1,819,872 1,819,872 1,910,866
84 39 539,099 * * * 393,497 393,497 413,172 2,014,090 2,014,090 2,114,795
85 40 570,779 * * * 415,486 415,486 436,260 2,227,744 2,227,744 2,339,131
86 41 604,043 * * * 438,258 438,258 460,171 2,462,497 2,462,497 2,585,622
87 42 638,970 * * * 461,823 461,823 484,914 2,720,291 2,720,291 2,856,306
88 43 675,644 * * * 486,177 486,177 510,486 3,003,153 3,003,153 3,153,310
89 44 714,151 * * * 511,312 511,312 536,878 3,313,244 3,313,244 3,478,907
90 45 754,583 * * * 537,219 537,219 564,080 3,652,894 3,652,894 3,835,539
91 46 797,037 * * * 563,891 563,891 586,446 4,024,630 4,024,630 4,185,615
92 47 841,614 * * * 592,244 592,244 610,011 4,438,099 4,438,099 4,571,242
93 48 888,420 * * * 622,535 622,535 634,986 4,899,420 4,899,420 4,997,409
94 49 937,566 * * * 655,066 655,066 661,617 5,415,855 5,415,855 5,470,014
95 50 989,169 * * * 690,188 690,188 690,188 5,996,064 5,996,064 5,996,064
96 51 1,043,353 * * * 728,311 728,311 728,311 6,650,406 6,650,406 6,650,406
97 52 1,100,245 * * * 768,282 768,282 768,282 7,375,616 7,375,616 7,375,616
98 53 1,159,983 * * * 810,190 810,190 810,190 8,179,369 8,179,369 8,179,369
99 54 1,222,707 * * * 854,128 854,128 854,128 9,070,171 9,070,171 9,070,171
100 55 1,288,567 * * * 900,195 900,195 900,195 10,057,449 10,057,449 10,057,449
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable Premium Expense charges, current cost of
insurance rates, and a monthly administrative charge of $3.00 per month in
all Policy Years, and expense risk charge equal to 0.062% multiplied by the
Variable Account Value, which is equivalent to an annual rate of 0.75% of
such amount during Policy Years 1-10: and in Policy Years 11+ is equal to
0.021% multiplied by the Variable Account Value, which is equivalent to an
annual rate of 0.25% of such amount.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of the Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
33
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$4,500 ANNUAL PLANNED PREMIUM
$250,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT -------------------------- --------------------------- ----------------------------------
POLICY 5% 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 4,725 3,577 3,577 250,000 3,818 3,818 250,000 4,059 4,059 250,000
47 2 9,686 7,038 7,038 250,000 7,742 7,742 250,000 8,475 8,475 250,000
48 3 14,896 10,381 10,381 250,000 11,773 11,773 250,000 13,283 13,283 250,000
49 4 20,365 13,605 13,605 250,000 15,915 15,915 250,000 18,522 18,522 250,000
50 5 26,109 16,704 16,704 250,000 20,166 20,166 250,000 24,232 24,232 250,000
51 6 32,139 19,678 19,678 250,000 24,528 24,528 250,000 30,462 30,462 250,000
52 7 38,471 22,515 22,515 250,000 28,995 28,995 250,000 37,256 37,256 250,000
53 8 45,120 25,203 25,203 250,000 33,561 33,561 250,000 44,667 44,667 250,000
54 9 52,101 27,734 27,734 250,000 38,221 38,221 250,000 52,755 52,755 250,000
55 10 59,431 30,093 30,093 250,000 42,967 42,967 250,000 61,586 61,586 250,000
56 11 67,127 32,269 32,269 250,000 47,795 47,795 250,000 71,240 71,240 250,000
57 12 75,208 34,252 34,252 250,000 52,699 52,699 250,000 81,807 81,807 250,000
58 13 83,694 36,034 36,034 250,000 57,683 57,683 250,000 93,398 93,398 250,000
59 14 92,604 37,607 37,607 250,000 62,745 62,745 250,000 106,138 106,138 250,000
60 15 101,959 38,950 38,950 250,000 67,877 67,877 250,000 120,163 120,163 250,000
61 16 111,782 40,042 40,042 250,000 73,072 73,072 250,000 135,636 135,636 250,000
62 17 122,096 40,860 40,860 250,000 78,322 78,322 250,000 152,749 152,749 250,000
63 18 132,926 41,371 41,371 250,000 83,615 83,615 250,000 171,722 171,722 250,000
64 19 144,297 41,533 41,533 250,000 88,933 88,933 250,000 192,821 192,821 250,000
65 20 156,237 41,302 41,302 250,000 94,262 94,262 250,000 216,291 216,291 259,550
66 21 168,773 40,636 40,636 250,000 99,592 99,592 250,000 242,060 242,060 288,052
67 22 181,937 39,496 39,496 250,000 104,922 104,922 250,000 270,256 270,256 318,902
68 23 195,759 37,835 37,835 250,000 110,249 110,249 250,000 301,102 301,102 352,290
69 24 210,272 35,602 35,602 250,000 115,576 115,576 250,000 334,847 334,847 388,422
70 25 225,511 32,728 32,728 250,000 120,900 120,900 250,000 371,759 371,759 427,523
71 26 241,511 29,107 29,107 250,000 126,203 126,203 250,000 412,129 412,129 465,705
72 27 258,312 24,471 24,471 250,000 131,394 131,394 250,000 456,412 456,412 506,618
73 28 275,952 18,904 18,904 250,000 136,584 136,584 250,000 505,118 505,118 550,579
74 29 294,475 12,049 12,049 250,000 141,672 141,672 250,000 558,729 558,729 597,840
75 30 313,924 3,653 3,653 250,000 146,636 146,636 250,000 617,859 617,859 648,752
76 31 334,345 * * * 151,480 151,480 250,000 683,250 683,250 717,413
77 32 355,787 * * * 156,213 156,213 250,000 754,805 754,805 792,546
78 33 378,301 * * * 160,855 160,855 250,000 833,064 833,064 874,717
79 34 401,941 * * * 165,438 165,438 250,000 918,612 918,612 964,543
80 35 426,763 * * * 169,985 169,985 250,000 1,012,071 1,012,071 1,062,674
81 36 452,827 * * * 174,506 174,506 250,000 1,114,091 1,114,091 1,169,795
82 37 480,193 * * * 179,005 179,005 250,000 1,225,351 1,225,351 1,286,619
83 38 508,928 * * * 183,482 183,482 250,000 1,346,550 1,346,550 1,413,878
84 39 539,099 * * * 187,945 187,945 250,000 1,478,405 1,478,405 1,552,325
85 40 570,779 * * * 192,436 192,436 250,000 1,621,674 1,621,674 1,702,757
86 41 604,043 * * * 197,038 197,038 250,000 1,777,163 1,777,163 1,866,021
87 42 638,970 * * * 201,881 201,881 250,000 1,945,737 1,945,737 2,043,024
88 43 675,644 * * * 207,149 207,149 250,000 2,128,310 2,128,310 2,234,725
89 44 714,151 * * * 213,110 213,110 250,000 2,325,867 2,325,867 2,442,160
90 45 754,583 * * * 220,129 220,129 250,000 2,539,422 2,539,422 2,666,393
91 46 797,037 * * * 228,726 228,726 250,000 2,770,003 2,770,003 2,880,803
92 47 841,614 * * * 239,667 239,667 250,000 3,025,885 3,025,885 3,116,662
93 48 888,420 * * * 252,348 252,348 257,395 3,311,154 3,311,154 3,377,378
94 49 937,566 * * * 266,037 266,037 268,697 3,630,775 3,630,775 3,667,082
95 50 989,169 * * * 280,925 280,925 280,925 3,990,827 3,990,827 3,990,827
96 51 1,043,353 * * * 297,285 297,285 297,285 4,399,381 4,399,381 4,399,381
97 52 1,100,245 * * * 314,326 314,326 314,326 4,849,257 4,849,257 4,849,257
98 53 1,159,983 * * * 332,077 332,077 332,077 5,344,634 5,344,634 5,344,634
99 54 1,222,707 * * * 350,569 350,569 350,569 5,890,114 5,890,114 5,890,114
100 55 1,288,567 * * * 369,831 369,831 369,831 6,490,765 6,490,765 6,490,765
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable Premium Expense charges, guaranteed
cost of insurance rates, a monthly administration charge of $3.00 per month
in all Policy Years, and a monthly mortality and expense risk charge equal
to 0.075% multiplied by the Variable Account Value, which is equivalent to
an annual rate of 0.90% of such amount in all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of the Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
34
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$10,000 ANNUAL PLANNED PREMIUM
$250,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------- ---------------------------- ----------------------------------
POLICY 5% 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 10,500 9,389 9,389 259,389 9,970 9,970 259,970 10,551 10,551 260,551
47 2 21,525 18,593 18,593 268,593 20,339 20,339 270,339 22,154 22,154 272,154
48 3 33,101 27,565 27,565 277,565 31,071 31,071 281,071 34,862 34,862 284,862
49 4 45,256 36,350 36,350 286,350 42,225 42,225 292,225 48,832 48,832 298,832
50 5 58,019 44,888 44,888 294,888 53,755 53,755 303,755 64,129 64,129 314,129
51 6 71,420 53,234 53,234 303,234 65,729 65,729 315,729 80,943 80,943 330,943
52 7 85,491 61,245 61,245 311,245 78,016 78,016 328,016 99,275 99,275 349,275
53 8 100,266 68,892 68,892 318,892 90,594 90,594 340,594 119,243 119,243 369,243
54 9 115,779 76,145 76,145 326,145 103,437 103,437 353,437 140,978 140,978 390,978
55 10 132,068 83,942 83,942 333,942 117,520 117,520 367,520 165,652 165,652 415,652
56 11 149,171 91,881 91,881 341,881 132,677 132,677 382,677 193,623 193,623 443,623
57 12 167,130 99,472 99,472 349,472 148,301 148,301 398,301 224,347 224,347 474,347
58 13 185,986 106,679 106,679 356,679 164,376 164,376 414,376 258,082 258,082 508,082
59 14 205,786 113,563 113,563 363,563 180,981 180,981 430,981 295,215 295,215 545,215
60 15 226,575 120,003 120,003 370,003 198,013 198,013 448,013 335,980 335,980 585,980
61 16 248,404 125,900 125,900 375,900 215,385 215,385 465,385 380,661 380,661 630,661
62 17 271,324 131,524 131,524 381,524 233,387 233,387 483,387 429,962 429,962 679,962
63 18 295,390 136,823 136,823 386,823 251,992 251,992 501,992 484,324 484,324 734,324
64 19 320,660 141,869 141,869 391,869 271,299 271,299 521,299 544,369 544,369 794,369
65 20 347,193 146,634 146,634 396,634 291,311 291,311 541,311 610,679 610,679 860,679
66 21 375,052 151,677 151,677 401,677 312,636 312,636 562,636 684,525 684,525 934,525
67 22 404,305 156,304 156,304 406,304 334,623 334,623 584,623 765,986 765,986 1,015,986
68 23 435,020 160,476 160,476 410,476 357,262 357,262 607,262 855,842 855,842 1,105,842
69 24 467,271 164,155 164,155 414,155 380,537 380,537 630,537 954,956 954,956 1,204,956
70 25 501,135 167,296 167,296 417,296 404,427 404,427 654,427 1,064,275 1,064,275 1,314,275
71 26 536,691 169,851 169,851 419,851 428,907 428,907 678,907 1,184,849 1,184,849 1,434,849
72 27 574,026 171,780 171,780 421,780 453,957 453,957 703,957 1,317,846 1,317,846 1,567,846
73 28 613,227 173,038 173,038 423,038 479,551 479,551 729,551 1,464,557 1,464,557 1,714,557
74 29 654,388 173,655 173,655 423,655 505,738 505,738 755,738 1,626,490 1,626,490 1,876,490
75 30 697,608 173,487 173,487 423,487 532,389 532,389 782,389 1,805,132 1,805,132 2,055,132
76 31 742,988 172,455 172,455 422,455 559,440 559,440 809,440 2,002,200 2,002,200 2,252,200
77 32 790,638 170,469 170,469 420,469 586,803 586,803 836,803 2,219,584 2,219,584 2,469,584
78 33 840,670 167,546 167,546 417,546 614,501 614,501 864,501 2,459,489 2,459,489 2,709,489
79 34 893,203 163,475 163,475 413,475 642,323 642,323 892,323 2,724,121 2,724,121 2,974,121
80 35 948,363 158,295 158,295 408,295 670,299 670,299 920,299 3,016,183 3,016,183 3,266,183
81 36 1,006,281 151,772 151,772 401,772 698,183 698,183 948,183 3,338,382 3,338,382 3,588,382
82 37 1,067,095 143,800 143,800 393,800 725,846 725,846 975,846 3,693,858 3,693,858 3,943,858
83 38 1,130,950 134,475 134,475 384,475 753,358 753,358 1,003,358 4,086,295 4,086,295 4,336,295
84 39 1,197,998 123,517 123,517 373,517 780,408 780,408 1,030,408 4,519,383 4,519,383 4,769,383
85 40 1,268,398 110,978 110,978 360,978 807,008 807,008 1,057,008 4,997,561 4,997,561 5,247,561
86 41 1,342,318 96,481 96,481 346,481 832,726 832,726 1,082,726 5,524,131 5,524,131 5,800,338
87 42 1,419,933 79,999 79,999 329,999 857,472 857,472 1,107,472 6,102,385 6,102,385 6,407,505
88 43 1,501,430 61,381 61,381 311,381 881,018 881,018 1,131,018 6,736,866 6,736,866 7,073,709
89 44 1,587,002 40,473 40,473 290,473 903,120 903,120 1,153,120 7,432,427 7,432,427 7,804,048
90 45 1,676,852 17,148 17,148 267,148 923,553 923,553 1,173,553 8,194,289 8,194,289 8,604,003
91 46 1,771,194 * * * 942,137 942,137 1,192,137 9,028,120 9,028,120 9,389,245
92 47 1,870,254 * * * 958,832 958,832 1,208,832 9,955,565 9,955,565 10,254,232
93 48 1,974,267 * * * 973,464 973,464 1,223,464 10,990,346 10,990,346 11,240,346
94 49 2,083,480 * * * 985,846 985,846 1,235,846 12,145,051 12,145,051 12,395,051
95 50 2,198,154 * * * 995,787 995,787 1,245,787 13,421,679 13,421,679 13,671,679
96 51 2,318,562 * * * 1,003,080 1,003,080 1,253,080 14,833,343 14,833,343 15,083,343
97 52 2,444,990 * * * 1,007,517 1,007,517 1,257,517 16,394,586 16,394,586 16,644,586
98 53 2,577,739 * * * 1,008,878 1,008,878 1,258,878 18,121,525 18,121,525 18,371,525
99 54 2,717,126 * * * 1,006,924 1,006,924 1,256,924 20,032,011 20,032,011 20,282,011
100 55 2,863,482 * * * 1,001,413 1,001,413 1,251,413 22,145,841 22,145,841 22,395,841
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable Premium Expense charges, current cost of
insurance rates, and a monthly administrative charge of $3.00 per month in
all Policy Years, and expense risk charge equal to 0.062% multiplied by the
Variable Account Value, which is equivalent to an annual rate of 0.75% of
such amount during Policy Years 1-10: and in Policy Years 11+ is equal to
0.021% multiplied by the Variable Account Value, which is equivalent to an
annual rate of 0.25% of such amount.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of the Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
35
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$10,000 ANNUAL PLANNED PREMIUM
$250,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------- ---------------------------- -------------------------------
POLICY 5% 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 10,500 8,966 8,966 258,966 9,533 9,533 259,533 10,100 10,100 260,100
47 2 21,525 17,706 17,706 267,706 19,394 19,394 269,394 21,151 21,151 271,151
48 3 33,101 26,219 26,219 276,219 29,593 29,593 279,593 33,244 33,244 283,244
49 4 45,256 34,504 34,504 284,504 40,138 40,138 290,138 46,478 46,478 296,478
50 5 58,019 42,556 42,556 292,556 51,033 51,033 301,033 60,959 60,959 310,959
51 6 71,420 50,372 50,372 300,372 62,287 62,287 312,287 76,807 76,807 326,807
52 7 85,491 57,941 57,941 307,941 73,899 73,899 323,899 94,142 94,142 344,142
53 8 100,266 65,249 65,249 315,249 85,864 85,864 335,864 113,096 113,096 363,096
54 9 115,779 72,287 72,287 322,287 98,182 98,182 348,182 133,817 133,817 383,817
55 10 132,068 79,036 79,036 329,036 110,846 110,846 360,846 156,461 156,461 406,461
56 11 149,171 85,484 85,484 335,484 123,851 123,851 373,851 181,202 181,202 431,202
57 12 167,130 91,618 91,618 341,618 137,191 137,191 387,191 208,233 208,233 458,233
58 13 185,986 97,429 97,429 347,429 150,867 150,867 400,867 237,771 237,771 487,771
59 14 205,786 102,908 102,908 352,908 164,876 164,876 414,876 270,052 270,052 520,052
60 15 226,575 108,029 108,029 358,029 179,201 179,201 429,201 305,321 305,321 555,321
61 16 248,404 112,769 112,769 362,769 193,823 193,823 443,823 343,849 343,849 593,849
62 17 271,324 117,104 117,104 367,104 208,723 208,723 458,723 385,932 385,932 635,932
63 18 295,390 120,995 120,995 370,995 223,866 223,866 473,866 431,881 431,881 681,881
64 19 320,660 124,398 124,398 374,398 239,208 239,208 489,208 482,032 482,032 732,032
65 20 347,193 127,267 127,267 377,267 254,701 254,701 504,701 536,752 536,752 786,752
66 21 375,052 129,563 129,563 379,563 270,299 270,299 520,299 596,450 596,450 846,450
67 22 404,305 131,255 131,255 381,255 285,967 285,967 535,967 661,587 661,587 911,587
68 23 435,020 132,308 132,308 382,308 301,659 301,659 551,659 732,663 732,663 982,663
69 24 467,271 132,686 132,686 382,686 317,328 317,328 567,328 810,230 810,230 1,060,230
70 25 501,135 132,343 132,343 382,343 332,912 332,912 582,912 894,882 894,882 1,144,882
71 26 536,691 131,199 131,199 381,199 348,312 348,312 598,312 987,237 987,237 1,237,237
72 27 574,026 129,012 129,012 379,012 363,256 363,256 613,256 1,087,800 1,087,800 1,337,800
73 28 613,227 125,956 125,956 375,956 377,886 377,886 627,886 1,197,569 1,197,569 1,447,569
74 29 654,388 121,740 121,740 371,740 391,873 391,873 641,873 1,317,148 1,317,148 1,567,148
75 30 697,608 116,234 116,234 366,234 405,033 405,033 655,033 1,447,369 1,447,369 1,697,369
76 31 742,988 109,361 109,361 359,361 417,229 417,229 667,229 1,589,201 1,589,201 1,839,201
77 32 790,638 101,048 101,048 351,048 428,320 428,320 678,320 1,743,715 1,743,715 1,993,715
78 33 840,670 91,239 91,239 341,239 438,176 438,176 688,176 1,912,108 1,912,108 2,162,108
79 34 893,203 79,896 79,896 329,896 446,680 446,680 696,680 2,095,714 2,095,714 2,345,714
80 35 948,363 66,940 66,940 316,940 453,664 453,664 703,664 2,295,959 2,295,959 2,545,959
81 36 1,006,281 52,221 52,221 302,221 458,882 458,882 708,882 2,514,335 2,514,335 2,764,335
82 37 1,067,095 35,542 35,542 285,542 462,024 462,024 712,024 2,752,434 2,752,434 3,002,434
83 38 1,130,950 16,645 16,645 266,645 462,700 462,700 712,700 3,011,938 3,011,938 3,261,938
84 39 1,197,998 * * * 460,474 460,474 710,474 3,294,668 3,294,668 3,544,668
85 40 1,268,398 * * * 454,944 454,944 704,944 3,602,684 3,602,684 3,852,684
86 41 1,342,318 * * * 445,766 445,766 695,766 3,938,329 3,938,329 4,188,329
87 42 1,419,933 * * * 432,646 432,646 682,646 4,304,252 4,304,252 4,554,252
88 43 1,501,430 * * * 415,308 415,308 665,308 4,703,402 4,703,402 4,953,402
89 44 1,587,002 * * * 393,541 393,541 643,541 5,138,941 5,138,941 5,395,888
90 45 1,676,852 * * * 367,070 367,070 617,070 5,610,894 5,610,894 5,891,438
91 46 1,771,194 * * * 335,559 335,559 585,559 6,120,473 6,120,473 6,370,473
92 47 1,870,254 * * * 298,588 298,588 548,588 6,685,772 6,685,772 6,935,772
93 48 1,974,267 * * * 255,584 255,584 505,584 7,305,093 7,305,093 7,555,093
94 49 2,083,480 * * * 205,756 205,756 455,756 7,981,866 7,981,866 8,231,866
95 50 2,198,154 * * * 147,427 147,427 397,427 8,720,467 8,720,467 8,970,467
96 51 2,318,562 * * * 77,444 77,444 327,444 9,524,263 9,524,263 9,774,263
97 52 2,444,990 * * * * * * 10,394,114 10,394,114 10,644,114
98 53 2,577,739 * * * * * * 11,324,887 11,324,887 11,574,887
99 54 2,717,126 * * * * * * 12,298,302 12,298,302 12,548,302
100 55 2,863,482 * * * * * * 13,290,310 13,290,310 13,540,310
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable Premium Expense charges, guaranteed
cost of insurance rates, a monthly administration charge of $3.00 per month
in all Policy Years, and a monthly mortality and expense risk charge equal
to 0.075% multiplied by the Variable Account Value, which is equivalent to
an annual rate of 0.90% of such amount in all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of the Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
36
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$3,750 ANNUAL PLANNED PREMIUM
$250,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT ------------------------------ ---------------------------- ----------------------------------
POLICY 5% 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 3,938 3,144 3,144 250,000 3,350 3,350 250,000 3,556 3,556 250,000
47 2 8,072 6,209 6,209 250,000 6,817 6,817 250,000 7,450 7,450 250,000
48 3 12,413 9,194 9,194 250,000 10,404 10,404 250,000 11,715 11,715 250,000
49 4 16,971 12,098 12,098 250,000 14,115 14,115 250,000 16,388 16,388 250,000
50 5 21,757 14,832 14,832 250,000 17,863 17,863 250,000 21,419 21,419 250,000
51 6 26,783 17,380 17,380 250,000 21,634 21,634 250,000 26,832 26,832 250,000
52 7 32,059 20,319 20,319 250,000 26,010 26,010 250,000 33,252 33,252 250,000
53 8 37,600 23,162 23,162 250,000 30,530 30,530 250,000 40,292 40,292 250,000
54 9 43,417 25,908 25,908 250,000 35,201 35,201 250,000 48,019 48,019 250,000
55 10 49,525 28,559 28,559 250,000 40,028 40,028 250,000 56,507 56,507 250,000
56 11 55,939 31,195 31,195 250,000 45,172 45,172 250,000 66,097 66,097 250,000
57 12 62,674 33,660 33,660 250,000 50,439 50,439 250,000 76,630 76,630 250,000
58 13 69,745 35,965 35,965 250,000 55,850 55,850 250,000 88,233 88,233 250,000
59 14 77,170 38,098 38,098 250,000 61,405 61,405 250,000 101,032 101,032 250,000
60 15 84,966 40,052 40,052 250,000 67,109 67,109 250,000 115,175 115,175 250,000
61 16 93,151 41,751 41,751 250,000 72,909 72,909 250,000 130,789 130,789 250,000
62 17 101,746 43,360 43,360 250,000 78,964 78,964 250,000 148,175 148,175 250,000
63 18 110,771 44,851 44,851 250,000 85,268 85,268 250,000 167,543 167,543 250,000
64 19 120,247 46,289 46,289 250,000 91,894 91,894 250,000 189,170 189,170 250,000
65 20 130,197 47,639 47,639 250,000 98,834 98,834 250,000 213,308 213,308 255,970
66 21 140,645 49,186 49,186 250,000 106,328 106,328 250,000 240,144 240,144 285,772
67 22 151,614 50,579 50,579 250,000 114,140 114,140 250,000 269,823 269,823 318,391
68 23 163,132 51,820 51,820 250,000 122,303 122,303 250,000 302,646 302,646 354,096
69 24 175,227 52,879 52,879 250,000 130,827 130,827 250,000 338,942 338,942 393,172
70 25 187,925 53,760 53,760 250,000 139,753 139,753 250,000 379,081 379,081 435,943
71 26 201,259 54,417 54,417 250,000 149,094 149,094 250,000 423,461 423,461 478,511
72 27 215,260 54,846 54,846 250,000 158,897 158,897 250,000 472,602 472,602 524,588
73 28 229,960 54,982 54,982 250,000 169,184 169,184 250,000 527,023 527,023 574,455
74 29 245,396 54,807 54,807 250,000 180,013 180,013 250,000 587,331 587,331 628,444
75 30 261,603 54,231 54,231 250,000 191,427 191,427 250,000 654,194 654,194 686,904
76 31 278,621 53,220 53,220 250,000 203,506 203,506 250,000 728,395 728,395 764,815
77 32 296,489 51,700 51,700 250,000 216,341 216,341 250,000 810,443 810,443 850,965
78 33 315,251 49,579 49,579 250,000 230,045 230,045 250,000 901,137 901,137 946,194
79 34 334,951 46,690 46,690 250,000 244,691 244,691 256,926 1,001,336 1,001,336 1,051,403
80 35 355,636 42,966 42,966 250,000 259,999 259,999 272,999 1,112,007 1,112,007 1,167,608
81 36 377,356 38,273 38,273 250,000 275,963 275,963 289,762 1,234,194 1,234,194 1,295,904
82 37 400,161 32,450 32,450 250,000 292,601 292,601 307,231 1,369,036 1,369,036 1,437,488
83 38 424,106 25,311 25,311 250,000 309,928 309,928 325,424 1,517,775 1,517,775 1,593,664
84 39 449,249 16,512 16,512 250,000 327,951 327,951 344,349 1,681,717 1,681,717 1,765,803
85 40 475,649 5,884 5,884 250,000 346,693 346,693 364,028 1,862,365 1,862,365 1,955,483
86 41 503,369 * * * 366,166 366,166 384,475 2,061,313 2,061,313 2,164,378
87 42 532,475 * * * 386,380 386,380 405,699 2,280,275 2,280,275 2,394,289
88 43 563,036 * * * 407,342 407,342 427,709 2,521,118 2,521,118 2,647,174
89 44 595,126 * * * 429,061 429,061 450,514 2,785,860 2,785,860 2,925,153
90 45 628,819 * * * 451,542 451,542 474,119 3,076,679 3,076,679 3,230,513
91 46 664,198 * * * 474,787 474,787 493,778 3,395,925 3,395,925 3,531,762
92 47 701,345 * * * 499,378 499,378 514,359 3,750,490 3,750,490 3,863,005
93 48 740,350 * * * 525,497 525,497 536,007 4,145,240 4,145,240 4,228,144
94 49 781,305 * * * 553,360 553,360 558,894 4,585,915 4,585,915 4,631,774
95 50 824,308 * * * 583,220 583,220 583,220 5,079,320 5,079,320 5,079,320
96 51 869,461 * * * 615,374 615,374 615,374 5,633,545 5,633,545 5,633,545
97 52 916,871 * * * 649,086 649,086 649,086 6,247,794 6,247,794 6,247,794
98 53 966,652 * * * 684,432 684,432 684,432 6,928,568 6,928,568 6,928,568
99 54 1,018,922 * * * 721,491 721,491 721,491 7,683,073 7,683,073 7,683,073
100 55 1,073,806 * * * 760,345 760,345 760,345 8,519,293 8,519,293 8,519,293
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable Premium Expense charges, current cost of
insurance rates, and a monthly administrative charge of $3.00 per month in
all Policy Years, and expense risk charge equal to 0.062% multiplied by the
Variable Account Value, which is equivalent to an annual rate of 0.75% of
such amount during Policy Years 1-10: and in Policy Years 11+ is equal to
0.021% multiplied by the Variable Account Value, which is equivalent to an
annual rate of 0.25% of such amount.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of the Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
37
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$3,750 ANNUAL PLANNED PREMIUM
$250,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------- ---------------------------- -------------------------------
POLICY 5% 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 3,938 2,919 2,919 250,000 3,117 3,117 250,000 3,316 3,316 250,000
47 2 8,072 5,746 5,746 250,000 6,325 6,325 250,000 6,928 6,928 250,000
48 3 12,413 8,480 8,480 250,000 9,622 9,622 250,000 10,862 10,862 250,000
49 4 16,971 11,117 11,117 250,000 13,011 13,011 250,000 15,149 15,149 250,000
50 5 21,757 13,659 13,659 250,000 16,495 16,495 250,000 19,827 19,827 250,000
51 6 26,783 16,098 16,098 250,000 20,070 20,070 250,000 24,929 24,929 250,000
52 7 32,059 18,434 18,434 250,000 23,737 23,737 250,000 30,499 30,499 250,000
53 8 37,600 20,659 20,659 250,000 27,496 27,496 250,000 36,580 36,580 250,000
54 9 43,417 22,763 22,763 250,000 31,338 31,338 250,000 43,219 43,219 250,000
55 10 49,525 24,747 24,747 250,000 35,269 35,269 250,000 50,479 50,479 250,000
56 11 55,939 26,608 26,608 250,000 39,291 39,291 250,000 58,426 58,426 250,000
57 12 62,674 28,346 28,346 250,000 43,408 43,408 250,000 67,142 67,142 250,000
58 13 69,745 29,965 29,965 250,000 47,630 47,630 250,000 76,717 76,717 250,000
59 14 77,170 31,472 31,472 250,000 51,970 51,970 250,000 87,257 87,257 250,000
60 15 84,966 32,862 32,862 250,000 56,431 56,431 250,000 98,874 98,874 250,000
61 16 93,151 34,121 34,121 250,000 61,009 61,009 250,000 111,685 111,685 250,000
62 17 101,746 35,231 35,231 250,000 65,696 65,696 250,000 125,824 125,824 250,000
63 18 110,771 36,159 36,159 250,000 70,471 70,471 250,000 141,436 141,436 250,000
64 19 120,247 36,862 36,862 250,000 75,310 75,310 250,000 158,693 158,693 250,000
65 20 130,197 37,305 37,305 250,000 80,194 80,194 250,000 177,802 177,802 250,000
66 21 140,645 37,469 37,469 250,000 85,120 85,120 250,000 199,019 199,019 250,000
67 22 151,614 37,335 37,335 250,000 90,087 90,087 250,000 222,577 222,577 262,641
68 23 163,132 36,898 36,898 250,000 95,109 95,109 250,000 248,446 248,446 290,682
69 24 175,227 36,156 36,156 250,000 100,202 100,202 250,000 276,825 276,825 321,117
70 25 187,925 35,086 35,086 250,000 105,372 105,372 250,000 307,957 307,957 354,151
71 26 201,259 33,631 33,631 250,000 110,604 110,604 250,000 342,107 342,107 386,581
72 27 215,260 31,712 31,712 250,000 115,873 115,873 250,000 379,646 379,646 421,407
73 28 229,960 29,204 29,204 250,000 121,137 121,137 250,000 420,930 420,930 458,814
74 29 245,396 25,962 25,962 250,000 126,350 126,350 250,000 466,367 466,367 499,013
75 30 261,603 21,827 21,827 250,000 131,472 131,472 250,000 516,432 516,432 542,253
76 31 278,621 16,638 16,638 250,000 136,478 136,478 250,000 571,687 571,687 600,271
77 32 296,489 10,229 10,229 250,000 141,354 141,354 250,000 632,268 632,268 663,881
78 33 315,251 2,422 2,422 250,000 146,100 146,100 250,000 698,657 698,657 733,590
79 34 334,951 * * * 150,717 150,717 250,000 771,379 771,379 809,948
80 35 355,636 * * * 155,195 155,195 250,000 850,992 850,992 893,541
81 36 377,356 * * * 159,504 159,504 250,000 938,084 938,084 984,989
82 37 400,161 * * * 163,597 163,597 250,000 1,033,275 1,033,275 1,084,939
83 38 424,106 * * * 167,408 167,408 250,000 1,137,203 1,137,203 1,194,063
84 39 449,249 * * * 170,861 170,861 250,000 1,250,531 1,250,531 1,313,058
85 40 475,649 * * * 173,888 173,888 250,000 1,373,961 1,373,961 1,442,659
86 41 503,369 * * * 176,412 176,412 250,000 1,508,226 1,508,226 1,583,637
87 42 532,475 * * * 178,348 178,348 250,000 1,654,101 1,654,101 1,736,806
88 43 563,036 * * * 179,573 179,573 250,000 1,812,384 1,812,384 1,903,003
89 44 595,126 * * * 179,921 179,921 250,000 1,983,911 1,983,911 2,083,106
90 45 628,819 * * * 179,130 179,130 250,000 2,169,516 2,169,516 2,277,992
91 46 664,198 * * * 176,818 176,818 250,000 2,370,047 2,370,047 2,464,849
92 47 701,345 * * * 172,382 172,382 250,000 2,591,796 2,591,796 2,669,550
93 48 740,350 * * * 164,854 164,854 250,000 2,838,158 2,838,158 2,894,921
94 49 781,305 * * * 152,614 152,614 250,000 3,113,311 3,113,311 3,144,444
95 50 824,308 * * * 132,723 132,723 250,000 3,422,509 3,422,509 3,422,509
96 51 869,461 * * * 99,259 99,259 250,000 3,772,757 3,772,757 3,772,757
97 52 916,871 * * * 38,493 38,493 250,000 4,158,430 4,158,430 4,158,430
98 53 966,652 * * * * * * 4,583,110 4,583,110 4,583,110
99 54 1,018,922 * * * * * * 5,050,743 5,050,743 5,050,743
100 55 1,073,806 * * * * * * 5,565,672 5,565,672 5,565,672
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable Premium Expense charges, guaranteed
cost of insurance rates, a monthly administration charge of $3.00 per month
in all Policy Years, and a monthly mortality and expense risk charge equal
to 0.075% multiplied by the Variable Account Value, which is equivalent to
an annual rate of 0.90% of such amount in all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of the Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
38
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$7,500 ANNUAL PLANNED PREMIUM
$250,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------- ---------------------------- -------------------------------
POLICY 5% 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 7,875 6,826 6,826 256,826 7,255 7,255 257,255 7,684 7,684 257,684
47 2 16,144 13,506 13,506 263,506 14,787 14,787 264,787 16,121 16,121 266,121
48 3 24,826 20,039 20,039 270,039 22,606 22,606 272,606 25,384 25,384 275,384
49 4 33,942 26,424 26,424 276,424 30,721 30,721 280,721 35,556 35,556 285,556
50 5 43,514 32,566 32,566 282,566 39,043 39,043 289,043 46,627 46,627 296,627
51 6 53,565 38,448 38,448 288,448 47,561 47,561 297,561 58,665 58,665 308,665
52 7 64,118 44,694 44,694 294,694 56,922 56,922 306,922 72,431 72,431 322,431
53 8 75,199 50,779 50,779 300,779 66,627 66,627 316,627 87,550 87,550 337,550
54 9 86,834 56,703 56,703 306,703 76,688 76,688 326,688 104,158 104,158 354,158
55 10 99,051 62,466 62,466 312,466 87,117 87,117 337,117 122,405 122,405 372,405
56 11 111,878 68,319 68,319 318,319 98,324 98,324 348,324 143,069 143,069 393,069
57 12 125,347 73,932 73,932 323,932 109,896 109,896 359,896 165,788 165,788 415,788
58 13 139,490 79,315 79,315 329,315 121,856 121,856 371,856 190,790 190,790 440,790
59 14 154,339 84,453 84,453 334,453 134,206 134,206 384,206 218,304 218,304 468,304
60 15 169,931 89,332 89,332 339,332 146,949 146,949 396,949 248,586 248,586 498,586
61 16 186,303 93,862 93,862 343,862 160,006 160,006 410,006 281,834 281,834 531,834
62 17 203,493 98,239 98,239 348,239 173,590 173,590 423,590 318,575 318,575 568,575
63 18 221,543 102,430 102,430 352,430 187,692 187,692 437,692 359,150 359,150 609,150
64 19 240,495 106,513 106,513 356,513 202,416 202,416 452,416 404,057 404,057 654,057
65 20 260,394 110,446 110,446 360,446 217,746 217,746 467,746 453,716 453,716 703,716
66 21 281,289 114,584 114,584 364,584 234,076 234,076 484,076 509,019 509,019 759,019
67 22 303,229 118,487 118,487 368,487 251,004 251,004 501,004 570,112 570,112 820,112
68 23 326,265 122,159 122,159 372,159 268,559 268,559 518,559 637,622 637,622 887,622
69 24 350,453 125,560 125,560 375,560 286,729 286,729 536,729 712,201 712,201 962,201
70 25 375,851 128,696 128,696 378,696 305,546 305,546 555,546 794,616 794,616 1,044,616
71 26 402,518 131,508 131,508 381,508 324,976 324,976 574,976 885,650 885,650 1,135,650
72 27 430,519 133,994 133,994 383,994 345,045 345,045 595,045 986,231 986,231 1,236,231
73 28 459,920 136,074 136,074 386,074 365,696 365,696 615,696 1,097,302 1,097,302 1,347,302
74 29 490,791 137,729 137,729 387,729 386,933 386,933 636,933 1,219,976 1,219,976 1,469,976
75 30 523,206 138,851 138,851 388,851 408,669 408,669 658,669 1,355,389 1,355,389 1,605,389
76 31 557,241 139,410 139,410 389,410 430,890 430,890 680,890 1,504,882 1,504,882 1,754,882
77 32 592,978 139,330 139,330 389,330 453,534 453,534 703,534 1,669,892 1,669,892 1,919,892
78 33 630,502 138,520 138,520 388,520 476,521 476,521 726,521 1,851,995 1,851,995 2,101,995
79 34 669,902 136,809 136,809 386,809 499,682 499,682 749,682 2,052,852 2,052,852 2,302,852
80 35 711,272 134,169 134,169 384,169 522,986 522,986 772,986 2,274,454 2,274,454 2,524,454
81 36 754,711 130,508 130,508 380,508 546,334 546,334 796,334 2,518,935 2,518,935 2,768,935
82 37 800,322 125,729 125,729 375,729 569,615 569,615 819,615 2,788,661 2,788,661 3,038,661
83 38 848,213 119,738 119,738 369,738 592,718 592,718 842,718 3,086,252 3,086,252 3,336,252
84 39 898,498 112,311 112,311 362,311 615,387 615,387 865,387 3,414,472 3,414,472 3,664,472
85 40 951,298 103,477 103,477 353,477 637,614 637,614 887,614 3,776,651 3,776,651 4,026,651
86 41 1,006,738 93,145 93,145 343,145 659,268 659,268 909,268 4,176,353 4,176,353 4,426,353
87 42 1,064,950 81,188 81,188 331,188 680,172 680,172 930,172 4,617,490 4,617,490 4,867,490
88 43 1,126,073 67,510 67,510 317,510 700,171 700,171 950,171 5,104,399 5,104,399 5,359,619
89 44 1,190,251 52,017 52,017 302,017 719,104 719,104 969,104 5,640,347 5,640,347 5,922,365
90 45 1,257,639 34,614 34,614 284,614 736,800 736,800 986,800 6,229,087 6,229,087 6,540,541
91 46 1,328,396 15,210 15,210 265,210 753,084 753,084 1,003,084 6,875,374 6,875,374 7,150,389
92 47 1,402,690 * * * 767,820 767,820 1,017,820 7,593,162 7,593,162 7,843,162
93 48 1,480,700 * * * 780,822 780,822 1,030,822 8,390,783 8,390,783 8,640,783
94 49 1,562,610 * * * 791,895 791,895 1,041,895 9,272,150 9,272,150 9,522,150
95 50 1,648,615 * * * 800,834 800,834 1,050,834 10,246,220 10,246,220 10,496,220
96 51 1,738,921 * * * 807,429 807,429 1,057,429 11,322,921 11,322,921 11,572,921
97 52 1,833,742 * * * 811,450 811,450 1,061,450 12,513,250 12,513,250 12,763,250
98 53 1,933,304 * * * 812,661 812,661 1,062,661 13,829,398 13,829,398 14,079,398
99 54 2,037,845 * * * 810,817 810,817 1,060,817 15,284,879 15,284,879 15,534,879
100 55 2,147,612 * * * 805,654 805,654 1,055,654 16,894,664 16,894,664 17,144,664
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable Premium Expense charges, current cost of
insurance rates, and a monthly administrative charge of $3.00 per month in
all Policy Years, and expense risk charge equal to 0.062% multiplied by the
Variable Account Value, which is equivalent to an annual rate of 0.75% of
such amount during Policy Years 1-10: and in Policy Years 11+ is equal to
0.021% multiplied by the Variable Account Value, which is equivalent to an
annual rate of 0.25% of such amount.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of the Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
39
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$7,500 ANNUAL PLANNED PREMIUM
$250,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------- ---------------------------- -------------------------------
POLICY 5% 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 7,875 6,592 6,592 256,592 7,013 7,013 257,013 7,434 7,434 257,434
47 2 16,144 13,018 13,018 263,018 14,267 14,267 264,267 15,568 15,568 265,568
48 3 24,826 19,275 19,275 269,275 21,768 21,768 271,768 24,467 24,467 274,467
49 4 33,942 25,361 25,361 275,361 29,520 29,520 279,520 34,202 34,202 284,202
50 5 43,514 31,278 31,278 281,278 37,532 37,532 287,532 44,857 44,857 294,857
51 6 53,565 37,017 37,017 287,017 45,803 45,803 295,803 56,513 56,513 306,513
52 7 64,118 42,578 42,578 292,578 54,340 54,340 304,340 69,266 69,266 319,266
53 8 75,199 47,954 47,954 297,954 63,144 63,144 313,144 83,217 83,217 333,217
54 9 86,834 53,132 53,132 303,132 72,210 72,210 322,210 98,471 98,471 348,471
55 10 99,051 58,115 58,115 308,115 81,546 81,546 331,546 115,158 115,158 365,158
56 11 111,878 62,898 62,898 312,898 91,157 91,157 341,157 133,414 133,414 383,414
57 12 125,347 67,482 67,482 317,482 101,051 101,051 351,051 153,395 153,395 403,395
58 13 139,490 71,871 71,871 321,871 111,240 111,240 361,240 175,276 175,276 425,276
59 14 154,339 76,073 76,073 326,073 121,741 121,741 371,741 199,254 199,254 449,254
60 15 169,931 80,084 80,084 330,084 132,560 132,560 382,560 225,534 225,534 475,534
61 16 186,303 83,887 83,887 333,887 143,689 143,689 393,689 254,328 254,328 504,328
62 17 203,493 87,463 87,463 337,463 155,117 155,117 405,117 285,862 285,862 535,862
63 18 221,543 90,771 90,771 340,771 166,811 166,811 416,811 320,370 320,370 570,370
64 19 240,495 93,767 93,767 343,767 178,730 178,730 428,730 358,097 358,097 608,097
65 20 260,394 96,407 96,407 346,407 190,833 190,833 440,833 399,318 399,318 649,318
66 21 281,289 98,673 98,673 348,673 203,104 203,104 453,104 444,361 444,361 694,361
67 22 303,229 100,548 100,548 350,548 215,524 215,524 465,524 493,585 493,585 743,585
68 23 326,265 102,032 102,032 352,032 228,092 228,092 478,092 547,408 547,408 797,408
69 24 350,453 103,132 103,132 353,132 240,814 240,814 490,814 606,293 606,293 856,293
70 25 375,851 103,827 103,827 353,827 253,670 253,670 503,670 670,726 670,726 920,726
71 26 402,518 104,067 104,067 354,067 266,604 266,604 516,604 741,202 741,202 991,202
72 27 430,519 103,772 103,772 353,772 279,529 279,529 529,529 818,243 818,243 1,068,243
73 28 459,920 102,825 102,825 352,825 292,314 292,314 542,314 902,376 902,376 1,152,376
74 29 490,791 101,093 101,093 351,093 304,805 304,805 554,805 994,165 994,165 1,244,165
75 30 523,206 98,449 98,449 348,449 316,843 316,843 566,843 1,094,234 1,094,234 1,344,234
76 31 557,241 94,784 94,784 344,784 328,279 328,279 578,279 1,203,287 1,203,287 1,453,287
77 32 592,978 90,011 90,011 340,011 338,981 338,981 588,981 1,322,122 1,322,122 1,572,122
78 33 630,502 84,061 84,061 334,061 348,826 348,826 598,826 1,451,633 1,451,633 1,701,633
79 34 669,902 76,867 76,867 326,867 357,688 357,688 607,688 1,592,806 1,592,806 1,842,806
80 35 711,272 68,325 68,325 318,325 365,397 365,397 615,397 1,746,687 1,746,687 1,996,687
81 36 754,711 58,271 58,271 308,271 371,708 371,708 621,708 1,914,361 1,914,361 2,164,361
82 37 800,322 46,487 46,487 296,487 376,312 376,312 626,312 2,096,962 2,096,962 2,346,962
83 38 848,213 32,704 32,704 282,704 378,827 378,827 628,827 2,295,681 2,295,681 2,545,681
84 39 898,498 16,617 16,617 266,617 378,816 378,816 628,816 2,511,786 2,511,786 2,761,786
85 40 951,298 * * * 375,883 375,883 625,883 2,746,738 2,746,738 2,996,738
86 41 1,006,738 * * * 369,622 369,622 619,622 3,002,147 3,002,147 3,252,147
87 42 1,064,950 * * * 359,665 359,665 609,665 3,279,848 3,279,848 3,529,848
88 43 1,126,073 * * * 345,607 345,607 595,607 3,581,836 3,581,836 3,831,836
89 44 1,190,251 * * * 327,067 327,067 577,067 3,910,352 3,910,352 4,160,352
90 45 1,257,639 * * * 303,587 303,587 553,587 4,267,798 4,267,798 4,517,798
91 46 1,328,396 * * * 274,690 274,690 524,690 4,656,821 4,656,821 4,906,821
92 47 1,402,690 * * * 239,793 239,793 489,793 5,080,247 5,080,247 5,330,247
93 48 1,480,700 * * * 198,146 198,146 448,146 5,541,040 5,541,040 5,791,040
94 49 1,562,610 * * * 148,710 148,710 398,710 6,042,199 6,042,199 6,292,199
95 50 1,648,615 * * * 89,773 89,773 339,773 6,586,374 6,586,374 6,836,374
96 51 1,738,921 * * * * * * 7,175,080 7,175,080 7,425,080
97 52 1,833,742 * * * * * * 7,807,048 7,807,048 8,057,048
98 53 1,933,304 * * * * * * 8,474,902 8,474,902 8,724,902
99 54 2,037,845 * * * * * * 9,157,940 9,157,940 9,407,940
100 55 2,147,612 * * * * * * 9,829,575 9,829,575 10,079,575
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable Premium Expense charges, guaranteed
cost of insurance rates, a monthly administration charge of $3.00 per month
in all Policy Years, and a monthly mortality and expense risk charge equal
to 0.075% multiplied by the Variable Account Value, which is equivalent to
an annual rate of 0.90% of such amount in all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of the Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
40
<PAGE>
OTHER POLICY BENEFITS AND PROVISIONS
LIMITS ON RIGHTS TO CONTEST THE POLICY
INCONTESTABILITY. Protective Life will not contest the Policy, or any
supplemental rider, after the Policy or rider has been in force during the
Insured's lifetime for two years from the Policy Effective Date or the effective
date of the rider, unless fraud is involved. Protective Life will not contest an
increase in the Face Amount after the increase has been in force during the life
of the Insured for two years.
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 premiums paid 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 riders,
the Death Benefit under the Policy or such supplemental riders is the amount
which would have been provided by the most recent cost of insurance charge, and
the cost of such supplemental riders, at the correct age and sex.
OTHER CHANGES. At any time Protective Life may make such changes in the
Policy as are necessary to assure compliance with any applicable laws,
regulations or rulings issued by a government agency. This includes, but is not
limited to, changes necessary to comply at all times with the definition of life
insurance prescribed by the Code. Any such changes will apply uniformly to all
affected Policies and Owners will receive notification of such changes.
SUSPENSION OR DELAY IN PAYMENTS
Protective Life will ordinarily pay any Death Benefit proceeds, Policy
loans, withdrawals, or surrenders within seven calendar days after receipt at
the Home Office of all the documents required for such a payment. Other than the
Death Benefit, which is determined as of the date of death, the amount will be
determined as of the date of receipt of all required documents. However,
Protective Life may delay making a payment or processing a transfer request if
(1) the New York Stock Exchange is closed for other than a regular holiday or
weekend, trading on the Exchange is restricted by the SEC, or the SEC declares
that an emergency exists as a result of which the disposal or valuation of
Variable Account assets is not reasonably practicable; or (2) the SEC by order
permits postponement of payment to protect Owners. (See also "Payments from the
Fixed Account".)
REPORTS TO POLICY OWNERS
Each year you will be sent a report at your last known address showing, as
of the end of the current report period: the Death Benefit; Policy Value; Fixed
Account Value; Variable Account Value; Loan Account Value; Sub-Account Values;
premiums paid since the last report; withdrawals since the last report; any
Policy loans and accrued interest; Surrender Value; current premium allocations;
charges deducted since the last report; and any other information required by
law. You will also be sent an annual and a semi-annual report for each Fund
underlying a Sub-Account to which you have allocated Policy Value, including a
list of the securities held in each Fund, as required by the 1940 Act. In
addition, when you pay premiums or request any other financial transaction under
your Policy you will receive a written confirmation of these transactions.
41
<PAGE>
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 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
The following supplemental riders are available and may be added to your
Policy. 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.
CHILDREN'S TERM LIFE INSURANCE RIDER. Provides a death benefit payable on
the death of a covered child. More than one child can be covered. There is no
cash value for this benefit.
ACCIDENTAL DEATH BENEFIT RIDER. Provides an additional death benefit
payable if the Insured's death results from certain accidental causes. There is
no cash value for this benefit.
DISABILITY BENEFIT RIDER. Provides for the crediting of a specific premium
to a Policy on each Monthly Anniversary during the total disability of the
Insured. After the Insured has been totally disabled (as defined in the rider)
for six months, Protective Life will credit premium to the Policy equal to the
disability benefit amount shown in the Policy multiplied by the number of
Monthly Anniversary Days that have occurred since the onset of total disability.
Monthly Anniversary Days that occur more than one calendar year prior to the
date that we receive a claim under a rider are not included for the purpose of
this calculation. Subsequent to the time that the Insured has been totally
disabled for six months, we will credit a premium equal to the disability
benefit amount on each Monthly Anniversary Day. The Owner may change the
disability benefit amount by written notice received by Protective Life at the
Home Office at any time before the Insured becomes totally disabled. Increases
are subject to evidence of insurability.
GUARANTEED INSURABILITY RIDER. Provides the right to increase the Face
Amount of your Policy under two options. The Option exercise date depends on the
rider selected: Variable Option or Survivor's Choice. Under the Variable Option
you can increase the Face Amount at designated future points in time (selected
at issue) without evidence of insurability. Under the Survivor's Choice Option,
you specify (at issue) a designated life (other than the Insured). When the
designated person dies, the Owner has the option to increase the Face Amount
without evidence of insurability. (See "Changing the Face Amount".)
PROTECTED INSURABILITY BENEFIT RIDER. Provides the right to increase the
Face Amount of your Policy at designated option dates at age 25, 28, 31, 34, 37
and 40 without evidence of insurability.
42
<PAGE>
TERM RIDER FOR COVERED INSURED (CIR). Provides an additional death benefit
payable on the death of the covered Insured without increasing the Policy's Face
Amount. The CIR may be purchased at the time the Policy is issued (or later,
subject to availability and additional underwriting). A CIR may be canceled
separately from the Policy (I.E., it can be canceled without causing the Policy
to be canceled or to lapse). There is no policy value, surrender value, or
ability to take loans under a CIR.
Additional rules and limits apply to these supplemental riders. Not all such
riders 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.
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 Policy 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, 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 for 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
surrendered, lapses, matures or if a withdrawal is made. 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.
43
<PAGE>
This discussion does not address state or local tax consequences associated
with the purchase of the Policy. In addition, PROTECTIVE LIFE MAKES NO GUARANTEE
REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY POLICY OR OF
ANY TRANSACTION INVOLVING A POLICY.
TAX STATUS OF PROTECTIVE LIFE
Protective Life is taxed as a life insurance company under the Code. Since
the operations of the Variable Account are a part of, and are taxed with, the
operations of Protective Life, the Variable Account is not separately taxed as a
"regulated investment company" under the Code. Under existing federal income tax
laws, Protective Life is not taxed on investment income and realized capital
gains of the Variable Account, although Protective Life's federal taxes are
increased in respect of the Policies because of the federal tax law's treatment
of deferred acquisition costs. Currently, a charge for federal income taxes is
not deducted from the Sub-Accounts or the Policy Value. Protective Life reserves
the right in the future to make a charge against the Variable Account or the
Value of a Policy for any federal, state, or local income taxes that it incurs
and determines to be properly attributable to the Variable Account or the
Policy. Protective Life will promptly notify the Owner of any such charge.
TAXATION OF LIFE INSURANCE POLICIES
TAX STATUS OF THE POLICY. Section 7702 of the Code establishes a statutory
definition of life insurance for federal tax purposes. Protective Life believes
that the Policy will meet the current statutory definition of life insurance,
which places limitations on the amount of premiums that may be paid and the
Policy Values that can accumulate relative to the Death Benefit. As a result,
the Death Benefit payable under the Policy will generally be excludable from the
Beneficiary's gross income, and interest and other income credited under the
Policy will not be taxable unless certain withdrawals are made (or are deemed to
be made) from the Policy prior to the Insured's death, as discussed below. This
tax treatment will only apply, however, if (1) the investments of the Variable
Account are "adequately diversified" in accordance with Treasury Department
regulations, and (2) Protective Life, rather than the Owner, is considered the
owner of the assets of the Variable Account for federal income tax purposes.
DIVERSIFICATION REQUIREMENTS. The Code and Treasury Department
regulations prescribe the manner in which the investments of a segregated
asset account, such as the Variable Account, are to be "adequately
diversified". If the Variable Account fails to comply with these
diversification standards, the Policy will not be treated as a life
insurance contract for federal income tax purposes and the Owner would
generally be taxable currently on the income on the contract (as defined in
the tax law). Protective Life expects that the Variable Account, through the
Funds, will comply with the diversification requirements prescribed by the
Code and Treasury Department regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable life insurance
contract owners may be considered the owners, for federal income tax
purposes, of the assets of a segregated asset account, such as the Variable
Account, used to support their contracts. In those circumstances, income and
gains from the segregated asset account would be includible in the contract
owners' gross income. The Internal Revenue Service (the "IRS") has stated in
published rulings that a variable contract owner will be considered the
owner of the assets of a segregated asset account if the owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. In addition, the Treasury Department
announced, in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of
a segregated asset account may cause the investor, rather than the insurance
company, to be treated as the owner of the assets in the account". This
announcement also stated that guidance would be issued
44
<PAGE>
by way of regulations or rulings on the "extent to which policyholders may
direct their investments to particular sub-accounts [of a segregated asset
account] without being treated as owners of the underlying assets". As of
the date of this prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a
segregated asset account. For example, the Owner of this Policy has the
choice of more investment options to which to allocate premiums and Variable
Account Values, and may be able to transfer among investment options more
frequently, than in such rulings. These differences could result in the
Policy Owner being treated as the owner of a portion of the assets of the
Variable Account and thus subject to current taxation on the income and
gains from those assets. In addition, Protective Life does not know what
standards will be set forth in the regulations or rulings which the Treasury
Department has stated it expects to issue. Protective Life therefore
reserves the right to modify the Policy as necessary to attempt to prevent
Owners from being considered the owners of the assets of the Variable
Account. However, there is no assurance that such efforts would be
successful.
The remainder of this discussion assumes that the Policy will be treated as
a life insurance contract for federal tax purposes.
TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS. In general, the
amount of the Death Benefit Proceeds payable from a Policy by reason of the
death of the Insured is excludable from gross income under Section 101 of the
Code. Certain transfers of the Policy for valuable consideration, however, may
result in a portion of the Death Benefit Proceeds being taxable.
If the Death Benefit Proceeds are not received in a lump sum and are,
instead, applied under either Settlement Options 1, 2, or 4, generally payments
will be prorated between amounts attributable to the Death Benefit which will be
excludable from the beneficiary's income and amounts attributable to interest
(accruing after the Insured's death) which will be includible in the
beneficiary's income. If the Death Benefit Proceeds are applied under Option 3
(Interest Income), the interest payments will be includible in the beneficiary's
income.
TAX DEFERRAL DURING ACCUMULATION PERIOD. Under existing provisions of the
Code, except as described below, any increase in an Owner's Policy Value is
generally not taxable to the Owner unless amounts are received (or are deemed to
be received) from the Policy prior to the Insured's death. If there is a
surrender of the Policy, an amount equal to the excess of the Cash Value over
the "investment in the contract" will be includible in the Owner's income. The
"investment in the contract" generally is the aggregate premiums paid less the
aggregate amount received under the Policy previously to the extent such amounts
received were excludable from gross income. Whether withdrawals (or other
amounts deemed to be distributed) from the Policy constitute income to the Owner
depends, in part, upon whether the Policy is considered a "modified endowment
contract" ("MEC") for federal income tax purposes.
POLICIES NOT OWNED BY INDIVIDUALS. In the case of Policies issued to a
nonnatural 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.
45
<PAGE>
POLICIES WHICH ARE NOT MECS
TAX TREATMENT OF WITHDRAWALS GENERALLY. If the Policy is not a MEC
(described below), the amount of any withdrawal from the Policy generally
will be treated first as non-taxable recovery of premium and then as income
from the Policy. Thus, a withdrawal from a Policy that is not a MEC
generally will not be includible in income except to the extent it exceeds
the investment in the contract immediately before the withdrawal.
CERTAIN DISTRIBUTIONS REQUIRED BY THE TAX LAW IN THE FIRST 15 POLICY
YEARS. As indicated above, Section 7702 places limitations on the amount of
premiums that may be paid and the Policy Values that can accumulate relative
to the Death Benefit. Where cash distributions are required under Section
7702 in connection with a reduction in benefits during the first 15 years
after the Policy is issued (or if withdrawals are made in anticipation of a
reduction in benefits, within the meaning of the tax law, during this
period), some or all of such amounts may be includible in income
notwithstanding the general rule described in the preceding paragraph. A
reduction in benefits may result upon a decrease in the Face Amount, a
change from one Death Benefit Option to the other, if withdrawals are made,
and in certain other instances.
TAX TREATMENT OF LOANS. If a Policy is not classified as a MEC, a loan
received under the Policy generally will be treated as indebtedness of the
Owner. As a result, no part of any loan under a Policy will constitute
income to the Owner so long as the Policy remains in force. If a Policy
lapses when a loan is outstanding, the amount of the loan outstanding will
be treated as the proceeds of a surrender for purposes of determining
whether any amounts are includable in the Owner's income.
Generally, interest paid on any loans under this Policy will not be tax
deductible. The non-deductibility of interest includes interest paid or
accrued on indebtedness with respect to one or more life insurance policies
owned by a taxpayer covering any individual who is or has been an officer or
employee of, or financially interested in, any trade or business carried on
by the taxpayer. A limited exception to this rule exists for certain
interest paid in connection with certain "key person" insurance. In the case
of interest paid in connection with a loan with respect to a Policy covering
the life of any key person, interest is deductible only to the extent that
the aggregate amount of loans under one or more life insurance policies does
not exceed $50,000. Further, even as to such loans up to $50,000, interest
would not be deductible if the Policy were deemed for federal tax purposes
to be a single premium life insurance policy or, in certain circumstances,
if the loans were treated as "systematic borrowing" within the meaning of
the tax law. A "key person" is an individual who is either an officer or a
twenty percent owner of the taxpayer. The maximum number of individuals who
can be treated as key persons may not exceed the greater of (1) 5
individuals or (2) the lesser of 5 percent of the total number of officers
and employees of the taxpayer or 20 individuals. Owners should consult a tax
advisor regarding the deductibility of interest incurred in connection with
this Policy.
POLICIES WHICH ARE MECS
CHARACTERIZATION OF A POLICY AS A MEC. In general, a Policy will be
considered a MEC for federal income tax purposes if (1) the Policy is
received in exchange for a life insurance contract that was a MEC, or (2)
the Policy is entered into after June 21, 1988 and premiums are paid into
the Policy more rapidly than the rate defined by a "7-Pay Test". This test
generally provides that a Policy will fail this test (and thus be considered
a MEC) if the accumulated amount paid under the Policy at any time during
the 1st 7 Policy Years exceeds the cumulative sum of the net level premiums
which would have been paid to that time if the Policy provided for paid-up
future benefits after the payment of 7 level annual premiums. A material
change of the Policy (as defined in the tax law) will generally result in a
re-application of the 7-Pay Test. In addition, any reduction
46
<PAGE>
in benefits during the 7-Pay period will affect the application of this
test. Protective Life will monitor the Policies and will attempt to notify
Owners on a timely basis if a Policy is in jeopardy of becoming a MEC. The
Policy Owner may then request that Protective Life take whatever steps are
available to avoid treating the Policy as a MEC, if that is desired.
TAX TREATMENT OF WITHDRAWALS, LOANS, ASSIGNMENTS AND PLEDGES UNDER
MECS. If the Policy is a MEC, withdrawals from the Policy will be treated
first as withdrawals of income and then as a recovery of premiums paid.
Thus, withdrawals will be includible in income to the extent the Policy
Value exceeds the investment in the contract. The amount of any Policy Debt
will be treated as a withdrawal for tax purposes. In addition, the
discussion of interest on loans and of lapses while loans are outstanding
under the caption "Policies Which Are Not MECs" also applies to Policies
which are MECs.
If the Owner assigns or pledges any portion of the Policy Value (or
agrees to assign or pledge any portion), such portion will be treated as a
withdrawal for tax purposes. The Owner's investment in the contract is
increased by the amount includible in income with respect to any assignment,
pledge, or loan, though it is not affected by any other aspect of the
assignment, pledge, or loan (including its release or repayment). Before
assigning, pledging, or requesting a loan under a Policy treated as a MEC,
an Owner should consult a qualified tax advisor.
PENALTY TAX. Generally, proceeds of a surrender or a withdrawal (or the
amount of any deemed withdrawal) from a MEC are subject to a penalty tax
equal to 10% of the portion of the proceeds that is includible in income,
unless the surrender or withdrawal is made (1) after the Owner attains age
59 1/2, (2) because the Owner has become disabled (as defined in the tax
law), or (3) as substantially equal periodic payments over the life or life
expectancy of the Owner (or the joint lives or life expectancies of the
Owner and his or her beneficiary, as defined in the tax law).
AGGREGATION OF POLICIES. All life insurance contracts which are treated
as MECs and which are purchased by the same person from Protective Life or
any of its affiliates within the same 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.
ACTIONS TO ENSURE COMPLIANCE WITH THE TAX LAW. Protective Life believes
that the maximum amount of premiums it has determined for the Policies will
comply with the federal tax definition of life insurance. Protective Life will
monitor the amount of premiums paid, and, if the premiums paid exceed those
permitted by the tax definition of life insurance, Protective Life will
immediately refund the excess premiums. Protective Life also reserves the right
to increase the Death Benefit (which may result in larger charges under a
Policy) or to take any other action deemed necessary to ensure the compliance of
the Policy with the federal tax definition of life insurance.
OTHER CONSIDERATIONS. Changing the Owner, exchanging the Policy, changing
from one Death Benefit Option to another, and other changes under the Policy may
have tax consequences (other than those discussed herein) depending on the
circumstances of such change or withdrawal. Federal estate and state and local
estate, inheritance and other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Policy Owner or beneficiary.
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
47
<PAGE>
Life withholds a sufficient amount of taxes, the Owner will be responsible for
the payment of any taxes including any penalty tax that may be due on the
amounts received. The Owner may also be required to pay penalties under the
estimated tax rules, if the Owner's withholding and estimated tax payments are
insufficient to satisfy the Owner's total tax liability.
OTHER INFORMATION ABOUT THE POLICIES AND PROTECTIVE LIFE
SALE OF THE POLICIES
Investment Distributors, Inc. ("IDI"), a wholly-owned subsidiary of
Protective Life Corporation, acts as a principal underwriter of the Policies.
IDI also acts as principal underwriter of variable annuity contracts issued
through Protective Variable Annuity Separate Account. IDI is a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. There is no premium expense
charge to cover sales and distribution expenses. To the extent that Protective
Life incurs sales and distribution expenses, The Company will cover them using
its other assets or surplus in its General Account, which include amounts
derived from mortality and expense risk charges and other charges of the Policy.
The Policies are sold by certain registered representatives of broker-dealers
(including ProEquities, Inc., ("PES") 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. PES or the other broker-dealer
may receive compensation in an amount no greater than 15% of the target first
year premium paid plus the first year cost of any riders, and .65% of excess
first year premium. In the 2nd policy year and thereafter, PES or the other
broker-dealer may receive asset based compensation at an annualized rate of .25%
per policy year of the unloaned Policy Value. PES or the other broker-dealer may
pass a portion of this compensation on to the Registered Representative or the
manager of the registered representative.
Upon any subsequent increase in Face Amount or any subsequent increase in
riders, marketing allowances will also be paid based on the amount of the
increase in Face Amount or increase in rider.
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. The address for each of these individuals is c/o
Protective Life Insurance Company 2801 Highway 280 South, Birmingham, Alabama
35223.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH PROTECTIVE LIFE
- -------------------- --- -------------------------------------------------------------------
<S> <C> <C>
Drayton Nabers, Jr. 58 Chairman of the Board and Director
John D. Johns 47 President and Director
R. Stephen Briggs 49 Executive Vice President and Director
Jim E. Massengale 56 Executive Vice President, Acquisitions and Director
A.S. Williams III 62 Executive Vice President, Investments, Treasurer and Director
Danny L. Bentley 40 Senior Vice President, Dental and Consumer Benefits and Director
Richard J. Bielen 38 Senior Vice President, Investments and Director
Carolyn King 48 Senior Vice President, Investment Products and Director
Deborah J. Long 45 Senior Vice President, General Counsel, Secretary and Director
Steven A. Schultz 45 Senior Vice President, Financial Institutions and Director
Wayne E. Stuenkel 45 Senior Vice President and Chief Actuary and Director
Judy Wilson 40 Senior Vice President, Guaranteed Investment Contracts
Jerry W. DeFoor 46 Vice President and Controller, and Chief Accounting Officer
</TABLE>
Mr. Nabers has been Chairman of the Board and a Director of Protective Life
since August 1996. Mr. Nabers has been Chairman of the Board and Chief Executive
Officer of PLC and a Director since August 1996. From May 1994 to August 1996,
Mr. Nabers was Chairman of the Board, President and
48
<PAGE>
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 of Protective Life and President and Chief
Operating Officer of PLC since August 1996. He was Executive Vice President and
Chief Financial Officer of Protective Life and PLC 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 Protective Life and PLC
since October 1993. From January 1993 to October 1993 he was Senior Vice
President, Life Insurance and Investment Products of Protective Life and PLC.
Mr. Briggs had been Senior Vice President, Ordinary Marketing of Protective Life
since April 1986 and PLC since August 1988. Mr. Briggs has been associated with
PLC and its subsidiaries since 1977.
Mr. Massengale has been Executive Vice President, Acquisitions of Protective
Life 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 subsidaries since 1983.
Mr. Williams has been Executive Vice President, Investments and Treasurer of
Protective Life and PLC since August 1996. From July 1981 to August 1996 he was
Senior Vice President, Investments and Treasurer of Protective Life and PLC. Mr.
Williams has been employed by the PLC and its subsidiaries since 1964.
Mr. Danny L. Bentley has been Senior Vice President, Dental and Consumer
Benefits 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 Protective Life
and PLC since August 1996. From August 1991 to August 1996, he was Vice
President, Investments of Protective Life.
Ms. King has been Senior Vice President, Investment Products Division of
Protective Life and PLC 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 Vice President, Secretary and General Counsel of
Protective Life since September 1996 and of PLC since November 1996. Ms. Long
was Senior Vice President and General Counsel of Protective Life from February
1994 to September 1996 and of PLC from February 1994 to November 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 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 Life 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
Computer hardware and software often denote the year using two digits rather
than four; for example, the year 1998 often is denoted by such hardware and
software as "98". 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). The problem is most
prevalent in older mainframe systems, but personal computers and equipment
containing computer chips could also be affected.
Protective Life shares hardware and software systems with its parent, PLC.
PLC began work on the Year 2000 problem in 1995. At that time, PLC identified
and assessed the PLC's critical mainframe systems, and prioritized the
remediation efforts that were to follow. During 1998 all other hardware and
software, including non-information technology (non-IT) related hardware and
software, were included in the process. PLC's Year 2000 plan includes all
subsidiaries.
PLC estimates that Year 2000 remediation is complete for most of its
insurance administration and general administration systems. Of the general
administration systems that are not yet remediated, the majority are new systems
that were implemented during 1998 and are scheduled to be upgraded to the
current release of the system during the second quarter of 1999. All remediated
systems are currently in production. Personal computer network hardware and
software have been reviewed, with upgrades implemented where necessary. A review
of personal computer desktop software is in progress, but not complete. All Year
2000 personal computer preparations are expected to be completed by June 30,
1999. With respect to non-IT equipment and processes, the assessment and
remediation is progressing on schedule and all known issues are expected to be
remediated before December 31, 1999.
50
<PAGE>
One insurance administration system identified as mission critical is not
yet fully remediated. This personal computer database system that processes
member information for one subsidiary is currently being remediated. This effort
is on schedule and targeted to be complete by June 30, 1999.
Future date tests are used to verify a system's ability to process
transactions dated up to and beyond January 1, 2000. Future date tests are
complete or in-progress for the majority of PLC's mission-critical systems. A
large portion of the testing is conducted by a contract programming staff
dedicated full time to Year 2000 preparations. These resources have been part of
PLC's Year 2000 project since 1995.
Integrated tests involve multiple system testing and are used to verify the
Year 2000 readiness of interfaces and connectivity across multiple systems. PLC
is using its mainframe computer to simulate a Year 2000 production environment
and to facilitate integrated testing. Integrated testing will continue
throughout 1999.
Business partners and suppliers that provide products or services critical
to PLC's operations are being reviewed and in some cases their Year 2000
preparations are being monitored by PLC. To date, no partners or suppliers have
reported that they expect to be unable to continue supplying products and
services after January 1, 2000. Initial reviews are targeted to be completed in
the first quarter of 1999. Monitoring and testing of critical partners and
suppliers will continue throughout 1999. Formal contingency planning began in
March 1999 and continue throughout the year. These plans will augment PLC's
existing disaster recovery plans.
PLC cannot specifically identify all of the costs to develop and implement
its Year 2000 plan. The cost of new systems to replace non-compliant systems
have been capitalized in the ordinary course of business. Other costs have been
expensed as incurred. Through December 31, 1998, costs that have been
specifically identified as relating to the Year 2000 problem total $3.9 million,
with an additional $1.3 million estimated to be required to support continued
testing activity. PLC's Year 2000 efforts have not adversely affected its normal
procurement and development of information technology.
Although PLC believes that a process is in place to successfully address
Year 2000 issues, there can be no assurances that PLC's efforts will be
successful, that interactions 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.
Should some of PLC's systems not be available due to Year 2000 problems, in
a reasonably likely worst case scenario, Protective Life may experience
significant delays in its ability to perform certain functions, but does not
expect to be unable to perform critical functions or to otherwise conduct
business.
INDEPENDENT ACCOUNTANTS
The audited statement of assets and liabilites of the Protective Variable
Life Separate Account (comprised of seventeen Sub-Accounts) as of December 31,
1997 and December 31, 1998 and the related statements of operations and changes
in net assets for each of the two years in the period ended December 31, 1998
and included in this Prospectus, have been included herein in reliance on the
report of PricewaterhouseCoopers 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, 1998
and 1997 and the consolidated statements of income, stockholder's equity and
cash flows for each of the three years in the period ended December 31, 1998 and
the related financial statement schedules included in this Prospectus, have been
included herein in reliance on the report of PricewaterhouseCoopers L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
51
<PAGE>
EXPERTS
Actuarial matters included in this prospectus have been examined by Stephen
Peeples whose opinion is filed as an exhibit to the registration statement.
IMSA
Protective Life is a member of the Insurance Marketplace Standards
Association ("IMSA"), and as such may include the IMSA logo and information
about IMSA membership in Protective advertisements. Companies that belong to
IMSA subscribe to a set of ethical standards covering various aspects of sales
and service for individually sold life insurance and annuities.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP 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,
1997 and December 31, 1998 and the related statements of operations and changes
in net assets for each of the two years in the period ended December 31, 1998 as
well as the Report of Independent Accountants are contained herein.
The audited consolidated balance sheets for Protective Life as of December
31, 1998 and 1997 and the related consolidated statements of income,
stockholder's equity, and cash flows for the years ended December 31, 1998, 1997
and 1996 as well as the Report of Independent Accountants are contained herein.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
(TO BE UPDATED TO YEAR END 1998 WHEN AVAILABLE)
<TABLE>
<S> <C>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
Report of Independent Accountants.................................................... F-2
Statement of Assets and Liabilities as of December 31, 1998.......................... F-3
Statement of Assets and Liabilities as of December 31, 1997.......................... F-5
Statement of Operations for the period ended December 31, 1998....................... F-7
Statement of Operations for the period ended December 31, 1997....................... F-9
Statement of Changes in Net Assets for the period ended December 31, 1998............ F-11
Statement of Changes in Net Assets for the period ended December 31, 1997............ F-13
Notes to Financial Statements........................................................ F-15
PROTECTIVE LIFE INSURANCE COMPANY
Report of Independent Accountants.................................................... F-20
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.................................................... F-21
Consolidated Balance Sheets as of December 31, 1998 and 1997......................... F-22
Consolidated Statements of Share-Owner's Equity for the years ended
December 31, 1998, 1997 and 1996.................................................... F-23
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.................................................... F-24
Notes to Consolidated Financial Statements........................................... F-25
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information.................................. S-1
Schedule IV -- Reinsurance........................................................... S-2
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners and Board of Directors
of Protective Life Insurance Company
In our opinion, the accompanying statements of assets and liabilities and
the related statements of operations and changes in assets of the Protective
Variable Life Separate Account (the "Separate Account") listed in the index on
page F-1 of this Form S-6 present fairly, in all material respects, the
financial position of the Separate Account at December 31, 1998 and 1997, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Separate Account's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS L.L.P.
March 17, 1999
Birmingham, Alabama
F-2
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC PIC
MONEY AND INTERNATIONAL GLOBAL SMALL
MARKET INCOME EQUITY INCOME CAP VALUE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value................................. $ 303,636 $ 1,921,627 $1,442,293 $ 308,318 $ 769,011
Receivable from Protective Life
Insurance Company..................... 0 17,306 21,586 2,564 11,933
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS............................ 303,636 1,938,933 1,463,879 310,882 780,944
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
NET ASSETS.............................. $ 303,636 $ 1,938,933 $1,463,879 $ 310,882 $ 780,944
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
CALVERT
SOCIAL
PIC PIC SMALL CALVERT
CORE CAPITAL CAP SOCIAL
US EQUITY GROWTH GROWTH BALANCED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value................................. $ 1,502,386 $ 2,627,249 $3,582 2$9,036
Receivable from Protective Life
Insurance Company..................... 18,751 30,579 0 0
----------- ----------- ------ ------------
TOTAL ASSETS............................ 1,521,137 2,657,828 3,582 29,036
----------- ----------- ------ ------------
----------- ----------- ------ ------------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 0 0 0 0
----------- ----------- ------ ------------
NET ASSETS.............................. $ 1,521,137 $ 2,657,828 $3,582 2$9,036
----------- ----------- ------ ------------
----------- ----------- ------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE
GROWTH RESEARCH INCOME RETURN GROWTH
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in
sub-accounts at
market value...... $ 698,498 $ 1,414,375 $ 476,404 $ 132,968 $ 597,798
Receivable from
Protective Life
Insurance
Company........... 0 0 16,170 0 0
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS........ 698,498 1,414,375 492,574 132,968 597,798
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to
Protective Life
Insurance
Company........... 74 168 0 0 66
----------- ----------- ----------- ----------- -----------
NET ASSETS.......... $ 698,424 $ 1,414,207 $ 492,574 $ 132,968 $ 597,732
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
OPPENHEIMER
GROWTH OPPENHEIMER
OPPENHEIMER AND STRATEGIC
GROWTH INCOME BOND TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in
sub-accounts at
market value...... $1,012,111 $ 359,022 14$0,332 13,7$38,646
Receivable from
Protective Life
Insurance
Company........... 0 679 648 120,216
----------- ----------- ------------ ------------
TOTAL ASSETS........ 1,012,111 359,701 140,980 13,858,862
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
LIABILITIES
Payable to
Protective Life
Insurance
Company........... 117 0 0 425
----------- ----------- ------------ ------------
NET ASSETS.......... $1,011,994 $ 359,701 14$0,980 13,8$58,437
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC PIC
MONEY AND INTERNATIONAL GLOBAL SMALL
MARKET INCOME EQUITY INCOME CAP VALUE
----------- ----------- ----------- ----------- -----------
<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..................... 0 5,779 5,792 0 5,263
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS............................ 50,888 1,003,430 547,905 112,638 567,647
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 1 0 0 32 0
----------- ----------- ----------- ----------- -----------
NET ASSETS.............................. $ 50,887 $ 1,003,430 $ 547,905 $ 112,606 $ 567,647
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
CALVERT
SOCIAL
PIC PIC SMALL CALVERT
CORE CAPITAL CAP SOCIAL
US EQUITY GROWTH GROWTH BALANCED
----------- ----------- ------------ ------------
<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 0 0
----------- ----------- --- ---
TOTAL ASSETS............................ 419,642 636,765 77 86
----------- ----------- --- ---
----------- ----------- --- ---
LIABILITIES
Payable to Protective Life Insurance
Company............................... 0 0 7 7
----------- ----------- --- ---
NET ASSETS.............................. $ 419,642 $ 636,765 $ 70 $ 79
----------- ----------- --- ---
----------- ----------- --- ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE
GROWTH RESEARCH INCOME RETURN GROWTH
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value................................. $ 59,898 $ 121,167 $ 7,004 $ 2,890 $ 56,236
Receivable from Protective Life
Insurance Company..................... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS............................ 59,898 121,167 7,004 2,890 56,236
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
NET ASSETS.............................. $ 59,898 $ 121,167 $ 7,004 $ 2,890 $ 56,236
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
OPPENHEIMER
GROWTH OPPENHEIMER
OPPENHEIMER AND STRATEGIC
GROWTH INCOME BOND TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value................................. $ 74,477 $ 11,957 1$0,236 3,6$59,421
Receivable from Protective Life
Insurance Company..................... 0 377 353 24,252
----------- ----------- ------------ ------------
TOTAL ASSETS............................ 74,477 12,334 10,589 3,683,673
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 0 0 0 47
----------- ----------- ------------ ------------
NET ASSETS.............................. $ 74,477 $ 12,334 1$0,589 3,6$83,626
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC
MONEY AND INTERNATIONAL GLOBAL
MARKET INCOME EQUITY INCOME
----------- --------- ------------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................................ $ 4,328 $ 24,343 $ 606 $ 6,411
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption of investment shares............ 0 (3,831) (393) 190
Capital gain distribution................................................ 0 139,899 67,041 7,083
----------- --------- ------------- ---------
Net realized gain (loss) on investments.................................. 0 136,068 66,648 7,273
Net unrealized appreciation (depreciation) on investments during the
period................................................................. 0 (239,036) 111,568 517
----------- --------- ------------- ---------
Net realized and unrealized gain (loss) on investments................... 0 (102,968) 178,216 7,790
----------- --------- ------------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......... $ 4,328 $ (78,625) $ 178,822 $ 14,201
----------- --------- ------------- ---------
----------- --------- ------------- ---------
<CAPTION>
CALVERT
PIC PIC PIC SOCIAL
SMALL CORE CAPITAL SMALL
CAP VALUE US EQUITY GROWTH CAP GROWTH
----------- ----------- --------- -----------
<S> <C>
INVESTMENT INCOME
Dividends................................................................ $ 3,858 $ 8,151 $ 9,719 $ 3
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption of investment shares............ (8,875) (5,278) (576) 0
Capital gain distribution................................................ 89,797 14,213 44,920 44
----------- ----------- --------- -----
Net realized gain (loss) on investments.................................. 80,922 8,935 44,344 44
Net unrealized appreciation (depreciation) on investments during the
period................................................................. (208,100) 152,564 417,199 386
----------- ----------- --------- -----
Net realized and unrealized gain (loss) on investments................... (127,178) 161,499 461,543 430
----------- ----------- --------- -----
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......... $(123,320) $ 169,650 $ 471,262 $ 433
----------- ----------- --------- -----
----------- ----------- --------- -----
<CAPTION>
CALVERT
SOCIAL
BALANCED
-----------
INVESTMENT INCOME
Dividends................................................................ $ 648
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption of investment shares............ (17)
Capital gain distribution................................................ 1,452
-----------
Net realized gain (loss) on investments.................................. 1,435
Net unrealized appreciation (depreciation) on investments during the
period................................................................. 1
-----------
Net realized and unrealized gain (loss) on investments................... 1,436
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......... $ 2,084
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS OPPENHEIMER
MFS GROWTH MFS OPPENHEIMER GROWTH OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER AND STRATEGIC
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME BOND
----------- ----------- --------- ----------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........... $ 0 $ 823 $ 0 $ 153 $ 448 $ 1,757 $ 43 $ 207
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain
(loss) from
redemption of
investment
shares............ (10,427) (6,208) 12 12 (505) (18) (118) 19
Capital gain
distribution...... 2,285 10,789 0 180 4,597 21,202 942 133
----------- ----------- --------- ----------- ------------- ------------- ------------- ------
Net realized gain
(loss) on
investments....... (8,142) 4,581 12 192 4,092 21,184 824 152
Net unrealized
appreciation
(depreciation) on
investments during
the period........ 114,601 163,168 35,533 7,098 61,042 112,622 26,862 893
----------- ----------- --------- ----------- ------------- ------------- ------------- ------
Net realized and
unrealized gain
(loss) on
investments....... 106,459 167,749 35,545 7,290 65,134 133,806 27,686 1,045
----------- ----------- --------- ----------- ------------- ------------- ------------- ------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $ 106,459 $ 168,572 $ 35,545 $ 7,443 $ 65,582 $ 135,563 $ 27,729 $ 1,252
----------- ----------- --------- ----------- ------------- ------------- ------------- ------
----------- ----------- --------- ----------- ------------- ------------- ------------- ------
<CAPTION>
TOTAL
---------
<S> <C>
INVESTMENT INCOME
Dividends........... $ 61,498
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain
(loss) from
redemption of
investment
shares............ (36,013)
Capital gain
distribution...... 404,577
---------
Net realized gain
(loss) on
investments....... 368,564
Net unrealized
appreciation
(depreciation) on
investments during
the period........ 756,918
---------
Net realized and
unrealized gain
(loss) on
investments....... 1,125,482
---------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $1,186,980
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC PIC
MONEY AND INTERNATIONAL GLOBAL SMALL
MARKET INCOME EQUITY INCOME CAP VALUE
----------- ----------- ----------- ----------- -----------
<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 (loss) from redemption
of investment shares.................. 0 669 338 2 (211)
Capital gain distribution............... 0 132,504 29,384 1,394 61,983
----------- ----------- ----------- ----------- -----------
Net realized gain (loss) on
investments........................... 0 133,173 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>
CALVERT
SOCIAL
PIC PIC SMALL CALVERT
CORE CAPITAL CAP SOCIAL
US EQUITY GROWTH GROWTH BALANCED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................... $ 3,427 $ 3,803 $ 0 $ 2
----------- ----------- --- ---
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption
of investment shares.................. 1 142 0 0
Capital gain distribution............... 33,252 39,296 7 4
----------- ----------- --- ---
Net realized gain (loss) 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) 0
----------- ----------- --- ---
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $ 57,309 $ 97,017 $ (1) $ 2
----------- ----------- --- ---
----------- ----------- --- ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE
GROWTH RESEARCH INCOME RETURN GROWTH
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........... $ 0 $ 0 $ 28 $ 0 $ 0
----------- ----------- ----- --- ---
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain
(loss) from
redemption of
investment
shares............ (549) (176) 1 89 (95)
Capital gain
distribution...... 0 0 132 0 0
----------- ----------- ----- --- ---
Net realized gain
(loss) on
investments....... (549) (176) 133 89 (95)
Net unrealized
appreciation
(depreciation) on
investments during
the period........ (656) 1,111 210 (13) 0
----------- ----------- ----- --- ---
Net realized and
unrealized gain
(loss) on
investments....... (1,205) 935 343 76 (95)
----------- ----------- ----- --- ---
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $ (1,205) $ 935 $ 371 $ 76 $ (95)
----------- ----------- ----- --- ---
----------- ----------- ----- --- ---
<CAPTION>
OPPENHEIMER
GROWTH OPPENHEIMER
OPPENHEIMER AND STRATEGIC
GROWTH INCOME BOND TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........... $ 0 $ 29 $ 199 $35,996
--- --- ----- ------------
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain
(loss) from
redemption of
investment
shares............ 67 (3) 0 275
Capital gain
distribution...... 0 0 0 297,956
--- --- ----- ------------
Net realized gain
(loss) on
investments....... 67 (3) 0 298,231
Net unrealized
appreciation
(depreciation) on
investments during
the period........ 0 0 1 58,295
--- --- ----- ------------
Net realized and
unrealized gain
(loss) on
investments....... 67 (3) 1 356,526
--- --- ----- ------------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $ 67 $ 26 $ 200 3$92,522
--- --- ----- ------------
--- --- ----- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC PIC
MONEY AND INTERNATIONAL GLOBAL SMALL
MARKET INCOME EQUITY INCOME CAP VALUE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 4,328 $ 24,343 $ 606 $ 6,411 $ 3,858
Net realized gain (loss) on
investments........................... 0 136,068 66,648 7,273 80,922
Net unrealized appreciation
(depreciation) of investments during
the period............................ 0 (239,036) 111,568 517 (208,100)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations............. 4,328 (78,625) 178,822 14,201 (123,320)
----------- ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contract owners' net payments........... 195,932 653,729 467,242 75,377 326,394
Mortality and expense risk charges...... (789) (14,388) (8,838) (1,343) (6,169)
Cost of insurance and administrative
charges............................... (6,995) (262,009) (153,893) (24,988) (107,308)
Surrenders.............................. (17,500) (205,471) (59,291) (5,378) (48,315)
Death benefits.......................... 0 (1,464) (2,976) (5,476) (1,599)
Net policy loan repayments
(withdrawals)......................... 0 (28,951) (10,260) (6,295) 6,720
Transfer from other portfolios.......... 77,773 872,682 505,168 152,178 166,894
----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from variable life policy
transactions.......................... 248,421 1,014,128 737,152 184,075 336,617
----------- ----------- ----------- ----------- -----------
Total increase in net assets............ 252,749 935,503 915,974 198,276 213,297
----------- ----------- ----------- ----------- -----------
NET ASSETS
Beginning of year....................... 50,887 1,003,430 547,905 112,606 567,647
----------- ----------- ----------- ----------- -----------
End of year............................. $ 303,636 $ 1,938,933 $1,463,879 $ 310,882 $ 780,944
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
CALVERT
SOCIAL
PIC PIC SMALL CALVERT
CORE CAPITAL CAP SOCIAL
US EQUITY GROWTH GROWTH BALANCED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 8,151 $ 9,719 $ 3 $ 648
Net realized gain (loss) on
investments........................... 8,935 44,344 44 1,435
Net unrealized appreciation
(depreciation) of investments during
the period............................ 152,564 417,199 386 1
----------- ----------- ------ ------------
Net increase (decrease) in net assets
resulting from operations............. 169,650 471,262 433 2,084
----------- ----------- ------ ------------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contract owners' net payments........... 264,767 584,574 505 11,531
Mortality and expense risk charges...... (6,869) (12,378) (7) (122)
Cost of insurance and administrative
charges............................... (111,812) (208,707) (115) (1,707)
Surrenders.............................. (22,133) (34,532) (60) (62)
Death benefits.......................... (3,076) (5,124) 0 0
Net policy loan repayments
(withdrawals)......................... 2,322 (19,779) 0 0
Transfer from other portfolios.......... 808,646 1,245,747 2,756 17,233
----------- ----------- ------ ------------
Net increase in net assets resulting
from variable life policy
transactions.......................... 931,845 1,549,801 3,079 26,873
----------- ----------- ------ ------------
Total increase in net assets............ 1,101,495 2,021,063 3,512 28,957
----------- ----------- ------ ------------
NET ASSETS
Beginning of year....................... 419,642 636,765 70 79
----------- ----------- ------ ------------
End of year............................. $ 1,521,137 $ 2,657,828 $3,582 2$9,036
----------- ----------- ------ ------------
----------- ----------- ------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN ASSETS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE
GROWTH RESEARCH INCOME RETURN GROWTH
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment
income (loss)..... $ 0 $ 823 $ 0 $ 153 $ 448
Net realized gain on
investments....... (8,142) 4,581 12 192 4,092
Net unrealized
appreciation
(depreciation) of
investments during
the period........ 114,601 163,168 35,533 7,098 61,042
----------- ----------- ----------- ----------- -----------
Net increase in net
assets resulting
from operations... 106,459 168,572 35,545 7,443 65,582
----------- ----------- ----------- ----------- -----------
FROM VARIABLE LIFE
POLICY
TRANSACTIONS
Contract owners' net
payments.......... 149,724 340,842 58,275 19,846 146,955
Mortality and
expense risk
charges........... (2,868) (6,079) (959) (376) (2,513)
Cost of insurance
and administrative
charges........... (53,449) (93,831) (14,841) (4,187) (50,406)
Surrenders.......... (7,418) (5,985) (67) (90) (7,118)
Death benefits...... (1,639) (4,889) 0 0 (1,465)
Net policy loan
repayments
(withdrawals)..... 17,214 16,841 (2) 0 (193)
Transfer from other
portfolios........ 430,503 877,569 407,619 107,442 390,654
----------- ----------- ----------- ----------- -----------
Net increase in net
assets resulting
from variable life
policy
transactions...... 532,067 1,124,468 450,025 122,635 475,914
----------- ----------- ----------- ----------- -----------
Total increase in
net assets........ 638,526 1,293,040 485,570 130,078 541,496
----------- ----------- ----------- ----------- -----------
NET ASSETS
Beginning of year... 59,898 121,167 7,004 2,890 56,236
----------- ----------- ----------- ----------- -----------
End of year......... $ 698,424 $ 1,414,207 $ 492,574 $ 132,968 $ 597,732
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
OPPENHEIMER
GROWTH OPPENHEIMER
OPPENHEIMER AND STRATEGIC
GROWTH INCOME BOND TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment
income (loss)..... $ 1,757 $ 43 $ 207 $61,498
Net realized gain on
investments....... 21,184 824 152 368,564
Net unrealized
appreciation
(depreciation) of
investments during
the period........ 112,622 26,862 893 756,918
----------- ----------- ------------ ------------
Net increase in net
assets resulting
from operations... 135,563 27,729 1,252 1,186,980
----------- ----------- ------------ ------------
FROM VARIABLE LIFE
POLICY
TRANSACTIONS
Contract owners' net
payments.......... 231,236 45,373 36,012 3,608,314
Mortality and
expense risk
charges........... (4,146) (732) (354) (68,930)
Cost of insurance
and administrative
charges........... (69,902) (14,230) (10,478) (1,188,858)
Surrenders.......... (3,970) (690) 0 (418,080)
Death benefits...... (3,257) 0 0 (30,965)
Net policy loan
repayments
(withdrawals)..... (372) 0 0 (22,755)
Transfer from other
portfolios........ 652,365 289,917 103,959 7,109,105
----------- ----------- ------------ ------------
Net increase in net
assets resulting
from variable life
policy
transactions...... 801,954 319,638 129,139 8,987,831
----------- ----------- ------------ ------------
Total increase in
net assets........ 937,517 347,367 130,391 10,174,811
----------- ----------- ------------ ------------
NET ASSETS
Beginning of year... 74,477 12,334 10,589 3,683,626
----------- ----------- ------------ ------------
End of year......... $1,011,994 $ 359,701 14$0,980 13,8$58,437
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC PIC
MONEY GROWTH AND INTERNATIONAL GLOBAL SMALL CAP CORE US
MARKET INCOME EQUITY INCOME VALUE EQUITY
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 1,088 $ 7,094 $ 9,487 $ 9,209 $ 1,630 $ 3,427
Net realized gain (loss) on
investments........................... 0 133,173 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
Contract owners' 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.............................. 0 (6,520) (2,450) 0 (5,949) (4,572)
Death benefits.......................... 0 0 0 0 0 0
Net policy loan repayments
(withdrawals)......................... 0 0 0 0 (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>
CALVERT
PIC SOCIAL CALVERT
CAPITAL SMALL CAP SOCIAL
GROWTH GROWTH BALANCED
----------- ------------ ------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 3,803 $ 0 $ 2
Net realized gain (loss) 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
Contract owners' net payments........... 216,169 77 78
Mortality and expense risk charges...... (3,108) 0 0
Cost of insurance and administrative
charges............................... (78,798) (6) (6)
Surrenders.............................. (2,247) 0 0
Death benefits.......................... 0 0 0
Net policy loan repayments
(withdrawals)......................... 0 0 0
Transfer from other portfolios.......... 302,398 0 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 0 0
----------- --- ---
End of year............................. $ 636,765 $ 70 $ 79
----------- --- ---
----------- --- ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
EMERGING MFS MFS GROWTH MFS TOTAL
GROWTH RESEARCH WITH INCOME RETURN
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss)....................... $ 0 $ 0 $ 28 $ 0
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 in net assets
resulting from operations.... (1,205) 935 371 76
----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Contract owners' 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) 0 0
Death benefits................ 0 0 0 0
Net policy loan repayments
(withdrawals)................ (16,061) (17,201) 0 0
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............. 0 0 0 0
----------- ----------- ----------- -----------
End of year................... $ 59,898 $ 121,167 $ 7,004 $ 2,890
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
OPPENHEIMER OPPENHEIMER OPPENHEIMER
AGGRESSIVE OPPENHEIMER GROWTH AND STRATEGIC
GROWTH GROWTH INCOME BOND TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss)....................... $ 0 $ 0 $ 29 $ 199 $ 35,996
Net realized gain on
investments.................. (95) 67 (3) 0 298,231
Net unrealized appreciation
(depreciation) of investments
during the period............ 0 0 0 1 58,295
----------- ----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations.... (95) 67 26 200 392,522
----------- ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Contract owners' net
payments..................... 16,910 22,365 2,485 1,135 1,236,880
Mortality and expense risk
charges...................... (80) (83) (22) (21) (18,136)
Cost of insurance and
administrative charges....... (3,993) (3,954) (571) (423) (423,331)
Surrenders.................... (3,835) (546) 0 0 (31,020)
Death benefits................ 0 0 0 0 0
Net policy loan repayments
(withdrawals)................ 0 0 0 0 (69,951)
Transfer from other
portfolios................... 47,329 56,628 10,416 9,698 1,979,324
----------- ----------- ----------- ----------- -----------
Net increase in net assets
resulting from variable life
policy transactions.......... 56,331 74,410 12,308 10,389 2,673,766
----------- ----------- ----------- ----------- -----------
Total increase in net
assets....................... 56,236 74,477 12,334 10,589 3,066,288
----------- ----------- ----------- ----------- -----------
NET ASSETS
Beginning of year............. 0 0 0 0 617,338
----------- ----------- ----------- ----------- -----------
End of year................... $ 56,236 $ 74,477 $ 12,334 $ 10,589 $ 3,683,626
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Protective Variable Life Separate Account (Separate Account) was established
by Protective Life Insurance Company (Protective Life) under the provisions of
Tennessee law and commenced operations on June 19, 1996. The Separate Account is
a separate investment account to which assets are allocated to support the
benefits payable under flexible premium variable life insurance polices.
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 Value, 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 Calvert Social Small Cap Growth,
Calvert Social Balanced, MFS Emerging Growth, MFS Research, MFS Growth with
Income, MFS Total Return, Oppenheimer Aggressive Growth, Oppenheimer Growth,
Oppenheimer Growth and Income, and Oppenheimer Strategic Bond sub-accounts. The
ten independent sub-accounts 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 contract owners.
Six additional Sub-accounts were added to the separate account effective May
1, 1999.
Gross premiums from the Contracts are allocated to the sub-accounts in
accordance with contract owner instructions and are recorded as life policy
contract transactions in the statement of changes in net assets. Such amounts
are used to provide money to pay contract values under the Contracts (Note 4).
The Separate Account's assets are the property of Protective Life.
Contract owners may allocate some or all of gross premiums or transfer some
or all of the contract value to the Guaranteed Account, which is part of
Protective Life's General Account. The assets of Protective Life's General
Account support its insurance and annuity obligations and are subject to
Protective Life's general liabilities from business operations. The Guaranteed
Account balance for the years ended December 31, 1998 and 1997 was $742,609 and
$525,201, respectively.
Transfers to/from other portfolios, included in the statement of changes in
net assets, are transfers between the individual sub-accounts and the
sub-accounts and the Guaranteed Account.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION: Investments are made in shares and are valued at the
net asset values of the respective portfolios. Transactions with the Funds are
recorded on the trade date. Dividend income is recorded on the ex-dividend date.
REALIZED GAINS AND LOSSES: Realized gains and losses on investments include
gains and losses on redemptions of the Fund's shares (determined on the
last-in-first-out (LIFO) basis) and capital gain distributions from the Fund.
DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS: Dividend income and capital
gain distributions are recorded on the ex-dividend date. Distributions are from
net investment income and net realized gains recorded in the Investment Company
financials.
F-15
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
3. INVESTMENTS
At December 31, 1998, the investments by the respective sub-accounts were as
follows:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
--------- ------------- -------------
<S> <C> <C> <C>
PIC Money Market.................................... 303,636 $ 303,636 $ 303,636
PIC Growth and Income............................... 136,591 $ 2,179,200 $ 1,921,627
PIC International Equity............................ 100,826 $ 1,359,868 $ 1,442,293
PIC Global Income................................... 28,951 $ 312,701 $ 308,318
PIC Small Cap Value................................. 88,832 $ 952,274 $ 769,011
PIC Core US Equity.................................. 67,806 $ 1,328,561 $ 1,502,386
PIC Capital Growth.................................. 125,926 $ 2,151,820 $ 2,627,249
Calvert Social Small Cap Growth..................... 322 $ 3,203 $ 3,582
Calvert Social Balanced............................. 13,587 $ 29,038 $ 29,036
MFS Emerging Growth................................. 32,534 $ 584,554 $ 698,498
MFS Research........................................ 74,245 $ 1,250,097 $ 1,414,375
MFS Growth with Income.............................. 23,690 $ 440,660 $ 476,404
MFS Total Return.................................... 7,338 $ 125,882 $ 132,968
Oppenheimer Aggressive Growth....................... 13,335 $ 536,756 $ 597,798
Oppenheimer Growth.................................. 27,601 $ 899,489 $ 1,012,111
Oppenheimer Growth and Income....................... 17,530 $ 332,159 $ 359,022
Oppenheimer Strategic Bond.......................... 27,409 $ 139,437 $ 140,332
------------- -------------
$ 12,929,335 $ 13,738,646
------------- -------------
------------- -------------
</TABLE>
F-16
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
At December 31, 1997, the investments by the respective sub-accounts were as
follows:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
--------- ------------- -------------
<S> <C> <C> <C>
PIC Money Market.................................... 50,888 $ 50,888 $ 50,888
PIC Growth and Income............................... 63,291 $ 1,016,188 $ 997,651
PIC International Equity............................ 43,537 $ 571,254 $ 542,113
PIC Global Income................................... 11,115 $ 117,537 $ 112,638
PIC Small Cap Value................................. 47,961 $ 537,548 $ 562,384
PIC Core US Equity.................................. 22,731 $ 397,175 $ 418,436
PIC Capital Growth.................................. 39,905 $ 573,054 $ 631,283
Calvert Social Small Cap Growth..................... 6 $ 85 $ 77
Calvert Social 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 Aggressive Growth....................... 1,373 $ 56,519 $ 56,236
Oppenheimer Growth.................................. 2,296 $ 73,927 $ 74,477
Oppenheimer Growth and Income....................... 581 $ 11,737 $ 11,957
Oppenheimer Strategic Bond.......................... 1,999 $ 10,355 $ 10,236
------------- -------------
$ 3,607,031 $ 3,659,421
------------- -------------
------------- -------------
</TABLE>
During the year ended December 31, 1998, transactions in shares were as
follows:
<TABLE>
<CAPTION>
CALVERT
PIC PIC PIC SOCIAL
PIC GROWTH PIC PIC SMALL CORE PIC SMALL CALVERT
MONEY AND INTERNATIONAL GLOBAL CAP US CAPITAL CAP SOCIAL
MARKET INCOME EQUITY INCOME VALUE EQUITY GROWTH GROWTH BALANCED
--------- --------- ------------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased... 390,313 86,003 60,450 21,423 42,559 49,631 89,176 326 13,318
Shares received
from reinvestment
of dividends..... 4,328 11,648 4,758 1,268 11,171 1,000 2,619 4 988
--------- --------- ------------- --------- --------- --------- --------- ----------- -----------
Total shares
acquired......... 394,641 97,651 65,208 22,691 53,730 50,631 91,795 330 14,306
Shares redeemed.... (141,893) (24,351) (7,919) (4,855) (12,859) (5,556) (5,774) (14) (762)
--------- --------- ------------- --------- --------- --------- --------- ----------- -----------
Net increase in
shares owned..... 252,748 73,300 57,289 17,836 40,871 45,075 86,021 316 13,544
Shares owned,
beginning of the
period........... 50,888 63,291 43,537 11,115 47,961 22,731 39,905 6 43
--------- --------- ------------- --------- --------- --------- --------- ----------- -----------
Shares owned, end
of period........ 303,636 136,591 100,826 28,951 88,832 67,806 125,926 322 13,587
--------- --------- ------------- --------- --------- --------- --------- ----------- -----------
--------- --------- ------------- --------- --------- --------- --------- ----------- -----------
Cost of shares
acquired......... 394,641 1,532,324 897,021 245,933 552,850 1,045,059 1,688,692 3,271 30,586
--------- --------- ------------- --------- --------- --------- --------- ----------- -----------
--------- --------- ------------- --------- --------- --------- --------- ----------- -----------
Cost of shares
redeemed......... (141,893) (369,312) (108,407) (50,769) (138,124) (113,673) (109,926) (153) (1,637)
--------- --------- ------------- --------- --------- --------- --------- ----------- -----------
--------- --------- ------------- --------- --------- --------- --------- ----------- -----------
</TABLE>
F-17
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
MFS OPPENHEIMER
MFS GROWTH MFS OPPENHEIMER GROWTH
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER AND
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME
-------- ---------- --------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased................... 34,078 73,609 23,570 7,302 12,591 25,217 17,480
Shares received from reinvestment
of dividends..................... 123 660 0 20 115 698 45
-------- ---------- --------- -------- ------- ----------- -----------
Total shares acquired.............. 34,201 74,269 23,570 7,322 12,706 25,915 17,525
Shares redeemed.................... (5,378) (7,698) (306) (158) (744) (610) (576)
-------- ---------- --------- -------- ------- ----------- -----------
Net increase in shares owned....... 28,823 66,571 23,264 7,164 11,962 25,305 16,949
Shares owned, beginning of the
period........................... 3,711 7,674 426 174 1,373 2,296 581
-------- ---------- --------- -------- ------- ----------- -----------
Shares owned, end of period........ 32,534 74,245 23,690 7,338 13,335 27,601 17,530
-------- ---------- --------- -------- ------- ----------- -----------
-------- ---------- --------- -------- ------- ----------- -----------
Cost of shares acquired............ 623,378 1,262,652 439,300 125,803 510,867 846,140 331,179
-------- ---------- --------- -------- ------- ----------- -----------
-------- ---------- --------- -------- ------- ----------- -----------
Cost of shares redeemed............ (99,095) (133,161) (5,653) (2,706) (30,630) (20,578) (10,757)
-------- ---------- --------- -------- ------- ----------- -----------
-------- ---------- --------- -------- ------- ----------- -----------
<CAPTION>
OPPENHEIMER
STRATEGIC
BOND
-----------
<S> <C>
Shares purchased................... 26,918
Shares received from reinvestment
of dividends..................... 67
-----------
Total shares acquired.............. 26,985
Shares redeemed.................... (1,575)
-----------
Net increase in shares owned....... 25,410
Shares owned, beginning of the
period........................... 1,999
-----------
Shares owned, end of period........ 27,409
-----------
-----------
Cost of shares acquired............ 137,028
-----------
-----------
Cost of shares redeemed............ (7,944)
-----------
-----------
</TABLE>
During the year ended December 31, 1997, transactions in shares were as
follows:
<TABLE>
<CAPTION>
CALVERT
PIC PIC PIC SOCIAL
PIC GROWTH PIC PIC SMALL CORE PIC SMALL
MONEY AND INTERNATIONAL GLOBAL CAP US CAPITAL CAP
MARKET INCOME EQUITY INCOME VALUE EQUITY GROWTH GROWTH
----------- --------- ------------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased................. 87,115 47,611 35,341 8,494 35,094 19,091 32,867 5
Shares received from reinvestment
of dividends................... 1,088 9,094 3,142 1,045 5,514 2,037 2,783 1
----------- --------- ------------- ----------- --------- --------- --------- -----------
Total shares acquired............ 88,203 56,705 38,483 9,539 40,608 21,128 35,650 6
Shares redeemed.................. (51,459) (3,949) (4,438) (502) (5,525) (3,328) (4,074) 0
----------- --------- ------------- ----------- --------- --------- --------- -----------
Net increase in shares owned..... 36,744 52,756 34,045 9,037 35,083 17,800 31,576 6
Shares owned, beginning of the
period......................... 14,144 10,535 9,492 2,078 12,878 4,931 8,329 0
----------- --------- ------------- ----------- --------- --------- --------- -----------
Shares owned, end of period...... 50,888 63,291 43,537 11,115 47,961 22,731 39,905 6
----------- --------- ------------- ----------- --------- --------- --------- -----------
----------- --------- ------------- ----------- --------- --------- --------- -----------
Cost of shares acquired.......... 88,203 935,011 510,945 101,056 461,282 383,087 532,941 91
----------- --------- ------------- ----------- --------- --------- --------- -----------
----------- --------- ------------- ----------- --------- --------- --------- -----------
Cost of shares redeemed.......... (51,459) (67,285) (59,628) (5,421) (66,165) (61,399) (60,768) (6)
----------- --------- ------------- ----------- --------- --------- --------- -----------
----------- --------- ------------- ----------- --------- --------- --------- -----------
<CAPTION>
CALVERT
SOCIAL
BALANCED
-----------
<S> <C>
Shares purchased................. 43
Shares received from reinvestment
of dividends................... 3
-----------
Total shares acquired............ 46
Shares redeemed.................. (3)
-----------
Net increase in shares owned..... 43
Shares owned, beginning of the
period......................... 0
-----------
Shares owned, end of period...... 43
-----------
-----------
Cost of shares acquired.......... 95
-----------
-----------
Cost of shares redeemed.......... (6)
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
MFS OPPENHEIMER
MFS GROWTH MFS OPPENHEIMER GROWTH
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER AND
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME
-------- ---------- --------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased................... 4,911 9,082 428 300 1,467 2,418 599
Shares received from reinvestment
of dividends..................... 0 0 10 0 0 0 1
-------- ---------- --------- -------- ------- ----------- -----------
Total shares acquired.............. 4,911 9,082 438 300 1,467 2,418 600
Shares redeemed.................... (1,200) (1,408) (12) (126) (94) (122) (19)
-------- ---------- --------- -------- ------- ----------- -----------
Net increase in shares owned....... 3,711 7,674 426 174 1,373 2,296 581
Shares owned, beginning of the
period........................... 0 0 0 0 0 0 0
-------- ---------- --------- -------- ------- ----------- -----------
Shares owned, end of period........ 3,711 7,674 426 174 1,373 2,296 581
-------- ---------- --------- -------- ------- ----------- -----------
-------- ---------- --------- -------- ------- ----------- -----------
Cost of shares acquired............ 79,661 142,783 7,206 4,762 60,457 77,973 12,131
-------- ---------- --------- -------- ------- ----------- -----------
-------- ---------- --------- -------- ------- ----------- -----------
Cost of shares redeemed............ (19,390) (22,177) (193) (1,977) (3,938) (4,046) (394)
-------- ---------- --------- -------- ------- ----------- -----------
-------- ---------- --------- -------- ------- ----------- -----------
<CAPTION>
OPPENHEIMER
STRATEGIC
BOND
-----------
<S> <C>
Shares purchased................... 2,012
Shares received from reinvestment
of dividends..................... 39
-----------
Total shares acquired.............. 2,051
Shares redeemed.................... (52)
-----------
Net increase in shares owned....... 1,999
Shares owned, beginning of the
period........................... 0
-----------
Shares owned, end of period........ 1,999
-----------
-----------
Cost of shares acquired............ 10,623
-----------
-----------
Cost of shares redeemed............ (268)
-----------
-----------
</TABLE>
F-18
<PAGE>
4. RELATED PARTY TRANSACTIONS
Contract owners' net payments represent premiums received from policyholders
less certain deductions made by Protective Life in accordance with policy terms.
These deductions include, where appropriate, sales, tax, surrender, cost of
insurance protection and administrative charges. These deductions are made to
the individual policies in accordance with the terms governing each policy as
set forth in the policy.
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 contract owners. Contract owners
may obtain loans using the contract as the only security for the loan. Loans may
be subject to provisions of The Internal Revenue Code of 1986, as amended. Loans
outstanding approximated $108,000 and $70,000 at December 31, 1998 and 1997,
respectively.
5. SUBSEQUENT EVENTS
Protective Life has announced plans to liquidate the PIC Money Market
account and replace it with the Oppenheimer Money Fund in 1999.
In 1999, the Oppenheimer Growth Fund and the Oppenheimer Growth and Income
Fund names will be changed to Oppenheimer Capital Appreciation and Oppenheimer
Main Street Growth and Income, respectively.
Additionally, six sub-accounts will be added to the Separate Account. These
sub-accounts are MFS New Discovery, MFS Utilities, Oppenheimer Global
Securities, Oppenheimer High Income, Van Eck Worldwide Hard Assets, and Van Eck
Worldwide Real Estate. Sales will begin in the sub-accounts in 1999.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Share Owner
Protective Life Insurance Company
Birmingham, Alabama
In our opinion, the consolidated financial statements of Protective Life
Insurance Company and Subsidiaries (the "Company") listed in the index on page
F1 of this Form S-6 present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules listed in the index on page F1 of this Form S-6 present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
February 11, 1999
Birmingham, Alabama
F-20
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees................................. $1,027,340 $ 814,420 $ 770,224
Reinsurance ceded........................................ (459,215) (334,214) (308,174)
--------- --------- ---------
Net of reinsurance ceded............................... 568,125 480,206 462,050
Net investment income.................................... 603,795 557,488 498,781
Realized investment gains................................ 2,136 1,824 5,510
Other income............................................. 20,201 6,149 5,010
--------- --------- ---------
1,194,257 1,045,667 971,351
--------- --------- ---------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance
ceded: 1998-$330,494; 1997-$180,605; 1996-$215,424).... 730,496 658,872 626,893
Amortization of deferred policy acquisition costs........ 111,188 107,175 91,001
Other operating expenses (net of reinsurance ceded:
1998-$166,375; 1997-$90,045; 1996-$81,839)............. 172,228 129,870 128,148
--------- --------- ---------
1,013,912 895,917 846,042
--------- --------- ---------
INCOME BEFORE INCOME TAX................................... 180,345 149,750 125,309
INCOME TAX EXPENSE (BENEFIT)
Current.................................................. 48,237 66,283 44,908
Deferred................................................. 14,925 (13,981) (2,142)
--------- --------- ---------
63,162 52,302 42,766
--------- --------- ---------
NET INCOME................................................. $ 117,183 $ 97,448 $ 82,543
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1998-$6,307,274; 1997-$6,221,871)........ $6,400,262 $6,348,252
Equity securities, at market (cost: 1998-$15,151; 1997-$24,983)....................... 12,258 15,006
Mortgage loans on real estate......................................................... 1,623,603 1,313,478
Investment real estate, net of accumulated depreciation (1998-$782; 1997-$671)........ 14,868 13,469
Policy loans.......................................................................... 232,670 194,109
Other long-term investments........................................................... 70,078 54,704
Short-term investments................................................................ 159,655 54,337
---------- ----------
Total investments................................................................... 8,513,394 7,993,355
Cash.................................................................................... 39,197
Accrued investment income............................................................... 100,395 94,095
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1998-$4,304; 1997-$5,292)............................................................ 31,265 42,255
Reinsurance receivables................................................................. 756,370 591,457
Deferred policy acquisition costs....................................................... 841,425 632,605
Property and equipment, net............................................................. 42,374 36,407
Other assets............................................................................ 34,632 14,445
Assets related to separate accounts
Variable Annuity...................................................................... 1,285,952 924,406
Variable Universal Life............................................................... 13,606 3,634
Other................................................................................. 3,482 3,425
---------- ----------
$11,622,895 $10,375,281
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims..................................................... $4,140,003 $3,324,294
Unearned premiums..................................................................... 389,294 396,696
---------- ----------
4,529,297 3,720,990
Guaranteed investment contract deposits................................................. 2,691,697 2,684,676
Annuity deposits........................................................................ 1,519,820 1,511,553
Other policyholders' funds.............................................................. 219,356 183,324
Other liabilities....................................................................... 226,310 246,081
Accrued income taxes.................................................................... (10,992) 941
Deferred income taxes................................................................... 51,735 49,417
Note payable............................................................................ 2,363
Indebtedness to related parties......................................................... 20,898 28,055
Liabilities related to separate accounts
Variable Annuity...................................................................... 1,285,952 924,406
Variable Universal Life............................................................... 13,606 3,634
Other................................................................................. 3,482 3,425
---------- ----------
Total liabilities................................................................... 10,553,524 9,356,502
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
SHARE-OWNER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation
preference $2,000..................................................................... 2 2
Common Stock, $1.00 par value........................................................... 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital.............................................................. 327,992 327,992
Note receivable from PLC Employee Stock Ownership Plan.................................. (5,199) (5,378)
Retained earnings....................................................................... 686,519 629,436
Accumulated other comprehensive income
Net unrealized gains on investments (net of income tax: 1998-$29,646; 1997-$33,238)... 55,057 61,727
---------- ----------
Total share-owner's equity.......................................................... 1,069,371 1,018,779
---------- ----------
$11,622,895 $10,375,281
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF SHARE-OWNER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTE
ADDITIONAL RECEIVABLE NET UNREALIZED TOTAL SHARE-
PREFERRED COMMON PAID-IN FROM PLC RETAINED GAINS (LOSSES) OWNER'S
STOCK STOCK CAPITAL ESOP EARNINGS ON INVESTMENTS EQUITY
------------ ------- ---------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
-------------
Net income for 1998................... 117,183 117,183
Decrease in net unrealized gains on
investments (net of income tax-
($2,844))........................... (5,281) (5,281)
Reclassification adjustment for
amounts included in net income (net
of income tax: $(747)).............. (1,389) (1,389)
-------------
Comprehensive income for 1998......... 110,513
-------------
Common dividends ($12 per share)...... (60,000 ) (60,000)
Preferred dividends ($50 per share)... (100 ) (100)
Decrease in note receivable from PLC
ESOP................................ 179 179
--- ------- ---------- ---------- -------- -------------- -------------
Balance, December 31, 1998.............. $ 2 $5,000 $327,992 $(5,199) $686,519 $ 55,057 $1,069,371
--- ------- ---------- ---------- -------- -------------- -------------
--- ------- ---------- ---------- -------- -------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................. $ 117,183 $ 97,448 $ 82,543
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs........................ 111,188 107,175 91,001
Capitalization of deferred policy acquisition costs...................... (192,838) (135,211) (77,078)
Depreciation expense..................................................... 7,110 5,124 5,333
Deferred income taxes.................................................... 14,925 (17,918) (2,442)
Accrued income taxes..................................................... (11,933) (5,558) 893
Interest credited to universal life and investment products.............. 352,721 299,004 280,377
Policy fees assessed on universal life and investment products........... (139,689) (131,582) (116,401)
Change in accrued investment income and other receivables................ (159,362) (158,798) (70,987)
Change in policy liabilities and other policyholder funds of
traditional life and health products................................... 322,464 279,522 133,621
Change in other liabilities.............................................. (19,771) 65,393 7,209
Other (net).............................................................. (22,634) (1,133) (4,281)
----------- ----------- -----------
Net cash provided by operating activities.................................... 379,364 403,466 329,788
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale........................................... 10,445,407 6,462,663 1,327,323
Other.................................................................... 198,559 324,242 168,898
Sale of investments:
Investment available for sale............................................ 1,080,265 1,108,058 1,569,119
Other.................................................................... 155,906 695,270 568,218
Cost of investments acquired:
Investments available for sale........................................... (11,507,234) (8,428,804) (3,798,631)
Other.................................................................... (662,350) (718,335) (400,322)
Acquisitions and bulk reinsurance assumptions.............................. (169,124) 264,126
Purchase of property and equipment......................................... (13,077) (6,087) (6,899)
Sale of property and equipment............................................. 2,681 288
----------- ----------- -----------
Net cash used in investing activities........................................ (302,524) (729,436) (307,880)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt............ 1,975,800 1,159,538 941,438
Capital contribution from PLC.............................................. 90,000 91,500
Principal payments on line of credit arrangements and long-term debt....... (1,973,437) (1,159,538) (941,438)
Principal payment on surplus note to PLC................................... (2,000) (4,693) (10,000)
Dividends to share-owner................................................... (60,100) (100) (100)
Investment product deposits and change in universal life deposits.......... 981,124 910,659 949,122
Investment product withdrawals............................................. (1,037,424) (745,083) (944,244)
----------- ----------- -----------
Net cash provided by (used in) financing activities.......................... (116,037) 250,783 86,278
----------- ----------- -----------
INCREASE (DECREASE) IN CASH.................................................. (39,197) (75,187) 108,186
CASH AT BEGINNING OF YEAR.................................................... 39,197 114,384 6,198
----------- ----------- -----------
CASH AT END OF YEAR.......................................................... $ 0 $ 39,197 $ 114,384
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt......................................................... $ 8,338 $ 4,343 $ 4,633
Income taxes............................................................. $ 57,429 $ 70,133 $ 43,478
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP................................... $ 179 $ 201 $ 186
Acquisitions and bulk reinsurance assumptions
Assets acquired.......................................................... $ 247,894 $ 1,114,832 $ 296,935
Liabilities assumed...................................................... (380,405) (902,267) (364,862)
----------- ----------- -----------
Net...................................................................... $ (132,511) $ 212,565 $ (67,927)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-24
<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 provides financial services through the production, distribution,
and administration of insurance and investment products. Protective markets
individual life insurance, dental insurance and managed care services, credit
life and disability insurance, guaranteed investment contracts, guaranteed
funding agreements, and fixed and variable annuities throughout the United
States. Protective also maintains a separate division devoted exclusively to the
acquisition of insurance policies from other companies.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997 Protective adopted Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities;" SFAS No. 130, "Reporting Comprehensive
Income;" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
In 1998 PLC adopted SFAS No. 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits."
The adoption of these accounting standards did not have a material effect on
PLC's or Protective's financial statements.
INVESTMENTS
Protective has classified all of its investments in fixed maturities, equity
securities, and short-term investments as "available for sale."
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)
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 $0.9 million in bank
deposits voluntarily restricted as to withdrawal.
As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," certain investments are recorded at their market values
with the resulting unrealized gains and losses reduced by a related adjustment
to deferred policy acquisition costs, net of income tax reported as a component
of share-owner's equity. The market values of fixed maturities increase or
decrease as interest rates fall or rise. Therefore, although the adoption of
SFAS No. 115 does not affect Protective's operations, its reported shareowner'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>
1998 1997
------------- -------------
<S> <C> <C>
Total investments.............................................. $ 8,412,167 $ 7,876,952
Deferred policy acquisition costs.............................. 857,949 654,043
All other assets............................................... 2,268,076 1,749,321
------------- -------------
$ 11,538,192 $ 10,280,316
------------- -------------
------------- -------------
Deferred income taxes.......................................... $ 22,089 $ 16,179
All other liabilities.......................................... 10,501,789 9,307,085
------------- -------------
10,523,878 9,323,264
Share-owner's equity........................................... 1,014,314 957,052
------------- -------------
$ 11,538,192 $ 10,280,316
------------- -------------
------------- -------------
</TABLE>
Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.
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)
DERIVATIVE FINANCIAL INSTRUMENTS
Protective does not use derivative financial instruments for trading
purposes. Combinations of swaps, 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. No realized investment gains or losses were deferred in 1998.
Net realized gains of $1.5 million were deferred in 1997. At December 31, 1998
and 1997, options and open futures contracts with notional amounts of $975.0
million and $925.0 million, respectively, had net unrealized losses of $0.5
million and $0.4 million respectively.
Protective uses interest rate swap contracts to convert certain investments
and liabilities from a variable to a fixed rate of interest and from a fixed
rate to variable rate of interest. At December 31, 1998, related open interest
rate swap contracts with a notional amount of $55.3 million were in a $0.2
million net unrealized loss position. 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.
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.
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Home office building.................................................... $ 37,959 $ 37,459
Other, principally furniture and equipment.............................. 58,958 46,937
--------- ---------
96,917 84,396
Accumulated depreciation................................................ 54,543 47,989
--------- ---------
$ 42,374 $ 36,407
--------- ---------
--------- ---------
</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.
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)
REVENUES AND BENEFITS EXPENSE
- 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 and term-like life insurance policies, limited-payment life
insurance policies, and certain annuities with life contingencies. Life
insurance and immediate annuity premiums are recognized as revenue when
due. Health 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.
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance beginning of year................................ $ 106,121 $ 108,159 $ 73,642
Less reinsurance....................................... 18,673 6,423 3,330
---------- ---------- ----------
Net balance beginning of year............................ 87,448 101,736 70,312
---------- ---------- ----------
Incurred related to:
Current year............................................. 288,015 258,322 275,524
Prior year............................................... (10,198) (14,540) (2,417)
---------- ---------- ----------
Total incurred......................................... 277,817 243,782 273,107
---------- ---------- ----------
Paid related to:
Current year............................................. 236,001 203,381 197,163
Prior year............................................... 58,951 58,104 57,812
---------- ---------- ----------
Total paid............................................. 294,952 261,485 254,975
---------- ---------- ----------
Other changes:
Acquisitions and reserve transfers..................... 0 3,415 13,292
---------- ---------- ----------
Net balance end of year.................................. 70,313 87,448 101,736
Plus reinsurance....................................... 20,019 18,673 6,423
---------- ---------- ----------
Balance end of year...................................... $ 90,332 $ 106,121 $ 108,159
---------- ---------- ----------
---------- ---------- ----------
</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
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)
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 3.4% to 9.4% in 1998.
Protective's accounting policies with respect to variable universal life
and variable annuities are identical except that policy account balances
(excluding account balances that earn a fixed rate) are valued at market
and reported as components of assets and liabilities related to separate
accounts.
DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs of acquiring traditional life and health
insurance, universal life insurance, and investment products that vary with and
are primarily related to the production of new business have been deferred.
Traditional life and health insurance acquisition costs are amortized over the
premium-payment period of the related policies in proportion to the ratio of
annual premium income to total anticipated premium income. Acquisition costs for
universal life and investment products are being amortized over the lives of the
policies in relation to the present value of estimated gross profits before
amortization. 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 that assumed. Additionally, relating to SFAS No. 115,
these costs have been adjusted by an amount equal to the amortization that would
have been recorded if unrealized gains or losses on investments associated with
Protective's universal life and investment products had been realized.
The cost to acquire blocks of insurance representing the present value of
future profits from such blocks of insurance is also included in deferred policy
acquisition costs. Protective amortizes the present value of future profits over
the premium payment period including accrued interest of up to approximately 8%.
The unamortized present value of future profits for all acquisitions was
approximately $370.3 million and $274.9 million at December 31, 1998 and 1997,
respectively. During 1998 $132.5 million of present value of future profits on
acquisitions made during the year was capitalized and $37.1 million was
amortized. During 1997 $136.2 million of present value of future profits on
acquisitions made during the year was capitalized, and $28.9 million was
amortized.
INCOME TAXES
Protective uses the asset and liability method of accounting for income
taxes. Income tax provisions are generally based on income reported for
financial statement purposes. Deferred federal income taxes arise from the
recognition of temporary differences between the bases of assets and liabilities
determined for financial reporting purposes and the bases determined for income
tax purposes. Such temporary differences are principally related to the deferral
of policy acquisition costs and the provision for future policy benefits and
expenses.
F-29
<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)
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 share-owner's equity.
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principals ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by 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 stock-owner's equity, (e) furniture and equipment,
agents' debit balances, and prepaid expenses are reported as assets rather than
being charged directly to surplus (referred to as nonadmitted items), (f)
certain items of interest income, principally accrual of mortgage and bond
discounts are amortized differently, and (g) bonds are stated at market instead
of amortized cost.
The reconciliations of net income and share-owner's equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<TABLE>
<CAPTION>
NET INCOME SHARE-OWNER'S EQUITY
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory
reporting practices: (1).......... $ 147,077 $ 134,417 $ 102,337 $ 531,956 $ 579,111 $ 456,320
Additions (deductions) by
adjustment:
Deferred policy acquisition
costs, net of amortization...... 68,155 10,310 (2,830) 841,425 632,605 488,201
Deferred income tax............... (14,925) 13,981 2,142 (51,735) (49,417) (37,722)
Asset Valuation Reserve........... 66,922 67,369 64,233
Interest Maintenance Reserve...... (1,355) (1,434) (2,142) 15,507 9,809 17,682
Nonadmitted items................. 42,835 30,500 21,610
Other timing and valuation
adjustments..................... (76,214) (54,494) (11,210) (282,480) (215,448) (197,227)
Noninsurance affiliates........... 18,171 17,530 11,104 (4) 4
Consolidation elimination......... (23,726) (22,862) (16,858) (95,059) (35,746) (36,910)
--------- --------- --------- --------- --------- ---------
In conformity with generally
accepted accounting principles.... $ 117,183 $ 97,448 $ 82,543 $1,069,371 $1,018,779 $ 776,191
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities......................................... $ 463,416 $ 396,255 $ 310,353
Equity securities........................................ 905 1,186 2,124
Mortgage loans on real estate............................ 158,461 161,604 153,463
Investment real estate................................... 1,224 2,004 1,875
Policy loans............................................. 12,346 11,370 10,378
Other, principally short-term investments................ 16,536 21,876 51,637
---------- ---------- ----------
652,888 594,295 529,830
Investment expenses...................................... 49,093 36,807 31,049
---------- ---------- ----------
$ 603,795 $ 557,488 $ 498,781
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<S> <C> <C> <C>
Fixed maturities................................. $ 4,374 $ (8,355) $ (7,101)
Equity securities................................ (4,465) 5,975 1,733
Mortgage loans and other investments............. 2,227 4,204 10,878
--------- --------- ---------
$ 2,136 $ 1,824 $ 5,510
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective recognizes permanent impairments through changes to an allowance
for uncollectible amounts on investments. The allowance totaled $24.1 million at
December 31, 1998 and $23.0 million at December 31, 1997. Additions and
reductions to the allowance are included in realized investment gains (losses).
Without such additions/reductions, Protective had net realized investment gains
of $3.2 million in 1998, net realized investment losses of $6.1 million in 1997,
and net realized investment gains of $3.7 million in 1996.
In 1998, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $32.3 million and
gross losses were $32.5 million. In 1997, gross gains were $21.3 million and
gross losses were $23.5 million. In 1996, gross gains were $6.9 million and
gross losses were $11.8 million.
F-31
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
1998 COST GAINS LOSSES VALUES
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed.......................................... $ 2,581,561 $ 41,626 $ 33,939 $ 2,589,248
United States Government and authorities................. 72,697 2,812 75,509
States, municipalities, and political subdivisions....... 29,521 1,131 30,652
Public utilities......................................... 533,082 15,066 548,148
Convertibles and bonds with warrants..................... 694 179 515
All other corporate bonds................................ 3,083,782 98,992 32,629 3,150,145
Redeemable preferred stocks................................ 5,937 108 6,045
------------ ----------- ----------- ------------
6,307,274 159,735 66,747 6,400,262
Equity securities............................................ 15,151 456 3,349 12,258
Short-term investments....................................... 159,655 159,655
------------ ----------- ----------- ------------
$ 6,482,080 $ 160,191 $ 70,096 $ 6,572,175
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
<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>
F-32
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
1998 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 705,859 $ 709,686
Due after one year through five years............................. 3,255,973 3,325,078
Due after five years through ten years............................ 1,655,055 1,690,581
Due after ten years............................................... 690,387 674,917
------------ ------------
$ 6,307,274 $ 6,400,262
------------ ------------
------------ ------------
</TABLE>
<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>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1998 1997
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
AAA........................................................................ 34.3% 41.1%
AA......................................................................... 6.2 4.8
A.......................................................................... 29.4 29.1
BBB........................................................................ 26.5 21.9
BB or less................................................................. 3.5 3.0
Redeemable preferred stocks................................................ 0.1 0.1
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
At December 31, 1998 and 1997, Protective had bonds which were rated less than
investment grade of $222.9 million and $195.2 million, respectively, having an
amortized cost of $252.0 million and $193.6 million, respectively. At December
31, 1998, approximately $83.5 million of the bonds rates less than investment
grade were securities issued in company-sponsored commercial mortgage loan
securitizations. Approximately $817.9 million of bonds are not publically
traded.
F-33
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Fixed maturities........................................... $ (21,705) $ 72,741 $ (56,898)
Equity securities.......................................... $ 4,605 $ (8,813) $ 207
</TABLE>
At December 31, 1998, all of Protective's mortgage loans were commercial
loans of which 75% were retail, 10% were apartments, 8% were warehouses, and 6%
were office buildings. Protective specializes in making mortgage loans on either
credit-oriented or credit-anchored commercial properties, most of which are
strip shopping centers in smaller towns and cities. No single tenant's leased
space represents more than 5% of mortgage loans. Approximately 82% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: Georgia, Florida, Texas, North Carolina,
Tennessee, Virginia, Alabama, South Carolina, Kentucky, Ohio, Maryland,
California, Mississippi, and Washington.
Many of the mortgage loans have call provisions after three to ten years.
Assuming the loans are called at their next call dates, approximately $48.1
million would become due in 1999, $348.9 million in 2000 to 2003, and $209.1
million in 2004 to 2008.
At December 31, 1998, the average mortgage loan was approximately $2.0
million, and the weighted average interest rate was 8.3%. The largest single
mortgage loan was $12.8 million.
At December 31, 1998 and 1997, Protective's problem mortgage loans and
foreclosed properties totaled $11.7 million and $17.7 million, respectively.
Since Protective's mortgage loans are collateralized by real estate, any
assessment of impairment is based upon the estimated fair value of the real
estate. Based on Protective's evaluation of its mortgage loan portfolio,
Protective does not expect any material losses on its mortgage loans.
Certain investments, principally real estate, with a carrying value of $10.6
million were nonincome producing for the twelve months ended December 31, 1998.
Policy loan interest rates generally range from 4.5% to 8.0%.
NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax
income.................................................... 35.0% 35.0% 35.0%
Dividends received deduction and tax-exempt interest........ (0.1) (0.2) (0.4)
Low-income housing credit................................... (0.5) (0.6) (0.6)
Tax benefits arising from prior acquisitions and other
adjustments............................................... 0.1 0.7 0.1
State income taxes.......................................... 0.5
----- ----- -----
Effective income tax rate................................... 35.0% 34.9% 34.1%
----- ----- -----
----- ----- -----
</TABLE>
F-34
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs................................... $ 60,746 $ 7,054 $ 15,542
Benefit and other policy liability changes.......................... (41,268) (23,564) (16,321)
Temporary differences of investment income.......................... (3,491) 2,516 (1,163)
Other items......................................................... (1,062) 13 (200)
---------- ---------- ----------
$ 14,925 $ (13,981) $ (2,142)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves.................................... $ 190,328 $ 138,701
Other......................................................................... 2,091 1,029
---------- ----------
192,419 139,730
---------- ----------
Deferred income tax liabilities:
Deferred policy acquisition costs............................................. 211,641 150,895
Unrealized gain on investments................................................ 32,513 38,252
---------- ----------
244,154 189,147
---------- ----------
Net deferred income tax liability............................................. $ 51,735 $ 49,417
---------- ----------
---------- ----------
</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, 1998 was approximately $70.5 million. Should the accumulation in
the Policyholders' Surplus account exceed certain stated maximums, or should
distributions including cash dividends be made to PLC in excess of approximately
$769 million, such excess would be subject to federal income taxes at rates then
effective. Deferred income taxes have not been provided on amounts designated as
Policyholders' Surplus. Under current income tax laws, Protective does not
anticipate 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, 1998, PLC had borrowed $18.5 million at a rate of 5.8%. PLC
had also borrowed $30.0 million at a rate of 5.4% 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.
F-35
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E -- DEBT (CONTINUED)
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, 1998 and 1997. Also, Protective
has a mortgage note on investment real estate amounting to approximately $2.4
million that matures in 2003.
Included in indebtedness to related parties is a surplus debenture issued by
Protective to PLC. At December 31, 1998, the balance of the surplus debenture
was $18.0 million. The debenture matures in 2003.
Indebtedness to related parties also consists of payables to affiliates
under control of PLC in the amount of $2.9 million at December 31, 1998.
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 $8.3 million, $4.3 million, and
$4.6 million, in 1998, 1997, and 1996, respectively.
NOTE F -- RECENT ACQUISITIONS
In June 1997, Protective acquired West Coast Life Insurance Company ("West
Coast"). In September 1997, Protective acquired the Western Diversified Group.
In October 1997, Protective coinsured a block of credit policies.
In October 1998 Protective coinsured a block of life insurance policies from
Lincoln National Corporation. The policies represent the payroll deduction
business originally marketed and underwritten by Aetna.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. Protective does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
A number of civil jury verdicts have been returned against 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 insurers, in
the ordinary course of business, are involved in such litigation or
alternatively in arbitration. Although the outcome of any litigation or
arbitration cannot be predicted with certainty, Protective believes that at the
present time there are no pending or threatened lawsuits
F-36
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
that are reasonably likely to have a material adverse effect on the financial
position, results of operations, or liquidity of Protective.
NOTE H -- SHARE-OWNER'S EQUITY AND RESTRICTIONS
At December 31, 1998, approximately $608.6 million of consolidated
share-owner'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 1999 is estimated to be $138.9 million. Dividends of $60.0
million were paid to PLC in 1998.
NOTE I -- PREFERRED STOCK
PLC owns all of the 2,000 shares of preferred stock issued by Protective's
subsidiary, Protective Life and Annuity Insurance Company ("PL&A"). During 1996,
PL&A's articles of incorporation were amended such that the preferred stock is
redeemable solely at the discretion of PL&A. Prior to November 1998, the stock
paid, when and if declared, annual minimum cumulative dividends of $50 per
share, and noncumulative participating dividends to the extent PL&A's statutory
earnings for the immediately preceding fiscal year exceeded $1 million.
Dividends of $0.1 million were paid to PLC in 1998, 1997, and 1996. Effective
November 3, 1998, PL&A's articles of incorporation were amended such that the
provision for an annual minimum cumulative dividend was removed.
NOTE J -- RELATED PARTY MATTERS
On August 6, 1990, PLC announced that its Board of Directors approved the
formation of an Employee Stock Ownership Plan ("ESOP"). On December 1, 1990,
Protective transferred to the ESOP 520,000 shares of PLC's common stock held by
it in exchange for a note. The outstanding balance of the note, $5.2 million at
December 31, 1998, is accounted for as a reduction to share-owner's equity. The
stock will be used to match employee contributions to PLC's existing 401(k)
Plan. The ESOP shares are dividend paying. Dividends on the shares are used to
pay the ESOP's note to Protective.
Protective leases furnished office space and computers to affiliates. Lease
revenues were $3.0 million in 1998, $3.1 million in 1997, and $3.7 million in
1996. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $56.2 million, $51.6
million, and $50.4 million in 1998, 1997, and 1996, respectively. Commissions
paid to affiliated marketing organizations of $8.4 million, $5.2 million, and
$7.4 million in 1998, 1997, and 1996, respectively, were included in deferred
policy acquisition costs.
Certain corporations with which PLC's directors were affiliated paid
Protective premiums, policy fees, or deposits for various types of insurance and
investment products. Such premiums, policy fees, and deposits amounted to $28.6
million, $21.4 million and $31.2 million in 1998, 1997, and 1996, respectively.
Protective and/or PLC paid commissions, interest on debt and investment
products, and fees to these same corporations totaling $7.3 million, $5.4
million and $5.0 million in 1998, 1997, and 1996, respectively.
F-37
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- RELATED PARTY MATTERS (CONTINUED)
For a discussion of indebtedness to related parties, see Note E.
NOTE K -- OPERATING SEGMENTS
Protective operates seven divisions whose principal strategic focuses can be
grouped into three general categories: Life Insurance, Specialty Insurance
Products, and Retirement Savings and Investment Products. Each division has a
senior officer of Protective responsible for its operations. A division is
generally distinguished by products and/or channels of distribution. A brief
description of each division follows.
LIFE INSURANCE
INDIVIDUAL LIFE DIVISION. The Individual Life Division markets universal
life, variable universal life, and level premium term and term-like insurance
products on a national basis through a network of independent insurance agents.
WEST COAST DIVISION. The West Coast Division sells universal life and level
premium term-like insurance products in the life insurance brokerage market and
in the "bank owned life insurance" market.
ACQUISITIONS DIVISION. The Acquisitions Division focuses solely on
acquiring, converting, and servicing policies 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.
SPECIALTY INSURANCE PRODUCTS
DENTAL AND CONSUMER BENEFITS DIVISION. The Division's primary focus is on
indemnity and prepaid dental products. In 1997, the Division exited from the
traditional group major medical business, fulfilling the Division's strategy to
focus primarily on dental and related products.
FINANCIAL INSTITUTIONS DIVISION. The Financial Institutions Division
specializes in marketing credit life and disability insurance products through
banks, consumer finance companies and automobile dealers. The Division also
includes a small property casualty insurer that sells automobile service
contracts.
GUARANTEED INVESTMENT CONTRACTS DIVISION. The Guaranteed Investment
Contracts ("GIC") Division markets GICs to 401(k) and other qualified retirement
savings plans. The Division also offers related products, including fixed and
floating rate funding agreements offered to the trustees of municipal bond
proceeds, bank trust departments, and money market funds, and long-term annuity
contracts offered to fund certain state obligations.
INVESTMENT PRODUCTS DIVISION. The Investment Products Division
manufactures, sells, and supports fixed and variable annuity products. These
products are primarily sold through stockbrokers, but are also sold through
financial institutions and the Individual Life Division's sales force.
F-38
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
CORPORATE AND OTHER
Protective has an additional business segment herein referred to as
Corporate and Other. The Corporate and Other segment primarily consists of net
investment income and expenses not attributable to the Divisions above
(including net investment income on capital and interest on substantially all
debt).
Protective uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated net
income and assets. Operating segment income is generally income before income
tax. Premiums and policy fees, other income, benefits and settlement expenses,
and amortization of deferred policy acquisition costs are attributed directly to
each operating segment. Net investment income is allocated based on directly
related assets required for transacting the business of that segment. Realized
investment gains (losses) and other operating expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
F-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)
Operating segment income and assets for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
LIFE INSURANCE
-------------------------------------
INDIVIDUAL
OPERATING SEGMENT INCOME LIFE WEST COAST ACQUISITIONS
- ------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
1998
Premiums and policy
fees................... $ 228,701 $ 75,757 $ 125,329
Reinsurance ceded........ (102,533) (53,377 ) (28,594)
---------- ---------- -------------
Net of reinsurance
ceded................ 126,168 22,380 96,735
Net investment income.... 55,779 63,492 112,154
Realized investment gains
(losses)...............
Other income............. 70 6 1,713
---------- ---------- -------------
Total revenues....... 182,017 85,878 210,602
---------- ---------- -------------
Benefits and settlement
expenses............... 106,308 54,617 112,051
Amortization of deferred
policy acquisition
costs.................. 30,543 4,924 18,894
Other operating
expenses............... 14,983 5,354 26,717
---------- ---------- -------------
Total benefits and
expenses............ 151,834 64,895 157,662
---------- ---------- -------------
Income before income
tax.................... 30,183 20,983 52,940
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
1997
Premiums and policy
fees................... $ 182,746 $ 41,290 $ 120,504
Reinsurance ceded........ (55,266) (27,168 ) (17,869)
---------- ---------- -------------
Net of reinsurance
ceded................ 127,480 14,122 102,635
Net investment income.... 54,593 30,194 110,155
Realized investment gains
(losses)...............
Other income............. 617 10
---------- ---------- -------------
Total revenues....... 182,690 44,316 212,800
---------- ---------- -------------
Benefits and settlement
expenses............... 114,678 28,304 116,506
Amortization of deferred
policy acquisition
costs.................. 27,354 961 16,606
Other operating
expenses............... 18,178 6,849 23,016
---------- ---------- -------------
Total benefits and
expenses............ 160,210 36,114 156,128
---------- ---------- -------------
Income before income
tax.................... 22,480 8,202 56,672
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
1996
Premiums and policy
fees................... $ 154,295 $ 125,798
Reinsurance ceded........ (37,585) (19,255)
---------- ---------- -------------
Net of reinsurance
ceded................ 116,710 106,543
Net investment income.... 48,442 106,015
Realized investment gains
(losses)............... 3,098
Other income............. 1,056 641
---------- ---------- -------------
Total revenues....... 169,306 213,199
---------- ---------- -------------
Benefits and settlement
expenses............... 96,404 118,181
Amortization of deferred
policy acquisition
costs.................. 28,393 17,162
Other operating
expenses............... 28,611 24,292
---------- ---------- -------------
Total benefits and
expenses............ 153,408 159,635
---------- ---------- -------------
Income before income
tax.................... 15,898 53,564
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
OPERATING SEGMENT ASSETS
- -------------------------
1998
Investments and other
assets................. $1,076,202 $1,149,642 $1,600,123
Deferred policy
acquisition costs...... 301,941 144,455 255,347
---------- ---------- -------------
Total assets............. $1,378,143 $1,294,097 $1,855,470
---------- ---------- -------------
1997
Investments and other
assets................. $ 960,316 $ 910,030 $1,401,294
Deferred policy
acquisition costs...... 252,321 108,126 138,052
---------- ---------- -------------
Total assets............. $1,212,637 $1,018,156 $1,539,346
---------- ---------- -------------
1996
Investments and other
assets................. $ 814,728 $1,423,081
Deferred policy
acquisition costs...... 220,232 156,172
---------- ---------- -------------
Total assets............. $1,034,960 $1,579,253
---------- ---------- -------------
</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>
1998
Premiums and policy
fees................... $ 277,316 $ 301,230 $ 18,809 $ 198 $ 1,027,340
Reinsurance ceded........ (85,753) (188,958) (459,215)
----------- ------------- ------------ ------------ ---------- ------ -------------
Net of reinsurance
ceded................ 191,563 112,272 18,809 198 568,125
Net investment income.... 15,245 25,068 $ 213,136 105,827 13,094 603,795
Realized investment gains
(losses)............... 1,609 1,318 $ (791) 2,136
Other income............. 4,295 10,302 1,799 2,016 20,201
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 211,103 147,642 214,745 127,753 15,308 1,194,257
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 140,632 52,629 178,745 85,045 469 730,496
Amortization of deferred
policy acquisition
costs.................. 10,352 28,526 735 17,213 1 111,188
Other operating
expenses............... 49,913 48,837 2,876 14,428 9,120 172,228
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 200,897 129,992 182,356 116,686 9,590 1,013,912
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 10,206 17,650 32,389 11,067 5,718 180,345
Income tax expense....... 63,162 63,162
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 117,183
----------- ------------- ------------ ------------ ---------- ------ -------------
1997
Premiums and policy
fees................... $ 260,590 $ 196,694 $ 12,367 $ 229 $ 814,420
Reinsurance ceded........ (109,480) (124,431) (334,214)
----------- ------------- ------------ ------------ ---------- ------ -------------
Net of reinsurance
ceded................ 151,110 72,263 12,367 229 480,206
Net investment income.... 23,810 16,341 $ 211,915 105,196 5,284 557,488
Realized investment gains
(losses)............... (3,180) 589 $4,415 1,824
Other income............. 1,278 3,033 (192) 1,403 6,149
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 176,198 91,637 208,735 117,960 6,916 1,045,667
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 110,148 27,643 179,235 82,019 339 658,872
Amortization of deferred
policy acquisition
costs.................. 15,711 30,812 618 15,110 3 107,175
Other operating
expenses............... 38,572 20,165 3,945 12,312 6,833 129,870
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 164,431 78,620 183,798 109,441 7,175 895,917
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 11,767 13,017 24,937 8,519 (259) 149,750
Income tax expense....... 52,302 52,302
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 97,448
----------- ------------- ------------ ------------ ---------- ------ -------------
1996
Premiums and policy
fees................... $ 288,050 $ 193,236 $ 8,189 $ 656 $ 770,224
Reinsurance ceded........ (131,520) (119,814) (308,174)
----------- ------------- ------------ ------------ ---------- ------ -------------
Net of reinsurance
ceded................ 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
----------- ------------- ------------ ------------ ---------- ------ -------------
OPERATING SEGMENT ASSETS
- -------------------------
1998
Investments and other
assets................. $ 197,337 $ 645,909 $2,869,304 $2,542,536 $700,417 $10,781,470
Deferred policy
acquisition costs...... 23,836 39,212 1,448 75,177 9 841,425
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $ 221,173 $ 685,121 $2,870,752 $2,617,713 $700,426 $11,622,895
----------- ------------- ------------ ------------ ---------- ------ -------------
1997
Investments and other
assets................. $ 208,071 $ 536,058 $2,887,732 $2,313,279 $525,896 $ 9,742,676
Deferred policy
acquisition costs...... 22,459 52,836 1,785 56,074 952 632,605
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $ 230,530 $ 588,894 $2,889,517 $2,369,353 $526,848 $10,375,281
----------- ------------- ------------ ------------ ---------- ------ -------------
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
----------- ------------- ------------ ------------ ---------- ------ -------------
</TABLE>
- ----------------------------------------
F-41
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
1998 1997
---------- ---------
<S> <C> <C>
Projected benefit obligation, beginning of the year........................................ $ 30,612 $ 25,196
Service cost -- benefits earned during the year............................................ 2,585 2,112
Interest cost -- on projected benefit obligation........................................... 2,203 2,036
Actuarial gain............................................................................. 2,115 3,421
Plan amendment............................................................................. 160
Benefits paid.............................................................................. (1,128) (2,153)
---------- ---------
Projected benefit obligation, end of the year.............................................. 36,547 30,612
---------- ---------
Fair value of plan assets beginning of the year............................................ 21,763 19,779
Actual return on plan assets............................................................... 1,689 1,625
Employer contribution...................................................................... 2,823 2,512
Benefits paid.............................................................................. (1,128) (2,153)
---------- ---------
Fair value of plan assets end of the year.................................................. 25,147 21,763
---------- ---------
Plan assets less than the projected benefit obligation..................................... (11,400) (8,849)
Unrecognized net actuarial loss from past experience different from that assumed........... 9,069 6,997
Unrecognized prior service cost............................................................ 652 605
Unrecognized net transition asset.......................................................... (34) (51)
---------- ---------
Net pension liability recognized in balance sheet.......................................... $ (1,713) $ (1,298)
---------- ---------
---------- ---------
</TABLE>
Net pension cost of the defined benefit pension plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................ $ 2,585 $ 2,112 $ 1,908
Interest cost........................................................... 2,203 2,036 1,793
Expected return on plan assets.......................................... (1,950) (1,793) (1,593)
Amortization of prior service cost...................................... 112 100 100
Amortization of transition asset........................................ (17) (17) (17)
Recognized net actuarial loss........................................... 305 152 210
--------- --------- ---------
Net pension cost........................................................ $ 3,238 $ 2,590 $ 2,401
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-42
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Protective's share of the net pension cost was $2.6 million, $1.8 million,
and $1.5 million, in 1998, 1997, and 1996, respectively,
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate.............................................. 6.75% 7.25% 7.75%
Rates of increase in compensation level..................................... 4.75% 5.25% 5.75%
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 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, 1998 and 1997, the projected benefit
obligation of this plan totaled $11.7 million and $10.0 million, respectively,
of which $7.8 million and $6.6 million, respectively, have been recognized in
PLC's financial statements.
Net pension cost of the excess benefits plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................... $ 611 $ 544 $ 424
Interest cost.............................................................. 722 651 505
Plan amendment............................................................. 351
Amortization of prior service cost......................................... 112 112 112
Amortization of transition asset........................................... 37 37 37
Recognized net actuarial loss.............................................. 173 180 155
--------- --------- ---------
Net pension cost........................................................... $ 1,655 $ 1,875 $ 1,233
--------- --------- ---------
--------- --------- ---------
</TABLE>
In addition to pension benefits, PLC provides limited healthcare benefits to
eligible retired employees until age 65. The postretirement benefit is provided
by an unfunded plan. At December 31, 1998 and 1997, the liability for such
benefits totaled $1.2 million and $1.3 million, respectively. The expense
recorded by PLC was $0.1 million in 1998, 1997 and 1996. PLC's obligation is not
materially affected by a 1% change in the healthcare cost trend assumptions used
in the calculation of the obligation.
Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation up to a maximum of $75,000. This plan is partially funded at a
maximum of $50,000 face amount of insurance.
PLC sponsors a defined contribution plan which covers substantially all
employees. Employee contributions are made on a before-tax basis as provided by
Section 401(k) of the Internal Revenue Code. In 1990, PLC established an
Employee Stock Ownership Plan ("ESOP") to match voluntary
F-43
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
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, 1998, PLC
had committed up to 101,124 shares to be released to fund employee benefits. The
expense recorded by PLC for these employee benefits was less than $0.1 million
in 1998 and 1997, and $1.0 million in 1996.
NOTE M -- STOCK BASED COMPENSATION
Certain Protective employees participate in PLC's Long-Term Incentive Plan
(previously known as the Performance Share Plan) and receive stock appreciation
rights (SARs) from PLC.
Since 1973 PLC has had a 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 or total return over a four year award period (earlier
upon the death, disability or retirement of the executive, or in certain
circumstances, of a change in control of PLC) to that of a comparison group of
publicly held life 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
share-owners in 1992 and 1997, up to 6,400,000 shares may be issued in payment
of awards. The number of shares granted in 1998, 1997, and 1996 were 71,340,
98,780 and 104,580 shares, respectively, having an approximate market value on
the grant date of $2.3 million, $2.0 million, and $1.8 million, respectively. At
December 31, 1998, outstanding awards measured at target and maximum payouts
were 474,695 and 638,090 shares, respectively. The expense recorded by PLC for
the Performance Share Plan was $2.7 million, $2.7 million, and $3.0 million in
1998, 1997, and 1996, respectively.
During 1996, stock appreciation rights (SARs) were granted to certain
executives of PLC to provide long-term incentive compensation based on the
performance of PLC's Common Stock. Under this arrangement PLC will pay (in
shares of PLC Common Stock) an amount equal to the difference between the
specified base price of PLC's Common Stock and the market value at the exercise
date. The SARs are exercisable after five years (earlier upon the death,
disability or retirement of the executive, or in certain circumstances, of a
change in control of PLC) and expire in 2006 or upon termination of employment.
The number of SARs granted during 1996 and outstanding at December 31, 1998 was
675,000. The SARs have a base price of $17.4375 per share of PLC Common Stock
(the market price on the grant date was $17.50 per share). The estimated fair
value of the SARs on the grant date was $3.0 million. This estimate was derived
using the Roll-Geske variation of the Black-Sholes option pricing model.
Assumptions used in the pricing model are as follows: expected volatility rate
of 15% (approximately equal to that of the S & P Life Insurance Index), a risk
free interest rate of 6.35%, a dividend yield rate of 1.97%, and an expected
exercise date of August 15, 2002. The expense recorded by PLC for the SARs was
$0.6 million in 1998 and 1997.
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,
F-44
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N -- REINSURANCE (CONTINUED)
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.
Protective has reinsured approximately $64.8 billion, $34.1 billion, and
$18.8 billion in face amount of life insurance risks with other insurers
representing $294.4 million, $147.2 million, and $113.5 million of premium
income for 1998, 1997, and 1996, respectively. Protective has also reinsured
accident and health risks representing $164.8 million, $187.7 million, and
$194.7 million of premium income for 1998, 1997, and 1996, respectively. In 1998
and 1997, policy and claim reserves relating to insurance ceded of $658.7
million and $485.8 million respectively are included in reinsurance receivables.
Should any of the reinsurers be unable to meet its obligation at the time of the
claim, obligation to pay such claim would remain with Protective. At December
31, 1998 and 1997, Protective had paid $22.8 million and $25.6 million,
respectively, of ceded benefits which are recoverable from reinsurers. In
addition, at December 31, 1998, Protective had receivables of $75.0 million
related to insurance assumed.
A substantial portion of Protective's new credit insurance sales are being
reinsured.
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>
1998 1997
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities............................ $6,400,262 $6,400,262 $6,348,252 $6,348,252
Equity securities........................... 12,258 12,258 15,006 15,006
Mortgage loans on real estate............... 1,623,603 1,774,379 1,313,478 1,405,474
Short-term investments...................... 159,655 159,655 54,337 54,337
Cash.......................................... 39,197 39,197
Liabilities (see Notes A and E):
Guaranteed investment contract deposits..... 2,691,697 2,751,007 2,684,676 2,687,331
Annuity deposits............................ 1,519,820 1,513,148 1,511,553 1,494,600
Notes payable............................... 2,363 2,363
Other (see Note A):
Derivative Financial Instruments............ (734) (545)
</TABLE>
Except as noted below, fair values were estimated using quoted market
prices. Protective estimates the fair value of its mortgage loans using
discounted cash flows from the next call date. Protective believes the fair
value of its short-term investments and notes payable approximate book value due
to either being short-term or having a variable rate of interest. Protective
estimates the fair value of its guaranteed investment contracts and annuities
using discounted cash flows and surrender values, respectively. Protective
believes it is not practicable to determine the fair value of its policy loans
since there is no stated maturity, and policy loans are often repaid by
reductions to policy benefits.
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 BENEFITS
POLICY POLICY OTHER PREMIUMS NET AND
ACQUISITION BENEFITS UNEARNED POLICYHOLDERS' AND POLICY INVESTMENT SETTLEMENT
SEGMENT COSTS AND CLAIMS PREMIUMS FUNDS FEES INCOME (1) EXPENSES
- --------------------------------- ----------- ---------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Life Insurance
Individual Life................ $ 301,941 $1,054,253 $ 355 $ 10,802 $ 126,168 $ 55,779 $ 106,308
West Coast..................... 144,455 1,006,280 0 77,254 22,380 63,492 54,617
Acquisitions................... 255,347 1,383,759 553 233,846 96,735 112,154 112,051
Specialty Insurance Products
Dental and Consumer Benefits... 23,836 111,916 3,341 78,224 191,563 15,245 140,632
Financial Institutions......... 39,212 215,451 385,006 105,434 112,272 25,068 52,629
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts.................... 1,448 172,674 0 2,691,697 213,136 178,745
Investment Products............ 75,177 194,726 0 1,233,528 18,809 105,827 85,045
Corporate and Other.............. 9 944 39 88 198 13,094 469
----------- ---------- ----------- ------------- ----------- ----------- -----------
TOTAL........................ $ 841,425 $4,140,003 $ 389,294 $ 4,430,873 $ 568,125 $ 603,795 $ 730,496
----------- ---------- ----------- ------------- ----------- ----------- -----------
----------- ---------- ----------- ------------- ----------- ----------- -----------
Year Ended December 31, 1997:
Life Insurance
Individual Life................ $ 252,321 $ 920,924 $ 356 $ 16,334 $ 127,480 $ 54,593 $ 114,678
West Coast..................... 108,126 739,463 0 95,495 14,122 30,194 28,304
Acquisitions................... 138,052 1,025,340 1,437 311,150 102,635 110,155 116,506
Specialty Insurance Products
Dental and Consumer Benefits... 22,459 120,925 2,536 80,654 151,110 23,810 110,148
Financial Institutions......... 52,836 159,422 391,085 6,791 72,263 16,341 27,643
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts.................... 1,785 180,690 0 2,684,676 0 211,915 179,235
Investment Products............ 56,074 177,150 0 1,184,268 12,367 105,196 82,019
Corporate and Other.............. 952 380 1,282 185 229 5,284 339
----------- ---------- ----------- ------------- ----------- ----------- -----------
TOTAL........................ $ 632,605 $3,324,294 $ 396,696 $ 4,379,553 $ 480,206 $ 557,488 $ 658,872
----------- ---------- ----------- ------------- ----------- ----------- -----------
----------- ---------- ----------- ------------- ----------- ----------- -----------
Year Ended December 31, 1996:
Life Insurance
Individual Life................ $ 220,232 $ 793,370 $ 685 $ 15,577 $ 116,710 $ 48,442 $ 96,404
Acquisitions................... 156,172 1,117,159 1,087 251,450 106,543 106,015 118,181
Specialty Insurance Products
Dental and Consumer Benefits... 27,944 119,010 2,572 83,632 156,530 16,249 125,797
Financial Institutions......... 32,040 119,242 253,154 1,880 73,422 13,898 42,781
Retirement Savings and
Investments Products
Guaranteed Investment
Contracts.................... 1,164 149,755 0 2,474,728 0 214,369 169,927
Investment Products............ 50,637 149,743 0 1,120,557 8,189 98,719 73,093
Corporate and Other.............. 12 170 55 192 656 1,089 710
----------- ---------- ----------- ------------- ----------- ----------- -----------
TOTAL........................ $ 488,201 $2,448,449 $ 257,553 $ 3,948,016 $ 462,050 $ 498,781 $ 626,893
----------- ---------- ----------- ------------- ----------- ----------- -----------
----------- ---------- ----------- ------------- ----------- ----------- -----------
<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, 1998:
Life Insurance
Individual Life................ $ 30,543 $ 14,983
West Coast..................... 4,924 5,354
Acquisitions................... 18,894 26,717
Specialty Insurance Products
Dental and Consumer Benefits... 10,352 49,913
Financial Institutions......... 28,526 48,837
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts.................... 735 2,876
Investment Products............ 17,213 14,428
Corporate and Other.............. 1 9,120
------------- ------------
TOTAL........................ $ 111,188 $ 172,228
------------- ------------
------------- ------------
Year Ended December 31, 1997:
Life Insurance
Individual Life................ $ 27,354 $ 18,178
West Coast..................... 961 6,849
Acquisitions................... 16,606 23,016
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
------------- ------------
TOTAL........................ $ 107,175 $ 129,870
------------- ------------
------------- ------------
Year Ended December 31, 1996:
Life Insurance
Individual Life................ $ 28,393 $ 28,611
Acquisitions................... 17,162 24,292
Specialty Insurance Products
Dental and Consumer Benefits... 5,326 43,027
Financial Institutions......... 24,900 10,673
Retirement Savings and
Investments Products
Guaranteed Investment
Contracts.................... 509 3,840
Investment Products............ 14,710 13,197
Corporate and Other.............. 1 4,508
------------- ------------
TOTAL........................ $ 91,001 $ 128,148
------------- ------------
------------- ------------
</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, 1998:
Life insurance in force............. $91,980,657 $64,846,246 $18,010,434 $45,144,845 39.9%
---------- ---------- ---------- ---------- ---
---------- ---------- ---------- ---------- ---
Premiums and policy fees:
Life insurance...................... $ 537,002 $ 294,363 $ 87,964 $ 330,603 26.6%
Accident and health insurance....... 361,705 164,852 14,279 211,132 6.8%
Property and liability insurance.... 26,389 26,289 0.0%
---------- ---------- ---------- ----------
TOTAL............................... $ 925,096 $ 459,215 $ 102,243 $ 568,024
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Year Ended December 31, 1997:
Life insurance in force............. $78,240,282 $34,139,554 $11,013,202 $55,113,930 20.0%
---------- ---------- ---------- ---------- ---
---------- ---------- ---------- ---------- ---
Premiums and policy fees:
Life insurance...................... $ 387,108 $ 147,184 $ 74,738 $ 314,662 23.8%
Accident and health insurance....... 336,575 187,539 10,510 159,546 6.6%
Property and liability insurance.... 6,139 176 35 5,998 0.6%
---------- ---------- ---------- ----------
TOTAL............................... $ 729,822 $ 334,899 $ 85,283 $ 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
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
S-2
<PAGE>
APPENDIX A
EXAMPLES OF DEATH BENEFIT COMPUTATIONS UNDER OPTIONS 1 AND 2
OPTION 1 EXAMPLE. For purposes of this example, assume that the Insured's
Attained Age is between 0 and 40 and that there is no outstanding Policy Debt.
Under Option 1, a Policy with a $250,000 Face Amount will generally pay $250,000
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
$100,000, the Death Benefit will exceed the $250,000 Face Amount. Each
additional dollar added to Policy Value above $100,000 will increase the Death
Benefit by $2.50. A Policy with a $250,000 Face Amount and a Policy Value of
$125,000 will provide Death Benefit of $312,500 ($125,000 x 250%); a Policy
Value of $150,000 will provide a Death Benefit of $375,000 ($150,000 x 250%); a
Policy Value of $175,000 will provide a Death Benefit of $437,500 ($175,000 x
250%).
Similarly, so long as Policy Value exceeds $100,000, each dollar taken out
of Policy Value will reduce the Death Benefit by $2.50. If, for example, the
Policy Value is reduced from $112,500 to $100,000 because of partial surrenders,
charges, or negative investment performance, the Death Benefit will be reduced
from $281,250 to $250,000. 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 $250,000 Face Amount unless the
Policy Value exceeded approximately $135,138 (rather than $100,000), and each
dollar then added to or taken from the Policy Value would change the life
insurance proceeds by $1.85 (rather than $2.50).
OPTION 2 EXAMPLE. For purposes of this example, assume that the Insured's
Attained Age is between 0 and 40 and that there is no outstanding Policy Debt.
Under Option 2, a Policy with a Face Amount of $250,000 will generally provide a
Death Benefit of $250,000 plus Policy Value. Thus, for example, a Policy with a
Policy Value of $25,000 will have a Death Benefit of $275,000 ($250,000 +
$25,000); a Policy Value of $50,000 will provide a Death Benefit of $300,000
($250,000 + $50,000). The Death Benefit, however, must be at least 250% of the
Policy Value. As a result, if the Policy Value exceeds $166,665, the Death
Benefit will be greater than the Face Amount plus Policy Value. Each additional
dollar of Policy Value above $166,665 will increase the Death Benefit by $2.50.
A Policy with a Face Amount of $250,000 and a Policy Value of $175,000 will
provide a Death Benefit of $437,500 ($175,000 x 250%); a Policy Value of
$200,000 will provide a Death Benefit of $500,000 ($200,000 x 250%).
Similarly, any time Policy Value exceeds $166,665, each dollar taken out of
Policy Value will reduce the Death Benefit by $2.50. If, for example, the Policy
Value is reduced from $200,000 to $187,500 because of partial surrenders,
charges, or negative investment performance, the Death Benefit will be reduced
from $500,000 to $468,750. If at any time, however, Policy Value multiplied by
the Face Amount percentage is less than the Face Amount plus the Policy Value,
then the Death Benefit will be the current Face Amount plus Policy Value of the
Policy.
The Face Amount percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than under 40), the Face Amount factor would be 185%. The
amount of the Death Benefit would be the sum of the Policy Value plus $250,000
unless the Policy Value exceeded $294,118 (rather than $166,665), and each
dollar then added to or taken from the Policy Value would change the Death
Benefit by $1.85 (rather than $2.50).
A-1
<PAGE>
TABLE OF FACE AMOUNT PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE PERCENTAGE ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE AGE PERCENTAGE
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
0-40 250% 50 185% 60 130% 70 115%
41 243% 51 178% 61 128% 71 113%
42 236% 52 171% 62 126% 72 111%
43 229% 53 164% 63 124% 73 109%
44 222% 54 157% 64 122% 74 107%
45 215% 55 150% 65 120% 75-90 105%
46 209% 56 146% 66 119% 91 104%
47 203% 57 142% 67 118% 92 103%
48 197% 58 138% 68 117% 93 102%
49 191% 59 134% 69 116% 94 101%
95+ 100%
</TABLE>
A-2
<PAGE>
PART II -- OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article XI of the By-laws of Protective Life provides, in substance, that
any of Protective Life's directors and officers, who is a party or is threatened
to be made a party to any action, suit or proceeding, other than an action by or
in the right of Protective Life, by reason of the fact that he is or was an
officer or director, shall be indemnified by Protective Life against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such claim,
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Protective
Life and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. If the claim, action or suit is or
was by or in the right of Protective Life to procure a judgment in its favor,
such person shall be indemnified by Protective Life against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Protective Life, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to Protective
Life unless and only to the extent that the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper. To the extent that a director or officer has been successful on the
merits or otherwise in defense of any such action, suit or proceeding, or in
defense of any claim, issue or matter therein, he shall be indemnified by
Protective Life against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, not withstanding that he has
not been successful on any other claim issue or matter in any such action, suit
or proceeding. Unless ordered by a court, indemnification shall be made by
Protective Life only as authorized in the specific case upon a determination
that indemnification of the officer or director is proper in the circumstances
because he has met the applicable standard of conduct. Such determination shall
be made (a) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to, or who have been successful on the merits
or otherwise with respect to, such claim action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion or (c) by the shareholders.
In addition, the executive officers and directors are insured by PLC's
Directors' and Officers' Liability Insurance Policy including Company
Reimbursement and are indemnified by a written contract with PLC which
supplements such coverage.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification may be against public policy as expressed in the Act and
may be, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director,
II-1
<PAGE>
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATIONS PURSUANT TO RULE Section 26(e) of the Investment Company Act of
1940
Protective Life hereby represents that the fees and charges deducted under
the variable life insurance policies described herein are, in the aggregate,
reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by it under such policies.
II-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement consists of the following papers and documents:
The facing sheet.
The prospectus consisting of 52 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 LLP
PricewaterhouseCoopers, L.L.P.
The following exhibits:
<TABLE>
<S> <C> <C>
1.A. (1) Certified resolutions of the board of directors of Protective Life Insurance Company establishing
Protective Variable Life Separate Account.*
(2) None.
(3)(a) Form of Underwriting Agreement among Protective Life Insurance Company, Investment Distributors,
Inc. and Protective Variable Life Separate Account.**
(a)(1) Amendment I to the Underwriting Agreement.+++
(b) Form of Distribution Agreement between Investment Distributors, Inc. and selling broker-dealers.**
(4) None.
</TABLE>
- ------------------------
*Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement, (File No. 33-61599) as filed with the Commission
on August 4, 1995.
**Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on December 22, 1995.
***Incorporated herein by reference to Post-Effective Amendment No. 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. 333-52215) as filed with the Commission
on May 8, 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.
+Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Form S-6 Registration Statement (File No. 333-45963) as filed with the
Commission on June 19, 1998.
++Incorporated herein by reference to Pre-Effective Amendment Number 1 to
the Form N-4 Registration Statement (File No. 333-60149) filed with
Commission on October 26, 1998.
+++Incorporated herein by reference to Pre-Effective Amendment Number 1 to
the Form S-6 Registration Statement (File No. 333-45963) as filed with the
Commission on June 3, 1998.
++++Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File. No. 333-72775) as filed with the Commission
on February 22, 1999.
+++++Incorporated herein by reference to the Post-Effective Amendment Number 2
to the Form S-6 Registration Statement (File. No. 33-52215) as filed with
the Commission on April 30, 1999.
II-3
<PAGE>
<TABLE>
<S> <C> <C>
(5)(a) Form of Contract.
(b) Children's term life rider.*
(c) Accidental death benefit rider.*
(d) Disability benefit rider.*
(e) Guaranteed insurability rider.*
(f) Protected insurability benefit rider.*
(g) Term Rider for Covered Insured.****
(6)(a) Charter of Protective Life Insurance Company.*
(b) By-Laws of Protective Life Insurance Company.*
(7) None
(8) None
(9)(a) Participation/Distribution Agreement (Protective Investment Company).**
(a)(1) Amendment 1 to the Participation Agreement.+++
(b) Participation Agreement (Oppenheimer Variable Account Funds).***
(c) Participation Agreement (MFS Variable Insurance Trust).***
(d) Participation Agreement (Acacia Capital Corporation).***
(e) Participation Agreement (Van Eck Worldwide Insurance Trust).++
(10) Contract Application.****
2. Opinion and consent of Nancy Kane, Esq.
3. Not applicable.
4. Not applicable.
5. See Exhibit 27.
6. Notice of Withdrawal Right. (Not Applicable)
7. Opinion and consent of Stephen Peeples, F.S.A., M.A.A.A.++++
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of PricewaterhouseCoopers, L.L.P.
10. Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) describing issue, transfer and redemption
procedures.
24. Power of Attorney.++++
27. Financial Data Schedules.+++++
</TABLE>
- ------------------------
*Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement, (File No. 33-61599) as filed with the Commission
on August 4, 1995.
**Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on December 22, 1995.
***Incorporated herein by reference to Post-Effective Amendment No. 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. 333-52215) as filed with the Commission
on May 8, 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.
+Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Form S-6 Registration Statement (File No. 333-45963) as filed with the
Commission on June 19, 1998.
++Incorporated herein by reference to Pre-Effective Amendment Number 1 to
the Form N-4 Registration Statement (File No. 333-60149) as filed with the
Commission on October 26, 1998.
+++Incorporated herein by reference to Pre-Effective Amendment Number 1 to
the Form S-6 Registration Statement (File No. 333-45963) as filed with the
Commission on June 3, 1998.
++++Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File. No. 333-72775) as filed with the Commission
on February 22, 1999.
+++++Incorporated herein by reference to the Post-Effective Amendment Number 2
to the Form S-6 Registration Statement (File. No. 33-52215) as filed with
the Commission on April 30, 1999.
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 Registration
Statement on Form S-6 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Birmingham, State of Alabama on May 13, 1999.
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, 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 Director (Principal Executive May 13, 1999
Drayton Nabers, Jr. Officer)
/s/ JOHN D. JOHNS
------------------------------------------- President and Director (Principal Financial Officer) May 13, 1999
John D. Johns
/S/ JERRY W. DEFOOR
------------------------------------------- Vice President, Controller and Chief Accounting Officer May 13, 1999
Jerry W. DeFoor (Principal Accounting Officer)
*
------------------------------------------- Director May 13, 1999
R. Stephen Briggs
*
------------------------------------------- Director May 13, 1999
Jim E. Massengale
*
------------------------------------------- Director May 13, 1999
A.S. Williams III
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------------------------------------------------------------------ ----------------
<C> <S> <C>
*
------------------------------------------- Director May 13, 1999
Danny L. Bentley
*
------------------------------------------- Director May 13, 1999
Richard J. Bielen
*
------------------------------------------- Director May 13, 1999
Carolyn King
*
------------------------------------------- Director May 13, 1999
Deborah J. Long
*
------------------------------------------- Director May 13, 1999
Steven A. Schultz
*
------------------------------------------- Director May 13, 1999
Wayne E. Stuenkel
*By: /s/ NANCY KANE
--------------------------------------
Nancy Kane
Attorney-in-Fact May 13, 1999
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.A.(5)(a) Form of Contract.
2. Opinion and Consent of Nancy Kane, Esq.
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of PricewaterhouseCoopers, L.L.P.
10. Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) describing issue, transfer and redemption
procedures.
</TABLE>
<PAGE>
[LOGO]
PROTECTIVE LIFE INSURANCE COMPANY / P. O. BOX 2606 / BIRMINGHAM, ALABAMA 35202
A STOCK COMPANY (205-879-9230)
- -------------------------------------------------------------------------------
VARIABLE LIFE INSURANCE POLICY
John Doe
Policy Number VULLVULIA
This is an Individual Flexible Premium Variable and Fixed Life Insurance Policy
("Policy") which has been issued to the Owner(s). This Policy provides a death
benefit.
THE OWNER(S) HAVE THE RIGHT TO RETURN THIS POLICY. The Owner(s) may cancel
this Policy after receipt by returning the Policy to our Home Office, or to
any Agent of the Company, with a written request for cancellation within (a)
10 days after receipt; or (b) 45 days after the Application was signed; or
(c) 10 days after we mail or deliver a Notice of Right of Withdrawal,
whichever is later. Return of this Policy by mail is effective on receipt by
Us. The returned Policy will be treated as if we had never issued it. In
states where permitted, we will promptly refund an amount equal to the sum
of: (a) the difference between the premiums paid (after deduction of any
policy fees and other charges) and the amounts allocated to the Fixed Account
or the Sub-Accounts, plus (b) the value of the amounts allocated to the Fixed
Account, including any interest credited on such amounts accumulated to the
date that this Policy is returned to Us, plus (c) the value of the amounts
allocated to the Sub-Accounts, adjusted to reflect the net investment
experience of such Sub-Accounts, to the date that this Policy is returned to
Us. This amount may be more or less than the premium payment(s). In states
where required, we will promptly refund the premium payment(s).
/s/ John W. John /s/ Deborah J. Long
President Secretary
THE POLICY VALUES, THE AMOUNT OF THE DEATH BENEFIT PROVIDED IN THIS CONTRACT, OR
THE DURATION OF THE INSURANCE COVERAGE, MAY BE FIXED OR VARIABLE WHEN BASED ON
THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE FLUCTUATIONS IN THE NET INVESTMENT FACTOR, AND ARE NOT
GUARANTEED AS TO DOLLAR AMOUNTS. THERE IS NO GUARANTEED MINIMUM FOR THE PORTION
OF YOUR POLICY VALUE IN THE SUB-ACCOUNTS. PLEASE REFER TO PAGE 12 OF THIS POLICY
FOR MORE INFORMATION REGARDING THE VARIABLE ACCOUNT. PLEASE REFER TO PAGE 14 FOR
A DESCRIPTION OF THE DEATH BENEFIT.
READ YOUR CONTRACT CAREFULLY
THIS POLICY IS A LEGAL CONTRACT BETWEEN THE OWNER AND THE COMPANY
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
Policy VULLVULIA
VUL-06 3-98 Page 1
<PAGE>
INDEX
<TABLE>
<CAPTION>
<S><C>
POLICY SPECIFICATIONS PAGES....................................................................................3
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES....................................................3
DEFINITIONS.........................................4......BASIS OF COMPUTATIONS..............................12
GENERAL PROVISIONS..................................6......FIXED ACCOUNT......................................12
Entire Contract..................................6...... Calculation of the Fixed Account Value..........12
Modification of the Contract.....................6...... Interest Credited...............................12
Misstatement of Age or Sex.......................6......VARIABLE ACCOUNT...................................12
Non-Participating................................6...... General Description.............................12
Suicide Exclusion................................6...... Sub-Accounts of the Variable Account............13
Termination......................................6...... Valuation of Assets.............................13
Representations and Contestability...............6...... Calculation of Sub-Account Values...............13
Reports..........................................7...... Net Investment Factor...........................14
Arbitration......................................7...... Transfers.......................................14
CONTROL PROVISIONS..................................7......DEATH BENEFIT......................................14
The Parties Involved.............................7...... Death Benefit Proceeds..........................14
Rights of Owner..................................7...... Amount of Death Benefit Proceeds................14
Contingent Owner.................................8...... Payment of Death Benefit Proceeds...............15
Beneficiary......................................8...... Suspension of Payment...........................15
Changing the Owner...............................8...... Creditor Claims.................................15
Assignment.......................................8......SURRENDERS AND WITHDRAWALS.........................15
Protection of Proceeds...........................8...... Surrenders......................................15
Suspension or Delay in Payment...................8...... Withdrawals.....................................15
Tax Considerations...............................9
Changes in Policy Cost Factors...................9...... POLICY LOANS......................................16
Coverage Limitations.............................9...... Right to Make Loans, Policy Debt................16
PREMIUMS............................................9...... Maximum Loan....................................16
Premium Payment(s)...............................9...... Interest........................................16
Planned Premium Payments.........................9...... Collateral......................................16
Unscheduled Premium Payments.....................9...... Repaying Policy Debt............................16
Minimum Monthly Premium Guarantee................9...... CHANGING THIS POLICY..............................16
Premium Expense Charges.........................10...... Increasing the Face Amount......................17
Allocation of Net Premiums......................10...... Premium Payments Required for a
Grace Period....................................10...... Face Amount Increase........................17
Reinstatement...................................10...... Cancellation of an Increase of
Minimum Values..................................10...... Face Amount.................................17
DEDUCTIONS FROM POLICY VALUE.......................11...... Decreasing the Face Amount......................17
Monthly Deductions..............................11...... Changing the Death Benefit Option...............17
Monthly Cost of Insurance Charge................11...... Change Approval.................................17
Premium Expense Charge..........................11......SETTLEMENT OPTIONS.................................17
Administration Fee..............................11...... Availability of Options.........................18
Cost of Insurance Rates.........................11...... Minimum Amounts.................................18
Charges for Benefits Under Riders...............11...... Electing a Settlement Option....................18
Mortality and Expense Risk Charge...............11...... Effective Date and Payment Date.................18
Other Deductions................................11...... Description of Options..........................18
</TABLE>
Policy VULLVULIA
VUL-06 3-98 Page 2
<PAGE>
POLICY SPECIFICATIONS
POLICY NUMBER: VULLVULIA POLICY EFFECTIVE DATE: APRIL 12, 1999
POLICY ISSUE DATE: MAY 01, 1999 ISSUE AGE: 35
INSURED: JOHNNY DOE SEX: MALE
INITIAL FACE AMOUNT: $ 1,000,000 MINIMUM FACE AMOUNT: $ 250,000
DEATH BENEFIT OPTION: LEVEL MONTHLY ANNIVERSARY DAY: 12
INITIAL PREMIUM PAYMENT: NONE RATE CLASS: STANDARD TOBACCO
MINIMUM MONTHLY PREMIUM PAYMENT: $557.38
PLANNED PREMIUM PAYMENT: $40,000.00 PAYABLE ANNUALLY
OWNER: JOHNNY DOE
RIDER MONTHLY CHARGE
NUMBER SCHEDULE OF ADDITIONAL BENEFITS DURING FIRST YEAR
SEE SCHEDULE OF ADDITIONAL BENEFITS ATTACHMENT
MONTHLY GUARANTEED INTEREST RATE FOR FIXED ACCOUNT 4% ANNUALLY (.3274% MONTHLY)
INITIAL ANNUAL EFFECTIVE INTEREST RATE FOR FIXED ACCOUNT 4.75%
LOAN INTEREST RATE 6% YEARS 1-10 - 4.25% YEARS 11+
THIS POLICY PROVIDES LIFE INSURANCE COVERAGE ON THE INSURED UNTIL TERMINATION,
PROVIDED THAT THE POLICY VALUE IS SUFFICIENT TO COVER THE DEDUCTIONS FOR THE
COST OF THE BENEFITS OF THIS POLICY. THERE MAY BE LITTLE OR NO SURRENDER VALUE
PAYABLE ON CONTRACT TERMINATION.
MINIMUM MONTHLY PREMIUM GUARANTEE PERIOD: 5 YEARS.
Policy VULLVULIA
VUL-06 3-98 Page 3
<PAGE>
POLICY SPECIFICATIONS (Continued)
CHARGES
PREMIUM EXPENSE CHARGES. None
MONTHLY DEDUCTIONS
ADMINISTRATION FEE. The Administration Fee to be deducted monthly from the
Fixed Account and Variable Account Value(s) is $3.
ADMINISTRATION CHARGE FOR INCREASE IN FACE AMOUNT. None
CHARGE FOR BENEFITS UNDER RIDERS. Every month the Company deducts a charge for
any riders.
COST OF INSURANCE CHARGE. Every month the Company deducts a charge for the
Cost of Insurance, which varies and is calculated in accordance with the policy
provisions. See Page 11 for details.
MORTALITY AND EXPENSE RISK CHARGE. Every month the Company deducts a
Mortality and Expense Risk Charge from the Variable Account Policy Value. The
maximum monthly Mortality and Expense Risk Charge to be deducted is equal to
.075% multiplied by the Variable Account Value, which is equivalent to an
annual rate of .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 Risk Charge is .062% multiplied by the
Variable Account Value, which is equivalent to an annual rate of .75% of such
amount. In Policy Years 11 and thereafter, the monthly Mortality and Expense
Risk Charge is .021% multiplied by the Variable Account Value, which is
equivalent to an annual rate of .25% of such amount.
OTHER DEDUCTIONS
WITHDRAWAL CHARGE. A Withdrawal Charge equal to the lesser of: (a) 2% of the
amount withdrawn; or (b) $25 is deducted from the Fixed Account and Variable
Account Value(s) whenever you make a withdrawal. None
TRANSFER FEE. A $25 charge may be deducted from the Fixed Account and
Variable Account Value(s) being transferred for each transfer request in
excess of 12 during a Policy Year.
SURRENDER CHARGES
There are no surrender charges for this policy.
Policy VULLVULIA
VUL-06 3-98 Page 3A
<PAGE>
POLICY SPECIFICATIONS (Continued)
GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
PER $1,000 OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE AGE RATE AGE RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.00000 20 0.00000 40 0.32844 60 1.93624 80 10.23621
1 0.00000 21 0.00000 41 0.36179 61 2.10944 81 10.98690
2 0.00000 22 0.00000 42 0.39599 62 2.30446 82 11.82144
3 0.00000 23 0.00000 43 0.43518 63 2.52552 83 12.74625
4 0.00000 24 0.00000 44 0.47605 64 2.76931 84 13.72670
5 0.00000 25 0.00000 45 0.52277 65 3.03333 85 14.73050
6 0.00000 26 0.00000 46 0.56949 66 3.30840 86 15.72511
7 0.00000 27 0.00000 47 0.62038 67 3.59705 87 16.69584
8 0.00000 28 0.00000 48 0.67378 68 3.89427 88 17.75732
9 0.00000 29 0.00000 49 0.73387 69 4.21099 89 18.80718
10 0.00000 30 0.00000 50 0.79730 70 4.56070 90 19.86094
11 0.00000 31 0.00000 51 0.87075 71 4.94853 91 20.93946
12 0.00000 32 0.00000 52 0.95257 72 5.38972 92 22.08817
13 0.00000 33 0.00000 53 1.04609 73 5.88695 93 23.56764
14 0.00000 34 0.00000 54 1.15132 74 6.42940 94 25.47887
15 0.00000 35 0.21921 55 1.26326 75 7.02990 95 28.27400
16 0.00000 36 0.23422 56 1.38441 76 7.64974 96 33.10700
17 0.00000 37 0.25339 57 1.50977 77 8.27796 97 41.68500
18 0.00000 38 0.27507 58 1.64353 78 8.90442 98 58.01300
19 0.00000 39 0.30009 59 1.78233 79 9.54779 99 83.33300
1O0+ 0.00000
</TABLE>
GUARANTEED MAXIMUM COST OF INSURANCE RATES FOR THE RATE CLASS SHOWN ON PAGE 3
ARE EQUAL TO THE ABOVE RATES INCREASED BY $0.000 EACH MONTH.
Policy VULLVULIA
VUL-06 3-98 Page 3B
<PAGE>
POLICY SPECIFICATIONS (Continued)
ALLOCATION OF PREMIUM PAYMENTS:
Protective Variable Life Separate Account:
Goldman Sachs/PlC Growth & Income 50.00%
MFS Emerging Growth 50.00%
Policy VULLVULIA
VUL-06V2
<PAGE>
DEFINITIONS
APPLICATION. The paperwork completed to apply for this Policy.
ATTAINED AGE. The Insured's age as of the nearest birthday on the Policy
Effective Date plus the number of complete Policy Years since the Policy
Effective Date.
BENEFICIARY. The Beneficiary is the person entitled to receive the Death
Benefit Proceeds upon the death of the Insured.
PRIMARY. Where a Primary Beneficiary is living, such person is the
Beneficiary. The Primary Beneficiary is the person named as the
"Primary Beneficiary" in the Application, unless changed.
CONTINGENT. Where no Primary Beneficiary is living, the "Contingent
Beneficiary", as named in the Application, is the Beneficiary, unless
changed.
IRREVOCABLE. An Irrevocable Beneficiary is one whose consent is
necessary to change the Beneficiary or exercise certain other rights.
CASH VALUE. It is equal to the Policy Value minus any applicable Surrender
Charge.
DEATH BENEFIT. The greater of the Face Amount of insurance on the Insured's
date of death or a specified percentage of the Policy Value on the date of
the Insured's death (see Page 14).
DEATH BENEFIT PROCEEDS. The amount payable to the Beneficiary if the Insured
dies while the Policy is in force which is equal to the Death Benefit less any
Policy debt and unpaid Monthly Deductions if the Insured dies during a grace
period.
FACE AMOUNT. Initially the Face Amount is shown on the Policy Specifications
Page. Thereafter, the Face Amount may be increased or decreased in accordance
with the terms of this Policy or may change in accordance with the Death
Benefit and Withdrawal provisions.
FIXED ACCOUNT. Part of our General Account to which Policy Value may be
transferred or Net Premiums allocated under a Policy.
FIXED ACCOUNT VALUE. The Policy Value in the Fixed Account.
FUND. An investment portfolio of Protective Investment Company or any other
open-end management investment company or unit investment trust in which a
Sub-Account invests.
GENERAL ACCOUNT. The assets of the Company other than those allocated to the
Variable Account or another separate account.
HOME OFFICE. 2801 Highway 280 South, Birmingham, Alabama, 35223.
INITIAL FACE AMOUNT. The Face Amount on the Policy Effective Date as shown on
the Policy Specifications Page.
INSURED. The person whose life is covered by the Policy.
ISSUE AGE. The Insured's age as of the nearest birthday on the Policy
Effective Date.
ISSUE DATE. The date the Policy is issued. The Issue Date may be a later date
than the Policy Effective Date if the initial Premium Payment is received at
the Home Office before the Issue Date.
LAPSE. Termination of the Policy at the expiration of the Grace Period while
the Insured is still living.
LOAN ACCOUNT. An account within the Company's General Account to which the Fixed
Account Value and/or Variable Account Value is transferred as collateral for
policy loans.
LOAN ACCOUNT VALUE. The Policy Value in the Loan Account.
MINIMUM MONTHLY PREMIUM. The minimum amount of Premium Payments that must be
paid in order for the Minimum Monthly Premium Guarantee to remain in effect.
Policy VULLVULIA
VUL-06 3-98 Page 4
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MONTHLY ANNIVERSARY DAY. The same day of the month as the Policy Effective
Date. The Monthly Anniversary Day is shown on the Policy Specifications Page.
MONTHLY DEDUCTIONS. The fees and charges deducted monthly from the Policy Value
and/or Variable Account Value as described on the Policy Specifications Page.
NET AMOUNT AT RISK. As of any Monthly Anniversary Day, the Death Benefit
under this Policy (discounted for the upcoming Policy Month) less the Policy
Value (before deduction of the monthly Administration Fee and monthly rider
charges on that day).
NET ASSET VALUE PER SHARE. The value per share of any Fund as computed on any
Valuation Day as described in the Fund prospectus.
NET PREMIUM. The Premium Payment after deduction of the Premium Expense
Charges.
OWNER. The person(s) who own the Policy. Herein referred to as "you" or your
PLANNED PREMIUM PAYMENT. The premium determined by the Owner as a level
amount that he or she (or they) plan to pay at fixed intervals over a
specified period of time.
POLICY ANNIVERSARY. The same day in each Policy Year as the Policy Effective
Date.
POLICY DEBT. The sum of all outstanding policy loans plus accrued interest.
POLICY EFFECTIVE DATE. The date shown on the Policy Specifications Page and
on which coverage takes effect. Policy Years are measured from the Policy
Effective Date. For any increase, decrease, additions, or changes to
coverage, the effective date shall be the Monthly Anniversary Day on or next
following the date the supplemental application is approved by the Company.
The Policy Effective Date will never be the 29th, 30th or the 31st of a month.
POLICY VALUE. The sum of the Variable Account Value, the Fixed Account Value
and the Loan Account Value.
POLICY YEAR. Each period of 12 months commencing with the Policy Effective
Date.
PREMIUM PAYMENT(s). The amount(s) paid by the Owner(s) to purchase and
maintain this Policy.
PROTECTIVE LIFE INSURANCE COMPANY. Herein referred to as "We", "Us", "Our"
and "Company".
SETTLEMENT OPTION. Alternatives to a lump sum for payment by Us under the
Death Benefit or surrender provisions of this 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 as defined on Page 13.
Surrender Value. The Cash Value minus any outstanding Policy Debt.
UNIT. A unit of measurement used to calculate the Sub-Account Values.
UNSCHEDULED PREMIUM PAYMENT. Any Premium Payment other than a Planned Premium
Payment.
VALUATION DAY. Each day the New York Stock Exchange is open for business
except Federal and other holidays and days when the Company is not otherwise
open for business.
VALUATION PERIOD. The period commencing at the close of regular trading on
the New York Stock Exchange on any Valuation Day and ending at the close of
regular trading on the New York Stock Exchange on the next succeeding
Valuation Day.
VARIABLE ACCOUNT. The Protective Variable Life Separate Account, a separate
investment account of the Company to which Policy value may be transferred or
into which Net Premiums may be allocated.
VARIABLE ACCOUNT VALUE. The sum of all Sub-Account Values.
WITHDRAWAL. A Withdrawal by the Owner(s) of an amount of Cash Value that is
less than the Surrender Value.
WRITTEN NOTICE. A written notice or request that is received by the Company
at the Home Office.
Policy VULLVULIA
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GENERAL PROVISIONS
ENTIRE CONTRACT. This Policy, any riders and/or endorsements attached
hereto, and the Application, a copy of which is attached, and all subsequent
applications, constitute the entire contract. Any application for
reinstatement becomes part of this Policy if the reinstatement is approved by
the Company. The Policy is issued in consideration of payment of the Initial
Premium Payment shown on the Policy Specifications Page.
MODIFICATION OF THE CONTRACT. No change or waiver of the terms of this
Policy is valid unless made by Us, in writing, and approved by the President,
Secretary or a Vice President of the Company. We reserve the right to change
the provisions of this Policy to conform to any applicable laws, or
applicable regulations or rulings issued by a government agency.
MISSTATEMENT OF AGE OR SEX. Questions in the Application concern the
Insured's date of birth and sex. If the date of birth or sex given in the
Application or any Application for riders is not correct, the Death Benefit
and any benefits provided under any riders to this Policy will be adjusted to
those which would be purchased by the most recent deduction for the cost of
insurance and the cost of any benefits provided by such riders, at the
correct age and sex.
NON-PARTICIPATING. This Policy does not share in our surplus or profits and
does not pay dividends.
SUICIDE EXCLUSION. If the Insured commits suicide, while sane or insane,
within two years from the Policy Effective Date, the Company's total
liability shall be limited to the Premium Payments made before death, less
any Policy Debt and less any Withdrawals. If the Insured commits suicide,
while sane or insane, within two years from the effective date of any
increase in the Face Amount, the Company's total liability with respect to
such increase shall be limited to the sum of the monthly cost of insurance
charges deducted for such increase.
TERMINATION. All coverage under this Policy shall terminate when any one of
the following events occurs:
(1) The Owner(s) requests a full surrender. A surrender will require
a return of this Policy.
(2) The Insured dies.
(3) The Policy lapses, as described in the sub-section entitled
"Grace Period" under "Premiums" and the sub-section entitled
"Collateral" under "Policy Loans".
REPRESENTATIONS AND CONTESTABILITY. In issuing this Policy, the Company relies
on all statements made by or for the Insured in the Application or in a
supplemental application. Legally, these statements are considered to be
representations and not warranties, unless fraud is involved. The Company can
contest the validity of this Policy or resist a claim for any material
misrepresentation of a fact made on the Application or in a supplemental
application for this Policy. We also have the right to contest the validity of
any policy change based on material misstatements made in any application for
that change. To do so, however, the representation must have been made in the
Application, or in a supplemental application. Also, a copy of such application
must have been attached to this Policy when issued or made a part of the Policy
when changes in coverage became effective.
The Company cannot bring any legal action to contest the validity of this Policy
after it has been in force during the lifetime of the Insured for two years from
the Policy Effective Date unless fraud is involved.
If there was a rider or endorsement added to this Policy after the Issue Date,
or benefits added by a supplemental Policy Specifications Page, the Company
cannot contest the validity of any benefits so added 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 benefits unless fraud is involved.
Policy VULLVULIA
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The Company cannot contest the validity of any reinstated benefits after the
reinstated benefits have been in force during the lifetime of the Insured for
two years from the date the Company approves the reinstatement application
unless fraud is involved.
REPORTS. At least once a year We will send to you at your last known address, a
report for this Policy. The report will show as of the end of the report period:
(1) the current Death Benefit; (2) the current Policy Value; (3) the current
Fixed Account Value; (4) the current Variable Account Value; (5) the current
Loan Account Value; (6) the current Sub-Account Values; (7) Premium Payments
made since the last report; (8) any Withdrawals since the last report; (9) any
policy loans and accrued interest; (10) the current Surrender Value; (11) your
current premium allocations; (12) charges deducted since the last report; and
(13) any other information required by law.
In addition, the Company will provide a Report for this Policy at any time upon
the Owner's written request. If the Owner(s) requests this information more
frequently than annually, the Company may charge a fee which shall not exceed
$50.
ARBITRATION. The parties hereby acknowledge that the provision of insurance
pursuant to this Policy takes place in and substantially affects interstate
commerce and that the Federal Arbitration Act permits and promotes the use of
arbitration as a means of dispute resolution in matters arising from
interstate commerce.
Any controversy, dispute or claim by any Owner(s), Insured or Beneficiary, or
their respective assigns (each referred to herein as "Claimant"), arising out
of or relating in any way to this Policy or the solicitation or sale thereof
shall be submitted to binding arbitration pursuant to the provisions of the
Federal Arbitration Act, 9 U.S.C. Section 1, et seq. Absent consolidation of
arbitration as provided for below, such arbitration shall be governed by the
rules and provisions of the Dispute Resolution Program for Insurance Claims
of the American Arbitration Association ("AAA"). The arbitration panel shall
consist of three (3) arbitrators, one (1) selected by the Company, one (1)
selected by the Claimant and one (1) selected by the arbitrators previously
selected.
If a Claimant, the Company or a third-party have any dispute between or among
them or any of them that is directly or indirectly related to any dispute
governed by this arbitration provision, the Claimant and the Company consent to
the consolidation of the dispute governed by this arbitration provision with
such other dispute; if such other dispute is governed by an arbitration
agreement that selects the forum and rules of the National Association of
Securities Dealers, Inc. or the New York Stock Exchange, Inc., the Claimant and
the Company shall be deemed to have consented to the jurisdiction of such other
forum to the extent allowed by law and will abide by the rules, provisions and
interpretations thereof, including those for selection of arbitrators.
It is understood and agreed that the arbitration shall be binding upon the
parties, that the parties are waiving their right to seek remedies in court,
including the right to jury trial; and that an arbitration award may not be set
aside in later litigation except upon the limited circumstances set forth in the
Federal Arbitration Act.
Judgment upon the award rendered by the arbitrator(s) may be entered in any
Court having jurisdiction thereof. The arbitration expenses shall be borne by
the losing party or in such proportion as the arbitrator(s) shall decide.
CONTROL PROVISIONS
THE PARTIES INVOLVED. The Owner(s) is the person(s) who owns this Policy as
shown on the Policy Specifications Page, on an endorsement or on an amendment
to the Application. The Owner is the Insured unless someone else is named as
the Insured. The Insured is the person whose life this Policy insures.
RIGHTS OF OWNER. While the Insured is living, the Owner(s) may exercise all
rights and benefits contained in the Policy or allowed by the Company. These
rights include assigning this Policy, changing Beneficiaries, changing
ownership, enjoying all benefits and exercising all policy provisions. The
use of these rights may be subject to the consent of any assignee or
irrevocable Beneficiary.
Policy VULLVULIA
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If a Partnership has any rights under this Policy, such rights shall belong to
the Partnership as it exists when the right is exercised.
CONTINGENT OWNER. If the Owner is not the Insured, the Owner(s) may name a
Contingent Owner provided such request is made in writing on a form
acceptable to Us. The Contingent Owner will become the Owner if the Owner(s)
die. If there is not a Contingent Owner named when the Owner(s) die, the
estate of the last Owner to die will become the Owner.
BENEFICIARY. A Beneficiary is any person named by the Owner(s) on the
Company's records to receive the Death Benefit Proceeds on the Insured's
death. There may be different classes of Beneficiaries such as primary and
contingent. These classes set the order of payment of the Death Benefit. The
Owner(s) may change the Beneficiary at any time prior to the Insured's death.
To make a change, We must receive a written request satisfactory to Us at our
Home Office. If an irrevocable Beneficiary has been designated however, such
designation cannot be changed or revoked without the irrevocable
Beneficiary's written consent. Any change of Beneficiaries is effective on
the date the request was signed. Provided, however, We will not be liable for
any payment We make before such request has been received and acknowledged at
our Home Office.
CHANGING THE OWNER. The Owner(s) may be changed at any time prior to the
Insured's death. To make a change, We must receive from the Owner(s) a
written request satisfactory to Us at our Home Office. Any such change will
be effective on the date the request was signed. Provided, however, We will
not be liable for any payment We make before such request has been received
and acknowledged at our Home Office.
ASSIGNMENT. Upon notice to Us, the Owner(s) may assign his or her rights under
this Policy. However, for this assignment to be binding on the Company, it must
be in writing and filed at the Home Office. We assume no responsibility for the
validity of any assignment. Any claim under any assignment shall be subject to
proof of interest and the extent of assignment. Once the Company receives a
signed copy of the assignment, the Owner's rights and the interest of any
Beneficiary or any other person will be subject to the assignment. An assignment
is subject to any Policy Debt.
PROTECTION OF PROCEEDS. To the extent permitted by law, any payment of Death
Benefit Proceeds, surrender value or any Withdrawal shall be free from legal
process from the claim of any creditor of the person entitled to them.
SUSPENSION OR DELAY IN PAYMENT. The Company has the right to suspend or delay
the date of payment of a Withdrawal, loan, surrender, or the Death Benefit
Proceeds for any period:
1) when the New York Stock Exchange is closed; or
2) when trading on the New York Stock Exchange is restricted; or
3) when an emergency exists (as determined by the Securities & Exchange
Commission) as a result of which (a) the disposal of securities in
the Variable Account is not reasonably practicable; or (b) it is not
reasonably practicable to determine fairly the value of the net assets
of the Variable Account; or
4) when the Securities & Exchange Commission, by order, so permits for the
protection of security holders.
As to amounts allocated to the Fixed Account, We may defer payment of Death
Benefit proceeds for up to two months and any withdrawal, surrender or the
making of a policy loan for up to six months after We receive a written request.
If We delay payment of surrender benefits under this Policy, We will pay the
Owner interest at the rate specified under applicable state law as required, if
any, at the time of the surrender request.
Policy VULLVULIA
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TAX CONSIDERATIONS. In order to receive the tax treatment afforded to life
insurance contracts under federal tax laws, this Policy must qualify and
continue to qualify as a life insurance contract under the Internal Revenue Code
of 1986, as amended. The Company reserves the right to decline to: (a) accept a
Premium Payment; or (b) change the Death Benefit Option; or (c) process a
Withdrawal. The Company also reserves the right to refund a Premium Payment,
including any earnings thereon, if such refund is necessary to prevent this
Policy from failing to qualify as a life insurance contract.
We also reserve the right to make changes to this Policy or to any riders or to
make distributions from this Policy to the extent We consider necessary for this
Policy to continue to qualify as a life insurance contract. Such changes will
apply uniformly to all affected policies. You will receive advance written
notification of such changes.
CHANGES IN POLICY COST FACTORS. Changes in non guaranteed credited rates,
cost of insurance charges, or mortality and expense risk charges will be by
class and will be based upon changes in future expectations of such factors
as investment earnings, mortality, persistency, expenses, and taxes.
COVERAGE LIMITATIONS. Unless the health and other conditions of the Insured
on the date that the Policy is delivered to the Owner(s) is the same as that
indicated in the application, the Company reserves the right to cancel the
Policy or re-underwrite the Policy and make appropriate adjustments to the
monthly cost of insurance charge.
PREMIUMS
PREMIUM PAYMENT(s). Premium Payment(s) are payable at our Home Office or to
any Agent of the Company. Premium Payment(s) must be made by check payable to
Protective Life Insurance Company or by any other method which the Company
deems acceptable. The minimum monthly Premium Payment(s) that We will accept
is: (1) $50 if paid by a pre-authorized payment arrangement; or (2) $150 for
any other mode of payment accepted by the Company.
The Company has the right not to accept any Premium Payment in the event that it
is determined in the Company's discretion that the Premium Payment will cause
the Policy to fail to qualify as a life insurance contract under federal tax
laws.
No insurance will take effect until the initial Premium Payment is paid and the
health and other conditions of the Insured are determined to be the same as that
described in the Application on the date the Policy is delivered.
PLANNED PREMIUM PAYMENTS. The amounts and frequency of the Planned Premium
Payments in effect on the Policy Effective Date are shown on the Policy
Specifications Page. You do not have to make the Planned Premium Payment.
Subject to the limits described above, you may change the frequency and
amount of the Planned Premium Payments at any time.
The Company will send Planned Premium Payment reminder notices to you unless
otherwise requested. You can choose to have them sent at 12, 6, or 3 month
intervals. If desired, the Company will also arrange for Planned Premium
Payments to be made on a monthly basis under a pre-authorized payment
arrangement.
UNSCHEDULED PREMIUM PAYMENTS. Subject to the limits described above, while this
Policy is in force, Premium Payment(s) other than the Planned Premium Payments
will be accepted by the Company at any time. The Owner(s) may specify in writing
that all Unscheduled Premium Payments are to be applied against Policy Debt, if
any, as a loan repayment.
MINIMUM MONTHLY PREMIUM GUARANTEE. In return for paying the Minimum Monthly
Premium shown on the Policy Specifications Page or an amount equivalent
thereto by the Monthly Anniversary Day, the Company guarantees, to the extent
outlined herein, that the Policy will not Lapse. The policy will not Lapse
during the Minimum Monthly Premium Guarantee Period, which is shown on the
Policy Specifications Page, if for each month that the policy has been in
force (a) equals or exceeds (b). For purposes of the Minimum Monthly Premium
Guarantee:
Policy VULLVULIA
VUL-06 3-98 Page 9
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(a) is the total Premiums paid less any Withdrawals and Policy Debt
(b) is the Minimum Monthly Premium as shown on the Policy Specifications
Page multiplied by the number of complete policy months since the Policy
Effective Date, including the current month.
PREMIUM EXPENSE CHARGES. The Premium Expense Charges are shown on the Policy
Specifications Page.
ALLOCATION OF NET PREMIUMS. Net Premiums will be allocated to the
Sub-Accounts and the Fixed Account on the date We receive them according to
the instructions of the Owner(s) in the Application or subsequent written
notice. Owner(s) may change the allocations in effect at any time by Written
Notice. Allocations must be made in whole percentages. The minimum amount
that can be allocated to any Sub-Account or the Fixed Account is 10% of any
Net Premiums, and the sum of allocations must add up to 100%.
If the Contract is issued in a state where, upon cancellation and within the
cancellation period, the Company returns the Premium Payment(s) made, the
Company reserves the right to allocate the initial Premium Payment and any
additional Premium Payments made during cancellation period to the Fixed Account
or Money Market Sub-Account. Thereafter, allocations will be made as shown in
the Policy Specifications Page in accordance with the selections made by the
Owner(s).
GRACE PERIOD. Unless this Policy is otherwise continued under the Minimum
Monthly Premium Guarantee, if the Surrender Value on a Monthly Anniversary
Day is insufficient to cover the Monthly Deductions due on that Monthly
Anniversary Day, this Policy will stay in force for 61 days. This 61 day
period is called the Grace Period.
If the Owner(s) does not pay sufficient Premiums (less Premium Expense Charges)
to cover the current and past due Monthly Deductions by the end of the Grace
Period, this Policy will terminate without value and all coverage under this
Policy will terminate. At the beginning of the Grace Period, the Company will
mail a notice of such Premiums due to the Owner's last known address and to the
address of any assignee of record. Coverage continues during the Grace Period.
The Company will deduct unpaid Monthly Deductions and Policy Debt from any Death
Benefit payable if death occurs during the Grace Period.
REINSTATEMENT. Prior to the Insured's death if this Policy has Lapsed, it can be
reinstated. Reinstatement means to restore the Policy when the Policy has
terminated at the end of the Grace Period. We will not reinstate this Policy if
it has been surrendered. The Company will reinstate the Policy if the Company
receives:
(1) the Owner's written request within five years after the end of the
Grace Period,
(2) evidence of insurability satisfactory to the Company,
(3) payment of Net Premium equal to all Monthly Deductions that were due
and unpaid during the Grace Period with interest at a rate not to
exceed 6% per annum compounded annually, if required by the Company,
and payment of Premium Payments at least sufficient to keep this
Policy in force for three months (We may accept Premium Payments
larger than this amount), and
(4) payment of or reinstatement of any Policy Debt which existed at the
end of the Grace Period.
The effective date of a reinstated policy will be the day the Company approves
the reinstatement and all of the above requirements have been received.
MINIMUM VALUES. The values and benefits of this Policy shall not be less
than the minimum benefits required by the statutes of the state in which this
Policy was delivered.
Policy VULLVULIA
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DEDUCTIONS FROM POLICY VALUE
MONTHLY DEDUCTIONS. The Monthly Deductions is a charge made as of the Policy
Effective Date and on each Monthly Anniversary Day thereafter. Monthly
Deductions will reduce the Sub-Account Value(s) and/or Fixed Account Value in
the proportion that each SubAccount Value and the Fixed Account Value bears to
the Policy Value. Beginning as of the Policy Effective Date, We will deduct the
Monthly Deductions described on the Policy Specifications Page.
MONTHLY COST OF INSURANCE CHARGE. The monthly cost of insurance charge is
determined at the end of each policy month. The monthly cost of insurance
charge is computed as follows:
(1) divide the Death Benefit at the beginning of the Policy month by the
sum of 1 plus the monthly guaranteed interest rate which is shown on
the Policy Specifications page.
(2) reduce the result by the amount of the Policy Value (prior to
deducting the Monthly Deductions) at the beginning of the policy
month;
(3) multiply the difference by the cost of insurance rate as described
in the Cost of Insurance Rates Section; divided by 1,000.
The Monthly Cost of Insurance Charge is computed separately for the Initial Face
Amount and for each increase in Face Amount.
PREMIUM EXPENSE CHARGE. A premium expense charge, as described on the Policy
Specifications Page will be deducted from each Premium Payment.
ADMINISTRATION FEE. An administration fee as described on the Policy
Specifications Page will be deducted monthly.
COST OF INSURANCE RATES. The monthly cost of insurance rate is based on the
sex, issue age, duration and rate class of the Insured and on the number of
years that a Policy has been in force. For each Face Amount increase, We will
use the issue age, sex, rate class and duration of this Policy at the time of
the request. Monthly cost of insurance rates will be determined by the
Company, based on its expectations as to future mortality experience,
investment earnings, mortality, persistency, expenses and taxes.
Any change in the monthly cost of insurance rates will be on a uniform basis for
insureds of the same class such as age, sex, rate class, and policy year.
However, the cost of insurance rates will never be greater than those shown in
the Guaranteed Maximum Monthly Cost of Insurance Rates Table on the Policy
Specifications Page.
CHARGES FOR BENEFITS UNDER RIDERS. We will deduct a monthly charge for each
rider to the Policy as shown on the Policy Specifications Page.
MORTALITY AND EXPENSE RISK CHARGE. We will deduct a mortality and expense
risk charge equal, on a monthly basis, to the percentage shown on the Policy
Specifications Page of the daily net asset value of each Sub-Account in the
Variable Account. This deduction is made to compensate the Company for
assuming the mortality and expense risks under this Policy. The Mortality and
Expense Risk Charge is deducted only from the Variable Account.
OTHER DEDUCTIONS. We also make the following other deductions as they occur:
(1) Withdrawal Charge for Withdrawals;
(2) Surrender Charge if you surrender this Policy, decrease its Initial
Face Amount, or if this Policy lapses at the end of a Grace Period;
(3) Transfer fee for certain transfers of the Fixed Account or Variable
Account Values.
Policy VULLVULIA
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BASIS OF COMPUTATIONS
Minimum Surrender Values and maximum cost of insurance rates are based on the
Commissioner's 1980 Standard Ordinary Smoker or Non-Smoker, Male or Female
Mortality Table (age nearest birthday) and the rate class of the Insured.
Surrender Values are at least equal to those required by law. Reserves are
computed by the Commissioner's Reserve Valuation Method.
FIXED ACCOUNT
CALCULATION OF THE FIXED ACCOUNT VALUE. The value of the Fixed Account at
any time is equal to:
(a) the Net Premiums allocated to the Fixed Account; plus
(b) Policy Value transferred to the Fixed Account; plus
(c) interest credited to the Fixed Account; less
(d) any Withdrawals including any withdrawal charges deducted or transfers
from the Fixed Account including any transfer fees deducted from
the Fixed Account; less
(e) any surrender charges deducted in the event of a decrease of Face
Amount; less
(f) Monthly Deductions.
INTEREST CREDITED. The Company guarantees that the interest credited during
the first Policy Year to the initial Net Premiums allocated to the Fixed
Account will be at a rate not less than the Initial Annual Effective Interest
Rate for the Fixed Account shown on the Policy Specifications Page.
For subsequent Net Premiums allocated to or Policy Value transferred to the
Fixed Account, the guaranteed interest rate applicable will be the annual
effective interest rate in effect on the date the subsequent Net Premium is
received by Us or the date the transfer is made. Such guaranteed interest rate
will apply to such amounts for a twelve month period which begins on the date
the Net Premium is allocated or the date the transfer is made.
After the guaranteed interest rate expires, (i.e., 12 months after the Net
Premium or transfer is placed in the Fixed Account) We will credit interest on
the Fixed Account Value attributable to such Net Premiums and transfers at the
current interest rate in effect. New current interest rates are effective for
such Fixed Account Value for 12 months from the time they are first applied. The
Initial Annual Effective Interest Rate and the current interest rates the
Company will credit are annual effective interest rates of not less than 4.00%.
For purposes of crediting interest, amounts deducted, transferred or withdrawn
from the Fixed Account will be accounted for on a "first-in, first-out" (FlFO)
basis.
The Company reserves the right to apply different interest rate guarantees to
certain amounts credited to the Fixed Account.
VARIABLE ACCOUNT
GENERAL DESCRIPTION. The variable benefits under the Policy are provided
through the Variable Account. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940.
The portion of the assets of the Variable Account equal to the reserves and
other contract liabilities of the Variable Account are not chargeable with the
liabilities arising out of any other business We may conduct. We have the right
to transfer to our General Account any assets of the Variable Account which are
in excess of such reserves and other liabilities. The assets of the Variable
Account are available to cover the liabilities of the General Account of the
Company only to the extent that the assets of the Variable Account exceed the
liabilities of the Variable Account arising under the policies supported by the
Variable Account.
Policy VULLVULIA
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SUB-ACCOUNTS OF THE VARIABLE ACCOUNT. The assets of the Variable Account are
divided into a series of Sub-Accounts that are listed on the Policy
Specifications Page and in the current Prospectus you received. Each
Sub-Account invests exclusively in shares of a corresponding Fund. Any
amounts of income, dividends, and gains distributed from the shares of a Fund
will be reinvested in additional shares of that Fund at its Net Asset Value
Per Share.
When permitted by law, We may:
(1) create new variable accounts;
(2) combine variable accounts, including the Variable Account;
(3) add new Sub-Accounts to or remove existing Sub-Accounts from
the Variable Account or combine Sub-Accounts;
(4) make new Sub-Accounts or other Sub-Accounts available to such
classes of the Policies as We may determine;
(5) add new Funds or remove existing Funds;
(6) if shares of a Fund are no longer available for investment
or if We determine that investment in a Fund is no longer
appropriate in light of the purposes of the Variable Account,
substitute a different Fund for any existing Fund;
(7) deregister the Variable Account under the Investment Company Act
of 1940 if such registration is no longer required;
(8) operate the Variable Account as a management investment company
under the Investment Company Act of 1940 or in any other form
permitted by law; and
(9) make any changes to the Variable Account or its operations as may
be required by the Investment Company Act of 1940 or other
applicable law or regulations.
The investment policy of the Variable Account will not be changed without
approval pursuant to the insurance laws of the State of Tennessee. If required,
approval of or change of investment policy will be filed with the insurance
department of the state where this Policy is delivered.
The values and benefits of this Policy provided by the Variable Account depend
on the investment performance of the Funds in which your selected Sub-Accounts
are invested. We do not guarantee the investment performance of the Funds. The
Owner(s) bear the full investment risk for Net Premiums allocated or Policy
Value transferred to the Sub-Accounts.
VALUATION OF ASSETS. Assets of Funds held by each Sub-Account will be valued
at their Net Asset Value per share on each Valuation Day. The Prospectus the
Owners(s) received for the Funds defines the Net Asset Value per share of the
Funds and describes each Fund.
CALCULATION OF SUB-ACCOUNT VALUES. The Sub-Account Value for any Sub-Account
is equal to the number of Units this Policy then has in that Sub-Account,
multiplied by the value of such units at that time. Amounts allocated,
transferred or added to a Sub-Account are used to purchase Units of that
Sub-Account. Units are redeemed when amounts are deducted, transferred, or
withdrawn. The number of Units in a Sub-Account at any time is equal to the
number of Units purchased minus the number of Units redeemed up to such time.
For each Sub-Account, the Net Premiums allocated to or Policy Value
transferred to the Sub-Account are converted into Units. The number of Units
credited is determined by dividing the dollar amount directed to each
Sub-Account by the value of the Unit for that Sub-Account for the Valuation
Day on which the Net Premiums allocated to or Policy Value transferred are
credited to the Sub-Account. The Unit value at the end of every Valuation Day
is the Unit value at the end of the previous Valuation Day times the Net
Investment Factor, as described below.
Policy VULLVULIA
VUL-06 3-98 Page 13
<PAGE>
NET INVESTMENT FACTOR. The Unit value for each Sub-Account for any Valuation
Period is determined by the Net Investment Factor. The Net Investment Factor
is an index applied to measure the investment performance of a Sub-Account
from one Valuation Period to the next. The Net Investment Factor for a
Sub-Account for any Valuation Period is determined by dividing (1) by (2)
where
(1) is the result of:
a. the Net Asset Value per share of the Fund held in the Sub-Account,
determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
made by the Fund to the Sub-Account, if the "ex-dividend" date
occurs during the current Valuation Period; plus or minus
c. a per share charge or credit for any taxes reserved for, which is
determined by the Company to have resulted from the operations of
the Sub-Account.
(2) is the Net Asset Value per share of the Fund held in the Sub-Account,
determined at the end of the last prior Valuation Period.
TRANSFERS. On or after the later of thirty days after the Policy Effective
Date or six days after the ten-day cancellation period, or such other period
as required by law, upon receipt of Written Notice, the Owner(s) may transfer
the Fixed Account Value or any Sub-Account Value to other Sub-Accounts and/or
the Fixed Account. The transfer will be effected as of the date We receive
Written Notice from the Owner(s).
The amount transferred must be at least $100 or, if less, the entire amount in
the Fixed Account or the Sub-Account(s) each time a transfer is made. If, after
the transfer, the amount remaining in the Fixed Account or Sub-Account(s) from
which the transfer is made is less than $100, We reserve the right to transfer
the entire amount instead of the requested amount. The maximum amount which may
be transferred from the Fixed Account is the greater of (1) $2500; or (2) 25% of
the Fixed Account Value in any Policy Year.
The Policy Value on the effective date of the transfer will not be affected
except to the extent of the transfer fee. We reserve the right to limit
transfer requests to no more than 12 per year. For each additional transfer
request over 12 during each Policy Year, We reserve the right to charge a
Transfer Fee which is indicated on the Policy Specifications Page. The
Transfer Fee, if any, will be deducted from the amount being transferred.
We reserve the right, at any time and without prior notice, to terminate,
suspend or modify the transfer privileges described above.
DEATH BENEFIT
DEATH BENEFIT PROCEEDS. On the Insured's death, provided this Policy is in
force, We will pay the Death Benefit Proceeds when We receive satisfactory
proof of death of the Insured.
AMOUNT OF DEATH BENEFIT PROCEEDS. The Death Benefit Proceeds will be
determined as of the date of the Insured's death and will be equal to: (1),
plus (2), minus (3), minus (4), where
(1) is the Death Benefit under the Death Benefit option selected;
(2) is any additional benefits due under any riders attached to this Policy;
(3) is any Policy Debt; and
(4) is any unpaid Monthly Deductions if the Insured dies during the Grace
Period.
The Death Benefit Proceeds shall be determined under the Level Death Benefit or
Increasing Death Benefit, whichever is chosen by the Owner(s) and indicated on
the Policy Specifications Page, or any supplemental Policy Specifications Page.
Policy VULLVULIA
VUL-06 3-98 Page 14
<PAGE>
Level Death Benefit - The Death Benefit will be the greater of:
(a) The Face Amount of insurance on the Insured's date of death; or
(b) a specified percentage of the Policy Value on the date of the
Insured's death as indicated on the Table of Percentages below.
Increasing Death Benefit - The Death Benefit will be the greater of:
(a) the Face Amount of insurance on the Insured's date of death plus the
Policy Value on the insured's date of death; or
(b) a specified percentage of the Policy Value on the Insured's date of
death as indicated on the Table of Percentages below.
TABLE OF PERCENTAGES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Attained Attained Attained Age 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>
PAYMENT OF DEATH BENEFIT PROCEEDS. We will pay the Death Benefit Proceeds to the
Beneficiary in a lump sum, unless a Settlement Option has been selected. If the
Primary or Contingent Beneficiary is not living, or if no Beneficiary has been
designated, We will pay the Owner(s) or Owner's estate.
SUSPENSION OF PAYMENT. Payment of Death Benefit Proceeds may be suspended or
delayed under the circumstances described herein for suspension or delay of
payment of surrenders or Withdrawals.
CREDITOR CLAIMS. To the extent permitted by applicable laws, no right or benefit
under this Policy shall be subject to claims of creditors, except as may be
provided by an assignment.
SURRENDERS AND WITHDRAWALS
SURRENDERS. Prior to the Insured's death, and while the Policy is in force,
this Policy may be surrendered for its Surrender Value. The surrender will be
effective as of the Valuation Day on which We receive a Written Notice
requesting surrender of the Policy. If the Policy is surrendered, any
applicable Surrender Charge as described on the Policy Specifications Page
will be imposed. Once the surrender is effective, all benefits provided by
the Policy cease and the Policy cannot be reinstated.
WITHDRAWALS. After the first Policy Year, the Owner(s) may make a written
request for a Withdrawal of the Surrender Value, subject to certain
restrictions. The minimum Withdrawal request is $500. As of the date We
receive Written Notice from the Owner(s), We will reduce the Policy Value by
the amount withdrawn (including the withdrawal charge as described on the
Policy Specifications Page). If a Level Death Benefit is in effect, We
reserve the right to reduce the Face Amount of the Policy by the amount of
the Withdrawal (exclusive of the withdrawal charge). Face Amount reductions
will be effective as provided in the provision "Decreasing the Face Amount".
The Owner(s) may specify how the Withdrawal and withdrawal charge are to be
deducted from the Policy Value. In the event an allocation is not specified,
We will allocate the Withdrawal and withdrawal charge based on the proportion
that the value in the Fixed Account and the value in the Sub-Accounts bear to
the unloaned Policy Value.
We reserve the right to decline a Withdrawal request if the remaining Face
Amount would be below the minimum amount for which We would then issue the
Policy under our rules; or We determine that the Withdrawal would cause this
Policy to fail to qualify as a life insurance contract under applicable tax
laws, as interpreted by Us.
Policy VULLVULIA
VUL-06 3-98 Page 15
<PAGE>
POLICY LOANS
RIGHT TO MAKE LOANS, POLICY DEBT. After the first Policy Anniversary and prior
to the Insured's death and while this Policy is in force, loans can be made on
this Policy provided it has Surrender Value greater than Zero. However, the
Policy must be properly assigned to the Company before any policy loan is made.
No other collateral is needed. Any policy loan must be for at least a minimum
loan amount of $500. The Company may delay making any policy loan from the Fixed
Account for up to six months.
MAXIMUM LOAN. The most the Owner(s) can borrow is an amount that equals 90% of
the Surrender Value of the Policy on the date the policy loan request is
received.
INTEREST. The interest charged on any policy loan is at an effective annual
rate, shown on the Policy Specifications Page, compounded yearly on the Policy
Anniversary. Interest payments are due for the prior Policy Year on each Policy
Anniversary. If interest is not paid when due, it will be added to the amount of
the policy loan and will bear interest at the rate payable on the policy loan.
Interest is charged in arrears from the date of the policy loan. Interest, as it
accrues from day to day, is considered part of the Policy Debt.
COLLATERAL. When a policy loan is made, an amount sufficient to secure the
policy loan is transferred out of the Sub-Account(s) and the Fixed Account and
into the Policy's Loan Account. The Owner(s) can specify how to allocate the
amount to be transferred to the Loan Account as collateral from among the
Sub-Account(s) and the Fixed Account. If an allocation is not specified, the
amount will be allocated in the same proportion that the value of your Fixed
Account and the value of your Sub-Account(s) bear to the total unloaned Policy
Value on the date We make the policy loan. An amount equal to any unpaid policy
loan interest will also be transferred on each Policy Anniversary to the Loan
Account. We will allocate the unpaid interest based on the proportion that the
value of your Fixed Account and the value of your Sub-Account(s) bear to the
total unloaned Policy Value. The Loan Account Value will be recalculated (1)
when policy interest is added to the amount of the loan, (2) when a loan
repayment is made, or (3) when a new policy loan is made.
We will credit the Loan Account with interest at an effective annual rate of
not less than the Guaranteed Interest Rate for the Fixed Accounts. We will
determine such rate in advance of each calendar year. This rate will apply
to the calendar year which follows the date of determination. On each Policy
Anniversary, the interest earned on the Loan Account since the preceding
Policy Anniversary will be transferred to the Sub-Account(s) and the Fixed
Account. The interest will be transferred to the SubAccount(s) and the Fixed
Account in the same proportion that Premium Payments are allocated.
If the Loan Account Value exceeds the Cash Value, the Owner(s) must pay the
excess. We will send you a notice of the amount the Owner(s) must pay. This
amount must be paid within 31 days after We send the notice, or the Policy will
Lapse. We will send the notice to you and to any assignee of record.
REPAYING POLICY DEBT. Policy Debt can be repaid in part or in full any time
during the Insured's life while this Policy is in force. When a loan repayment
is made, Policy Value in the Loan Account in an amount equal to that payment
will be transferred to the Sub-Account(s) and the Fixed Account. The Owner(s)
may tell Us how to allocate this transfer among the Sub-Account(s) and the Fixed
Account. If no allocation is specified, We will allocate that amount among the
Sub-Account(s) and the Fixed Account in the same proportion that Premium
Payments are allocated.
CHANGING THIS POLICY
The Owner(s) can request any one of the following changes subject to certain
conditions. The Owner's request must be received in writing at the Company's
Home Office.
Policy VULLVULIA
VUL-06 3-98 Page 16
<PAGE>
INCREASING THE FACE AMOUNT. On or after the first Policy Anniversary, the
Owner(s) may submit a supplemental application for an increase in Face Amount.
The Company reserves the right to require satisfactory proof of insurability in
connection with evaluating any requested increase in Face Amount. The Insured's
current Attained Age must be less than the maximum issue age. The amount of any
increase must be at least $10,000. Any increase approved by the Company will be
effective on the effective date shown on the supplemental Policy Specifications
Page which will be issued and attached to the Policy and will be subject to
monthly cost of insurance deductions for the increase from the Policy Value of
this Policy.
PREMIUM PAYMENTS REQUIRED FOR A FACE AMOUNT INCREASE. Additional Premium
Payments may be required in connection with an increase in Face Amount. We
will notify the Owner(s) if additional Premium Payments are required and
specify the Premium Payments required on the supplemental Policy
Specifications Page.
CANCELLATION OF AN INCREASE OF FACE AMOUNT. The cancellation provision on
the cover of this Policy applies equally to any increase in Face Amount
except that where no additional Premium Payments are required in order to
increase the Face Amount, only the first monthly cost of insurance deduction
and the administration fee for increases in Face Amount will be credited back
to the sub-accounts and fixed account in the proportion that each Sub-Account
Value and the Fixed Account Value bears to the Policy Value if the increase
is cancelled.
DECREASING THE FACE AMOUNT. On or after the first Policy Anniversary, you can
request in writing a decrease in Face Amount subject to the following rules.
Any decrease will go into effect on the Monthly Anniversary Day that falls on
or next following the date the Company receives and accepts the request for
change. The decrease will first be applied against increases in Face Amount
in the reverse order in which they occurred. It will then be applied against
the Initial Face Amount. The Company reserves the right to prohibit any
decrease: (1) for the three years following an increase in Face Amount; and
(2) for one Policy Year following the last decrease in Face Amount.
The Face Amount remaining in effect after any decrease cannot be less than the
Minimum Face Amount shown on the Policy Specifications Page. Decreasing the Face
Amount may result in lower Monthly Deductions or a refund in Premiums and
earnings thereon. Decreasing the Initial Face Amount may result in a Surrender
Charge. The Company reserves the right to refuse a decrease in Face Amount if
such decrease would cause this Policy to fail to qualify as a life insurance
contract under applicable tax laws, as interpreted by Us.
CHANGING THE DEATH BENEFIT OPTION. On or after the first Policy Anniversary,
the Owner(s) may request in writing a change in the Death Benefit Option. The
change will go into effect on the Monthly Anniversary Day that falls on or
next following the date the Company receives and accepts the request for
change. If the Owner(s) requests a change from Increasing Death Benefit to
Level Death Benefit, the Face Amount will be increased to equal the Death
Benefit on the effective date of change. If the Owner(s) requests a change
from Level Death Benefit to Increasing Death Benefit, the Face Amount will be
decreased so that it equals the Death Benefit less the Policy Value on the
date of the change. The Company reserves the right to require satisfactory
proof of insurability before permitting a change in Death Benefit options.
CHANGE APPROVAL. All changes must be approved by the Home Office. No agent
has the authority to make any changes or waive any of the terms of this
Policy.
SETTLEMENT OPTIONS
Optional Methods of Settlement provide alternative ways in which payment can be
made. Payment under these Optional Methods of Settlement will not be affected by
the investment experience of any Sub-Account after the proceeds are applied
under such option.
Policy VULLVULIA
VUL-06 3-98 Page 17
<PAGE>
AVAILABILITY OF OPTIONS. Upon written request, all or part of the Death
Benefit Proceeds or Surrender Value may be applied under any Settlement
Option We offer on the option date. The option date is any date this Policy
terminates under the termination provision. If this Policy is assigned,
either before or after the choice of an option, any amount due to the
assignee will be paid in one sum. The balance, if any, may be applied under
any Settlement Option.
MINIMUM AMOUNTS. If the amount to be applied under any Settlement Option for
any one person is less than $5,000, the Company may pay that amount in one
sum instead. If the payments under any option come to less than $50 each, the
Company has the right to make payments at less frequent intervals.
ELECTING A SETTLEMENT OPTION. To elect any Settlement Option, the Company
requires that a written request, satisfactory to it, be received at its Home
Office. The Owner(s) may elect a Settlement Option during the Insured's
lifetime. If the Death Benefit Proceeds are payable in one sum when the Insured
dies, the Beneficiary may elect a Settlement Option with the Company's consent.
EFFECTIVE DATE AND PAYMENT DATE. The effective date of a Settlement Option
is the date the amount is applied under that option. For Death Benefit
Proceeds, this is the date that due proof of the Insured's death is received
at the Company's Home Office. For the Surrender Value, it is the effective
date of surrender.
A later date for the first payment may be requested in the Settlement Option
election. All payment dates will fall on the same day of the month as the first
one. No payment will become due until a payment date. No partial payment will be
made for any period shorter than the time between payment dates.
If the Surrender Value is applied under any option, the Company may delay
payment of any Withdrawal for up to six months. Interest at the rate in effect
for Option 3 during this period will be paid on the amount withdrawn.
DESCRIPTION OF OPTIONS. The Company's Settlement Options are described
below. Any other Settlement Option agreed to by the Company may be elected.
The Settlement Options are described in terms of monthly payments.
OPTION 1 - Payment For A Fixed Period. Equal monthly payments will be made
for any period selected up to 30 years. The amount of each payment depends on
the total amount applied, the period selected and the monthly payment rates
the Company is using when the first payment is due. The rate of any payment
for each $1,000 of proceeds applied will not be less than shown in the Option
1 Table. The payments shown in this table are based on an interest rate of 3%
per year.
Option 1 Table
Minimum Monthly Payment Rates for Each $1,000 Applied
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Monthly Monthly Monthly
Years Payment Years Payment Years Payment
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $84.47 11 $ 8.86 21 $ 5.32
2 42.86 12 8.24 22 5.15
3 28.99 13 7.71 23 4.99
4 22.06 14 7.26 24 4.84
5 17.91 15 6.87 25 4.71
6 15.14 16 6.53 26 4.59
7 13.16 17 6.23 27 4.47
8 11.68 18 5.96 28 4.37
9 10.53 19 5.73 29 4.27
10 9.61 20 5.51 30 4.18
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Policy VULLVULIA
VUL-06 3-98 Page 18
<PAGE>
OPTION 2 - LIFE INCOME WITH PAYMENTS FOR A GUARANTEED PERIOD. Equal monthly
payments are based on the life of the named person. Payments will continue
for the lifetime of that person with payments guaranteed for 10 or 20 years.
Payments stop at the end of the selected guaranteed period or when the named
person dies, whichever is later.
The Option 2 Table shows the minimum monthly payment for each $1,000 applied.
The actual payments will be based on the monthly payment rates the Company is
using when the first payment is due. They will not be less than shown in the
Table, which is based on the 1983 Individual Annuity Mortality Table A projected
13 years with interest at 3% per annum. One year will be deducted from the
Attained Age of the named person for every completed three years beyond the year
1996. The Age of the payee is the age at the birthday nearest to the effective
date of the Option.
<TABLE>
<CAPTION>
OPTION 2 TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Age of Male Female Age Male Female
Payee Guaranteed Perod Guaranteed Period of Payee Guaranteed Period Guaranteed Period
- ------------------------------------------------------------------------------------------------------------------------------------
10 Yrs 20 Yrs 10 Yrs 20 Yrs 10 Yrs 20 Yrs 10 Yrs 20 Yrs
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-30 3.08 3.07 2.95 2.95 56 4.33 4.16 3,93 3.86
31 3.10 3.09 2.97 2.96 57 4.42 4.22 4.00 3.92
32 3.13 3.12 2.99 2.98 58 4.51 4.29 4.08 3.98
33 3.16 3.15 3.01 3.00 59 4.61 4.36 4.16 4.04
34 3.19 3.17 3.03 3.03 60 4.71 4.43 4.24 4.11
35 3.22 3.20 3.06 3.05 61 4.82 4.49 4.33 4.18
36 3.25 3.23 3.08 3.07 62 4.94 4.57 4.42 4.25
37 3.28 3.26 3.11 3.10 63 5.06 4.64 4.52 4.32
38 3.32 3.29 3.13 3.12 64 5.19 4.71 4.63 4.40
39 3.35 3.33 3.16 3.15 65 5.32 4.77 4.74 4.47
40 3.39 3.36 3.19 3.18 66 5.46 4.84 4.86 4.55
41 3.43 3.40 3.22 3.21 67 5.61 4.91 4.98 4.63
42 3.48 3.44 3.25 3.24 68 5.76 4.97 5.12 4.70
43 3.52 3.48 3.29 3.27 69 5.91 5.03 5.26 4.78
44 3.57 3.52 3.32 3.31 70 6.08 5.09 5.41 4.86
45 3.61 3.56 3.36 3.34 71 6.25 5.15 5.56 4.93
46 3.67 3.61 3.40 3.38 72 6.42 5.20 5.73 5.00
47 3.72 3.66 3.44 3.42 73 6.59 5.24 5.90 5.06
48 3.77 3.70 3.49 3.48 74 6.77 5.29 6.08 5.13
49 3.83 3.75 3.53 3.50 75 6.96 5.33 6.27 5.18
50 3.89 3.81 3.58 3.55 76 7.14 5.36 6.46 5.23
51 3.96 3.86 3.63 3.59 77 7.32 5.39 6.66 5.28
52 4.02 3.92 3.69 3.64 78 7.51 5.42 6.87 5.32
53 4.10 3.97 3.74 3.69 79 7.69 5.44 7.08 5.36
54 4.17 4.03 3.80 3.74 80 7.87 5.46 7.29 5.39
55 4.25 4.10 3.87 3.80 & Over
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION 3 - INTEREST INCOME. The Company will hold any amount applied under
this option. Interest on the unpaid balance will be paid each month at a rate
determined by it. This rate will be not less than the equivalent of 3% per
year.
OPTION 4 - PAYMENTS OF A FIXED AMOUNT. Equal monthly payments will be for an
agreed fixed amount. The amount of each payment may not be less than $10 for
each $1,000 applied. Interest will be credited each month on the unpaid
balance and added to it. This interest will be at a rate set by Us, but not
less than an effective interest rate of 3% per year. Payments continue until
the amount We hold runs out. The last payment will be for the balance only.
DEATH OF PAYEE. If the payee dies while there are any unpaid installments
under Option 1 or before the end of the guaranteed period under Option 2, the
Company will pay the commuted value of the remaining payments in a lump sum.
The commuted value or any balance held under Option 3 or Option 4 will be
paid to the payee's executors or administrators unless the written election
of the Option directed the Company differently. Any commuted value will be
calculated using 3% interest per year.
Policy VULLVULIA
VUL-06 3-98 Page 19
<PAGE>
EXHIBIT 2
<PAGE>
[PROTECTIVE LIFE INSURANCE COMPANY LETTERHEAD]
Nancy Kane
Senior Associate Counsel
May 13, 1999
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Gentlemen:
With respect to the registration statement on Form S-6 to be filed by
Protective Life Insurance Company (the "Company") and Protective Variable Life
Separate Account (the "Account") with the Securities and Exchange Commission for
the purpose of registering under the Securities Act of 1933, as amended,
flexible premium fixed and variable life insurance policies (the "Policies"), I
have examined such documents and such law as I considered necessary and
appropriate, and on the basis of such examination, it is my opinion that:
1. The Company is a corporation duly organized and validly existing as a
stock life insurance company under the laws of the State of Tennessee and
is duly authorized by the Department of Commerce and Insurance of the
State of Tennessee to issue the Policies.
2. The Account is a duly authorized and existing separate account
established pursuant to the provisions of Section 56-3-501 of the
Tennessee Code.
3. To the extent so provided under the Policies, that portion of the assets
of the Account equal to the reserves and other contract liabilities with
respect to the Account will not be chargeable with liabilities arising
out of any other business that the Company may conduct.
4. The Policies, when issued as contemplated by the Form S-6 registration
statement, will constitute legal, validly issued and binding obligations
of the Company.
I hereby consent to the filing of this opinion as an exhibit to the Form S-6
registration statement for the Policies and the Account.
Sincerely,
/s/ Nancy Kane
--------------------------------------
Nancy Kane, Esq.
<PAGE>
EXHIBIT 8
<PAGE>
[SUTHERLAND ASBILL & BRENNAN LLP]
May 13, 1999
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 (File No. 333-72775) by Protective
Life Insurance Company and Protective Variable Life Separate Account with the
Securities and Exchange Commission. In giving this consent, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ DAVID S. GOLDSTEIN
--------------------------------------
David S. Goldstein
<PAGE>
EXHIBIT 9
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this registration statement on Form S-6 (File
No. 333-72775) of our report dated February 11, 1999, 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 17, 1999 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 "Independent Accountants."
PRICEWATERHOUSECOOPERS, L.L.P.
Birmingham, Alabama
May 13, 1999
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES FOR FLEXIBLE
PREMIUM VARIABLE AND FIXED LIFE INSURANCE POLICIES
PURSUANT TO RULE *6e-3(T)(b)(12)(iii)
This document sets forth the administrative procedures that will be followed by
Protective Life Insurance Company ("Protective Life" or the "Company")
concerning the issuance of an individual flexible premium variable and fixed
life insurance policy (the "Policy"), the transfer of assets held thereunder,
and the redemption by Owners of their interests in such Policy.
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF POLICIES
A. APPLICATION AND UNDERWRITING
Upon receipt of a completed application, the Company will follow
underwriting (e.g., evaluation of risks) procedures designed to determine
whether the applicant is insurable. The underwriting policies of the Company are
established by management. The Company uses information from the application
and, in some cases, inspection reports, attending physician statements, or
medical examinations to determine whether a Policy should be issued as applied
for, rated, or rejected. Medical examinations of applicants are required for
Policies in excess of certain prescribed amounts and for most insurance applied
for by applicants over age 50. Medical examinations are requested of any
applicant, regardless of age and amount of requested coverage, if an examination
is deemed necessary to underwrite the risk. Substandard risks may be referred to
reinsurers for full or partial reinsurance of the substandard risk.
The Company requires blood samples to be drawn with applications for
coverage over $100,000 (ages 16-50) or $150,000 (age 51 and over). Blood samples
are tested for a wide range of chemical values and are screened for antibodies
to the HIV virus. Applications also contain questions permitted by law regarding
the HIV virus which must be answered by the proposed insureds. The Company will
not issue a Policy until the underwriting procedures have been completed.
Insurance coverage under a Policy will begin as of the Policy Effective
Date, which is generally the Issue Date. If, an initial minimum premium is
received with an application, the Policy Effective Date will be the later of the
date that the application is signed or any required medical examination is
completed. Temporary life insurance coverage (including various types of
conditional receipt) may be provided under the terms of the temporary life
insurance (or conditional receipt) agreement. In accordance with the terms of
the such agreements, temporary life insurance coverage may not exceed $500,000
and may not be in effect for more than 90 days.
In order to obtain a more favorable Issue Age, the Company may permit Owners
to "backdate" a Policy by electing a Policy Effective Date which is up to six
months prior to the date of the original application. Charges will be deducted
as of the new Policy Effective Date for the backdated period for Monthly
Deductions.
B. INITIAL PREMIUM PROCESSING AND PREMIUM PAYMENTS
Premiums for the Policies will not be the same for all Owners. The Company
requires that the initial premium payment for a Policy be at least equal to the
minimum required for the mode of premium selected. For example, the initial
premium payment can never be less than $150 quarterly. Owners who request to pay
premiums on a preauthorized checking withdrawal basis are required to pay an
amount equal to two months premiums upon issuance of their Policy. Premiums paid
on a preauthorized checking withdrawal basis can never be less than $50 per
month.
For Policies issued in states where, upon cancellation during the
Cancellation Period, the Company returns at least the Owner's premium
payments, the Company reserves the right to allocate the initial premium
payment (and any subsequent premiums payments made during the Cancellation
Period) to the Oppenheimer Money Fund Sub-Account or the Fixed Account until
the expiration of the number of days in the Cancellation Period plus six days
starting from the date the Policy is mailed from the Home Office. Upon
expiration of this period, the Policy Value in the Oppenheimer Money Fund
Sub-Account or the Fixed Account and all premiums will be allocated according
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to the Owner's allocation instructions then in effect. In all other states,
the Company will allocate the initial premium (and any subsequent premiums
made during the Cancellation Period) in accordance with the Owner's
instructions.
Following the initial premium, the Owner may pay planned premiums in any
amount on a quarterly, semi-annual, and annual basis. For the first Policy
Year, the amount of the planned premiums can be no less than the minimum
initial premium payment calculated on an annual basis. The minimum initial
premium payment required depends on a number of factors, including the age,
sex and rate class of the proposed insured, the initial face amount, any
supplemental riders and the Plan, periodic premiums selected. If the Owner
fails to pay the planned premiums, this will not necessarily cause the Policy
to lapse.
An Owner may make unscheduled premium payments, at any time, in any amount.
A Policy will remain in force while the cash surrender value is sufficient to
pay the monthly deduction unless the Policy is otherwise protected by the No-
Lapse Guarantee provision. The amount of premium, if any, which must be paid to
keep the Policy in force depends upon the cash surrender value of the Policy,
which in turn depends on such factors as the investment experience and the
amount of monthly deductions which includes cost of insurance. While not every
insured is subject to the same cost of insurance rate, there will be a single
"rate" for every Insured in a given actuarial category.
The cost of insurance rate for a Policy is based on and varies with the
Issue Age, duration, sex and rate class of the Insured and on the number of
years that a Policy has been in force. Protective Life currently places Insureds
in the following rate classes, based on underwriting: Preferred (ages 18-75) or
Nonsmoker (ages 0-75), or Tobacco (ages 15-75) or Smoker (ages 15-75), and
substandard rate classes, which involve a higher mortality risk than the Smoker
or Tobacco or Nonsmoker classes.
Protective Life will determine a cost of insurance rate for increments of
Face Amount above the Initial Face Amount based on the Issue Age, duration, sex
and rate class of the Insured at the time of the request for an increase. The
following rules will apply for purposes of determining the Net Amount at Risk
for each rate.
Protective Life places the Insured in a rate class when the Policy is
issued, based on Protective Life's underwriting of the application. This
original rate class applies to the Initial Face Amount. When an increase in Face
Amount is requested, Protective Life conducts underwriting before approving the
increase to determine whether a different rate class will apply to the increase.
If the rate class for the increase has lower cost of insurance rates than the
original rate class, the rate class for the increase also will be applied to the
Initial Face Amount. If the rate class for the increase has a higher cost of
insurance rate than the original rate class, the rate class for the increase
will apply only to the increase in Face Amount, and the original rate class will
continue to apply to the Initial Face Amount.
Protective Life does not conduct underwriting for an increase in Face Amount
if the increase is requested as part of a conversion from a term contract or on
exercise of a guaranteed option to increase the Face Amount without
underwriting.
However, in no event may the total of all premiums paid in any Policy year
exceed the current maximum premium limitations for that year established by
Federal tax laws or by the Company. If the Owner pays a premium that would
result in total premiums exceeding the current maximum premium limitations, the
Company will only accept that portion of the premium that will make total
premiums equal the maximum. Any premium in excess of that amount will be
returned or applied as otherwise agreed and no further premiums will be accepted
until allowed by the current maximum premium limitations prescribed by Federal
tax law.
If any premium payment would cause an increase in the Policy's death benefit
exceeding the premium received, the Company may require additional evidence of
insurability before accepting any premium payment.
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C. LAPSE AND REINSTATEMENT PROCEDURES
The Company offers a "No Lapse Guarantee" to all Owners of Policies for a
5-year period from the policy effective date. This guarantee offers continued
life insurance coverage for the requested initial face amount provided the
Owner of the Policy continues to pay minimum monthly premiums equivalent to
one twelfth of the minimum first year annual premium, and after that, pays
premiums equivalent to a minimum monthly guarantee premium throughout the
Guarantee period. The minimum monthly guarantee premium in the second year
and later is equal to the minimum renewal annual premium divided by 12 and
multiplied by the number of months left in the Guarantee period.
The Policy's No Lapse Guarantee Provision will be threatened if the Company
does not receive an amount equal to the minimum monthly guarantee premium
specified in the Policy.
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 premiums equal to (a) all monthly deductions due upon lapse and
(b) which are at least sufficient to keep the Reinstated Policy in force for
three months; and (4) the Owner repays or reinstates any outstanding policy
debt as of the date of lapse.
The amount of cash value in the Policy on the date the Policy is approved
for reinstatement will be equal to the amount of any Policy Debt reinstated or
repaid at the time of reinstatement plus the premiums paid at reinstatement.
The effective date of reinstatement will be the date the Company approves the
application for reinstatement. A full monthly deduction will be charged for the
month of reinstatement.
II. REDEMPTION PROCEDURES: SURRENDER AND RELATED TRANSACTIONS
The principal policy provisions and administrative procedures regarding
"redemption" transactions are summarized below. Due to the insurance nature of
the Policies, the procedures that will be followed may be different from the
redemption procedures for mutual funds and contractual plans.
A. SURRENDERS AND PARTIAL WITHDRAWALS
An Owner of a Policy may submit a written request to the Company to
surrender the Policy at any time prior to the maturity date while the insured is
living and while the Policy is in effect. The amount available for surrender is
the surrender value as of the valuation day on or next following the date the
written surrender request, the Policy and any other required documents are
submitted and received by the Company. If the Policy itself isn't returned to
the Company the request must be accompanied by completed affidavit of lost
policy. Amounts payable from the Variable Account upon surrender or a partial
withdrawal will be paid within seven calendar days of receipt of the written
request.
Upon surrender, the Company will pay in a lump sum the surrender value
that is equal to the policy value as of the valuation day less any
outstanding Policy Debt which includes accrued interest. Coverage under a
Policy will end as of the date of surrender.
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After the first Policy Year, the Owner may also request a partial withdrawal
by sending a written request to the Company. An Owner may make a partial
withdrawal of an amount equal to or greater than $500. The request must be
submitted in writing to the Company. The Company will withdraw the amount
requested, plus a withdrawal charge, as of the date the request is received in
the Home Office. The Owner may elect to deduct the amount of the withdrawal from
any Sub-Account or the Fixed Account. If the Owner does not specify an
allocation, or if the Sub-Account value or Fixed Account value is insufficient
to carry out the request, the withdrawal will be based on the proportion that
such Sub-Account value(s) and Fixed Account value, bear to the total unloaned
Policy Value on the valuation day immediately prior to the withdrawal.
The Company will deduct an administrative charge upon a withdrawal. This
charge is the lesser of 2% of the amount withdrawn or $25. This withdrawal
charge will be deducted from the Policy Value in addition to the amount
requested to be withdrawn and will be considered to be part of the withdrawal
amount. The withdrawal charge will be allocated in the manner described above
for the requested amount.
The death benefit will be affected by withdrawals. If death benefit option 1
is in effect, then the Company reserves the right to reduce the face amount by
the amount withdrawn (inclusive of withdrawal charge). If the Owner requests
that the initial face amount be retained, the Company will honor this request
provided the amount of withdrawal does not exceed $2,000. If the request for
withdrawal exceeds $2,000, then the Company will request that satisfactory
evidence of insurability be provided with the withdrawal request. If death
benefit option 2 is in effect, then the Company will not reduce the face amount.
The face amount after a partial withdrawal may not be less than the minimum
amount for which the Policy would be issued under the Company's current rules.
If the withdrawal causes the Policy to fail to qualify as a life insurance
contract under applicable tax laws, as interpreted by the Company it
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will not be processed. If the Face Amount at the time of withdrawal requires a
decrease of Face Amount, the reduction is made first from the most recent
increase, then from prior increases, if any in reverse order of their being made
and finally from the initial Face Amount.
B. CHANGES IN FACE AMOUNT
An Owner may increase or decrease the face amount of the Policy after the
first Policy Anniversary by submitting a written request to the Company. A
supplemental application is required for an increase in face amount. The Company
reserves the right to require satisfactory evidence of insurability for the
requested increase portion. Face Amount increases and decreases are subject to
the following rules:
1. For increases in face amount, the insured's attained age must be less
than the maximum current issue age for the Policies, as determined by the
Company from time to time.
2. The amount of the requested increase must be at least $10,000.
3. Any increase in face amount will be effective on the monthly anniversary
day on or next following the date the request for the increase is
received and approved by the Company.
4. If the No-Lapse Guarantee provision is in effect, the minimum monthly
premium amount required to keep the Policy in force will generally
increase and additional premium payments may be required.
5. The monthly cost of insurance charge will be adjusted as of the next
monthly anniversary day following the date of the written request.
6. There will be an administrative charge assessed based on a rate per
$1,000 of increased coverage. This administrative charge will be deducted
from the Policy Value monthly during the twelve month period following
the effective date of the increase. This administrative charge is based
on the original issue age, duration, sex , and rate class of the insured.
7. A decrease in face amount will not be accepted by the Company, if the
amount requested would decrease the face amount below $250,000.
The Company reserves the right to not process any decrease in Face Amount if
compliance with guideline premium limitations under current tax law resulting
from such a decrease would result in immediate termination of the Policy, or if
to effect the requested decrease payments to the Owner would have to be made
from Policy Value for compliance with the guideline premium limitations, and the
amount of such payments would exceed the Surrender Value of the Policy. In
addition, the Company reserves the right to prohibit any decrease in Face Amount
(i) for three years following an increase in Face Amount and (ii) for One Policy
Year following the last decrease in Face Amount.
C. CHANGE IN DEATH BENEFIT OPTION
On or after the first Policy Anniversary, the Owner may request in writing a
change in the death benefit option. Any change will go into effect on the
monthly anniversary day that coincides with or next follows the date the Company
receives and accepts the request for change. If the Owner requests a change from
the Option 1 to Option 2, the face amount will be increased to equal the face
amount on the effective date of change. If the Owner requests a change from a
Option 2 to Option 1, the face amount will be decreased so that it equals the
death benefit less the policy value on the date of the change. The Company
reserves the right to require satisfactory proof of insurability before allowing
a change in death benefit options.
D. DEATH BENEFIT CLAIMS
While the Policy remains in force, the Company will pay a death benefit to
the named beneficiary in accordance with the death benefit option elected by the
Owner. The Company will pay the death
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benefit within seven calendar days after receipt in its home office of all
necessary proof of death of the insured. Payment of a death benefit may be
postponed under certain circumstances, such as the New York Stock Exchange being
closed for reasons other than customary weekend and holiday closings. The death
benefit proceeds will be determined as of the date of the insured's death and
will be equal to:
1. the death benefit under the option elected; plus
2. any additional benefits due under any supplemental rider benefits
attached to this Policy; less
3. any policy debt; less
4. any unpaid monthly deductions if the insured dies during the grace
period.
The death benefit proceeds will be determined based on the death benefit
option elected by the Owner on the application for insurance or any request for
change in death benefits. If Death Benefit Option 1 is chosen, the death benefit
will be the greater of (a) the face amount of insurance on the insured's date of
death; or (b) a specified percentage of the policy value on the date of the
insured's death as indicated on the table of percentages included in the Policy.
If Death Benefit Option 2 is chosen, the death benefit will be the greater of
(a) the face amount of insurance on the insured's date of death plus the policy
value on the insured's date of death: or (b) a specified percentage of the
policy value on the insured's date of death as indicated on the Table of
Percentages included in the Policy. The specified percentage is 250% when the
Insured has reached an "Attained Age" of 40 or less by date of death, and
decreases each year thereafter to 100% when the Insured has reached an "Attained
Age" of 95 at death.
E. POLICY LOANS
After the first Policy Anniversary and while the insured is still living, an
Owner may borrow from the Company no less than $500 and not more than 90% of the
Surrender Value on the date the loan is received. The Owner must submit a
written request for a Policy loan. Any amount due an Owner under a loan will
generally be paid within seven calendar days after the Company receives a loan
request.
When a Policy loan is made, an amount equal to the loan is transferred out
of the sub-account(s) and the fixed account and into the Policy's loan account.
The Owner can specify the Sub-Accounts and Fixed Account from which collateral
is transferred to the loan account. If no allocation is specified, collateral is
transferred from each Sub-Account and from the Fixed Account in the same
proportion that each Sub-Account value and the Fixed Account value bears to the
total unloaned Policy value on the date that the loan is made.
Like the Fixed Account, a Policy's loan account is part of Protective
Life's General Account. During the first ten Policy years, the Company will
charge interest daily on any outstanding loan at an effective annual rate of
6.0%. During Policy Years 11 and after, the Company will charge interest
daily on any outstanding loan at a maximum effective annual rate of 4.25%.
Interest is due and payable at the end of each Policy Year while a loan is
outstanding. If interest is not paid when due, the amount of the interest is
added to the loan and becomes part of the Policy Debt.
The loan account is credited with interest at an effective annual rate of
not less than 4.0%. The maximum net cost of a loan is 2.0% per year during
Policy Years 1 through 10, and .25% thereafter. On each Policy anniversary, the
net difference between interest earned and interest charged will be
transferred to the loan account and deducted from the Sub-Account(s) and the
Fixed Account in the same proportion that each Sub-Account value and the
Fixed Account value bears to the total unloaned Policy value. The Company
determines the rate of interest to be credited to the loan account in advance
of each calendar year. The rate, once determined, is applied to the calendar
year that follows the date of determination.
If the Insured dies while a loan is outstanding, the Policy debt is deducted
from the death benefit in calculating the death benefit proceeds.
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A Policy loan may be repaid in whole or in part at any time while the
insured is living and the Policy is in force. Loan repayments will be credited
as of the date they are received in the Home Office. When a loan repayment is
made, Policy value in the loan account in an amount equal to the repayment will
be transferred from the loan account to the Sub-Accounts and/or the Fixed
Account in the same proportion that premium payments are allocated. Amounts paid
while a Policy loan is outstanding will be treated as premiums unless the Owner
requests in writing that these payments be treated as repayment of indebtedness.
III. TRANSFERS
The 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 following: (1) thirty days after the Policy effective date, or (2) six days
after the expiration of the cancellation period. Transfers (including telephone
transfers) are processed as of the date the request is received by the Company.
The minimum amount of Policy value that may be transferred is the lesser of: (1)
$100; or (2) the entire Policy Value in any Sub-Account or the Fixed Account
from which the transfer is made. If, after the transfer, the Policy Value
remaining in a Sub-Account(s) or the Fixed Account is less than $100, the
Company reserves the right to transfer the entire amount instead of the
requested amount. The Company also reserves the right to limit transfers to 12
per Policy year and to charge a transfer fee for each additional transfer over
12 in any Policy year. If the fee is imposed, it will be deducted from the
amount requested to be transferred. If an amount is being transferred from more
than one Sub-Account or the Fixed Account, the transfer fee will be deducted
proportionately from the amount be transferred from each.
The maximum amount that may be transferred from the Fixed Account in any
Policy Year is the greater of: (1) $2,500; or (2) 25% of the Fixed Account
value.
Telephone transfers may be made upon instructions given by telephone,
provided the appropriate election has been made on the application or written
authorization is provided. We require a form of personal identification before
acting on these telephone instructions. All transfer requests made by telephone
instruction will be recorded as a method of documenting authenticity. A
confirmation of all instructions received by telephone will be mailed to the
Owner to determine if they are genuine.
The Company currently intends to allow transfers for the foreseeable future,
Although the Prospectus provides that the Company may at any time, for any class
of Policies, modify, restrict, suspend, or eliminate the transfer privilege
(including telephone transfers). In particular, we reserve the right not to
honor transfer requests by a third party holding a power of attorney from an
Owner where that third party requests simultaneous transfers on behalf of the
Owners of two or more Policies.
The Owner may direct the Company to systematically and automatically
transfer, on a monthly or quarterly basis, specified dollar amounts from or to
the Fixed Account or from or to any Sub-Account(s). This is known as the dollar
cost averaging method of investment. By transferring on a regularly scheduled
basis as opposed to allocating the total amount at one time, an Owner may be
less susceptible to the impact of market fluctuations in Sub-Account unit
values. The Company makes no guarantee that the dollar cost averaging method
will result in a profit or protect against loss. The Company reserves the right
to assess a processing fee for this service. The Company reserves the right to
stop offering dollar cost averaging upon 30 days written notice.
To elect dollar-cost averaging, the fixed account value must be at least
$5,000 at the time of election. The Owner may elect dollar cost averaging for
periods of at least 12 months but no longer
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than 48 months. At least $100 must be transferred on a monthly basis and a
minimum of $300 on a quarterly basis. Dollar-cost averaging transfers may
commence on any day of the month that the Owner requests, except the 29th, 30th,
or 31st.
The Company will continue to process dollar cost averaging transfers until
the earlier of the following:
(1) the designated number of transfers has been completed;
(2) the Fixed Account value is depleted;
(3) the Owner, by written notice, instructs the Company to cease the
automatic transfers;
(4) a grace period begins under the Policy; or
(5) the maximum amount of Policy value has been transferred under a dollar
cost averaging election.
The owner may direct the Company to systematically and automatically
transfer on a quarterly, semiannual, or annual basis, contract value among
specified Sub-Accounts. This is known as the portfolio rebalancing method of
investment and is done to achieve a particular percentage allocation among such
Sub-Accounts. By transferring on a regularly scheduled basis as opposed to
allocating the total amount at one time, an Owner may be less susceptible to the
impact of market fluctuations in Sub-Account unit values. The Fixed Account
value will not be considered in the automatic transfer process. The Company
makes no guarantee that the portfolio rebalancing method will result in a profit
or protect against loss. The Company reserves the right to assess a processing
fee for this service. The Company reserves the right to stop offering portfolio
rebalancing upon 30 days written notice.
The Applicant/Owner can elect portfolio rebalancing at the time of
application or any time thereafter by submitting a written request to the
Company. This feature is available on a quarterly, semiannual, and annual basis
and may commence on any day of the month that the Owner requests, except the
29th, 30th or 31st. Once elected, portfolio rebalancing will begin on the first
modal anniversary following the election.
The Company will continue to process these automatic transfers until the
earlier of the following:
(1) Sub-Account values are depleted;
(2) the Owner requests the company to cease the automatic transfers, by
written notice. This can also be requested by telephone if the owner
previously authorized us to take telephone instructions.
IV. REFUNDS
The right to examine and cancel the Policy is as defined in the Policy. The
Owner may cancel a Policy for a refund during the Cancellation Period by
returning it to the Company's home office or to the sales representative who
sold it along with a written request. The Cancellation Period is determined by
the law of the state in which the application is signed and is shown in the
Policy. In most states, it expires at the latest of: (1) ten days after the
Owner receives the Policy; (2) 45 days after the Owner signs the application; or
(3) 10 days after the Company mails or delivers a Notice of Right of Withdrawal.
Return of the Policy by mail is effective when it is received at the home
office.
Within seven calendar days after receiving the returned Policy, the Company
will refund (i) the difference between premiums paid and amounts allocated to
the fixed account or the variable account (after deduction of any policy fees
and/or other charges), plus (ii) fixed account value determined as of the date
the returned Policy is received, plus (iii) variable account value determined as
of the date the returned Policy is received. This amount may be more or less
than the aggregate Premium Payments. In states where required, the Company will
refund Premium Payments to the Owner of the Policy.
An increase in Face Amount may also be cancelled by the Owner in accordance
with the Policy's cancellation period provisions. The amount refunded will be
calculated in accordance with the provisions described above. If no additional
premium payments are required in connection with the Face
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Amount increase, the amount refunded is limited to that portion of the first
monthly deduction following the increase and will be reallocated to the
Sub-Account(s) and the Fixed Account in the same proportion that each
sub-account value and the fixed account value bears to the total unloaned Policy
Value as of the effective date of the cancellation. The effective date of this
cancellation will be equal to the effective date of the face increase.
V. GENERAL PROVISIONS
A. 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.
B. REPRESENTATIONS AND CONTESTABILITY
The Company can not contest the Policy or any supplemental benefit and/or
rider after the Policy or rider has been in force during the Insured's lifetime
for two years from the Policy Effective Date or the effective date of the rider,
unless fraud is involved. The Company also has the right to contest the validity
of any policy change based on material misstatements made in any application for
that change and any reinstatement of benefits within two years during the
lifetime of the insured after the reinstatement has been approved.
C. MISSTATEMENT OF AGE OR SEX
Questions in the application concern the insured's date of birth and sex. If
the date of birth or sex given in the application or any application for
supplemental benefits and/or riders is not correct, the death benefit and any
benefits provided under any riders to this Policy will be adjusted to those that
would have been purchased by the most recent cost of insurance change and the
cost of any such supplemental benefits provided by such riders, at the correct
age and sex.
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