<PAGE>
PROSPECTUS
[LOGO]
- --------------------------------------------------------------------------------
Issued by: PROTECTIVE LIFE INSURANCE COMPANY
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone (800) 866-3555
- --------------------------------------------------------------------------------
This prospectus describes the Premiere II, 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 Net Premium payments and Policy Value
to one or more Sub-Accounts of the Protective Variable Life Separate Account
(the "Variable Account") and Protective Life's general account (the "Fixed
Account"). Discussions of values under the Policy in this prospectus generally
relate only to the values allocated to the Variable Account. The assets of each
Sub-Account of the Variable Account are invested in a corresponding investment
portfolio (each, a "Fund") of Protective Investment Company, Oppenheimer
Variable Account Funds, MFS-Registered Trademark- Variable Insurance Trust-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 1, 1999
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
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.............................................. 15
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
Net Premium Allocations............................................. 17
Policy Lapse and Reinstatement...................................... 18
- Lapse........................................................... 18
- Reinstatement................................................... 18
CALCULATION OF POLICY VALUES.......................................... 18
Variable Account Value.............................................. 18
- Determination of Units.......................................... 18
- 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............................................. 19
- Reservation of Rights........................................... 20
- Dollar Cost Averaging........................................... 20
- Portfolio Rebalancing........................................... 20
Policy Value Credit................................................. 21
Surrender Privilege................................................. 21
Withdrawal Privilege................................................ 21
Policy Loans........................................................ 22
- General......................................................... 22
- Loan Collateral................................................. 22
- Loan Repayment.................................................. 22
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
- Interest........................................................ 23
- 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........................................... 24
- 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............................ 27
Payments from the Fixed Account..................................... 27
CHARGES AND DEDUCTIONS................................................ 27
Premium Expense Charge.............................................. 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...................................... 29
- Supplemental Rider Charges...................................... 29
- Mortality and Expense Risk Charge............................... 29
Transfer Fee........................................................ 29
Surrender Charge (Contingent Deferred Sales Charges)................ 30
Withdrawal Charge................................................... 30
Fund Expenses....................................................... 30
EXCHANGE PRIVILEGE.................................................... 30
Effect of the Exchange Offer........................................ 32
- Tax Matters..................................................... 32
- Sales Commissions............................................... 32
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES, DEATH BENEFITS AND
ACCUMULATED
PREMIUMS............................................................. 32
OTHER POLICY BENEFITS AND PROVISIONS.................................. 42
Limits on Rights to Contest the Policy.............................. 42
- Incontestability................................................ 42
- Suicide Exclusion............................................... 42
Changes in the Policy or Benefits................................... 42
- Misstatement of Age or Sex...................................... 42
- Other Changes................................................... 42
Suspension or Delay of Payments..................................... 42
Reports to Policy Owners............................................ 42
Assignment.......................................................... 43
Arbitration......................................................... 43
Supplemental Riders................................................. 43
- Children's Term Life Insurance Rider............................ 43
- Accidental Death Benefit Rider.................................. 43
- Disability Benefit Rider........................................ 43
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
- Guaranteed Insurability Rider................................... 43
- Protected Insurability Benefit Rider............................ 43
- Term Rider for Covered Insured.................................. 43
Reinsurance......................................................... 44
USES OF THE POLICY.................................................... 44
TAX CONSIDERATIONS.................................................... 44
Introduction........................................................ 44
Tax Status of Protective Life....................................... 45
Taxation of Life Insurance Policies................................. 45
- Tax Status of the Policy........................................ 45
-- Diversification Requirements.................................. 45
-- Ownership Treatment........................................... 45
- Tax Treatment of Life Insurance Death Benefit Proceeds.......... 46
- Tax Deferral During Accumulation Period......................... 46
Policies Not Owned by Individuals................................... 46
Policies Which Are Not MEC's........................................ 46
-- Tax Treatment of Withdrawals Generally........................ 46
-- Certain Distributions Required by the Tax Law in the First 14
Policy Years..................................................... 46
-- Tax Treatment of Loans........................................ 47
Policies Which Are MEC's............................................ 47
-- Characterization of a Policy as a MEC......................... 47
-- Tax Treatment of Withdrawals, Loans, Assignments and Pledges
under MECs....................................................... 47
-- Penalty Tax................................................... 48
-- Aggregation of Policies....................................... 48
- Actions to Ensure Compliance with the Tax Law................... 48
- Other Considerations............................................ 48
Federal Income Tax Withholding...................................... 48
OTHER INFORMATION ABOUT THE POLICIES AND PROTECTIVE LIFE.............. 48
Sale of the Policies................................................ 48
Corporate Purchasers................................................ 49
Protective Life Directors and Executive Officers.................... 49
State Regulation.................................................... 51
Additional Information.............................................. 51
Preparation for Year 2000........................................... 51
Experts............................................................. 52
IMSA................................................................ 53
Legal Matters....................................................... 53
Financial Statements................................................ 53
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
<PAGE>
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.
CASH VALUE -- Policy Value minus any applicable Surrender Charge.
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 Net Premiums allocated under a Policy.
FIXED ACCOUNT VALUE -- The Policy Value in the Fixed Account.
FUND -- A separate investment portfolio of an open-end management investment
company or unit investment trust in which a Sub-Account invests.
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 through
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.
NET PREMIUM -- A premium payment minus the applicable Premium expense charges.
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 Cash 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 Net Premiums may be allocated.
VARIABLE ACCOUNT VALUE -- The sum of all Sub-Account Values.
4
<PAGE>
SUMMARY AND DIAGRAM OF THE POLICY
THE FOLLOWING SUMMARY OF PROSPECTUS INFORMATION AND DIAGRAM OF THE POLICY
SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE DESCRIPTION OF THE POLICY IN
THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN FORCE AND THERE IS NO OUTSTANDING
POLICY DEBT.
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 Net Premiums and 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
15 Policy Years (for Insureds Issue Age 0 through 39), the first 10 Policy Years
(for Insureds Issue Age 40 through 64), or the first 5 Policy Years (for
Insureds Issue Age 65 and above), 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.
POLICY VALUE CREDIT. Subject to certain conditions, on the tenth Policy
Anniversary, and on each Policy Anniversary thereafter, the Company will make a
credit to the Policy's Policy Value equal to (1) .50% of the unloaned Policy
Value if the unloaned Policy Value is more than $50,000 and less than $500,000,
or (2) 1% of unloaned Policy Value if the unloaned Policy Value is greater than
$500,000.
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".
5
<PAGE>
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 Net Premium to the Sub-Account
investing in the Oppenheimer Money Fund Sub-Account or to the Fixed Account.
(See "Net Premium Allocations").
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 PREMIUMS 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 through 18 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 17.
- Under certain circumstances, extra premiums may be required to prevent
lapse. See "Policy Lapse and Reinstatement" page 18.
DEDUCTIONS FROM PREMIUM PAYMENTS
- A premium expense charge of 5% will be deducted from each premium before
allocation resulting in a "Net Premium". See page 27.
ALLOCATION OF NET PREMIUM
- You direct the allocation of Net Premium among 23 Sub-Accounts and the Fixed
Account. See pages 17 and 18 for rules and limits on Net 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 page 19 for rules and limits on Fixed Account allocations.
6
<PAGE>
DEDUCTIONS FROM POLICY VALUE
- Monthly Deduction for cost of insurance, administration fees, mortality and
expense risk charges and charges for any supplemental rider. Administration
fees are $8.00 per month. Monthly mortality and expense risk charges are
currently equal to .075% multiplied by the value of the assets in the
Variable Account (which is equivalent to an annual rate of 0.90% of such
amount) during Policy Years 1 through 10. There is currently no monthly
mortality and expense risk charge in Policy Years 11 and thereafter. The
mortality and expense risk charge is not deducted from the 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.
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 Cash Value, Surrender Value, and the Death Benefit used to determine
Death Benefit Proceeds.
<TABLE>
<S> <C>
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 - For most Policies, the minimum Face Amount
rate of 6.0% during the Policy Years 2 is $100,000.
through 10 and currently 4.00% (4.25% - Two Death Benefit Options are available:
guaranteed) thereafter. See "Policy Loans" Option 1, equal to the Face Amount, and
pages 22 and 23 for rules and limits. Option 2, equal to the Face Amount plus
- - After the first policy year withdrawals Policy Value. See page 24.
generally can be made provided there is - Flexibility to change the Death Benefit
sufficient remaining Surrender Value. A Option and Face Amount. See pages 24 and 25
withdrawal charge of the lesser of $25 or for rules and limits.
2% of the withdrawal amount requested will - The No-Lapse Guarantee keeps the Policy in
apply to each withdrawal. See "Withdrawal force regardless of the sufficiency of
Privilege" on pages 21 and 22 for rules Surrender Value so long as cumulative
and limits. premiums paid on the Policy, less any
- - The Policy may be surrendered in full at withdrawals and Policy Debt, are at least
any time for its Surrender Value. A equal to the Minimum Monthly Premium. See
declining deferred sales charge per $1,000 "No-Lapse Guarantee" page 17.
of Initial Face Amount is assessed on - Supplemental riders may be available. See
surrenders during the first 19 Policy pages 43 and 44.
Years. See "Surrender Charge (Contingent
Deferred Sales Charge)" page 30.
- - A variety of settlement options are
available. See pages 25 and 26.
</TABLE>
7
<PAGE>
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)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
(ADVISORY) EXPENSES AFTER FUND EXPENSES
FEES REIMBURSEMENT (AFTER REIMBURSEMENTS)
--------------- ----------------- -----------------------
<S> <C> <C> <C>
PROTECTIVE INVESTMENT COMPANY (PIC) (1)
International Equity Fund................................. 1.10% 0.00% 1.10%
Small Cap Value Fund...................................... 0.80% 0.00% 0.80%
Capital Growth Fund....................................... 0.80% 0.00% 0.80%
CORE 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>
- ------------------------
(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 by the payment of an expense reimbursement fee by the series to
MFS computed and paid monthly at a
8
<PAGE>
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.
9
<PAGE>
GENERAL INFORMATION ABOUT PROTECTIVE LIFE,
THE VARIABLE ACCOUNT AND THE FUNDS
PROTECTIVE LIFE INSURANCE COMPANY
Protective Life is a Tennessee stock life insurance company. Founded in
1907, Protective Life offers individual life and health insurance, annuities,
group life and health insurance, and guaranteed investment contracts. Protective
Life is currently licensed to transact life insurance business in 49 states and
the District of Columbia. As of December 31, 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;
Oppenheimer Variable Account Funds (the "Oppenheimer Funds") managed by
OppenheimerFunds, Inc.;
10
<PAGE>
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.
11
<PAGE>
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.
12
<PAGE>
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
PROSPECTUSES FOR THE FUNDS, WHICH ACCOMPANY THIS PROSPECTUS, AND THE CURRENT
STATEMENT OF ADDITIONAL INFORMATION FOR EACH OF THE FUNDS. THE FUNDS'
PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING THE
ALLOCATION OF NET PREMIUMS OR TRANSFERS AMONG THE SUB-ACCOUNTS.
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 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
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
Code. Protective Life currently does not forsee 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.)
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
13
<PAGE>
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 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-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
14
<PAGE>
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," below. Protective Life requires satisfactory evidence
of the 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".)
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
15
<PAGE>
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.
16
<PAGE>
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 "Net Premium Allocations.") Protective Life
also reserves the right to limit the amount of any premium payment. In addition,
at any point in time aggregate 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 15 Policy Years
(if the Insured's Issue Age is 0 through 39), during the first 10 Policy Years
(if the Insured's Issue Age is 40 through 64), or during the first 5 Policy
Years (for Insured's Issue Age 65 and above) 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. 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.
NET PREMIUM ALLOCATIONS
Owners must indicate in the application how Net Premiums are 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 Net
Premiums 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 Net Premium (and any subsequent
Net Premiums 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 Net Premiums will be
allocated according to your allocation instructions then in effect.
Planned periodic premiums and unscheduled premiums not requiring additional
underwriting will be credited to the Policy and the Net Premiums will be
invested as requested on 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
17
<PAGE>
Value in the Fixed Account attributable to the resulting Net 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 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 Net Premiums 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 Net 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 Net Premiums equal to (a) all Monthly Deductions that were
due but unpaid during the grace period, and (b) which are at least sufficient to
keep the reinstated Policy in force for three months, (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 POLICY AT ANY TIME IS THE SUM OF THE SUB-ACCOUNT
VALUES FOR THE POLICY ON THE VALUATION DAY MOST RECENTLY COMPLETED.
DETERMINATION OF UNITS. For each Sub-Account, the Net Premium(s) or Policy
Value transferred are converted into units. The number of units credited is
determined by dividing the dollar amount directed to each Sub-Account by the
value of the unit for that Sub-Account for the Valuation Day on which the Net
Premium(s) or transferred amount is invested in the Sub-Account. Therefore, Net
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.
18
<PAGE>
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 Net
Premium(s) allocated to the Fixed Account, plus (2) amounts transferred to the
Fixed Account, plus (3) interest credited to the Fixed Account, less (4)
transfers from the Fixed Account (including any transfer fees deducted), less
(5) withdrawals from the Fixed Account (including any withdrawal charges
deducted), less (6) surrender charges deducted in the event of a decrease in
Face Amount, less (7) Monthly Deductions. See "The Fixed Account," for a
discussion of how interest is credited to the Fixed Account.
POLICY BENEFITS
TRANSFERS OF POLICY VALUES
GENERAL. Upon receipt of written notice 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 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.
19
<PAGE>
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.
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
20
<PAGE>
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.
POLICY VALUE CREDIT
Subject to the conditions described below, on the tenth Policy Anniversary
and on each Policy Anniversary thereafter, the Company will make a credit to the
Policy's Policy Value. The amount of the credit depends on the unloaned Policy
Value on the appropriate Policy Anniversary. On Policy Anniversaries as of which
unloaned Policy Value is at least $50,000 but less than $500,000, the credit is
equal to .50% of the unloaned Policy Value. On Policy Anniversaries as of which
the unloaned Policy Value is equal to or greater than $500,000, the credit is
equal to 1% of the unloaned Policy Value. No credit is made on Policy
Anniversaries as of which unloaned Policy Value is less than $50,000 or on
Policy Anniversaries one through nine. In addition, the Company will only make
the credit on Policy Anniversaries as of which the current annual effective
interest rate being credited to Fixed Account Value exceeds the guaranteed
annual effective interest rate shown in the Policy.
When made, the Company will allocate credits to Policy Value among and
between the various Sub-Accounts and the Fixed Account in accordance with the
Owner's allocation instructions for Net Premiums. Credits to Policy Value are
not subject to the premium expense charge or the surrender charge and are not
treated as Net Premium for tax purposes.
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. A
Surrender Charge may apply. (See "Surrender Charges".) 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".)
21
<PAGE>
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 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 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. (Loan repayments, unlike unscheduled premium payments, are not
subject to the premium expense charge.) 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 Net Premiums
are allocated.
22
<PAGE>
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
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 Net
Premiums are allocated.
NON-PAYMENT OF POLICY LOAN. If the Insured dies while a loan is
outstanding, the Policy Debt is deducted from the Death Benefit in calculating
the Death Benefit Proceeds.
If the Loan Account Value exceeds the Cash Value (I.E., the Surrender Value
becomes zero) on any Valuation Date, the Policy may be in default. If this
occurs, 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".)
23
<PAGE>
If part or all of the Death Benefit is paid in one sum, Protective Life will
pay interest on this sum as required by applicable state law from the date of
receipt of due proof of the Insured's death to the date of payment.
DEATH BENEFIT OPTIONS. The Policy Owner may choose one of two Death Benefit
Options for use in determining the Death Benefit. Under Death Benefit Option 1,
the Death Benefit is the greater of: (1) the Face Amount under the Policy on the
date of the Insured's death, or (2) a specified percentage of Policy Value on
the date of the Insured's death. Under Death Benefit Option 2, the Death Benefit
is the greater of: (1) the Face Amount under the Policy plus the Policy Value on
the date of the Insured's death, or (2) the same specified percentage of the
Policy Value on the date of the Insured's death.
The specified percentage is 250% when the Insured has reached an "Attained
Age" of 40 or less by date of death, and decreases each year thereafter to 100%
when the Insured has reached an "Attained Age" of 95 at death. A table showing
these percentages for Attained Ages 0 to 95 and examples of Death Benefit
calculations for both Death Benefit Options are found in Appendix A.
Under Death Benefit Option 1, the Death Benefit remains level at the Face
Amount unless the Policy Value multiplied by the specified percentage exceeds
that Face Amount, in which event the Death Benefit will vary as the Policy Value
varies. Owners who are satisfied with the amount of their insurance coverage
under the Policy and who prefer to have favorable investment performance and
additional 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
$100,000. 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
24
<PAGE>
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 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 $100,000. 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".) However, if the Face Amount is
decreased during the first nineteen Policy Years, a Surrender Charge will apply.
(See "Surrender Charge".)
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
surrender or 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. Since no surrender
charge is assessed in connection with a decrease of face amount under a CIR,
such a decrease may be less expensive than a decrease in Face Amount of the
Policy if the Face Amount decrease would be subject to a surrender charge. On
the other hand, continuing coverage on such 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 decrease the Face Amount of the Policy or the CIR face amount.
Owners should consult their sales representative when deciding whether 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.
25
<PAGE>
OPTION 1 -- PAYMENT FOR A FIXED PERIOD. Equal monthly payments will be made
for any period of up to 30 years. The amount of each payment depends on the
total amount applied, the period selected and the monthly payment rates
Protective Life is using when the first payment is due.
OPTION 2 -- LIFE INCOME WITH PAYMENTS FOR A GUARANTEED PERIOD. Equal
monthly payments are based on the life of the named annuitant. Payments will
continue for the lifetime of the annuitant with payments guaranteed for 10 or 20
years. Payments stop at the end of the selected guaranteed period or when the
named person dies, whichever is later.
OPTION 3 -- INTEREST INCOME. Protective Life will hold any amount applied
under this option. Interest on the unpaid balance will be paid each month at a
rate determined by Protective Life. This rate will not be less than the
equivalent of 3% per year.
OPTION 4 -- PAYMENTS FOR A FIXED AMOUNT. Equal monthly payments will be
made of an agreed fixed amount. The amount of each payment may not be less than
$10 for each $1,000 applied. Interest will be credited each month on the unpaid
balance and added to it. This interest will be at a rate set by us, but not less
than an effective rate of 3% per year. Payments continue until the amount
Protective Life holds runs out. The last payment will be for the balance only.
MINIMUM AMOUNTS. Protective Life reserves the right to pay the total amount
of the Policy in one lump sum, if less than $5,000. If monthly payments are less
than $50, payments may be made quarterly, semi-annually, or annually at
Protective Life's option.
OTHER REQUIREMENTS. Settlement options must be elected by written notice
received by Protective Life 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 Net Premiums allocated to
the Fixed Account, and interest credited thereto, are backed by Protective Life.
The Fixed Account Value is calculated daily. (See "Fixed Account Value".)
26
<PAGE>
INTEREST CREDITED ON FIXED ACCOUNT VALUE
Protective Life guarantees that the interest credited during the first
Policy Year to the initial Net Premiums 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 Net Premiums allocated to or amounts
transferred to the Fixed Account will be the annual effective interest rate in
effect on the date that the Net Premium(s) is received by Protective Life or the
date that the transfer is made. The interest rate is guaranteed to apply to such
amounts for a twelve month period which begins on the date that the Net
Premium(s) is allocated or the date that the transfer is made.
After an interest rate guarantee expires as to a Net Premium or amount
transferred, (I.E., 12 months after the Net Premium or transfer is placed in the
Fixed Account) Protective Life will credit interest on the Fixed Account Value
attributable to such Net 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
PREMIUM EXPENSE CHARGE
The premium expense charge compensates Protective Life for certain sales and
tax expenses associated with the Policies and the Variable Account. The premium
expense charge is currently equal to 5% of each premium.
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
27
<PAGE>
(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 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.
28
<PAGE>
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 $8 per month. In addition, for
the first twelve months following the effective date of an increase in Face
Amount, the monthly administration fee will also include an administration
charge for the increase, based on the amount of the increase. The monthly
administration charge for an increase is equal to a fee per $1,000 of increase
in face amount, which varies depending on Issue Age, sex, and rate
classification of the Insured and is set forth in your Policy. Representative
administration charges per $1,000 of increase for an Insured male non-smoker at
each specified Issue Age are set forth below:
<TABLE>
<CAPTION>
ADMINISTRATIVE CHARGE
ISSUE AGE PER $1,000 INCREASE
- -------------- -----------------------
<S> <C>
35 $ 0.71
40 0.81
45 0.95
50 1.13
55 1.37
60 1.71
65 1.73
70 1.72
75+ 1.71
</TABLE>
SUPPLEMENTAL RIDER CHARGES. See "Supplemental Riders".
MORTALITY AND EXPENSE RISK CHARGE. This charge compensates Protective Life
for the mortality risk it assumes which is that the Insureds on the Policies may
die sooner than anticipated and therefore Protective Life will pay an aggregate
amount of death benefits greater than anticipated. The expense risk Protective
Life assumes is that expenses incurred in issuing and administering the Policies
and the Variable Account will exceed the amounts realized from the
administrative charges assessed against the Policies.
Protective Life deducts a monthly charge from assets in the Sub-Accounts
attributable to the Policies. This charge does not apply to Fixed Account assets
attributable to the Policies. The maximum monthly mortality and expense risk
charge to be deducted is equal to .075% multiplied by the Variable Account
Value, which is equivalent to an annual rate of 0.90% of such amount. Protective
Life reserves the right to charge less than the maximum charge. In Policy Years
11 and thereafter, there is currently no monthly mortality and expense risk
charge.
TRANSFER FEE
Protective Life reserves the right to impose a $25 transfer fee on any
transfer of Policy Value between or among the Sub-Accounts or the Fixed Account
in excess of the 12 free transfers permitted each Policy Year. If the fee is
imposed, it will be deducted from the amount requested to be transferred. If an
amount is being transferred from more than one Sub-Account or the Fixed Account,
the transfer fee will be deducted proportionately from the amount being
transferred from each. This fee, if imposed, will reimburse Protective Life for
administrative expenses incurred in effecting transfers.
29
<PAGE>
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
If the Policy is surrendered, or if the Initial Face Amount is reduced,
through the first nineteen Policy Years, a surrender charge will be deducted
from the Policy Value for the Initial Face Amount (or the reduction thereof).
The surrender charge, which is a contingent deferred sales charge, will be
deducted before any Surrender Value is paid.
The surrender charge varies depending on Issue Age, sex and rate
classification of the Insured and is set forth in your Policy. Representative
surrender charges per $1,000 of Initial Face Amount for the first Policy Year
for an Insured male non-smoker at each specified Issue Age are set forth below.
The surrender charge decreases over the nineteen-year period. For a decrease in
the Initial Face Amount, the charge shown is per $1,000 of decrease.
<TABLE>
<CAPTION>
SURRENDER CHARGE (FIRST
YEAR)
PER $1,000 OF
ISSUE AGE INITIAL FACE AMOUNT
- ------------- ---------------------------
<S> <C>
30 $ 18.50
35 20.50
40 23.00
45 26.25
50 30.50
55 36.25
60 44.00
65 54.50
70 57.75
75 57.25
</TABLE>
After the 19th Policy Year, there is no surrender charge for the Initial
Face Amount.
In the event of a decrease in the Initial Face Amount, the pro-rated
surrender charge will be allocated to each Sub-Account and to the Fixed Account
based on the proportion of Policy Value in each Sub-Account and in the Fixed
Account. A surrender charge imposed in connection with a reduction in the
Initial Face Amount reduces the remaining surrender charge that may be imposed
in connection with a surrender of the Policy.
The purpose of the surrender charge is to reimburse Protective Life for some
of the expenses incurred in the distribution of the Policies. Protective Life
also deducts a premium expense charge from each premium paid. See "Premium
Expense Charge".
WITHDRAWAL CHARGE
Protective Life will deduct an administrative charge upon a withdrawal. This
charge is the lesser of 2% of the amount withdrawn or $25. This charge will be
deducted from the 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
30
<PAGE>
Existing Life Policies for this Policy. Owners of Existing Life Policies may
also make a partial or full surrender from their Existing Life Policies and use
the proceeds to purchase this Policy. All charges and deductions described in
this prospectus are equally applicable to Policies purchased in an exchange. All
charges and deductions may not be assessed under an Existing Life Policy in
connection with an exchange, surrender, or partial surrender of an Existing Life
Policy.
The Policy differs from the Existing Life Policies in many significant
respects. Most importantly, the Policy Value under this Policy may consist,
entirely or in part, of Variable Account Value which fluctuates in response to
the net investment return of the Variable Account. In contrast, the policy
values under the Existing Life Policies always reflect interest credited by the
Company. While a minimum rate of interest (typically 4 or 4 1/2 percent) is
guaranteed, the Company in the past has credited interest at higher rates.
Accordingly, policy values under the Existing Life Policies reflect changing
current interest rates and do not vary with the investment performance of a
Variable Account.
Other significant differences between the Policy and the Existing Life
Policies include: (1) additional charges applicable under the Policy not found
in the Existing Life Policies; (2) different surrender charges; (3) different
death benefits; and (4) differences in federal and state laws and regulations
applicable to each of the types of policies.
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 5% of each premium payment in
Expense Charge payments in all policy years. all Policy Years
The premium expense charge can
vary by age.
Administrative Fees Ranges from $4 to $5 monthly. $8 per month in all Policy Years
Mortality and Expense None A monthly charge equal to .075%
Charges multiplied by the Variable
Account Value, which is
equivalent to annual rate of
.90% of such amount during
Policy Years 1-10; there is
currently no charge in Policy
Years 11 and thereafter.
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 A declining deferred sales
type and are incurred during a charge per $1,000 of Initial
surrender charge period which Face Amount is assessed on
ranges from 0 years up to 19 surrender charges during the
years. first 19 Policy Years.
Guaranteed Interest Ranges from 4% to 5%. Only Fixed Account : 4%.
Rate
</TABLE>
31
<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 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 sales commission. In most cases, this sales
commission will be somewhat less than that paid in connection with sales of the
Policies to other purchasers. A standard sales commission will be paid. (See
"Sale of Policies".)
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES,
DEATH BENEFITS AND ACCUMULATED PREMIUM PAYMENTS
The following tables have been prepared to illustrate hypothetically how
certain values under a Policy change with investment performance over an
extended period of time. The tables illustrate how Policy Values, Surrender
Values and Death Benefits under a Policy covering an Insured of a given age on
the Issue Date, would vary over time if planned premium payments were paid
annually and the return on the assets in each of the Funds were an assumed
uniform gross annual rate of 0%, 6% and 12%. The values would be different from
those shown if the returns averaged 0%, 6% or 12% but fluctuated over and under
those averages throughout the years shown. The tables also show planned periodic
premiums accumulated at 5% interest compounded annually. THE HYPOTHETICAL
INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. Actual rates of
return for a particular Policy may be more or less than the hypothetical
investment rates of return and will depend on a number of factors including the
investment allocations made by an Owner and prevailing rates. These
illustrations assume that Net Premiums are allocated equally among the
Sub-Accounts available under the Policy, and that no amounts are allocated to
the Fixed Account.
32
<PAGE>
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. This
average annual expense ratio is based on the expense ratios of each of the Funds
for the last fiscal year, adjusted, as appropriate, for any material changes in
expenses effective for the current fiscal year of a Fund. For information on
Fund expenses, see the prospectus for each of the Funds accompanying this
prospectus.
In addition, the illustrations reflect the monthly charge to the Variable
Account for assuming mortality and expense risks, which is equal to .075%
multiplied by the Variable Account Value, which is equivalent to a effective
annual charge of 0.90% of such amount during Policies Years 1-10 (currently
there is no mortality and expense risk charge in Policy Years 11 and
thereafter). 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
- -1.79%, 4.21% and 10.21%, respectively and for Policy Years 11 and thereafter
- -0.89%, 5.11% and 11.11%, respectively.
The illustrations also reflect the deduction of the Premium Expense Charge,
the Monthly Expense Charge and the monthly cost of insurance charge for the
hypothetical Insured. The Surrender Charge is reflected in the column "Surrender
Value". Protective Life's current cost of insurance charges, and the guaranteed
maximum cost of insurance charges that Protective Life has the contractual right
to charge, are reflected in separate illustrations on each of the following
pages. All the illustrations reflect the fact that no charges for federal or
state income taxes are currently made against the Variable Account and assume no
Policy Debt or charges for supplemental 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.
33
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$1,800 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
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 1,890 1,261 0 100,000 1,349 0 100,000 1,437 0 100,000
47 2 3,875 2,478 0 100,000 2,733 33 100,000 2,999 299 100,000
48 3 5,958 3,650 1,000 100,000 4,152 1,502 100,000 4,696 2,046 100,000
49 4 8,146 4,777 2,152 100,000 5,605 2,980 100,000 6,541 3,916 100,000
50 5 10,443 5,857 3,282 100,000 7,093 4,518 100,000 8,547 5,972 100,000
51 6 12,856 6,887 4,337 100,000 8,615 6,065 100,000 10,731 8,181 100,000
52 7 15,388 7,865 5,365 100,000 10,167 7,667 100,000 13,108 10,608 100,000
53 8 18,048 8,783 6,333 100,000 11,746 9,296 100,000 15,693 13,243 100,000
54 9 20,840 9,640 7,240 100,000 13,351 10,951 100,000 18,507 16,107 100,000
55 10 23,772 10,780 8,405 100,000 15,322 12,947 100,000 21,902 19,527 100,000
56 11 26,851 11,979 9,654 100,000 17,507 15,182 100,000 25,855 23,530 100,000
57 12 30,083 13,121 10,846 100,000 19,764 17,489 100,000 30,219 27,944 100,000
58 13 33,478 14,191 11,966 100,000 22,083 19,858 100,000 35,033 32,808 100,000
59 14 37,041 15,191 13,016 100,000 24,471 22,296 100,000 40,356 38,181 100,000
60 15 40,783 16,111 13,986 100,000 26,926 24,801 100,000 46,249 44,124 100,000
61 16 44,713 16,919 15,219 100,000 29,427 27,727 100,000 53,034 51,334 100,000
62 17 48,838 17,649 16,374 100,000 32,008 30,733 100,000 60,628 59,353 100,000
63 18 53,170 18,292 17,442 100,000 34,674 33,824 100,000 69,143 68,293 100,000
64 19 57,719 18,842 18,417 100,000 37,428 37,003 100,000 78,714 78,289 100,000
65 20 62,495 19,291 19,291 100,000 40,275 40,275 100,000 89,458 89,458 107,349
66 21 67,509 19,811 19,811 100,000 43,357 43,357 100,000 101,467 101,467 120,746
67 22 72,775 20,229 20,229 100,000 46,560 46,560 100,000 114,832 114,832 135,502
68 23 78,304 20,532 20,532 100,000 49,893 49,893 100,000 129,702 129,702 151,751
69 24 84,109 20,710 20,710 100,000 53,634 53,634 100,000 146,244 146,244 169,643
70 25 90,204 20,746 20,746 100,000 57,567 57,567 100,000 164,644 164,644 189,341
71 26 96,604 20,624 20,624 100,000 61,713 61,713 100,000 185,110 185,110 209,174
72 27 103,325 20,328 20,328 100,000 66,100 66,100 100,000 207,918 207,918 230,789
73 28 110,381 19,841 19,841 100,000 70,760 70,760 100,000 233,356 233,356 254,358
74 29 117,790 19,163 19,163 100,000 75,742 75,742 100,000 261,759 261,759 280,082
75 30 125,569 18,242 18,242 100,000 81,085 81,085 100,000 293,497 293,497 308,172
76 31 133,738 17,042 17,042 100,000 86,847 86,847 100,000 329,006 329,006 345,456
77 32 142,315 15,519 15,519 100,000 93,101 93,101 100,000 368,528 368,528 386,954
78 33 151,321 13,654 13,654 100,000 99,856 99,856 104,849 412,507 412,507 433,133
79 34 160,777 11,352 11,352 100,000 106,955 106,955 112,303 461,421 461,421 484,492
80 35 170,705 8,587 8,587 100,000 114,414 114,414 120,135 518,378 518,378 544,297
81 36 181,131 5,231 5,231 100,000 122,243 122,243 128,355 581,992 581,992 611,092
82 37 192,077 1,179 1,179 100,000 130,455 130,455 136,977 653,009 653,009 685,659
83 38 203,571 * * * 139,067 139,067 146,020 732,277 732,277 768,891
84 39 215,640 * * * 148,088 148,088 155,492 820,686 820,686 861,721
85 40 228,312 * * * 157,535 157,535 165,411 919,264 919,264 965,228
86 41 241,617 * * * 167,411 167,411 175,782 1,029,070 1,029,070 1,080,523
87 42 255,588 * * * 177,730 177,730 186,617 1,151,323 1,151,323 1,208,889
88 43 270,257 * * * 188,501 188,501 197,926 1,287,337 1,287,337 1,351,704
89 44 285,660 * * * 199,729 199,729 209,716 1,438,546 1,438,546 1,510,474
90 45 301,833 * * * 211,423 211,423 221,994 1,606,525 1,606,525 1,686,851
91 46 318,815 * * * 223,589 223,589 232,533 1,793,005 1,793,005 1,864,725
92 47 336,646 * * * 236,572 236,572 243,669 2,002,727 2,002,727 2,062,809
93 48 355,368 * * * 250,482 250,482 255,492 2,239,211 2,239,211 2,283,995
94 49 375,026 * * * 265,453 265,453 268,108 2,506,634 2,506,634 2,531,701
95 50 395,668 * * * 281,638 281,638 281,638 2,809,978 2,809,978 2,809,978
96 51 417,341 * * * 299,217 299,217 299,217 3,155,205 3,155,205 3,155,205
97 52 440,098 * * * 317,787 317,787 317,787 3,542,622 3,542,622 3,542,622
98 53 463,993 * * * 337,403 337,403 337,403 3,977,385 3,977,385 3,977,385
99 54 489,083 * * * 358,125 358,125 358,125 4,465,282 4,465,282 4,465,282
100 55 515,427 * * * 380,014 380,014 380,014 5,012,805 5,012,805 5,012,805
</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 charge, current cost of
insurance rates, a monthly administration charge of $8.00 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 during Policy Years 1-10; and no
mortality and expense risk charge in Policy Years 11 and thereafter.
(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 payment is made 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
$1,800 ANNUAL PLANNED PREMIUM
$100,000 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 1,890 1,261 0 100,000 1,349 0 100,000 1,438 0 100,000
47 2 3,875 2,478 0 100,000 2,733 33 100,000 2,999 299 100,000
48 3 5,958 3,650 1,000 100,000 4,151 1,501 100,000 4,695 2,045 100,000
49 4 8,146 4,777 2,152 100,000 5,604 2,979 100,000 6,540 3,915 100,000
50 5 10,443 5,855 3,280 100,000 7,091 4,516 100,000 8,546 5,971 100,000
51 6 12,856 6,886 4,336 100,000 8,613 6,063 100,000 10,729 8,179 100,000
52 7 15,388 7,863 5,363 100,000 10,165 7,665 100,000 13,106 10,606 100,000
53 8 18,048 8,782 6,332 100,000 11,745 9,295 100,000 15,690 13,240 100,000
54 9 20,840 9,639 7,239 100,000 13,350 10,950 100,000 18,504 16,104 100,000
55 10 23,772 10,428 8,053 100,000 14,975 12,600 100,000 21,567 19,192 100,000
56 11 26,851 11,145 8,820 100,000 16,617 14,292 100,000 24,906 22,581 100,000
57 12 30,083 11,783 9,508 100,000 18,274 15,999 100,000 28,549 26,274 100,000
58 13 33,478 12,342 10,117 100,000 19,944 17,719 100,000 32,533 30,308 100,000
59 14 37,041 12,816 10,641 100,000 21,625 19,450 100,000 36,898 34,723 100,000
60 15 40,783 13,197 11,072 100,000 23,313 21,188 100,000 41,689 39,564 100,000
61 16 44,713 13,476 11,776 100,000 25,001 23,301 100,000 46,957 45,257 100,000
62 17 48,838 13,642 12,367 100,000 26,684 25,409 100,000 52,764 51,489 100,000
63 18 53,170 13,682 12,832 100,000 28,353 27,503 100,000 59,180 58,330 100,000
64 19 57,719 13,577 13,152 100,000 29,997 29,572 100,000 66,289 65,864 100,000
65 20 62,495 13,310 13,310 100,000 31,604 31,604 100,000 74,194 74,194 100,000
66 21 67,509 12,861 12,861 100,000 33,166 33,166 100,000 83,019 83,019 100,000
67 22 72,775 12,214 12,214 100,000 34,675 34,675 100,000 92,784 92,784 109,485
68 23 78,304 11,349 11,349 100,000 36,122 36,122 100,000 103,467 103,467 121,057
69 24 84,109 10,242 10,242 100,000 37,498 37,498 100,000 115,154 115,154 133,579
70 25 90,204 8,865 8,865 100,000 38,792 38,792 100,000 127,938 127,938 147,129
71 26 96,604 7,171 7,171 100,000 39,981 39,981 100,000 141,920 141,920 160,370
72 27 103,325 5,048 5,048 100,000 41,002 41,002 100,000 157,257 157,257 174,555
73 28 110,381 2,527 2,527 100,000 41,888 41,888 100,000 174,126 174,126 189,797
74 29 117,790 * * * 42,562 42,562 100,000 192,693 192,693 206,181
75 30 125,569 * * * 42,974 42,974 100,000 213,171 213,171 223,829
76 31 133,738 * * * 43,080 43,080 100,000 235,816 235,816 247,607
77 32 142,315 * * * 42,827 42,827 100,000 260,597 260,597 273,627
78 33 151,321 * * * 42,151 42,151 100,000 287,700 287,700 302,085
79 34 160,777 * * * 40,976 40,976 100,000 317,327 317,327 333,193
80 35 170,705 * * * 39,195 39,195 100,000 349,694 349,694 367,178
81 36 181,131 * * * 36,653 36,653 100,000 385,026 385,026 404,277
82 37 192,077 * * * 33,132 33,132 100,000 423,559 423,559 444,737
83 38 203,571 * * * 28,326 28,326 100,000 465,534 465,534 488,811
84 39 215,640 * * * 21,813 21,813 100,000 511,201 511,201 536,761
85 40 228,312 * * * 13,027 13,027 100,000 560,821 560,821 588,862
86 41 241,617 * * * 1,205 1,205 100,000 614,674 614,674 645,407
87 42 255,588 * * * * * * 673,059 673,059 706,712
88 43 270,257 * * * * * * 736,293 736,293 773,108
89 44 285,660 * * * * * * 804,718 804,718 844,953
90 45 301,833 * * * * * * 878,684 878,684 922,618
91 46 318,815 * * * * * * 958,548 958,548 996,889
92 47 336,646 * * * * * * 1,047,174 1,047,174 1,078,589
93 48 355,368 * * * * * * 1,145,976 1,145,976 1,168,896
94 49 375,026 * * * * * * 1,256,675 1,256,675 1,269,241
95 50 395,668 * * * * * * 1,381,374 1,381,374 1,381,374
96 51 417,341 * * * * * * 1,522,870 1,522,870 1,522,870
97 52 440,098 * * * * * * 1,678,677 1,678,677 1,678,677
98 53 463,993 * * * * * * 1,850,242 1,850,242 1,850,242
99 54 489,083 * * * * * * 2,039,160 2,039,160 2,039,160
100 55 515,427 * * * * * * 2,247,184 2,247,184 2,247,184
</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 charge, guaranteed cost
of insurance rates, a monthly administration charge of $8.00 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 during all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium payment is made 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
$4,000 ANNUAL PLANNED PREMIUM
$100,000 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 4,200 3,308 583 103,308 3,521 796 103,521 3,733 1,008 103,733
47 2 8,610 6,532 3,832 106,532 7,162 4,462 107,162 7,817 5,117 107,817
48 3 13,241 9,671 7,021 109,671 10,925 8,275 110,925 12,283 9,633 112,283
49 4 18,103 12,722 10,097 112,722 14,813 12,188 114,813 17,168 14,543 117,168
50 5 23,208 15,685 13,110 115,685 18,828 16,253 118,828 22,511 19,936 122,511
51 6 28,568 18,559 16,009 118,559 22,973 20,423 122,973 28,354 25,804 128,354
52 7 34,196 21,337 18,837 121,337 27,245 24,745 127,245 34,743 32,243 134,743
53 8 40,106 24,015 21,565 124,015 31,642 29,192 131,642 41,723 39,273 141,723
54 9 46,312 26,590 24,190 126,590 36,165 33,765 136,165 49,350 46,950 149,350
55 10 52,827 29,448 27,073 129,448 41,215 38,840 141,215 58,388 56,013 158,388
56 11 59,669 32,509 30,184 132,509 46,858 44,533 146,858 68,968 66,643 168,968
57 12 66,852 35,485 33,210 135,485 52,994 50,719 152,994 80,722 78,447 180,722
58 13 74,395 38,357 36,132 138,357 59,394 57,169 159,394 93,763 91,538 193,763
59 14 82,314 41,125 38,950 141,125 66,075 63,900 166,075 108,243 106,068 208,243
60 15 90,630 43,778 41,653 143,778 73,036 70,911 173,036 124,313 122,188 224,313
61 16 99,361 46,274 44,574 146,274 80,254 78,554 180,254 142,117 140,417 242,117
62 17 108,530 48,653 47,378 148,653 87,779 86,504 187,779 161,896 160,621 261,896
63 18 118,156 51,160 50,310 151,160 95,618 94,768 195,618 183,869 183,019 283,869
64 19 128,264 53,541 53,116 153,541 103,779 103,354 203,779 208,282 207,857 308,282
65 20 138,877 55,783 55,783 155,783 112,267 112,267 212,267 235,405 235,405 335,405
66 21 150,021 58,104 58,104 158,104 121,324 121,324 221,324 265,786 265,786 365,786
67 22 161,722 60,285 60,285 160,285 130,756 130,756 230,756 299,572 299,572 399,572
68 23 174,008 62,311 62,311 162,311 140,568 140,568 240,568 337,142 337,142 437,142
69 24 186,908 64,165 64,165 164,165 150,765 150,765 250,765 378,922 378,922 478,922
70 25 200,454 65,831 65,831 165,831 161,348 161,348 261,348 425,382 425,382 525,382
71 26 214,677 67,289 67,289 167,289 172,321 172,321 272,321 477,048 477,048 577,048
72 27 229,610 68,522 68,522 168,522 183,685 183,685 283,685 537,167 537,167 637,167
73 28 245,291 69,513 69,513 169,513 195,446 195,446 295,446 604,380 604,380 704,380
74 29 261,755 70,271 70,271 170,271 207,633 207,633 307,633 679,562 679,562 779,562
75 30 279,043 70,741 70,741 170,741 220,212 220,212 320,212 763,627 763,627 863,627
76 31 297,195 70,893 70,893 170,893 233,173 233,173 333,173 857,627 857,627 957,627
77 32 316,255 70,691 70,691 170,691 246,500 246,500 346,500 962,737 962,737 1,062,737
78 33 336,268 70,138 70,138 170,138 260,214 260,214 360,214 1,080,317 1,080,317 1,180,317
79 34 357,281 69,155 69,155 169,155 274,256 274,256 374,256 1,211,804 1,211,804 1,311,804
80 35 379,345 67,754 67,754 167,754 288,653 288,653 388,653 1,358,909 1,358,909 1,458,909
81 36 402,513 65,845 65,845 165,845 303,332 303,332 403,332 1,523,443 1,523,443 1,623,443
82 37 426,838 63,386 63,386 163,386 318,263 318,263 418,263 1,707,488 1,707,488 1,807,488
83 38 452,380 60,408 60,408 160,408 333,488 333,488 433,488 1,913,460 1,913,460 2,013,460
84 39 479,199 56,807 56,807 156,807 348,917 348,917 448,917 2,143,813 2,143,813 2,251,004
85 40 507,359 52,596 52,596 152,596 364,569 364,569 464,569 2,400,740 2,400,740 2,520,777
86 41 536,927 47,395 47,395 147,395 380,310 380,310 480,310 2,686,928 2,686,928 2,821,274
87 42 567,973 41,458 41,458 141,458 396,127 396,127 496,127 3,005,556 3,005,556 3,155,834
88 43 600,572 34,728 34,728 134,728 411,957 411,957 511,957 3,360,048 3,360,048 3,528,050
89 44 634,801 27,145 27,145 127,145 427,732 427,732 527,732 3,754,140 3,754,140 3,941,847
90 45 670,741 18,665 18,665 118,665 443,395 443,395 543,395 4,191,935 4,191,935 4,401,532
91 46 708,478 9,260 9,260 109,260 458,902 458,902 558,902 4,677,948 4,677,948 4,865,066
92 47 748,102 * * * 474,262 474,262 574,262 5,224,540 5,224,540 5,381,276
93 48 789,707 * * * 489,436 489,436 589,436 5,840,885 5,840,885 5,957,703
94 49 833,392 * * * 506,893 506,893 606,893 6,537,873 6,537,873 6,637,873
95 50 879,262 * * * 524,307 524,307 624,307 7,322,736 7,322,736 7,422,736
96 51 927,425 * * * 541,643 541,643 641,643 8,202,331 8,202,331 8,302,331
97 52 977,996 * * * 558,867 558,867 658,867 9,188,206 9,188,206 9,288,206
98 53 1,031,096 * * * 575,942 575,942 675,942 10,293,317 10,293,317 10,393,317
99 54 1,086,850 * * * 592,826 592,826 692,826 11,532,205 11,532,205 11,632,205
100 55 1,145,393 * * * 609,477 609,477 709,477 12,921,186 12,921,186 13,021,186
</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 charge, current cost of
insurance rates, a monthly administration charge of $8.00 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 during Policy Years 1-10; and no
mortality and expense risk charge in Policy Years 11 and thereafter.
(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 payment is made 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
MALE ISSUE AGE: 45 NON-SMOKER
$4,000 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
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 4,200 3,309 584 103,309 3,521 796 103,521 3,733 1,008 103,733
47 2 8,610 6,532 3,832 106,532 7,162 4,462 107,162 7,817 5,117 107,817
48 3 13,241 9,670 7,020 109,670 10,924 8,274 110,924 12,282 9,632 112,282
49 4 18,103 12,721 10,096 112,721 14,813 12,188 114,813 17,167 14,542 117,167
50 5 23,208 15,684 13,109 115,684 18,827 16,252 118,827 22,509 19,934 122,509
51 6 28,568 18,557 16,007 118,557 22,971 20,421 122,971 28,352 25,802 128,352
52 7 34,196 21,335 18,835 121,335 27,243 24,743 127,243 34,740 32,240 134,740
53 8 40,106 24,014 21,564 124,014 31,640 29,190 131,640 41,721 39,271 141,721
54 9 46,312 26,589 24,189 126,589 36,163 33,763 136,163 49,347 46,947 149,347
55 10 52,827 29,052 26,677 129,052 40,807 38,432 140,807 57,676 55,301 157,676
56 11 59,669 31,400 29,075 131,400 45,570 43,245 145,570 66,769 64,444 166,769
57 12 66,852 33,626 31,351 133,626 50,448 48,173 150,448 76,698 74,423 176,698
58 13 74,395 35,727 33,502 135,727 55,443 53,218 155,443 87,540 85,315 187,540
59 14 82,314 37,699 35,524 137,699 60,550 58,375 160,550 99,380 97,205 199,380
60 15 90,630 39,531 37,406 139,531 65,763 63,638 165,763 112,308 110,183 212,308
61 16 99,361 41,216 39,516 141,216 71,074 69,374 171,074 126,420 124,720 226,420
62 17 108,530 42,741 41,466 142,741 76,473 75,198 176,473 141,822 140,547 241,822
63 18 118,156 44,093 43,243 144,093 81,946 81,096 181,946 158,626 157,776 258,626
64 19 128,264 45,254 44,829 145,254 87,474 87,049 187,474 176,951 176,526 276,951
65 20 138,877 46,205 46,205 146,205 93,037 93,037 193,037 196,928 196,928 296,928
66 21 150,021 46,929 46,929 146,929 98,616 98,616 198,616 218,704 218,704 318,704
67 22 161,722 47,416 47,416 147,416 104,195 104,195 204,195 242,442 242,442 342,442
68 23 174,008 47,650 47,650 147,650 109,755 109,755 209,755 268,321 268,321 368,321
69 24 186,908 47,618 47,618 147,618 115,276 115,276 215,276 296,539 296,539 396,539
70 25 200,454 47,300 47,300 147,300 120,732 120,732 220,732 327,307 327,307 427,307
71 26 214,677 46,665 46,665 146,665 126,082 126,082 226,082 360,843 360,843 460,843
72 27 229,610 45,617 45,617 145,617 131,216 131,216 231,216 397,319 397,319 497,319
73 28 245,291 44,223 44,223 144,223 136,190 136,190 236,190 437,097 437,097 537,097
74 29 261,755 42,369 42,369 142,369 140,869 140,869 240,869 480,381 480,381 580,381
75 30 279,043 40,002 40,002 140,002 145,179 145,179 245,179 527,462 527,462 627,462
76 31 297,195 37,091 37,091 137,091 149,064 149,064 249,064 578,681 578,681 678,681
77 32 316,255 33,607 33,607 133,607 152,465 152,465 252,465 634,416 634,416 734,416
78 33 336,268 29,527 29,527 129,527 155,330 155,330 255,330 695,087 695,087 795,087
79 34 357,281 24,836 24,836 124,836 157,609 157,609 257,609 761,168 761,168 861,168
80 35 379,345 19,503 19,503 119,503 159,233 159,233 259,233 833,160 833,160 933,160
81 36 402,513 13,468 13,468 113,468 160,101 160,101 260,101 911,585 911,585 1,011,585
82 37 426,838 6,651 6,651 106,651 160,089 160,089 260,089 996,996 996,996 1,096,996
83 38 452,380 * * * 159,037 159,037 259,037 1,089,975 1,089,975 1,189,975
84 39 479,199 * * * 156,769 156,769 256,769 1,191,149 1,191,149 1,291,149
85 40 507,359 * * * 153,123 153,123 253,123 1,301,233 1,301,233 1,401,233
86 41 536,927 * * * 147,957 147,957 247,957 1,421,041 1,421,041 1,521,041
87 42 567,973 * * * 141,152 141,152 241,152 1,551,499 1,551,499 1,651,499
88 43 600,572 * * * 132,596 132,596 232,596 1,693,639 1,693,639 1,793,639
89 44 634,801 * * * 122,199 122,199 222,199 1,848,625 1,848,625 1,948,625
90 45 670,741 * * * 109,851 109,851 209,851 2,017,719 2,017,719 2,118,605
91 46 708,478 * * * 95,414 95,414 195,414 2,201,103 2,201,103 2,301,103
92 47 748,102 * * * 78,716 78,716 178,716 2,402,517 2,402,517 2,502,517
93 48 789,707 * * * 59,526 59,526 159,526 2,622,449 2,622,449 2,722,449
94 49 833,392 * * * 37,523 37,523 137,523 2,862,552 2,862,552 2,962,552
95 50 879,262 * * * 12,033 12,033 112,033 3,124,289 3,124,289 3,224,289
96 51 927,425 * * * * * * 3,408,697 3,408,697 3,508,697
97 52 977,996 * * * * * * 3,715,772 3,715,772 3,815,772
98 53 1,031,096 * * * * * * 4,043,083 4,043,083 4,143,083
99 54 1,086,850 * * * * * * 4,382,900 4,382,900 4,482,900
100 55 1,145,393 * * * * * * 4,725,143 4,725,143 4,825,143
</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 charge, guaranteed cost
of insurance rates, a monthly administration charge of $8.00 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 during all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium payment is made 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
$1,500 ANNUAL PLANNED PREMIUM
$100,000 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 1,575 1,013 0 100,000 1,085 0 100,000 1,157 0 100,000
47 2 3,229 1,991 0 100,000 2,198 0 100,000 2,415 15 100,000
48 3 4,965 2,934 559 100,000 3,341 966 100,000 3,783 1,408 100,000
49 4 6,788 3,841 1,491 100,000 4,512 2,162 100,000 5,270 2,920 100,000
50 5 8,703 4,711 2,411 100,000 5,711 3,411 100,000 6,889 4,589 100,000
51 6 10,713 5,542 3,267 100,000 6,939 4,664 100,000 8,650 6,375 100,000
52 7 12,824 6,573 4,323 100,000 8,436 6,186 100,000 10,814 8,564 100,000
53 8 15,040 7,565 5,340 100,000 9,976 7,751 100,000 13,178 10,953 100,000
54 9 17,367 8,519 6,319 100,000 11,562 9,362 100,000 15,765 13,565 100,000
55 10 19,810 9,434 7,284 100,000 13,194 11,044 100,000 18,597 16,447 100,000
56 11 22,376 10,402 8,277 100,000 15,007 12,882 100,000 21,896 19,771 100,000
57 12 25,069 11,335 9,235 100,000 16,889 14,789 100,000 25,545 23,445 100,000
58 13 27,898 12,228 10,178 100,000 18,841 16,791 100,000 29,582 27,532 100,000
59 14 30,868 13,065 11,040 100,000 20,852 18,827 100,000 34,042 32,017 100,000
60 15 33,986 13,859 11,884 100,000 22,938 20,963 100,000 38,989 37,014 100,000
61 16 37,261 14,580 13,000 100,000 25,078 23,498 100,000 44,462 42,882 100,000
62 17 40,699 15,254 14,069 100,000 27,299 26,114 100,000 50,799 49,614 100,000
63 18 44,309 15,876 15,086 100,000 29,605 28,815 100,000 57,891 57,101 100,000
64 19 48,099 16,452 16,057 100,000 32,007 31,612 100,000 65,842 65,447 100,000
65 20 52,079 16,969 16,969 100,000 34,502 34,502 100,000 74,763 74,763 100,000
66 21 56,258 17,544 17,544 100,000 37,193 37,193 100,000 84,819 84,819 100,935
67 22 60,646 18,061 18,061 100,000 39,997 39,997 100,000 96,058 96,058 113,348
68 23 65,253 18,523 18,523 100,000 42,929 42,929 100,000 108,584 108,584 127,043
69 24 70,091 18,918 18,918 100,000 45,989 45,989 100,000 122,543 122,543 142,149
70 25 75,170 19,246 19,246 100,000 49,193 49,193 100,000 138,099 138,099 158,814
71 26 80,504 19,491 19,491 100,000 52,805 52,805 100,000 155,434 155,434 175,640
72 27 86,104 19,651 19,651 100,000 56,615 56,615 100,000 174,773 174,773 193,998
73 28 91,984 19,701 19,701 100,000 60,631 60,631 100,000 196,351 196,351 214,023
74 29 98,158 19,635 19,635 100,000 64,877 64,877 100,000 220,443 220,443 235,874
75 30 104,641 19,418 19,418 100,000 69,368 69,368 100,000 247,351 247,351 259,718
76 31 111,448 19,038 19,038 100,000 74,137 74,137 100,000 277,429 277,429 291,300
77 32 118,596 18,468 18,468 100,000 79,217 79,217 100,000 310,947 310,947 326,495
78 33 126,100 17,672 17,672 100,000 84,652 84,652 100,000 348,289 348,289 365,704
79 34 133,980 16,590 16,590 100,000 90,493 90,493 100,000 389,872 389,872 409,366
80 35 142,254 15,196 15,196 100,000 96,808 96,808 101,648 436,166 436,166 457,975
81 36 150,942 13,442 13,442 100,000 103,490 103,490 108,664 487,687 487,687 512,072
82 37 160,064 11,270 11,270 100,000 110,512 110,512 116,038 547,714 547,714 575,100
83 38 169,643 8,613 8,613 100,000 117,888 117,888 123,783 614,803 614,803 645,544
84 39 179,700 5,347 5,347 100,000 125,629 125,629 131,910 689,738 689,738 724,224
85 40 190,260 1,417 1,417 100,000 133,749 133,749 140,436 773,412 773,412 812,083
86 41 201,348 * * * 142,261 142,261 149,375 866,802 866,802 910,143
87 42 212,990 * * * 151,178 151,178 158,737 970,980 970,980 1,019,529
88 43 225,215 * * * 160,512 160,512 168,538 1,087,130 1,087,130 1,141,487
89 44 238,050 * * * 170,274 170,274 178,788 1,216,557 1,216,557 1,277,384
90 45 251,528 * * * 180,475 180,475 189,499 1,360,695 1,360,695 1,428,730
91 46 265,679 * * * 191,127 191,127 198,772 1,521,122 1,521,122 1,581,966
92 47 280,538 * * * 202,453 202,453 208,527 1,701,366 1,701,366 1,752,407
93 48 296,140 * * * 214,537 214,537 218,828 1,904,293 1,904,293 1,942,379
94 49 312,522 * * * 227,475 227,475 229,750 2,133,280 2,133,280 2,154,612
95 50 329,723 * * * 241,382 241,382 241,382 2,392,326 2,392,326 2,392,326
96 51 347,784 * * * 256,391 256,391 256,391 2,686,191 2,686,191 2,686,191
97 52 366,748 * * * 272,246 272,246 272,246 3,015,969 3,015,969 3,015,969
98 53 386,661 * * * 288,995 288,995 288,995 3,386,051 3,386,051 3,386,051
99 54 407,569 * * * 306,688 306,688 306,688 3,801,360 3,801,360 3,801,360
100 55 429,522 * * * 325,378 325,378 325,378 4,267,424 4,267,424 4,267,424
</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 charge, current cost of
insurance rates, a monthly administration charge of $8.00 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 during Policy Years 1-10; and no
mortality and expense risk charge in Policy Years 11 and thereafter.
(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 payment is made 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
$1,500 ANNUAL PLANNED PREMIUM
$100,000 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 1,575 1,012 0 100,000 1,085 0 100,000 1,157 0 100,000
47 2 3,229 1,991 0 100,000 2,198 0 100,000 2,415 15 100,000
48 3 4,965 2,934 559 100,000 3,340 965 100,000 3,782 1,407 100,000
49 4 6,788 3,840 1,490 100,000 4,511 2,161 100,000 5,269 2,919 100,000
50 5 8,703 4,710 2,410 100,000 5,710 3,410 100,000 6,888 4,588 100,000
51 6 10,713 5,541 3,266 100,000 6,937 4,662 100,000 8,649 6,374 100,000
52 7 12,824 6,332 4,082 100,000 8,192 5,942 100,000 10,567 8,317 100,000
53 8 15,040 7,081 4,856 100,000 9,472 7,247 100,000 12,657 10,432 100,000
54 9 17,367 7,782 5,582 100,000 10,775 8,575 100,000 14,932 12,732 100,000
55 10 19,810 8,437 6,287 100,000 12,101 9,951 100,000 17,413 15,263 100,000
56 11 22,376 9,043 6,918 100,000 13,451 11,326 100,000 20,123 17,998 100,000
57 12 25,069 9,601 7,501 100,000 14,825 12,725 100,000 23,088 20,988 100,000
58 13 27,898 10,112 8,062 100,000 16,227 14,177 100,000 26,338 24,288 100,000
59 14 30,868 10,579 8,554 100,000 17,661 15,636 100,000 29,909 27,884 100,000
60 15 33,986 11,000 9,025 100,000 19,126 17,151 100,000 33,837 31,862 100,000
61 16 37,261 11,368 9,788 100,000 20,621 19,041 100,000 38,160 36,580 100,000
62 17 40,699 11,676 10,491 100,000 22,139 20,954 100,000 42,920 41,735 100,000
63 18 44,309 11,911 11,121 100,000 23,670 22,880 100,000 48,164 47,374 100,000
64 19 48,099 12,054 11,659 100,000 25,202 24,807 100,000 53,944 53,549 100,000
65 20 52,079 12,091 12,091 100,000 26,725 26,725 100,000 60,324 60,324 100,000
66 21 56,258 12,013 12,013 100,000 28,232 28,232 100,000 67,386 67,386 100,000
67 22 60,646 11,811 11,811 100,000 29,722 29,722 100,000 75,226 75,226 100,000
68 23 65,253 11,485 11,485 100,000 31,195 31,195 100,000 83,959 83,959 100,000
69 24 70,091 11,032 11,032 100,000 32,655 32,655 100,000 93,634 93,634 108,616
70 25 75,170 10,442 10,442 100,000 34,097 34,097 100,000 104,248 104,248 119,886
71 26 80,504 9,692 9,692 100,000 35,510 35,510 100,000 115,891 115,891 130,957
72 27 86,104 8,746 8,746 100,000 36,875 36,875 100,000 128,689 128,689 142,845
73 28 91,984 7,554 7,554 100,000 38,160 38,160 100,000 142,764 142,764 155,613
74 29 98,158 6,052 6,052 100,000 39,333 39,333 100,000 158,254 158,254 169,332
75 30 104,641 4,173 4,173 100,000 40,356 40,356 100,000 175,322 175,322 184,089
76 31 111,448 1,850 1,850 100,000 41,197 41,197 100,000 194,160 194,160 203,868
77 32 118,596 * * * 41,822 41,822 100,000 214,812 214,812 225,553
78 33 126,100 * * * 42,198 42,198 100,000 237,446 237,446 249,318
79 34 133,980 * * * 42,285 42,285 100,000 262,238 262,238 275,350
80 35 142,254 * * * 42,025 42,025 100,000 289,380 289,380 303,849
81 36 150,942 * * * 41,332 41,332 100,000 319,072 319,072 335,026
82 37 160,064 * * * 40,089 40,089 100,000 351,525 351,525 369,102
83 38 169,643 * * * 38,131 38,131 100,000 386,958 386,958 406,306
84 39 179,700 * * * 35,237 35,237 100,000 425,595 425,595 446,875
85 40 190,260 * * * 31,131 31,131 100,000 467,677 467,677 491,061
86 41 201,348 * * * 25,439 25,439 100,000 513,454 513,454 539,126
87 42 212,990 * * * 17,664 17,664 100,000 563,189 563,189 591,348
88 43 225,215 * * * 7,098 7,098 100,000 617,155 617,155 648,013
89 44 238,050 * * * * * * 675,637 675,637 709,419
90 45 251,528 * * * * * * 738,921 738,921 775,867
91 46 265,679 * * * * * * 807,293 807,293 839,585
92 47 280,538 * * * * * * 882,899 882,899 909,386
93 48 296,140 * * * * * * 966,896 966,896 986,234
94 49 312,522 * * * * * * 1,060,708 1,060,708 1,071,315
95 50 329,723 * * * * * * 1,166,125 1,166,125 1,166,125
96 51 347,784 * * * * * * 1,285,537 1,285,537 1,285,537
97 52 366,748 * * * * * * 1,417,025 1,417,025 1,417,025
98 53 386,661 * * * * * * 1,561,813 1,561,813 1,561,813
99 54 407,569 * * * * * * 1,721,245 1,721,245 1,721,245
100 55 429,522 * * * * * * 1,896,801 1,896,801 1,896,801
</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 charge, guaranteed cost
of insurance rates, a monthly administration charge of $8.00 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 during all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium payment is made 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
$3,000 ANNUAL PLANNED PREMIUM
$100,000 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 3,150 2,409 0 102,409 2,565 140 102,565 2,722 297 102,722
47 2 6,458 4,755 2,355 104,755 5,217 2,817 105,217 5,699 3,299 105,699
48 3 9,930 7,037 4,662 107,037 7,958 5,583 107,958 8,954 6,579 108,954
49 4 13,577 9,256 6,906 109,256 10,788 8,438 110,788 12,514 10,164 112,514
50 5 17,406 11,410 9,110 111,410 13,710 11,410 113,710 16,406 14,106 116,406
51 6 21,426 13,498 11,223 113,498 16,725 14,450 116,725 20,662 18,387 120,662
52 7 25,647 15,774 13,524 115,774 20,098 17,848 120,098 25,589 23,339 125,589
53 8 30,080 17,985 15,760 117,985 23,588 21,363 123,588 30,988 28,763 130,988
54 9 34,734 20,132 17,932 120,132 27,196 24,996 127,196 36,907 34,707 136,907
55 10 39,620 22,215 20,065 122,215 30,929 28,779 130,929 43,396 41,246 143,396
56 11 44,751 24,450 22,325 124,450 35,100 32,975 135,100 51,222 49,097 151,222
57 12 50,139 26,632 24,532 126,632 39,451 37,351 139,451 59,925 57,825 159,925
58 13 55,796 28,755 26,705 128,755 43,983 41,933 143,983 69,601 67,551 169,601
59 14 61,736 30,800 28,775 130,800 48,685 46,660 148,685 80,343 78,318 180,343
60 15 67,972 32,781 30,806 132,781 53,848 51,873 153,848 92,289 90,314 192,289
61 16 74,521 34,663 33,083 134,663 59,218 57,638 159,218 105,540 103,960 205,540
62 17 81,397 36,474 35,289 136,474 64,834 63,649 164,834 120,281 119,096 220,281
63 18 88,617 38,210 37,420 138,210 70,706 69,916 170,706 136,678 135,888 236,678
64 19 96,198 39,877 39,482 139,877 76,853 76,458 176,853 154,930 154,535 254,930
65 20 104,158 41,460 41,460 141,460 83,274 83,274 183,274 175,237 175,237 275,237
66 21 112,516 43,098 43,098 143,098 90,130 90,130 190,130 197,988 197,988 297,988
67 22 121,291 44,653 44,653 144,653 97,301 97,301 197,301 223,319 223,319 323,319
68 23 130,506 46,127 46,127 146,127 104,805 104,805 204,805 251,533 251,533 351,533
69 24 140,181 47,504 47,504 147,504 112,646 112,646 212,646 282,949 282,949 382,949
70 25 150,340 48,787 48,787 148,787 120,844 120,844 220,844 317,942 317,942 417,942
71 26 161,007 49,953 49,953 149,953 129,395 129,395 229,395 356,905 356,905 456,905
72 27 172,208 51,257 51,257 151,257 138,316 138,316 238,316 400,299 400,299 500,299
73 28 183,968 52,417 52,417 152,417 147,598 147,598 247,598 448,607 448,607 548,607
74 29 196,317 53,427 53,427 153,427 157,251 157,251 257,251 502,395 502,395 602,395
75 30 209,282 54,243 54,243 154,243 167,253 167,253 267,253 565,054 565,054 665,054
76 31 222,896 54,856 54,856 154,856 177,612 177,612 277,612 635,155 635,155 735,155
77 32 237,191 55,235 55,235 155,235 188,316 188,316 288,316 713,577 713,577 813,577
78 33 252,201 55,344 55,344 155,344 199,346 199,346 299,346 801,296 801,296 901,296
79 34 267,961 55,121 55,121 155,121 210,655 210,655 310,655 899,380 899,380 999,380
80 35 284,509 54,551 54,551 154,551 222,243 222,243 322,243 1,009,080 1,009,080 1,109,080
81 36 301,884 53,599 53,599 153,599 234,086 234,086 334,086 1,131,774 1,131,774 1,231,774
82 37 320,129 52,226 52,226 152,226 246,159 246,159 346,159 1,269,008 1,269,008 1,369,008
83 38 339,285 50,395 50,395 150,395 258,433 258,433 358,433 1,422,518 1,422,518 1,522,518
84 39 359,399 47,782 47,782 147,782 270,832 270,832 370,832 1,594,201 1,594,201 1,694,201
85 40 380,519 44,650 44,650 144,650 283,365 283,365 383,365 1,786,282 1,786,282 1,886,282
86 41 402,695 40,963 40,963 140,963 296,001 296,001 396,001 2,001,211 2,001,211 2,101,272
87 42 425,980 36,675 36,675 136,675 308,691 308,691 408,691 2,241,372 2,241,372 2,353,440
88 43 450,429 31,749 31,749 131,749 321,395 321,395 421,395 2,509,130 2,509,130 2,634,587
89 44 476,100 26,149 26,149 126,149 334,070 334,070 434,070 2,807,494 2,807,494 2,947,869
90 45 503,055 19,840 19,840 119,840 346,671 346,671 446,671 3,139,771 3,139,771 3,296,760
91 46 531,358 12,785 12,785 112,785 359,151 359,151 459,151 3,509,597 3,509,597 3,649,981
92 47 561,076 4,970 4,970 104,970 371,479 371,479 471,479 3,925,110 3,925,110 4,042,863
93 48 592,280 * * * 383,607 383,607 483,607 4,392,914 4,392,914 4,492,914
94 49 625,044 * * * 395,482 395,482 495,482 4,919,761 4,919,761 5,019,761
95 50 659,446 * * * 407,050 407,050 507,050 5,509,983 5,509,983 5,609,983
96 51 695,568 * * * 418,253 418,253 518,253 6,171,283 6,171,283 6,271,283
97 52 733,497 * * * 429,029 429,029 529,029 6,912,305 6,912,305 7,012,305
98 53 773,322 * * * 439,312 439,312 539,312 7,742,750 7,742,750 7,842,750
99 54 815,138 * * * 449,036 449,036 549,036 8,673,502 8,673,502 8,773,502
100 55 859,045 * * * 458,127 458,127 558,127 9,716,780 9,716,780 9,816,780
</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 charge, current cost of
insurance rates, a monthly administration charge of $8.00 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 during Policy Years 1-10; and no
mortality and expense risk charge in Policy Years 11 and thereafter.
(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 payment is made 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>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$3,000 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
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 3,150 2,408 0 102,408 2,565 140 102,565 2,722 297 102,722
47 2 6,458 4,754 2,354 104,754 5,217 2,817 105,217 5,699 3,299 105,699
48 3 9,930 7,037 4,662 107,037 7,957 5,582 107,957 8,954 6,579 108,954
49 4 13,577 9,255 6,905 109,255 10,787 8,437 110,787 12,513 10,163 112,513
50 5 17,406 11,410 9,110 111,410 13,709 11,409 113,709 16,405 14,105 116,405
51 6 21,426 13,497 11,222 113,497 16,724 14,449 116,724 20,661 18,386 120,661
52 7 25,647 15,516 13,266 115,516 19,832 17,582 119,832 25,314 23,064 125,314
53 8 30,080 17,465 15,240 117,465 23,035 20,810 123,035 30,401 28,176 130,401
54 9 34,734 19,339 17,139 119,339 26,329 24,129 126,329 35,960 33,760 135,960
55 10 39,620 21,138 18,988 121,138 29,717 27,567 129,717 42,037 39,887 142,037
56 11 44,751 22,860 20,735 122,860 33,201 31,076 133,201 48,681 46,556 148,681
57 12 50,139 24,507 22,407 124,507 36,783 34,683 136,783 55,948 53,848 155,948
58 13 55,796 26,078 24,028 126,078 40,467 38,417 140,467 63,902 61,852 163,902
59 14 61,736 27,578 25,553 127,578 44,260 42,235 144,260 72,614 70,589 172,614
60 15 67,972 29,005 27,030 129,005 48,163 46,188 148,163 82,158 80,183 182,158
61 16 74,521 30,352 28,772 130,352 52,172 50,592 152,172 92,610 91,030 192,610
62 17 81,397 31,611 30,426 131,611 56,282 55,097 156,282 104,050 102,865 204,050
63 18 88,617 32,766 31,976 132,766 60,480 59,690 160,480 116,560 115,770 216,560
64 19 96,198 33,799 33,404 133,799 64,748 64,353 164,748 130,228 129,833 230,228
65 20 104,158 34,693 34,693 134,693 69,068 69,068 169,068 145,149 145,149 245,149
66 21 112,516 35,440 35,440 135,440 73,434 73,434 173,434 161,441 161,441 261,441
67 22 121,291 36,033 36,033 136,033 77,837 77,837 177,837 179,230 179,230 279,230
68 23 130,506 36,473 36,473 136,473 82,275 82,275 182,275 198,667 198,667 298,667
69 24 140,181 36,762 36,762 136,762 86,751 86,751 186,751 219,917 219,917 319,917
70 25 150,340 36,892 36,892 136,892 91,255 91,255 191,255 243,153 243,153 343,153
71 26 161,007 36,842 36,842 136,842 95,763 95,763 195,763 268,550 268,550 368,550
72 27 172,208 36,581 36,581 136,581 100,239 100,239 200,239 296,290 296,290 396,290
73 28 183,968 36,062 36,062 136,062 104,632 104,632 204,632 326,556 326,556 426,556
74 29 196,317 35,231 35,231 135,231 108,876 108,876 208,876 359,542 359,542 459,542
75 30 209,282 34,038 34,038 134,038 112,907 112,907 212,907 395,462 395,462 495,462
76 31 222,896 32,438 32,438 132,438 116,666 116,666 216,666 434,561 434,561 534,561
77 32 237,191 30,398 30,398 130,398 120,096 120,096 220,096 477,115 477,115 577,115
78 33 252,201 27,890 27,890 127,890 123,149 123,149 223,149 523,436 523,436 623,436
79 34 267,961 24,886 24,886 124,886 125,771 125,771 225,771 573,867 573,867 673,867
80 35 284,509 21,345 21,345 121,345 127,894 127,894 227,894 628,771 628,771 728,771
81 36 301,884 17,202 17,202 117,202 129,417 129,417 229,417 688,519 688,519 788,519
82 37 320,129 12,369 12,369 112,369 130,216 130,216 230,216 753,497 753,497 853,497
83 38 339,285 6,738 6,738 106,738 130,136 130,136 230,136 824,107 824,107 924,107
84 39 359,399 188 188 100,188 129,000 129,000 229,000 900,774 900,774 1,000,774
85 40 380,519 * * * 126,648 126,648 226,648 983,991 983,991 1,083,991
86 41 402,695 * * * 122,916 122,916 222,916 1,074,302 1,074,302 1,174,302
87 42 425,980 * * * 117,654 117,654 217,654 1,172,331 1,172,331 1,272,331
88 43 450,429 * * * 110,699 110,699 210,699 1,278,755 1,278,755 1,378,755
89 44 476,100 * * * 101,895 101,895 201,895 1,394,337 1,394,337 1,494,337
90 45 503,055 * * * 91,057 91,057 191,057 1,519,890 1,519,890 1,619,890
91 46 531,358 * * * 77,993 77,993 177,993 1,656,311 1,656,311 1,756,311
92 47 561,076 * * * 62,465 62,465 162,465 1,804,553 1,804,553 1,904,553
93 48 592,280 * * * 44,173 44,173 144,173 1,965,605 1,965,605 2,065,605
94 49 625,044 * * * 22,696 22,696 122,696 2,140,450 2,140,450 2,240,450
95 50 659,446 * * * * * * 2,329,910 2,329,910 2,429,910
96 51 695,568 * * * * * * 2,534,330 2,534,330 2,634,330
97 52 733,497 * * * * * * 2,752,912 2,752,912 2,852,912
98 53 773,322 * * * * * * 2,982,390 2,982,390 3,082,390
99 54 815,138 * * * * * * 3,214,132 3,214,132 3,314,132
100 55 859,045 * * * * * * 3,437,118 3,437,118 3,537,118
</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 charge, guaranteed cost
of insurance rates, a monthly administration charge of $8.00 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 0.90% of such amount during all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium payment is made 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.
41
<PAGE>
OTHER POLICY BENEFITS AND PROVISIONS
LIMITS ON RIGHTS TO CONTEST THE POLICY
INCONTESTABILITY. Protective Life will not contest the Policy, or any
supplemental rider, after the Policy or rider has been in force during the
Insured's lifetime for two years from the Policy Effective Date or the effective
date of the rider, unless fraud is involved. Any increase in the Face Amount
will be incontestable with respect to statements made in the evidence of
insurability for that increase after the increase has been in force during the
life of the Insured for two years after the effective date of the increase.
SUICIDE EXCLUSION. If the Insured dies by suicide, while sane or insane,
within two years after the Policy Effective Date, the Death Benefit will be
limited to the premium payments made before death, less any Policy Debt and any
withdrawals. If the Insured dies by suicide within two years after an increase
in Face Amount, the Death Benefit with respect to the increase will be limited
to the sum of the monthly cost of insurance charges made for that increase.
CHANGES IN THE POLICY OR BENEFITS
MISSTATEMENT OF AGE OR SEX. If the Insured's age or sex has been misstated
in the application for the Policy or in any application for supplemental 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 Internal Revenue Code. Any such changes will apply
uniformly to all affected Policies and Owners will receive notification of such
changes.
SUSPENSION OR DELAY IN PAYMENTS
Protective Life will ordinarily pay any Death Benefit proceeds, Policy
loans, withdrawals, or surrenders within seven calendar days after receipt at
the Home Office of all the documents required for such a payment. Other than the
Death Benefit, which is determined as of the date of death, the amount will be
determined as of the date of receipt of all required documents. However,
Protective Life may delay making a payment or processing a transfer request if
(1) the New York Stock Exchange is closed for other than a regular holiday or
weekend, trading on the Exchange is restricted by the SEC, or the SEC declares
that an emergency exists as a result of which the disposal or valuation of
Variable Account assets is not reasonably practicable; or (2) the SEC by order
permits postponement of payment to protect Owners. (See also "Payments from the
Fixed Account".)
REPORTS TO POLICY OWNERS
Each year you will be sent a report at your last known address showing, as
of the end of the current report period: the Death Benefit; Policy Value; Fixed
Account Value; Variable Account Value; Loan Account Value; Sub-Account Values;
premiums paid since the last report; withdrawals since the last report; any
Policy loans and accrued interest; Surrender Value; current Net Premium
allocations; charges deducted since the last report; and any other information
required by law. You will also be sent an annual and a semi-annual report for
each Fund underlying a Sub-Account to which you have allocated Policy Value,
including a list of the securities held in each Fund, as required by the 1940
Act. In addition, when you pay premiums or request any other financial
transaction under your Policy you will receive a written confirmation of these
transactions.
42
<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 premiums 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.
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
43
<PAGE>
separately from the Policy (I.E., it can be canceled without causing the Policy
to be canceled or to lapse). There is no cash or loan value for this benefit.
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 Cash Value or
Surrender Value sufficient to adequately fund the application for which the
Policy was purchased. Similarly, certain transactions under a Policy entail
risks in connection with the application for which the Policy is purchased.
Withdrawals, policy loans and interest paid on policy loans may significantly
affect current and future Policy Value, Cash Value, Surrender Value or Death
Benefit Proceeds. If, for example, a policy loan is taken but not repaid prior
to the death of the Insured, the Policy Debt is subtracted from the Death
Benefit in computing the Death Benefit Proceeds to be paid to a beneficiary.
Prior to utilizing this Policy 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.
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.
44
<PAGE>
TAX STATUS OF PROTECTIVE LIFE
Protective Life is taxed as a life insurance company under the Code. Since
the operations of the Variable Account are a part of, and are taxed with, the
operations of Protective Life, the Variable Account is not separately taxed as a
"regulated investment company" under the Code. Under existing federal income tax
laws, Protective Life is not taxed on investment income and realized capital
gains of the Variable Account, although Protective Life's federal taxes are
increased in respect of the Policies because of the federal tax law's treatment
of deferred acquisition costs. Currently, a charge for federal income taxes is
not deducted from the Sub-Accounts or the Policy's Cash Value. However,
Protective Life does deduct a premium expense charge from each premium payment
in all Policy Years in part to compensate it for the federal tax treatment of
deferred acquisition costs. Protective Life reserves the right in the future to
make a charge against the Variable Account or the Cash Values of a Policy for
any federal, state, or local income taxes that it incurs and determines to be
properly attributable to the Variable Account or the Policy. Protective Life
will promptly notify 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 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.
45
<PAGE>
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a
segregated asset account. For example, the Owner of this Policy has the
choice of more investment options to which to allocate Premium Payments and
Variable Account Values, and may be able to transfer among investment
options more frequently, than in such rulings. These differences could
result in the Policy Owner being treated as the owner of a portion of the
assets of the Variable Account and thus subject to current taxation on the
income and gains from those assets. In addition, Protective Life does not
know what standards will be set forth in 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.
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
46
<PAGE>
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 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
47
<PAGE>
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 the Home Office and such notice is
received at or before the time of the surrender or withdrawal that he or she
elects not to have any amounts withheld. Regardless of whether the Owner
requests that no taxes be withheld or whether Protective Life withholds a
sufficient amount of taxes, the Owner will be responsible for the payment of any
taxes including any penalty tax that may be due on the amounts received. The
Owner may also be required to pay penalties under the estimated tax rules, if
the Owner's withholding and estimated tax payments are insufficient to satisfy
the Owner's total tax liability.
OTHER INFORMATION ABOUT THE POLICIES AND PROTECTIVE LIFE
SALE OF THE POLICIES
Investment Distributors, Inc. ("IDI"), a wholly-owned subsidiary of
Protective Life Corporation, acts as a principal underwriter of the Policies.
IDI also acts as principal underwriter of variable annuity contracts issued
through Protective Variable Annuity Separate Account. IDI is a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. The Policies are sold by
certain registered representatives of broker-dealers (including ProEquities,
Inc., an affiliate of Protective Life and IDI) that have entered into selling
agreements with IDI, who are also appointed and licensed as insurance agents of
Protective Life. Registered representatives
48
<PAGE>
may be paid commissions on Policies they sell based on premiums paid in amounts
up to 115% of a targeted first year premium payment. A targeted first year
premium payment is approximately equal to your minimum initial premium on an
annual basis. For premiums paid in the first Policy Year which exceed this
targeted amount, registered representatives may receive up to 4.5% on premiums
in excess of target. For premiums received during policy years two through ten,
the registered representatives may be paid up to 5.0% on premiums. After the
first ten Policy Years registered representatives may be paid up to 1.00% on
premiums received and .25% on unloaned Policy Value. Other allowances and
overrides, and non-cash compensation, also may be paid. Registered
representatives who meet certain productivity and profitability standards may be
eligible for additional compensation.
Protective Life may reduce or waive the sales charge, administrative fees
and/or any other charges on any Policy sold to (i) directors, officers or
employees of Protective Life or any of its affiliates, (ii) employees and
registered representatives of any broker-dealer that has entered into a selling
agreement with Protective Life or IDI, as well as employees of such registered
representatives and (iii) the immediate family of the above persons, due to the
generally lower sales and administrative expenses attributable to such
individuals. No such reduction or waiver will be permitted where it would be
unfairly discriminatory against any person.
CORPORATE PURCHASERS
The Policy is available for individuals and for corporations and other
institutions. For corporate or other group or sponsored arrangements, fee-only
arrangements or clients of registered investment advisors purchasing one or more
Policies, Protective Life may reduce the amount of the premium expense charge,
monthly administration fee, or other charges where the expenses associated with
the sale of the Policy or Policies or the underwriting or other administrative
costs associated with the Policy or Policies are reduced. Sales, underwriting or
other administrative expenses may be reduced for reasons such as expected
economies resulting from a corporate purchase, a group or sponsored arrangement
or arrangements, fee-only arrangements or clients of registered investment
advisors.
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 57 Executive Vice President, Acquisitions and Director
A.S. Williams III 62 Executive Vice President, Investments, Treasurer and Director
Danny L. Bentley 41 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 41 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 Chief Executive Officer and
a Director of PLC. From May 1992 to May 1994, he was President and Chief
49
<PAGE>
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.
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.
50
<PAGE>
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 computer hardware and software with its parent, PLC.
PLC began work on the Year 2000 problem in 1995. At that time, PLC identified
and assessed 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.
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.
51
<PAGE>
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 the 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.
EXPERTS
Actuarial matters included in this prospectus have been examined by Stephen
Peeples, F.S.A, M.A.A.A., whose opinion is filed as an exhibit to the
registration statement.
52
<PAGE>
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 the various aspects of
sales and service for individually sold life insurance and annuities.
LEGAL MATTERS
Sutherland, Asbill & Brennan, L.L.P. of Washington, D.C. has provided advice
on certain matters relating to the federal securities laws.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities of the Protective Variable
Life Separate Account (comprised of seventeen Sub-Accounts) as of December 31,
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.
53
<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
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) 4581 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
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>
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
F-18
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
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
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)
separately as assets and liabilities related to separate accounts in the
accompanying consolidated financial statements.
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>
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)
- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, guaranteed investment
contracts, deferred annuities, and annuities without life contingencies.
Revenues for universal life and investment products consist of policy fees
that have been assessed against policy account balances for the costs of
insurance, policy administration, and surrenders. That is, universal life
and investment product deposits are not considered revenues in accordance
with generally accepted accounting principles. Benefit reserves for
universal life and investment products represent policy account balances
before applicable surrender charges plus certain deferred policy
initiation fees that are recognized in income over the term of the
policies. Policy benefits and claims that are charged to expense include
benefit claims incurred in the period in excess of related policy account
balances and interest credited to policy account balances. Interest credit
rates for universal life and investment products ranged from 3.4% 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
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)
for financial reporting purposes and the bases determined for income tax
purposes. Such temporary differences are principally related to the deferral of
policy acquisition costs and the provision for future policy benefits and
expenses.
RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
net income, total assets, or 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
F-35
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E -- DEBT (CONTINUED)
including Protective. Additionally, PLC, on a consolidated basis, cannot incur
debt in excess of 50% of its total capital.
Protective has arranged sources of credit to temporarily fund scheduled
investment commitments. Protective expects that the rate received on its
investments will equal or exceed its borrowing rate. Protective had no such
temporary borrowings outstanding at December 31, 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
F-36
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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 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
F-37
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- RELATED PARTY MATTERS (CONTINUED)
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.
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 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
F-43
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
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, 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
F-44
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N -- REINSURANCE (CONTINUED)
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 $100,000 Face Amount will generally pay $100,000
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
$40,000, the Death Benefit will exceed the $100,000 Face Amount. Each additional
dollar added to Policy Value above $40,000 will increase the Death Benefit by
$2.50. A Policy with a $100,000 Face Amount and a Policy Value of $50,000 will
provide Death Benefit of $125,000 ($50,000 x 250%); a Policy Value of $60,000
will provide a Death Benefit of $150,000 ($60,000 x 250%); a Policy Value of
$70,000 will provide a Death Benefit of $175,000 ($70,000 x 250%).
Similarly, so long as Policy Value exceeds $40,000, each dollar taken out of
Policy Value will reduce the Death Benefit by $2.50. If, for example, the Policy
Value is reduced from $45,000 to $40,000 because of partial surrenders, charges,
or negative investment performance, the Death Benefit will be reduced from
$112,500 to $100,000. 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 $100,000 Face Amount unless the
Policy Value exceeded approximately $54,055 (rather than $40,000), 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 $100,000 will generally provide a
Death Benefit of $100,000 plus Policy Value. Thus, for example, a Policy with a
Policy Value of $10,000 will have a Death Benefit of $110,000 ($100,000 +
$10,000); a Policy Value of $20,000 will provide a Death Benefit of $120,000
($100,000 + $20,000). The Death Benefit, however, must be at least 250% of the
Policy Value. As a result, if the Policy Value exceeds $66,666, the Death
Benefit will be greater than the Face Amount plus Policy Value. Each additional
dollar of Policy Value above $66,666 will increase the Death Benefit by $2.50. A
Policy with a Face Amount of $100,000 and a Policy Value of $70,000 will provide
a Death Benefit of $175,000 ($70,000 x 250%); a Policy Value of $80,000 will
provide a Death Benefit of $200,000 ($80,000 x 250%).
Similarly, any time Policy Value exceeds $66,666, each dollar taken out of
Policy Value will reduce the Death Benefit by $2.50. If, for example, the Policy
Value is reduced from $80,000 to $75,000 because of partial surrenders, charges,
or negative investment performance, the Death Benefit will be reduced from
$200,000 to $187,500. If at any time, however, Policy Value multiplied by the
Face Amount percentage is less than the Face Amount plus the Policy Value, then
the Death Benefit will be the current Face Amount plus Policy Value of the
Policy.
The Face Amount percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than under 40), the Face Amount factor would be 185%. The
amount of the Death Benefit would be the sum of the Policy Value plus $100,000
unless the Policy Value exceeded $117,647 (rather than $66,666), 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
