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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
FILE NO. 33-61599
FILE NO. 811-7337
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 4 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 14 /X/
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PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
PROTECTIVE LIFE INSURANCE COMPANY
(Name of Depositor)
2801 Highway 280 South
Birmingham, Alabama 35223
(Address of Depositor's Principal Executive Offices)
COPY TO:
Nancy Kane, Esquire Stephen E. Roth, Esquire
2801 Highway 280 South Sutherland Asbill & Brennan LLP
Birmingham, Alabama 35223 1275 Pennsylvania Avenue, N.W.
(Name and Address of Agent Washington, D.C. 20004-2404
for Service of Process)
It is proposed that this filing become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485;
/X/ on May 1, 1999 pursuant to paragraph (b) of Rule 485;
/ / 60 days after filing pursuant to paragraph (a) of Rule 485;
/ / on (date) pursuant to paragraph (a)(i) of Rule 485
TITLE OF SECURITIES BEING REGISTERED: INTERESTS IN A SEPARATE
ACCOUNT ISSUED THROUGH VARIABLE LIFE INSURANCE POLICIES.
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PROSPECTUS
[LOGO]
Issued by: PROTECTIVE LIFE INSURANCE COMPANY
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone (800) 866-3555
This prospectus describes the Premiere I, an individual flexible premium
variable and fixed life insurance policy (the "Policy") offered by Protective
Life Insurance Company ("Protective Life"). The Policy is designed to provide
insurance protection on the life of the Insured named in the Policy, and at the
same time provide the Owner with the flexibility to vary the amount and timing
of premium payments and, within certain limits, to change the amount of death
benefits payable under the Policy. This flexibility permits the purchaser of the
policy (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, or convert it to a Policy that
provides benefits that do not vary with the investment results of a separate
account by exercising the Special Transfer Right.
POLICIES (EXCEPT FOR POLICIES ISSUED IN CERTAIN STATES) INCLUDE AN
ARBITRATION PROVISION THAT MANDATES RESOLUTION OF ALL DISPUTES ARISING UNDER THE
POLICY THROUGH BINDING ARBITRATION. THIS PROVISION IS INTENDED TO RESTRICT AN
OWNER'S ABILITY TO LITIGATE SUCH DISPUTES. SEE "ARBITRATION".
Please read this prospectus and the prospectus for each of the Funds
carefully and retain copies for future reference. This prospectus must be
accompanied or preceded by the current prospectus for each of the Funds.
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
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PROSPECTUS CONTENTS
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DEFINITIONS................................................................................................ 5
SUMMARY AND DIAGRAM OF THE POLICY.......................................................................... 7
EXPENSE TABLES............................................................................................. 11
GENERAL INFORMATION ABOUT PROTECTIVE LIFE, THE VARIABLE ACCOUNT AND THE FUNDS.............................. 12
Protective Life Insurance Company........................................................................ 12
Protective Variable Life Separate Account................................................................ 12
The Funds................................................................................................ 13
- The PIC Funds........................................................................................ 13
- The MFS Funds........................................................................................ 14
- The Oppenheimer Funds................................................................................ 14
- The Calvert Funds.................................................................................... 15
- The Van Eck Funds.................................................................................... 15
Other Investors in the Funds............................................................................. 16
Addition, Deletion or Substitution of Investments........................................................ 17
Voting Rights............................................................................................ 17
THE POLICY................................................................................................. 18
Purchasing a Policy...................................................................................... 18
Cancellation Privilege................................................................................... 18
Premiums................................................................................................. 19
- Minimum Initial Premium.............................................................................. 19
- Planned Periodic Premiums............................................................................ 19
- Unscheduled Premiums................................................................................. 19
- Premium Limitations.................................................................................. 19
- No-Lapse Guarantee................................................................................... 19
- Premium Payments Upon Increase in Face Amount........................................................ 20
Net Premium Allocations.................................................................................. 20
Policy Lapse and Reinstatement........................................................................... 20
- Lapse................................................................................................ 20
- Reinstatement........................................................................................ 21
Special Transfer Privilege............................................................................... 21
CALCULATION OF POLICY VALUES............................................................................... 21
Variable Account Value................................................................................... 21
- Determination of Units............................................................................... 21
- Determination of Unit Value.......................................................................... 21
- Net Investment Factor................................................................................ 21
Fixed Account Value...................................................................................... 22
POLICY BENEFITS............................................................................................ 22
Transfers of Policy Values............................................................................... 22
- General.............................................................................................. 22
- Telephone Transfers.................................................................................. 22
- Reservation of Rights................................................................................ 22
- Dollar Cost Averaging................................................................................ 22
- Portfolio Rebalancing................................................................................ 23
Surrender Privilege...................................................................................... 23
Withdrawal Privilege..................................................................................... 24
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Policy Loans............................................................................................. 24
- General.............................................................................................. 24
- Loan Collateral...................................................................................... 24
- Loan Repayment....................................................................................... 24
- Interest............................................................................................. 25
- Non-Payment of Policy Loan........................................................................... 25
- Effect of a Policy Loan.............................................................................. 25
Maturity Benefits........................................................................................ 25
Death Benefit Proceeds................................................................................... 26
- Calculation of Death Benefit Proceeds................................................................ 26
- Death Benefit Options................................................................................ 26
- Changing the Death Benefit Option.................................................................... 26
- Changing the Face Amount............................................................................. 26
- Additional Coverage from Term Rider for Covered Insured ("CIR")...................................... 27
Settlement Options....................................................................................... 28
- Minimum Amounts...................................................................................... 28
- Other Requirements................................................................................... 28
THE FIXED ACCOUNT.......................................................................................... 28
The Fixed Account........................................................................................ 29
Interest Credited on Fixed Account Value................................................................. 29
Payments from the Fixed Account.......................................................................... 29
CHARGES AND DEDUCTIONS..................................................................................... 29
Premium Expense Charges.................................................................................. 29
- Sales Charge......................................................................................... 29
- Federal Tax Charge................................................................................... 30
- Other Taxes.......................................................................................... 30
- Premium Tax Charge................................................................................... 30
Monthly Deduction........................................................................................ 30
- Cost of Insurance Charge............................................................................. 30
- Cost of Insurance Charge Under a CIR................................................................. 31
- Legal Considerations Relating to Sex -- Distinct Premium Payments and Benefits....................... 31
- Monthly Administration Fee........................................................................... 31
- Supplemental Rider Charges........................................................................... 32
- Mortality and Expense Risk Charge.................................................................... 32
Transfer Fee............................................................................................. 32
Surrender Charge (Contingent Deferred Sales Charges)..................................................... 32
Withdrawal Charge........................................................................................ 33
Fund Expenses............................................................................................ 33
EXCHANGE PRIVILEGE......................................................................................... 33
Effect of the Exchange Offer............................................................................. 36
- Tax Matters.......................................................................................... 36
- Sales Commissions.................................................................................... 36
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES, DEATH BENEFITS AND ACCUMULATED
PREMIUMS.................................................................................................. 36
OTHER POLICY BENEFITS AND PROVISIONS....................................................................... 46
Limits on Rights to Contest the Policy................................................................... 46
- Incontestability..................................................................................... 46
- Suicide Exclusion.................................................................................... 46
Changes in the Policy or Benefits........................................................................ 46
- Misstatement of Age or Sex........................................................................... 46
- Other Changes........................................................................................ 46
Suspension or Delay of Payments.......................................................................... 46
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Reports to Policy Owners................................................................................. 46
Assignment............................................................................................... 46
Arbitration.............................................................................................. 47
Supplemental Riders...................................................................................... 47
- Children's Term Life Insurance Rider................................................................. 47
- Accidental Death Benefit Rider....................................................................... 47
- Disability Benefit Rider............................................................................. 47
- Guaranteed Insurability Rider........................................................................ 47
- Protected Insurability Benefit Rider................................................................. 47
- Term Rider for Covered Insured (CIR)................................................................. 47
Reinsurance.............................................................................................. 48
USES OF THE POLICY......................................................................................... 48
TAX CONSIDERATIONS......................................................................................... 48
Introduction............................................................................................. 48
Tax Status of Protective Life............................................................................ 48
Taxation of Life Insurance Policies...................................................................... 49
- Tax Status of the Policy............................................................................. 49
-- Diversification Requirements....................................................................... 49
-- Ownership Treatment................................................................................ 49
- Tax Treatment of Life Insurance Death Benefit Proceeds............................................... 50
- Tax Deferral During Accumulation Period.............................................................. 50
- Policies Not Owned by Individuals.................................................................... 50
Policies Which Are Not MEC's............................................................................. 50
-- Tax Treatment of Withdrawals Generally............................................................. 50
-- Certain Distributions Required by the Tax Law in the First 15 Policy Years......................... 50
-- Tax Treatment of Loans............................................................................. 51
Policies Which Are MEC's................................................................................. 51
-- Characterization of a Policy as a MEC.............................................................. 51
-- Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs............................ 51
-- Penalty Tax........................................................................................ 52
-- Aggregation of Policies............................................................................ 52
- Treatment of Maturity Benefits and Extension of Maturity Date........................................ 52
- Actions to Ensure Compliance with the Tax Law........................................................ 52
- Other Considerations................................................................................. 52
Federal Income Tax Withholding........................................................................... 52
OTHER INFORMATION ABOUT THE POLICIES AND PROTECTIVE LIFE................................................... 52
Sale of the Policies..................................................................................... 52
Corporate Purchasers..................................................................................... 53
Protective Life Directors and Executive Officers......................................................... 53
State Regulation......................................................................................... 55
Additional Information................................................................................... 55
Preparation for Year 2000................................................................................ 55
Experts.................................................................................................. 57
IMSA..................................................................................................... 57
Legal Matters............................................................................................ 57
Financial Statements..................................................................................... 57
APPENDICES
A-Examples of Death Benefit Options...................................................................... A-1
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE.
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DEFINITIONS
"We," "us," "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.
MATURITY DATE -- The date shown in the Policy on which the Owner(s) will be paid
the Surrender Value, if any, provided the Insured is still living. It is the
Policy Anniversary nearest the Insured's 95th birthday. The Maturity Date may be
changed provided it is not less than 20 years from the Policy Effective Date.
MINIMUM MONTHLY PREMIUM -- For Policies issued on Insured's Issue Age below 70,
the minimum amount of premium payments that must be paid in order for the
No-Lapse Guarantee to remain in effect.
MONTHLY ANNIVERSARY DAY -- The same day in each month as the Policy Effective
Date.
NET 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.
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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.
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SUMMARY AND DIAGRAM OF THE POLICY
THE FOLLOWING SUMMARY OF PROSPECTUS INFORMATION AND DIAGRAM OF THE POLICY
SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE DESCRIPTION OF THE POLICY IN
THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN FORCE AND THERE IS NO OUTSTANDING
POLICY DEBT.
PURPOSE OF THE POLICY. The Policy is designed to be a long-term investment
providing insurance benefits. A prospective Owner should evaluate the Policy in
conjunction with other insurance policies he or she may own, as well as their
need for insurance and the Policy's long-term investment potential. It may not
be advantageous to replace existing insurance coverage with the Policy. In
particular, replacement should be carefully considered if the decision to
replace existing coverage is based solely on a comparison of Policy
illustrations (see below).
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 ten Policy Years (for Insureds
Issue Age 0 through 64) or the first five Policy Years (for Insureds Issue Age
65 through 69) as long as certain requirements related to the Minimum Monthly
Premium have been met. See "Premiums -- No-Lapse Guarantee," and "Policy Loans".
If a Policy lapses while loans are outstanding, certain amounts may become
subject to income tax and a 10% penalty tax. See "Tax Considerations".
DEATH BENEFIT OPTIONS. Two Death Benefit options are available under the
Policy: a level death benefit ("Option 1") and a variable death benefit ("Option
2"). Protective Life guarantees that the Death Benefit Proceeds will never be
less than the Face Amount of insurance (less any outstanding Policy Debt and
past due charges) as long as sufficient premiums are paid to keep the Policy in
force. The Policy provides for a Surrender Value that can be obtained by
surrendering the Policy. The Policy also permits loans and withdrawals, within
limits.
ILLUSTRATIONS. Illustrations in this prospectus or used in connection with
the purchase of a Policy are based on HYPOTHETICAL rates of return. THESE RATES
ARE NOT GUARANTEED. They are illustrative only and SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE PERFORMANCE. Actual rates of return may be
higher or lower than those reflected in Policy illustrations, and therefore,
actual Policy values will be different from those illustrated.
TAX CONSIDERATIONS. Protective Life intends for the Policy to satisfy the
definition of a life insurance contract under Section 7702 of the Internal
Revenue Code of 1986, as amended. A Policy may be a "modified endowment
contract" under federal tax law depending upon the amount of Premium Payments
made in relation to the Death Benefit provided under the Policy. Protective Life
will monitor Policies and will attempt to notify you on a timely basis if your
Policy is in jeopardy of becoming a modified endowment contract. For further
discussion of the tax status of a Policy and the tax consequences of being
treated as a life insurance contract or a modified endowment contract, see "Tax
Considerations".
CANCELLATION PRIVILEGE AND SPECIAL TRANSFER RIGHT. For a limited time after
the Policy is issued, you have the right to cancel your Policy and receive a
refund. (See "Cancellation Privilege"). In certain states, until the end of this
"Cancellation Period," Protective Life reserves the right to allocate Net
Premium payments to the Sub-Account investing in the Oppenheimer Money Fund or
to the Fixed Account. (See "Net Premium Allocations"). At any time within 24
Policy months after the Issue Date, you may transfer the entire Variable Account
Value to the Fixed Account without payment of any transfer fee and without the
transfer counting as one of the 12 transfers per Policy Year that may be
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made without incurring a transfer fee. Such a transfer will result in future Net
Premium Payments being allocated to the Fixed Account and effectively "converts"
the Policy into a policy that provides fixed (non-variable) benefits. See
"Special Transfer Privilege".
OWNER INQUIRIES. If you have any questions, you may write or call
Protective Life's Home Office at 2801 Highway 280 South, Birmingham, Alabama
35223, 1-800-265-1545.
AN INVESTMENT IN THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, NOR IS THE POLICY FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THE POLICY INVOLVES CERTAIN RISKS, INCLUDING THE LOSS OF PREMIUM PAID
(PRINCIPAL).
DIAGRAM OF POLICY
PREMIUM PAYMENTS
- You select a payment plan but are not required to pay premium payments
according to the plan. You can vary the amount and frequency and can skip
planned premium payments. See "Premiums" pages 19 and 20 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 19.
-Under certain circumstances, extra premiums may be required to prevent lapse.
See "Policy Lapse and Reinstatement" pages 20 and 21.
DEDUCTIONS FROM PREMIUM PAYMENTS
- For sales charge (2.75% of each premium paid in Policy Years 1 through 10;
0.75% of each premium paid in Policy Years 11 and thereafter). See pages 29
and 30.
- For federal taxes (1.25% of each premium paid in all Policy Years). See page
30.
- For state and local premium taxes (2.25% of each premium paid in all Policy
Years). See page 30.
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ALLOCATION OF NET PREMIUM PAYMENTS
- You direct the allocation of Net Premium payments among 23 Sub-Accounts and
the Fixed Account. See page 20 for rules and limits on Net Premium
allocations.
- The Sub-Accounts invest in corresponding Funds. See pages 13 through 16.
Funds available are the PIC Funds, the Oppenheimer Funds, the MFS Funds, the
Calvert Funds and the Van Eck Funds (as defined below).
- 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 29 for rules and limits on Fixed Account allocations.
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 currently $31.00 per month the first Policy Year and $6.00 per
month thereafter, plus for the 12 Policy months following an increase in
Face Amount, a charge based on the increase. Monthly mortality and expense
risk charges are currently equal to .075% multiplied by the value of assets
in Variable Account Value, which is equivalent to an annual rate of
approximately 0.90% of such amount during Policy Years 1 through 10; and in
Policy Years 11 and thereafter monthly mortality and expense risk charge is
currently equal to .021% multiplied by the Variable Account Value, which is
equivalent to an annual rate of .25% of such amount. This charge is not
deducted from Fixed Account Value. See "Monthly Deduction" pages 30 through
32.
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 20 and 21. There is no minimum
guaranteed Policy Value. The Policy may lapse if the Policy Value is
insufficient to cover a Monthly Deduction due. See pages 20 and 21.
- 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 page 22 for rules and limits. Policy loans reduce the
amount available for allocations and transfers.
- Is the starting point for calculating certain values under a Policy, such as
the Cash Value, Surrender Value, and the Death Benefit used to determine
Death Benefit Proceeds.
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CASH BENEFITS DEATH BENEFITS
- - After the first policy year, loans may be - Available as lump sum or a variety of
taken for amounts up to 90% of Surrender settlement options
Value, at an effective annual interest - For most Policies, the minimum Face Amount
rate of 6.0% during the first 10 Policy is $50,000.
Years and 4.0% thereafter. See "Policy - Two Death Benefit options are available:
Loans" pages 24 and 25 for rules and Option 1, equal to the Face Amount, and
limits. Option 2, equal to the Face Amount plus
- - After the first policy year, withdrawals Policy Value. See page 26.
generally can be made provided there is - Flexibility to change the Death Benefit
sufficient remaining Surrender Value. A option and Face Amount. See pages 26-27 for
withdrawal charge of the lesser of $25 or rules and limits.
2% of the withdrawal amount requested will -The No-Lapse Guarantee keeps the Policy in
apply. See "Withdrawal Privilege" page 24 force regardless of the sufficiency of
for rules and limits. Surrender Value so long as cumulative
- - The Policy may be surrendered in full at premiums paid on the Policy, less any
any time for its Surrender Value. A withdrawals and Policy Debt, are at least
declining deferred sales charge of up to equal to the Minimum Monthly Premium. See
27% of premiums paid in the first Policy "No-Lapse Guarantee" page 19 and 20.
Year (or 27% of a SEC Guideline Annual - Supplemental riders may be available. See
Premium (as described below), if less) is page 47.
assessed on surrenders during the first 14
Policy Years. See "Surrender Charges
(Contingent Deferred Sales Charge)" pages
32 and 33.
- - A variety of settlement options are
available. See page 28.
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EXPENSE TABLES
The Sub-Accounts invest in corresponding Funds. (See "The Funds" pages
10-13.) The current Funds available and the investment advisory fees and other
expenses are as follows:
ANNUAL FUND EXPENSES
(AFTER REIMBURSEMENT AND AS PERCENTAGE OF AVERAGE NET ASSETS)
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MANAGEMENT OTHER TOTAL ANNUAL
(ADVISORY) EXPENSES AFTER FUND EXPENSES
FEES REIMBURSEMENT (AFTER REIMBURSEMENTS)
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PROTECTIVE INVESTMENT COMPANY (PIC) (1)
International Equity Fund................................. 1.10% 0.00% 1.10%
Small Cap Value Fund...................................... 0.80% 0.00% 0.80%
Capital Growth Fund....................................... 0.80% 0.00% 0.80%
CORE U.S. Equity Fund..................................... 0.80% 0.00% 0.80%
Growth & Income Fund...................................... 0.80% 0.00% 0.80%
Global Income Fund........................................ 1.10% 0.00% 1.10%
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
(2)(3)
New Discovery Series...................................... 0.90% 0.27% 1.17%
Emerging Growth Series.................................... 0.75% 0.10% 0.85%
Research Series........................................... 0.75% 0.11% 0.86%
Growth With Income Series................................. 0.75% 0.13% 0.88%
Utilities Series.......................................... 0.75% 0.26% 1.01%
Total Return Series....................................... 0.75% 0.16% 0.91%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Aggressive Growth Fund/VA................................. 0.69% 0.02% 0.71%
Global Securities Fund/VA................................. 0.68% 0.06% 0.74%
Capital Appreciation Fund/VA.............................. 0.72% 0.03% 0.75%
Main Street Growth & Income Fund/VA....................... 0.74% 0.05% 0.79%
High Income Fund/VA....................................... 0.74% 0.04% 0.78%
Strategic Bond Fund/VA.................................... 0.74% 0.06% 0.80%
Money Fund/VA............................................. 0.45% 0.05% 0.50%
CALVERT VARIABLE SERIES, INC. (4)
Social Small Cap Growth Portfolio......................... 1.00% 0.33% 1.33%
Social Balanced Portfolio................................. 0.70% 0.18% 0.88%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund................................ 1.00% 0.16% 1.16%
Worldwide Real Estate Fund (5)............................ 0.00% 0.89% 0.89%
</TABLE>
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(1) The annual expenses listed for all of the PIC Funds are net of certain
reimbursements by PIC's investment manager. (See "The Funds".) Absent the
reimbursements, total expenses for the period ended December 31, 1998 were:
CORE U.S. Equity Fund 0.85%, Small Cap Value Fund 0.89%, International
Equity Fund 1.39%, Growth and Income Fund 0.85%, Capital Growth Fund 0.86%,
and Global Income Fund 1.28%. PIC's investment manager has voluntarily
agreed to reimburse certain of each Fund's expenses in excess of its
management fees. Although this reimbursement may be ended on 120 days notice
to PIC, the investment manager has no present intention of doing so.
(2) MFS has agreed to bear expenses for these series, subject to reimbursement
by these series, such that each series' "Other Expenses" shall not exceed
0.25% of the average daily net assets of these series during the current
fiscal year. The payments made by MFS on behalf of each series under this
arrangement are subject to reimbursement by the series to MFS, which will be
accomplished by the payment of an expense reimbursement fee by the series to
MFS computed and paid monthly at a percentage of the series' average daily
net assets for its then current fiscal year, with a limitation that
immediately after such payment the series' "Other Expenses" will not exceed
the percentage set forth above for that series. The obligation of MFS to
bear a series "Other Expenses" pursuant to this arrangement, and the series'
obligation to pay the reimbursement fee
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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.
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 or
practices of the Variable Account.
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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.; 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.
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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.
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.
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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.
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,
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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 the terms of a
participation agreement between the appropriate investment company and
Protective Life. The termination provisions of these agreements vary. The
Variable Account would not be able to purchase additional shares of a Fund if
the participation agreement relating to a 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
Internal Revenue Code. Protective Life currently does not foresee any
disadvantages to Owners that would arise from the possible sale of shares to
support its variable annuity contracts or those of its affiliates or from the
possible sale of shares to such retirement plans. However, the board of
directors of PIC will monitor events in order to identify any material
irreconcilable conflicts that might possibly arise if such shares were also
offered to support variable life insurance policies other than the Policies or
variable annuity contracts or to retirement plans. In event of such a conflict,
the board of directors would determine what action, if any, should be taken in
response to the conflict. In addition, if Protective Life believes that PIC's
response to any such conflicts does not provide enough protection for Owners, it
will take appropriate action on its own, including withdrawing the Variable
Account's investment in the Fund. (See the PIC Prospectus for more detail.)
Shares of the Oppenheimer Funds, MFS Funds, Calvert Funds and Van Eck Funds
are sold to separate accounts of insurance companies, which may or may not be
affiliated with Protective Life or each other, a practice known as "shared
funding." They may also be sold to separate accounts to serve as the underlying
investment for both variable annuity contracts and variable life insurance
policies, a practice known as "mixed funding." Shares of some of these Funds may
also be sold to certain qualified pension and retirement plans. As a result,
there is a possibility that a material conflict may arise 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
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Funds and Van Eck Funds monitors events related to their Funds to identify
possible material irreconcilable conflicts among and between the interests of
the Fund's various investors. There are certain risks associated with mixed and
shared funding and with the sale of shares to qualified pension and retirement
plans, as disclosed in each Fund's prospectus.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Protective Life may make additions to, deletions from, or substitutions for
the shares that are held in or purchased by the Variable Account. If the shares
of a Fund are no longer available for investment or if in Protective Life's
judgment further investment in any Fund should become inappropriate in view of
the purposes of the Variable Account, Protective Life may redeem the shares of
that Fund and substitute shares of another Fund. Protective Life will not
substitute any shares without notice and any necessary approval of the SEC and
state insurance authorities.
Protective Life also reserves the right to establish additional Sub-Accounts
of the Variable Account, which would each invest in shares corresponding to a
new Fund. Subject to applicable law and any required SEC approval, Protective
Life may establish new Sub-Accounts or eliminate one or more Sub-Accounts if
marketing needs, tax considerations or investment conditions warrant. Any new
Sub-Accounts may be made available to existing Owner(s).
If any of these substitutions or changes are made, Protective Life may by
appropriate endorsement change the Policy to reflect the substitution or other
change. If Protective Life deems it to be in the best interest of Owner(s), the
Variable Account may be operated as a management investment company under the
1940 Act, it may be deregistered under that Act if registration is no longer
required, or it may be combined with other Protective Life separate accounts.
Protective Life may make any changes to the Variable Account required by the
1940 Act or other applicable law or regulation.
VOTING RIGHTS
Protective Life is the legal owner of Fund shares held by the Sub-Accounts
and has the right to vote on all matters submitted to shareholders of the Funds.
However, in accordance with applicable law, Protective Life will vote shares
held in the Sub-Accounts at meetings of shareholders of the Funds in accordance
with instructions received from Owners with Policy Value in the Sub-Accounts.
Should Protective Life determine that it is permitted to vote such shares in its
own right, it may elect to do so.
Protective Life will send Owners voting instruction forms and other voting
materials (such as Fund proxy statements, reports and other proxy materials)
prior to shareholders meetings. The number of votes as to which an Owner may
give instructions is calculated separately for each Sub-Account and may include
fractional votes.
An Owner holds a voting interest in each Sub-Account to which Variable
Policy Value is allocated under his or her Policy. Owners only have voting
interests while the Insured is alive. The number of votes for which an Owner may
give instructions is based on the Owner's percentage interest of a Sub-Account
determined as of the date established by the Fund for determining shareholders
eligible to vote at the relevant meeting of that Fund.
Shares as to which no timely instructions are received and shares held
directly by Protective Life are voted by Protective Life in proportion to the
voting instructions that are received with respect to all Policies participating
in a Sub-Account. Voting instructions to abstain on any item are applied to
reduce the votes eligible to be cast on that item.
Protective Life may, if required by state insurance officials, disregard
Owner voting instructions if such instructions would require shares to be voted
so as to cause a change in sub-classification or investment objectives of one or
more of the Funds, or to approve or disapprove the investment management
agreement or an investment advisory agreement. In addition, Protective Life may
under certain circumstances disregard voting instructions that would require
changes in the investment management agreement, investment manager, an
investment advisory agreement or an investment adviser of one or more of the
Funds, provided that Protective Life reasonably disapproves of such changes in
accordance with applicable regulations under the 1940 Act. If Protective Life
ever disregards voting instructions, Owners will be advised of that action and
of the reasons for such action in the next semiannual report.
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THE POLICY
PURCHASING A POLICY
To purchase a Policy, a prospective Owner must submit a completed
application and at least the minimum initial premium payment through a licensed
representative of Protective Life who is also a registered representative of a
broker-dealer having a distribution agreement with Investment Distributors, Inc.
("IDI"). (See "Premiums,".) Protective Life requires satisfactory evidence of
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 (including various forms of conditional
receipt) also may be provided under the terms of a temporary insurance (or
conditional receipt) 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 Cancellation Period is
determined by the law of the state in which the application is signed and is
shown in your Policy. In most states it expires at the latest of
(1) 10 days after you receive your Policy,
(2) 45 days after you sign your application, or
(3) 10 days after Protective Life mails or delivers a Notice of Right of
Withdrawal.
Return of the Policy by mail is effective upon receipt by Protective Life.
We will treat the Policy as if it had never been issued. Within seven calendar
days after receiving the returned Policy, Protective Life will refund the sum of
(1) the difference between premiums paid and amounts allocated to the Fixed
Account or the Variable Account, and
(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.
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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.
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 ten Policy Years
(if the Insured's Issue Age is 0 through 64) or during the first five Policy
Years (if the Insured's Issue Age is 65 through 69), regardless of the Policy
Value, if, for each month that the Policy has been in force since the Policy
Effective Date, the total premiums paid less any withdrawals and Policy Debt is
greater than or equal to the Minimum Monthly Premium (shown in the Policy)
multiplied by the number of complete policy months since the Policy Effective
Date, including the current policy month. The Minimum Monthly Premium 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 No-Lapse Guarantee
does not apply to Policies covering Insureds with an Issue Age of 70 or above.
The Company will NOT notify you in the event the No-Lapse Guarantee is no longer
in effect.
If you increase your Policy's Face Amount while the No-Lapse Guarantee is in
effect, Protective Life will NOT EXTEND the period of this guarantee. The
guarantee period is based on the Initial Face
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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 Premium Payments are to be
allocated to the Sub-Accounts and/or to the Fixed Account. These allocation
instructions apply to both initial and subsequent Net Premium Payments. Owners
may change the allocation instructions in effect at any time by written notice
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 Premium Payments and the sum of allocations must add up to
100%.
For Policies issued in states where, upon cancellation during the
Cancellation Period, Protective Life returns at least your 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 Premium Payments 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 Premium payments 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 Value in the Fixed Account attributable to the
resulting Net Premium will be reallocated to the Policy and allocated in
accordance to your allocation instructions then in effect. If an additional
premium payment is rejected, Protective Life will return the premium
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,
making all Planned Periodic Premium Payments 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 Premium Payments to offset prior Monthly
Deductions.
In the event of a Policy default, the Owner has a 61-day grace period to
make a Net Premium Payment sufficient to cover the current and past-due Monthly
Deductions. Protective Life will send to the Owner, at the last known address
and the last known address of any assignee of record, notice of the premium
required to prevent lapse. The grace period will begin when the notice is sent.
A Policy
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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 Maturity Date has not been reached, (4) the Owner pays Net Premiums
equal to (a) all Monthly Deductions that were due but unpaid during the grace
period, and (b) which are at least sufficient to keep the reinstated Policy in
force for three months, (5) the Insured provides Protective Life with
satisfactory evidence of insurability, (6) the Owner repays or reinstates any
Policy Debt which existed at the end of the grace period; and (7) the Policy has
not been surrendered. The "Approval Date" of a reinstated Policy is the date
that Protective Life approves the Owner's request for reinstatement and
requirements 1-7 above have been met.
SPECIAL TRANSFER PRIVILEGE
During the first 24 policy months following the Policy Effective Date, the
Owner may exercise a one-time Special Transfer Privilege by requesting that all
Variable Account Value be transferred to the Fixed Account. Exercise of the
Special Transfer Privilege does not count toward the 12 transfers that are
permitted each Policy Year without imposition of a transfer fee, and is not
subject to a transfer fee. Unless the Owner specifies otherwise, all subsequent
Net Premiums are allocated to the Fixed Account after the exercise of the
Special Transfer Privilege. Owners may, however, change this allocation by
subsequent written notice received by Protective Life at the Home Office.
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.
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
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b. the per share amount of any dividend or capital gain distributions
made by the Fund to the Sub-Account, if the "ex-dividend" date occurs during
the current Valuation Period; plus or minus
c. a per share charge or credit for any taxes reserved for, which is
determined by Protective Life to have resulted from the operations of the
Sub-Account.
(2) is the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the last prior Valuation Period.
FIXED ACCOUNT VALUE
The Fixed Account Value under a Policy at any time is equal to: (1) the Net
Premium(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. Protective Life reserves the right to restrict
the maximum amount which may be transferred from the Fixed Account in any Policy
Year to the greater of (1) $2500, or (2) 25% of the Fixed Account Value.
Protective Life reserves the right to limit transfers to 12 per Policy Year. For
each additional transfer over 12 in any Policy Year, Protective Life reserves
the right to charge a transfer fee. The transfer fee, if any, is deducted from
the amount being transferred. (See "Transfer Fee".)
TELEPHONE TRANSFERS. Transfers may be made upon instructions given by
telephone, provided the appropriate election has been made on the application or
written authorization is provided.
Protective Life will send you a confirmation of all instructions
communicated by telephone to determine if they are genuine. For telephone
transfers we require a form of personal identification prior to acting on
instructions received by telephone. We also make a tape-recording of the
instructions given by telephone. If we follow these procedures we are not liable
for any losses due to unauthorized or fraudulent instructions. Protective Life
reserves the right to suspend telephone transfer privileges at any time for any
class of Policies.
RESERVATION OF RIGHTS. Protective Life reserves the right without prior
notice to modify, restrict, suspend or eliminate the transfer privileges
(including telephone transfers) at any time, for any class of Policies, for any
reason. In particular, we reserve the right not to honor transfer requests by a
third party holding a power of attorney from an Owner where that third party
requests simultaneous transfers on behalf of the Owners of two or more Policies.
DOLLAR-COST AVERAGING. If you elect at the time of application or at any
time thereafter by written notice to Protective Life at the Home Office, you may
systematically and automatically transfer, on a
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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, Sub-Account Value for the Sub-Account from
which transfers are to be made 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 Date.
Once elected, Protective Life will continue to process dollar-cost averaging
transfers until the earlier of the following: (1) the number of designated
transfers has been completed, or (2) the appropriate Sub-Account Value or the
Fixed Account Value 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
29th, 30th or 31st. If no day is selected, rebalancing will occur on each
applicable Monthly Anniversary Day.
Once elected, Portfolio Rebalancing begins on the first quarterly,
semi-annual or annual anniversary following election. You may change or
terminate Portfolio Rebalancing by written instruction received by Protective
Life at the Home Office, or by telephone if you have previously authorized us to
take telephone instructions. Portfolio Rebalancing transfers do not count as one
of the 12 free transfers available during any Policy Year. Protective Life
reserves the right to assess a processing fee for this service or to discontinue
Portfolio Rebalancing upon 30 days written notice to the Owner.
SURRENDER PRIVILEGE
At any time prior to the Maturity Date while the Insured is still living,
You may surrender your Policy for its Surrender Value. Surrender Value is
determined as of the Valuation Day on or next following the day written notice
requesting the surrender 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
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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 Valuation Day we receive the
request. (See "Withdrawal Charge".)
The Owner may specify the amount of the withdrawal to be made from any
Sub-Account or the Fixed Account. If the Owner does not so specify, or if the
Sub-Account Value or Fixed Account Value is insufficient to carry out the
request, the withdrawal from each Sub-Account and the Fixed Account is based on
the proportion that such Sub-Account Value(s) and Fixed Account Value bears to
the Policy Value on the Valuation Day immediately prior to the withdrawal.
Payment is generally made within seven calendar days. (See "Suspension or Delay
of Payments", and "Payments from the Fixed Account".)
If Death Benefit Option 1 is in effect, Protective Life reserves the right
to reduce the Face Amount by the withdrawn amount (exclusive of withdrawal
charge). Protective Life may reject a withdrawal request if the withdrawal would
reduce the Face Amount below the minimum amount for which the Policy would be
issued under Protective Life's then-current rules, or if the withdrawal would
cause the Policy to fail to qualify as a life insurance contract under
applicable tax laws, as interpreted by Protective Life. If the Face Amount at
the time of the withdrawal includes increases from the Initial Face Amount and
the withdrawal requires a decrease of Face Amount, the reduction is made first
from the most recent increase, then from prior increases, if any, in reverse
order of their being made and finally from the Initial Face Amount.
POLICY LOANS
GENERAL. After the first Policy Anniversary and while the Insured is still
living, an Owner may borrow $500 or more from Protective Life using the Policy
as the security for the loan. Policy loans must be requested by written notice
received by Protective Life at the Home Office and the maximum amount that an
Owner may borrow is an amount equal to 90% of the Policy's Surrender Value on
the date that the loan request is received. Outstanding Policy loans therefore
reduce the amount available for new Policy loans. Loan proceeds generally are
mailed within seven calendar days of the loan being approved. (See "Suspension
or Delay of Payments", and "Payments from the Fixed Account".)
LOAN COLLATERAL. When a Policy loan is made, an amount equal to the loan is
transferred out of the Sub-Accounts and the Fixed Account and into a Loan
Account established for the Policy. Like the Fixed Account, a Policy's Loan
Account is part of Protective Life's General Account and amounts therein earn
interest as credited by Protective Life from time to time. Because Loan Account
values are part of Policy Value, a loan will have no immediate effect on the
Policy Value. In contrast, Surrender Value (including, as applicable, Variable
Account Value and Fixed Account Value) under a Policy is reduced immediately by
the amount transferred to the Loan Account. The Owner(s) can specify the
Sub-Accounts and the Fixed Account from which collateral is transferred to the
Loan Account. If no allocation is specified, collateral is transferred from each
Sub-Account and from the Fixed Account in the same proportion that the Cash
Value in each Sub-Account and the Fixed Account bears to the total Cash Value on
the date that the loan is made.
On each Policy Anniversary, an amount of Policy Value equal to any due and
unpaid loan interest (explained below), is also transferred to the Loan Account.
Such interest is transferred from each Sub-Account and the Fixed Account in the
same proportion that each Sub-Account Value and the Fixed Account Value bears to
the total unloaned Policy Value.
LOAN REPAYMENT. You may repay all or part of your Policy Debt (the amount
borrowed plus unpaid interest) at any time while the Insured is living and the
Policy is in force. Loan repayments must be
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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
premiums, are not subject to premium expense charges.) When a loan repayment is
made, Policy Value in the Loan Account in an amount equal to the repayment is
transferred from the Loan Account to the Sub-Accounts and the Fixed Account.
Thus, a loan repayment will have no immediate effect on the Policy Value, but
the Surrender Value (including, as applicable, Variable Account Value and Fixed
Account Value) under a Policy is increased immediately by the amount transferred
from the Loan Account. Unless specified otherwise by the Owner(s), amounts are
transferred to the Sub-Accounts and the Fixed Account in the same manner as loan
collateral is transferred to the Loan Account.
INTEREST. During 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 charges interest daily on
any outstanding loan at an effective annual rate of 4.0%. Interest is due and
payable at the end of each Policy Year while a loan is outstanding. We will
notify you of the amount due. If interest is not paid when due, the amount of
the interest is added to the loan and becomes part of the Policy Debt.
The Loan Account is credited with interest at an effective annual rate of
not less than 4%. Thus, the net cost of a loan is 2.0% per year during Policy
Years 2 through 10, and 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. Unless specified in writing by the Owner,
interest is transferred and allocated to the Sub-Accounts and the Fixed Account
in the same manner as collateral is transferred to the Loan Account.
NON-PAYMENT OF POLICY LOAN. If the Insured dies while a loan is
outstanding, the Policy Debt is deducted from the Death Benefit in calculating
the Death Benefit proceeds.
If the Loan Account Value exceeds the Cash Value (I.E., the Surrender Value
becomes zero) on any Valuation Date, the Policy may be in default. If this
occurs, you, and any assignee of record, will be sent notice of the default. You
will have a 31-day grace period to submit a sufficient payment to avoid a lapse
(I.E., termination) of the Policy. The notice will specify the amount that must
be repaid to prevent lapse.
EFFECT OF A POLICY LOAN. A loan, whether or not repaid, has a permanent
effect on the Death Benefit and Policy values because the investment results of
the Sub-Accounts and current interest rates credited on Fixed Account Value do
not apply to Policy Value in the Loan Account. The larger the loan and longer
the loan is outstanding, the greater will be the effect of Policy Value being
held as collateral in the Loan Account. (See "No Lapse Guarantee".) Depending on
the investment results of the Sub-Accounts or credited interest rates for the
Fixed Account while the loan is outstanding, the effect could be favorable or
unfavorable. Policy loans also may increase the potential for lapse if
investment results of the Sub-Accounts to which Surrender Value is allocated is
unfavorable. If a Policy lapses with loans outstanding, certain amounts may be
subject to income tax and a 10% penalty tax. See "Tax Considerations," for a
discussion of the tax treatment of policy loans. In addition, if your Policy is
a "modified endowment contract," loans may be currently taxable and subject to a
10% penalty tax.
MATURITY BENEFITS
The Maturity Date is the Policy Anniversary nearest the Insured's 95th
birthday. If the Policy is still in force on the Maturity Date, the Maturity
Benefit will be paid to the Owner. The Maturity Benefit is equal to the
Surrender Value on the Maturity Date. You may request a change in Maturity Date,
subject to Protective Life's approval. To elect or not elect a change in
Maturity Date will have income tax consequences. (See "Tax Considerations".)
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DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, Protective Life will pay the Death
Benefit Proceeds upon receipt at the Home Office of satisfactory proof of the
Insured's death. Protective Life may require return of the Policy. The Death
Benefit Proceeds are paid to the primary beneficiary or a contingent
beneficiary. The Owner may name one or more primary or contingent beneficiaries
and change such beneficiaries, as provided for in the Policy. If no beneficiary
survives the Insured, the Death Benefit Proceeds are paid to the Owner or the
Owner's estate. Death Benefit Proceeds are paid in a lump sum or under a
settlement option (see "Settlement Options").
CALCULATION OF DEATH BENEFIT PROCEEDS. The Death Benefit proceeds are equal
to the Death Benefit under the Death Benefit Option selected calculated as of
the date of the Insured's death, plus any supplemental rider benefits, minus any
Policy Debt on that date and, if the Insured died during a grace period, minus
any past due Monthly Deductions. Under certain circumstances, the amount of the
Death Benefit may be further adjusted. (See "Limits on Rights to Contest the
Policy" and "Misstatement of Age or Sex".)
If part or all of the Death Benefit is paid in one sum, Protective Life will
pay interest on this sum as required by applicable state law from the date of
receipt of due proof of the Insured's death to the date of payment.
DEATH BENEFIT OPTIONS. The Policy Owner may choose one of two Death Benefit
options for use in determining the Death Benefit. Under Death Benefit Option 1,
the Death Benefit is the greater of: (1) the Face Amount under the Policy on the
date of the Insured's death, or (2) a specified percentage of Policy Value on
the date of the Insured's death. Under Death Benefit Option 2, the Death Benefit
is the greater of: (1) the Face Amount under the Policy plus the Policy Value on
the date of the Insured's death, or (2) the same specified percentage of the
Policy Value on the date of the Insured's death.
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 $50,000
(standard smoker or standard nonsmoker class) or $100,000 (preferred nonsmoker
class). The effective date of the change will be the Monthly Anniversary Day
that coincides with or next follows the day that Protective Life receives and
accepts the request. Protective Life may require satisfactory evidence of
insurability.
When a change from Option 1 to Option 2 is made, the Face Amount after the
change is in effect 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
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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 Monthly Anniversary Day on or next following the date
the request for the increase is received and approved, and the Policy Value will
be adjusted to the extent necessary to reflect a monthly deduction as of the
effective date based on the increase in Face Amount. When the No-Lapse Guarantee
is in effect, the Policy's Minimum Monthly Premium amount is also generally
increased. (See "No-Lapse Guarantee," and "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 $50,000 (standard smoker
or standard nonsmoker class), or $100,000 (preferred nonsmoker class).
Protective Life reserves the right to prohibit any decrease in Face Amount (i)
for three years following an increase in Face Amount; and (ii) for one Policy
Year following the last decrease in Face Amount. If the Initial Face Amount of
the Policy has been increased prior to the requested decrease, then the decrease
will first be applied against any previous increases in Face Amount in the
reverse order in which they occurred. The decrease will then be applied to the
Initial Face Amount. A decrease in Face Amount will become effective on the
Monthly Anniversary Day that coincides with or next follows receipt and
acceptance of a request at the Home Office.
Decreasing the Face Amount of the Policy may have the effect of decreasing
monthly cost of insurance charges. Decreasing the Face Amount may also have tax
consequences. See "Tax Considerations". However, if the Face Amount is decreased
during the first fourteen 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
27
<PAGE>
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 Face Amount or 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, death or maturity, other than in a lump sum. These
settlement options are summarized below. Any sales representative authorized to
sell this Policy can further explain these options upon request. All of these
settlement options are forms of fixed-benefit annuities (except Option 3) which
do not vary with the investment performance of a separate account. Under each
settlement option (other than Option 3), no surrender or withdrawal may be made
once payments have begun.
The following settlement options may be elected.
OPTION 1 -- PAYMENT FOR A FIXED PERIOD. Equal monthly payments will be made
for any period of up to 30 years. The amount of each payment depends on the
total amount applied, the period selected and the monthly payment rates
Protective Life is using when the first payment is due.
OPTION 2 -- LIFE INCOME WITH PAYMENTS FOR A GUARANTEED PERIOD. Equal
monthly payments are based on the life of the named annuitant. Payments will
continue for the lifetime of the annuitant with payments guaranteed for 10 or 20
years. Payments stop at the end of the selected guaranteed period or when the
named person dies, whichever is later.
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
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EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING
TO THE FIXED ACCOUNT. THE DISCLOSURE REGARDING THE FIXED ACCOUNT MAY, HOWEVER,
BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES
LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN
PROSPECTUSES.
THE FIXED ACCOUNT
The Fixed Account consists of assets owned by Protective Life with respect
to the Policies, other than those in the Variable Account. It is part of
Protective Life's general account assets. Protective Life's general account
assets are used to support its insurance and annuity obligations other than
those funded by separate accounts, and are subject to the claims of Protective
Life's general creditors. Subject to applicable law, Protective Life has sole
discretion over the investment of the assets of the Fixed Account. The Loan
Account is part of the Fixed Account. Guarantees of Net Premiums allocated to
the Fixed Account, and interest credited thereto, are backed by Protective Life.
The Fixed Account Value is calculated daily. (See "Fixed Account Value".)
INTEREST CREDITED ON FIXED ACCOUNT VALUE
Protective Life guarantees that the interest credited during the first
Policy Year to the initial Net Premium Payment allocated to the Fixed Account
will not be less than the rate shown in the Policy. The interest rate credited
to subsequent Net Premium Payments allocated to or amounts transferred to the
Fixed Account will be the annual effective interest rate in effect on the date
that the Net Premium Payment(s) is received by Protective Life or the date that
the transfer is made. The interest rate is guaranteed to apply to such amounts
for a twelve month period which begins on the date that the Net Premium
Payment(s) is allocated or the date that the transfer is made.
After an interest rate guarantee expires as to a Net Premium Payment or
amount transferred, (I.E., 12 months after the 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 Payment or transferred amount at the
current interest rate in effect. New current interest rates are effective for
such Fixed Account Value for 12 months from the time that they are first
applied. Protective Life, in 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 CHARGES
Premium expense charges currently consist of a sales charge, a charge for
federal taxes and a premium tax charge.
SALES CHARGE. Protective Life deducts a sales charge from each premium.
This charge is 2.75% of each premium in Policy Years 1 through 10, and 0.75% of
each premium in Policy Years 11 and thereafter. The Sales Charge is deducted
from a premium before allocating the Net Premium to the
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<PAGE>
Policy Value. An additional sales charge is deducted on surrender of a Policy
during the first fourteen Policy Years. (See "Surrender Charge".) The Sales
Charges partially compensate Protective Life for the expenses of selling and
distributing the Policies, including paying sales commissions, printing
prospectuses, preparing sales literature and paying for other promotional
activities.
FEDERAL TAX CHARGE. Protective Life also deducts a charge for federal taxes
from each premium paid. This charge is 1.25% of all premiums paid in all Policy
Years and compensates Protective Life for its federal income tax liability
resulting from Section 848 of the Internal Revenue Code. The amount of this
charge, which may be increased or decreased, is reasonable in relation to
Protective Life's increased federal tax burden under Section 848 resulting from
the receipt of premiums under the Policies.
OTHER TAXES. Currently a charge for federal income taxes is not deducted
from the Variable Account or the Policy's Cash Value. The Company reserves the
right in the future to make a charge to the Variable Account or the Policy's
Cash Value for any federal, state or local income taxes that the Company incurs
that it determines to be properly attributable to the Variable Account or the
Policies. We will notify you promptly of any such charge.
PREMIUM TAX CHARGE. A 2.25% charge for state and local premium taxes is
also deducted from each Premium. The state and local premium tax charge
reimburses Protective Life for premium taxes associated with the Policies.
Protective Life expects to pay an average state and local premium tax rate of
approximately 2.25% of premiums for all states.
MONTHLY DEDUCTION
On the Issue Date, Protective Life will deduct the monthly deduction from
the Policy Value. Subsequent monthly deductions will be made on each Monthly
Anniversary Day thereafter. The Monthly Deduction consists of (1) cost of
insurance charges ("cost of insurance charge"), (2) administration charges (the
"monthly administration fee"), (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: Standard Smoker (ages
15-75) or Standard Nonsmoker (ages 0-75), or Preferred Nonsmoker (ages 18-75),
and substandard rate classes, which involve a higher mortality risk than the
Standard Smoker or Standard Nonsmoker classes.
Protective Life will determine a cost of insurance rate for increments of
Face Amount above the Initial Face Amount based on the Issue Age, duration, sex
and rate class of the Insured at the time of the request for an increase. The
following rules will apply for purposes of determining the Net Amount at Risk
for each rate.
Protective Life places the Insured in a rate class when the Policy is
issued, based on Protective Life's underwriting of the application. This
original rate class applies to the Initial Face Amount. When an increase in Face
Amount is requested, Protective Life conducts underwriting before approving the
increase (except as noted below) to determine whether a different rate class
will apply to the increase. If the rate class for the increase has lower cost of
insurance rates than the original rate class, the rate class for the increase
also will be applied to the Initial Face Amount. If the rate class for the
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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.
These rates may change from time to time. The cost of insurance rates are
currently less for Policies that have a Face Amount in excess of $99,999.00.
However, guaranteed rates do not change if the Face Amount exceeds $99,999.00.
Cost of insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker standard class are lower than guaranteed rates for an Insured of the
same age and sex in a smoker standard class. Cost of insurance rates (whether
guaranteed or current) for an Insured in a nonsmoker or smoker standard class
are generally lower than guaranteed rates for an Insured of the same age and sex
and smoking status in a substandard class.
COST OF INSURANCE CHARGE UNDER A CIR. The cost of insurance charge is
determined in a similar manner for the face amount under a CIR and for any
increase in the face amount under a CIR. Generally, both the current and the
guaranteed cost of insurance rates under a CIR are substantially the same as the
current and guaranteed cost of insurance rates on the Face Amount of the Policy.
LEGAL CONSIDERATIONS RELATING TO SEX -- DISTINCT PREMIUM PAYMENTS AND
BENEFITS. Mortality tables for the Policies generally distinguish between males
and females. Thus, premiums and benefits under Policies covering males and
females of the same age will generally differ.
Protective Life does, however, also offer Policies based on unisex mortality
tables if required by state law. Employers and employee organizations
considering purchase of a Policy should consult with their legal advisors to
determine whether purchase of a Policy based on sex-distinct actuarial tables is
consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Upon request, Protective Life may offer Policies with unisex mortality
tables to such prospective purchasers.
MONTHLY ADMINISTRATION FEE. This charge compensates Protective Life for
administration expenses associated with the Policies and the Variable Account.
These expenses relate to premium billing and collection, recordkeeping,
processing death benefit claims, Policy loans, Policy changes, reporting and
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overhead costs, processing applications and establishing Policy records. The
monthly administration fee is a flat charge of $31 per month during the first
Policy Year (guaranteed not to exceed $33 per month), and $6 per month during
each Policy Year thereafter (guaranteed not to exceed $8 per month). In
addition, for the first twelve months following the effective date of an
increase in Face Amount, the monthly administration fee will also include an
administration charge for the increase, based on the amount of the increase. The
administration charge for an increase is equal to a fee per $1,000 of increase
in face amount, and is set forth in your Policy. Representative administration
charges per $1,000 of increase are set forth below for Insureds at each
specified Issue Age:
<TABLE>
<CAPTION>
ADMINISTRATIVE CHARGE
ISSUE AGE PER $1,000 INCREASE
- -------------- -----------------------
<S> <C>
35 0.11
40 0.14
45 0.16
50 0.20
55 0.24
60 0.29
65 0.35
70 0.43
75+ 0.45
</TABLE>
SUPPLEMENTAL 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. In Policy
Years 11 and thereafter, the monthly mortality and expense risk charge is
currently equal to .021% multiplied by the Variable Account Value, which is
equivalent to an annual rate of .25% of such amount. Protective Life reserves
the right to charge less than the maximum charge.
TRANSFER FEE
Protective Life reserves the right to impose a $25 transfer fee on any
transfer of Policy Value between or among the Sub-Accounts or the Fixed Account
in excess of the 12 free transfers permitted each Policy Year. If the fee is
imposed, it will be deducted from the amount requested to be transferred. If an
amount is being transferred from more than one Sub-Account or the Fixed Account,
the transfer fee will be deducted proportionately from the amount being
transferred from each. This fee, if imposed, will reimburse Protective Life for
administrative expenses incurred in effecting transfers.
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
If the Policy is surrendered, or if the Initial Face Amount is reduced,
through the first fourteen Policy Years, a surrender charge will be deducted for
the Initial Face Amount (or the reduction thereof). The Surrender Charge, which
is a contingent deferred sales charge, will be deducted before any surrender
value is paid.
The Surrender Charge for the Initial Face Amount is equal to the Surrender
Charge Percentage as identified below for the Policy Year in which the surrender
or reduction in Initial Face Amount occurs, multiplied by the aggregate amount
of premiums made in Policy Year 1, including premiums
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for any riders. The Surrender Charge Percentage in Policy Years 1 through 6 is
equal to 27%, as shown below. After the sixth completed Policy Year, the
Surrender Charge Percentage decreases by 3% each Policy Year in accordance with
the following table.
<TABLE>
<CAPTION>
SURRENDER DURING SURRENDER CHARGE
POLICY YEAR PERCENTAGE
<S> <C>
- ------------------------------------------
1 - 6 27%
----------------------------------
7 24%
----------------------------------
8 21%
----------------------------------
9 18%
----------------------------------
10 15%
----------------------------------
11 12%
----------------------------------
12 9%
----------------------------------
13 6%
----------------------------------
14 3%
----------------------------------
15 0%
</TABLE>
After the 14th Policy Year, there is no surrender charge for the Initial
Face Amount.
In no event will the surrender charge exceed the Maximum Surrender Charge
(expressed in dollars), which is set forth in the Policy. The Maximum Surrender
Charge is equal to 27% of a SEC Guideline Annual Premium. The SEC Guideline
Annual Premium is a hypothetical level amount that would be payable through the
Maturity Date for the benefits provided under the Policy, assuming cost of
insurance rates equal to those guaranteed in the Policy, net investment earnings
under the Policy at an effective annual rate of 5%, and sales and other charges
imposed under the Policy.
If the Initial Face Amount is decreased during the first fourteen Policy
Years, the Surrender Charge imposed will equal the portion of the total
Surrender Charge that corresponds to the percentage by which the Initial Face
Amount is decreased. In the event of a decrease in the Initial Face Amount, the
pro-rated surrender charge will be allocated to each Sub-Account and to the
Fixed Account based on the proportion of Policy Value in each Sub-Account and in
the Fixed Account. A surrender charge imposed in connection with a reduction in
the Initial Face Amount reduces the remaining surrender charge that may be
imposed in connection with a surrender of the Policy.
The purpose of the surrender charge is to reimburse Protective Life for some
of the expenses incurred in the distribution of the Policies. Protective Life
also deducts a sales charge from each premium paid. (See "Premium Expense
Charges".)
WITHDRAWAL CHARGE
Protective Life will deduct an administrative charge upon a withdrawal. This
charge is the lesser of 2% of the amount withdrawn or $25. This charge will be
deducted from the 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
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their Existing Life Policies for this Policy. Owners of Existing Life Policies
may also make a partial or full surrender from their Existing Life Policies and
use the proceeds to purchase this Policy. All charges and deductions described
in this prospectus are equally applicable to Policies purchased in an exchange.
All charges and deductions may not be assessed under an Existing Life Policy in
connection with an exchange, surrender, or partial surrender of an Existing Life
Policy.
The Policy differs from the Existing Life Policies in many significant
respects. Most importantly, the Policy Value under this Policy may consist,
entirely or in part, of Variable Account Value which fluctuates in response to
the net investment return of the Variable Account. In contrast, the policy
values under the Existing Life Policies always reflect interest credited by the
Company. While a minimum rate of interest (typically 4 or 4 1/2 percent) is
guaranteed, the Company in the past has credited interest at higher rates.
Accordingly, policy values under the Existing Life Policies reflect changing
current interest rates and do not vary with the investment performance of a
Variable Account.
Other significant differences between the Policy and the Existing Life
Policies include: (1) additional charges applicable under the Policy not found
in the Existing Life Policies; (2) different surrender charges; (3) different
death benefits; and (4) differences in federal and state laws and regulations
applicable to each of the types of policies.
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A table which generally summarizes the different charges under the
respective policies is as follows. For more complete details owners of Existing
Life Policies should refer to their policy forms for a complete description.
<TABLE>
<CAPTION>
EXISTING LIFE POLICY POLICY
<S> <C> <C>
State and Local Premium None 2.25% of each premium payment.
Tax
Federal Tax Charge None 1.25% of each premium payment in
all Policy Years.
Sales Charges/Premium Ranges from 0% to 12% of premium 2.75% of each premium payment in
Expense Charge payments in all policy years. policy years 1 through 10;
The premium expense charge can 0.75% of each premium payment
vary by age. in Policy Year 11 and
thereafter.
Administrative Fees Ranges from $4 to $5 monthly. $31 per month the first policy
year and $6 per month
thereafter.
Mortality and Expense None A monthly charge equal to .075%
Charges multiplied by the Variable
Account Value, which is
equivalent to annual rate of
.90% of such amount during
Policy Years 1-10; in all
Policy Years thereafter is
equal to .021% multiplied by
the Variable Account Value,
which is equivalent to an
annual rate of .25% of such
amount.
Withdrawal Charges $25 The lesser of $25 or 2% of the
withdrawal amount requested.
Monthly Deductions A monthly deduction consisting A monthly deduction consisting
of: (1) cost of insurance of: (1) cost of insurance
charges (2) administrative fees charges (2) administrative fees
(see above) and (3) any charges (see above) and (3) any charges
for supplemental riders. for supplemental riders.
(applies to Existing Life
Policies which are universal
life plans)
Surrender Charges Surrender charges vary by policy A declining deferred sales
type and are incurred during a charge of up to 27% of premium
surrender charge period which payments made in the first
ranges from 0 years up to 19 Policy Year (or 27% of a SEC
years. Guideline Annual Premium if
less) is assessed on surrender
charges during the first 14
Policy Years.
Guaranteed Interest Rate Ranges from 4% to 5%. Fixed account only 4%.
</TABLE>
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<PAGE>
EFFECT OF THE EXCHANGE OFFER
1. This Policy will be issued to Existing Life Policy Owners. Evidence of
insurability may be required.
2. If an Existing Life Policy owner is within current issue age limits, the
Owner may carry over existing Riders and/or Supplement Benefits if available
with the Policy. Evidence of insurability may be required. An increase or
addition of Riders &/or Supplemental Benefits will require full evidence of
insurability.
3. The Contestable and Suicide provisions in the Policy will begin again as
of the effective date of the exchange, if evidence of insurability is required.
If evidence of insurability is not required on the exchange, the Contestable and
Suicide provisions will not begin again.
TAX 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.
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.
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<PAGE>
This average annual expense ratio is based on the expense ratios of each of the
Funds for the last fiscal year, adjusted, as appropriate, for any material
changes in expenses effective for the current fiscal year of a Fund. For
information on Fund expenses, see the prospectus for each of the Funds
accompanying this prospectus.
In addition, the illustrations reflect the monthly charge to the Variable
Account for assuming mortality and expense risks, which is equal to .075%
multiplied by the Variable Account Value, which is equivalent to a effective
annual charge of 0.90% of such amount during Policies Years 1-10; and in Policy
Years 11+ is equal to .021% multiplied by the Variable Account Value, which is
equivalent to an annual rate of .25% of such amount. After deduction of Fund
expenses and the mortality and expense risk charge, the illustrated gross annual
investment rates of return of 0%, 6% and 12% would correspond to approximate net
annual rates of -1.79%, 4.21% and 10.21%, respectively and for Policy Year 11
and thereafter -1.14%, 4.86% and 10.86%, respectively.
The illustrations also reflect the deduction of the Premium Expense Charges,
the Monthly Expense Charge and the monthly cost of insurance charge for the
hypothetical Insured. The Surrender Charge is reflected in the column "Surrender
Value". Protective Life's current cost of insurance charges, and the guaranteed
maximum cost of insurance charges that Protective Life has the contractual right
to charge, are reflected in separate illustrations on each of the following
pages. All the illustrations reflect the fact that no charges for federal or
state income taxes are currently made against the Variable Account and assume no
Policy Debt or charges for supplemental 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.
37
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$1,800 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--- ----------- ------------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 1,890 965 493 100,000 1,043 571 100,000
47 2 3,875 2,188 1,715 100,000 2,414 1,941 100,000
48 3 5,958 3,365 2,893 100,000 3,818 3,346 100,000
49 4 8,146 4,498 4,025 100,000 5,257 4,785 100,000
50 5 10,443 5,582 5,109 100,000 6,729 6,257 100,000
51 6 12,856 6,617 6,145 100,000 8,235 7,763 100,000
52 7 15,388 7,599 7,180 100,000 9,770 9,351 100,000
53 8 18,048 8,523 8,156 100,000 11,332 10,965 100,000
54 9 20,840 9,385 9,070 100,000 12,918 12,603 100,000
55 10 23,772 10,178 9,916 100,000 14,523 14,261 100,000
56 11 26,851 11,181 10,971 100,000 16,458 16,248 100,000
57 12 30,083 12,261 12,103 100,000 18,579 18,422 100,000
58 13 33,478 13,253 13,148 100,000 20,737 20,632 100,000
59 14 37,041 14,160 14,107 100,000 22,938 22,886 100,000
60 15 40,783 14,969 14,969 100,000 25,176 25,176 100,000
61 16 44,713 15,642 15,642 100,000 27,422 27,422 100,000
62 17 48,838 16,219 16,219 100,000 29,715 29,715 100,000
63 18 53,170 16,689 16,689 100,000 32,055 32,055 100,000
64 19 57,719 17,045 17,045 100,000 34,442 34,442 100,000
65 20 62,495 17,274 17,274 100,000 36,879 36,879 100,000
66 21 67,509 17,366 17,366 100,000 39,364 39,364 100,000
67 22 72,775 17,303 17,303 100,000 41,899 41,899 100,000
68 23 78,304 17,066 17,066 100,000 44,483 44,483 100,000
69 24 84,109 16,632 16,632 100,000 47,119 47,119 100,000
70 25 90,204 15,975 15,975 100,000 49,810 49,810 100,000
71 26 96,604 15,065 15,065 100,000 52,560 52,560 100,000
72 27 103,325 13,869 13,869 100,000 55,378 55,378 100,000
73 28 110,381 12,352 12,352 100,000 58,277 58,277 100,000
74 29 117,790 10,505 10,505 100,000 61,288 61,288 100,000
75 30 125,569 8,233 8,233 100,000 64,414 64,414 100,000
76 31 133,738 5,460 5,460 100,000 67,675 67,675 100,000
77 32 142,315 2,091 2,091 100,000 71,100 71,100 100,000
78 33 151,321 * * * 74,743 74,743 100,000
79 34 160,777 * * * 78,641 78,641 100,000
80 35 170,705 * * * 82,877 82,877 100,000
81 36 181,131 * * * 87,531 87,531 100,000
82 37 192,077 * * * 92,725 92,725 100,000
83 38 203,571 * * * 98,485 98,485 103,409
84 39 215,640 * * * 104,454 104,454 109,676
85 40 228,312 * * * 110,629 110,629 116,160
86 41 241,617 * * * 117,001 117,001 122,851
87 42 255,588 * * * 123,569 123,569 129,748
88 43 270,257 * * * 130,328 130,328 136,844
89 44 285,660 * * * 137,269 137,269 144,133
90 45 301,833 * * * 144,385 144,385 151,604
91 46 318,815 * * * 151,667 151,667 157,733
92 47 336,646 * * * 159,438 159,438 164,221
93 48 355,368 * * * 167,786 167,786 171,142
94 49 375,026 * * * 176,815 176,815 178,583
95 50 395,668 * * * 186,645 186,645 186,645
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURNS
--------------------------------
POLICY SURRENDER DEATH
AGE VALUE VALUE BENEFIT
--- -------- ----------- ---------
<S> <C> <C> <C>
46 1,121 649 100,000
47 2,650 2,178 100,000
48 4,310 3,837 100,000
49 6,114 5,642 100,000
50 8,075 7,603 100,000
51 10,209 9,737 100,000
52 12,530 12,110 100,000
53 15,054 14,686 100,000
54 17,799 17,484 100,000
55 20,786 20,523 100,000
56 24,397 24,187 100,000
57 28,497 28,340 100,000
58 32,995 32,890 100,000
59 37,946 37,893 100,000
60 43,401 43,401 100,000
61 49,406 49,406 100,000
62 56,068 56,068 100,000
63 63,477 63,477 100,000
64 71,740 71,740 100,000
65 80,983 80,983 100,000
66 91,284 91,284 108,628
67 102,644 102,644 121,120
68 115,167 115,167 134,745
69 128,970 128,970 149,605
70 144,181 144,181 165,808
71 160,941 160,941 181,864
72 179,466 179,466 199,207
73 199,964 199,964 217,961
74 222,684 222,684 238,272
75 247,896 247,896 260,291
76 275,927 275,927 289,723
77 306,842 306,842 322,184
78 340,928 340,928 357,975
79 378,480 378,480 397,404
80 419,836 419,836 440,828
81 465,338 465,338 488,605
82 515,364 515,364 541,132
83 570,351 570,351 598,868
84 630,716 630,716 662,252
85 696,958 696,958 731,806
86 769,531 769,531 808,008
87 848,980 848,980 891,429
88 935,856 935,856 982,649
89 1,030,737 1,030,737 1,082,274
90 1,134,238 1,134,238 1,190,950
91 1,247,017 1,247,017 1,296,898
92 1,372,627 1,372,627 1,413,806
93 1,513,111 1,513,111 1,543,373
94 1,670,933 1,670,933 1,687,642
95 1,849,077 1,849,077 1,849,077
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable premium expense charges, current cost of
insurance rates, a monthly administrative charge of $31.00 per month in
Policy Year 1 and $6.00 thereafter, and a monthly mortality and expense risk
charge equal to 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 in Policy Years 11+ is equal to 0.021% multiplied by the Variable
Account Value, which is equivalent to an annual rate of 0.25% of such
amount.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
38
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$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
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--- ----------- ------------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 1,890 941 469 100,000 1,018 546 100,000
47 2 3,875 2,140 1,668 100,000 2,363 1,891 100,000
48 3 5,958 3,295 2,823 100,000 3,741 3,269 100,000
49 4 8,146 4,404 3,932 100,000 5,152 4,680 100,000
50 5 10,443 5,466 4,994 100,000 6,595 6,122 100,000
51 6 12,856 6,479 6,007 100,000 8,069 7,597 100,000
52 7 15,388 7,439 7,019 100,000 9,572 9,152 100,000
53 8 18,048 8,341 7,973 100,000 11,100 10,733 100,000
54 9 20,840 9,181 8,866 100,000 12,650 12,335 100,000
55 10 23,772 9,952 9,690 100,000 14,217 13,955 100,000
56 11 26,851 10,687 10,477 100,000 15,836 15,626 100,000
57 12 30,083 11,344 11,186 100,000 17,467 17,310 100,000
58 13 33,478 11,919 11,815 100,000 19,110 19,005 100,000
59 14 37,041 12,410 12,358 100,000 20,762 20,709 100,000
60 15 40,783 12,807 12,807 100,000 22,417 22,417 100,000
61 16 44,713 13,101 13,101 100,000 24,070 24,070 100,000
62 17 48,838 13,282 13,282 100,000 25,715 25,715 100,000
63 18 53,170 13,336 13,336 100,000 27,342 27,342 100,000
64 19 57,719 13,246 13,246 100,000 28,940 28,940 100,000
65 20 62,495 12,992 12,992 100,000 30,497 30,497 100,000
66 21 67,509 12,555 12,555 100,000 32,002 32,002 100,000
67 22 72,775 11,920 11,920 100,000 33,448 33,448 100,000
68 23 78,304 11,066 11,066 100,000 34,824 34,824 100,000
69 24 84,109 9,970 9,970 100,000 36,122 36,122 100,000
70 25 90,204 8,603 8,603 100,000 37,327 37,327 100,000
71 26 96,604 6,918 6,918 100,000 38,415 38,415 100,000
72 27 103,325 4,803 4,803 100,000 39,321 39,321 100,000
73 28 110,381 2,291 2,291 100,000 40,076 40,076 100,000
74 29 117,790 * * * 40,596 40,596 100,000
75 30 125,569 * * * 40,830 40,830 100,000
76 31 133,738 * * * 40,726 40,726 100,000
77 32 142,315 * * * 40,224 40,224 100,000
78 33 151,321 * * * 39,252 39,252 100,000
79 34 160,777 * * * 37,725 37,725 100,000
80 35 170,705 * * * 35,519 35,519 100,000
81 36 181,131 * * * 32,461 32,461 100,000
82 37 192,077 * * * 28,307 28,307 100,000
83 38 203,571 * * * 22,714 22,714 100,000
84 39 215,640 * * * 15,208 15,208 100,000
85 40 228,312 * * * 5,153 5,153 100,000
86 41 241,617 * * * * * *
87 42 255,588 * * * * * *
88 43 270,257 * * * * * *
89 44 285,660 * * * * * *
90 45 301,833 * * * * * *
91 46 318,815 * * * * * *
92 47 336,646 * * * * * *
93 48 355,368 * * * * * *
94 49 375,026 * * * * * *
95 50 395,668 * * * * * *
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURNS
--------------------------------
POLICY SURRENDER DEATH
AGE VALUE VALUE BENEFIT
--- -------- ----------- ---------
<S> <C> <C> <C>
46 1,096 624 100,000
47 2,596 2,124 100,000
48 4,225 3,753 100,000
49 5,995 5,523 100,000
50 7,918 7,446 100,000
51 10,011 9,538 100,000
52 12,285 11,865 100,000
53 14,757 14,389 100,000
54 17,444 17,129 100,000
55 20,367 20,105 100,000
56 23,589 23,379 100,000
57 27,101 26,943 100,000
58 30,938 30,833 100,000
59 35,139 35,086 100,000
60 39,744 39,744 100,000
61 44,803 44,803 100,000
62 50,374 50,374 100,000
63 56,522 56,522 100,000
64 63,328 63,328 100,000
65 70,885 70,885 100,000
66 79,313 79,313 100,000
67 88,716 88,716 104,685
68 99,024 99,024 115,858
69 110,300 110,300 127,948
70 122,634 122,634 141,030
71 136,125 136,125 153,821
72 150,923 150,923 167,524
73 167,198 167,198 182,246
74 185,112 185,112 198,070
75 204,869 204,869 215,112
76 226,717 226,717 238,053
77 250,624 250,624 263,156
78 276,773 276,773 290,611
79 305,357 305,357 320,624
80 336,584 336,584 353,414
81 370,674 370,674 389,207
82 407,851 407,851 428,244
83 448,350 448,350 470,768
84 492,411 492,411 517,031
85 540,287 540,287 567,301
86 592,247 592,247 621,860
87 648,582 648,582 681,011
88 709,595 709,595 745,075
89 775,617 775,617 814,398
90 846,987 846,987 889,337
91 924,048 924,048 961,010
92 1,009,563 1,009,563 1,039,850
93 1,104,895 1,104,895 1,126,993
94 1,211,703 1,211,703 1,223,820
95 1,332,019 1,332,019 1,332,019
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable premium expense charges, guaranteed
cost of insurance rates, a monthly administrative charge of $33.00 per month
in Policy Year 1 and $8.00 thereafter, and a monthly mortality and expense
risk charge equal to 0.075% multiplied by the Variable Account Value, which
is equivalent to an annual rate of 0.90% of such amount in all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
39
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$4,000 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--- ----------- ------------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 4,200 2,986 2,514 102,986 3,186 2,714 103,186
47 2 8,610 6,190 5,718 106,190 6,786 6,314 106,786
48 3 13,241 9,309 8,836 109,309 10,505 10,033 110,505
49 4 18,103 12,341 11,869 112,341 14,348 13,876 114,348
50 5 23,208 15,285 14,813 115,285 18,316 17,844 118,316
51 6 28,568 18,140 17,668 118,140 22,411 21,939 122,411
52 7 34,196 20,900 20,481 120,900 26,632 26,212 126,632
53 8 40,106 23,561 23,194 123,561 30,977 30,609 130,977
54 9 46,312 26,119 25,804 126,119 35,444 35,129 135,444
55 10 52,827 28,566 28,303 128,566 40,031 39,768 140,031
56 11 59,669 31,374 31,164 131,374 45,312 45,102 145,312
57 12 66,852 34,245 34,087 134,245 50,947 50,790 150,947
58 13 74,395 36,990 36,885 136,990 56,759 56,654 156,759
59 14 82,314 39,610 39,557 139,610 62,756 62,703 162,756
60 15 90,630 42,090 42,090 142,090 68,930 68,930 168,930
61 16 99,361 44,383 44,383 144,383 75,239 75,239 175,239
62 17 108,530 46,537 46,537 146,537 81,736 81,736 181,736
63 18 118,156 48,538 48,538 148,538 88,416 88,416 188,416
64 19 128,264 50,377 50,377 150,377 95,277 95,277 195,277
65 20 138,877 52,042 52,042 152,042 102,311 102,311 202,311
66 21 150,021 53,519 53,519 153,519 109,512 109,512 209,512
67 22 161,722 54,790 54,790 154,790 116,868 116,868 216,868
68 23 174,008 55,836 55,836 155,836 124,361 124,361 224,361
69 24 186,908 56,636 56,636 156,636 131,976 131,976 231,976
70 25 200,454 57,166 57,166 157,166 139,691 139,691 239,691
71 26 214,677 57,400 57,400 157,400 147,481 147,481 247,481
72 27 229,610 57,318 57,318 157,318 155,323 155,323 255,323
73 28 245,291 56,895 56,895 156,895 163,193 163,193 263,193
74 29 261,755 56,147 56,147 156,147 171,104 171,104 271,104
75 30 279,043 54,996 54,996 154,996 178,973 178,973 278,973
76 31 297,195 53,401 53,401 153,401 186,752 186,752 286,752
77 32 316,255 51,315 51,315 151,315 194,382 194,382 294,382
78 33 336,268 48,744 48,744 148,744 201,856 201,856 301,856
79 34 357,281 45,579 45,579 145,579 209,049 209,049 309,049
80 35 379,345 41,838 41,838 141,838 215,959 215,959 315,959
81 36 402,513 37,397 37,397 137,397 222,437 222,437 322,437
82 37 426,838 32,198 32,198 132,198 228,393 228,393 328,393
83 38 452,380 26,290 26,290 126,290 233,845 233,845 333,845
84 39 479,199 19,525 19,525 119,525 238,607 238,607 338,607
85 40 507,359 11,928 11,928 111,928 242,662 242,662 342,662
86 41 536,927 3,295 3,295 103,295 245,754 245,754 345,754
87 42 567,973 * * * 247,809 247,809 347,809
88 43 600,572 * * * 248,678 248,678 348,678
89 44 634,801 * * * 248,199 248,199 348,199
90 45 670,741 * * * 246,223 246,223 346,223
91 46 708,478 * * * 242,618 242,618 342,618
92 47 748,102 * * * 237,330 237,330 337,330
93 48 789,707 * * * 230,226 230,226 330,226
94 49 833,392 * * * 221,171 221,171 321,171
95 50 879,262 * * * 210,018 210,018 310,018
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURNS
--------------------------------
POLICY SURRENDER DEATH
AGE VALUE VALUE BENEFIT
--- -------- ----------- ---------
<S> <C> <C> <C>
46 3,387 2,915 103,387
47 7,406 6,934 107,406
48 11,800 11,328 111,800
49 16,606 16,134 116,606
50 21,862 21,390 121,862
51 27,610 27,138 127,610
52 33,893 33,473 133,893
53 40,758 40,391 140,758
54 48,257 47,943 148,257
55 56,446 56,183 156,446
56 66,109 65,899 166,109
57 76,920 76,763 176,920
58 88,803 88,698 188,803
59 101,872 101,820 201,872
60 116,241 116,241 216,241
61 131,996 131,996 231,996
62 149,337 149,337 249,337
63 168,419 168,419 268,419
64 189,421 189,421 289,421
65 212,533 212,533 312,533
66 237,970 237,970 337,970
67 265,960 265,960 365,960
68 296,757 296,757 396,757
69 330,640 330,640 430,640
70 367,915 367,915 467,915
71 408,920 408,920 508,920
72 454,030 454,030 554,030
73 503,663 503,663 603,663
74 558,320 558,320 658,320
75 618,459 618,459 718,459
76 684,624 684,624 784,624
77 757,413 757,413 857,413
78 837,545 837,545 937,545
79 925,691 925,691 1,025,691
80 1,022,733 1,022,733 1,122,733
81 1,129,494 1,129,494 1,229,494
82 1,246,957 1,246,957 1,346,957
83 1,376,323 1,376,323 1,476,323
84 1,518,717 1,518,717 1,618,717
85 1,675,566 1,675,566 1,775,566
86 1,848,207 1,848,207 1,948,207
87 2,038,306 2,038,306 2,140,221
88 2,246,653 2,246,653 2,358,986
89 2,474,197 2,474,197 2,597,907
90 2,722,411 2,722,411 2,858,532
91 2,992,873 2,992,873 3,112,588
92 3,294,109 3,294,109 3,394,109
93 3,630,993 3,630,993 3,730,993
94 4,003,512 4,003,512 4,103,512
95 4,414,666 4,414,666 4,514,666
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable premium expense charges, current cost of
insurance rates, a monthly administrative charge of $31.00 per month in
Policy Year 1 and $6.00 thereafter, and a monthly mortality and expense risk
charge equal to 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 in Policy Years 11+ is equal to 0.021% multiplied by the Variable
Account Value, which is equivalent to an annual rate of 0.25% of such
amount.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
40
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
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
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- ------- ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 4,200 2,962 2,490 102,962 3,162 2,690 103,162
47 2 8,610 6,143 5,671 106,143 6,736 6,263 106,736
48 3 13,241 9,239 8,766 109,239 10,429 9,956 110,429
49 4 18,103 12,248 11,776 112,248 14,244 13,772 114,244
50 5 23,208 15,170 14,698 115,170 18,182 17,710 118,182
51 6 28,568 18,003 17,531 118,003 22,247 21,775 122,247
52 7 34,196 20,743 20,323 120,743 26,437 26,017 126,437
53 8 40,106 23,383 23,015 123,383 30,749 30,382 130,749
54 9 46,312 25,919 25,605 125,919 35,182 34,868 135,182
55 10 52,827 28,346 28,084 128,346 39,733 39,471 139,733
56 11 59,669 30,736 30,526 130,736 44,483 44,273 144,483
57 12 66,852 33,003 32,845 133,003 49,347 49,190 149,347
58 13 74,395 35,144 35,039 135,144 54,327 54,222 154,327
59 14 82,314 37,156 37,103 137,156 59,419 59,367 159,419
60 15 90,630 39,028 39,028 139,028 64,616 64,616 164,616
61 16 99,361 40,750 40,750 140,750 69,910 69,910 169,910
62 17 108,530 42,314 42,314 142,314 75,292 75,292 175,292
63 18 118,156 43,703 43,703 143,703 80,747 80,747 180,747
64 19 128,264 44,900 44,900 144,900 86,256 86,256 186,256
65 20 138,877 45,886 45,886 145,886 91,800 91,800 191,800
66 21 150,021 46,646 46,646 146,646 97,359 97,359 197,359
67 22 161,722 47,167 47,167 147,167 102,917 102,917 202,917
68 23 174,008 47,435 47,435 147,435 108,455 108,455 208,455
69 24 186,908 47,436 47,436 147,436 113,953 113,953 213,953
70 25 200,454 47,151 47,151 147,151 119,385 119,385 219,385
71 26 214,677 46,549 46,549 146,549 124,711 124,711 224,711
72 27 229,610 45,531 45,531 145,531 129,819 129,819 229,819
73 28 245,291 44,169 44,169 144,169 134,765 134,765 234,765
74 29 261,755 42,345 42,345 142,345 139,416 139,416 239,416
75 30 279,043 40,008 40,008 140,008 143,697 143,697 243,697
76 31 297,195 37,126 37,126 137,126 147,551 147,551 247,551
77 32 316,255 33,671 33,671 133,671 150,921 150,921 250,921
78 33 336,268 29,619 29,619 129,619 153,752 153,752 253,752
79 34 357,281 24,957 24,957 124,957 155,996 155,996 255,996
80 35 379,345 19,651 19,651 119,651 157,584 157,584 257,584
81 36 402,513 13,642 13,642 113,642 158,416 158,416 258,416
82 37 426,838 6,852 6,852 106,852 158,364 158,364 258,364
83 38 452,380 * * * 157,272 157,272 257,272
84 39 479,199 * * * 154,961 154,961 254,961
85 40 507,359 * * * 151,271 151,271 251,271
86 41 536,927 * * * 146,059 146,059 246,059
87 42 567,973 * * * 139,206 139,206 239,206
88 43 600,572 * * * 130,600 130,600 230,600
89 44 634,801 * * * 120,152 120,152 220,152
90 45 670,741 * * * 107,750 107,750 207,750
91 46 708,478 * * * 93,256 93,256 193,256
92 47 748,102 * * * 76,500 76,500 176,500
93 48 789,707 * * * 57,248 57,248 157,248
94 49 833,392 * * * 35,181 35,181 135,181
95 50 879,262 * * * 9,625 9,625 109,625
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURNS
---------------------------------
POLICY SURRENDER DEATH
AGE VALUE VALUE BENEFIT
- --- --------- --------- ---------
<S> <C> <C> <C>
46 3,362 2,890 103,362
47 7,353 6,880 107,353
48 11,716 11,244 111,716
49 16,489 16,016 116,489
50 21,707 21,235 121,707
51 27,414 26,942 127,414
52 33,652 33,232 133,652
53 40,467 40,100 140,467
54 47,912 47,597 147,912
55 56,040 55,778 156,040
56 65,002 64,792 165,002
57 74,784 74,627 174,784
58 85,466 85,361 185,466
59 97,129 97,077 197,129
60 109,862 109,862 209,862
61 123,760 123,760 223,760
62 138,926 138,926 238,926
63 155,470 155,470 255,470
64 173,509 173,509 273,509
65 193,172 193,172 293,172
66 214,600 214,600 314,600
67 237,956 237,956 337,956
68 263,415 263,415 363,415
69 291,170 291,170 391,170
70 321,428 321,428 421,428
71 354,402 354,402 454,402
72 390,259 390,259 490,259
73 429,356 429,356 529,356
74 471,891 471,891 571,891
75 518,146 518,146 618,146
76 568,456 568,456 668,456
77 623,189 623,189 723,189
78 682,759 682,759 782,759
79 747,626 747,626 847,626
80 818,281 818,281 918,281
81 895,234 895,234 995,234
82 979,024 979,024 1,079,024
83 1,070,218 1,070,218 1,170,218
84 1,169,427 1,169,427 1,269,427
85 1,277,347 1,277,347 1,377,347
86 1,394,773 1,394,773 1,494,773
87 1,522,607 1,522,607 1,622,607
88 1,661,857 1,661,857 1,761,857
89 1,813,662 1,813,662 1,913,662
90 1,979,256 1,979,256 2,079,256
91 2,159,233 2,159,233 2,259,233
92 2,356,445 2,356,445 2,456,445
93 2,571,751 2,571,751 2,671,751
94 2,806,759 2,806,759 2,906,759
95 3,062,887 3,062,887 3,162,887
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable premium expense charges, guaranteed
cost of insurance rates, a monthly administrative charge of $33.00 per month
in Policy Year 1 and $8.00 thereafter, and a monthly mortality and expense
risk charge equal to 0.075% multiplied by the Variable Account Value, which
is equivalent to an annual rate of 0.90% of such amount in all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
41
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$3,000 ANNUAL PLANNED PREMIUM
$100,000 FACE AMOUNT
DEATH BENEFIT OPTION 2
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- --------- ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 3,150 2,098 1,705 102,098 2,244 1,851 102,244
47 2 6,458 4,436 4,044 104,436 4,868 4,475 104,868
48 3 9,930 6,712 6,319 106,712 7,579 7,186 107,579
49 4 13,577 8,923 8,530 108,923 10,378 9,986 110,378
50 5 17,406 11,070 10,677 111,070 13,269 12,876 113,269
51 6 21,426 13,150 12,757 113,150 16,251 15,858 116,251
52 7 25,647 15,163 14,814 115,163 19,325 18,976 119,325
53 8 30,080 17,105 16,799 117,105 22,492 22,186 122,492
54 9 34,734 19,128 18,866 119,128 25,910 25,648 125,910
55 10 39,620 21,162 20,944 121,162 29,519 29,301 129,519
56 11 44,751 23,333 23,158 123,333 33,519 33,344 133,519
57 12 50,139 25,440 25,309 125,440 37,672 37,541 137,672
58 13 55,796 27,475 27,388 127,475 41,978 41,891 141,978
59 14 61,736 29,415 29,372 129,415 46,419 46,375 146,419
60 15 67,972 31,280 31,280 131,280 51,019 51,019 151,019
61 16 74,521 33,025 33,025 133,025 55,740 55,740 155,740
62 17 81,397 34,685 34,685 134,685 60,623 60,623 160,623
63 18 88,617 36,256 36,256 136,256 65,671 65,671 165,671
64 19 96,198 37,743 37,743 137,743 70,895 70,895 170,895
65 20 104,158 39,132 39,132 139,132 76,287 76,287 176,287
66 21 112,516 40,414 40,414 140,414 81,848 81,848 181,848
67 22 121,291 41,583 41,583 141,583 87,575 87,575 187,575
68 23 130,506 42,641 42,641 142,641 93,481 93,481 193,481
69 24 140,181 43,567 43,567 143,567 99,547 99,547 199,547
70 25 150,340 44,364 44,364 144,364 105,786 105,786 205,786
71 26 161,007 45,001 45,001 145,001 112,172 112,172 212,172
72 27 172,208 45,477 45,477 145,477 118,707 118,707 218,707
73 28 183,968 45,747 45,747 145,747 125,353 125,353 225,353
74 29 196,317 45,804 45,804 145,804 132,104 132,104 232,104
75 30 209,282 45,589 45,589 145,589 138,901 138,901 238,901
76 31 222,896 45,089 45,089 145,089 145,731 145,731 245,731
77 32 237,191 44,261 44,261 144,261 152,548 152,548 252,548
78 33 252,201 43,058 43,058 143,058 159,298 159,298 259,298
79 34 267,961 41,389 41,389 141,389 165,880 165,880 265,880
80 35 284,509 39,240 39,240 139,240 172,265 172,265 272,265
81 36 301,884 36,559 36,559 136,559 178,386 178,386 278,386
82 37 320,129 33,296 33,296 133,296 184,171 184,171 284,171
83 38 339,285 29,401 29,401 129,401 189,545 189,545 289,545
84 39 359,399 24,752 24,752 124,752 194,355 194,355 294,355
85 40 380,519 19,366 19,366 119,366 198,583 198,583 298,583
86 41 402,695 13,193 13,193 113,193 202,139 202,139 302,139
87 42 425,980 6,163 6,163 106,163 204,911 204,911 304,911
88 43 450,429 * * * 206,797 206,797 306,797
89 44 476,100 * * * 207,688 207,688 307,688
90 45 503,055 * * * 207,471 207,471 307,471
91 46 531,358 * * * 206,026 206,026 306,026
92 47 561,076 * * * 203,258 203,258 303,258
93 48 592,280 * * * 199,041 199,041 299,041
94 49 625,044 * * * 193,240 193,240 293,240
95 50 659,446 * * * 185,717 185,717 285,717
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURNS
---------------------------------
POLICY SURRENDER DEATH
AGE VALUE VALUE BENEFIT
- --- --------- --------- ---------
<S> <C> <C> <C>
46 2,390 1,997 102,390
47 5,317 4,924 105,317
48 8,517 8,124 108,517
49 12,016 11,623 112,016
50 15,842 15,449 115,842
51 20,025 19,632 120,025
52 24,598 24,249 124,598
53 29,597 29,291 129,597
54 35,224 34,962 135,224
55 41,471 41,253 141,471
56 48,690 48,516 148,690
57 56,650 56,519 156,650
58 65,421 65,334 165,421
59 75,066 75,023 175,066
60 85,699 85,699 185,699
61 97,378 97,378 197,378
62 110,253 110,253 210,253
63 124,448 124,448 224,448
64 140,110 140,110 240,110
65 157,381 157,381 257,381
66 176,427 176,427 276,427
67 197,429 197,429 297,429
68 220,603 220,603 320,603
69 246,159 246,159 346,159
70 274,357 274,357 374,357
71 305,448 305,448 405,448
72 339,742 339,742 439,742
73 377,538 377,538 477,538
74 419,203 419,203 519,203
75 465,092 465,092 565,092
76 515,645 515,645 615,645
77 571,317 571,317 671,317
78 632,611 632,611 732,611
79 700,032 700,032 800,032
80 774,223 774,223 874,223
81 855,857 855,857 955,857
82 945,681 945,681 1,045,681
83 1,044,521 1,044,521 1,144,521
84 1,153,217 1,153,217 1,253,217
85 1,272,843 1,272,843 1,372,843
86 1,404,521 1,404,521 1,504,521
87 1,549,475 1,549,475 1,649,475
88 1,709,075 1,709,075 1,809,075
89 1,884,842 1,884,842 1,984,842
90 2,078,377 2,078,377 2,182,296
91 2,290,406 2,290,406 2,390,406
92 2,525,396 2,525,396 2,625,396
93 2,784,483 2,784,483 2,884,483
94 3,070,208 3,070,208 3,170,208
95 3,385,393 3,385,393 3,485,393
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable premium expense charges, current cost of
insurance rates, a monthly administrative charge of $31.00 per month in
Policy Year 1 and $6.00 thereafter, and a monthly mortality and expense risk
charge equal to 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 in Policy Years 11+ is equal to 0.021% multiplied by the Variable
Account Value, which is equivalent to an annual rate of 0.25% of such
amount.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
42
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$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
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- --------- ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 3,150 2,074 1,681 102,074 2,219 1,826 102,219
47 2 6,458 4,389 3,997 104,389 4,818 4,425 104,818
48 3 9,930 6,642 6,249 106,642 7,502 7,109 107,502
49 4 13,577 8,830 8,437 108,830 10,274 9,881 110,274
50 5 17,406 10,955 10,562 110,955 13,136 12,743 113,136
51 6 21,426 13,014 12,621 113,014 16,087 15,694 116,087
52 7 25,647 15,005 14,656 115,005 19,130 18,781 119,130
53 8 30,080 16,926 16,620 116,926 22,264 21,959 122,264
54 9 34,734 18,773 18,511 118,773 25,487 25,225 125,487
55 10 39,620 20,545 20,326 120,545 28,801 28,583 128,801
56 11 44,751 22,300 22,125 122,300 32,270 32,096 132,270
57 12 50,139 23,978 23,847 123,978 35,837 35,706 135,837
58 13 55,796 25,581 25,494 125,581 39,505 39,418 139,505
59 14 61,736 27,112 27,068 127,112 43,281 43,238 143,281
60 15 67,972 28,569 28,569 128,569 47,167 47,167 147,167
61 16 74,521 29,946 29,946 129,946 51,158 51,158 151,158
62 17 81,397 31,235 31,235 131,235 55,249 55,249 155,249
63 18 88,617 32,419 32,419 132,419 59,428 59,428 159,428
64 19 96,198 33,480 33,480 133,480 63,675 63,675 163,675
65 20 104,158 34,401 34,401 134,401 67,974 67,974 167,974
66 21 112,516 35,176 35,176 135,176 72,318 72,318 172,318
67 22 121,291 35,796 35,796 135,796 76,697 76,697 176,697
68 23 130,506 36,262 36,262 136,262 81,112 81,112 181,112
69 24 140,181 36,577 36,577 136,577 85,562 85,562 185,562
70 25 150,340 36,732 36,732 136,732 90,040 90,040 190,040
71 26 161,007 36,707 36,707 136,707 94,521 94,521 194,521
72 27 172,208 36,470 36,470 136,470 98,969 98,969 198,969
73 28 183,968 35,975 35,975 135,975 103,332 103,332 203,332
74 29 196,317 35,168 35,168 135,168 107,545 107,545 207,545
75 30 209,282 33,998 33,998 133,998 111,545 111,545 211,545
76 31 222,896 32,422 32,422 132,422 115,270 115,270 215,270
77 32 237,191 30,404 30,404 130,404 118,666 118,666 218,666
78 33 252,201 27,917 27,917 127,917 121,682 121,682 221,682
79 34 267,961 24,935 24,935 124,935 124,267 124,267 224,267
80 35 284,509 21,416 21,416 121,416 126,350 126,350 226,350
81 36 301,884 17,293 17,293 117,293 127,832 127,832 227,832
82 37 320,129 12,481 12,481 112,481 128,588 128,588 228,588
83 38 339,285 6,870 6,870 106,870 128,464 128,464 228,464
84 39 359,399 340 340 100,340 127,282 127,282 227,282
85 40 380,519 * * * 124,882 124,882 224,882
86 41 402,695 * * * 121,100 121,100 221,100
87 42 425,980 * * * 115,786 115,786 215,786
88 43 450,429 * * * 108,776 108,776 208,776
89 44 476,100 * * * 99,915 99,915 199,915
90 45 503,055 * * * 89,019 89,019 189,019
91 46 531,358 * * * 75,893 75,893 175,893
92 47 561,076 * * * 60,301 60,301 160,301
93 48 592,280 * * * 41,942 41,942 141,942
94 49 625,044 * * * 20,396 20,396 120,396
95 50 659,446 * * * * * *
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURNS
---------------------------------
POLICY SURRENDER DEATH
AGE VALUE VALUE BENEFIT
- --- --------- --------- ---------
<S> <C> <C> <C>
46 2,364 1,972 102,364
47 5,264 4,871 105,264
48 8,433 8,041 108,433
49 11,898 11,505 111,898
50 15,687 15,294 115,687
51 19,829 19,436 119,829
52 24,357 24,008 124,357
53 29,306 29,001 129,306
54 34,713 34,451 134,713
55 40,622 40,404 140,622
56 47,147 46,973 147,147
57 54,285 54,154 154,285
58 62,095 62,008 162,095
59 70,650 70,606 170,650
60 80,019 80,019 180,019
61 90,279 90,279 190,279
62 101,508 101,508 201,508
63 113,787 113,787 213,787
64 127,199 127,199 227,199
65 141,838 141,838 241,838
66 157,820 157,820 257,820
67 175,268 175,268 275,268
68 194,329 194,329 294,329
69 215,165 215,165 315,165
70 237,945 237,945 337,945
71 262,840 262,840 362,840
72 290,027 290,027 390,027
73 319,684 319,684 419,684
74 352,000 352,000 452,000
75 387,182 387,182 487,182
76 425,468 425,468 525,468
77 467,127 467,127 567,127
78 512,463 512,463 612,463
79 561,809 561,809 661,809
80 615,517 615,517 715,517
81 673,950 673,950 773,950
82 737,480 737,480 837,480
83 806,495 806,495 906,495
84 881,405 881,405 981,405
85 962,688 962,688 1,062,688
86 1,050,869 1,050,869 1,150,869
87 1,146,552 1,146,552 1,246,552
88 1,250,394 1,250,394 1,350,394
89 1,363,132 1,363,132 1,463,132
90 1,485,553 1,485,553 1,585,553
91 1,618,527 1,618,527 1,718,527
92 1,762,972 1,762,972 1,862,972
93 1,919,843 1,919,843 2,019,843
94 2,090,084 2,090,084 2,190,084
95 2,274,475 2,274,475 2,374,475
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable premium expense charges, guaranteed
cost of insurance rates, a monthly administrative charge of $33.00 per month
in Policy Year 1 and $8.00 thereafter, and a monthly mortality and expense
risk charge equal to 0.075% multiplied by the Variable Account Value, which
is equivalent to an annual rate of 0.90% of such amount in all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
43
<PAGE>
S 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
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- --------- ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 1,575 720 327 100,000 782 389 100,000
47 2 3,229 1,708 1,315 100,000 1,887 1,494 100,000
48 3 4,965 2,660 2,267 100,000 3,020 2,628 100,000
49 4 6,788 3,576 3,183 100,000 4,181 3,788 100,000
50 5 8,703 4,455 4,062 100,000 5,371 4,978 100,000
51 6 10,713 5,295 4,902 100,000 6,587 6,194 100,000
52 7 12,824 6,095 5,746 100,000 7,830 7,481 100,000
53 8 15,040 6,852 6,546 100,000 9,098 8,793 100,000
54 9 17,367 7,705 7,443 100,000 10,533 10,271 100,000
55 10 19,810 8,590 8,371 100,000 12,076 11,857 100,000
56 11 22,376 9,518 9,344 100,000 13,775 13,600 100,000
57 12 25,069 10,405 10,274 100,000 15,529 15,398 100,000
58 13 27,898 11,243 11,156 100,000 17,335 17,247 100,000
59 14 30,868 12,013 11,969 100,000 19,176 19,132 100,000
60 15 33,986 12,731 12,731 100,000 21,073 21,073 100,000
61 16 37,261 13,359 13,359 100,000 22,994 22,994 100,000
62 17 40,699 13,929 13,929 100,000 24,972 24,972 100,000
63 18 44,309 14,437 14,437 100,000 27,008 27,008 100,000
64 19 48,099 14,887 14,887 100,000 29,111 29,111 100,000
65 20 52,079 15,267 15,267 100,000 31,276 31,276 100,000
66 21 56,258 15,571 15,571 100,000 33,507 33,507 100,000
67 22 60,646 15,790 15,790 100,000 35,803 35,803 100,000
68 23 65,253 15,929 15,929 100,000 38,176 38,176 100,000
69 24 70,091 15,967 15,967 100,000 40,620 40,620 100,000
70 25 75,170 15,906 15,906 100,000 43,148 43,148 100,000
71 26 80,504 15,718 15,718 100,000 45,752 45,752 100,000
72 27 86,104 15,400 15,400 100,000 48,443 48,443 100,000
73 28 91,984 14,910 14,910 100,000 51,214 51,214 100,000
74 29 98,158 14,236 14,236 100,000 54,075 54,075 100,000
75 30 104,641 13,321 13,321 100,000 57,019 57,019 100,000
76 31 111,448 12,143 12,143 100,000 60,060 60,060 100,000
77 32 118,596 10,649 10,649 100,000 63,208 63,208 100,000
78 33 126,100 8,776 8,776 100,000 66,474 66,474 100,000
79 34 133,980 6,414 6,414 100,000 69,864 69,864 100,000
80 35 142,254 3,505 3,505 100,000 73,418 73,418 100,000
81 36 150,942 * * * 77,175 77,175 100,000
82 37 160,064 * * * 81,189 81,189 100,000
83 38 169,643 * * * 85,529 85,529 100,000
84 39 179,700 * * * 90,282 90,282 100,000
85 40 190,260 * * * 95,577 95,577 100,356
86 41 201,348 * * * 101,195 101,195 106,255
87 42 212,990 * * * 107,009 107,009 112,360
88 43 225,215 * * * 113,020 113,020 118,671
89 44 238,050 * * * 119,224 119,224 125,186
90 45 251,528 * * * 125,621 125,621 131,902
91 46 265,679 * * * 132,206 132,206 137,494
92 47 280,538 * * * 139,190 139,190 143,365
93 48 296,140 * * * 146,635 146,635 149,567
94 49 312,522 * * * 154,617 154,617 156,163
95 50 329,723 * * * 163,225 163,225 163,225
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURNS
---------------------------------
POLICY SURRENDER DEATH
AGE VALUE VALUE BENEFIT
- --- --------- --------- ---------
<S> <C> <C> <C>
46 845 452 100,000
47 2,075 1,682 100,000
48 3,411 3,018 100,000
49 4,863 4,471 100,000
50 6,444 6,051 100,000
51 8,163 7,770 100,000
52 10,034 9,685 100,000
53 12,071 11,766 100,000
54 14,432 14,170 100,000
55 17,082 16,864 100,000
56 20,142 19,967 100,000
57 23,513 23,382 100,000
58 27,226 27,139 100,000
59 31,307 31,263 100,000
60 35,815 35,815 100,000
61 40,776 40,776 100,000
62 46,273 46,273 100,000
63 52,373 52,373 100,000
64 59,158 59,158 100,000
65 66,711 66,711 100,000
66 75,136 75,136 100,000
67 84,551 84,551 100,000
68 95,011 95,011 111,163
69 106,569 106,569 123,620
70 119,342 119,342 137,244
71 133,455 133,455 150,804
72 149,077 149,077 165,475
73 166,373 166,373 181,347
74 185,539 185,539 198,527
75 206,790 206,790 217,130
76 230,383 230,383 241,902
77 256,452 256,452 269,275
78 285,244 285,244 299,506
79 317,022 317,022 332,874
80 352,084 352,084 369,688
81 390,747 390,747 410,284
82 433,356 433,356 455,023
83 480,284 480,284 504,298
84 531,917 531,917 558,513
85 588,704 588,704 618,139
86 651,115 651,115 683,670
87 719,646 719,646 755,628
88 794,836 794,836 834,577
89 877,259 877,259 921,122
90 967,531 967,531 1,015,908
91 1,066,304 1,066,304 1,108,956
92 1,176,087 1,176,087 1,211,369
93 1,298,503 1,298,503 1,324,473
94 1,435,497 1,435,497 1,449,852
95 1,589,407 1,589,407 1,589,407
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Current values reflect applicable premium expense charges, current cost of
insurance rates, a monthly administrative charge of $31.00 per month in
Policy Year 1 and $6.00 thereafter, and a monthly mortality and expense risk
charge equal to 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 in Policy Years 11+ is equal to 0.021% multiplied by the Variable
Account Value, which is equivalent to an annual rate of 0.25% of such
amount.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
44
<PAGE>
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
ACCUMULATED GROSS INVESTMENT RETURNS GROSS INVESTMENT RETURNS
END OF AT --------------------------------- ---------------------------------
POLICY 5% INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- --------- ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 1,575 696 303 100,000 758 365 100,000
47 2 3,229 1,661 1,268 100,000 1,837 1,444 100,000
48 3 4,965 2,590 2,197 100,000 2,943 2,550 100,000
49 4 6,788 3,483 3,090 100,000 4,076 3,683 100,000
50 5 8,703 4,339 3,947 100,000 5,236 4,843 100,000
51 6 10,713 5,157 4,764 100,000 6,422 6,029 100,000
52 7 12,824 5,935 5,586 100,000 7,632 7,283 100,000
53 8 15,040 6,670 6,364 100,000 8,867 8,561 100,000
54 9 17,367 7,358 7,096 100,000 10,121 9,859 100,000
55 10 19,810 7,999 7,781 100,000 11,397 11,179 100,000
56 11 22,376 8,622 8,447 100,000 12,725 12,550 100,000
57 12 25,069 9,196 9,065 100,000 14,076 13,945 100,000
58 13 27,898 9,722 9,635 100,000 15,453 15,365 100,000
59 14 30,868 10,204 10,161 100,000 16,860 16,816 100,000
60 15 33,986 10,640 10,640 100,000 18,297 18,297 100,000
61 16 37,261 11,023 11,023 100,000 19,761 19,761 100,000
62 17 40,699 11,345 11,345 100,000 21,247 21,247 100,000
63 18 44,309 11,593 11,593 100,000 22,744 22,744 100,000
64 19 48,099 11,750 11,750 100,000 24,238 24,238 100,000
65 20 52,079 11,800 11,800 100,000 25,720 25,720 100,000
66 21 56,258 11,734 11,734 100,000 27,183 27,183 100,000
67 22 60,646 11,545 11,545 100,000 28,625 28,625 100,000
68 23 65,253 11,230 11,230 100,000 30,045 30,045 100,000
69 24 70,091 10,788 10,788 100,000 31,447 31,447 100,000
70 25 75,170 10,209 10,209 100,000 32,826 32,826 100,000
71 26 80,504 9,469 9,469 100,000 34,170 34,170 100,000
72 27 86,104 8,534 8,534 100,000 35,458 35,458 100,000
73 28 91,984 7,351 7,351 100,000 36,657 36,657 100,000
74 29 98,158 5,858 5,858 100,000 37,733 37,733 100,000
75 30 104,641 3,988 3,988 100,000 38,645 38,645 100,000
76 31 111,448 1,672 1,672 100,000 39,359 39,359 100,000
77 32 118,596 0 * * 39,837 39,837 100,000
78 33 126,100 0 * * 40,043 40,043 100,000
79 34 133,980 0 * * 39,931 39,931 100,000
80 35 142,254 0 * * 39,437 39,437 100,000
81 36 150,942 0 * * 38,467 38,467 100,000
82 37 160,064 0 * * 36,891 36,891 100,000
83 38 169,643 0 * * 34,528 34,528 100,000
84 39 179,700 0 * * 31,134 31,134 100,000
85 40 190,260 * * * 26,404 26,404 100,000
86 41 201,348 * * * 19,923 19,923 100,000
87 42 212,990 * * * 11,137 11,137 100,000
88 43 225,215 * * * * * *
89 44 238,050 * * * * * *
90 45 251,528 * * * * * *
91 46 265,679 * * * * * *
92 47 280,538 * * * * * *
93 48 296,140 * * * * * *
94 49 312,522 * * * * * *
95 50 329,723 * * * * * *
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURNS
---------------------------------
POLICY SURRENDER DEATH
AGE VALUE VALUE BENEFIT
- ------------ --------- ---------
<S> <C> <C> <C>
46 819 427 100,000
47 2,021 1,629 100,000
48 3,327 2,934 100,000
49 4,745 4,352 100,000
50 6,287 5,895 100,000
51 7,964 7,572 100,000
52 9,789 9,440 100,000
53 11,775 11,470 100,000
54 13,935 13,673 100,000
55 16,289 16,071 100,000
56 18,890 18,716 100,000
57 21,733 21,603 100,000
58 24,848 24,761 100,000
59 28,268 28,225 100,000
60 32,029 32,029 100,000
61 36,164 36,164 100,000
62 40,716 40,716 100,000
63 45,725 45,725 100,000
64 51,240 51,240 100,000
65 57,322 57,322 100,000
66 64,048 64,048 100,000
67 71,508 71,508 100,000
68 79,810 79,810 100,000
69 89,064 89,064 103,314
70 99,244 99,244 114,130
71 110,410 110,410 124,763
72 122,684 122,684 136,180
73 136,183 136,183 148,440
74 151,039 151,039 161,612
75 167,408 167,408 175,779
76 185,474 185,474 194,747
77 205,281 205,281 215,545
78 226,987 226,987 238,336
79 250,764 250,764 263,302
80 276,795 276,795 290,634
81 305,272 305,272 320,535
82 336,397 336,397 353,216
83 370,379 370,379 388,898
84 407,436 407,436 427,808
85 447,798 447,798 470,187
86 491,702 491,702 516,288
87 539,405 539,405 566,375
88 591,166 591,166 620,724
89 647,259 647,259 679,622
90 707,957 707,957 743,355
91 773,538 773,538 804,480
92 846,056 846,056 871,438
93 926,621 926,621 945,153
94 1,016,598 1,016,598 1,026,764
95 1,117,705 1,117,705 1,117,705
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* In the absence of an additional premium, the Policy would lapse.
The illustration above is based on the following assumptions:
(1) Assumes that no Policy loans have been made.
(2) Guaranteed values reflect applicable premium expense charges, guaranteed
cost of insurance rates, a monthly administrative charge of $33.00 per month
in Policy Year 1 and $8.00 thereafter, 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 in all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the planned premium is paid at the beginning of each Policy
Year. Values would be different if the premiums are paid with a different
frequency or in different amounts.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
45
<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
benefits and/or riders, the Death Benefit under the Policy or such supplemental
riders is the amount which would have been provided by the most recent cost of
insurance charge, and the cost of such supplemental riders, at the correct age
and sex.
OTHER CHANGES. At any time Protective Life may make such changes in the
Policy as are necessary to assure compliance with any applicable laws,
regulations or rulings issued by a government agency. This includes, but is not
limited to, changes necessary to comply at all times with the definition of life
insurance prescribed by the Code. Any such changes will apply uniformly to all
affected Policies and Owners will receive notification of such changes.
SUSPENSION OR DELAY IN PAYMENTS
Protective Life will ordinarily pay any Death Benefit proceeds, Policy
loans, withdrawals, or surrenders within seven calendar days after receipt at
the Home Office of all the documents required for such a payment. Other than the
Death Benefit, which is determined as of the date of death, the amount will be
determined as of the date of receipt of all required documents. However,
Protective Life may delay making a payment or processing a transfer request if
(1) the New York Stock Exchange is closed for other than a regular holiday or
weekend, trading on the Exchange is restricted by the SEC, or the SEC declares
that an emergency exists as a result of which the disposal or valuation of
Variable Account assets is not reasonably practicable; or (2) the SEC by order
permits postponement of payment to protect Owners. (See also "Payments from the
Fixed Account".)
REPORTS TO POLICY OWNERS
At least once 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.
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
46
<PAGE>
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 do not vary with the investment experience of
the Variable Account.
CHILDREN'S TERM LIFE INSURANCE RIDER. Provides a death benefit payable on
the death of a covered child. More than one child can be covered. There is no
cash value for this benefit.
ACCIDENTAL DEATH BENEFIT RIDER. Provides an additional death benefit
payable if the Insured's death results from certain accidental causes. There is
no cash value for this benefit.
DISABILITY BENEFIT RIDER. Provides for the crediting of a specific Premium
Payment to a Policy on each Monthly Anniversary during the total disability of
the Insured. After the Insured has been totally disabled (as defined in the
rider) for six months, 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
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
benefits may be available at any time, and supplemental riders in addition to
those listed above may be made available. Please ask your Protective Life agent
for further information, or contact the Home Office.
47
<PAGE>
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 or the above applications you should consider
whether the anticipated duration of the Policy is appropriate for the
application for which you intend to purchase it.
In addition, you need to consider the tax implications of using the Policy
with these applications. (The tax implications of using this Policy with these
applications can be complex and generally are not addressed in the discussion of
"Tax Considerations" below.) Loans and withdrawals will affect the Policy Value
and Death Benefit. There may be penalties and taxes if the policy is
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.
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
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income taxes is not deducted from the Sub-Accounts or the Policy's Cash Value.
However, Protective Life does deduct a charge of 1.25% of each Premium Payment
in all Policy Years to compensate it for the federal tax treatment of deferred
acquisition costs. Protective Life reserves the right in the future 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.
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
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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 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.
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TAX TREATMENT OF LOANS. If a Policy is not classified as a MEC, a loan
received under the Policy generally will be treated as indebtedness of the
Owner. As a result, no part of any loan under a Policy will constitute income to
the Owner so long as the Policy remains in force. However, in those situations
where the interest rate credited to the Loan Account equals the interest rate
charged for the loan, it is possible that some or all of the loan proceeds may
be includible in income. If a Policy lapses when a loan is outstanding, the
amount of the loan outstanding will be treated as the proceeds of a surrender
for purposes of determining whether any amounts are includable in the Owner's
income.
Generally, interest paid on any loans under this Policy will not be tax
deductible. 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 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.
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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.
TREATMENT OF MATURITY BENEFITS AND EXTENSION OF MATURITY DATE. At the
Maturity Date, the Surrender Value will be paid to the Owner. This payment will
be taxable in the same manner as a surrender of the Policy. If the Owner elects
to extend the Maturity Date (which must be done prior to the Maturity Date) and
such extension is approved, it is possible that the IRS could treat the Owner as
being in constructive receipt of the Cash Value when the insured reaches age 95.
If this were the case, an amount equal to the excess of the Cash Value over the
investment in the contract could be includible in the Owner's income at that
time.
ACTIONS TO ENSURE COMPLIANCE WITH THE TAX LAW. Protective Life believes
that the maximum amount of premiums it has determined for the Policies will
comply with the federal tax definition of life insurance. Protective Life will
monitor the amount of premiums paid, and, if the premiums paid exceed those
permitted by the tax definition of life insurance, Protective Life will
immediately refund the excess premiums. Protective Life also reserves the right
to increase the Death Benefit (which may result in larger charges under a
Policy) or to take any other action deemed necessary to ensure the compliance of
the Policy with the federal tax definition of life insurance.
OTHER CONSIDERATIONS. Changing the Owner, exchanging the Policy, changing
from one Death Benefit Option to another, and other changes under the Policy may
have tax consequences (other than those discussed herein) depending on the
circumstances of such change or withdrawal. Federal estate and state and local
estate, inheritance and other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Policy Owner or beneficiary.
FEDERAL INCOME TAX WITHHOLDING
Protective Life will withhold and remit to the federal government a part of
the taxable portion of a surrender and withdrawal made under a Policy unless the
Owner notifies Protective Life in writing at or before the time of the surrender
or withdrawal that he or she elects not to have any amounts withheld. Regardless
of whether the Owner requests that no taxes be withheld or whether Protective
Life withholds a sufficient amount of taxes, the Owner will be responsible for
the payment of any taxes including any penalty tax that may be due on the
amounts received. The Owner may also be required to pay penalties under the
estimated tax rules, if the Owner's withholding and estimated tax payments are
insufficient to satisfy the Owner's total tax liability.
OTHER INFORMATION ABOUT THE POLICIES AND PROTECTIVE LIFE
SALE OF THE POLICIES
Investment Distributors, Inc. ("IDI"), a wholly-owned subsidiary of
Protective Life Corporation, acts as a principal underwriter of the Policies.
IDI also acts as principal underwriter of variable annuity contracts issued
through Protective Variable Annuity Separate Account. IDI is a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. The Policies are sold by
certain registered representatives of broker-dealers (including Pro Equities,
Inc., an affiliate of Protective Life and IDI) that have entered into selling
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agreements with IDI, who are also appointed and licensed as insurance agents of
Protective Life. Registered representatives may be paid commissions on Policies
they sell based on premiums paid in amounts up to 90% 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
4.5% on premiums. After the first ten Policy Years registered representatives
may be paid .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 sales charge,
administrative fees, 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.
<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
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.
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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.
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.
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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 the Company, 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.
The Company began work on the Year 2000 problem in 1995. At that time, the
Company identified and assessed the Company'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. The Company's Year 2000
plan includes all subsidiaries.
The Company 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.
Two insurance administration systems identified as mission critical are not
yet fully remediated. A 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. Also, another personal
computer application, which processes policy information for one line of
business, is being re-written and is currently in test. This system is targeted
to be in production by April 30, 1999.
Future date tests are used to verify a system's ability to process
transactions dated up to and beyond January 1, 2000. Future date tests are
complete or in-progress for the majority of the Company'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 the Company's Year 2000 project since 1995.
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<PAGE>
Integrated tests involve multiple system testing and are used to verify the
Year 2000 readiness of interfaces and connectivity across multiple systems. The
Company 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 the Company's operations are being reviewed and in some cases their Year 2000
preparations are being monitored by the Company. 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 will begin in March 1999 and continue throughout the year.
These plans will augment the Company's existing disaster recovery plans.
The Company 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. The Company's Year 2000 efforts have not adversely affected
its normal procurement and development of information technology.
Although the Company believes that a process is in place to successfully
address Year 2000 issues, there can be no assurances that the Company's efforts
will be successful, that interactions with other service providers with Year
2000 issues will not impair the Company's operations, or that the Year 2000
issue will not otherwise adversely affect the Company.
Should some of the Company's systems not be available due to Year 2000
problems, in a reasonably likely worst case scenario, the Company 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 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
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.
IMSA
Protective Life is a member of the Insurance Marketplace Standards
Association ("IMSA"), and as such as 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.
56
<PAGE>
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities of the Protective Variable
Life Separate Account (comprised of seventeen Sub-Accounts) as of December 31,
1997 and December 31, 1998 and the related statements of operations and changes
in net assets for each of the two years in the period ended December 31, 1998 as
well as the Report of Independent Accountants are contained herein.
The audited consolidated balance sheets for Protective Life as of December
31, 1998, and 1997 and the related consolidated statements of income,
stockholder's equity, and cash flows for the years ended December 31, 1998, 1997
and 1996 as well as the Report of Independent Accountants are contained herein.
57
<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 Stockholder'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) 4,581 12 192 4,092 21,184 824 152
Net unrealized
appreciation
(depreciation) on
investments during
the period........ 114,601 163,168 35,533 7,098 61,042 112,622 26,862 893
----------- --------- --------- ----------- ------------- ------------ ------------- -------------
Net realized and
unrealized gain
(loss) on
investments....... 106,459 167,749 35,545 7,290 65,134 133,806 27,686 1,045
----------- --------- --------- ----------- ------------- ------------ ------------- -------------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $ 106,459 $ 168,572 $ 35,545 $ 7,443 $ 65,582 $ 135,563 $ 27,729 $ 1,252
----------- --------- --------- ----------- ------------- ------------ ------------- -------------
----------- --------- --------- ----------- ------------- ------------ ------------- -------------
<CAPTION>
TOTAL
----------
<S> <C>
INVESTMENT INCOME
Dividends........... $ 61,498
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain
(loss) from
redemption of
investment
shares............ (36,013)
Capital gain
distribution...... 404,577
----------
Net realized gain
(loss) on
investments....... 368,564
Net unrealized
appreciation
(depreciation) on
investments during
the period........ 756,918
----------
Net realized and
unrealized gain
(loss) on
investments....... 1,125,482
----------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $1,186,980
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC PIC
MONEY AND INTERNATIONAL GLOBAL SMALL
MARKET INCOME EQUITY INCOME CAP VALUE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................... $ 1,088 $ 7,094 $ 9,487 $ 9,209 $ 1,630
----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption
of investment shares.................. 0 669 338 2 (211)
Capital gain distribution............... 0 132,504 29,384 1,394 61,983
----------- ----------- ----------- ----------- -----------
Net realized gain (loss) on
investments........................... 0 133,173 29,722 1,396 61,772
Net unrealized appreciation
(depreciation) on investments during
the period............................ (1) (19,493) (31,321) (4,150) 38,214
----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments........................ (1) 113,680 (1,599) (2,754) 99,986
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $ 1,087 $ 120,774 $ 7,888 $ 6,455 $ 101,616
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
CALVERT
SOCIAL
PIC PIC SMALL CALVERT
CORE CAPITAL CAP SOCIAL
US EQUITY GROWTH GROWTH BALANCED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................... $ 3,427 $ 3,803 $ 0 $ 2
----------- ----------- --- ---
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption
of investment shares.................. 1 142 0 0
Capital gain distribution............... 33,252 39,296 7 4
----------- ----------- --- ---
Net realized gain (loss) on
investments........................... 33,253 39,438 7 4
Net unrealized appreciation
(depreciation) on investments during
the period............................ 20,629 53,776 (8) (4)
----------- ----------- --- ---
Net realized and unrealized gain (loss)
on investments........................ 53,882 93,214 (1) 0
----------- ----------- --- ---
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $ 57,309 $ 97,017 $ (1) $ 2
----------- ----------- --- ---
----------- ----------- --- ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE
GROWTH RESEARCH INCOME RETURN GROWTH
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........... $ 0 $ 0 $ 28 $ 0 $ 0
----------- ----------- ----- --- ---
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain
(loss) from
redemption of
investment
shares............ (549) (176) 1 89 (95)
Capital gain
distribution...... 0 0 132 0 0
----------- ----------- ----- --- ---
Net realized gain
(loss) on
investments....... (549) (176) 133 89 (95)
Net unrealized
appreciation
(depreciation) on
investments during
the period........ (656) 1,111 210 (13) 0
----------- ----------- ----- --- ---
Net realized and
unrealized gain
(loss) on
investments....... (1,205) 935 343 76 (95)
----------- ----------- ----- --- ---
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $ (1,205) $ 935 $ 371 $ 76 $ (95)
----------- ----------- ----- --- ---
----------- ----------- ----- --- ---
<CAPTION>
OPPENHEIMER
GROWTH OPPENHEIMER
OPPENHEIMER AND STRATEGIC
GROWTH INCOME BOND TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........... $ 0 $ 29 $ 199 $35,996
--- --- ----- ------------
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain
(loss) from
redemption of
investment
shares............ 67 (3) 0 275
Capital gain
distribution...... 0 0 0 297,956
--- --- ----- ------------
Net realized gain
(loss) on
investments....... 67 (3) 0 298,231
Net unrealized
appreciation
(depreciation) on
investments during
the period........ 0 0 1 58,295
--- --- ----- ------------
Net realized and
unrealized gain
(loss) on
investments....... 67 (3) 1 356,526
--- --- ----- ------------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $ 67 $ 26 $ 200 3$92,522
--- --- ----- ------------
--- --- ----- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC PIC
MONEY AND INTERNATIONAL GLOBAL SMALL
MARKET INCOME EQUITY INCOME CAP VALUE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 4,328 $ 24,343 $ 606 $ 6,411 $ 3,858
Net realized gain (loss) on
investments........................... 0 136,068 66,648 7,273 80,922
Net unrealized appreciation
(depreciation) of investments during
the period............................ 0 (239,036) 111,568 517 (208,100)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations............. 4,328 (78,625) 178,822 14,201 (123,320)
----------- ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contract owners' net payments........... 195,932 653,729 467,242 75,377 326,394
Mortality and expense risk charges...... (789) (14,388) (8,838) (1,343) (6,169)
Cost of insurance and administrative
charges............................... (6,995) (262,009) (153,893) (24,988) (107,308)
Surrenders.............................. (17,500) (205,471) (59,291) (5,378) (48,315)
Death benefits.......................... 0 (1,464) (2,976) (5,476) (1,599)
Net policy loan repayments
(withdrawals)......................... 0 (28,951) (10,260) (6,295) 6,720
Transfer from other portfolios.......... 77,773 872,682 505,168 152,178 166,894
----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from variable life policy
transactions.......................... 248,421 1,014,128 737,152 184,075 336,617
----------- ----------- ----------- ----------- -----------
Total increase in net assets............ 252,749 935,503 915,974 198,276 213,297
----------- ----------- ----------- ----------- -----------
NET ASSETS
Beginning of year....................... 50,887 1,003,430 547,905 112,606 567,647
----------- ----------- ----------- ----------- -----------
End of year............................. $ 303,636 $ 1,938,933 $1,463,879 $ 310,882 $ 780,944
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
CALVERT
SOCIAL
PIC PIC SMALL CALVERT
CORE CAPITAL CAP SOCIAL
US EQUITY GROWTH GROWTH BALANCED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 8,151 $ 9,719 $ 3 $ 648
Net realized gain (loss) on
investments........................... 8,935 44,344 44 1,435
Net unrealized appreciation
(depreciation) of investments during
the period............................ 152,564 417,199 386 1
----------- ----------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations............. 169,650 471,262 433 2,084
----------- ----------- ------------ ------------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contract owners' net payments........... 264,767 584,574 505 11,531
Mortality and expense risk charges...... (6,869) (12,378) (7) (122)
Cost of insurance and administrative
charges............................... (111,812) (208,707) (115) (1,707)
Surrenders.............................. (22,133) (34,532) (60) (62)
Death benefits.......................... (3,076) (5,124) 0 0
Net policy loan repayments
(withdrawals)......................... 2,322 (19,779) 0 0
Transfer from other portfolios.......... 808,646 1,245,747 2,756 17,233
----------- ----------- ------------ ------------
Net increase in net assets resulting
from variable life policy
transactions.......................... 931,845 1,549,801 3,079 26,873
----------- ----------- ------------ ------------
Total increase in net assets............ 1,101,495 2,021,063 3,512 28,957
----------- ----------- ------------ ------------
NET ASSETS
Beginning of year....................... 419,642 636,765 70 79
----------- ----------- ------------ ------------
End of year............................. $ 1,521,137 $ 2,657,828 $3,582 2$9,036
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN ASSETS, CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE
GROWTH RESEARCH INCOME RETURN GROWTH
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment
income (loss)..... $ 0 $ 823 $ 0 $ 153 $ 448
Net realized gain on
investments....... (8,142) 4,581 12 192 4,092
Net unrealized
appreciation
(depreciation) of
investments during
the period........ 114,601 163,168 35,533 7,098 61,042
----------- ----------- ----------- ----------- -----------
Net increase in net
assets resulting
from operations... 106,459 168,572 35,545 7,443 65,582
----------- ----------- ----------- ----------- -----------
FROM VARIABLE LIFE
POLICY
TRANSACTIONS
Contract owners' net
payments.......... 149,724 340,842 58,275 19,846 146,955
Mortality and
expense risk
charges........... (2,868) (6,079) (959) (376) (2,513)
Cost of insurance
and administrative
charges........... (53,449) (93,831) (14,841) (4,187) (50,406)
Surrenders.......... (7,418) (5,985) (67) (90) (7,118)
Death benefits...... (1,639) (4,889) 0 0 (1,465)
Net policy loan
repayments
(withdrawals)..... 17,214 16,841 (2) 0 (193)
Transfer from other
portfolios........ 430,503 877,569 407,619 107,442 390,654
----------- ----------- ----------- ----------- -----------
Net increase in net
assets resulting
from variable life
policy
transactions...... 532,067 1,124,468 450,025 122,635 475,914
----------- ----------- ----------- ----------- -----------
Total increase in
net assets........ 638,526 1,293,040 485,570 130,078 541,496
----------- ----------- ----------- ----------- -----------
NET ASSETS
Beginning of year... 59,898 121,167 7,004 2,890 56,236
----------- ----------- ----------- ----------- -----------
End of year......... $ 698,424 $ 1,414,207 $ 492,574 $ 132,968 $ 597,732
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
OPPENHEIMER
GROWTH OPPENHEIMER
OPPENHEIMER AND STRATEGIC
GROWTH INCOME BOND TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment
income (loss)..... $ 1,757 $ 43 $ 207 $61,498
Net realized gain on
investments....... 21,184 824 152 368,564
Net unrealized
appreciation
(depreciation) of
investments during
the period........ 112,622 26,862 893 756,918
----------- ----------- ------------ ------------
Net increase in net
assets resulting
from operations... 135,563 27,729 1,252 1,186,980
----------- ----------- ------------ ------------
FROM VARIABLE LIFE
POLICY
TRANSACTIONS
Contract owners' net
payments.......... 231,236 45,373 36,012 3,608,314
Mortality and
expense risk
charges........... (4,146) (732) (354) (68,930)
Cost of insurance
and administrative
charges........... (69,902) (14,230) (10,478) (1,188,858)
Surrenders.......... (3,970) (690) 0 (418,080)
Death benefits...... (3,257) 0 0 (30,965)
Net policy loan
repayments
(withdrawals)..... (372) 0 0 (22,755)
Transfer from other
portfolios........ 652,365 289,917 103,959 7,109,105
----------- ----------- ------------ ------------
Net increase in net
assets resulting
from variable life
policy
transactions...... 801,954 319,638 129,139 8,987,831
----------- ----------- ------------ ------------
Total increase in
net assets........ 937,517 347,367 130,391 10,174,811
----------- ----------- ------------ ------------
NET ASSETS
Beginning of year... 74,477 12,334 10,589 3,683,626
----------- ----------- ------------ ------------
End of year......... $1,011,994 $ 359,701 14$0,980 13,8$58,437
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC PIC
MONEY GROWTH AND INTERNATIONAL GLOBAL SMALL CAP CORE US
MARKET INCOME EQUITY INCOME VALUE EQUITY
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 1,088 $ 7,094 $ 9,487 $ 9,209 $ 1,630 $ 3,427
Net realized gain (loss) on
investments........................... 0 133,173 29,722 1,396 61,772 33,253
Net unrealized appreciation
(depreciation) of investments during
the period............................ (1) (19,493) (31,321) (4,150) 38,214 20,629
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations............. 1,087 120,774 7,888 6,455 101,616 57,309
----------- ----------- ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contract owners' net payments........... 35,259 321,067 215,507 30,685 187,628 136,656
Mortality and expense risk charges...... (168) (5,176) (3,190) (528) (3,317) (2,130)
Cost of insurance and administrative
charges............................... (1,092) (112,846) (76,380) (10,388) (77,291) (46,805)
Surrenders.............................. 0 (6,520) (2,450) 0 (5,949) (4,572)
Death benefits.......................... 0 0 0 0 0 0
Net policy loan repayments
(withdrawals)......................... 0 0 0 0 (18,635) (18,054)
Transfer from other portfolios.......... 1,657 536,713 284,412 65,229 254,542 221,120
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from variable life policy
transactions.......................... 35,656 733,238 417,899 84,998 336,978 286,215
----------- ----------- ----------- ----------- ----------- -----------
Total increase in net assets............ 36,743 854,012 425,787 91,453 438,594 343,524
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS
Beginning of year....................... 14,144 149,418 122,118 21,153 129,053 76,118
----------- ----------- ----------- ----------- ----------- -----------
End of year............................. $ 50,887 $1,003,430 $ 547,905 $ 112,606 $ 567,647 $ 419,642
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
CALVERT
PIC SOCIAL CALVERT
CAPITAL SMALL CAP SOCIAL
GROWTH GROWTH BALANCED
----------- ------------ ------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 3,803 $ 0 $ 2
Net realized gain (loss) on
investments........................... 39,438 7 4
Net unrealized appreciation
(depreciation) of investments during
the period............................ 53,776 (8) (4)
----------- --- ---
Net increase (decrease) in net assets
resulting from operations............. 97,017 (1) 2
----------- --- ---
FROM VARIABLE LIFE POLICY TRANSACTIONS
Contract owners' net payments........... 216,169 77 78
Mortality and expense risk charges...... (3,108) 0 0
Cost of insurance and administrative
charges............................... (78,798) (6) (6)
Surrenders.............................. (2,247) 0 0
Death benefits.......................... 0 0 0
Net policy loan repayments
(withdrawals)......................... 0 0 0
Transfer from other portfolios.......... 302,398 0 5
----------- --- ---
Net increase in net assets resulting
from variable life policy
transactions.......................... 434,414 71 77
----------- --- ---
Total increase in net assets............ 531,431 70 79
----------- --- ---
NET ASSETS
Beginning of year....................... 105,334 0 0
----------- --- ---
End of year............................. $ 636,765 $ 70 $ 79
----------- --- ---
----------- --- ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
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
F-18
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
deductions are made to the individual policies in accordance with the terms
governing each policy as set forth in the policy.
The net assets of each sub-account of the Separate Account reflect the
investment management fees and other operating expenses incurred by the Funds.
Protective Life offers a loan privilege to contract owners. Contract owners
may obtain loans using the contract as the only security for the loan. Loans may
be subject to provisions of The Internal Revenue Code of 1986, as amended. Loans
outstanding approximated $108,000 and $70,000 at December 31, 1998 and 1997,
respectively.
5. SUBSEQUENT EVENTS
Protective Life has announced plans to liquidate the PIC Money Market
account and replace it with the Oppenheimer Money Fund in 1999.
In 1999, the Oppenheimer Growth Fund and the Oppenheimer Growth and Income
Fund names will be changed to Oppenheimer Capital Appreciation and Oppenheimer
Main Streeet 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 L.L.P.
February 11, 1999
Birmingham, Alabama
F-20
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees............................... $1,027,340 $ 814,420 $ 770,224
Reinsurance ceded...................................... (459,215) (334,214) (308,174)
---------- ---------- ---------
Net of reinsurance ceded............................. 568,125 480,206 462,050
Net investment income.................................. 603,795 557,488 498,781
Realized investment gains.............................. 2,136 1,824 5,510
Other income........................................... 20,201 6,149 5,010
---------- ---------- ---------
1,194,257 1,045,667 971,351
---------- ---------- ---------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance
ceded: 1998-$330,494; 1997-$180,605;
1996-$215,424)....................................... 730,496 658,872 626,893
Amortization of deferred policy acquisition costs...... 111,188 107,175 91,001
Other operating expenses (net of reinsurance ceded:
1998-$166,375; 1997-$90,045; 1996-$81,839)........... 172,228 129,870 128,148
---------- ---------- ---------
1,013,912 895,917 846,042
---------- ---------- ---------
INCOME BEFORE INCOME TAX................................. 180,345 149,750 125,309
INCOME TAX EXPENSE (BENEFIT)
Current................................................ 48,237 66,283 44,908
Deferred............................................... 14,925 (13,981) (2,142)
---------- ---------- ---------
63,162 52,302 42,766
---------- ---------- ---------
NET INCOME............................................... $ 117,183 $ 97,448 $ 82,543
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1998-$6,307,274; 1997-$6,221,871)....... $ 6,400,262 $ 6,348,252
Equity securities, at market (cost: 1998-$15,151; 1997-$24,983)...................... 12,258 15,006
Mortgage loans on real estate........................................................ 1,623,603 1,313,478
Investment real estate, net of accumulated depreciation (1998-$782; 1997-$671)....... 14,868 13,469
Policy loans......................................................................... 232,670 194,109
Other long-term investments.......................................................... 70,078 54,704
Short-term investments............................................................... 159,655 54,337
----------- -----------
Total investments.................................................................. 8,513,394 7,993,355
Cash................................................................................... 39,197
Accrued investment income.............................................................. 100,395 94,095
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1998-$4,304; 1997-$5,292)........................................................... 31,265 42,255
Reinsurance receivables................................................................ 756,370 591,457
Deferred policy acquisition costs...................................................... 841,425 632,605
Property and equipment, net............................................................ 42,374 36,407
Other assets........................................................................... 34,632 14,445
Assets related to separate accounts
Variable Annuity..................................................................... 1,285,952 924,406
Variable Universal Life.............................................................. 13,606 3,634
Other................................................................................ 3,482 3,425
----------- -----------
$11,622,895 $10,375,281
----------- -----------
----------- -----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims.................................................... $ 4,140,003 $ 3,324,294
Unearned premiums.................................................................... 389,294 396,696
----------- -----------
4,529,297 3,720,990
Guaranteed investment contract deposits................................................ 2,691,697 2,684,676
Annuity deposits....................................................................... 1,519,820 1,511,553
Other policyholders' funds............................................................. 219,356 183,324
Other liabilities...................................................................... 226,310 246,081
Accrued income taxes................................................................... (10,992) 941
Deferred income taxes.................................................................. 51,735 49,417
Note payable........................................................................... 2,363
Indebtedness to related parties........................................................ 20,898 28,055
Liabilities related to separate accounts
Variable Annuity..................................................................... 1,285,952 924,406
Variable Universal Life.............................................................. 13,606 3,634
Other................................................................................ 3,482 3,425
----------- -----------
Total liabilities.................................................................. 10,553,524 9,356,502
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
SHARE-OWNER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation
preference $2,000.................................................................... 2 2
Common Stock, $1.00 par value.......................................................... 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital............................................................. 327,992 327,992
Note receivable from PLC Employee Stock Ownership Plan................................. (5,199) (5,378)
Retained earnings...................................................................... 686,519 629,436
Accumulated other comprehensive income
Net unrealized gains on investments (net of income tax: 1998-$29,646;
1997-$33,238)...................................................................... 55,057 61,727
----------- -----------
Total share-owner's equity......................................................... 1,069,371 1,018,779
----------- -----------
$11,622,895 $10,375,281
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF SHARE-OWNER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTE
ADDITIONAL RECEIVABLE NET UNREALIZED TOTAL SHARE-
PREFERRED COMMON PAID-IN FROM PLC RETAINED GAINS (LOSSES) OWNER'S
STOCK STOCK CAPITAL ESOP EARNINGS ON INVESTMENTS EQUITY
------------ ------- ---------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.............. $5,000 $144,494 $(5,765) $449,645 $ 57,863 $ 651,237
-------------
Net income for 1996................... 82,543 82,543
Decrease in net unrealized gains on
investments (net of income tax:
$(25,627)).......................... (47,593) (47,593)
Reclassification adjustment for
amounts included in net income (net
of income tax: $(1,928))............ (3,582) (3,582)
-------------
Comprehensive income for 1996......... 31,368
-------------
Redemption feature of preferred stock
removed-Note I...................... $ 2 1,998 2,000
Preferred dividends ($50 per share)... (100) (100)
Capital contribution from PLC......... 91,500 91,500
Decrease in note receivable from PLC
ESOP................................ 186 186
--- ------- ---------- ---------- -------- -------------- -------------
Balance, December 31, 1996.............. 2 5,000 237,992 (5,579) 532,088 6,688 776,191
-------------
Net income for 1997................... 97,448 97,448
Increase in net unrealized gains on
investments (net of income tax-
$30,275)............................ 56,225 56,225
Reclassification adjustment for
amounts included in net income (net
of income tax: $(638)).............. (1,186) (1,186)
-------------
Comprehensive income for 1997......... 152,487
-------------
Preferred dividends ($50 per share)... (100) (100)
Capital contribution from PLC......... 90,000 90,000
Decrease in note receivable from PLC
ESOP................................ 201 201
--- ------- ---------- ---------- -------- -------------- -------------
Balance, December 31, 1997.............. 2 5,000 327,992 (5,378) 629,436 61,727 1,018,779
-------------
Net income for 1998................... 117,183 117,183
Decrease in net unrealized gains on
investments (net of income
tax-($2,844))....................... (5,281) (5,281)
Reclassification adjustment for
amounts included in net income (net
of income tax: $(747)).............. (1,389) (1,389)
-------------
Comprehensive income for 1998......... 110,513
-------------
Common dividends ($12 per share)...... (60,000) (60,000)
Preferred dividends ($50 per share)... (100) (100)
Decrease in note receivable from PLC
ESOP................................ 179 179
--- ------- ---------- ---------- -------- -------------- -------------
Balance, December 31, 1998.............. $ 2 $5,000 $327,992 $(5,199) $686,519 $ 55,057 $1,069,371
--- ------- ---------- ---------- -------- -------------- -------------
--- ------- ---------- ---------- -------- -------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................... $ 117,183 $ 97,448 $ 82,543
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs...................... 111,188 107,175 91,001
Capitalization of deferred policy acquisition costs.................... (192,838) (135,211) (77,078)
Depreciation expense................................................... 7,110 5,124 5,333
Deferred income taxes.................................................. 14,925 (17,918) (2,442)
Accrued income taxes................................................... (11,933) (5,558) 893
Interest credited to universal life and investment products............ 352,721 299,004 280,377
Policy fees assessed on universal life and investment products......... (139,689) (131,582) (116,401)
Change in accrued investment income and other receivables.............. (159,362) (158,798) (70,987)
Change in policy liabilities and other policyholder funds of
traditional life and health products................................. 322,464 279,522 133,621
Change in other liabilities............................................ (19,771) 65,393 7,209
Other (net)............................................................ (22,634) (1,133) (4,281)
------------ ------------ ------------
Net cash provided by operating activities.................................. 379,364 403,466 329,788
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale......................................... 10,445,407 6,462,663 1,327,323
Other.................................................................. 198,559 324,242 168,898
Sale of investments:
Investment available for sale.......................................... 1,080,265 1,108,058 1,569,119
Other.................................................................. 155,906 695,270 568,218
Cost of investments acquired:
Investments available for sale......................................... (11,507,234) (8,428,804) (3,798,631)
Other.................................................................. (662,350) (718,335) (400,322)
Acquisitions and bulk reinsurance assumptions............................ (169,124) 264,126
Purchase of property and equipment....................................... (13,077) (6,087) (6,899)
Sale of property and equipment........................................... 2,681 288
------------ ------------ ------------
Net cash used in investing activities...................................... (302,524) (729,436) (307,880)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt.......... 1,975,800 1,159,538 941,438
Capital contribution from PLC............................................ 90,000 91,500
Principal payments on line of credit arrangements and long-term debt..... (1,973,437) (1,159,538) (941,438)
Principal payment on surplus note to PLC................................. (2,000) (4,693) (10,000)
Dividends to share-owner................................................. (60,100) (100) (100)
Investment product deposits and change in universal life deposits........ 981,124 910,659 949,122
Investment product withdrawals........................................... (1,037,424) (745,083) (944,244)
------------ ------------ ------------
Net cash provided by (used in) financing activities........................ (116,037) 250,783 86,278
------------ ------------ ------------
INCREASE (DECREASE) IN CASH................................................ (39,197) (75,187) 108,186
CASH AT BEGINNING OF YEAR.................................................. 39,197 114,384 6,198
------------ ------------ ------------
CASH AT END OF YEAR........................................................ $ 0 $ 39,197 $ 114,384
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt....................................................... $ 8,338 $ 4,343 $ 4,633
Income taxes........................................................... $ 57,429 $ 70,133 $ 43,478
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP................................. $ 179 $ 201 $ 186
Acquisitions and bulk reinsurance assumptions
Assets acquired........................................................ $ 247,894 $ 1,114,832 $ 296,935
Liabilities assumed.................................................... (380,405) (902,267) (364,862)
------------ ------------ ------------
Net.................................................................... $ (132,511) $ 212,565 $ (67,927)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life
Insurance Company and subsidiaries ("Protective") are prepared on the basis of
generally accepted accounting principles. Such accounting principles differ from
statutory reporting practices used by insurance companies in reporting to state
regulatory authorities. (See also Note B.)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make various estimates
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, as well as the reported amounts of revenues
and expenses.
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its
wholly-owned subsidiaries. Protective is a wholly-owned subsidiary of Protective
Life Corporation ("PLC"), an insurance holding company.
NATURE OF OPERATIONS
Protective provides financial services through the production, distribution,
and administration of insurance and investment products. Protective markets
individual life insurance, dental insurance and managed care services, credit
life and disability insurance, guaranteed investment contracts, guaranteed
funding agreements, and fixed and variable annuities throughout the United
States. Protective also maintains a separate division devoted exclusively to the
acquisition of insurance policies from other companies.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997 Protective adopted Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities;" SFAS No. 130, "Reporting Comprehensive
Income;" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
In 1998 PLC adopted SFAS No. 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits."
The adoption of these accounting standards did not have a material effect on
PLC's or Protective's financial statements.
INVESTMENTS
Protective has classified all of its investments in fixed maturities, equity
securities, and short-term investments as "available for sale."
F-25
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments are reported on the following bases less allowances for
uncollectible amounts on investments, if applicable:
- Fixed maturities (bonds, bank loan participations, and redeemable
preferred stocks) -- at current market value.
- Equity securities (common and nonredeemable preferred stocks) -- at
current market value.
- Mortgage loans on real estate -- at unpaid balances, adjusted for loan
origination costs, net of fees, and amortization of premium or discount.
- Investment real estate -- at cost, less allowances for depreciation
computed on the straight-line method. With respect to real estate acquired
through foreclosure, cost is the lesser of the loan balance plus
foreclosure costs or appraised value.
- Policy loans -- at unpaid balances.
- Other long-term investments -- at a variety of methods similar to those
listed above, as deemed appropriate for the specific investment.
- Short-term investments -- at cost, which approximates current market
value.
Substantially all short-term investments have maturities of three months or
less at the time of acquisition and include approximately $0.9 million in bank
deposits voluntarily restricted as to withdrawal.
As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," certain investments are recorded at their market values
with the resulting unrealized gains and losses reduced by a related adjustment
to deferred policy acquisition costs, net of income tax reported as a component
of share-owner's equity. The market values of fixed maturities increase or
decrease as interest rates fall or rise. Therefore, although the adoption of
SFAS No. 115 does not affect Protective's operations, its reported shareowner's
equity will fluctuate significantly as interest rates change.
Protective's balance sheets at December 31, prepared on the basis of
reporting investments at amortized cost rather than at market values, are as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Total investments............................................ $ 8,412,167 $ 7,876,952
Deferred policy acquisition costs............................ 857,949 654,043
All other assets............................................. 2,268,076 1,749,321
-------------- --------------
$ 11,538,192 $ 10,280,316
-------------- --------------
-------------- --------------
Deferred income taxes........................................ $ 22,089 $ 16,179
All other liabilities........................................ 10,501,789 9,307,085
-------------- --------------
10,523,878 9,323,264
Share-owner's equity......................................... 1,014,314 957,052
-------------- --------------
$ 11,538,192 $ 10,280,316
-------------- --------------
-------------- --------------
</TABLE>
Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.
F-26
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
Protective does not use derivative financial instruments for trading
purposes. Combinations of swaps, futures contracts and options on treasury notes
are currently being used as hedges for asset/ liability management of certain
investments, primarily mortgage loans on real estate, mortgage-backed
securities, and liabilities arising from interest-sensitive products such as
guaranteed investment contracts and individual annuities. Realized investment
gains and losses on such contracts are deferred and amortized over the life of
the hedged asset. No realized investment gains or losses were deferred in 1998.
Net realized gains of $1.5 million were deferred in 1997. At December 31, 1998
and 1997, options and open futures contracts with notional amounts of $975.0
million and $925.0 million, respectively, had net unrealized losses of $0.5
million and $0.4 million respectively.
Protective uses interest rate swap contracts to convert certain investments
and liabilities from a variable to a fixed rate of interest and from a fixed
rate to variable rate of interest. At December 31, 1998, related open interest
rate swap contracts with a notional amount of $55.3 million were in a $0.2
million net unrealized loss position. At December 31, 1997, related open
interest rate swap contracts with a notional amount of $95.3 million were in a
$0.1 million net unrealized loss position.
CASH
Cash includes all demand deposits reduced by the amount of outstanding
checks and drafts.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost. Protective primarily uses the
straight-line method of depreciation based upon the estimated useful lives of
the assets. Major repairs or improvements are capitalized and depreciated over
the estimated useful lives of the assets. Other repairs are expensed as
incurred. The cost and related accumulated depreciation of property and
equipment sold or retired are removed from the accounts, and resulting gains or
losses are included in income.
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Home office building................................................... $ 37,959 $ 37,459
Other, principally furniture and equipment............................. 58,958 46,937
--------- ---------
96,917 84,396
Accumulated depreciation............................................... 54,543 47,989
--------- ---------
$ 42,374 $ 36,407
--------- ---------
--------- ---------
</TABLE>
SEPARATE ACCOUNTS
Protective operates separate accounts, some in which Protective bears the
investment risk and others in which the investments risk rests with the
contractholder. The assets and liabilities related to separate accounts in which
Protective does not bear the investment risk are valued at market and reported
separately as assets and liabilities related to separate accounts in the
accompanying consolidated financial statements.
F-27
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUES AND BENEFITS EXPENSE
- Traditional Life and Health Insurance Products -- Traditional life
insurance products consist principally of those products with fixed and
guaranteed premiums and benefits and include whole life insurance
policies, term and term-like life insurance policies, limited-payment life
insurance policies, and certain annuities with life contingencies. Life
insurance and immediate annuity premiums are recognized as revenue when
due. Health insurance premiums are recognized as revenue over the terms of
the policies. Benefits and expenses are associated with earned premiums so
that profits are recognized over the life of the contracts. This is
accomplished by means of the provision for liabilities for future policy
benefits and the amortization of deferred policy acquisition costs.
Liabilities for future policy benefits on traditional life insurance
products have been computed using a net level method including assumptions
as to investment yields, mortality, persistency, and other assumptions
based on Protective's experience modified as necessary to reflect
anticipated trends and to include provisions for possible adverse
deviation. Reserve investment yield assumptions are graded and range from
2.5% to 7.0%. The liability for future policy benefits and claims on
traditional life and health insurance products includes estimated unpaid
claims that have been reported to Protective and claims incurred but not
yet reported. Policy claims are charged to expense in the period that the
claims are incurred.
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance beginning of year.............................. $ 106,121 $ 108,159 $ 73,642
Less reinsurance..................................... 18,673 6,423 3,330
----------- ----------- -----------
Net balance beginning of year.......................... 87,448 101,736 70,312
----------- ----------- -----------
Incurred related to:
Current year........................................... 288,015 258,322 275,524
Prior year............................................. (10,198) (14,540) (2,417)
----------- ----------- -----------
Total incurred....................................... 277,817 243,782 273,107
----------- ----------- -----------
Paid related to:
Current year........................................... 236,001 203,381 197,163
Prior year............................................. 58,951 58,104 57,812
----------- ----------- -----------
Total paid........................................... 294,952 261,485 254,975
----------- ----------- -----------
Other changes:
Acquisitions and reserve transfers................... 0 3,415 13,292
----------- ----------- -----------
Net balance end of year................................ 70,313 87,448 101,736
Plus reinsurance..................................... 20,019 18,673 6,423
----------- ----------- -----------
Balance end of year.................................... $ 90,332 $ 106,121 $ 108,159
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, guaranteed investment
contracts, deferred annuities, and annuities without life contingencies.
Revenues for universal life and investment products consist of policy fees
that have been assessed against policy account balances for the costs of
insurance, policy
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)
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 for financial reporting purposes and the bases determined for income
tax purposes. Such temporary differences are principally related to the deferral
of policy acquisition costs and the provision for future policy benefits and
expenses.
F-29
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
net income, total assets, or share-owner's equity.
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principals ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The most significant differences are: (a) acquisition costs of
obtaining new business are deferred and amortized over the approximate life of
the policies rather than charged to operations as incurred, (b) benefit
liabilities are computed using a net level method and are based on realistic
estimates of expected mortality, interest, and withdrawals as adjusted to
provide for possible unfavorable deviation from such assumptions, (c) deferred
income taxes are provided for temporary differences between financial and
taxable earnings, (d) the Asset Valuation Reserve and Interest Maintenance
Reserve are restored to stock-owner's equity, (e) furniture and equipment,
agents' debit balances, and prepaid expenses are reported as assets rather than
being charged directly to surplus (referred to as nonadmitted items), (f)
certain items of interest income, principally accrual of mortgage and bond
discounts are amortized differently, and (g) bonds are stated at market instead
of amortized cost.
The reconciliations of net income and share-owner's equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<TABLE>
<CAPTION>
NET INCOME SHARE-OWNER'S EQUITY
------------------------------- ---------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory
reporting practices: (1)..... $ 147,077 $ 134,417 $ 102,337 $ 531,956 $ 579,111 $ 456,320
Additions (deductions) by
adjustment:
Deferred policy acquisition
costs, net of
amortization............... 68,155 10,310 (2,830) 841,425 632,605 488,201
Deferred income tax.......... (14,925) 13,981 2,142 (51,735) (49,417) (37,722)
Asset Valuation Reserve...... 66,922 67,369 64,233
Interest Maintenance
Reserve.................... (1,355) (1,434) (2,142) 15,507 9,809 17,682
Nonadmitted items............ 42,835 30,500 21,610
Other timing and valuation
adjustments................ (76,214) (54,494) (11,210) (282,480) (215,448) (197,227)
Noninsurance affiliates...... 18,171 17,530 11,104 (4) 4
Consolidation elimination.... (23,726) (22,862) (16,858) (95,059) (35,746) (36,910)
--------- --------- --------- ---------- ---------- ---------
In conformity with generally
accepted accounting
principles................... $ 117,183 $ 97,448 $ 82,543 $1,069,371 $1,018,779 776,191
--------- --------- --------- ---------- ---------- ---------
--------- --------- --------- ---------- ---------- ---------
</TABLE>
- ------------------------
(1) Consolidated
F-30
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturities....................................... $ 463,416 $ 396,255 $ 310,353
Equity securities...................................... 905 1,186 2,124
Mortgage loans on real estate.......................... 158,461 161,604 153,463
Investment real estate................................. 1,224 2,004 1,875
Policy loans........................................... 12,346 11,370 10,378
Other, principally short-term investments.............. 16,536 21,876 51,637
----------- ----------- -----------
652,888 594,295 529,830
Investment expenses.................................... 49,093 36,807 31,049
----------- ----------- -----------
$ 603,795 $ 557,488 $ 498,781
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<S> <C> <C> <C>
Fixed maturities................................ $ 4,374 $ (8,355) $ (7,101)
Equity securities............................... (4,465) 5,975 1,733
Mortgage loans and other investments............ 2,227 4,204 10,878
--------- --------- ---------
$ 2,136 $ 1,824 $ 5,510
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective recognizes permanent impairments through changes to an allowance
for uncollectible amounts on investments. The allowance totaled $24.1 million at
December 31, 1998 and $23.0 million at December 31, 1997. Additions and
reductions to the allowance are included in realized investment gains (losses).
Without such additions/reductions, Protective had net realized investment gains
of $3.2 million in 1998, net realized investment losses of $6.1 million in 1997,
and net realized investment gains of $3.7 million in 1996.
In 1998, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $32.3 million and
gross losses were $32.5 million. In 1997, gross gains were $21.3 million and
gross losses were $23.5 million. In 1996, gross gains were $6.9 million and
gross losses were $11.8 million.
F-31
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of Protective's investments
classified as available for sale at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
1998 COST GAINS LOSSES MARKET 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
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
1997 COST GAINS LOSSES MARKET 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>
AMORTIZED ESTIMATED
1998 COST MARKET 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>
AMORTIZED ESTIMATED
1997 COST MARKET 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.
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>
F-33
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
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>
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.
F-34
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
Details of the deferred income tax provision for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs................................. $ 60,746 $ 7,054 $ 15,542
Benefit and other policy liability changes........................ (41,268) (23,564) (16,321)
Temporary differences of investment income........................ (3,491) 2,516 (1,163)
Other items....................................................... (1,062) 13 (200)
---------- ---------- ----------
$ 14,925 $ (13,981) $ (2,142)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves.................................. $ 190,328 $ 138,701
Other....................................................................... 2,091 1,029
----------- -----------
192,419 139,730
----------- -----------
Deferred income tax liabilities:
Deferred policy acquisition costs........................................... 211,641 150,895
Unrealized gain on investments.............................................. 32,513 38,252
----------- -----------
244,154 189,147
----------- -----------
Net deferred income tax liability........................................... $ 51,735 $ 49,417
----------- -----------
----------- -----------
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of
Protective's gain from operations which was not subject to current income
taxation was accumulated for income tax purposes in a memorandum account
designated as Policyholders' Surplus. The aggregate accumulation in this account
at December 31, 1998 was approximately $70.5 million. Should the accumulation in
the Policyholders' Surplus account exceed certain stated maximums, or should
distributions including cash dividends be made to PLC in excess of approximately
$769 million, such excess would be subject to federal income taxes at rates then
effective. Deferred income taxes have not been provided on amounts designated as
Policyholders' Surplus. Under current income tax laws, Protective does not
anticipate involuntarily paying income tax on amounts in the Policyholders'
Surplus accounts.
Protective's income tax returns are included in the consolidated income tax
returns of PLC. The allocation of income tax liabilities among affiliates is
based upon separate income tax return calculations.
NOTE E -- DEBT
At December 31, 1998, PLC had borrowed $18.5 million at a rate of 5.8%. PLC
had also borrowed $30.0 million at a rate of 5.4% under a term note that
contains, among other provisions, requirements for maintaining certain financial
ratios, and restrictions on indebtedness incurred by PLC's subsidiaries
including Protective. Additionally, PLC, on a consolidated basis, cannot incur
debt in excess of 50% of its total capital.
F-35
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E -- DEBT (CONTINUED)
Protective has arranged sources of credit to temporarily fund scheduled
investment commitments. Protective expects that the rate received on its
investments will equal or exceed its borrowing rate. Protective had no such
temporary borrowings outstanding at December 31, 1998 and 1997. Also, Protective
has a mortgage note on investment real estate amounting to approximately $2.4
million that matures in 2003.
Included in indebtedness to related parties is a surplus debenture issued by
Protective to PLC. At December 31, 1998, the balance of the surplus debenture
was $18.0 million. The debenture matures in 2003.
Indebtedness to related parties also consists of payables to affiliates
under control of PLC in the amount of $2.9 million at December 31, 1998.
Protective routinely receives from or pays to affiliates under the control of
PLC reimbursements for expenses incurred on one another's behalf. Receivables
and payables among affiliates are generally settled monthly.
Interest expense on borrowed money totaled $8.3 million, $4.3 million, and
$4.6 million, in 1998, 1997, and 1996, respectively.
NOTE F -- RECENT ACQUISITIONS
In June 1997, Protective acquired West Coast Life Insurance Company ("West
Coast"). In September 1997, Protective acquired the Western Diversified Group.
In October 1997, Protective coinsured a block of credit policies.
In October 1998 Protective coinsured a block of life insurance policies from
Lincoln National Corporation. The policies represent the payroll deduction
business originally marketed and underwritten by Aetna.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. Protective does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
A number of civil jury verdicts have been returned against insurers in the
jurisdictions in which Protective does business involving the insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. Increasingly these lawsuits have resulted in the award of
substantial judgments against the insurer that are disproportionate to the
actual damages, including material amounts of punitive damages. In addition, in
some class action and other lawsuits involving insurers' sales practices,
insurers have made material settlement payments. In some states (including
Alabama), juries have substantial discretion in awarding punitive damages which
creates the potential for unpredictable material adverse judgments in any given
punitive damage suit. Protective and its subsidiaries, like other insurers, in
the ordinary course of business, are involved in such litigation or
alternatively in arbitration. Although the outcome of any litigation or
arbitration cannot be predicted with certainty, Protective believes that at the
present time there are no pending or
F-36
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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 deposits amounted to $28.6
million, $21.4 million and $31.2 million in 1998, 1997, and 1996, respectively.
Protective and/or PLC paid commissions, interest on debt and investment
products, and fees to these same corporations totaling $7.3 million, $5.4
million and $5.0 million in 1998, 1997, and 1996, respectively.
F-37
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- RELATED PARTY MATTERS (CONTINUED)
For a discussion of indebtedness to related parties, see Note E.
NOTE K -- OPERATING SEGMENTS
Protective operates seven divisions whose principal strategic focuses can be
grouped into three general categories: Life Insurance, Specialty Insurance
Products, and Retirement Savings and Investment Products. Each division has a
senior officer of Protective responsible for its operations. A division is
generally distinguished by products and/or channels of distribution. A brief
description of each division follows.
LIFE INSURANCE
INDIVIDUAL LIFE DIVISION. The Individual Life Division markets universal
life, variable universal life, and level premium term and term-like insurance
products on a national basis through a network of independent insurance agents.
WEST COAST DIVISION. The West Coast Division sells universal life and level
premium term-like insurance products in the life insurance brokerage market and
in the "bank owned life insurance" market.
ACQUISITIONS DIVISION. The Acquisitions Division focuses solely on
acquiring, converting, and servicing policies acquired from other companies.
These acquisitions may be accomplished through acquisitions of companies or
through the assumption or reinsurance of life insurance and related policies.
SPECIALTY INSURANCE PRODUCTS
DENTAL AND CONSUMER BENEFITS DIVISION. The Division's primary focus is on
indemnity and prepaid dental products. In 1997, the Division exited from the
traditional group major medical business, fulfilling the Division's strategy to
focus primarily on dental and related products.
FINANCIAL INSTITUTIONS DIVISION. The Financial Institutions Division
specializes in marketing credit life and disability insurance products through
banks, consumer finance companies and automobile dealers. The Division also
includes a small property casualty insurer that sells automobile service
contracts.
GUARANTEED INVESTMENT CONTRACTS DIVISION. The Guaranteed Investment
Contracts ("GIC") Division markets GICs to 401(k) and other qualified retirement
savings plans. The Division also offers related products, including fixed and
floating rate funding agreements offered to the trustees of municipal bond
proceeds, bank trust departments, and money market funds, and long-term annuity
contracts offered to fund certain state obligations.
INVESTMENT PRODUCTS DIVISION. The Investment Products Division
manufactures, sells, and supports fixed and variable annuity products. These
products are primarily sold through stockbrokers, but are also sold through
financial institutions and the Individual Life Division's sales force.
F-38
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
CORPORATE AND OTHER
Protective has an additional business segment herein referred to as
Corporate and Other. The Corporate and Other segment primarily consists of net
investment income and expenses not attributable to the Divisions above
(including net investment income on capital and interest on substantially all
debt).
Protective uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated net
income and assets. Operating segment income is generally income before income
tax. Premiums and policy fees, other income, benefits and settlement expenses,
and amortization of deferred policy acquisition costs are attributed directly to
each operating segment. Net investment income is allocated based on directly
related assets required for transacting the business of that segment. Realized
investment gains (losses) and other operating expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
F-39
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
Operating segment income and assets for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
LIFE INSURANCE
-------------------------------------
INDIVIDUAL
OPERATING SEGMENT INCOME LIFE WEST COAST ACQUISITIONS
- ------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
1998
Premiums and policy
fees................... $ 228,701 $ 75,757 $ 125,329
Reinsurance ceded........ (102,533) (53,377) (28,594)
---------- ---------- -------------
Net of reinsurance
ceded................ 126,168 22,380 96,735
Net investment income.... 55,779 63,492 112,154
Realized investment gains
(losses)...............
Other income............. 70 6 1,713
---------- ---------- -------------
Total revenues....... 182,017 85,878 210,602
---------- ---------- -------------
Benefits and settlement
expenses............... 106,308 54,617 112,051
Amortization of deferred
policy acquisition
costs.................. 30,543 4,924 18,894
Other operating
expenses............... 14,983 5,354 26,717
---------- ---------- -------------
Total benefits and
expenses............ 151,834 64,895 157,662
---------- ---------- -------------
Income before income
tax.................... 30,183 20,983 52,940
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
1997
Premiums and policy
fees................... $ 182,746 $ 41,290 $ 120,504
Reinsurance ceded........ (55,266) (27,168) (17,869)
---------- ---------- -------------
Net of reinsurance
ceded................ 127,480 14,122 102,635
Net investment income.... 54,593 30,194 110,155
Realized investment gains
(losses)...............
Other income............. 617 10
---------- ---------- -------------
Total revenues....... 182,690 44,316 212,800
---------- ---------- -------------
Benefits and settlement
expenses............... 114,678 28,304 116,506
Amortization of deferred
policy acquisition
costs.................. 27,354 961 16,606
Other operating
expenses............... 18,178 6,849 23,016
---------- ---------- -------------
Total benefits and
expenses............ 160,210 36,114 156,128
---------- ---------- -------------
Income before income
tax.................... 22,480 8,202 56,672
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
1996
Premiums and policy
fees................... $ 154,295 $ 125,798
Reinsurance ceded........ (37,585) (19,255)
---------- ---------- -------------
Net of reinsurance
ceded................ 116,710 106,543
Net investment income.... 48,442 106,015
Realized investment gains
(losses)............... 3,098
Other income............. 1,056 641
---------- ---------- -------------
Total revenues....... 169,306 213,199
---------- ---------- -------------
Benefits and settlement
expenses............... 96,404 118,181
Amortization of deferred
policy acquisition
costs.................. 28,393 17,162
Other operating
expenses............... 28,611 24,292
---------- ---------- -------------
Total benefits and
expenses............ 153,408 159,635
---------- ---------- -------------
Income before income
tax.................... 15,898 53,564
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
OPERATING SEGMENT ASSETS
- -------------------------
1998
Investments and other
assets................. $1,076,202 $1,149,642 $1,600,123
Deferred policy
acquisition costs...... 301,941 144,455 255,347
---------- ---------- -------------
Total assets............. $1,378,143 $1,294,097 $1,855,470
---------- ---------- -------------
1997
Investments and other
assets................. $ 960,316 $ 910,030 $1,401,294
Deferred policy
acquisition costs...... 252,321 108,126 138,052
---------- ---------- -------------
Total assets............. $1,212,637 $1,018,156 $1,539,346
---------- ---------- -------------
1996
Investments and other
assets................. $ 814,728 $1,423,081
Deferred policy
acquisition costs...... 220,232 156,172
---------- ---------- -------------
Total assets............. $1,034,960 $1,579,253
---------- ---------- -------------
</TABLE>
- ----------------------------------------
(1) Adjustments represent the inclusion of unallocated realized investment
gains (losses) and the recognition of income tax expense. There are no
asset adjustments.
F-40
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
SPECIALTY INSURANCE RETIREMENT SAVINGS AND
PRODUCTS INVESTMENT PRODUCTS
--------------------------- ---------------------------
DENTAL AND GUARANTEED CORPORATE
CONSUMER FINANCIAL INVESTMENT INVESTMENT AND TOTAL
BENEFITS INSTITUTIONS CONTRACTS PRODUCTS OTHER ADJUSTMENTS(1) CONSOLIDATED
----------- ------------- ------------ ------------ ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Premiums and policy
fees................... $ 277,316 $ 301,230 $ 18,809 $ 198 $ 1,027,340
Reinsurance ceded........ (85,753) (188,958) (459,215)
----------- ------------- ------------ ------------ ---------- ------- -------------
Net of reinsurance
ceded................ 191,563 112,272 18,809 198 568,125
Net investment income.... 15,245 25,068 $ 213,136 105,827 13,094 603,795
Realized investment gains
(losses)............... 1,609 1,318 $ (791) 2,136
Other income............. 4,295 10,302 1,799 2,016 20,201
----------- ------------- ------------ ------------ ---------- ------- -------------
Total revenues....... 211,103 147,642 214,745 127,753 15,308 1,194,257
----------- ------------- ------------ ------------ ---------- ------- -------------
Benefits and settlement
expenses............... 140,632 52,629 178,745 85,045 469 730,496
Amortization of deferred
policy acquisition
costs.................. 10,352 28,526 735 17,213 1 111,188
Other operating
expenses............... 49,913 48,837 2,876 14,428 9,120 172,228
----------- ------------- ------------ ------------ ---------- ------- -------------
Total benefits and
expenses............ 200,897 129,992 182,356 116,686 9,590 1,013,912
----------- ------------- ------------ ------------ ---------- ------- -------------
Income before income
tax.................... 10,206 17,650 32,389 11,067 5,718 180,345
Income tax expense....... 63,162 63,162
----------- ------------- ------------ ------------ ---------- ------- -------------
Net income............... $ 117,183
----------- ------------- ------------ ------------ ---------- ------- -------------
1997
Premiums and policy
fees................... $ 260,590 $ 196,694 $ 12,367 $ 229 $ 814,420
Reinsurance ceded........ (109,480) (124,431) (334,214)
----------- ------------- ------------ ------------ ---------- ------- -------------
Net of reinsurance
ceded................ 151,110 72,263 12,367 229 480,206
Net investment income.... 23,810 16,341 $ 211,915 105,196 5,284 557,488
Realized investment gains
(losses)............... (3,180) 589 $4,415 1,824
Other income............. 1,278 3,033 (192) 1,403 6,149
----------- ------------- ------------ ------------ ---------- ------- -------------
Total revenues....... 176,198 91,637 208,735 117,960 6,916 1,045,667
----------- ------------- ------------ ------------ ---------- ------- -------------
Benefits and settlement
expenses............... 110,148 27,643 179,235 82,019 339 658,872
Amortization of deferred
policy acquisition
costs.................. 15,711 30,812 618 15,110 3 107,175
Other operating
expenses............... 38,572 20,165 3,945 12,312 6,833 129,870
----------- ------------- ------------ ------------ ---------- ------- -------------
Total benefits and
expenses............ 164,431 78,620 183,798 109,441 7,175 895,917
----------- ------------- ------------ ------------ ---------- ------- -------------
Income before income
tax.................... 11,767 13,017 24,937 8,519 (259) 149,750
Income tax expense....... 52,302 52,302
----------- ------------- ------------ ------------ ---------- ------- -------------
Net income............... $ 97,448
----------- ------------- ------------ ------------ ---------- ------- -------------
1996
Premiums and policy
fees................... $ 288,050 $ 193,236 $ 8,189 $ 656 $ 770,224
Reinsurance ceded........ (131,520) (119,814) (308,174)
----------- ------------- ------------ ------------ ---------- ------- -------------
Net of reinsurance
ceded................ 156,530 73,422 8,189 656 462,050
Net investment income.... 16,249 13,898 $ 214,369 98,719 1,089 498,781
Realized investment gains
(losses)............... (7,963) 3,858 $6,517 5,510
Other income............. 2,193 56 1,064 5,010
----------- ------------- ------------ ------------ ---------- ------- -------------
Total revenues....... 174,972 87,320 206,406 110,822 2,809 971,351
----------- ------------- ------------ ------------ ---------- ------- -------------
Benefits and settlement
expenses............... 125,797 42,781 169,927 73,093 710 626,893
Amortization of deferred
policy acquisition
costs.................. 5,326 24,900 509 14,710 1 91,001
Other operating
expenses............... 43,028 10,673 3,840 13,196 4,508 128,148
----------- ------------- ------------ ------------ ---------- ------- -------------
Total benefits and
expenses............ 174,151 78,354 174,276 100,999 5,219 846,042
----------- ------------- ------------ ------------ ---------- ------- -------------
Income before income
tax.................... 821 8,966 32,130 9,823 (2,410) 125,309
Income tax expense....... 42,766 42,766
----------- ------------- ------------ ------------ ---------- ------- -------------
Net income............... $ 82,543
----------- ------------- ------------ ------------ ---------- ------- -------------
OPERATING SEGMENT ASSETS
- -------------------------
1998
Investments and other
assets................. $ 197,337 $ 645,909 $2,869,304 $ 2,542,536 $700,417 $10,781,470
Deferred policy
acquisition costs...... 23,836 39,212 1,448 75,177 9 841,425
----------- ------------- ------------ ------------ ---------- ------- -------------
Total assets............. $ 221,173 $ 685,121 $2,870,752 $ 2,617,713 $700,426 $11,622,895
----------- ------------- ------------ ------------ ---------- ------- -------------
1997
Investments and other
assets................. $ 208,071 $ 536,058 $2,887,732 $ 2,313,279 $525,896 $ 9,742,676
Deferred policy
acquisition costs...... 22,459 52,836 1,785 56,074 952 632,605
----------- ------------- ------------ ------------ ---------- ------- -------------
Total assets............. $ 230,530 $ 588,894 $2,889,517 $ 2,369,353 $526,848 $10,375,281
----------- ------------- ------------ ------------ ---------- ------- -------------
1996
Investments and other
assets................. $ 205,696 $ 312,826 $2,606,873 $ 1,821,250 $490,688 $ 7,675,142
Deferred policy
acquisition costs...... 27,944 32,040 1,164 50,637 12 488,201
----------- ------------- ------------ ------------ ---------- ------- -------------
Total assets............. $ 233,640 $ 344,866 $2,608,037 $ 1,871,887 $490,700 $ 8,163,343
----------- ------------- ------------ ------------ ---------- ------- -------------
</TABLE>
- ----------------------------------------
F-41
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS
PLC has a defined benefit pension plan covering substantially all of its
employees. The plan is not separable by affiliates participating in the plan.
However, approximately 81% of the participants in the plan are employees of
Protective. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. PLC's funding policy is
to contribute amounts to the plan sufficient to meet the minimum finding
requirements of ERISA plus such additional amounts as PLC may determine to be
appropriate from time to time. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future.
The actuarial present value of benefit obligations and the funded status of
the plan taken as a whole at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Projected benefit obligation, beginning of the year....................................... $ 30,612 $ 25,196
Service cost -- benefits earned during the year........................................... 2,585 2,112
Interest cost -- on projected benefit obligation.......................................... 2,203 2,036
Actuarial gain............................................................................ 2,115 3,421
Plan amendment............................................................................ 160
Benefits paid............................................................................. (1,128) (2,153)
---------- ---------
Projected benefit obligation, end of the year............................................. 36,547 30,612
---------- ---------
Fair value of plan assets beginning of the year........................................... 21,763 19,779
Actual return on plan assets.............................................................. 1,689 1,625
Employer contribution..................................................................... 2,823 2,512
Benefits paid............................................................................. (1,128) (2,153)
---------- ---------
Fair value of plan assets end of the year................................................. 25,147 21,763
---------- ---------
Plan assets less than the projected benefit obligation.................................... (11,400) (8,849)
Unrecognized net actuarial loss from past experience different from that assumed.......... 9,069 6,997
Unrecognized prior service cost........................................................... 652 605
Unrecognized net transition asset......................................................... (34) (51)
---------- ---------
Net pension liability recognized in balance sheet......................................... $ (1,713) $ (1,298)
---------- ---------
---------- ---------
</TABLE>
Net pension cost of the defined benefit pension plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost.......................................................... $ 2,585 $ 2,112 $ 1,908
Interest cost......................................................... 2,203 2,036 1,793
Expected return on plan assets........................................ (1,950) (1,793) (1,593)
Amortization of prior service cost.................................... 112 100 100
Amortization of transition asset...................................... (17) (17) (17)
Recognized net actuarial loss......................................... 305 152 210
--------- --------- ---------
Net pension cost...................................................... $ 3,238 $ 2,590 $ 2,401
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-42
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Protective's share of the net pension cost was $2.6 million, $1.8 million,
and $1.5 million, in 1998, 1997, and 1996, respectively,
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate............................................. 6.75% 7.25% 7.75%
Rates of increase in compensation level.................................... 4.75% 5.25% 5.75%
Expected long-term rate of return on assets................................ 8.50% 8.50% 8.50%
</TABLE>
Assets of the pension plan are included in the general assets of Protective.
Upon retirement, the amount of pension plan assets vested in the retiree is used
to purchase a single premium annuity from Protective in the retiree's name.
Therefore, amounts presented above as plan assets exclude assets relating to
retirees.
PLC also sponsors an unfunded excess benefits plan, which is a nonqualified
plan that provides defined pension benefits in excess of limits imposed by
federal income tax law. At December 31, 1998 and 1997, the projected benefit
obligation of this plan totaled $11.7 million and $10.0 million, respectively,
of which $7.8 million and $6.6 million, respectively, have been recognized in
PLC's financial statements.
Net pension cost of the excess benefits plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................. $ 611 $ 544 $ 424
Interest cost............................................................ 722 651 505
Plan amendment........................................................... 351
Amortization of prior service cost....................................... 112 112 112
Amortization of transition asset......................................... 37 37 37
Recognized net actuarial loss............................................ 173 180 155
--------- --------- ---------
Net pension cost......................................................... $ 1,655 $ 1,875 $ 1,233
--------- --------- ---------
--------- --------- ---------
</TABLE>
In addition to pension benefits, PLC provides limited healthcare benefits to
eligible retired employees until age 65. The postretirement benefit is provided
by an unfunded plan. At December 31, 1998 and 1997, the liability for such
benefits totaled $1.2 million and $1.3 million, respectively. The expense
recorded by PLC was $0.1 million in 1998, 1997 and 1996. PLC's obligation is not
materially affected by a 1% change in the healthcare cost trend assumptions used
in the calculation of the obligation.
Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation up to a maximum of $75,000. This plan is partially funded at a
maximum of $50,000 face amount of insurance.
PLC sponsors a defined contribution plan which covers substantially all
employees. Employee contributions are made on a before-tax basis as provided by
Section 401(k) of the Internal Revenue Code. In 1990, PLC established an
Employee Stock Ownership Plan ("ESOP") to match voluntary 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
F-43
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
of the shares allocated to participating employees plus the interest expense on
the ESOP's note payable to Protective less dividends on shares held by the ESOP.
At December 31, 1998, PLC had committed up to 101,124 shares to be released to
fund employee benefits. The expense recorded by PLC for these employee benefits
was less than $0.1 million in 1998 and 1997, and $1.0 million in 1996.
NOTE M -- STOCK BASED COMPENSATION
Certain Protective employees participate in PLC's Long-Tenn 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
F-44
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N -- REINSURANCE (CONTINUED)
coinsurance except that the liability for future policy benefits is held by the
original company, and settlements are made on a net basis between the companies.
Protective has reinsured approximately $64.8 billion, $34.1 billion, and
$18.8 billion in face amount of life insurance risks with other insurers
representing $294.4 million, $147.2 million, and $113.5 million of premium
income for 1998, 1997, and 1996, respectively. Protective has also reinsured
accident and health risks representing $164.8 million, $187.7 million, and
$194.7 million of premium income for 1998, 1997, and 1996, respectively. In 1998
and 1997, policy and claim reserves relating to insurance ceded of $658.7
million and $485.8 million respectively are included in reinsurance receivables.
Should any of the reinsurers be unable to meet its obligation at the time of the
claim, obligation to pay such claim would remain with Protective. At December
31, 1998 and 1997, Protective had paid $22.8 million and $25.6 million,
respectively, of ceded benefits which are recoverable from reinsurers. In
addition, at December 31, 1998, Protective had receivables of $75.0 million
related to insurance assumed.
A substantial portion of Protective's new credit insurance sales are being
reinsured.
NOTE O -- ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated market values of Protective's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities......................... $6,400,262 $6,400,262 $6,348,252 $6,348,252
Equity securities........................ 12,258 12,258 15,006 15,006
Mortgage loans on real estate............ 1,623,603 1,774,379 1,313,478 1,405,474
Short-term investments................... 159,655 159,655 54,337 54,337
Cash....................................... 39,197 39,197
Liabilities (see Notes A and E):
Guaranteed investment contract
deposits............................... 2,691,697 2,751,007 2,684,676 2,687,331
Annuity deposits......................... 1,519,820 1,513,148 1,511,553 1,494,600
Notes payable............................ 2,363 2,363
Other (see Note A):
Derivative Financial Instruments......... (734) (545)
</TABLE>
Except as noted below, fair values were estimated using quoted market
prices. Protective estimates the fair value of its mortgage loans using
discounted cash flows from the next call date. Protective believes the fair
value of its short-term investments and notes payable approximate book value due
to either being short-term or having a variable rate of interest. Protective
estimates the fair value of its guaranteed investment contracts and annuities
using discounted cash flows and surrender values, respectively. Protective
believes it is not practicable to determine the fair value of its policy loans
since there is no stated maturity, and policy loans are often repaid by
reductions to policy benefits.
F-45
<PAGE>
APPENDIX A
EXAMPLES OF DEATH BENEFIT COMPUTATIONS UNDER OPTIONS 1 AND 2
OPTION 1 EXAMPLE. For purposes of this example, assume that the Insured's
Attained Age is between 0 and 40 and that there is no outstanding Policy Debt.
Under Option 1, a Policy with a $50,000 Face Amount will generally pay $50,000
in Death Benefits. However, because the Death Benefit must be equal to or be
greater than 250% of the Policy Value, any time that the Policy Value exceeds
$20,000, the Death Benefit will exceed the $50,000 Face Amount. Each additional
dollar added to Policy Value above $20,000 will increase the Death Benefit by
$2.50. A Policy with a $50,000 Face Amount and a Policy Value of $30,000 will
provide Death Benefit of $75,000 ($30,000 x 250%); a Policy Value of $40,000
will provide a Death Benefit of $100,000 ($40,000 x 250%); a Policy Value of
$50,000 will provide a Death Benefit of $125,000 ($50,000 x 250%).
Similarly, so long as Policy Value exceeds $20,000, each dollar taken out of
Policy Value will reduce the Death Benefit by $2.50. If, for example, the Policy
Value is reduced from $25,000 to $20,000 because of partial surrenders, charges,
or negative investment performance, the Death Benefit will be reduced from
$62,500 to $50,000. If at any time, however, the Policy Value multiplied by the
Face Amount percentage is less than the Face Amount, the Death Benefit will
equal the current Face Amount of the Policy.
The Face Amount percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than between 0 and 40), the specified amount factor would be
185%. The Death Benefit would not exceed the $50,000 Face Amount unless the
Policy Value exceeded approximately $27,028 (rather than $20,000), and each
dollar then added to or taken from the Policy Value would change the life
insurance proceeds by $1.85 (rather than $2.50).
OPTION 2 EXAMPLE. For purposes of this example, assume that the Insured's
Attained Age is between 0 and 40 and that there is no outstanding Policy Debt.
Under Option 2, a Policy with a Face Amount of $50,000 will generally provide a
Death Benefit of $50,000 plus Policy Value. Thus, for example, a Policy with a
Policy Value of $5,000 will have a Death Benefit of $55,000 ($50,000 + $5,000);
a Policy Value of $10,000 will provide a Death Benefit of $60,000 ($50,000 +
$10,000). The Death Benefit, however, must be at least 250% of the Policy Value.
As a result, if the Policy Value exceeds $33,333, the Death Benefit will be
greater than the Face Amount plus Policy Value. Each additional dollar of Policy
Value above $33,333 will increase the Death Benefit by $2.50. A Policy with a
Face Amount of $50,000 and a Policy Value of $40,000 will provide a Death
Benefit of $100,000 ($40,000 x 250%); a Policy Value of $60,000 will provide a
Death Benefit of $150,000 ($60,000 X 250%).
Similarly, any time Policy Value exceeds $33,333, each dollar taken out of
Policy Value will reduce the Death Benefit by $2.50. If, for example, the Policy
Value is reduced from $40,000 to $35,000 because of partial surrenders, charges,
or negative investment performance, the Death Benefit will be reduced from
$100,000 to $87,500. If at any time, however, Policy Value multiplied by the
Face Amount percentage is less than the Face Amount plus the Policy Value, then
the Death Benefit will be the current Face Amount plus Policy Value of the
Policy.
The Face Amount percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than under 40), the Face Amount factor would be 185%. The
amount of the Death Benefit would be the sum of the Policy Value plus $50,000
unless the Policy Value exceeded $58,824 (rather than $33,333), and each dollar
then added to or taken from the Policy Value would change the Death Benefit by
$1.85 (rather than $2.50).
A-1
<PAGE>
TABLE OF FACE AMOUNT PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE PERCENTAGE ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE AGE PERCENTAGE
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
0-40 250% 50 185% 60 130% 70 115%
41 243% 51 178% 61 128% 71 113%
42 236% 52 171% 62 126% 72 111%
43 229% 53 164% 63 124% 73 109%
44 222% 54 157% 64 122% 74 107%
45 215% 55 150% 65 120% 75-90 105%
46 209% 56 146% 66 119% 91 104%
47 203% 57 142% 67 118% 92 103%
48 197% 58 138% 68 117% 93 102%
49 191% 59 134% 69 116% 94 101%
95+ 100%
</TABLE>
A-2
<PAGE>
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>
PART II -- OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article XI of the By-laws of Protective Life provides, in substance, that
any of Protective Life's directors and officers, who is a party or is threatened
to be made a party to any action, suit or proceeding, other than an action by or
in the right of Protective Life, by reason of the fact that he is or was an
officer or director, shall be indemnified by Protective Life against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such claim,
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Protective
Life and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. If the claim, action or suit is or
was by or in the right of Protective Life to procure a judgment in its favor,
such person shall be indemnified by Protective Life against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Protective Life, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to Protective
Life unless and only to the extent that the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper. To the extent that a director or officer has been successful on the
merits or otherwise in defense of any such action, suit or proceeding, or in
defense of any claim, issue or matter therein, he shall be indemnified by
Protective Life against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, not withstanding that he has
not been successful on any other claim issue or matter in any such action, suit
or proceeding. Unless ordered by a court, indemnification shall be made by
Protective Life only as authorized in the specific case upon a determination
that indemnification of the officer or director is proper in the circumstances
because he has met the applicable standard of conduct. Such determination shall
be made (a) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to, or who have been successful on the merits
or otherwise with respect to, such claim action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion or (c) by the shareholders.
In addition, the executive officers and directors are insured by PLC's
Directors' and Officers' Liability Insurance Policy including Company
Reimbursement and are indemnified by a written contract with PLC which
supplements such coverage.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification may be against public policy as expressed in the Act and
may be, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant
II-1
<PAGE>
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
REPRESENTATIONS PURSUANT TO RULE Section 26(e) of the Investment Company Act of
1940
Protective Life hereby represents that the fees and charges deducted under
the variable life insurance policies described herein are, in the aggregate,
reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by it under such policies.
II-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement consists of the following papers and documents:
The facing sheet.
The prospectus consisting of 56 pages.
The undertaking to file reports.
The Rule 484 undertaking.
Representations pursuant to Section 26(e) of the Investment Company Act of
1940.
The signatures.
Written consents of the following persons:
Nancy Kane, Esq.
Stephen Peeples, F.S.A., M.A.A.A.
Sutherland Asbill & Brennan LLP
PricewaterhouseCoopers L.L.P.
The following exhibits:
<TABLE>
<S> <C> <C>
1.A. (1) Certified resolutions of the board of directors of Protective Life Insurance Company establishing
Protective Variable Life Separate Account.*
(2) None.
(3)(a) Form of Underwriting Agreement among Protective Life Insurance Company, Investment Distributors,
Inc. and Protective Variable Life Separate Account.**
(b) Form of Distribution Agreement between Investment Distributors, Inc. and selling broker-dealers.**
(4) None.
(5)(a) Form of Contract.***
(b) Children's term life rider.*
(c) Accidental death benefit rider.*
(d) Disability benefit rider.*
(e) Guaranteed insurability rider.*
(f) Protected insurability benefit rider.*
(g) Term Rider for Covered Insured.*****
(6)(a) Charter of Protective Life Insurance Company.*
(b) By-Laws of Protective Life Insurance Company.*
</TABLE>
- ------------------------
*Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement, (File No. 33-61599) as filed with the Commission
on August 4, 1995.
**Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on December 22, 1995.
***Incorporated herein by reference to Post-Effective Amendment No. 1 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on April 10, 1996.
****Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form N-4 Registration Statement (File No. 33-70984) as filed with the
Commission on April 30, 1997.
*****Incorporated herein by reference to Post-Effective Amendment No. 3 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on April 30, 1998.
******Incorporated herein by reference to Post-Effective Amendment No. 2 to the
Form S-6 Registration Statement, (File No. 333-52215) as filed with the
Commission on April 30, 1999.
*******Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement, (File No. 333-60149) as filed with the
Commission on October 28, 1998.
II-3
<PAGE>
<TABLE>
<S> <C> <C>
(7) None
(8) None
(9)(a) Participation/Distribution Agreement.**
(9)(b) Participation Agreement (Oppenheimer Variable Account Funds).****
(9)(c) Participation Agreement (MFS Variable Insurance Trust).****
(9)(d) Participation Agreement (Acacia Capital Corporation).****
(9)(e) Participation Agreement (Van Eck Worldwide Insurance Trust).*******
(10) Contract Application.***
2. Opinion and consent of Nancy Kane, Esq.
3. Not applicable.
4. Not applicable.
5. See Exhibit 27.
6. Notice of Withdrawal Right. (Not Applicable)
7. Opinion and consent of Stephen Peeples, F.S.A., M.A.A.A.
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of PricewaterhouseCoopers L.L.P.
10. Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) describing issue, transfer and redemption
procedures.*****
11. Powers of Attorney.
27. Financial Data Schedules.******
</TABLE>
- ------------------------
*Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement, (File No. 33-61599) as filed with the Commission
on August 4, 1995.
**Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on December 22, 1995.
***Incorporated herein by reference to Post-Effective Amendment No. 1 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on April 10, 1996.
****Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form N-4 Registration Statement (File No. 33-70984) as filed with the
Commission on April 30, 1997.
*****Incorporated herein by reference to Post-Effective Amendment No. 3 to the
Form S-6 Registration Statement, (File No. 33-61599) as filed with the
Commission on April 30, 1998.
******Incorporated herein by reference to Post-Effective Amendment No. 2 to the
Form S-6 Registration Statement, (File No. 333-52215) as filed with the
Commission on April 30, 1999.
*******Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement, (File No. 333-60149) as filed with the
Commission on October 28, 1998.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Protective Variable Life
Separate Account, certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Birmingham, State of Alabama on April
29, 1999.
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
By: /s/ JOHN D. JOHNS
------------------------------------------
John D. Johns, President
PROTECTIVE LIFE INSURANCE COMPANY
PROTECTIVE LIFE INSURANCE COMPANY
(Depositor)
By: /s/ JOHN D. JOHNS
------------------------------------------
John D. Johns, President
PROTECTIVE LIFE INSURANCE COMPANY
As required by the Securities Act of 1933, this Post-Effective Amendment to
the Form S-6 registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------- ---------------
<C> <S> <C>
Chairman of the
Board and
* Director
------------------------------------------- (Principal April 29, 1999
Drayton Nabers, Jr. Executive
Officer)
President and
/s/ JOHN D. JOHNS Director
------------------------------------------- (Principal April 29, 1999
John D. Johns Financial
Officer)
Vice President,
Controller and
Chief
/s/ JERRY W. DEFOOR Accounting
------------------------------------------- Officer April 29, 1999
Jerry W. DeFoor (Principal
Accounting
Officer)
*
------------------------------------------- Director April 29, 1999
R. Stephen Briggs
*
------------------------------------------- Director April 29, 1999
Jim E. Massengale
*
------------------------------------------- Director April 29, 1999
A.S. Williams III
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------- ---------------
<C> <S> <C>
*
------------------------------------------- Director April 29, 1999
Danny L. Bentley
*
------------------------------------------- Director April 29, 1999
Richard J. Bielen
*
------------------------------------------- Director April 29, 1999
Carolyn King
*
------------------------------------------- Director April 29, 1999
Deborah J. Long
*
------------------------------------------- Director April 29, 1999
Steven A. Schultz
*
------------------------------------------- Director April 29, 1999
Wayne E. Stuenkel
*By: /s/ NANCY KANE
--------------------------------------
Nancy Kane
Attorney-in-Fact April 29, 1999
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
2. Opinion and consent of Nancy Kane, Esq.
7. Opinion and consent of Stephen Peeples, F.S.A., M.A.A.A.
8. Consent of Sutherland, Asbill & Brennan LLP
9. Consent of PricewaterhouseCoopers L.L.P.
11. Powers of Attorney.
</TABLE>
<PAGE>
EXHIBIT 2
<PAGE>
Nancy Kane
Senior Associate Counsel
April 27, 1999
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Gentlemen:
With respect to the registration statement on Form S-6 to be filed by
Protective Life Insurance Company (the "Company") and Protective Variable Life
Separate Account (the "Account") with the Securities and Exchange Commission for
the purpose of registering under the Securities Act of 1933, as amended,
flexible premium fixed and variable life insurance policies (the "Policies"), I
have examined such documents and such law as I considered necessary and
appropriate, and on the basis of such examination, it is my opinion that:
1. The Company is a corporation duly organized and validly existing as a
stock life insurance company under the laws of the State of Tennessee and
is duly authorized by the Department of Commerce and Insurance of the
State of Tennessee to issue the Policies.
2. The Account is a duly authorized and existing separate account
established pursuant to the provisions of Section 56-3-501 of the
Tennessee Code.
3. To the extent so provided under the Policies, that portion of the assets
of the Account equal to the reserves and other contract liabilities with
respect to the Account will not be chargeable with liabilities arising
out of any other business that the Company may conduct.
4. The Policies, when issued as contemplated by the Form S-6 registration
statement, will constitute legal, validly issued and binding obligations
of the Company.
I hereby consent to the filing of this opinion as an exhibit to the Form S-6
registration statement for the Policies and the Account.
Sincerely,
/s/ Nancy Kane
--------------------------------------
Nancy Kane, Esq.
<PAGE>
EXHIBIT 7
<PAGE>
[PROTECTIVE LIFE INSURANCE COMPANY LETTERHEAD]
STATEMENT OF OPINION REGARDING ASPECTS OF
PROTECTIVE LIFE INSURANCE COMPANY FILING OF AN INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE AND FIXED LIFE INSURANCE POLICY
(FILE NUMBERS 33-61599 AND 811-7337)
In my capacity as Consulting Actuary for Protective Life Insurance Company, I
have provided actuarial advice concerning (a) the Registration Statement
describing the offer and sale of the above captioned flexible premium variable
life insurance policies ("Policies") and (b) policy forms for the Policies.
It is my professional opinion that:
(1) The illustrations of policy values, surrender values, death benefits and
accumulated premiums in the prospectus contained in the Registration
Statement are based on the assumptions stated in the illustrations, and
are consistent with the provisions of the Policies. The rate structure of
the policies have not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear to
be more favorable to prospective non-smoker purchasers of Policies at age
45 than to prospective purchasers of Policies, for males or females,
smokers or non-smokers, at other issue ages.
(2) The information contained in the examples set forth in Appendix A of the
prospectus covering death benefit calculations is based on the
assumptions stated in the examples, and is consistent with the provisions
of the Policies.
I hereby consent to the filing of this opinion as an exhibit to Post-Effective
Amendment No. 4 to the Registration Statement and to the use of my name under
the heading "Experts" in the prospectus.
/s/ STEPHEN PEEPLES
--------------------------------------
Stephen Peeples, F.S.A., M.A.A.A.
Protective Life Insurance Company
Actuary
and 2nd Vice President
April 28, 1999
<PAGE>
EXHIBIT 8
<PAGE>
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
April 27, 1999
Board of Directors
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Directors:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of post-effective amendment number 4 to
the Registration Statement on Form S-6 filed by Protective Life Insurance
Company and Protective Variable Life Account with the Securities and Exchange
Commission. In giving this consent, we do not admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of
1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/ DAVID S. GOLDSTEIN
--------------------------------------
David S. Goldstein
<PAGE>
EXHIBIT 9
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this registration statement on Form S-6 (File
No. 33-61599) of our report dated February 11, 1999, on our audits of the
consolidated financial statements and financial statement schedules of
Protective Life Insurance Company and Subsidiaries. We also consent to the
inclusion of our report dated March 17, 1999 on our audit of the financial
statements of the Protective Variable Life Separate Account. We also consent to
the reference to our Firm under the caption "Independent Accountants."
PricewaterhouseCoopers L.L.P.
Birmingham, Alabama
April 29, 1999
<PAGE>
EXHIBIT 11
<PAGE>
DIRECTORS' POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors of
Protective Life Insurance Company, a Tennessee corporation, ("Company") by his
execution hereof or upon an identical counterpart hereof, does hereby constitute
and appoint John D. Johns, Nancy Kane or Jerry W. DeFoor, and each or any of
them, his true and lawful attorney-in-fact and agent, for him and in his name,
place and stead, to execute and sign the Registration Statement on Form S-6 to
be filed by the Company with respect to variable life products with the
Securities and Exchange Commission, pursuant to the provisions of the Securities
Exchange Act of 1933 and the Investment Company Act of 1940 and, further, to
execute and sign any and all pre-effective and post-effective amendments to such
Registration Statement, and to file same, with all exhibits and schedules
thereto and all other documents in connection therewith, with the Securities and
Exchange Commission and with such state securities authorities as may be
appropriate, granting unto said attorney-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes of the undersigned might or could do in person, hereby
ratifying and confirming all the acts of said attorney-in-fact and agent or any
of them which they may lawfully do in the premises or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and
seal this 28th day of April, 1999.
WITNESS TO ALL SIGNATURES:
/s/ Deborah J. Long
- --------------------------------------
Deborah J. Long
/s/ Drayton Nabers, Jr. /s/ Danny L. Bentley
- -------------------------------------- --------------------------------------
Drayton Nabers, Jr. Danny L. Bentley
/s/ John D. Johns /s/ Richard J. Bielen
- -------------------------------------- --------------------------------------
John D. Johns Richard J. Bielen
/s/ R. Stephen Briggs /s/ Carolyn King
- -------------------------------------- --------------------------------------
R. Stephen Briggs Carolyn King
/s/ Jim E. Massengale /s/ Deborah J. Long
- -------------------------------------- --------------------------------------
Jim E. Massengale Deborah J. Long
/s/ A. S. Williams III /s/ Steven A. Schultz
- -------------------------------------- --------------------------------------
A. S. Williams III Steven A. Schultz
/s/ Wayne E. Stuenkel
- --------------------------------------
Wayne E. Stuenkel
