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PROSPECTUS
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ISSUED BY: PROTECTIVE LIFE INSURANCE COMPANY
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
TELEPHONE (800) 866-3555
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This prospectus describes the Single Premium Plus (formerly known as The
Protective SPVL), an individual modified single premium variable and fixed life
insurance policy (the "Policy") offered by Protective Life Insurance Company
("Protective Life"). The Policy is designed to provide insurance protection on
the life of the Insured named in the Policy, by allowing the Owner to pay a
single premium, and, subject to certain restrictions, additional premiums and to
change the amount of death benefits payable under the Policy. This flexibility
permits the Owner to provide for changing insurance needs with a single
insurance policy. This Policy may not be available in all jurisdictions.
The Policy is a modified endowment contract for federal income tax purposes,
except in certain cases described under "Tax Considerations". A loan,
distribution, or other amount received from a modified endowment contract during
the life of the Insured will be taxed to the extent of any accumulated income in
the contract. Amounts that are taxable withdrawals will be subject to a 10%
additional tax, with certain exceptions.
Generally, the minimum initial premium accepted by Protective Life is
$10,000. Protective Life reserves the right to allocate the initial premium to
the Oppenheimer Money Fund Sub-Account or to the Fixed Account during the
Cancellation Period. At the end of the Cancellation Period, the amount so
allocated will be transferred to the Funds specified in the Owner's application.
The Owner may, within limits, allocate Premium Payments and Policy Value to
one or more Sub-Accounts of the Protective Variable Life Separate Account (the
"Variable Account") and Protective Life's general account (the "Guaranteed
Accounts"). Discussions of values under the Policy in this prospectus generally
relate only to the values allocated to the Variable Account. The assets of each
Sub-Account of the Variable Account are invested in a corresponding investment
portfolio (each, a "Fund") of Protective Investment Company, Oppenheimer
Variable Account Funds, MFS-Registered Trademark- Variable Insurance Trust,
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 Accounts, the
Policy has no guaranteed minimum Surrender Value.
It may not be advantageous to replace existing insurance with this Policy.
Within certain limits, you may return the Policy.
POLICIES (EXCEPT FOR POLICIES ISSUED IN CERTAIN STATES) INCLUDE AN
ARBITRATION PROVISION THAT MANDATES RESOLUTION OF ALL DISPUTES ARISING UNDER THE
POLICY OTHER THAN THOSE ARISING UNDER THE FEDERAL SECURITIES LAWS THROUGH
BINDING ARBITRATION. THIS PROVISION IS INTENDED TO RESTRICT AN OWNER'S ABILITY
TO LITIGATE SUCH DISPUTES. SEE "ARBITRATION".
Please read this prospectus and the prospectus for each of the Funds
carefully and retain copies for future reference. This prospectus must be
accompanied or preceded by the current prospectus for each of the Funds.
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................................................................................................ 4
SUMMARY AND DIAGRAM OF THE POLICY.......................................................................... 6
EXPENSE TABLES............................................................................................. 9
GENERAL INFORMATION ABOUT PROTECTIVE LIFE, THE VARIABLE ACCOUNT AND THE FUNDS.............................. 11
Protective Life Insurance Company........................................................................ 11
Protective Variable Life Separate Account................................................................ 11
The Funds................................................................................................ 11
- The PIC Funds........................................................................................ 12
- The MFS Funds........................................................................................ 12
- The Oppenheimer Funds................................................................................ 13
- The Calvert Funds.................................................................................... 13
- The Van Eck Funds.................................................................................... 13
Other Investors in the Funds............................................................................. 14
Addition, Deletion or Substitution of Investments........................................................ 15
Voting Rights............................................................................................ 15
THE POLICY................................................................................................. 16
Purchasing a Policy...................................................................................... 16
Cancellation Privilege................................................................................... 17
Premiums................................................................................................. 17
- Minimum Initial Premium.............................................................................. 17
- Additional Premiums.................................................................................. 17
- Premium Limitations.................................................................................. 17
Premium Allocations...................................................................................... 18
Policy Lapse and Reinstatement........................................................................... 18
- Lapse................................................................................................ 18
- Reinstatement........................................................................................ 18
CALCULATION OF POLICY VALUES............................................................................... 19
Variable Account Value................................................................................... 19
- Determination of Units................................................................................. 19
- Determination of Unit Value............................................................................ 19
- Net Investment Factor.................................................................................. 19
Guaranteed Account Value................................................................................. 19
POLICY BENEFITS............................................................................................ 20
Transfers of Policy Values............................................................................... 20
- General.............................................................................................. 20
- Telephone Transfers.................................................................................. 20
- Reservation of Rights................................................................................ 20
- Dollar Cost Averaging................................................................................ 20
- Portfolio Rebalancing................................................................................ 21
Surrender Privilege...................................................................................... 21
Withdrawal Privilege..................................................................................... 22
- Withdrawals.......................................................................................... 22
- Annual Withdrawal Amounts............................................................................ 22
- Decreasing the Face Amount........................................................................... 22
Policy Loans............................................................................................. 23
- General.............................................................................................. 23
- Loan Collateral...................................................................................... 23
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- Loan Repayment....................................................................................... 23
- Interest............................................................................................. 23
- Non-Payment of Policy Loan........................................................................... 24
- Effect of a Policy Loan.............................................................................. 24
Death Benefit Proceeds................................................................................... 24
- Calculation of Death Benefit Proceeds................................................................ 24
- Death Benefit........................................................................................ 25
- Increasing the Face Amount........................................................................... 25
Settlement Options....................................................................................... 25
- Minimum Amounts...................................................................................... 26
- Other Requirements................................................................................... 26
THE GUARANTEED ACCOUNT..................................................................................... 26
The Guaranteed Account................................................................................... 26
Interest Credited on Guaranteed Account.................................................................. 26
Guaranteed Account Value................................................................................. 27
Payments from the Guaranteed Account..................................................................... 27
CHARGES AND DEDUCTIONS..................................................................................... 27
Monthly Deductions....................................................................................... 27
- Cost of Insurance Charge............................................................................. 27
- Legal Considerations Relating to Sex - Distinct Premium Payments and Benefits........................ 28
- Monthly Policy Expense Charge........................................................................ 28
- Supplemental Rider Charges........................................................................... 28
- Mortality and Expense Risk Charge.................................................................... 28
Annual Maintenance Fee................................................................................... 29
Transfer Fee............................................................................................. 29
Surrender Charge (Contingent Deferred Sales Charges) and Premium Tax Recovery Charge..................... 29
Fund Expenses............................................................................................ 30
EXCHANGE PRIVILEGE......................................................................................... 30
Effect of the Exchange Offer............................................................................. 32
- Tax Considerations................................................................................... 32
- Sales Commissions.................................................................................... 32
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES, DEATH BENEFITS AND ACCUMULATED PREMIUM PAYMENTS.......... 32
OTHER POLICY BENEFITS AND PROVISIONS....................................................................... 38
Limits on Rights to Contest the Policy................................................................... 38
- Incontestability..................................................................................... 38
- Suicide Exclusion.................................................................................... 38
Changes in the Policy or Benefits........................................................................ 38
- Misstatement of Age or Sex........................................................................... 38
- Other Changes........................................................................................ 38
Suspension or Delay of Payments.......................................................................... 38
Reports to Policy Owners................................................................................. 38
Assignment............................................................................................... 39
Arbitration.............................................................................................. 39
Supplemental Riders and Endorsements..................................................................... 39
Supplemental Riders.................................................................................... 39
- Comprehensive Long-Term Care Accelerated Death Benefit Rider......................................... 39
- Tax Consequences of the ADBR......................................................................... 40
- Amount of the Accelerated Death Benefit.............................................................. 40
- Conditions for Receipt of the Accelerated Death Benefit.............................................. 40
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- Operation of the ADBR................................................................................ 40
- Effect on Existing Policy............................................................................ 40
Endorsements............................................................................................. 40
Reinsurance.............................................................................................. 40
USES OF THE POLICY......................................................................................... 41
TAX CONSIDERATIONS......................................................................................... 41
Introduction............................................................................................. 41
Tax Status of Protective Life............................................................................ 41
Taxation of Life Insurance Policies...................................................................... 42
- Tax Status of the Policy............................................................................. 42
- Diversification Requirements....................................................................... 42
- Ownership Treatment................................................................................ 42
Tax Treatment of Life Insurance Death Benefit Proceeds................................................. 43
- Tax Deferral During Accumulation Period.............................................................. 43
Policies Which Are MEC's................................................................................. 43
- Characterization of a Policy as a MEC.............................................................. 43
- Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs............................ 43
- Penalty Tax........................................................................................ 44
- Aggregation of Policies............................................................................ 44
Policies Which Are Not MEC's............................................................................. 44
- Tax Treatment of Withdrawals Generally............................................................. 44
- Certain Distributions Required by the Tax Law in the First 15 Policy Years......................... 44
- Tax Treatment of Loans............................................................................. 44
Tax Treatment of Comprehensive Long-Term Care Accelerated Death Benefit Rider............................ 44
- Actions to Ensure Compliance with the Tax Law........................................................ 45
- Other Considerations................................................................................. 45
Disallowance of Interest Deductions...................................................................... 45
Federal Income Tax Withholding........................................................................... 45
OTHER INFORMATION ABOUT THE POLICIES AND PROTECTIVE LIFE................................................... 45
Sale of the Policies..................................................................................... 45
Corporate Purchasers..................................................................................... 46
Protective Life Directors and Executive Officers......................................................... 46
State Regulation......................................................................................... 47
Additional Information................................................................................... 47
Preparation for Year 2000................................................................................ 47
Experts.................................................................................................. 49
IMSA..................................................................................................... 49
Legal Matters............................................................................................ 50
Financial Statements..................................................................................... 50
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
APPENDICES
A-Example of Death Benefit Computations.................................................................. 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 OF TERMS
"We," "us," "our," "Protective Life," and "Company" refer to Protective Life
Insurance Company. "You" and "your" refer to the person(s) who have been issued
a Policy.
ANNUAL WITHDRAWAL AMOUNT--The annual amount you may withdraw during a Policy
Year, and not incur a surrender charge or premium tax recovery charge.
ATTAINED AGE--The Insured's age as of the last birthday on the Policy Effective
Date, plus the number of complete Policy Years since the Policy Effective Date.
CANCELLATION PERIOD--Period shown in the Policy during which the Owner may
exercise the cancellation privilege and return the Policy for a refund.
CASH VALUE--Policy Value minus any applicable surrender charge and premium tax
recovery charge.
DCA FIXED ACCOUNT--Part of Protective Life's General Account. Only premium
payments may be allocated to this account, which is available only in connection
with dollar cost averaging. No transfers may be made to the DCA Fixed Account
from other allocation options.
DEATH BENEFIT--The 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 PROCEEDS--The amount payable to the Beneficiary if the Insured
dies while the Policy is in force and is equal to the Death Benefit plus any
death benefit under any rider to the Policy less any Policy Debt and any liens
for payments made under an accelerated death benefit rider less unpaid Monthly
Deductions if the Insured dies during a grace period.
FACE AMOUNT--A dollar amount selected by the Owner and shown in the Policy.
FIXED ACCOUNT--Part of Protective Life's General Account to which Policy Value
may be transferred or premiums allocated under a Policy.
FIXED ACCOUNT VALUE--The Policy Value in the Fixed Account.
FUND--A separate investment portfolio of an open-ended management investment
company, or unit investment trust, in which a Sub-Account invests.
GUARANTEED ACCOUNT--The Fixed Account, the DCA Fixed Acount and any other
account that the Company may offer with interest rate guarantees.
GUARANTEED ACCOUNT VALUE--The Policy Value in the Fixed Account and the DCA
Fixed Account.
HOME OFFICE--2801 Highway 280 South, Birmingham, Alabama 35223.
INITIAL FACE AMOUNT--The Face Amount on the Policy Effective Date.
INITIAL PREMIUM--The initial premium payment made by the Owner equal to 100% of
the Code Section 7702 Guideline Single Premium for the Face Amount given the
Insured's age, sex and underwriting class.
INSURED--The person whose life is covered by the Policy.
ISSUE AGE--The Insured's age as of the last birthday on the Policy Effective
Date.
ISSUE DATE--The date the Policy is issued.
LAPSE--Termination of the Policy at the expiration of the grace period while the
Insured is still living.
LOAN ACCOUNT--An account within Protective Life's general account to which
Guaranteed Account Value and/or Variable Account Value is transferred as
collateral for Policy loans.
MONTHLY ANNIVERSARY DAY--The same day in each month as the Policy Effective
Date.
MONTHLY DEDUCTIONS--The fees and charges deducted monthly based on the Policy
Value and/ or Variable Account Value.
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 Guaranteed Account
Value, and the Loan Account Value.
POLICY YEAR--Each period of twelve months commencing with the Policy Effective
Date and each Policy Anniversary thereafter.
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PREFERRED LOAN--That portion of the Loan Account up to the amount by which
Surrender Value exceeds total premium payments made.
SUB-ACCOUNT--A separate division of the Variable Account. Each Sub-Account
invests in a corresponding Fund.
SUB-ACCOUNT VALUE--The Policy Value in a Sub-Account.
SURRENDER VALUE--The Cash Value minus any outstanding Policy Debt and any liens
made under an accelerated death benefit rider.
VALUATION DAY--Each day the New York Stock Exchange and the Home Office are open
for business except for a day 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 to which Policy Value may be transferred
or premiums 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 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 and/or the DCA Fixed
Account, there is no guaranteed minimum Surrender Value. If Policy Value is
insufficient to pay charges due, then, after a grace period, the Policy will
lapse without value. See "Policy Lapse and Reinstatement". If a Policy lapses
while loans are outstanding certain amounts may become subject to income tax and
a 10% penalty tax. See "Tax Considerations."
DEATH BENEFIT OPTIONS. A level Death Benefit is available under the Policy.
Protective Life guarantees that the Death Benefit Proceeds will never be less
than the Face Amount of insurance (less any outstanding Policy Debt and past due
charges) as long as the Policy Value is sufficient to pay the Monthly Deduction
to keep the Policy in force. The Policy provides for a Surrender Value that can
be obtained by surrendering the Policy. The Policy also permits loans and
withdrawals, within limits.
ILLUSTRATIONS. Illustrations in this prospectus or used in connection with
the purchase of a Policy are based on HYPOTHETICAL rates of return. THESE RATES
ARE NOT GUARANTEED. They are illustrative only and SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE PERFORMANCE. Actual rates of return may be
higher or lower than those reflected in Policy illustrations, and therefore,
actual Policy values will be different from those illustrated.
TAX CONSIDERATIONS. Protective Life intends for the Policy to satisfy the
definition of a life insurance contract under Section 7702 of the Internal
Revenue Code of 1986, as amended. Except in certain cases described under "Tax
Considerations" a Policy will be a "modified endowment contract" for federal tax
law. For further discussion of the tax status of a Policy and the tax
consequences of being treated as a life insurance contract or a modified
endowment contract, see "Tax Considerations".
CANCELLATION PRIVILEGE. For a limited time after the Policy is issued, you
have the right to cancel your Policy and receive a refund. (See "Cancellation
Privilege"). In certain states, until the end of this "Cancellation Period,"
Protective Life reserves the right to allocate premium payments to the
Sub-Account investing in the Oppenheimer Money Fund Sub-Account or to the Fixed
Account. (See "Premium Allocations".)
OWNER INQUIRIES. If you have any questions, you may write or call
Protective Life's Home Office at 2801 Highway 280 South, Birmingham, Alabama
35223, 1-800-265-1545.
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AN INVESTMENT IN THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, NOR IS THE POLICY FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THE POLICY INVOLVES CERTAIN RISKS, INCLUDING THE LOSS OF PREMIUM PAYMENTS
(PRINCIPAL).
DIAGRAM OF POLICY
PREMIUM PAYMENTS
- The Policy permits you to pay a large single
premium and, subject to certain restrictions,
additional premium. See page 18 for rules and
limits.
- The Policy's minimum Initial Premium is $10,000
subject to the Insured's age, sex and
underwriting class, Face Amount selected, and
any riders.
- You direct the allocation of premium payments
among 23 Sub-Accounts, the Fixed Account and the
DCA Fixed Account. See page 18 for rules and
limits on premium allocations.
- The Sub-Accounts invest in corresponding Funds.
See pages 11 through 15. 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 and the DCA Fixed Account at a
minimum guaranteed rate of 4%. See pages 20 and
21 for rules and limits on Fixed Account and the
DCA Fixed Account allocations.
DEDUCTIONS FROM POLICY VALUE
- Monthly Deduction for cost of insurance, policy
expense charges, mortality and expense risk
charges and charges for any rider benefits. The
monthly cost of insurance charges are currently
equal to the lesser of (i) .054% multiplied by
the Policy Value during Policy Years 1 through
10 and .046% multiplied by the Policy Value in
Policy Years 11 and thereafter, which is
equivalent to an annual rate of .65% and .55%,
respectively or (ii) the Guaranteed Maximum
Monthly Cost of Insurance Rates per $1,000 of
the Net Amount at Risk based on age, sex and
underwriting class as identified on the Policy
Specification Page. The Company reserves the
right to charge the Guaranteed Maximum Monthly
Cost of Insurance Rates in the future. Monthly
policy expense charges are equal to .058%
multiplied by the Policy Value, which is
equivalent to an annual rate of 0.70% of such
amount. The maximum monthly mortality and
expense risk charges are equal to .075%
multiplied by the Variable Account Value, which
is equivalent to an annual rate of 0.90% of such
amount during all Policy Years. The current
mortality and expense risk charge during Policy
Years 1 through 10 is equal to .075% multiplied
by the Variable Account Value. In Policy Years
11 and thereafter the monthly mortality and
expense risk charge is currently equal to .042%
multiplied by the Variable Account Value, which
is equivalent to an annual rate of .50% of such
amount. This charge is not deducted from Fixed
Account Value. See "Monthly Deductions" pages 27
and 28.
- An annual maintenance fee of $35.00 will be
deducted from the Policy Value on each Policy
Anniversary. The Company currently waives this
fee if the Policy Value is equal to or greater
than $50,000 as of the Policy Anniversary.
DEDUCTIONS FROM ASSETS
- Investment advisory fees and Fund operating
expenses are also deducted from the assets of
each Fund.
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POLICY VALUE
- Is the amount in the Sub-Accounts and in the
Fixed Account credited to your Policy plus the
value held in the general account to secure the
Policy Debt.
- Varies from day to day to reflect Sub-Account
investment experience, interest credited on any
Fixed Account allocations, charges deducted and
any other Policy transactions (such as Policy
loans, transfers and withdrawals). See
"Calculation of Policy Value" page 20. There is
no minimum guaranteed Policy Value. The Policy
may lapse if the Policy Value is insufficient to
cover the Monthly Deductions due. See pages 18
and 27 through 28.
- Can be transferred from the DCA Fixed Account to
the Sub-Accounts and the Fixed Account subject
to certain restrictions and between and among
the Sub-Accounts and the Fixed Account. A
transfer fee of $25 may apply if more than 12
transfers are made in a Policy Year. See pages
20 and 21 for rules and limits. Policy loans
reduce the amount available for allocations and
transfers.
- Is the starting point for calculating certain
values under a Policy, such as the Cash Value,
Surrender Value, and the Death Benefit used to
determine Death Benefit Proceeds.
CASH BENEFITS
- - Loans may be taken for amounts up to 90% of Surrender Value,
at an effective annual interest rate (for loans other than
Preferred Loans) of 6.0%. The portion of a loan equal to the
amount, if any, by which the Surrender Value exceeds total
Premium Payments made will be considered a preferred loan
and will be charged an interest rate not to exceed 4.25%.
See pages 23 and 24 for rules and limits.
- - The Policy may be surrendered in full at any time for its
Surrender Value. A declining deferred sales charge of up to
9% and a declining premium tax recovery charge of up to 2.5%
of a premium paid is assessed on surrenders during the first
9 Policy Years following each premium payment. See "With-
drawal Privilege" and "Surrender Charges (Contingent
Deferred Sales Charge") pages 21 and 29 through 30.
- - An Owner may request a withdrawal of the Surrender Value
subject to certain restrictions. A declining deferred sales
charge of up to 9% and a declining premium tax recovery
charge up to 2.5% of a premium payment will be assessed on
amounts withdrawn in excess of the Annual Withdrawal Amount.
See pages 22 through 23 and 29 through 30.
- - A variety of settlement options are available. See pages 25
and 26.
DEATH BENEFITS
- - Available as lump sum or under a variety of settlement
options.
- - For most Policies, the minimum Face Amount of $10,000.
- - Death Benefit equal to the Face Amount. See pages 24 and 25.
- - Flexibility to increase the Face Amount. See page 25 for
rules and limits.
- - Supplemental riders may be available. See page 39 and 40.
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EXPENSE TABLES
The Sub-Accounts invest in corresponding Funds. (See "The Funds" pages
11-15.) 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%
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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
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percentage of the series' average daily net assets for its then current
fiscal year, with a limitation that immediately after such payment the
series' "Other Expenses" will not exceed the percentage set forth above for
that series. The obligation of MFS to bear a series "Other Expenses"
pursuant to this arrangement, and the series' obligation to pay the
reimbursement fee to MFS, terminates on the earlier of the date on which
payments made by the series equal the prior payment of such reimbursable
expenses by MFS, or December 31, 2004 (May 1, 2001 in the case of the New
Discovery Series). MFS may, in its discretion, terminate this arrangement at
an earlier date, provided that the arrangement will continue for each series
until at least May 1, 2000, unless terminated with the consent of the board
of trustees which oversees the series. Absent the reimbursements, total
expenses for the New Discovery Series for the period ended December 31, 1998
were 5.22%.
(3) Each Series has an expense offset arrangement which reduces the Series'
custodian based fee based on the amount of cash maintained by the Series
with its custodian and dividend disbursing agent. Each Series may enter into
other such arrangements and directed brokerage arrangements which would also
have the effect of reducing the Series' expenses. Expenses do not take into
account these expense reductions and are therefore higher than the actual
expenses of the Series.
(4) The figures have been restated to reflect an increase in transfer agency
expenses (the addition of 0.01%) for the Calvert Social Balanced Portfolio
expected to be incurred in 1999. "Other Expenses" reflect an indirect fee.
Net fund operating expenses after reductions for fees paid indirectly
(again, restated for the Calvert Social Balanced Portfolio) would be 0.86%
for Calvert Social Balanced and 1.12% for Calvert Social Small Cap Growth.
(5) Van Eck Associates Corporation (the "Adviser") earned fees for investment
management and advisory services. The fee is based on an annual rate of 1%
of the average daily net assets. The Adviser agreed to waive its management
fees and assume all expenses of the fund except interest, taxes, brokerage
commissions and extraordinary expenses for the period January 1, 1998 to
February 28, 1998. The Adviser also agreed to assume expenses exceeding 1%
of average daily net assets except interest, taxes, brokerage commissions
and extraordinary expenses for the period March 1, 1998 to December 31,
1998. For the year ended December 31, 1998, the Adviser assumed expenses in
the amount of $49,729. Certain of the officers and trustees of the Trust are
officers, directors or stockholders of the Adviser and Van Eck Securities
Corporation. As of December 31, 1998, the Adviser owned 39% of the
outstanding shares of beneficial interest of the Fund.
The above tables are intended to assist the owner in understanding the costs
and expenses that he or she will bear directly or indirectly. The tables reflect
the investment management fees and other expenses and total expenses for each
Fund for the period January 1, 1998 to December 31, 1998. For a more complete
description of the various costs and expenses see "Charges and Deductions" and
the prospectus for each of the Funds, which accompany this prospectus.
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GENERAL INFORMATION ABOUT PROTECTIVE LIFE,
THE VARIABLE ACCOUNT AND THE FUNDS
PROTECTIVE LIFE INSURANCE COMPANY
Protective Life is a Tennessee stock life insurance company. Founded in
1907, Protective Life offers individual life and health insurance, annuities,
group life and health insurance, and guaranteed investment contracts. Protective
Life is currently licensed to transact life insurance business in 49 states and
the District of Columbia. As of December 31, 1998, Protective Life had total
assets of approximately $11.6 billion. Protective Life is the principal
operating subsidiary of Protective Life Corporation ("PLC"), an insurance
holding company whose stock is traded on the New York Stock Exchange. PLC, a
Delaware corporation, had consolidated assets of approximately $12.0 billion at
December 31, 1998.
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
Protective Variable Life Separate Account is a separate investment account
of Protective Life established under Tennessee law by the board of directors of
Protective Life on February 22, 1995. The Variable Account is registered with
the Securities and Exchange Commission ("SEC") as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act") and is a "separate account"
within the meaning of the federal securities laws. This registration does not
involve supervision by the SEC of the management or investment policies or
practices or the Variable Account.
Protective Life owns the assets of the Variable Account. These assets are
held separate from other assets and are not part of Protective Life's General
Account. Assets of the Variable Account equal to the reserves or other contract
liabilities of the Variable Account will not be charged with liabilities that
arise from any other business that Protective Life conducts. Protective Life may
transfer to its General Account any assets of the Variable Account which exceed
the reserves and other contract liabilities of the Variable Account (which
always are at least equal to the aggregate Surrender Values under the Policies
and other variable life insurance policies issued by Protective Life).
Protective Life may accumulate in the Variable Account the charge for mortality
and expense risks and investment results applicable to those assets that are in
excess of the reserves and other contract liabilities related to the Policies.
Protective Life is obligated to pay all benefits provided under the Policies.
The Variable Account is divided into Sub-Accounts. The income, gains or
losses, whether or not realized, from the assets of each Sub-Account are
credited to or charged against that Sub-Account without regard to any other
income, gains or losses of Protective Life. Each Sub-Account invests exclusively
in shares of a corresponding Fund. Therefore, the investment experience of your
Policy depends on the experience of the Sub-Accounts you select. In the future,
the Variable Account may include other Sub-Accounts that are not available under
the Policies and are not otherwise discussed in this Prospectus.
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
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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; or Calvert
Variable Series, Inc. (the "Calvert Funds") managed by Calvert Asset Management
Company, Inc.; or Van Eck Worldwide Insurance Trust (the "Van Eck Funds")
managed by Van Eck Associates Corporation. Shares of these Funds are offered
only to: (1) the Variable Account, (2) other separate accounts of Protective
Life supporting variable annuity contracts or variable life insurance policies,
(3) separate accounts of other life insurance companies supporting variable
annuity contracts or variable life insurance policies, and (4) certain qualified
retirement plans. Such shares are not offered directly to investors but are
available only through the purchase of such contracts or policies or through
such plans. See the prospectus for each Fund for details about that Fund.
There is no guarantee that any Fund will meet its investment objectives.
Please refer to the prospectus for each of the Funds you are considering for
more information.
PROTECTIVE INVESTMENT COMPANY (PIC)
INTERNATIONAL EQUITY FUND. This Fund seeks long-term capital appreciation.
This Fund will pursue its objectives by investing substantially all, and at
least 65% of total assets in equity and equity-related securities of companies
that are organized outside the United States or whose securities are primarily
traded outside the United States.
SMALL CAP VALUE FUND. This Fund seeks long-term capital growth. This Fund
will pursue its objectives by investing, under normal circumstances, at least
65% of its total assets in equity securities of companies with public stock
market capitalizations of $1 billion or less at the time of investment.
CAPITAL GROWTH FUND. This Fund seeks long-term capital growth. The Fund
will pursue its objective by investing, under normal circumstances, at least 90%
of its total assets in a diversified portfolio of equity securities having
long-term capital appreciation potential.
CORE U.S. EQUITY FUND. This Fund seeks a total return consisting of capital
appreciation plus dividend income. This Fund will pursue its objective by
investing, under normal circumstances, at least 90% of its total assets in
equity securities selected using both fundamental research and a variety of
quantitative techniques in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar to
the S&P 500 Index.
GROWTH AND INCOME FUND. This Fund seeks long-term growth of capital and
growth of income. This Fund will pursue its objectives by investing, under
normal circumstances, at least 65% of its total assets in equity securities
having favorable prospects of capital appreciation and/or dividend paying
ability.
GLOBAL INCOME FUND. This Fund seeks high total return, emphasizing current
income and, to a lesser extent, providing opportunities for capital
appreciation. This Fund will pursue its objectives by investing primarily in
high quality fixed-income securities of U.S. and foreign issuers and through
foreign currency transactions.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
NEW DISCOVERY SERIES. This Fund seeks to provide capital appreciation.
EMERGING GROWTH SERIES. This Fund seeks to provide long-term growth of
capital.
RESEARCH SERIES. This Fund seeks to provide long-term growth of capital and
future income.
GROWTH WITH INCOME SERIES. This Fund seeks to provide reasonable current
income and long-term growth of capital and income.
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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.
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.
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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, 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. If the
participation agreement relating to the Fund terminates, the Variable Account
would not be able to purchase additional shares of a Fund. 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 the
PIC's response to any such conflicts does not provide enough protection for
Owners, it will take appropriate action on its own, including withdrawing the
Variable Account's investment in the Fund. (See the PIC prospectus for more
detail.)
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Shares of the Oppenheimer Funds, MFS Funds, Calvert Funds and Van Eck Funds
are sold to separate accounts of insurance companies, which may or may not be
affiliated with Protective Life or each other, a practice known as "shared
funding." They may also be sold to separate accounts to serve as the underlying
investment for both variable annuity contracts and variable life insurance
policies, a practice known as "mixed funding." Shares of some of these Funds may
also be sold to certain qualified pension and retirement plans. As a result,
there is a possibility that a material conflict may arise between the interests
of Policy Owners and 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 OppenheimerFunds, MFS Funds, Calvert Funds and Van Eck
Funds monitors events related to their Funds to identify possible material
irreconcilable conflicts among and between the interests of the Fund's various
investors. There are certain risks associated with mixed and shared funding and
with the sale of shares to qualified pension and retirement plans, as disclosed
in each Fund's prospectus.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Protective Life may make additions to, deletions from, or substitutions for
the shares that are held in or purchased by the Variable Account. If the shares
of a Fund are no longer available for investment or further investment in any
Fund should become inappropriate in view of the purposes of the Variable
Account, Protective Life may redeem the shares of that Fund and substitute
shares of another Fund. Protective Life will not substitute any shares without
notice and any necessary approval of the SEC and state insurance authorities.
Protective Life also reserves the right to establish additional Sub-Accounts
of the Variable Account, which would each invest in shares corresponding to a
new Fund. Subject to applicable law and any required SEC approval, Protective
Life may establish new Sub-Accounts or eliminate one or more Sub-Accounts if
marketing needs, tax considerations or investment conditions warrant. Any new
Sub-Accounts may be made available to existing Owner(s).
If any of these substitutions or changes are made, Protective Life may by
appropriate endorsement change the Policy to reflect the substitution or other
change. If Protective Life deems it to be in the best interest of Owner(s); the
Variable Account may be operated as a management investment company under the
1940 Act, it may be deregistered under that Act if registration is no longer
required, or it may be combined with other Protective Life separate accounts.
Protective Life may make any changes to the Variable Account required by the
1940 Act or other applicable law or regulation.
VOTING RIGHTS
Protective Life is the legal owner of Fund shares held by the Sub-Accounts
and as such has the right to vote on all matters submitted to shareholders of
the Funds. However, in accordance with applicable law, Protective Life will vote
shares held in the Sub-Accounts at meetings of shareholders of the Funds in
accordance with instructions received from Owners with Policy Value in the
Sub-Accounts. Should 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.
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determined as of the date established by the Fund for determining shareholders
eligible to vote at the relevant meeting of that Fund.
Shares as to which no timely instructions are received and shares held
directly by Protective Life are voted by Protective Life in proportion to the
voting instructions that are received with respect to all Policies participating
in a Sub-Account. Voting instructions to abstain on any item are applied to
reduce the votes eligible to be cast on that item.
Protective Life may, if required by state insurance officials, disregard
Owner voting instructions if such instructions would require shares to be voted
so as to cause a change in sub-classification or investment objectives of one or
more of the Funds, or to approve or disapprove the investment management
agreement or an investment advisory agreement. In addition, Protective Life may
under certain circumstances disregard voting instructions that would require
changes in the investment management agreement, investment manager, an
investment advisory agreement or an investment adviser of one or more of the
Funds, provided that Protective Life reasonably disapproves of such changes in
accordance with applicable regulations under the 1940 Act. If Protective Life
ever disregards voting instructions, Owners will be advised of that action and
of the reasons for such action in the next semiannual report.
THE POLICY
PURCHASING A POLICY
To purchase a Policy, a prospective Owner must submit a completed
application and at least the minimum initial premium payment through a licensed
representative of Protective Life who is also a registered representative of a
broker-dealer having a distribution agreement with Investment Distributors, Inc.
("IDI"). See "Premiums," below. Protective Life requires satisfactory evidence
of the Insured's insurability, which may include a medical examination of the
Insured. Generally, Protective Life will issue a Policy covering an Insured up
to age 85 if evidence of insurability satisfies Protective Life's underwriting
rules. Acceptance of an application depends on Protective Life's underwriting
rules, and Protective Life may reject an application for any reason. If an
application for a Policy is rejected, any Initial Premium will be returned to
the applicant. With the consent of the Owner, a Policy may be issued on a basis
other than that applied for (I.E., on a higher premium class basis due to
increased risk factors). A POLICY IS ISSUED AFTER PROTECTIVE LIFE APPROVES THE
APPLICATION. PREMIUM IS NOT A REQUIREMENT TO ISSUE A POLICY. PREMIUM MAY BE
COLLECTED AT THE TIME OF POLICY DELIVERY.
Insurance coverage under a Policy begins on the Policy Effective Date.
Temporary life insurance coverage also may be provided under the terms of a
temporary insurance agreement. Under such agreements, the total amount of
insurance which may become effective prior to delivery of the Policy to the
Owner may not exceed $500,000 plus the amount of any Initial Premium paid
(including the amount of any life insurance and accidental death benefits then
in force or applied for with the Company) and may not be in effect for more than
90 days.
In order to obtain a more favorable Issue Age, Protective Life may permit
the Owner to "backdate" a Policy by electing a Policy Effective Date up to six
months prior to the date of the original application. Charges for the Monthly
Deduction for the backdated period are deducted as of the Policy Effective Date.
The Owner of the Policy may exercise all rights provided under the Policy.
The Insured is the Owner, unless a different person is named as Owner in the
application. By written notice received by Protective Life at the Home Office
while the Insured is living, the Owner may name a Contingent Owner or a new
Owner. If there are joint Owners, all Owners must authorize the exercise of any
right under the Policy. Unless the Owner provides otherwise, in the event of one
joint Owner's death, ownership passes to any surviving joint Owner(s). Unless a
contingent Owner has been named, ownership of the Policy passes to the estate of
the last surviving Owner upon his or her death. A change in Owner may have tax
consequences. (See "Tax Considerations".)
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CANCELLATION PRIVILEGE
You may cancel your Policy for a refund during the Cancellation Period by
returning it to Protective Life's Home Office or to the sales representative who
sold it along with a written cancellation request. The Cancellation Period is
determined by the law of the state in which the application is signed and is
shown in your Policy. In most states it expires at the latest of
(1) 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,
(2) Fixed Account Value determined as of the date the returned Policy is
received, and
(3) Variable Account Value determined as of the date the returned Policy is
received.
This amount may be more or less than the aggregate premiums paid. In states
where required, Protective Life will refund premiums paid.
PREMIUMS
MINIMUM INITIAL PREMIUM. The minimum Initial Premium required depends on a
number of factors, including the age, sex and rate class of the proposed
Insured, the Initial Face Amount requested by the applicant, any supplemental
riders requested by the applicant. Consult your sales representative for
information about the initial premium required for the coverage you desire.
ADDITIONAL PREMIUMS. After the first Policy Anniversary, Protective Life
will accept, subject to the limitations described below, additional premium
payments. Protective Life reserves the right to apply all additional premium
payments 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.
Unless otherwise determined by Protective Life, additional premium payments
must be at least $10,000 and must be received at the Home Office. See "Premium
Allocations". Protective Life also reserves the right to limit the amount of any
premium payment. Any additional premium payments made will generally require an
increase in the Face Amount of the Policy and therefore will be subject to
evidence of insurability. 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 paid that exceeds such
limitations with interest to the extent required by the Code.
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PREMIUM ALLOCATIONS
Owners must indicate in the application how premium payments are to be
allocated to the Sub-Accounts, the Fixed Account and/or the DCA Fixed Account.
These allocation instructions apply to both initial and subsequent premiums.
Owners may change the allocation instructions in effect at any time by written
notice to Protective Life at the Home Office. Whole percentages must be used.
The minimum percentage that may be allocated to any Sub-Account or to the Fixed
Account is 10% of premium 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 Premium to the Oppenheimer
Money Fund Sub-Account or the Fixed Account until the expiration of the number
of days in the Cancellation Period plus 6 days starting from the date that the
Policy is mailed from the Home Office. Thereafter, the Policy Value in the
Oppenheimer Money Fund Sub-Account or the Fixed Account and all premiums will be
allocated according to your allocation instructions then in effect.
Additional premiums not requiring additional underwriting will be credited
to the Policy and the premiums will be invested as requested on the Valuation
Date they are received by the Home Office. However, any premium paid in
connection with an increase in Face Amount may be allocated to the Oppenheimer
Money Fund Sub-Account or the Fixed Account until underwriting has been
completed. When approved, the Policy Value in the Oppenheimer Money Fund
Sub-Account or the Fixed Account attributable to the resulting premium will be
credited to the Policy and allocated in accordance to your allocation
instructions then in effect. If an additional premium is rejected, Protective
Life will return the premium immediately, without any adjustment for investment
experience.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike a conventional life insurance policy, whether a Policy lapses
depends on whether its Policy Value is sufficient to cover the Monthly
Deductions (See "Monthly Deductions"). If the Policy Value on a Monthly
Anniversary Day is less than the amount of the Monthly Deduction due on that
date, the Policy will be in default and a grace period will begin. This could
happen if investment experience has been sufficiently unfavorable that it has
resulted in a decrease in Policy Value.
In the event of a Policy default, the Owner has a 61-day grace period to
make a premium payment sufficient to cover the current and past-due Monthly
Deductions. Protective Life will send to the Owner, at the last known address
and the last known address of any assignee of record, notice of the premium
required to prevent lapse. The grace period will begin when the notice is sent.
A Policy will remain in effect during the grace period. If the Insured should
die during the grace period, the Death Benefit proceeds payable to the
beneficiary will reflect a reduction for the Monthly Deductions due on or before
the date of the Insured's death as well as any unpaid Policy Debt. (See "Death
Benefit Proceeds".) Unless the premium stated in the notice is paid before the
grace period ends, the Policy will lapse.
REINSTATEMENT. An Owner may reinstate a Policy within 5 years of its lapse
provided that: (1) a request for reinstatement is made by written notice
received by Protective Life at the Home Office, (2) the Insured is still living,
(3) the Owner pays Premiums equal to (a) all Monthly Deductions that were due
but unpaid during the grace period with interest at a rate not to exceed an
effective annual rate of 6%, if required by the Company, and (b) which are at
least sufficient to keep the reinstated Policy in force for three months, (4)
the Insured provides Protective Life with satisfactory evidence of insurability,
(5) the Owner repays or reinstates any Policy Debt which existed at the end of
the grace period; and (6) the Policy has not been surrendered. The "Approval
Date" of a reinstated Policy is the date that Protective Life approves the
Owner's request for reinstatement and requirements 1-6 above have been met.
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CALCULATION OF POLICY VALUES
VARIABLE ACCOUNT VALUE
THE VARIABLE ACCOUNT VALUE REFLECTS THE INVESTMENT EXPERIENCE OF THE
SUB-ACCOUNTS TO WHICH IT IS ALLOCATED, ANY PREMIUM ALLOCATED TO THE
SUB-ACCOUNTS, TRANSFERS IN OR OUT OF THE SUB-ACCOUNTS, OR ANY WITHDRAWALS OF
VARIABLE ACCOUNT VALUE AND MONTHLY DEDUCTIONS FROM VARIABLE ACCOUNT VALUE. THERE
IS NO GUARANTEED MINIMUM VARIABLE ACCOUNT VALUE. A Policy's Variable Account
Value therefore depends upon a number of factors. The Variable Account Value for
a Policy at any time is the sum of the Sub-Account Values for the Policy on the
Valuation Day most recently completed.
DETERMINATION OF UNITS. For each Sub-Account, the premium(s) or Policy
Value transferred are converted into units. The number of units credited is
determined by dividing the dollar amount directed to each Sub-Account by the
value of the unit for that Sub-Account for the Valuation Day on which the
premium(s) or transferred amount is invested in the Sub-Account. Therefore,
premiums allocated to or amounts transferred to a Sub-Account under a Policy
increase the number of units of that Sub-Account credited to the Policy.
DETERMINATION OF UNIT VALUE. The unit value at the end of every Valuation
Day is the unit value at the end of the previous Valuation Day times the net
investment factor, as described below. The Sub-Account Value for a Policy is
determined on any day by multiplying the number of units attributable to the
Policy in that Sub-Account by the unit value for that Sub-Account on that day.
NET INVESTMENT FACTOR. The net investment factor is an index applied to
measure the investment performance of a Sub-Account from one Valuation Period to
the next. Each Sub-Account has a net investment factor for each Valuation Period
which may be greater or less than one. Therefore, the value of a unit may
increase or decrease. The net investment factor for any Sub-Account for any
Valuation Period is determined by dividing (1) by (2), where:
(1) is the result of:
a. the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
made by the Fund to the Sub-Account, if the "ex-dividend" date occurs
during the current Valuation Period; plus or minus
c. a per share charge or credit for any taxes reserved for, which is
determined by Protective Life to have resulted from the operations of the
Sub-Account.
(2) is the net asset value per share of the Fund held in the
Sub-Account, determined at the end of the last prior Valuation Period.
GUARANTEED ACCOUNT VALUE
The Guaranteed Account Value under a Policy at any time is equal to: (1)
that part of the premium(s) allocated to either the Fixed Account or the DCA
Fixed Account, plus (2) amounts transferred to the Fixed Account, plus (3)
interest credited to the Fixed Account or the DCA Fixed Account, less (4)
transfers from the Fixed Account or the DCA Fixed Account (including any
transfer fees deducted), less (5) withdrawals from the Fixed Account or the DCA
Fixed Account, less (6) surrender charges and premium tax recovery charges
deducted, less (7) certain Monthly Deductions. See "The Fixed Accounts," for a
discussion of how interest is credited to the Fixed Account and the DCA Fixed
Account.
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POLICY BENEFITS
TRANSFERS OF POLICY VALUES
GENERAL. Upon receipt of written notice 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 amounts in a Sub-Account to other
Sub-Accounts and/or the Fixed Account or subject to certain restrictions,
amounts from the Fixed Account and the DCA Fixed Account to a SubAccount.
Transfers (including telephone transfers -- described below) are processed as of
the end of the Valuation Period during which a request is received at the Home
Office. Protective Life may, however defer transfers under the same conditions
that payment of Death Benefit Proceeds, withdrawals and surrenders may be
delayed. See "Suspension or Delay of Payments". The minimum amount that may be
transferred is the lesser of $100 or the entire Policy Value in any Sub-Account
or the Fixed Account or the DCA Fixed Account from which the transfer is made.
If, after the transfer, the Policy Value remaining in a Sub-Account(s), the
Fixed Account and/or the DCA Fixed Account would be less than $100, Protective
Life reserves the right to transfer the entire amount instead of the requested
amount. Protective Life reserves the right to limit transfers to 12 per Policy
Year. For each additional transfer over 12 in any Policy Year, Protective Life
reserves the right to charge a transfer fee which will not exceed $25. The
transfer fee, if any, is deducted from the amount being transferred. (See
"Transfer Fee".)
Transfers involving a Guaranteed Account are subject to additional
restrictions. The maximum amount that may be transferred from the Fixed Account
during a Policy Year is the greater of (1) $2,500 or (2) 25% of the Fixed
Account Value. No transfers may be made into the DCA Fixed Account.
TELEPHONE TRANSFERS. Transfers may be made upon instructions given by
telephone, provided the appropriate election has been made on the application or
written authorization is provided.
Protective Life will send you a confirmation of all instructions
communicated by telephone to determine if they are genuine. For telephone
transfers 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 (other
than in connection with the DCA Fixed Account) at any time thereafter by written
notice to the Home Office, you may systematically and automatically transfer, on
a monthly or quarterly basis, specified dollar amounts from the DCA Fixed
Account or any other allocation option to any allocation option (except that no
transfers may be made to the DCA Fixed Account). This is known as the
dollar-cost averaging method of investment. By transferring equal amounts of
Policy Value on a regularly scheduled basis, as opposed to allocating a larger
amount at one particular time, an Owner may be less susceptible to the impact of
market fluctuations in Sub-Account unit values. Protective Life, however, makes
no guarantee that the dollar-cost averaging method will result in a profit or
protect against loss.
You may generally elect dollar cost averaging for periods of at least 12
months, however, the maximum period for dollar cost averaging amounts from the
DCA Fixed Account is 12 months. In the DCA Fixed, dollar cost averaging must be
elected immediately. From time to time, we may offer different
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maximum periods for dollar cost averaging amounts from the DCA Fixed Account. At
least $100 must be transferred each month or each quarter. Dollar-cost averaging
transfers may commence on any day of the month that you request following six
days after the end of the Cancellation Period, except the 29th, 30th, or 31st.
If no day is selected, transfers will occur on the Monthly Anniversary Day.
Once elected, Protective Life will continue to process dollar-cost averaging
transfers until the earlier of the following: (1) the number of designated
transfers has been completed, or (2) the value in the source Fund is depleted,
(3) the Owner, by written notice 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. Any time dollar cost
averaging transfers end, all Policy Value remaining in the DCA Fixed Account
will be transferred to the Fixed Account.
Automatic transfers made to facilitate dollar-cost averaging will not count
toward the 12 transfers permitted each Policy Year if Protective Life elects to
limit the number of transfers or impose the transfer fee. Protective Life
reserves the right to discontinue offering or place restrictions on automatic
dollar-cost averaging transfers upon 30 days' written notice to the Owner.
PORTFOLIO REBALANCING. At the time of application or at any time thereafter
by written notice to Protective Life, you may instruct Protective Life to
automatically transfer, on a quarterly, semi-annual or annual basis, your
Variable Account Value among specified Sub-Accounts to achieve a particular
percentage allocation of Variable Account Value among such Sub-Accounts
("Portfolio Rebalancing"). Such percentage allocations must be in whole numbers
and must allocate amounts only among the Sub-Accounts. No amounts will be
transferred to the Fixed Account or the DCA Fixed Account as part of Portfolio
Rebalancing. A minimum Variable Account Value of $100 is required for Portfolio
Rebalancing. Unless you instruct otherwise when electing rebalancing, the
percentage allocation of your Variable Account Value for Portfolio Rebalancing
will be based on your 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 the Monthly Anniversary Day.
Once elected, Portfolio Rebalancing begins on the first quarterly,
semi-annual or annual anniversary following election. You may change or
terminate Portfolio Rebalancing by written instruction 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 Contract Year. Protective Life
reserves the right to assess a processing fee for this service or to discontinue
Portfolio Rebalancing upon 30 days written notice to the Owner.
SURRENDER PRIVILEGE
At any time while the Policy is in force and while the Insured is still
living, the Owner may surrender the Policy for its Surrender Value. Surrender
Value is determined as of the end of the Valuation Period during which the
written notice requesting the surrender is received at the Home Office, the
Policy and any other required documents are received by Protective Life. A
surrender charge and premium tax recovery charge may apply. See ("Surrender
Charge and Premium Tax Recovery Charge".) The Surrender Value is paid in a lump
sum unless the Owner requests payment under a settlement option. (See
"Settlement Options".) Payment is generally made within seven calendar days. See
("Suspension or Delay of Payments" and "Payments from the Guaranteed Account".)
A Policy terminates upon surrender. A surrender will have tax consequences. (See
"Tax Considerations.")
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WITHDRAWAL PRIVILEGE
At any time while the Policy is in force and prior to the Insured's death,
an Owner, by written notice received at the Home Office, may request a
withdrawal of Surrender Value subject to certain restrictions described below.
Protective Life will withdraw the amount requested, plus any applicable
surrender charges and premium tax recovery charges, from Policy Value as of the
Valuation Day we receive the written notice. A withdrawal will have tax
consequences. (See "Tax Considerations.")
The Owner may specify the amount of the withdrawal to be made from any
Sub-Account or the Fixed Account and/or the DCA Fixed Account. Withdrawals will
result in the cancellation of Units from each applicable Sub-Account and/or the
reduction in the Guaranteed Account Value. If the Owner does not so specify, or
if the amount in the designated account(s) is insufficient to carry out the
request, the withdrawal will be made from each Sub-Account, the Fixed Account
and the DCA Fixed Account based on the proportion that such Sub-Account Value(s)
and Guaranteed Account Value bears to the unloaned Policy Value on the Valuation
Day immediately prior to the withdrawal. Payment is generally made within seven
calendar days. See "Suspension or Delay of Payments", and "Payments from the
Guaranteed Account". The Company reserves the right to decline to process a
withdrawal if, after the withdrawal, the Policy Value would be less than ten
percent of the current Face Amount.
WITHDRAWALS. At any time prior to the Insured's death and while this Policy
is in force, the Owner(s) may make a written request for a withdrawal of the
Policy Value. In order to request a withdrawal during the first Policy Year, the
Owner must have made an initial premium payment of at least $10,000. On or after
the first Policy Anniversary, in order to request a withdrawal the Policy Value
must be at least $10,000 as of the date that we receive the request. Protective
Life will withdraw the amount requested from the Policy Value as of the end of
the Valuation Period during which the written request is received at the Home
Office. A surrender charge and premium tax recovery charge may apply if the
cumulative amount of the withdrawals exceeds the Annual Withdrawal Amount or the
amount by which your Policy Value exceeds Premium Payments made.
ANNUAL WITHDRAWAL AMOUNTS. The Annual Withdrawal Amount is the annual
amount the Owner may withdraw during a Policy Year, and not incur a surrender
charge or premium tax recovery charge. The Annual Withdrawal amount is:
(a) an amount equal to ten percent of the initial premium paid if the
withdrawal request is received during the first Policy Year, or
(b) the amount equal to ten percent of cumulative premiums paid as of
the last Policy Anniversary, net of all premium payments withdrawn, if
the withdrawal is received after the first Policy Year.
In addition, surrender and premium tax recovery charges will not apply if
the aggregate amount withdrawn does not exceed the amount by which your Policy
Value exceeds premiums paid.
DECREASING THE FACE AMOUNT. In the event a withdrawal is requested
Protective Life will reduce the Face Amount proportionately by the requested
withdrawal amount (plus any surrender charges and premium tax recovery charges).
Protective Life may reject a withdrawal request if the withdrawal would reduce
the Face Amount below the minimum amount for which the Policy would be issued
under Protective Life's then-current rules, or if the withdrawal would cause the
Policy to fail to qualify as a life insurance contract under applicable tax
laws, as interpreted by Protective Life.
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The proportionate face amount decrease will be determined by the following
formula:
F X (P - W)/P
<TABLE>
<S> <C> <C>
Where: F = Current Face Amount
P = Policy Value
W = Withdrawal Amount (including any applicable charges)
</TABLE>
POLICY LOANS
GENERAL. At any time while the Policy is in force and while the Insured is
still living, an Owner may borrow $500 or more from Protective Life using the
Policy as the security for the loan. Policy loans must be requested by written
notice received at the Home Office and the maximum amount that an Owner may
borrow is an amount equal to 90% of the Policy's Surrender Value on the date
that the loan request is received. Outstanding Policy loans therefore reduce the
amount available for new Policy loans. Loan proceeds generally are mailed within
seven calendar days of the loan being approved. (See "Suspension or Delay of
Payments", and "Payments from the Guaranteed Account".)
LOAN COLLATERAL. When a Policy loan is made, an amount equal to the loan is
transferred out of the Sub-Accounts and the Guaranteed Account and into a Loan
Account established for the Policy. Like the Guaranteed Account, a Policy's Loan
Account is part of Protective Life's General Account and amounts therein earn
interest as credited by Protective Life from time to time. Because Loan Account
values are part of Policy Value, a loan will have no immediate effect on the
Policy Value. In contrast, Surrender Value (including, as applicable, Variable
Account Value and Guaranteed Account Value) under a Policy is reduced
immediately by the amount transferred to the Loan Account. The Owner(s) can
specify the Sub-Accounts and the Fixed Account and/or the DCA Fixed Account from
which collateral is transferred to the Loan Account. If no allocation is
specified, collateral is transferred from each Sub-Account and from the Fixed
Account and DCA Fixed Account in the same proportion that the value of each of
the Sub-Account(s) and the Fixed Account and DCA Fixed Account bears to the
total unloaned Policy Value on the date that the loan is made.
On each Policy Anniversary, an amount of Policy Value equal to any due and
unpaid loan interest (explained below), is also transferred to the Loan Account.
Such interest is transferred from each Sub-Account and the Fixed Account and/or
DCA Fixed Account in the same proportion that each Sub-Account Value and the
Fixed Account Value and/or DCA Fixed Account bears to the total unloaned Policy
Value.
LOAN REPAYMENT. You may repay all or part of your Policy Debt (the amount
borrowed plus unpaid interest) at any time while the Insured is living and the
Policy is in force. Loan repayments must be sent to the Home Office and are
credited as of the date received. The Owner may specify in writing that any
additional premiums paid while a loan is outstanding be applied as loan
repayments. When a loan repayment is made, Policy Value in the Loan Account in
an amount equal to the repayment is transferred from the Loan Account to the
Sub-Accounts and the Fixed Account and/or the DCA Fixed Account. Thus, a loan
repayment will have no immediate effect on the Policy Value, but the Surrender
Value (including, as applicable, Variable Account Value and Guaranteed Account
Value) under a Policy is increased immediately by the amount transferred from
the Loan Account. Unless specified otherwise by the Owner(s), amounts are
transferred to the Sub-Accounts and the Fixed Account and/or the DCA Fixed
Account in the same manner as Premium Payments are allocated.
INTEREST. Except in the case of a Preferred Loan, Protective Life will
charge interest daily on any outstanding loan at an effective annual rate of
6.0%. Interest is due and payable at the end of each Policy Year while a loan is
outstanding. Protective Life will notify the Owner of the amount due. If
interest is not paid when due, the amount of the interest is added to the loan
and becomes part of the Policy Debt. If the Surrender Value exceeds the total of
all Premium Payments made, a Preferred Loan will be available. The amount of
such Preferred Loan is the amount by which the Surrender Value exceeds total
premiums paid.
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The Preferred Loan portion of the outstanding Policy Debt will be charged
interest at a rate not to exceed 4.25%. The portion of loan that qualifies as a
Preferred Loan is determined as of the date a request for a loan is received at
the Home Office and on each Policy Anniversary.
The Loan Account is credited with interest at an effective annual rate of at
least 4%. Thus, the maximum net cost of a loan is 2.0% per year for the
non-preferred portion, and 0.25% for the preferred portion of the loan, if any
(the difference between the rate of interest charged on Policy loans and the
amount credited on the equivalent amount held in the Loan Account). Protective
Life determines the rate of interest to be credited to the Loan Account in
advance of each calendar year. The rate, once determined, is applied to the
calendar year which follows the date of determination. On each Policy
Anniversary, the interest earned on the Loan Account since the previous Policy
Anniversary is transferred to the Sub-Accounts and to the Fixed Account and/or
the DCA Fixed Account in the same manner as premiums are allocated.
NON-PAYMENT OF POLICY LOAN. If the Insured dies while a loan is
outstanding, the Policy Debt is deducted from the Death Benefit in calculating
the Death Benefit proceeds.
If the Loan Account Value exceeds the Cash Value (i.e., the Surrender Value
becomes zero) on any Valuation Date, the Policy may be in default. If this
occurs, the Owner, and any assignee of record, will be sent notice of the
default. The Owner will have a 31-day grace period to submit a sufficient
payment to avoid a lapse (i.e., termination) of the Policy. The notice will
specify the amount that must be repaid to prevent lapse.
EFFECT OF A POLICY LOAN. A loan, whether or not repaid, has a permanent
effect on the Death Benefit Proceeds and Policy values because the investment
results of the Sub-Accounts and current interest rates credited on Guaranteed
Account Value do not apply to Policy Value in the Loan Account. The larger the
loan and longer the loan is outstanding, the greater will be the effect of
Policy Value being held as collateral in the Loan Account. Depending on the
investment results of the Sub-Accounts or credited interest rates for the Fixed
Account and/or the DCA Fixed Account while the loan is outstanding, the effect
could be favorable or unfavorable. Policy loans also may increase the potential
for lapse if investment results of the Sub-Accounts to which Surrender Value is
allocated is unfavorable. If a Policy lapses with loans outstanding, certain
amounts may be subject to income tax and a 10% penalty tax. In addition, if your
Policy is a "modified endowment contract," loans may be currently taxable and
subject to a 10% penalty tax. See "Tax Considerations," for a discussion of the
tax treatment of policy loans.
DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, Protective Life will pay the Death
Benefit Proceeds upon receipt at the Home Office of satisfactory proof of the
Insured's death. Protective Life may require return of the Policy. The Death
Benefit Proceeds are paid to the primary beneficiary or a contingent
beneficiary. The Owner may name one or more primary or contingent beneficiaries
and change such beneficiaries, as provided for in the Policy. If no beneficiary
survives the Insured, the Death Benefit Proceeds are paid to the Owner or the
Owner's estate. Death Benefit Proceeds are paid in a lump sum or under a
settlement option (see "Settlement Options").
CALCULATION OF DEATH BENEFIT PROCEEDS. The Death Benefit Proceeds are equal
to the Death Benefit (as described below), plus any supplemental rider benefits,
minus any Policy Debt on that date and any liens for payments made under an
accelerated death benefit rider and, if the Insured died during a grace period,
minus any past due Monthly Deductions. Under certain circumstances, the amount
of the Death Benefit Proceeds may be further adjusted. (See "Limits on Rights to
Contest the Policy" and "Misstatement of Age or Sex".)
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If part or all of the Death Benefit Proceeds are paid in one sum, Protective
Life will pay interest on this sum as required by applicable state law from the
date of receipt of due proof of the Insured's death to the date of payment.
DEATH BENEFIT. The Death Benefit is the greater of: (1) the Face Amount
under the Policy on the date of the Insured's death, or (2) a specified
percentage of Policy Value on the date of the Insured's death.
The specified percentage is 250% when the Insured has reached an "Attained
Age" of 40 or less by date of death, and decreases each year thereafter to 100%
when the Insured has reached an Attained Age of 95 at death. The Death Benefit
remains level at the Face Amount unless the Policy Value multiplied by the
specified percentage exceeds that Face Amount, in which event the Death Benefit
will vary as the Policy Value varies. A table showing these percentages for
Attained Ages 0 to 95 and an example of Death Benefit calculations are found in
Appendix A.
INCREASING THE FACE AMOUNT. On or after the first Policy Anniversary, the
Owner may request an increase in the Face Amount.
For any increase in the Face Amount the additional premium must be at least
$10,000 and an application must be submitted. Protective Life reserves the right
to require satisfactory evidence of insurability. In addition, the Insured's
Attained Age must be less than the current maximum Issue Age for the Policies,
as determined by Protective Life from time to time. (See "Premium Payments Upon
Increase in Face Amount".) The increase in Face Amount will become effective on
the Monthly Anniversary Day on or next following the date the request for the
increase is received and approved and the additional required minimum premium
payment is received. The Policy Value will be adjusted to the extent necessary
to reflect a Monthly Deduction as of the effective date based on the increase in
Face Amount. (See "Premium Payments Upon Increase in Face Amount".)
An increase in Face Amount may be cancelled by the Owner in accordance with
the Policy's cancellation privilege provisions, which also apply to increases in
Face Amount. In such case, the amount refunded will be calculated in accordance
with such provisions described above. (See "Cancellation Privilege".)
SETTLEMENT OPTIONS
The Policy offers a variety of ways of receiving proceeds payable under the
Death Benefit and surrender provisions of a Policy, other than in a lump sum.
These alternative settlement options are summarized below. Any sales
representative authorized to sell this Policy can further explain these options
upon request. All of these 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.
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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 payment
options during the Insured's lifetime; beneficiaries may elect settlement
options thereafter if Death Benefit Proceeds are payable in a lump sum. The
effective date of an option applied to Death Benefit Proceeds is the date of the
Insured's death. The effective date of an option applied to Surrender Value is
the date as of which the withdrawal or surrender is executed.
If Protective Life has available at the time a settlement option is elected,
options or rates on a more favorable basis than those guaranteed, the higher
benefits will apply.
THE GUARANTEED ACCOUNT
THE INTERESTS IN THE GUARANTEED ACCOUNT HAVE NOT BEEN, AND ARE NOT REQUIRED
TO BE, REGISTERED UNDER THE SECURITIES ACT OF 1933 AND NEITHER THE GUARANTEED
ACCOUNT NOR OTHER COMPONENTS OF THE COMPANY'S GENERAL ACCOUNT HAVE BEEN
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940.
ACCORDINGLY, NEITHER THE GUARANTEED ACCOUNT, THE COMPANY'S GENERAL ACCOUNT NOR
ANY INTERESTS THEREIN ARE SUBJECT TO THE PROVISIONS OF THESE ACTS AND, AS A
RESULT, THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE
DISCLOSURE IN THIS PROSPECTUS RELATING TO THE GUARANTEED ACCOUNT. THE DISCLOSURE
REGARDING THE GUARANTEED ACCOUNT MAY, HOWEVER, BE SUBJECT TO CERTAIN GENERALLY
APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY
AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
THE GUARANTEED ACCOUNT
The Guaranteed Account is comprised of the Fixed Account and the DCA Fixed
Account which consist of assets owned by Protective Life with respect to the
Policies, other than those in the Variable Account. Both are part of Protective
Life's general account assets. Protective Life's general account assets are used
to support its insurance and annuity obligations other than those funded by
separate accounts, and are subject to the claims of Protective Life's general
creditors. Subject to applicable law, Protective Life has sole discretion over
the investment of the assets of the Fixed Account and the DCA Fixed Account.
Guarantees of premiums allocated to the Fixed Account and the DCA Fixed Account,
and interest credited thereto, are backed by Protective Life. The Guaranteed
Account Value is calculated daily. (See "Guaranteed Account Value".)
INTEREST CREDITED ON GUARANTEED ACCOUNT
Protective Life guarantees that the interest credited during the first
Policy Year to the initial premium payment allocated to the Fixed Account or the
DCA Fixed Account will not be less than the rate shown in the Policy. The
interest rate credited to subsequent premiums allocated to the Fixed Account or
the DCA Fixed Account or amounts transferred to the Fixed Account will be the
annual effective interest rate in effect on the date that the premium(s) is
received by Protective Life at the Home Office or the date that the transfer is
made. The interest rate is guaranteed to apply to such amounts for a twelve
month period which begins on the date that the premium(s) is allocated or the
date that the transfer is made.
After an interest rate guarantee expires as to a premium payment or amount
transferred, (I.E., 12 months after the premium(s) or transfer is placed in the
Guaranteed Account) we will credit
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interest on the Guaranteed Account Value attributable to such premium or
transferred amount remaining in the Fixed Account or the DCA Fixed Account at
the current interest rate in effect. New current interest rates are effective
for such Guaranteed Account Value for 12 months from the time that they are
first applied. Protective Life, in its sole discretion, may declare a new
current interest rate from time to time. The initial annual effective interest
rate and the current interest rates that Protective Life will credit are annual
effective interest rates of not less than 4.00%. Because Protective Life
anticipates changing the current interest rates for accounts within the
Guaranteed Account from time to time, allocations to accounts within the
Guaranteed Account may be credited with different current interest rates. For
purposes of crediting interest, amounts deducted, transferred or withdrawn from
the Guaranteed Account are accounted for on a "first-in-first-out" (FIFO) basis
independently applied to the Fixed Account and the DCA Fixed Account.
GUARANTEED ACCOUNT VALUE
The Guaranteed Account Value at any time is equal to: (1) that part of the
premium(s) allocated to the Fixed Account and the DCA Fixed Account; plus (2)
amounts transferred to the Fixed Account; plus (3) interest credited to the
Fixed Account and the DCA Fixed Account; less (4) transfers from the Fixed
Account or the DCA Fixed Account (including any transfer fees deducted) less (5)
withdrawals from the Fixed Account or the DCA Fixed Account, less (6) surrender
charges and premium tax recovery charges less (7) certain Monthly Deductions.
Because Protective Life, at its sole discretion, anticipates changing the
current interest rate from time to time, different allocations to the Fixed
Account and the DCA Fixed Account and transfers to the Fixed Account will be
credited with different current interest rates.
PAYMENTS FROM THE GUARANTEED ACCOUNT
Payments from the Fixed Account and/or the DCA Fixed Account for a
withdrawal, surrender or loan request may be deferred for up to six months from
the date Protective Life receives the written request. If a payment from the
Fixed Account and/or the DCA Fixed Account is deferred for 30 days or more, it
will bear interest at a rate of 4% per year (or an alternative rate if required
by applicable state insurance law), compounded annually while payment is
deferred.
CHARGES AND DEDUCTIONS
MONTHLY DEDUCTIONS
As of the Policy Effective Date, Protective Life will deduct the Monthly
Deductions from the Policy Value. Subsequent Monthly Deductions will be made on
each Monthly Anniversary Day thereafter. The Monthly Deductions consist of (1)
cost of insurance charges ("cost of insurance charge"), (2) policy expense
charge (the "policy expense charge"), (3) mortality and expense risk charge (the
"Mortality and Expense Risk Charge") and (4) any charges for supplemental
riders, as described below. The Monthly Deductions are deducted from the
Sub-Accounts and the Fixed Account pro-rata on the basis of the relative Policy
Value in each.
COST OF INSURANCE CHARGE. This charge compensates Protective Life for the
expense of underwriting the Death Benefit. The current charge may depend on a
number of variables and therefore may vary from Policy to Policy and from
Monthly Anniversary Day to Monthly Anniversary Day. For any Policy, the maximum
cost of insurance on a Monthly Anniversary Day is calculated by multiplying the
monthly cost of insurance rate for the Insured by the Policy Value under the
Policy for that Monthly Anniversary Day.
The current monthly cost of insurance charge is the lesser of (1) .054%
multiplied by the Policy Value during Policy Years 1 through 10 and .046%
multiplied by the Policy Value during Policy Year 11 and thereafter or (2) the
Guaranteed Maximum Monthly Cost of Insurance rates (as specified in the policy)
per $1,000 times the net amount at risk.
27
<PAGE>
Protective Life places the Insured in a rate class when the Policy is
issued, based on Protective Life's underwriting of the application. This
original rate class applies to the Initial Face Amount. When an increase in Face
Amount is requested, Protective Life conducts underwriting before approving the
increase (except as noted below) to determine whether a different rate class
will apply to the increase. If the rate class for the increase has lower cost of
insurance rates than the original rate class, the rate class for the increase
also will be applied to the Initial Face Amount. If the rate class for the
increase has a higher cost of insurance rate than the original rate class, the
rate class for the increase will apply only to the increase in Face Amount, and
the original rate class will continue to apply to the Initial Face Amount.
Protective Life guarantees that the cost of insurance rates used to
calculate the monthly cost of insurance charge will not exceed the maximum cost
of insurance rates set forth in the Policies. The guaranteed rates for standard
classes are based on the 1980 Commissioners' Standard Ordinary Mortality Tables,
Age Last Birthdate, Male or Female, Smoker or Nonsmoker Mortality Rates ("1980
CSO Tables"). The guaranteed rates for substandard classes are based on
multiples of or additions to the 1980 CSO Tables.
LEGAL CONSIDERATIONS RELATING TO SEX--DISTINCT PREMIUM PAYMENTS AND
BENEFITS. Mortality tables for the Policies generally distinguish between males
and females. Thus, 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 POLICY EXPENSE CHARGE. This charge generates revenues that cover
all of Protective Life's sales expenses not covered by the contingent deferred
sales charge and its administrative expenses not covered by the annual
maintenance fee. These expenses associated with the Policies and the Variable
Account relate to state and local premium taxes, federal taxes, certain sales
expenses (including sales commissions), recordkeeping, processing death benefit
claims, Policy loans, Policy changes, reporting and overhead costs, processing
applications, establishing Policy records and reports and other communication to
Policy Owners. The monthly policy expense charge is equal to .058% multiplied by
the Policy Value, which is equivalent to an annual rate of 0.70% of such amount.
SUPPLEMENTAL RIDER CHARGES. See "Supplemental Riders and Endorsements".
MORTALITY AND EXPENSE RISK CHARGE. This charge compensates Protective Life
for the mortality risk it assumes which is that the Insureds on the Policies may
die sooner than anticipated and therefore Protective Life will pay an aggregate
amount of death benefits greater than anticipated. The expense risk Protective
Life assumes is that expenses incurred in issuing and administering the Policies
and the Variable Account will exceed the amounts realized from the
administrative charges assessed against the Policies.
Protective Life deducts a monthly charge from assets in the Sub-Accounts
attributable to the Policies. This charge does not apply to Guaranteed Account
assets attributable to the Policies. The maximum monthly mortality and expense
risk charge to be deducted in all Policy Years is equal to .075% multiplied by
the Variable Account Value, which is equivalent to an annual rate of 0.90% of
such amount. The Company reserves the right to charge less than the maximum
charge. Accordingly, during Policy Years 1 through 10, the monthly Mortality and
Expense Risk Charge is .075% and in Policy Years 11 and thereafter, the monthly
mortality and expense risk charge is equal to .042% multiplied by the Variable
Account Value, which is equivalent to an annual rate of .50% of such amount.
28
<PAGE>
ANNUAL MAINTENANCE FEE
Protective Life deducts a $35.00 annual maintenance fee from the Policy
Value on each Policy Anniversary. Currently, the Company will waive the fee as
of a Policy Anniversary, if the Policy Value equals or exceeds $50,000.
TRANSFER FEE
Protective Life reserves the right to impose a $25 transfer fee on any
transfer of Policy Value between or among the Sub-Accounts or the Fixed Account
in excess of the 12 free transfers permitted each Policy Year. If the fee is
imposed, it will be deducted from the amount requested to be transferred. If an
amount is being transferred from more than one Sub-Account or the Fixed Account,
the transfer fee will be deducted proportionately from the amount being
transferred from each. This fee, if imposed, will reimburse Protective Life for
administrative expenses incurred in effecting transfers.
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE) AND PREMIUM TAX RECOVERY
CHARGE
If the Policy is surrendered, or if the Policy lapses, or if a withdrawal of
an amount greater than the Annual Withdrawal Amount (or the amount by which your
Policy Value exceeds the aggregate of premiums paid) is requested by the Owner,
through the first nine Policy Years following each premium payment, a surrender
charge and a premium tax recovery charge will be deducted. The surrender charge,
which is a contingent deferred sales charge, and premium tax recovery charge, is
deducted before any Surrender Value or withdrawal is paid. See "Withdrawal
Privilege" for rules for allocating the deduction.
The surrender charge and premium tax recovery charge for each premium is
equal to the surrender charge percentage and premium tax charge percentage for
the Policy Year in which the surrender, lapse or withdrawal of such premium
occurs, multiplied by the amount of such premium payment.
The surrender charge and premium tax recovery charge are separately
calculated and applied to each premium payment at any time that the premium is
withdrawn or surrendered or the Policy lapses. Withdrawals within a given Policy
Year are deemed to count first towards the Annual Withdrawal Amount. Once the
aggregate withdrawals in a Policy Year exceed the Annual Withdrawal Amount, the
additional amount that may be withdrawn that Policy Year without incurring a
surrender charge and premium tax recovery charge is equal to the remaining
Policy Value that exceeds premiums paid. This determination will be made as of
the date the withdrawal request is received at our Home Office. The surrender
charge and the premium tax recovery charge are calculated using the assumptions
that all Policy Value in excess of aggregate premium payments is withdrawn or
surrendered before any premiums and that premiums are withdrawn or surrendered
on a first-in-first-out basis.
<TABLE>
<CAPTION>
POLICY YEAR SURRENDER CHARGE POLICY YEAR PREMIUM TAX RECOVERY CHARGE
FOLLOWING AS A PERCENTAGE OF EACH FOLLOWING AS A PERCENTAGE OF EACH
PREMIUM PAYMENT PREMIUM PAYMENT WITHDRAWN PREMIUM PAYMENT PREMIUM PAYMENT WITHDRAWN
- --------------------- --------------------------------- --------------------- -------------------------------
<S> <C> <C> <C>
1 9% 1 2.50%
2 8% 2 2.25%
3 7% 3 2.00%
4 6% 4 1.75%
5 5% 5 1.50%
6 4% 6 1.25%
7 3% 7 1.00%
8 2% 8 .75%
9 1% 9 .50%
10+ 0% 10+ 0
</TABLE>
29
<PAGE>
After the 10th Policy Year after each premium payment, there is no surrender
charge or premium tax recovery charge for such premium.
The purpose of the surrender charge and premium tax recovery charge is to
reimburse Protective Life for some of the expenses incurred in the distribution
of the Policies and the premium tax paid by Protective Life on each premium.
FUND EXPENSES
The value of the net assets of each Sub-Account reflects the investment
advisory fees and other expenses incurred by the corresponding Fund in which the
Sub-Account invests. See the prospectus for each of the Funds.
EXCHANGE PRIVILEGE
The Company is offering, where allowed by law, to owners of certain existing
life policies (the "Existing Life Policy" and/or "Existing Life Policies")
issued by it the opportunity to exchange such a life policy for this Policy. The
Company reserves the right to modify, amend, terminate or suspend the Exchange
Privilege at any time or from time to time. Owners of Existing Life Policies may
exchange their Existing Life Policies for this Policy. Owners of Existing Life
Policies may also make a partial or full surrender from their Existing Life
Policies and use the proceeds to purchase this Policy. All charges and
deductions described in this prospectus are equally applicable to Policies
purchased in an exchange. All charges and deductions may not be assessed under
an Existing Life Policy in connection with an exchange, surrender, or partial
surrender of an Existing Life Policy.
The Policy differs from the Existing Life Policies in many significant
respects. Most importantly, the Policy Value under this Policy may consist,
entirely or in part, of Variable Account Value which fluctuates in response to
the net investment return of the Variable Account. In contrast, the policy
values under the Existing Life Policies always reflect interest credited by the
Company. While a minimum rate of interest (typically 4 or 4 1/2 percent) is
guaranteed, the Company in the past has credited 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.
30
<PAGE>
A table which generally summarizes the different charges under the
respective policies is as follows. For more complete details owners of Existing
Life Policies should refer to their policy forms for a complete description.
<TABLE>
<CAPTION>
EXISTING LIFE POLICY POLICY
<S> <C> <C>
State and Local Premium Tax None Deducted as part of Monthly
Deductions
Federal Tax Charge None Deducted as part of Monthly
Deductions
Front End Sales Charges/Premium Ranges from 0% to 12% of premium None
Expense Charge payments in all policy years.
The premium expense charge can
vary by age.
Administrative Fees Ranges from $4 to $5 monthly. Deducted as part of Monthly
Deductions
Withdrawal Charges $25 None
Monthly Deductions A monthly deduction consisting A monthly deduction consisting
of: (1) cost of insurance of: (1) cost of insurance
charges (2) administrative fees currently equal to the lesser of
(3) any charges for supplemental (x) .054% multiplied by the
riders. (applies to Existing Policy Value in Policy Years 1
Life Policies which are through 10 and .046% multiplied
universal life plans) by the Policy Value in Policy
Year 11 and thereafter or (y)
the maximum monthly cost of
insurance charges guaranteed in
the Policy, (2) policy expense
charges (sales and
administrative expenses) equal
to .058% multiplied by the
Policy Value, which is the
equivalent of an annual rate of
.70%, (3) mortality and expense
charges equal to .075%
multiplied by the Variable
Account Value, which is
equivalent to annual rate of
.90% of such amount during
Policy Years 1-10; in all Policy
Years thereafter this charge is
currently equal to .042%
multiplied by the Variable
Account Value, which is
equivalent to an annual rate of
.50% of such amount and (4) any
charges for supplemental riders.
Annual Maintenance Fee None $35 deducted from the Policy
Value on each Policy Anniversary
(currently waived if Policy
Value is equal to or greater
than $50,000)
Surrender Charges Surrender charges vary by policy A declining deferred sales
type and are incurred during a charge of up to 9% and a
surrender charge period which declining premium tax recovery
ranges from 0 years up to 19 charge of up to 2.50% of each
years. premium payment is assessed on
surrender charges during the
first 9 Policy Years following
each premium.
Guaranteed Interest Rate Ranges from 4% to 5%. Guaranteed account only 4%.
</TABLE>
31
<PAGE>
EFFECT OF THE EXCHANGE OFFER
1. This Policy will be issued to Existing Life Policy Owners. Evidence of
insurability may be required.
2. If an Existing Life Policy owner is within current issue age limits, the
Owner may carry over existing riders if available with the Policy. Evidence of
insurability may be required. An increase or addition of riders will require
full evidence of insurability.
3. The Contestable and Suicide provisions in the Policy will begin again as
of the effective date of the exchange, if evidence of insurability is required.
If evidence of insurability is not required on the exchange, the Contestable and
Suicide provisions will not begin again.
TAX MATTERS. Owners of Existing Life Policies should carefully consider
whether it will be advantageous to replace an Existing Life Policy with a
Policy. IT MAY NOT BE ADVANTAGEOUS TO EXCHANGE AN EXISTING LIFE POLICY FOR A
POLICY (OR TO SURRENDER IN FULL OR IN PART AN EXISTING LIFE POLICY AND USE THE
SURRENDER OR PARTIAL SURRENDER PROCEEDS TO PURCHASE A POLICY.)
The Company believes that an exchange of an Existing Life Policy for a
Policy generally should be treated as a nontaxable exchange within the meaning
of Section 1035 of the Internal Revenue Code. A Policy purchased in exchange
will generally be treated as a newly issued contract as of the effective date of
the Policy. This could have various tax consequences.
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 a single premium were paid with the
application and the return on the assets in each of the Funds were an assumed
uniform gross annual rate of 0%, 6% and 12%. The values would be different from
those shown if the returns averaged 0%, 6% or 12% but fluctuated over and under
those averages throughout the years shown. The tables also show Initial Premium
accumulated at 5% interest compounded annually. THE HYPOTHETICAL INVESTMENT
RATES OF RETURN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. Actual rates of return for a
particular Policy may be more or less than the hypothetical investment rates of
return and will depend on a number of factors including the investment
allocations made by an Owner and prevailing rates. These illustrations assume
that the Initial Premium is allocated equally among the Sub-Accounts available
under the Policy, and that no amounts are allocated to the Fixed Account or the
DCA Fixed Account.
The illustrations reflect the fact that the net investment return on the
assets held in the Sub-Accounts is lower than the gross after tax return of the
selected Funds. The tables assume an average annual expense ratio of 0.89% of
the average daily net assets of the Funds available under the Policies. This
average annual expense ratio is based on the expense ratios of each of the Funds
for the last fiscal year, adjusted, as
32
<PAGE>
appropriate, for any material changes in expenses effective for the current
fiscal year of a Fund. For information on Fund expenses, see the prospectus for
each of the Funds accompanying this prospectus.
In addition, the illustrations reflect the monthly charge to the Variable
Account for assuming mortality and expense risks, which is equal to .075%
multiplied by the Variable Account Value, which is equivalent to a effective
annual charge of 0.90% of such amount during Policies Years 1-10; and in Policy
Years 11+ is equal to .042% multiplied by the Variable Account Value, which is
equivalent to an annual rate of .50% of such amount. After deduction of Fund
expenses and the mortality and expense risk charge, the illustrated gross annual
investment rates of return of 0%, 6% and 12% would correspond to approximate net
annual rates for Policy Years 1-10 of -1.79%, 4.21% and 10.21%, respectively and
for Policy Years 11 and thereafter of -1.39%, 4.61% and 10.61% respectively.
The illustrations also reflect the deduction of the monthly policy expense
charge, annual maintenance fee and the monthly cost of insurance charge for the
hypothetical Insured. The surrender charge and premium tax recovery charge are
reflected in the column "Cash Value". Protective Life's current cost of
insurance charges, and the guaranteed maximum cost of insurance charges that
Protective Life has the contractual right to charge, are reflected in separate
illustrations on each of the following pages. All the illustrations reflect the
fact that no charges for federal or state income taxes are currently made
against the Variable Account and assume no Policy Debt or charges for
supplemental riders.
The illustrations are based on Protective Life's sex distinct rates for
non-smokers. Upon request, Owner(s) will be furnished with a comparable
illustration based upon the proposed Insured's individual circumstances. Such
illustrations may assume different hypothetical rates of return in addition to
those illustrated in the following tables.
33
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$100,000 FACE AMOUNT
INITIAL PREMIUM 24,208.14
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT 5% -------------------------- --------------------------- -----------------------------
POLICY INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- ------ ----------- ------ --------- ------- ------- --------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 25,419 23,459 20,675 100,000 24,880 22,096 100,000 26,300 23,516 100,000
47 2 26,689 22,699 20,218 100,000 25,535 23,054 100,000 28,538 26,056 100,000
48 3 28,024 21,962 19,784 100,000 26,209 24,030 100,000 30,969 28,790 100,000
49 4 29,425 21,248 19,372 100,000 26,901 25,025 100,000 33,610 31,734 100,000
50 5 30,896 20,557 18,983 100,000 27,613 26,039 100,000 36,480 34,907 100,000
51 6 32,441 19,886 18,615 100,000 28,344 27,073 100,000 39,598 38,327 100,000
52 7 34,063 19,236 18,268 100,000 29,096 28,128 100,000 42,985 42,017 100,000
53 8 35,766 18,607 17,941 100,000 29,868 29,203 100,000 46,665 45,999 100,000
54 9 37,555 17,996 17,633 100,000 30,662 30,299 100,000 50,698 50,335 100,000
55 10 39,433 17,405 17,405 100,000 31,479 31,479 100,000 55,083 55,083 100,000
56 11 41,404 16,915 16,915 100,000 32,477 32,477 100,000 60,139 60,139 100,000
57 12 43,474 16,438 16,438 100,000 33,508 33,508 100,000 65,675 65,675 100,000
58 13 45,648 15,974 15,974 100,000 34,573 34,573 100,000 71,771 71,771 100,000
59 14 47,930 15,522 15,522 100,000 35,674 35,674 100,000 78,466 78,466 105,144
60 15 50,327 15,081 15,081 100,000 36,810 36,810 100,000 85,791 85,791 111,529
61 16 52,843 14,652 14,652 100,000 37,983 37,983 100,000 93,811 93,811 120,078
62 17 55,486 14,234 14,234 100,000 39,195 39,195 100,000 102,567 102,567 129,235
63 18 58,260 13,827 13,827 100,000 40,447 40,447 100,000 112,128 112,128 139,039
64 19 61,173 13,431 13,431 100,000 41,740 41,740 100,000 122,566 122,566 149,531
65 20 64,231 13,045 13,045 100,000 43,076 43,076 100,000 133,966 133,966 160,759
66 21 67,443 12,669 12,669 100,000 44,455 44,455 100,000 146,420 146,420 174,240
67 22 70,815 12,303 12,303 100,000 45,880 45,880 100,000 159,996 159,996 188,795
68 23 74,356 11,947 11,947 100,000 47,351 47,351 100,000 174,793 174,793 204,508
69 24 78,074 11,600 11,600 100,000 48,871 48,871 100,000 190,921 190,921 221,469
70 25 81,977 11,262 11,262 100,000 50,475 50,475 100,000 208,497 208,497 239,772
71 26 86,076 10,933 10,933 100,000 52,132 52,132 100,000 227,637 227,637 257,230
72 27 90,380 10,612 10,612 100,000 53,844 53,844 100,000 248,589 248,589 275,934
73 28 94,899 10,300 10,300 100,000 55,612 55,612 100,000 271,562 271,562 296,003
74 29 99,644 9,996 9,996 100,000 57,438 57,438 100,000 296,788 296,788 317,563
75 30 104,626 9,699 9,699 100,000 59,323 59,323 100,000 324,553 324,553 340,780
76 31 109,857 9,411 9,411 100,000 61,271 61,271 100,000 355,204 355,204 372,964
77 32 115,350 9,130 9,130 100,000 63,283 63,283 100,000 388,624 388,624 408,055
78 33 121,118 8,857 8,857 100,000 65,360 65,360 100,000 425,044 425,044 446,297
79 34 127,174 8,590 8,590 100,000 67,506 67,506 100,000 464,714 464,714 487,949
80 35 133,532 8,331 8,331 100,000 69,723 69,723 100,000 507,890 507,890 533,285
81 36 140,209 8,078 8,078 100,000 72,012 72,012 100,000 554,844 554,844 582,586
82 37 147,220 7,832 7,832 100,000 74,376 74,376 100,000 605,849 605,849 636,142
83 38 154,581 7,592 7,592 100,000 76,818 76,818 100,000 661,460 661,460 694,533
84 39 162,310 7,359 7,359 100,000 79,340 79,340 100,000 722,174 722,174 758,283
85 40 170,425 7,132 7,132 100,000 81,945 81,945 100,000 788,462 788,462 827,885
86 41 178,946 6,910 6,910 100,000 84,636 84,636 100,000 860,834 860,834 903,876
87 42 187,894 6,695 6,695 100,000 87,414 87,414 100,000 939,850 939,850 986,842
88 43 197,288 6,485 6,485 100,000 90,284 90,284 100,000 1,026,118 1,026,118 1,077,424
89 44 207,153 6,281 6,281 100,000 93,249 93,249 100,000 1,120,304 1,120,304 1,176,319
90 45 217,510 6,081 6,081 100,000 96,310 96,310 101,126 1,223,136 1,223,136 1,284,293
91 46 228,386 5,888 5,888 100,000 99,472 99,472 103,451 1,335,406 1,335,406 1,388,823
92 47 239,805 5,699 5,699 100,000 102,738 102,738 105,820 1,457,982 1,457,982 1,501,722
93 48 251,795 5,515 5,515 100,000 106,111 106,111 108,233 1,591,809 1,591,809 1,623,645
94 49 264,385 5,336 5,336 100,000 109,595 109,595 110,691 1,737,920 1,737,920 1,755,299
95 50 277,604 5,161 5,161 100,000 113,460 113,460 113,460 1,901,912 1,901,912 1,901,912
96 51 291,485 4,991 4,991 100,000 117,835 117,835 117,835 2,087,995 2,087,995 2,087,995
97 52 306,059 4,826 4,826 100,000 122,378 122,378 122,378 2,292,284 2,292,284 2,292,284
98 53 321,362 4,665 4,665 100,000 127,096 127,096 127,096 2,516,561 2,516,561 2,516,561
99 54 337,430 4,508 4,508 100,000 131,996 131,996 131,996 2,762,781 2,762,781 2,762,781
100 55 354,301 4,355 4,355 100,000 137,086 137,086 137,086 3,033,092 3,033,092 3,033,092
</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 monthly policy expense charges equal to
.058% multiplied by the Policy Value which is equivalent to an annual rate
of 0.70% of such amount, annual maintenance fees, current cost of insurance
rates, and a monthly mortality and expense risk charge equal to 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 0.042% multiplied by the Variable Account Value, which is
equivalent to an annual rate of 0.50% of such amount.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that only the initial premium is paid. Values would be different if
additional premiums are paid.
(5) Assumes that no riders are in effect.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
34
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
MALE ISSUE AGE: 45 NON-SMOKER
$100,000 FACE AMOUNT
INITIAL PREMIUM 24,208.14
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT 5% -------------------------- --------------------------- -------------------------------
POLICY INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- ------ ----------- ------ --------- ------- ------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 25,419 23,353 20,569 100,000 24,777 21,993 100,000 26,200 23,416 100,000
47 2 26,689 22,461 19,980 100,000 25,311 22,830 100,000 28,331 25,849 100,000
48 3 28,024 21,564 19,386 100,000 25,844 23,665 100,000 30,647 28,468 100,000
49 4 29,425 20,661 18,784 100,000 26,371 24,495 100,000 33,166 31,289 100,000
50 5 30,896 19,747 18,173 100,000 26,893 25,320 100,000 35,907 34,334 100,000
51 6 32,441 18,819 17,548 100,000 27,405 26,134 100,000 38,893 37,622 100,000
52 7 34,063 17,871 16,902 100,000 27,902 26,934 100,000 42,145 41,176 100,000
53 8 35,766 16,897 16,231 100,000 28,380 27,714 100,000 45,689 45,023 100,000
54 9 37,555 15,890 15,527 100,000 28,833 28,469 100,000 49,554 49,191 100,000
55 10 39,433 14,844 14,844 100,000 29,254 29,254 100,000 53,809 53,809 100,000
56 11 41,404 13,750 13,750 100,000 29,637 29,637 100,000 58,461 58,461 100,000
57 12 43,474 12,603 12,603 100,000 29,977 29,977 100,000 63,556 63,556 100,000
58 13 45,648 11,396 11,396 100,000 30,268 30,268 100,000 69,146 69,146 100,000
59 14 47,930 10,119 10,119 100,000 30,502 30,502 100,000 75,282 75,282 100,878
60 15 50,327 8,761 8,761 100,000 30,668 30,668 100,000 81,984 81,984 106,579
61 16 52,843 7,306 7,306 100,000 30,754 30,754 100,000 89,293 89,293 114,295
62 17 55,486 5,741 5,741 100,000 30,746 30,746 100,000 97,241 97,241 122,524
63 18 58,260 4,042 4,042 100,000 30,625 30,625 100,000 105,885 105,885 131,297
64 19 61,173 2,183 2,183 100,000 30,369 30,369 100,000 115,284 115,284 140,646
65 20 64,231 141 141 100,000 29,956 29,956 100,000 125,507 125,507 150,609
66 21 67,443 * * * 29,363 29,363 100,000 136,632 136,632 162,593
67 22 70,815 * * * 28,561 28,561 100,000 148,710 148,710 175,477
68 23 74,356 * * * 27,523 27,523 100,000 161,820 161,820 189,329
69 24 78,074 * * * 26,212 26,212 100,000 176,051 176,051 204,219
70 25 81,977 * * * 24,577 24,577 100,000 191,497 191,497 220,222
71 26 86,076 * * * 22,533 22,533 100,000 208,249 208,249 235,322
72 27 90,380 * * * 20,015 20,015 100,000 226,516 226,516 251,433
73 28 94,899 * * * 16,941 16,941 100,000 246,470 246,470 268,653
74 29 99,644 * * * 13,157 13,157 100,000 268,299 268,299 287,079
75 30 104,626 * * * 8,512 8,512 100,000 292,237 292,237 306,849
76 31 109,857 * * * 2,831 2,831 100,000 318,570 318,570 334,498
77 32 115,350 * * * * * * 347,164 347,164 364,522
78 33 121,118 * * * * * * 378,196 378,196 397,106
79 34 127,174 * * * * * * 411,857 411,857 432,449
80 35 133,532 * * * * * * 448,341 448,341 470,758
81 36 140,209 * * * * * * 487,850 487,850 512,242
82 37 147,220 * * * * * * 530,588 530,588 557,118
83 38 154,581 * * * * * * 576,760 576,760 605,598
84 39 162,310 * * * * * * 626,576 626,576 657,905
85 40 170,425 * * * * * * 680,255 680,255 714,267
86 41 178,946 * * * * * * 738,031 738,031 774,932
87 42 187,894 * * * * * * 800,150 800,150 840,157
88 43 197,288 * * * * * * 866,874 866,874 910,217
89 44 207,153 * * * * * * 938,476 938,476 985,400
90 45 217,510 * * * * * * 1,015,228 1,015,228 1,065,989
91 46 228,386 * * * * * * 1,097,394 1,097,394 1,141,290
92 47 239,805 * * * * * * 1,188,160 1,188,160 1,223,805
93 48 251,795 * * * * * * 1,288,914 1,288,914 1,314,692
94 49 264,385 * * * * * * 1,401,326 1,401,326 1,415,340
95 50 277,604 * * * * * * 1,527,488 1,527,488 1,527,488
96 51 291,485 * * * * * * 1,670,302 1,670,302 1,670,302
97 52 306,059 * * * * * * 1,826,468 1,826,468 1,826,468
98 53 321,362 * * * * * * 1,997,236 1,997,236 1,997,236
99 54 337,430 * * * * * * 2,183,970 2,183,970 2,183,970
100 55 354,301 * * * * * * 2,388,162 2,388,162 2,388,162
</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 monthly policy expense charges, equal
to 0.058% multiplied by the Policy Value, which is equivalent to an annual
rate of 0.70% of such amount, annual maintenance fees, guaranteed cost of
insurance rates, and a monthly mortality and expense risk charge equal to
0.075% multiplied by the Variable Account Value, which is equivalent to
0.90% of such amount during all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that only the initial premium is paid. Values would be different if
additional premiums are paid.
(5) Assumes that no riders are in effect.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
35
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$100,000 FACE AMOUNT
INITIAL PREMIUM 20,943.63
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT 5% -------------------------- --------------------------- -------------------------------
POLICY INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- ------ ----------- ------ --------- ------- ------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 21,991 20,296 17,887 100,000 21,524 19,116 100,000 22,753 20,345 100,000
47 2 23,090 19,633 17,487 100,000 22,087 19,940 100,000 24,685 22,538 100,000
48 3 24,245 18,991 17,106 100,000 22,665 20,780 100,000 26,783 24,898 100,000
49 4 25,457 18,369 16,746 100,000 23,259 21,636 100,000 29,063 27,439 100,000
50 5 26,730 17,766 16,405 100,000 23,869 22,508 100,000 31,539 30,178 100,000
51 6 28,066 17,182 16,083 100,000 24,497 23,397 100,000 34,230 33,130 100,000
52 7 29,470 16,616 15,778 100,000 25,142 24,304 100,000 37,153 36,315 100,000
53 8 30,943 16,067 15,491 100,000 25,805 25,229 100,000 40,329 39,753 100,000
54 9 32,490 15,536 15,221 100,000 26,486 26,172 100,000 43,779 43,465 100,000
55 10 34,115 15,020 15,020 100,000 27,186 27,186 100,000 47,528 47,528 100,000
56 11 35,821 14,593 14,593 100,000 28,044 28,044 100,000 51,891 51,891 100,000
57 12 37,612 14,177 14,177 100,000 28,929 28,929 100,000 56,656 56,656 100,000
58 13 39,492 13,771 13,771 100,000 29,844 29,844 100,000 61,887 61,887 100,000
59 14 41,467 13,377 13,377 100,000 30,789 30,789 100,000 67,656 67,656 100,000
60 15 43,540 12,992 12,992 100,000 31,765 31,765 100,000 74,022 74,022 100,000
61 16 45,717 12,618 12,618 100,000 32,773 32,773 100,000 81,041 81,041 103,733
62 17 48,003 12,253 12,253 100,000 33,814 33,814 100,000 88,733 88,733 111,803
63 18 50,403 11,898 11,898 100,000 34,889 34,889 100,000 97,149 97,149 120,465
64 19 52,924 11,552 11,552 100,000 35,999 35,999 100,000 106,358 106,358 129,756
65 20 55,570 11,215 11,215 100,000 37,146 37,146 100,000 116,433 116,433 139,720
66 21 58,348 10,887 10,887 100,000 38,331 38,331 100,000 127,462 127,462 151,679
67 22 61,266 10,568 10,568 100,000 39,555 39,555 100,000 139,517 139,517 164,630
68 23 64,329 10,257 10,257 100,000 40,818 40,818 100,000 152,696 152,696 178,654
69 24 67,545 9,954 9,954 100,000 42,123 42,123 100,000 167,106 167,106 193,843
70 25 70,923 9,659 9,659 100,000 43,471 43,471 100,000 182,861 182,861 210,290
71 26 74,469 9,371 9,371 100,000 44,864 44,864 100,000 200,083 200,083 226,094
72 27 78,192 9,091 9,091 100,000 46,302 46,302 100,000 218,956 218,956 243,042
73 28 82,102 8,819 8,819 100,000 47,787 47,787 100,000 239,651 239,651 261,219
74 29 86,207 8,553 8,553 100,000 49,321 49,321 100,000 262,363 262,363 280,728
75 30 90,517 8,295 8,295 100,000 50,940 50,940 100,000 287,324 287,324 301,691
76 31 95,043 8,043 8,043 100,000 52,612 52,612 100,000 314,811 314,811 330,551
77 32 99,795 7,798 7,798 100,000 54,340 54,340 100,000 344,842 344,842 362,084
78 33 104,785 7,559 7,559 100,000 56,124 56,124 100,000 377,639 377,639 396,521
79 34 110,024 7,327 7,327 100,000 57,967 57,967 100,000 413,438 413,438 434,110
80 35 115,525 7,100 7,100 100,000 59,870 59,870 100,000 452,487 452,487 475,111
81 36 121,302 6,880 6,880 100,000 61,835 61,835 100,000 495,045 495,045 519,798
82 37 127,367 6,665 6,665 100,000 63,866 63,866 100,000 541,383 541,383 568,452
83 38 133,735 6,456 6,456 100,000 65,963 65,963 100,000 591,775 591,775 621,364
84 39 140,422 6,252 6,252 100,000 68,128 68,128 100,000 646,508 646,508 678,833
85 40 147,443 6,054 6,054 100,000 70,365 70,365 100,000 705,882 705,882 741,176
86 41 154,815 5,861 5,861 100,000 72,675 72,675 100,000 770,674 770,674 809,208
87 42 162,556 5,673 5,673 100,000 75,061 75,061 100,000 841,414 841,414 883,484
88 43 170,684 5,489 5,489 100,000 77,526 77,526 100,000 918,646 918,646 964,579
89 44 179,218 5,311 5,311 100,000 80,071 80,071 100,000 1,002,968 1,002,968 1,053,116
90 45 188,179 5,137 5,137 100,000 82,700 82,700 100,000 1,095,030 1,095,030 1,149,781
91 46 197,588 4,968 4,968 100,000 85,415 85,415 100,000 1,195,541 1,195,541 1,243,363
92 47 207,467 4,803 4,803 100,000 88,220 88,220 100,000 1,305,279 1,305,279 1,344,437
93 48 217,840 4,643 4,643 100,000 91,116 91,116 100,000 1,425,089 1,425,089 1,453,591
94 49 228,732 4,486 4,486 100,000 94,107 94,107 100,000 1,556,135 1,556,135 1,571,696
95 50 240,169 4,334 4,334 100,000 97,197 97,197 100,000 1,703,235 1,703,235 1,703,235
96 51 252,177 4,186 4,186 100,000 100,629 100,629 100,629 1,869,879 1,869,879 1,869,879
97 52 264,786 4,042 4,042 100,000 104,509 104,509 104,509 2,052,828 2,052,828 2,052,828
98 53 278,026 3,901 3,901 100,000 108,538 108,538 108,538 2,253,676 2,253,676 2,253,676
99 54 291,927 3,764 3,764 100,000 112,723 112,723 112,723 2,474,176 2,474,176 2,474,176
100 55 306,523 3,631 3,631 100,000 117,069 117,069 117,069 2,716,249 2,716,249 2,716,249
</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 monthly policy expense charges equal to
.058% multiplied by the Policy Value, which is equivalent to an annual rate
of 0.70% of such amount, annual maintenance fees, current cost of insurance
rates, and a monthly mortality and expense risk charge equal to 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 .042% multiplied by the Variable Account Value, which is
equivalent to an annual rate of 0.50% of such amount.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that only the initial premium is paid. Values would be different if
additional premiums are paid.
(5) Assumes that no riders are in effect.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
36
<PAGE>
ILLUSTRATION OF POLICY VALUES
PROTECTIVE LIFE INSURANCE COMPANY
FEMALE ISSUE AGE: 45 NON-SMOKER
$100,000 FACE AMOUNT
INITIAL PREMIUM 20,943.63
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
ACCUMULATED GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
END OF AT 5% -------------------------- --------------------------- -------------------------------
POLICY INTEREST POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
AGE YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --- ------ ----------- ------ --------- ------- ------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
46 1 21,991 20,186 17,778 100,000 21,417 19,009 100,000 22,648 20,239 100,000
47 2 23,090 19,394 17,248 100,000 21,857 19,710 100,000 24,466 22,319 100,000
48 3 24,245 18,601 16,716 100,000 22,296 20,411 100,000 26,443 24,558 100,000
49 4 25,457 17,805 16,182 100,000 22,732 21,109 100,000 28,593 26,970 100,000
50 5 26,730 17,004 15,642 100,000 23,164 21,802 100,000 30,934 29,573 100,000
51 6 28,066 16,194 15,095 100,000 23,589 22,489 100,000 33,483 32,384 100,000
52 7 29,470 15,374 14,536 100,000 24,005 23,167 100,000 36,260 35,422 100,000
53 8 30,943 14,538 13,962 100,000 24,408 23,832 100,000 39,285 38,709 100,000
54 9 32,490 13,683 13,369 100,000 24,794 24,480 100,000 42,584 42,270 100,000
55 10 34,115 12,808 12,808 100,000 25,164 25,164 100,000 46,187 46,187 100,000
56 11 35,821 11,909 11,909 100,000 25,513 25,513 100,000 50,159 50,159 100,000
57 12 37,612 10,986 10,986 100,000 25,842 25,842 100,000 54,507 54,507 100,000
58 13 39,492 10,041 10,041 100,000 26,151 26,151 100,000 59,274 59,274 100,000
59 14 41,467 9,071 9,071 100,000 26,438 26,438 100,000 64,507 64,507 100,000
60 15 43,540 8,072 8,072 100,000 26,700 26,700 100,000 70,255 70,255 100,000
61 16 45,717 7,035 7,035 100,000 26,928 26,928 100,000 76,577 76,577 100,000
62 17 48,003 5,946 5,946 100,000 27,111 27,111 100,000 83,510 83,510 105,223
63 18 50,403 4,787 4,787 100,000 27,234 27,234 100,000 91,069 91,069 112,926
64 19 52,924 3,537 3,537 100,000 27,278 27,278 100,000 99,307 99,307 121,155
65 20 55,570 2,182 2,182 100,000 27,230 27,230 100,000 108,285 108,285 129,942
66 21 58,348 709 709 100,000 27,077 27,077 100,000 118,072 118,072 140,506
67 22 61,266 * * * 26,811 26,811 100,000 128,727 128,727 151,898
68 23 64,329 * * * 26,422 26,422 100,000 140,330 140,330 164,186
69 24 67,545 * * * 25,899 25,899 100,000 152,965 152,965 177,439
70 25 70,923 * * * 25,220 25,220 100,000 166,724 166,724 191,733
71 26 74,469 * * * 24,351 24,351 100,000 181,704 181,704 205,326
72 27 78,192 * * * 23,246 23,246 100,000 198,057 198,057 219,844
73 28 82,102 * * * 21,839 21,839 100,000 215,918 215,918 235,351
74 29 86,207 * * * 20,057 20,057 100,000 235,446 235,446 251,927
75 30 90,517 * * * 17,816 17,816 100,000 256,826 256,826 269,667
76 31 95,043 * * * 15,024 15,024 100,000 280,281 280,281 294,295
77 32 99,795 * * * 11,579 11,579 100,000 305,804 305,804 321,094
78 33 104,785 * * * 7,359 7,359 100,000 333,563 333,563 350,241
79 34 110,024 * * * 2,206 2,206 100,000 363,737 363,737 381,924
80 35 115,525 * * * * * * 396,517 396,517 416,342
81 36 121,302 * * * * * * 432,094 432,094 453,699
82 37 127,367 * * * * * * 470,669 470,669 494,203
83 38 133,735 * * * * * * 512,443 512,443 538,065
84 39 140,422 * * * * * * 557,622 557,622 585,503
85 40 147,443 * * * * * * 606,423 606,423 636,744
86 41 154,815 * * * * * * 659,068 659,068 692,021
87 42 162,556 * * * * * * 715,787 715,787 751,576
88 43 170,684 * * * * * * 776,814 776,814 815,655
89 44 179,218 * * * * * * 842,384 842,384 884,503
90 45 188,179 * * * * * * 912,724 912,724 958,360
91 46 197,588 * * * * * * 988,052 988,052 1,027,574
92 47 207,467 * * * * * * 1,070,918 1,070,918 1,103,046
93 48 217,840 * * * * * * 1,162,540 1,162,540 1,185,791
94 49 228,732 * * * * * * 1,264,417 1,264,417 1,277,061
95 50 240,169 * * * * * * 1,378,464 1,378,464 1,378,464
96 51 252,177 * * * * * * 1,507,345 1,507,345 1,507,345
97 52 264,786 * * * * * * 1,648,276 1,648,276 1,648,276
98 53 278,026 * * * * * * 1,802,383 1,802,383 1,802,383
99 54 291,927 * * * * * * 1,970,898 1,970,898 1,970,898
100 55 306,523 * * * * * * 2,155,169 2,155,169 2,155,169
</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 monthly policy expense charges equal to
0.058% multiplied by the Policy Value, which is equivalent to an annual rate
of 0.70%, of such amount, annual maintenance fees, guaranteed cost of
insurance rates, and a monthly mortality and expense risk charge equal to
0.075% multiplied by the Variable Account Value, which is equivalent to an
annual rate of 0.90% of such amount during all Policy Years.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that only the initial premium is paid. Values would be different if
additional premiums are paid.
(5) Assumes that no riders are in effect.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND POLICY VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
37
<PAGE>
OTHER POLICY BENEFITS AND PROVISIONS
LIMITS ON RIGHTS TO CONTEST THE POLICY
INCONTESTABILITY. Protective Life will not contest the Policy, or any
supplemental rider or reinstated benefit, after the Policy or rider or
reinstated benefit has been in force during the Insured's lifetime for two years
from the Policy Effective Date or the effective date of the rider or the date
Protective Life approves the reinstatement application, unless fraud is
involved. Any increase in the Face Amount will be incontestable with respect to
statements made in the evidence of insurability for that increase after the
increase has been in force during the life of the Insured for two years after
the effective date of the increase.
SUICIDE EXCLUSION. If the Insured dies by suicide, while sane or insane,
within two years after the Policy Effective Date, the Death Benefit will be
limited to the premium payments made before death, less any Policy Debt and any
withdrawals. If the Insured dies by suicide within two years after an increase
in Face Amount, the Death Benefit with respect to the increase will be limited
to the sum of the monthly cost of insurance charges made for that increase.
CHANGES IN THE POLICY OR BENEFITS
MISSTATEMENT OF AGE OR SEX. If the Insured's age or sex has been misstated
in the application for the Policy or in any application for supplemental riders,
the Death Benefit under the Policy or such supplemental riders is the amount
which would have been provided at the Policy Effective Date, at the correct age
and sex.
OTHER CHANGES. At any time Protective Life may make such changes in the
Policy as are necessary to assure compliance with any applicable laws,
regulations or rulings issued by a government agency. This includes, but is not
limited to, changes necessary to comply at all times with the definition of life
insurance prescribed by the Internal Revenue Code. Any such changes will apply
uniformly to all affected Policies and Owners will receive notification of such
changes.
SUSPENSION OR DELAY IN PAYMENTS
Protective Life will ordinarily pay any Death Benefit Proceeds, Policy
loans, withdrawals, or surrenders within seven calendar days after receipt at
the Home Office of all the documents required for such a payment. Other than the
Death Benefit Proceeds, which is determined as of the date of death, the amount
will be determined as of the date of receipt of all required documents. However,
Protective Life may delay making a payment or processing a transfer request if
(1) the New York Stock Exchange is closed for other than a regular holiday or
weekend, trading on the Exchange is restricted by the SEC, or the SEC declares
that an emergency exists as a result of which the disposal or valuation of
Variable Account assets is not reasonably practicable; or (2) the SEC by order
permits postponement of payment to protect Owners. See also "Payments from the
Fixed Accounts".
REPORTS TO POLICY OWNERS
Each year you will be sent a report at your last known address showing, as
of the end of the current report period: the Death Benefit; Policy Value;
Guaranteed Account Value; Variable Account Value; Loan Account Value;
Sub-Account Values; premiums paid since the last report; withdrawals since the
last report; any Policy loans and accrued interest; Surrender Value; current
premium allocations; charges deducted since the last report; and any other
information required by law. You will also be sent an annual and a semi-annual
report for each Fund underlying a Sub-Account to which you have allocated Policy
Value, including a list of the securities held in each Fund, as required by the
1940 Act. In addition, when you pay premiums or request any other financial
transaction under your Policy you will receive a written confirmation of these
transactions.
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ASSIGNMENT
The Policy may be assigned in accordance with its terms. In order for any
assignment to be binding upon Protective Life, it must be in writing and filed
at the Home Office. Once Protective Life has received a signed copy of the
assignment, the Owner's rights and the interest of any beneficiary (or any other
person) will be subject to the assignment. Protective Life assumes no
responsibility for the validity or sufficiency of any assignment. An assignment
is subject to any Policy Debt. An assignment may result in certain amounts being
subject to income tax and a 10% penalty tax. (See "Tax Considerations".)
ARBITRATION
The Policy provides that any controversy, dispute or claim by any Owner(s),
Insured, or beneficiary (a "claimant") arising out of insurance provided under
the Policy, other than causes of action arising under Federal Securities laws,
will be submitted to binding arbitration pursuant to the Federal Arbitration
Act. Arbitration will be binding upon any claimant as well as Protective Life
and may not be set aside in later litigation except upon the limited
circumstances set forth in the Federal Arbitration Act. Arbitration expenses
will be borne by the losing party or in such proportion as the arbitrator(s)
shall decide. Consult the Policy for additional information. This provision does
not apply to Policies issued in certain states.
SUPPLEMENTAL RIDERS AND ENDORSEMENTS
SUPPLEMENTAL RIDERS
The following supplemental riders are available and may be added to your
Policy provided that they are authorized for use in your state. Monthly charges
for these riders will be deducted from your Policy Value as part of the monthly
deduction (see "Monthly Deduction"). The supplemental riders available with the
Policies provide fixed benefits that do not vary with the investment experience
of the Variable Account.
COMPREHENSIVE LONG-TERM CARE ACCELERATED DEATH BENEFIT RIDER. Applicants
residing in states that have approved the Comprehensive Long-Term Care
Accelerated Death Benefit Rider (the "ADBR") may elect to add it to their Policy
at issue, subject to Protective Life's receiving satisfactory additional
evidence of insurability. The ADBR is not yet available in all states and the
terms under which it is available may vary from state-to-state. THERE IS NO
ASSURANCE THAT THE ADBR WILL BE APPROVED IN ALL STATES OR THAT IT WILL BE
APPROVED UNDER THE TERMS DESCRIBED HEREIN.
The ADBR permits the Owner to receive, at his or her request and upon
approval by Protective Life in accordance with the terms of the ADBR, an
accelerated payment of part of the Policy's Death Benefit (an "Accelerated Death
Benefit") when one of the following two events occurs:
1. CONFINEMENT TO A NURSING HOME FACILITY. The Insured is determined to be
chronically ill (as defined below and in the Contact) and has been
confined to a qualifying nursing home facility (as defined in the
Contract) for 90 consecutive days.
2. COMMUNITY CARE. The Insured is determined to be chronically ill (as
defined below) and has been receiving home health care, assisted living
care or adult day care (as defined in the rider) for at least 90 days.
Chronically ill means that the Insured has been certified (within the
preceding 12-month period) by a Physician as (i) being unable to perform
(without substantial assistance from another individual) at least two activities
of daily living or (ii) requiring substantial supervision to protect the Insured
from threats to health and safety due to severe cognitive impairment (as such
terms are more fully described in the ADBR).
The monthly charge for this rider is .0125% (which is equivalent to an
annual rate of .15%) multiplied by the Policy Value up to $250,000. There is no
additional charge on Policy Value in excess of $250,000.
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TAX CONSEQUENCES OF THE ADBR. Subject to certain limitations, the
Accelerated Death Benefit payable under the ADBR will generally be
excludible from income for federal income tax purposes (state variations may
apply). (See "Tax Considerations.")
AMOUNT OF THE ACCELERATED DEATH BENEFIT. The ADBR provides for monthly
payments subject to an aggregate maximum Accelerated Death Benefit payment
equal to the lesser of (i) 90% of the Face Amount less any Policy debt or
(ii) $250,000, less any outstanding lien amount under any other accelerated
death benefit rider or endorsement attached to the Policy. The monthly
Accelerated Death Benefit under the ADBR will be 1% or 2% of the Initial
Face Amount for community care or nursing home care, respectively, subject
to a maximum monthly benefit of $5,000.
CONDITIONS FOR RECEIPT OF THE ACCELERATED DEATH BENEFIT. In order to
receive an Accelerated Death Benefit payment, a Policy must be in force and
an Owner must submit a proof of claim and a notice of the claim to
Protective Life at its Home Office. Proof of claim means written proof
(described more fully in the ADBR) in a form acceptable to Protective Life,
that the Insured is chronically ill and is receiving community care or
nursing home care.
Protective Life may request additional medical information from an Owner's
physician and/or may require an independent physical examination (at its
expense) before approving the claim for payment of the Accelerated Death
Benefit. Protective Life will not approve a claim for an Accelerated Death
Benefit payment if the Insured is not living at the time the notice of the claim
is received at the Home Office, if the claim is the result of intentionally
self-inflicted injury or participation in a felony or if the benefits are
payable under Medicare or services are provided outside of the United States.
Any additional exclusions may be noted in the ADBR.
OPERATION OF THE ADBR. A lien against the Death Benefit payable under
the Policy (the "death benefit lien") will be established in the aggregate
amount of any Accelerated Death Benefits paid under the ADBR.
EFFECT ON EXISTING POLICY. The Death Benefit Proceeds otherwise payable
under a Policy at the time of an Insured's death will be reduced by the
amount of any death benefit lien. If the Owner makes a request for a
surrender, or a withdrawal, the Policy's Surrender Value will be reduced by
the amount of any outstanding death benefit lien. Therefore, depending upon
the size of the death benefit lien, this may result in the Surrender Value
being reduced to zero. In addition, once benefits under the ADBR have been
requested and all other conditions of eligibility have been satisfied, no
new policy loans may be requested.
ENDORSEMENTS. The Company may also issue as part of the Policy two
endorsements for which there are no charges. The Waiver of Surrender Charge
Endorsement provides for a waiver of surrender charges after the first Policy
Year in the event the Owner enters a nursing home (for a period of ninety days
or more) or is first diagnosed as having a terminal illness and has a life
expectancy of twelve months or less. Under the Terminal Illness Accelerated
Death Benefit Endorsement the Owner may request an acceleration of a portion of
the Death Benefit of the Policy if the Insured is certified by a physician
(while covered by the Policy), as having a terminal illness or injury and has a
life expectancy of six months or less.
Additional rules and limits apply to these supplemental riders and
endorsements. Not all such benefits may be available at any time, and
supplemental riders in addition to those listed above may be made available.
Please ask your Protective Life agent for further information, or contact the
Home Office.
REINSURANCE
The Company may reinsure a portion of the risks assumed under the Policies.
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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.
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TAXATION OF LIFE INSURANCE POLICIES
TAX STATUS OF THE POLICY
Section 7702 of the Code establishes a statutory definition of life
insurance for federal tax purposes. Protective Life believes that the Policy
will meet the current statutory definition of life insurance, which places
limitations on the amount of premiums that may be paid and the Policy Value that
can accumulate relative to the Death Benefit. As a result, the Death Benefit
payable under the Policy will generally be excludable from the Beneficiary's
gross income, and interest and other earnings credited under the Policy will not
be taxable unless certain withdrawals are made (or are deemed to be made) from
the Policy prior to the Insured's death, as discussed below. This tax treatment
will only apply, however, if (1) the investments of the Variable Account are
"adequately diversified" in accordance with Treasury Department regulations, and
(2) Protective Life, rather than the Owner, is considered the owner of the
assets of the Variable Account for federal income tax purposes.
DIVERSIFICATION REQUIREMENTS. The Code and Treasury Department regulations
prescribe the manner in which the investments of a segregated asset account,
such as the Variable Account, are to be "adequately diversified." If the
Variable Account fails to comply with these diversification standards, the
Policy will not be treated as a life insurance contract for federal tax purposes
and the Owner would generally be taxed currently on the income on the contract
(as defined in the tax law). Protective Life expects that the Variable Account,
through the Funds, will comply with the diversification requirements prescribed
by the Code and Treasury Department regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable life insurance
contract owners may be considered the owners, for federal income tax purposes,
of the assets of a segregated asset account, such as the Variable Account, used
to support their contracts. In those circumstances, income and gains from the
segregated asset account would be includible in the contract owner's gross
income. The Internal Revenue Service (the "IRS") has stated in published rulings
that a variable contract owner will be considered the owner of the assets of a
segregated asset account if the owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. In
addition, the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued in
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts [of a segregated asset account] without
being treated as owners of the underlying assets." As of the date of this
Prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the Owner of this Policy has the choice of more
investment options to which to allocate premium payments and Variable Account
Values, and may be able to transfer among Funds more frequently, than in such
rulings. These differences could result in the Policy Owner being treated as the
owner of a portion of the assets of the Variable Account and THUS SUBJECT TO
CURRENT TAXATION ON THE INCOME AND GAINS FROM THOSE ASSETS. In addition,
Protective Life does not know what standards will be set forth in the
regulations or rulings which the Treasury Department has stated it expects to
issue. Protective Life therefore reserves the right to modify the Policy as
necessary to attempt to prevent Owners from being considered the owners of the
assets of the Variable Account. However, there is no assurance that such efforts
would be successful.
The remainder of this discussion assumes that the Policy will be treated as
a life insurance contract for federal tax purposes.
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TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS
In general, the amount of the Death Benefit Proceeds payable under a Policy
by reason of the death of the Insured is excludable from gross income under
Section 101 of the Code. Certain transfers of the Policy for valuable
consideration, however, may result in a portion of the Death Benefit Proceeds
being taxable.
If the Death Benefit Proceeds is not received in a lump sum and is, instead,
applied under either Settlement Options 1, 2, or 4, payments generally will be
prorated between amounts attributable to the Death Benefit which will be
excludable from the beneficiary's income and amounts attributable to interest
(accruing after the Insured's death) which will be includible in the
beneficiary's income. If the Death Benefit Proceeds are applied under Option 3
(Interest Income), the interest payments will be includible in the beneficiary's
income.
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in an Owner's Policy Value is generally not taxable to the Owner unless
amounts are received (or are deemed to be received) from the Policy prior to the
Insured's death. If there is a surrender of the Policy, an amount equal to the
excess of the Cash Value over the "investment in the contract" generally will be
includible in the Owner's income. The "investment in the contract" generally is
the sum of premiums paid less the aggregate amount previously received under the
Policy to the extent such amounts received were excludable from gross income.
Whether withdrawals (or other amounts deemed to be distributed) from the Policy
constitute income to the Owner depends, in part, upon whether the Policy is
considered a "modified endowment contract" ("MEC") for federal income tax
purposes.
POLICIES WHICH ARE MECS
CHARACTERIZATION OF A POLICY AS A MEC. Generally, a life insurance contract
will be considered a MEC for federal income tax purposes if (1) the life
insurance contract is received in exchange for a life insurance contract that
was a MEC, or (2) the life insurance contract is entered into after June 21,
1988 and premiums are paid into the life insurance contract more rapidly than
the rate defined by a "7-Pay Test." The Internal Revenue Code generally provides
that a life insurance contract will fail this test (and thus be considered a
MEC) if the accumulated amount paid under the life insurance contract at any
time during the 1st 7 years exceeds the cumulative sum of the net level premiums
which would have been paid to that time if the life insurance contract provided
for paid-up future benefits after the payment of 7 level annual premiums.
This Policy GENERALLY WILL BE A MEC unless (1) it was received in exchange
for another life insurance policy which was not a MEC and (2) no premium
payments or other consideration (other than the exchanged contract) are paid
into the Policy during the 1st 7 Policy Years. In addition, even if the Policy
initially is not a MEC, it may, in certain circumstances, become a MEC. These
circumstances would include a later increase in benefits, any other "material
change" of the Policy (within the meaning of the tax law), and a withdrawal or
reduction in the Death Benefit during the 1st 7 Policy Years.
TAX TREATMENT OF WITHDRAWALS, LOANS, ASSIGNMENTS AND PLEDGES UNDER MECS. If
the Policy is a MEC, withdrawals from the Policy will be treated first as
withdrawals of income and then as a recovery of premiums paid. Thus, withdrawals
will be includible in income to the extent the Policy Value exceeds the
investment in the contract. The amount of any loan (and any interest thereon)
will be treated as a withdrawal for tax purposes. In addition, the discussion of
lapses (and surrenders) while loans are outstanding under the caption "Policies
Which Are Not MECs" also applies to Policies which are MECs.
If the Owner assigns or pledges any portion of the Policy Value (or agrees
to assign or pledge any portion), such portion will be treated as a withdrawal
for tax purposes. The Owner's investment in the contract is increased by the
amount includible in income with respect to any assignment, pledge, or loan,
although it is not affected by any other aspect of the assignment, pledge, or
loan (including its release or
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repayment). Before assigning, pledging, or requesting a loan under a Policy
treated as a MEC, an Owner should consult a qualified tax advisor.
PENALTY TAX. Generally, proceeds of a surrender (or a withdrawal, including
any deemed withdrawals such as loans) from a MEC are subject to a penalty tax
equal to 10% of the portion of the proceeds that is includible in income, unless
the surrender or withdrawal is made (1) after the Owner attains age 59 1/2, (2)
because the Owner has become disabled (as defined in the tax law), or (3) as
substantially equal periodic payments over the life or life expectancy of the
Owner (or the joint lives or life expectancies of the Owner and his or her
beneficiary, as defined in the tax law).
AGGREGATION OF POLICIES. All life insurance contracts which are treated as
MECs and which are purchased by the same person from Protective Life or any of
its affiliates within the same calendar year will be aggregated and treated as
one contract for purposes of determining the tax on withdrawals (including
deemed withdrawals). The effects of such aggregation are not clear; however, it
could affect the amount of a withdrawal (or a deemed withdrawal) that is taxable
and the amount which might be subject to the 10% penalty tax described above.
POLICIES WHICH ARE NOT MECS
TAX TREATMENT OF WITHDRAWALS GENERALLY. If the Policy is not a MEC, the
amount of any withdrawal from the Policy generally will be treated first as
non-taxable recovery of premium and then as income from the Policy. Thus, a
withdrawal from a Policy that is not a MEC generally will not be includible in
income except to the extent the withdrawal exceeds the investment in the
contract immediately before the withdrawal.
CERTAIN DISTRIBUTIONS REQUIRED BY THE TAX LAW IN THE FIRST 15 POLICY
YEARS. As stated above, section 7702 of the Internal Revenue Code places
limitations on the amount of premiums that may be paid and the Policy Value that
can accumulate relative to the Death Benefit. Where cash distributions are
required under section 7702 in connection with a reduction in benefits during
the first 15 years after the Policy is issued (or if withdrawals are made in
anticipation of a reduction in benefits, within the meaning of the tax law,
during this period), some or all of such amounts may be includible in income
notwithstanding the general rule described in the preceding paragraph. A
reduction in benefits may result upon a decrease in the face amount, if
withdrawals are made, and in certain other instances. In particular, an Owner
electing withdrawals on a regular basis should consider that such withdrawals
(like all other withdrawals) will reduce the death benefit and thus may result
in some amounts being included in income even though the withdrawals are less
than the investment in the contract.
TAX TREATMENT OF LOANS. If a Policy is not classified as a MEC, a loan
received under the Policy generally will be treated as indebtedness of the
Owner. As a result, no part of any loan under such a Policy will constitute
income to the Owner so long as the Policy remains in force. If a Policy lapses
(or is surrendered) when a loan is outstanding, the amount of the loan
outstanding will be treated as surrender proceeds for purposes of determining
whether any amounts are includible in the owner's income.
TAX TREATMENT OF COMPREHENSIVE LONG-TERM CARE ACCELERATED DEATH BENEFIT RIDER
The Comprehensive Long-Term Care Accelerated Death Benefit Rider is intended
to constitute qualified long-term care insurance under Section 7702B(b) of the
Code. Nursing home care and community care benefits received pursuant to this
rider generally will be excludable from income. However, if the amount of such
benefits plus other per diem long-term care insurance benefits exceed $175 per
day, indexed for inflation (or the equivalent amount in the case of payments on
another periodic basis), such excess will be includible in income. It is
possible that charges for this rider assessed against the Policy Value may be
treated for tax purposes as a withdrawal from the Policy. In that event, part or
all of such charges might constitute income (and might also be subject to the
10% penalty tax if the Policy is a MEC).
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The Comprehensive Long-Term Care Accelerated Death Benefit Rider may be
issued in certain States as a "non-qualified" rider, I.E., it would not
constitute qualified long-term care insurance under section 7702B(b) of the
Code. (The first page of the rider will state whether it is issued as a
qualified rider.) The tax consequences associated with adding such a
non-qualified rider, and the tax treatment of benefits received from such a
rider, are uncertain. Accordingly, we urge you to consult a tax advisor before
adding a non-qualified rider to your Policy or requesting an Accelerated Death
Benefit from such a rider.
ACTIONS TO ENSURE COMPLIANCE WITH THE TAX LAW
Protective Life believes that the maximum amount of premiums it has
determined for the Policies will comply with the federal tax definition of life
insurance. Protective Life will monitor the amount of premiums paid, and, if the
premiums paid exceed those permitted by the tax definition of life insurance,
Protective Life will immediately refund the excess premiums with interest to the
extent required by the Code. Protective Life also reserves the right to increase
the Death Benefit (which may result in larger charges under a Policy) or to take
any other action deemed necessary to ensure the compliance of the Policy with
the federal tax definition of life insurance.
OTHER CONSIDERATIONS
Changing the Owner, exchanging the Policy, and other changes under the
Policy may have tax consequences (other than those discussed herein) depending
on the circumstances of such change or withdrawal.
DISALLOWANCE OF INTEREST DEDUCTIONS
The Policy generally will be characterized as a single premium life
insurance contract under section 264 of the Code and, as a result, interest paid
on any loans under the Policy will not be tax deductible, irrespective of
whether the owner is an individual or a nonnatural entity, such as a corporation
or a trust. In addition, 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.
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 and such notice is received at the
Home Office 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
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under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. The Policies are sold by certain
registered representatives of broker-dealers (including ProEquities, Inc., an
affiliate of Protective Life and IDI) that have entered into selling agreements
with IDI, who are also appointed and licensed as insurance agents of Protective
Life. Registered representatives may be paid commissions on Policies they sell
based on premiums paid in amounts up to 7.35% first year premium payment and
.25% on unloaned Policy Value. Other allowances and overrides, and non-cash
compensation, also may be paid. Registered representatives who meet certain
productivity and profitability standards may be eligible for additional
compensation.
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 policy expense charge,
annual maintenance fee, or other charges where the expenses associated with the
sale of the Policy or Policies or the underwriting or other administrative costs
associated with the Policy or Policies are reduced. Sales, underwriting or other
administrative expenses may be reduced for reasons such as expected economies
resulting from a corporate purchase, 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.
Mr. Johns has been President and Chief Operating Officer of PLC since August
1996 and President of Protective Life since August 1996. He was Executive Vice
President and Chief Financial Officer of PLC
46
<PAGE>
and of Protective Life from October 1993 to August 1996. From August 1988 to
October 1993, he served as Vice President and General Counsel of Sonat Inc. He
is a director of National Bank of Commerce of Birmingham and Alabama National
Bancorporation.
Mr. Briggs has been Executive Vice President of PLC and Protective Life
since October 1993. From January 1993 to October 1993 he was Senior Vice
President, Life Insurance and Investment Products of Protective and PLC. Mr.
Briggs had been Senior Vice President, Ordinary Marketing of PLC since August
1988 and of Protective Life since April 1986. Mr. Briggs has been associated
with PLC and its subsidiaries since 1977.
Mr. Massengale has been Executive Vice President, Acquisitions of Protective
and PLC since August 1996. From May 1992 to August 1996 he served as Senior Vice
President of Protective Life and PLC. Mr. Massengale has been employed by PLC
and its subsidiaries since 1983.
Mr. Williams has been Executive Vice President, Investments and Treasurer of
Protective and PLC since August 1996. From July 1981 to August 1996 he was
Senior Vice President, Investments and Treasurer of PLC and Protective Life. Mr.
Williams has been employed by Protective since 1964.
Mr. Danny L. Bentley has been Senior Vice President, 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 PLC and Protective
Life since August 1996. From August 1991 to August 1996, he was Vice President,
Investments of Protective.
Ms. King has been Senior Vice President, Investment Products Division of PLC
and of Protective Life since April 1995. From August 1994 to March 1995, she
served as Senior Vice President and Chief Investment Officer of Provident Life
and Accident Insurance Company and of its parent company, Provident Life and
Accident Insurance Company of America. She served as President of Provident
National Assurance Company from November 1987 to March 1995. From November 1986
to August 1994, she served as Vice President of Provident Life and Accident
Insurance Company of America.
Ms. Long has been Senior VP, Secretary and General Counsel of PLC since
November 1996 and of Protective Life since September 1996. Ms. Long was Senior
Vice President and General Counsel of PLC from February 1994 to November 1996
and of Protective Life from February 1994 to September 1996. From August 1993 to
January 1994, Ms. Long served as General Counsel of PLC and from February 1984
to January 1994 she practiced law with the law firm of Maynard, Cooper & Gale,
P.C.
Mr. Schultz has been Senior Vice President, Financial Institutions of
Protective Life and PLC since March 1993. Mr. Schultz served as Vice President,
Financial Institutions of Protective Life from February 1989 to March 1993 and
of PLC from February 1993 to March 1993. Mr. Schultz has been employed by PLC
and its subsidiaries since 1989.
Mr. Stuenkel has been Senior Vice President and Chief Actuary of Protective
Life and PLC since March 1987. Mr. Stuenkel is a Fellow in the Society of
Actuaries and has been employed by PLC and its subsidiaries since September
1978.
Ms. Wilson has been Senior Vice President, Guaranteed Investment Contracts
of Protective Life and PLC since January 1995. From July 1991 to December 31,
1994, she served as Vice President, Guaranteed Investment Contracts of
Protective Life.
Mr. DeFoor has been Vice President and Controller, and Chief Accounting
Officer of Protective and PLC since April 1989, Mr. DeFoor is a certified public
accountant and has been employed by PLC and its subsidiaries since August 1982.
47
<PAGE>
STATE REGULATION
Protective Life is subject to regulation by the Department of Insurance of
the State of Tennessee, which periodically examines the financial condition and
operations of Protective Life. Protective Life is also subject to the insurance
laws and regulations of all jurisdictions where it does business. The Policy
described in this prospectus has been filed with and, where required, approved
by, insurance officials in those jurisdictions where it is sold.
Protective Life is required to submit annual statements of operations,
including financial statements, to the insurance departments of the various
jurisdictions where it does business to determine solvency and compliance with
applicable insurance laws and regulations.
ADDITIONAL INFORMATION
A registration statement under the Securities Act of 1933 has been filed
with the SEC relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained at the SEC's principal office
in Washington, D.C. by paying the SEC's prescribed fees.
PREPARATION FOR YEAR 2000
Computer hardware and software often denote the year using two digits rather
than four; for example, the year 1998 often is denoted by such hardware and
software as "98". It is probable that such hardware and software will
malfunction when calculations involving the year 2000 are attempted because the
hardware and/or software will interpret "00" as representing the year 1900
rather than the year 2000. This "Year 2000" issue potentially affects all
individuals and companies (including Protective Life, its customers, business
partners, suppliers, banks, custodians and administrators). The problem is most
prevalent in older mainframe systems, but personal computers and equipment
containing computer chips could also be affected.
Protective Life shares computer hardware and software with its parent, PLC.
PLC began work on the Year 2000 problem in 1995. At that time, PLC identified
and assessed PLC's critical mainframe systems, and prioritized the remediation
efforts that were to follow. During 1998 all other hardware and software,
including non-information technology (non-IT) related hardware and software,
were included in the process. PLC's Year 2000 plan includes all subsidiaries.
PLC estimates that Year 2000 remediation is complete for most of its
insurance administration and general administration systems. Of the general
administration systems that are not yet remediated, the majority are new systems
that were implemented during 1998 and are scheduled to be upgraded to the
current release of the system during the second quarter of 1999. All remediated
systems are currently in production. Personal computer network hardware and
software have been reviewed, with upgrades implemented where necessary. A review
of personal computer desktop software is in progress, but not complete. All Year
2000 personal computer preparations are expected to be completed by June 30,
1999. With respect to non-IT equipment and processes, the assessment and
remediation is progressing on schedule and all known issues are expected to be
remediated before December 31, 1999.
One insurance administration system identified as mission critical is not
yet fully remediated. This personal computer database system that processes
member information for one subsidiary is currently being remediated. This effort
is on schedule and targeted to be complete by June 30, 1999.
Future date tests are used to verify a system's ability to process
transactions dated up to and beyond January 1, 2000. Future date tests are
complete or in-progress for the majority of PLC's mission-critical systems. A
large portion of the testing is conducted by a contract programming staff
dedicated full time to Year 2000 preparations. These resources have been part of
PLC's Year 2000 project since 1995.
48
<PAGE>
Integrated tests involve multiple system testing and are used to verify the
Year 2000 readiness of interfaces and connectivity across multiple systems. PLC
is using its mainframe computer to simulate a Year 2000 production environment
and to facilitate integrated testing. Integrated testing will continue
throughout 1999.
Business partners and suppliers that provide products or services critical
to PLC's operations are being reviewed and in some cases their Year 2000
preparations are being monitored by PLC. To date, no partners or suppliers have
reported that they expect to be unable to continue supplying products and
services after January 1, 2000. Initial reviews are targeted to be completed in
the first quarter of 1999. Monitoring and testing of critical partners and
suppliers will continue throughout 1999. Formal contingency planning began in
March 1999 and continue throughout the year. These plans will augment PLC's
existing disaster recovery plans.
PLC cannot specifically identify all of the costs to develop and implement
its Year 2000 plan. The cost of new systems to replace non-compliant systems
have been capitalized in the ordinary course of business. Other costs have been
expensed as incurred. Through December 31, 1998, costs that have been
specifically identified as relating to the Year 2000 problem total $3.9 million,
with an additional $1.3 million estimated to be required to support continued
testing activity. PLC's Year 2000 efforts have not adversely affected its normal
procurement and development of information technology.
Although PLC believes that a process is in place to successfully address
Year 2000 issues, there can be no assurances that PLC's efforts will be
successful, that interactions with other service providers with Year 2000 issues
will not impair Protective Life operations, or that the Year 2000 issue will not
otherwise adversely affect Protective Life.
Should some of PLC's systems not be available due to Year 2000 problems, in
a reasonably likely worst case scenario, Protective Life may experience
significant delays in its ability to perform certain functions, but does not
expect to be unable to perform critical functions or to otherwise conduct
business.
INDEPENDENT ACCOUNTANTS
The audited statement of assets and liabilities of the Protective Variable
Life Separate Account (comprised of seventeen Sub-Accounts) as of December 31,
1997, December 31, 1998 and the related statements of operations and changes in
net assets for each of the two years ended in the period 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 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.
49
<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 ended in the period 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.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
(TO BE UPDATED TO YEAR END 1998 WHEN AVAILABLE)
<TABLE>
<S> <C>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
Report of Independent Accountants.................................................... F-2
Statement of Assets and Liabilities as of December 31, 1998.......................... F-3
Statement of Assets and Liabilities as of December 31, 1997.......................... F-5
Statement of Operations for the period ended December 31, 1998....................... F-7
Statement of Operations for the period ended December 31, 1997....................... F-9
Statement of Changes in Net Assets for the period ended December 31, 1998............ F-11
Statement of Changes in Net Assets for the period ended December 31, 1997............ F-13
Notes to Financial Statements........................................................ F-15
PROTECTIVE LIFE INSURANCE COMPANY
Report of Independent Accountants.................................................... F-20
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.................................................... F-21
Consolidated Balance Sheets as of December 31, 1998 and 1997......................... F-22
Consolidated Statements of Share-Owner's Equity for the years ended
December 31, 1998, 1997 and 1996.................................................... F-23
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.................................................... F-24
Notes to Consolidated Financial Statements........................................... F-25
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information.................................. S-1
Schedule IV -- Reinsurance........................................................... S-2
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners and Board of Directors
of Protective Life Insurance Company
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and changes in assets of the Protective
Variable Life Separate Account (the "Separate Account") listed in the index on
page F-1 of this Form S-6 present fairly, in all material respects, the
financial position of the Separate Account at December 31, 1998 and 1997, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Separate Account's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers, L.L.P.
March 17, 1999
Birmingham, Alabama
F-2
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC PIC
MONEY AND INTERNATIONAL GLOBAL SMALL
MARKET INCOME EQUITY INCOME CAP VALUE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value................................. $ 303,636 $ 1,921,627 $1,442,293 $ 308,318 $ 769,011
Receivable from Protective Life
Insurance Company..................... 0 17,306 21,586 2,564 11,933
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS............................ 303,636 1,938,933 1,463,879 310,882 780,944
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
NET ASSETS.............................. $ 303,636 $ 1,938,933 $1,463,879 $ 310,882 $ 780,944
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
CALVERT
SOCIAL
PIC PIC SMALL CALVERT
CORE CAPITAL CAP SOCIAL
US EQUITY GROWTH GROWTH BALANCED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value................................. $ 1,502,386 $ 2,627,249 $3,582 2$9,036
Receivable from Protective Life
Insurance Company..................... 18,751 30,579 0 0
----------- ----------- ------ ------------
TOTAL ASSETS............................ 1,521,137 2,657,828 3,582 29,036
----------- ----------- ------ ------------
----------- ----------- ------ ------------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 0 0 0 0
----------- ----------- ------ ------------
NET ASSETS.............................. $ 1,521,137 $ 2,657,828 $3,582 2$9,036
----------- ----------- ------ ------------
----------- ----------- ------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE
GROWTH RESEARCH INCOME RETURN GROWTH
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in
sub-accounts at
market value...... $ 698,498 $ 1,414,375 $ 476,404 $ 132,968 $ 597,798
Receivable from
Protective Life
Insurance
Company........... 0 0 16,170 0 0
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS........ 698,498 1,414,375 492,574 132,968 597,798
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to
Protective Life
Insurance
Company........... 74 168 0 0 66
----------- ----------- ----------- ----------- -----------
NET ASSETS.......... $ 698,424 $ 1,414,207 $ 492,574 $ 132,968 $ 597,732
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
OPPENHEIMER
GROWTH OPPENHEIMER
OPPENHEIMER AND STRATEGIC
GROWTH INCOME BOND TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in
sub-accounts at
market value...... $1,012,111 $ 359,022 14$0,332 13,7$38,646
Receivable from
Protective Life
Insurance
Company........... 0 679 648 120,216
----------- ----------- ------------ ------------
TOTAL ASSETS........ 1,012,111 359,701 140,980 13,858,862
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
LIABILITIES
Payable to
Protective Life
Insurance
Company........... 117 0 0 425
----------- ----------- ------------ ------------
NET ASSETS.......... $1,011,994 $ 359,701 14$0,980 13,8$58,437
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC PIC
MONEY AND INTERNATIONAL GLOBAL SMALL
MARKET INCOME EQUITY INCOME CAP VALUE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value................................. $ 50,888 $ 997,651 $ 542,113 $ 112,638 $ 562,384
Receivable from Protective Life
Insurance Company..................... 0 5,779 5,792 0 5,263
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS............................ 50,888 1,003,430 547,905 112,638 567,647
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 1 0 0 32 0
----------- ----------- ----------- ----------- -----------
NET ASSETS.............................. $ 50,887 $ 1,003,430 $ 547,905 $ 112,606 $ 567,647
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
CALVERT
SOCIAL
PIC PIC SMALL CALVERT
CORE CAPITAL CAP SOCIAL
US EQUITY GROWTH GROWTH BALANCED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value................................. $ 418,436 $ 631,283 $ 77 $ 86
Receivable from Protective Life
Insurance Company..................... 1,206 5,482 0 0
----------- ----------- --- ---
TOTAL ASSETS............................ 419,642 636,765 77 86
----------- ----------- --- ---
----------- ----------- --- ---
LIABILITIES
Payable to Protective Life Insurance
Company............................... 0 0 7 7
----------- ----------- --- ---
NET ASSETS.............................. $ 419,642 $ 636,765 $ 70 $ 79
----------- ----------- --- ---
----------- ----------- --- ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE
GROWTH RESEARCH INCOME RETURN GROWTH
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value................................. $ 59,898 $ 121,167 $ 7,004 $ 2,890 $ 56,236
Receivable from Protective Life
Insurance Company..................... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS............................ 59,898 121,167 7,004 2,890 56,236
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
NET ASSETS.............................. $ 59,898 $ 121,167 $ 7,004 $ 2,890 $ 56,236
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
OPPENHEIMER
GROWTH OPPENHEIMER
OPPENHEIMER AND STRATEGIC
GROWTH INCOME BOND TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value................................. $ 74,477 $ 11,957 1$0,236 3,6$59,421
Receivable from Protective Life
Insurance Company..................... 0 377 353 24,252
----------- ----------- ------------ ------------
TOTAL ASSETS............................ 74,477 12,334 10,589 3,683,673
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
LIABILITIES
Payable to Protective Life Insurance
Company............................... 0 0 0 47
----------- ----------- ------------ ------------
NET ASSETS.............................. $ 74,477 $ 12,334 1$0,589 3,6$83,626
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC
PIC GROWTH PIC PIC
MONEY AND INTERNATIONAL GLOBAL
MARKET INCOME EQUITY INCOME
----------- --------- ------------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................................ $ 4,328 $ 24,343 $ 606 $ 6,411
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption of investment shares............ 0 (3,831) (393) 190
Capital gain distribution................................................ 0 139,899 67,041 7,083
----------- --------- ------------- ---------
Net realized gain (loss) on investments.................................. 0 136,068 66,648 7,273
Net unrealized appreciation (depreciation) on investments during the
period................................................................. 0 (239,036) 111,568 517
----------- --------- ------------- ---------
Net realized and unrealized gain (loss) on investments................... 0 (102,968) 178,216 7,790
----------- --------- ------------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......... $ 4,328 $ (78,625) $ 178,822 $ 14,201
----------- --------- ------------- ---------
----------- --------- ------------- ---------
<CAPTION>
CALVERT
PIC PIC PIC SOCIAL
SMALL CORE CAPITAL SMALL
CAP VALUE US EQUITY GROWTH CAP GROWTH
----------- ----------- --------- -----------
<S> <C>
INVESTMENT INCOME
Dividends................................................................ $ 3,858 $ 8,151 $ 9,719 $ 3
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption of investment shares............ (8,875) (5,278) (576) 0
Capital gain distribution................................................ 89,797 14,213 44,920 44
----------- ----------- --------- -----
Net realized gain (loss) on investments.................................. 80,922 8,935 44,344 44
Net unrealized appreciation (depreciation) on investments during the
period................................................................. (208,100) 152,564 417,199 386
----------- ----------- --------- -----
Net realized and unrealized gain (loss) on investments................... (127,178) 161,499 461,543 430
----------- ----------- --------- -----
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......... $(123,320) $ 169,650 $ 471,262 $ 433
----------- ----------- --------- -----
----------- ----------- --------- -----
<CAPTION>
CALVERT
SOCIAL
BALANCED
-----------
INVESTMENT INCOME
Dividends................................................................ $ 648
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain (loss) from redemption of investment shares............ (17)
Capital gain distribution................................................ 1,452
-----------
Net realized gain (loss) on investments.................................. 1,435
Net unrealized appreciation (depreciation) on investments during the
period................................................................. 1
-----------
Net realized and unrealized gain (loss) on investments................... 1,436
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......... $ 2,084
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS OPPENHEIMER
MFS GROWTH MFS OPPENHEIMER GROWTH OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER AND STRATEGIC
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME BOND
----------- ----------- --------- ----------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........... $ 0 $ 823 $ 0 $ 153 $ 448 $ 1,757 $ 43 $ 207
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS
Net realized gain
(loss) from
redemption of
investment
shares............ (10,427) (6,208) 12 12 (505) (18) (118) 19
Capital gain
distribution...... 2,285 10,789 0 180 4,597 21,202 942 133
----------- ----------- --------- ----------- ------------- ------------- ------------- ------
Net realized gain
(loss) on
investments....... (8,142) 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 deductions are
F-18
<PAGE>
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
made to the individual policies in accordance with the terms governing each
policy as set forth in the policy.
The net assets of each sub-account of the Separate Account reflect the
investment management fees and other operating expenses incurred by the Funds.
Protective Life offers a loan privilege to contract owners. Contract owners
may obtain loans using the contract as the only security for the loan. Loans may
be subject to provisions of The Internal Revenue Code of 1986, as amended. Loans
outstanding approximated $108,000 and $70,000 at December 31, 1998 and 1997,
respectively.
5. SUBSEQUENT EVENTS
Protective Life has announced plans to liquidate the PIC Money Market
account and replace it with the Oppenheimer Money Fund in 1999.
In 1999, the Oppenheimer Growth Fund and the Oppenheimer Growth and Income
Fund names will be changed to Oppenheimer Capital Appreciation and Oppenheimer
Main Street Growth and Income, respectively.
Additionally, six sub-accounts will be added to the Separate Account. These
sub-accounts are MFS New Discovery, MFS Utilities, Oppenheimer Global
Securities, Oppenheimer High Income, Van Eck Worldwide Hard Assets, and Van Eck
Worldwide Real Estate. Sales will begin in the sub-accounts in 1999.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Share Owner
Protective Life Insurance Company
Birmingham, Alabama
In our opinion, the consolidated financial statements of Protective Life
Insurance Company and Subsidiaries (the "Company") listed in the index on page
F1 of this Form S-6 present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules listed in the index on page F1 of this Form S-6 present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers, 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
F-27
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
separately as assets and liabilities related to separate accounts in the
accompanying consolidated financial statements.
REVENUES AND BENEFITS EXPENSE
- Traditional Life and Health Insurance Products -- Traditional life
insurance products consist principally of those products with fixed and
guaranteed premiums and benefits and include whole life insurance
policies, term and term-like life insurance policies, limited-payment life
insurance policies, and certain annuities with life contingencies. Life
insurance and immediate annuity premiums are recognized as revenue when
due. Health insurance premiums are recognized as revenue over the terms of
the policies. Benefits and expenses are associated with earned premiums so
that profits are recognized over the life of the contracts. This is
accomplished by means of the provision for liabilities for future policy
benefits and the amortization of deferred policy acquisition costs.
Liabilities for future policy benefits on traditional life insurance
products have been computed using a net level method including assumptions
as to investment yields, mortality, persistency, and other assumptions
based on Protective's experience modified as necessary to reflect
anticipated trends and to include provisions for possible adverse
deviation. Reserve investment yield assumptions are graded and range from
2.5% to 7.0%. The liability for future policy benefits and claims on
traditional life and health insurance products includes estimated unpaid
claims that have been reported to Protective and claims incurred but not
yet reported. Policy claims are charged to expense in the period that the
claims are incurred.
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance beginning of year................................ $ 106,121 $ 108,159 $ 73,642
Less reinsurance....................................... 18,673 6,423 3,330
---------- ---------- ----------
Net balance beginning of year............................ 87,448 101,736 70,312
---------- ---------- ----------
Incurred related to:
Current year............................................. 288,015 258,322 275,524
Prior year............................................... (10,198) (14,540) (2,417)
---------- ---------- ----------
Total incurred......................................... 277,817 243,782 273,107
---------- ---------- ----------
Paid related to:
Current year............................................. 236,001 203,381 197,163
Prior year............................................... 58,951 58,104 57,812
---------- ---------- ----------
Total paid............................................. 294,952 261,485 254,975
---------- ---------- ----------
Other changes:
Acquisitions and reserve transfers..................... 0 3,415 13,292
---------- ---------- ----------
Net balance end of year.................................. 70,313 87,448 101,736
Plus reinsurance....................................... 20,019 18,673 6,423
---------- ---------- ----------
Balance end of year...................................... $ 90,332 $ 106,121 $ 108,159
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-28
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, guaranteed investment
contracts, deferred annuities, and annuities without life contingencies.
Revenues for universal life and investment products consist of policy fees
that have been assessed against policy account balances for the costs of
insurance, policy administration, and surrenders. That is, universal life
and investment product deposits are not considered revenues in accordance
with generally accepted accounting principles. Benefit reserves for
universal life and investment products represent policy account balances
before applicable surrender charges plus certain deferred policy
initiation fees that are recognized in income over the term of the
policies. Policy benefits and claims that are charged to expense include
benefit claims incurred in the period in excess of related policy account
balances and interest credited to policy account balances. Interest credit
rates for universal life and investment products ranged from 3.4% to 9.4%
in 1998.
Protective's accounting policies with respect to variable universal life
and variable annuities are identical except that policy account balances
(excluding account balances that earn a fixed rate) are valued at market
and reported as components of assets and liabilities related to separate
accounts.
DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs of acquiring traditional life and health
insurance, universal life insurance, and investment products that vary with and
are primarily related to the production of new business have been deferred.
Traditional life and health insurance acquisition costs are amortized over the
premium-payment period of the related policies in proportion to the ratio of
annual premium income to total anticipated premium income. Acquisition costs for
universal life and investment products are being amortized over the lives of the
policies in relation to the present value of estimated gross profits before
amortization. Under SFAS No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," Protective makes certain assumptions
regarding the mortality, persistency, expenses, and interest rates it expects to
experience in future periods. These assumptions are to be best estimates and are
to be periodically updated whenever actual experience and/or expectations for
the future change from that assumed. Additionally, relating to SFAS No. 115,
these costs have been adjusted by an amount equal to the amortization that would
have been recorded if unrealized gains or losses on investments associated with
Protective's universal life and investment products had been realized.
The cost to acquire blocks of insurance representing the present value of
future profits from such blocks of insurance is also included in deferred policy
acquisition costs. Protective amortizes the present value of future profits over
the premium payment period including accrued interest of up to approximately 8%.
The unamortized present value of future profits for all acquisitions was
approximately $370.3 million and $274.9 million at December 31, 1998 and 1997,
respectively. During 1998 $132.5 million of present value of future profits on
acquisitions made during the year was capitalized and $37.1 million was
amortized. During 1997 $136.2 million of present value of future profits on
acquisitions made during the year was capitalized, and $28.9 million was
amortized.
INCOME TAXES
Protective uses the asset and liability method of accounting for income
taxes. Income tax provisions are generally based on income reported for
financial statement purposes. Deferred federal income taxes arise from the
recognition of temporary differences between the bases of assets and liabilities
determined
F-29
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for financial reporting purposes and the bases determined for income tax
purposes. Such temporary differences are principally related to the deferral of
policy acquisition costs and the provision for future policy benefits and
expenses.
RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
net income, total assets, or share-owner's equity.
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principals ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The most significant differences are: (a) acquisition costs of
obtaining new business are deferred and amortized over the approximate life of
the policies rather than charged to operations as incurred, (b) benefit
liabilities are computed using a net level method and are based on realistic
estimates of expected mortality, interest, and withdrawals as adjusted to
provide for possible unfavorable deviation from such assumptions, (c) deferred
income taxes are provided for temporary differences between
financial and taxable earnings, (d) the Asset Valuation Reserve and Interest
Maintenance Reserve are restored to stock-owner's equity, (e) furniture and
equipment, agents' debit balances, and prepaid expenses are reported as assets
rather than being charged directly to surplus (referred to as nonadmitted
items), (f) certain items of interest income, principally accrual of mortgage
and bond discounts are amortized differently, and (g) bonds are stated at market
instead of amortized cost.
The reconciliations of net income and share-owner's equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<TABLE>
<CAPTION>
NET INCOME SHARE-OWNER'S EQUITY
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory
reporting practices: (1).......... $ 147,077 $ 134,417 $ 102,337 $ 531,956 $ 579,111 $ 456,320
Additions (deductions) by
adjustment:
Deferred policy acquisition
costs, net of amortization...... 68,155 10,310 (2,830) 841,425 632,605 488,201
Deferred income tax............... (14,925) 13,981 2,142 (51,735) (49,417) (37,722)
Asset Valuation Reserve........... 66,922 67,369 64,233
Interest Maintenance Reserve...... (1,355) (1,434) (2,142) 15,507 9,809 17,682
Nonadmitted items................. 42,835 30,500 21,610
Other timing and valuation
adjustments..................... (76,214) (54,494) (11,210) (282,480) (215,448) (197,227)
Noninsurance affiliates........... 18,171 17,530 11,104 (4) 4
Consolidation elimination......... (23,726) (22,862) (16,858) (95,059) (35,746) (36,910)
--------- --------- --------- --------- --------- ---------
In conformity with generally
accepted accounting principles.... $ 117,183 $ 97,448 $ 82,543 $1,069,371 $1,018,779 776,191
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Consolidated
F-30
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities......................................... $ 463,416 $ 396,255 $ 310,353
Equity securities........................................ 905 1,186 2,124
Mortgage loans on real estate............................ 158,461 161,604 153,463
Investment real estate................................... 1,224 2,004 1,875
Policy loans............................................. 12,346 11,370 10,378
Other, principally short-term investments................ 16,536 21,876 51,637
---------- ---------- ----------
652,888 594,295 529,830
Investment expenses...................................... 49,093 36,807 31,049
---------- ---------- ----------
$ 603,795 $ 557,488 $ 498,781
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<S> <C> <C> <C>
Fixed maturities................................. $ 4,374 $ (8,355) $ (7,101)
Equity securities................................ (4,465) 5,975 1,733
Mortgage loans and other investments............. 2,227 4,204 10,878
--------- --------- ---------
$ 2,136 $ 1,824 $ 5,510
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective recognizes permanent impairments through changes to an allowance
for uncollectible amounts on investments. The allowance totaled $24.1 million at
December 31, 1998 and $23.0 million at December 31, 1997. Additions and
reductions to the allowance are included in realized investment gains (losses).
Without such additions/reductions, Protective had net realized investment gains
of $3.2 million in 1998, net realized investment losses of $6.1 million in 1997,
and net realized investment gains of $3.7 million in 1996.
In 1998, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $32.3 million and
gross losses were $32.5 million. In 1997, gross gains were $21.3 million and
gross losses were $23.5 million. In 1996, gross gains were $6.9 million and
gross losses were $11.8 million.
F-31
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of Protective's investments
classified as available for sale at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1998 COST GAINS LOSSES VALUES
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed.......................................... $ 2,581,561 $ 41,626 $ 33,939 $ 2,589,248
United States Government and authorities................. 72,697 2,812 75,509
States, municipalities, and political subdivisions....... 29,521 1,131 30,652
Public utilities......................................... 533,082 15,066 548,148
Convertibles and bonds with warrants..................... 694 179 515
All other corporate bonds................................ 3,083,782 98,992 32,629 3,150,145
Redeemable preferred stocks................................ 5,937 108 6,045
------------ ----------- ----------- ------------
6,307,274 159,735 66,747 6,400,262
Equity securities............................................ 15,151 456 3,349 12,258
Short-term investments....................................... 159,655 159,655
------------ ----------- ----------- ------------
$ 6,482,080 $ 160,191 $ 70,096 $ 6,572,175
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1997 COST GAINS LOSSES VALUES
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed.......................................... $ 2,982,266 $ 54,103 $ 16,577 $ 3,019,792
United States Government and authorities................. 160,484 1,366 0 161,850
States, municipalities, and political subdivisions....... 31,621 532 0 32,153
Public utilities......................................... 481,679 7,241 0 488,920
Convertibles and bonds with warrants..................... 694 0 168 526
All other corporate bonds................................ 2,559,186 80,903 1,019 2,639,070
Redeemable preferred stocks................................ 5,941 0 0 5,941
------------ ----------- ----------- ------------
6,221,871 144,145 17,764 6,348,252
Equity securities............................................ 24,983 300 10,277 15,006
Short-term investments....................................... 54,337 0 0 54,337
------------ ----------- ----------- ------------
$ 6,301,190 $ 144,445 $ 28,041 $ 6,417,595
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
F-32
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of fixed maturities at
December 31, by expected maturity, are shown below. Expected maturities are
derived from rates of prepayment that may differ from actual rates of
prepayment.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1998 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 705,859 $ 709,686
Due after one year through five years............................. 3,255,973 3,325,078
Due after five years through ten years............................ 1,655,055 1,690,581
Due after ten years............................................... 690,387 674,917
------------ ------------
$ 6,307,274 $ 6,400,262
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1997 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 456,248 $ 460,994
Due after one year through five years............................. 2,774,769 2,815,553
Due after five years through ten years............................ 2,377,989 2,440,193
Due after ten years............................................... 612,865 631,512
------------ ------------
$ 6,221,871 $ 6,348,252
------------ ------------
------------ ------------
</TABLE>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1998 1997
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
AAA........................................................................ 34.3% 41.1%
AA......................................................................... 6.2 4.8
A.......................................................................... 29.4 29.1
BBB........................................................................ 26.5 21.9
BB or less................................................................. 3.5 3.0
Redeemable preferred stocks................................................ 0.1 0.1
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
At December 31, 1998 and 1997, Protective had bonds which were rated less than
investment grade of $222.9 million and $195.2 million, respectively, having an
amortized cost of $252.0 million and $193.6 million, respectively. At December
31, 1998, approximately $83.5 million of the bonds rates less than investment
grade were securities issued in company-sponsored commercial mortgage loan
securitizations. Approximately $817.9 million of bonds are not publically
traded.
F-33
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The change in unrealized gains (losses), net of income tax on fixed maturity
and equity securities for the years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Fixed maturities........................................... $ (21,705) $ 72,741 $ (56,898)
Equity securities.......................................... $ 4,605 $ (8,813) $ 207
</TABLE>
At December 31, 1998, all of Protective's mortgage loans were commercial
loans of which 75% were retail, 10% were apartments, 8% were warehouses, and 6%
were office buildings. Protective specializes in making mortgage loans on either
credit-oriented or credit-anchored commercial properties, most of which are
strip shopping centers in smaller towns and cities. No single tenant's leased
space represents more than 5% of mortgage loans. Approximately 82% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: Georgia, Florida, Texas, North Carolina,
Tennessee, Virginia, Alabama, South Carolina, Kentucky, Ohio, Maryland,
California, Mississippi, and Washington.
Many of the mortgage loans have call provisions after three to ten years.
Assuming the loans are called at their next call dates, approximately $48.1
million would become due in 1999, $348.9 million in 2000 to 2003, and $209.1
million in 2004 to 2008.
At December 31, 1998, the average mortgage loan was approximately $2.0
million, and the weighted average interest rate was 8.3%. The largest single
mortgage loan was $12.8 million.
At December 31, 1998 and 1997, Protective's problem mortgage loans and
foreclosed properties totaled $11.7 million and $17.7 million, respectively.
Since Protective's mortgage loans are collateralized by real estate, any
assessment of impairment is based upon the estimated fair value of the real
estate. Based on Protective's evaluation of its mortgage loan portfolio,
Protective does not expect any material losses on its mortgage loans.
Certain investments, principally real estate, with a carrying value of $10.6
million were nonincome producing for the twelve months ended December 31, 1998.
Policy loan interest rates generally range from 4.5% to 8.0%.
NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax
income.................................................... 35.0% 35.0% 35.0%
Dividends received deduction and tax-exempt interest........ (0.1) (0.2) (0.4)
Low-income housing credit................................... (0.5) (0.6) (0.6)
Tax benefits arising from prior acquisitions and other
adjustments............................................... 0.1 0.7 0.1
State income taxes.......................................... 0.5
----- ----- -----
Effective income tax rate................................... 35.0% 34.9% 34.1%
----- ----- -----
----- ----- -----
</TABLE>
F-34
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
The provision for federal income tax differs from amounts currently payable
due to certain items reported for financial statement purposes in periods which
differ from those in which they are reported for income tax purposes.
Details of the deferred income tax provision for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs................................... $ 60,746 $ 7,054 $ 15,542
Benefit and other policy liability changes.......................... (41,268) (23,564) (16,321)
Temporary differences of investment income.......................... (3,491) 2,516 (1,163)
Other items......................................................... (1,062) 13 (200)
---------- ---------- ----------
$ 14,925 $ (13,981) $ (2,142)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves.................................... $ 190,328 $ 138,701
Other......................................................................... 2,091 1,029
---------- ----------
192,419 139,730
---------- ----------
Deferred income tax liabilities:
Deferred policy acquisition costs............................................. 211,641 150,895
Unrealized gain on investments................................................ 32,513 38,252
---------- ----------
244,154 189,147
---------- ----------
Net deferred income tax liability............................................. $ 51,735 $ 49,417
---------- ----------
---------- ----------
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of
Protective's gain from operations which was not subject to current income
taxation was accumulated for income tax purposes in a memorandum account
designated as Policyholders' Surplus. The aggregate accumulation in this account
at December 31, 1998 was approximately $70.5 million. Should the accumulation in
the Policyholders' Surplus account exceed certain stated maximums, or should
distributions including cash dividends be made to PLC in excess of approximately
$769 million, such excess would be subject to federal income taxes at rates then
effective. Deferred income taxes have not been provided on amounts designated as
Policyholders' Surplus. Under current income tax laws, Protective does not
anticipate involuntarily paying income tax on amounts in the Policyholders'
Surplus accounts.
Protective's income tax returns are included in the consolidated income tax
returns of PLC. The allocation of income tax liabilities among affiliates is
based upon separate income tax return calculations.
NOTE E -- DEBT
At December 31, 1998, PLC had borrowed $18.5 million at a rate of 5.8%. PLC
had also borrowed $30.0 million at a rate of 5.4% under a term note that
contains, among other provisions, requirements for maintaining certain financial
ratios, and restrictions on indebtedness incurred by PLC's subsidiaries
F-35
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E -- DEBT (CONTINUED)
including Protective. Additionally, PLC, on a consolidated basis, cannot incur
debt in excess of 50% of its total capital.
Protective has arranged sources of credit to temporarily fund scheduled
investment commitments. Protective expects that the rate received on its
investments will equal or exceed its borrowing rate. Protective had no such
temporary borrowings outstanding at December 31, 1998 and 1997. Also, Protective
has a mortgage note on investment real estate amounting to approximately $2.4
million that matures in 2003.
Included in indebtedness to related parties is a surplus debenture issued by
Protective to PLC. At December 31, 1998, the balance of the surplus debenture
was $18.0 million. The debenture matures in 2003.
Indebtedness to related parties also consists of payables to affiliates
under control of PLC in the amount of $2.9 million at December 31, 1998.
Protective routinely receives from or pays to affiliates under the control of
PLC reimbursements for expenses incurred on one another's behalf. Receivables
and payables among affiliates are generally settled monthly.
Interest expense on borrowed money totaled $8.3 million, $4.3 million, and
$4.6 million, in 1998, 1997, and 1996, respectively.
NOTE F -- RECENT ACQUISITIONS
In June 1997, Protective acquired West Coast Life Insurance Company ("West
Coast"). In September 1997, Protective acquired the Western Diversified Group.
In October 1997, Protective coinsured a block of credit policies.
In October 1998 Protective coinsured a block of life insurance policies from
Lincoln National Corporation. The policies represent the payroll deduction
business originally marketed and underwritten by Aetna.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. Protective does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
A number of civil jury verdicts have been returned against insurers in the
jurisdictions in which Protective does business involving the insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. Increasingly these lawsuits have resulted in the award of
substantial judgments against the insurer that are disproportionate to the
actual damages, including material amounts of punitive damages. In addition, in
some class action and other lawsuits involving insurers' sales practices,
insurers have made material settlement payments. In some states (including
Alabama), juries have substantial discretion in awarding punitive damages which
creates the potential for
F-36
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
unpredictable material adverse judgments in any given punitive damage suit.
Protective and its subsidiaries, like other insurers, in the ordinary course of
business, are involved in such litigation or alternatively in arbitration.
Although the outcome of any litigation or arbitration cannot be predicted with
certainty, Protective believes that at the present time there are no pending or
threatened lawsuits that are reasonably likely to have a material adverse effect
on the financial position, results of operations, or liquidity of Protective.
NOTE H -- SHARE-OWNER'S EQUITY AND RESTRICTIONS
At December 31, 1998, approximately $608.6 million of consolidated
share-owner's equity excluding net unrealized gains and losses represented net
assets of Protective that cannot be transferred in the form of dividends, loans,
or advances to PLC. In general, dividends up to specified levels are considered
ordinary and may be paid thirty days after written notice to the insurance
commissioner of the state of domicile unless such commissioner objects to the
dividend prior to the expiration of such period. Dividends in larger amounts are
considered extraordinary and are subject to affirmative prior approval by such
commissioner. The maximum amount that would qualify as ordinary dividends to PLC
by Protective in 1999 is estimated to be $138.9 million. Dividends of $60.0
million were paid to PLC in 1998.
NOTE I -- PREFERRED STOCK
PLC owns all of the 2,000 shares of preferred stock issued by Protective's
subsidiary, Protective Life and Annuity Insurance Company ("PL&A"). During 1996,
PL&A's articles of incorporation were amended such that the preferred stock is
redeemable solely at the discretion of PL&A. Prior to November 1998, the stock
paid, when and if declared, annual minimum cumulative dividends of $50 per
share, and noncumulative participating dividends to the extent PL&A's statutory
earnings for the immediately preceding fiscal year exceeded $1 million.
Dividends of $0.1 million were paid to PLC in 1998, 1997, and 1996. Effective
November 3, 1998, PL&A's articles of incorporation were amended such that the
provision for an annual minimum cumulative dividend was removed.
NOTE J -- RELATED PARTY MATTERS
On August 6, 1990, PLC announced that its Board of Directors approved the
formation of an Employee Stock Ownership Plan ("ESOP"). On December 1, 1990,
Protective transferred to the ESOP 520,000 shares of PLC's common stock held by
it in exchange for a note. The outstanding balance of the note, $5.2 million at
December 31, 1998, is accounted for as a reduction to share-owner's equity. The
stock will be used to match employee contributions to PLC's existing 401(k)
Plan. The ESOP shares are dividend paying. Dividends on the shares are used to
pay the ESOP's note to Protective.
Protective leases furnished office space and computers to affiliates. Lease
revenues were $3.0 million in 1998, $3.1 million in 1997, and $3.7 million in
1996. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $56.2 million, $51.6
million, and $50.4 million in 1998, 1997, and 1996, respectively. Commissions
paid to affiliated marketing organizations of $8.4 million, $5.2 million, and
$7.4 million in 1998, 1997, and 1996, respectively, were included in deferred
policy acquisition costs.
Certain corporations with which PLC's directors were affiliated paid
Protective premiums, policy fees, or deposits for various types of insurance and
investment products. Such premiums, policy fees, and
F-37
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- RELATED PARTY MATTERS (CONTINUED)
deposits amounted to $28.6 million, $21.4 million and $31.2 million in 1998,
1997, and 1996, respectively. Protective and/or PLC paid commissions, interest
on debt and investment products, and fees to these same corporations totaling
$7.3 million, $5.4 million and $5.0 million in 1998, 1997, and 1996,
respectively.
For a discussion of indebtedness to related parties, see Note E.
NOTE K -- OPERATING SEGMENTS
Protective operates seven divisions whose principal strategic focuses can be
grouped into three general categories: Life Insurance, Specialty Insurance
Products, and Retirement Savings and Investment Products. Each division has a
senior officer of Protective responsible for its operations. A division is
generally distinguished by products and/or channels of distribution. A brief
description of each division follows.
LIFE INSURANCE
INDIVIDUAL LIFE DIVISION. The Individual Life Division markets universal
life, variable universal life, and level premium term and term-like insurance
products on a national basis through a network of independent insurance agents.
WEST COAST DIVISION. The West Coast Division sells universal life and level
premium term-like insurance products in the life insurance brokerage market and
in the "bank owned life insurance" market.
ACQUISITIONS DIVISION. The Acquisitions Division focuses solely on
acquiring, converting, and servicing policies acquired from other companies.
These acquisitions may be accomplished through acquisitions of companies or
through the assumption or reinsurance of life insurance and related policies.
SPECIALTY INSURANCE PRODUCTS
DENTAL AND CONSUMER BENEFITS DIVISION. The Division's primary focus is on
indemnity and prepaid dental products. In 1997, the Division exited from the
traditional group major medical business, fulfilling the Division's strategy to
focus primarily on dental and related products.
FINANCIAL INSTITUTIONS DIVISION. The Financial Institutions Division
specializes in marketing credit life and disability insurance products through
banks, consumer finance companies and automobile dealers. The Division also
includes a small property casualty insurer that sells automobile service
contracts.
GUARANTEED INVESTMENT CONTRACTS DIVISION. The Guaranteed Investment
Contracts ("GIC") Division markets GICs to 401(k) and other qualified retirement
savings plans. The Division also offers related products, including fixed and
floating rate funding agreements offered to the trustees of municipal bond
proceeds, bank trust departments, and money market funds, and long-term annuity
contracts offered to fund certain state obligations.
INVESTMENT PRODUCTS DIVISION. The Investment Products Division
manufactures, sells, and supports fixed and variable annuity products. These
products are primarily sold through stockbrokers, but are also sold through
financial institutions and the Individual Life Division's sales force.
F-38
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
CORPORATE AND OTHER
Protective has an additional business segment herein referred to as
Corporate and Other. The Corporate and Other segment primarily consists of net
investment income and expenses not attributable to the Divisions above
(including net investment income on capital and interest on substantially all
debt).
Protective uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated net
income and assets. Operating segment income is generally income before income
tax. Premiums and policy fees, other income, benefits and settlement expenses,
and amortization of deferred policy acquisition costs are attributed directly to
each operating segment. Net investment income is allocated based on directly
related assets required for transacting the business of that segment. Realized
investment gains (losses) and other operating expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
F-39
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
Operating segment income and assets for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
LIFE INSURANCE
-------------------------------------
INDIVIDUAL
OPERATING SEGMENT INCOME LIFE WEST COAST ACQUISITIONS
- ------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
1998
Premiums and policy
fees................... $ 228,701 $ 75,757 $ 125,329
Reinsurance ceded........ (102,533) (53,377 ) (28,594)
---------- ---------- -------------
Net of reinsurance
ceded................ 126,168 22,380 96,735
Net investment income.... 55,779 63,492 112,154
Realized investment gains
(losses)...............
Other income............. 70 6 1,713
---------- ---------- -------------
Total revenues....... 182,017 85,878 210,602
---------- ---------- -------------
Benefits and settlement
expenses............... 106,308 54,617 112,051
Amortization of deferred
policy acquisition
costs.................. 30,543 4,924 18,894
Other operating
expenses............... 14,983 5,354 26,717
---------- ---------- -------------
Total benefits and
expenses............ 151,834 64,895 157,662
---------- ---------- -------------
Income before income
tax.................... 30,183 20,983 52,940
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
1997
Premiums and policy
fees................... $ 182,746 $ 41,290 $ 120,504
Reinsurance ceded........ (55,266) (27,168 ) (17,869)
---------- ---------- -------------
Net of reinsurance
ceded................ 127,480 14,122 102,635
Net investment income.... 54,593 30,194 110,155
Realized investment gains
(losses)...............
Other income............. 617 10
---------- ---------- -------------
Total revenues....... 182,690 44,316 212,800
---------- ---------- -------------
Benefits and settlement
expenses............... 114,678 28,304 116,506
Amortization of deferred
policy acquisition
costs.................. 27,354 961 16,606
Other operating
expenses............... 18,178 6,849 23,016
---------- ---------- -------------
Total benefits and
expenses............ 160,210 36,114 156,128
---------- ---------- -------------
Income before income
tax.................... 22,480 8,202 56,672
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
1996
Premiums and policy
fees................... $ 154,295 $ 125,798
Reinsurance ceded........ (37,585) (19,255)
---------- ---------- -------------
Net of reinsurance
ceded................ 116,710 106,543
Net investment income.... 48,442 106,015
Realized investment gains
(losses)............... 3,098
Other income............. 1,056 641
---------- ---------- -------------
Total revenues....... 169,306 213,199
---------- ---------- -------------
Benefits and settlement
expenses............... 96,404 118,181
Amortization of deferred
policy acquisition
costs.................. 28,393 17,162
Other operating
expenses............... 28,611 24,292
---------- ---------- -------------
Total benefits and
expenses............ 153,408 159,635
---------- ---------- -------------
Income before income
tax.................... 15,898 53,564
Income tax expense.......
---------- ---------- -------------
Net income...............
---------- ---------- -------------
OPERATING SEGMENT ASSETS
- -------------------------
1998
Investments and other
assets................. $1,076,202 $1,149,642 $1,600,123
Deferred policy
acquisition costs...... 301,941 144,455 255,347
---------- ---------- -------------
Total assets............. $1,378,143 $1,294,097 $1,855,470
---------- ---------- -------------
1997
Investments and other
assets................. $ 960,316 $ 910,030 $1,401,294
Deferred policy
acquisition costs...... 252,321 108,126 138,052
---------- ---------- -------------
Total assets............. $1,212,637 $1,018,156 $1,539,346
---------- ---------- -------------
1996
Investments and other
assets................. $ 814,728 $1,423,081
Deferred policy
acquisition costs...... 220,232 156,172
---------- ---------- -------------
Total assets............. $1,034,960 $1,579,253
---------- ---------- -------------
</TABLE>
- ----------------------------------------
(1) Adjustments represent the inclusion of unallocated realized investment
gains (losses) and the recognition of income tax expense. There are no
asset adjustments.
F-40
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
SPECIALTY INSURANCE RETIREMENT SAVINGS AND
PRODUCTS INVESTMENT PRODUCTS
--------------------------- ---------------------------
DENTAL AND GUARANTEED CORPORATE
CONSUMER FINANCIAL INVESTMENT INVESTMENT AND TOTAL
BENEFITS INSTITUTIONS CONTRACTS PRODUCTS OTHER ADJUSTMENTS(1) CONSOLIDATED
----------- ------------- ------------ ------------ ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Premiums and policy
fees................... $ 277,316 $ 301,230 $ 18,809 $ 198 $ 1,027,340
Reinsurance ceded........ (85,753) (188,958) (459,215)
----------- ------------- ------------ ------------ ---------- ------ -------------
Net of reinsurance
ceded................ 191,563 112,272 18,809 198 568,125
Net investment income.... 15,245 25,068 $ 213,136 105,827 13,094 603,795
Realized investment gains
(losses)............... 1,609 1,318 $ (791) 2,136
Other income............. 4,295 10,302 1,799 2,016 20,201
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 211,103 147,642 214,745 127,753 15,308 1,194,257
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 140,632 52,629 178,745 85,045 469 730,496
Amortization of deferred
policy acquisition
costs.................. 10,352 28,526 735 17,213 1 111,188
Other operating
expenses............... 49,913 48,837 2,876 14,428 9,120 172,228
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 200,897 129,992 182,356 116,686 9,590 1,013,912
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 10,206 17,650 32,389 11,067 5,718 180,345
Income tax expense....... 63,162 63,162
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 117,183
----------- ------------- ------------ ------------ ---------- ------ -------------
1997
Premiums and policy
fees................... $ 260,590 $ 196,694 $ 12,367 $ 229 $ 814,420
Reinsurance ceded........ (109,480) (124,431) (334,214)
----------- ------------- ------------ ------------ ---------- ------ -------------
Net of reinsurance
ceded................ 151,110 72,263 12,367 229 480,206
Net investment income.... 23,810 16,341 $ 211,915 105,196 5,284 557,488
Realized investment gains
(losses)............... (3,180) 589 $4,415 1,824
Other income............. 1,278 3,033 (192) 1,403 6,149
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 176,198 91,637 208,735 117,960 6,916 1,045,667
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 110,148 27,643 179,235 82,019 339 658,872
Amortization of deferred
policy acquisition
costs.................. 15,711 30,812 618 15,110 3 107,175
Other operating
expenses............... 38,572 20,165 3,945 12,312 6,833 129,870
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 164,431 78,620 183,798 109,441 7,175 895,917
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 11,767 13,017 24,937 8,519 (259) 149,750
Income tax expense....... 52,302 52,302
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 97,448
----------- ------------- ------------ ------------ ---------- ------ -------------
1996
Premiums and policy
fees................... $ 288,050 $ 193,236 $ 8,189 $ 656 $ 770,224
Reinsurance ceded........ (131,520) (119,814) (308,174)
----------- ------------- ------------ ------------ ---------- ------ -------------
Net of reinsurance
ceded................ 156,530 73,422 8,189 656 462,050
Net investment income.... 16,249 13,898 $ 214,369 98,719 1,089 498,781
Realized investment gains
(losses)............... (7,963) 3,858 $6,517 5,510
Other income............. 2,193 56 1,064 5,010
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 174,972 87,320 206,406 110,822 2,809 971,351
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 125,797 42,781 169,927 73,093 710 626,893
Amortization of deferred
policy acquisition
costs.................. 5,326 24,900 509 14,710 1 91,001
Other operating
expenses............... 43,028 10,673 3,840 13,196 4,508 128,148
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 174,151 78,354 174,276 100,999 5,219 846,042
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 821 8,966 32,130 9,823 (2,410) 125,309
Income tax expense....... 42,766 42,766
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 82,543
----------- ------------- ------------ ------------ ---------- ------ -------------
OPERATING SEGMENT ASSETS
- -------------------------
1998
Investments and other
assets................. $ 197,337 $ 645,909 $2,869,304 $2,542,536 $700,417 $10,781,470
Deferred policy
acquisition costs...... 23,836 39,212 1,448 75,177 9 841,425
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $ 221,173 $ 685,121 $2,870,752 $2,617,713 $700,426 $11,622,895
----------- ------------- ------------ ------------ ---------- ------ -------------
1997
Investments and other
assets................. $ 208,071 $ 536,058 $2,887,732 $2,313,279 $525,896 $ 9,742,676
Deferred policy
acquisition costs...... 22,459 52,836 1,785 56,074 952 632,605
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $ 230,530 $ 588,894 $2,889,517 $2,369,353 $526,848 $10,375,281
----------- ------------- ------------ ------------ ---------- ------ -------------
1996
Investments and other
assets................. $ 205,696 $ 312,826 $2,606,873 $1,821,250 $490,688 $ 7,675,142
Deferred policy
acquisition costs...... 27,944 32,040 1,164 50,637 12 488,201
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $ 233,640 $ 344,866 $2,608,037 $1,871,887 $490,700 $ 8,163,343
----------- ------------- ------------ ------------ ---------- ------ -------------
</TABLE>
- ----------------------------------------
F-41
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS
PLC has a defined benefit pension plan covering substantially all of its
employees. The plan is not separable by affiliates participating in the plan.
However, approximately 81% of the participants in the plan are employees of
Protective. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. PLC's funding policy is
to contribute amounts to the plan sufficient to meet the minimum finding
requirements of ERISA plus such additional amounts as PLC may determine to be
appropriate from time to time. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future.
The actuarial present value of benefit obligations and the funded status of
the plan taken as a whole at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Projected benefit obligation, beginning of the year........................................ $ 30,612 $ 25,196
Service cost -- benefits earned during the year............................................ 2,585 2,112
Interest cost -- on projected benefit obligation........................................... 2,203 2,036
Actuarial gain............................................................................. 2,115 3,421
Plan amendment............................................................................. 160
Benefits paid.............................................................................. (1,128) (2,153)
---------- ---------
Projected benefit obligation, end of the year.............................................. 36,547 30,612
---------- ---------
Fair value of plan assets beginning of the year............................................ 21,763 19,779
Actual return on plan assets............................................................... 1,689 1,625
Employer contribution...................................................................... 2,823 2,512
Benefits paid.............................................................................. (1,128) (2,153)
---------- ---------
Fair value of plan assets end of the year.................................................. 25,147 21,763
---------- ---------
Plan assets less than the projected benefit obligation..................................... (11,400) (8,849)
Unrecognized net actuarial loss from past experience different from that assumed........... 9,069 6,997
Unrecognized prior service cost............................................................ 652 605
Unrecognized net transition asset.......................................................... (34) (51)
---------- ---------
Net pension liability recognized in balance sheet.......................................... $ (1,713) $ (1,298)
---------- ---------
---------- ---------
</TABLE>
Net pension cost of the defined benefit pension plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................ $ 2,585 $ 2,112 $ 1,908
Interest cost........................................................... 2,203 2,036 1,793
Expected return on plan assets.......................................... (1,950) (1,793) (1,593)
Amortization of prior service cost...................................... 112 100 100
Amortization of transition asset........................................ (17) (17) (17)
Recognized net actuarial loss........................................... 305 152 210
--------- --------- ---------
Net pension cost........................................................ $ 3,238 $ 2,590 $ 2,401
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-42
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Protective's share of the net pension cost was $2.6 million, $1.8 million,
and $1.5 million, in 1998, 1997, and 1996, respectively,
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate.............................................. 6.75% 7.25% 7.75%
Rates of increase in compensation level..................................... 4.75% 5.25% 5.75%
Expected long-term rate of return on assets................................. 8.50% 8.50% 8.50%
</TABLE>
Assets of the pension plan are included in the general assets of Protective.
Upon retirement, the amount of pension plan assets vested in the retiree is used
to purchase a single premium annuity from Protective in the retiree's name.
Therefore, amounts presented above as plan assets exclude assets relating to
retirees.
PLC also sponsors an unfunded excess benefits plan, which is a nonqualified
plan that provides defined pension benefits in excess of limits imposed by
federal income tax law. At December 31, 1998 and 1997, the projected benefit
obligation of this plan totaled $11.7 million and $10.0 million, respectively,
of which $7.8 million and $6.6 million, respectively, have been recognized in
PLC's financial statements.
Net pension cost of the excess benefits plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................... $ 611 $ 544 $ 424
Interest cost.............................................................. 722 651 505
Plan amendment............................................................. 351
Amortization of prior service cost......................................... 112 112 112
Amortization of transition asset........................................... 37 37 37
Recognized net actuarial loss.............................................. 173 180 155
--------- --------- ---------
Net pension cost........................................................... $ 1,655 $ 1,875 $ 1,233
--------- --------- ---------
--------- --------- ---------
</TABLE>
In addition to pension benefits, PLC provides limited healthcare benefits to
eligible retired employees until age 65. The postretirement benefit is provided
by an unfunded plan. At December 31, 1998 and 1997, the liability for such
benefits totaled $1.2 million and $1.3 million, respectively. The expense
recorded by PLC was $0.1 million in 1998, 1997 and 1996. PLC's obligation is not
materially affected by a 1% change in the healthcare cost trend assumptions used
in the calculation of the obligation.
Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation up to a maximum of $75,000. This plan is partially funded at a
maximum of $50,000 face amount of insurance.
PLC sponsors a defined contribution plan which covers substantially all
employees. Employee contributions are made on a before-tax basis as provided by
Section 401(k) of the Internal Revenue Code. In 1990, PLC established an
Employee Stock Ownership Plan ("ESOP") to match voluntary employee contributions
to PLC's 401(k) Plan. In 1994, a stock bonus was added to the 401(k) Plan for
employees who are not otherwise under a bonus plan. Expense related to the ESOP
consists of the cost of the shares
F-43
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
allocated to participating employees plus the interest expense on the ESOP's
note payable to Protective less dividends on shares held by the ESOP. At
December 31, 1998, PLC had committed up to 101,124 shares to be released to fund
employee benefits. The expense recorded by PLC for these employee benefits was
less than $0.1 million in 1998 and 1997, and $1.0 million in 1996.
NOTE M -- STOCK BASED COMPENSATION
Certain Protective employees participate in PLC's Long-Term Incentive Plan
(previously known as the Performance Share Plan) and receive stock appreciation
rights (SARs) from PLC.
Since 1973 PLC has had a Performance Share Plan to motivate senior
management to focus on PLC's long-range earnings performance. The criterion for
payment of performance share awards is based upon a comparison of PLC's average
return on average equity or total return over a four year award period (earlier
upon the death, disability or retirement of the executive, or in certain
circumstances, of a change in control of PLC) to that of a comparison group of
publicly held life insurance companies, multiline insurers, and insurance
holding companies. If PLC's results are below the median of the comparison
group, no portion of the award is earned. If PLC's results are at or above the
90th percentile, the award maximum is earned. Under the plan approved by
share-owners in 1992 and 1997, up to 6,400,000 shares may be issued in payment
of awards. The number of shares granted in 1998, 1997, and 1996 were 71,340,
98,780 and 104,580 shares, respectively, having an approximate market value on
the grant date of $2.3 million, $2.0 million, and $1.8 million, respectively. At
December 31, 1998, outstanding awards measured at target and maximum payouts
were 474,695 and 638,090 shares, respectively. The expense recorded by PLC for
the Performance Share Plan was $2.7 million, $2.7 million, and $3.0 million in
1998, 1997, and 1996, respectively.
During 1996, stock appreciation rights (SARs) were granted to certain
executives of PLC to provide long-term incentive compensation based on the
performance of PLC's Common Stock. Under this arrangement PLC will pay (in
shares of PLC Common Stock) an amount equal to the difference between the
specified base price of PLC's Common Stock and the market value at the exercise
date. The SARs are exercisable after five years (earlier upon the death,
disability or retirement of the executive, or in certain circumstances, of a
change in control of PLC) and expire in 2006 or upon termination of employment.
The number of SARs granted during 1996 and outstanding at December 31, 1998 was
675,000. The SARs have a base price of $17.4375 per share of PLC Common Stock
(the market price on the grant date was $17.50 per share). The estimated fair
value of the SARs on the grant date was $3.0 million. This estimate was derived
using the Roll-Geske variation of the Black-Sholes option pricing model.
Assumptions used in the pricing model are as follows: expected volatility rate
of 15% (approximately equal to that of the S & P Life Insurance Index), a risk
free interest rate of 6.35%, a dividend yield rate of 1.97%, and an expected
exercise date of August 15, 2002. The expense recorded by PLC for the SARs was
$0.6 million in 1998 and 1997.
NOTE N -- REINSURANCE
Protective assumes risks from and reinsures certain parts of its risks with
other insurers under yearly renewable term, coinsurance, and modified
coinsurance agreements. Yearly renewable term and coinsurance agreements are
accounted for by passing a portion of the risk to the reinsurer. Generally, the
reinsurer receives a proportionate part of the premiums less commissions and is
liable for a corresponding part of all benefit payments. Modified coinsurance is
accounted for similarly to coinsurance except that the
F-44
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N -- REINSURANCE (CONTINUED)
liability for future policy benefits is held by the original company, and
settlements are made on a net basis between the companies.
Protective has reinsured approximately $64.8 billion, $34.1 billion, and
$18.8 billion in face amount of life insurance risks with other insurers
representing $294.4 million, $147.2 million, and $113.5 million of premium
income for 1998, 1997, and 1996, respectively. Protective has also reinsured
accident and health risks representing $164.8 million, $187.7 million, and
$194.7 million of premium income for 1998, 1997, and 1996, respectively. In 1998
and 1997, policy and claim reserves relating to insurance ceded of $658.7
million and $485.8 million respectively are included in reinsurance receivables.
Should any of the reinsurers be unable to meet its obligation at the time of the
claim, obligation to pay such claim would remain with Protective. At December
31, 1998 and 1997, Protective had paid $22.8 million and $25.6 million,
respectively, of ceded benefits which are recoverable from reinsurers. In
addition, at December 31, 1998, Protective had receivables of $75.0 million
related to insurance assumed.
A substantial portion of Protective's new credit insurance sales are being
reinsured.
NOTE O -- ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated market values of Protective's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities............................ $6,400,262 $6,400,262 $6,348,252 $6,348,252
Equity securities........................... 12,258 12,258 15,006 15,006
Mortgage loans on real estate............... 1,623,603 1,774,379 1,313,478 1,405,474
Short-term investments...................... 159,655 159,655 54,337 54,337
Cash.......................................... 39,197 39,197
Liabilities (see Notes A and E):
Guaranteed investment contract deposits..... 2,691,697 2,751,007 2,684,676 2,687,331
Annuity deposits............................ 1,519,820 1,513,148 1,511,553 1,494,600
Notes payable............................... 2,363 2,363
Other (see Note A):
Derivative Financial Instruments............ (734) (545)
</TABLE>
Except as noted below, fair values were estimated using quoted market
prices. Protective estimates the fair value of its mortgage loans using
discounted cash flows from the next call date. Protective believes the fair
value of its short-term investments and notes payable approximate book value due
to either being short-term or having a variable rate of interest. Protective
estimates the fair value of its guaranteed investment contracts and annuities
using discounted cash flows and surrender values, respectively. Protective
believes it is not practicable to determine the fair value of its policy loans
since there is no stated maturity, and policy loans are often repaid by
reductions to policy benefits.
F-45
<PAGE>
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H
- -----------------------------------------------------------------------------------------------------------------------------
GIC AND
ANNUITY
DEFERRED FUTURE DEPOSITS AND BENEFITS
POLICY POLICY OTHER PREMIUMS NET AND
ACQUISITION BENEFITS UNEARNED POLICYHOLDERS' AND POLICY INVESTMENT SETTLEMENT
SEGMENT COSTS AND CLAIMS PREMIUMS FUNDS FEES INCOME (1) EXPENSES
- --------------------------------- ----------- ---------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Life Insurance
Individual Life................ $ 301,941 $1,054,253 $ 355 $ 10,802 $ 126,168 $ 55,779 $ 106,308
West Coast..................... 144,455 1,006,280 0 77,254 22,380 63,492 54,617
Acquisitions................... 255,347 1,383,759 553 233,846 96,735 112,154 112,051
Specialty Insurance Products
Dental and Consumer Benefits... 23,836 111,916 3,341 78,224 191,563 15,245 140,632
Financial Institutions......... 39,212 215,451 385,006 105,434 112,272 25,068 52,629
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts.................... 1,448 172,674 0 2,691,697 213,136 178,745
Investment Products............ 75,177 194,726 0 1,233,528 18,809 105,827 85,045
Corporate and Other.............. 9 944 39 88 198 13,094 469
----------- ---------- ----------- ------------- ----------- ----------- -----------
TOTAL........................ $ 841,425 $4,140,003 $ 389,294 $ 4,430,873 $ 568,125 $ 603,795 $ 730,496
----------- ---------- ----------- ------------- ----------- ----------- -----------
----------- ---------- ----------- ------------- ----------- ----------- -----------
Year Ended December 31, 1997:
Life Insurance
Individual Life................ $ 252,321 $ 920,924 $ 356 $ 16,334 $ 127,480 $ 54,593 $ 114,678
West Coast..................... 108,126 739,463 0 95,495 14,122 30,194 28,304
Acquisitions................... 138,052 1,025,340 1,437 311,150 102,635 110,155 116,506
Specialty Insurance Products
Dental and Consumer Benefits... 22,459 120,925 2,536 80,654 151,110 23,810 110,148
Financial Institutions......... 52,836 159,422 391,085 6,791 72,263 16,341 27,643
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts.................... 1,785 180,690 0 2,684,676 0 211,915 179,235
Investment Products............ 56,074 177,150 0 1,184,268 12,367 105,196 82,019
Corporate and Other.............. 952 380 1,282 185 229 5,284 339
----------- ---------- ----------- ------------- ----------- ----------- -----------
TOTAL........................ $ 632,605 $3,324,294 $ 396,696 $ 4,379,553 $ 480,206 $ 557,488 $ 658,872
----------- ---------- ----------- ------------- ----------- ----------- -----------
----------- ---------- ----------- ------------- ----------- ----------- -----------
Year Ended December 31, 1996:
Life Insurance
Individual Life................ $ 220,232 $ 793,370 $ 685 $ 15,577 $ 116,710 $ 48,442 $ 96,404
Acquisitions................... 156,172 1,117,159 1,087 251,450 106,543 106,015 118,181
Specialty Insurance Products
Dental and Consumer Benefits... 27,944 119,010 2,572 83,632 156,530 16,249 125,797
Financial Institutions......... 32,040 119,242 253,154 1,880 73,422 13,898 42,781
Retirement Savings and
Investments Products
Guaranteed Investment
Contracts.................... 1,164 149,755 0 2,474,728 0 214,369 169,927
Investment Products............ 50,637 149,743 0 1,120,557 8,189 98,719 73,093
Corporate and Other.............. 12 170 55 192 656 1,089 710
----------- ---------- ----------- ------------- ----------- ----------- -----------
TOTAL........................ $ 488,201 $2,448,449 $ 257,553 $ 3,948,016 $ 462,050 $ 498,781 $ 626,893
----------- ---------- ----------- ------------- ----------- ----------- -----------
----------- ---------- ----------- ------------- ----------- ----------- -----------
<CAPTION>
- ---------------------------------
COL. A COL. I COL. J
- ---------------------------------
AMORTIZATION
OF DEFERRED
POLICY OTHER
ACQUISITION OPERATING
SEGMENT COSTS EXPENSES (1)
- --------------------------------- ------------- ------------
<S> <C> <C>
Year Ended December 31, 1998:
Life Insurance
Individual Life................ $ 30,543 $ 14,983
West Coast..................... 4,924 5,354
Acquisitions................... 18,894 26,717
Specialty Insurance Products
Dental and Consumer Benefits... 10,352 49,913
Financial Institutions......... 28,526 48,837
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts.................... 735 2,876
Investment Products............ 17,213 14,428
Corporate and Other.............. 1 9,120
------------- ------------
TOTAL........................ $ 111,188 $ 172,228
------------- ------------
------------- ------------
Year Ended December 31, 1997:
Life Insurance
Individual Life................ $ 27,354 $ 18,178
West Coast..................... 961 6,849
Acquisitions................... 16,606 23,016
Specialty Insurance Products
Dental and Consumer Benefits... 15,711 38,572
Financial Institutions......... 30,812 20,165
Retirement Savings and Investment
Products
Guaranteed Investment
Contracts.................... 618 3,945
Investment Products............ 15,110 12,312
Corporate and Other.............. 3 6,833
------------- ------------
TOTAL........................ $ 107,175 $ 129,870
------------- ------------
------------- ------------
Year Ended December 31, 1996:
Life Insurance
Individual Life................ $ 28,393 $ 28,611
Acquisitions................... 17,162 24,292
Specialty Insurance Products
Dental and Consumer Benefits... 5,326 43,027
Financial Institutions......... 24,900 10,673
Retirement Savings and
Investments Products
Guaranteed Investment
Contracts.................... 509 3,840
Investment Products............ 14,710 13,197
Corporate and Other.............. 1 4,508
------------- ------------
TOTAL........................ $ 91,001 $ 128,148
------------- ------------
------------- ------------
</TABLE>
- ------------------------
(1) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if
different methods were applied.
S-1
<PAGE>
SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- -----------------------------------------------------------------------------------------------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Life insurance in force............. $91,980,657 $64,846,246 $18,010,434 $45,144,845 39.9%
---------- ---------- ---------- ---------- ---
---------- ---------- ---------- ---------- ---
Premiums and policy fees:
Life insurance...................... $ 537,002 $ 294,363 $ 87,964 $ 330,603 26.6%
Accident and health insurance....... 361,705 164,852 14,279 211,132 6.8%
Property and liability insurance.... 26,389 26,289 0.0%
---------- ---------- ---------- ----------
TOTAL............................... $ 925,096 $ 459,215 $ 102,243 $ 568,024
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Year Ended December 31, 1997:
Life insurance in force............. $78,240,282 $34,139,554 $11,013,202 $55,113,930 20.0%
---------- ---------- ---------- ---------- ---
---------- ---------- ---------- ---------- ---
Premiums and policy fees:
Life insurance...................... $ 387,108 $ 147,184 $ 74,738 $ 314,662 23.8%
Accident and health insurance....... 336,575 187,539 10,510 159,546 6.6%
Property and liability insurance.... 6,139 176 35 5,998 0.6%
---------- ---------- ---------- ----------
TOTAL............................... $ 729,822 $ 334,899 $ 85,283 $ 480,206
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Year Ended December 31, 1996:
Life insurance in force............. $53,052,020 $18,840,221 $16,275,386 $50,487,185 32.2%
---------- ---------- ---------- ---------- ---
---------- ---------- ---------- ---------- ---
Premiums and policy fees:
Life insurance...................... $ 272,331 $ 113,487 $ 129,717 $ 288,561 45.0%
Accident and health insurance....... 338,709 194,687 29,467 173,489 17.0%
---------- ---------- ---------- ----------
TOTAL............................... $ 611,040 $ 308,174 $ 159,184 $ 462,050
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
S-2
<PAGE>
APPENDIX A
EXAMPLE OF DEATH BENEFIT COMPUTATIONS
For purposes of this example, assume that the Insured's Attained Age is
between 0 and 40 and that there is no outstanding Policy Debt. A Policy with a
$50,000 Face Amount will generally pay $50,000 in Death Benefits. However,
because the Death Benefit must be equal to or be greater than 250% of the Policy
Value, any time that the Policy Value exceeds $20,000, the Death Benefit will
exceed the $50,000 Face Amount. Each additional dollar added to Policy Value
above $20,000 will increase the Death Benefit by $2.50. A Policy with a $50,000
Face Amount and a Policy Value of $30,000 will provide Death Benefit of $75,000
($30,000 x 250%); a Policy Value of $40,000 will provide a Death Benefit of
$100,000 ($40,000 x 250%); a Policy Value of $50,000 will provide a Death
Benefit of $125,000 ($50,000 x 250%).
Similarly, so long as Policy Value exceeds $20,000, each dollar taken out of
Policy Value will reduce the Death Benefit by $2.50. If, for example, the Policy
Value is reduced from $25,000 to $20,000 because of partial surrenders, charges,
or negative investment performance, the Death Benefit will be reduced from
$62,500 to $50,000. If at any time, however, the Policy Value multiplied by the
Face Amount percentage is less than the Face Amount, the Death Benefit will
equal the current Face Amount of the Policy.
The Face Amount percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than between 0 and 40), the specified amount factor would be
185%. The Death Benefit would not exceed the $50,000 Face Amount unless the
Policy Value exceeded approximately $27,028 (rather than $20,000), and each
dollar then added to or taken from the Policy Value would change the life
insurance proceeds by $1.85 (rather than $2.50).
TABLE OF FACE AMOUNT PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED ATTAINED
AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE
- ----------- ------------- ------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
0-40 250% 50 185% 60 130% 70 115%
41 243% 51 178% 61 128% 71 113%
42 236% 52 171% 62 126% 72 111%
43 229% 53 164% 63 124% 73 109%
44 222% 54 157% 64 122% 74 107%
45 215% 55 150% 65 120% 75-90 105%
46 209% 56 146% 66 119% 91 104%
47 203% 57 142% 67 118% 92 103%
48 197% 58 138% 68 117% 93 102%
49 191% 59 134% 69 116% 94 101%
95+ 100%
</TABLE>
A-1
