Separate Account VL Of First Variable Life Insurance S6 Registration of securities by unit investment trust

QuickLinks -- Click here to rapidly navigate through this document

As filed with the Securities and Exchange Commission on January 2, 2004

Registration No. 333-
811-07647

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-6

                        REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933        /x/
                            PRE-EFFECTIVE AMENDMENT NO.        / /
                            POST-EFFECTIVE AMENDMENT NO.        / /

SEPARATE ACCOUNT VL
(Exact Name of Trust)

PROTECTIVE LIFE INSURANCE COMPANY
(Name of Depositor)

2801 Highway 280 South
Birmingham, AL 35223
(Complete Address of Depositor's Principal Executive Offices)

Copy To:

Nancy Kane, Esquire
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, AL 35223
(Name and Address of Agent for Service)

Stephen E. Roth, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004

Title and Amount of Securities being Registered:
An indefinite amount of interests under flexible premium variable life insurance policies.

Approximate Date of Proposed Public Offering:
As soon as practible after the effective date of this Registration Statement.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), shall determine.

CROSS REFERENCE SHEET

Item No. in Form N-8 B-2		Location

1, 2		COVER PAGE, PROTECTIVE LIFE INSURANCE COMPANY, THE SEPARATE ACCOUNT
3		Inapplicable
4		DISTRIBUTION AND OTHER AGREEMENTS
5, 6		THE SEPARATE ACCOUNT; YOUR INVESTMENT OPTIONS
7		Inapplicable
8		APPENDIX C: FINANCIAL STATEMENTS
9		LEGAL PROCEEDINGS
10 (a), (b), (c), (d), (e)		HIGHLIGHTS, SURRENDER AND WITHDRAWALS, Surrender, Withdrawals, TRANSFERS AMONG INVESTMENT OPTIONS, LAPSE AND REINSTATEMENT, DETERMINATION OF ACCOUNT VALUE, OTHER PROVISIONS OF THE POLICY, THE POLICIES, YOUR INVESTMENT OPTIONS
10 (f)		VOTING RIGHTS, OTHER PROVISIONS OF THE POLICY
10 (g), (h)		TRANSFERS AMONG INVESTMENTS OPTIONS
10 (i)		MIXED AND SHARED FUNDING, POLICY BENEFITS AND VALUES, OTHER PROVISIONS OF THE POLICY
11, 12		THE SEPARATE ACCOUNT, YOUR INVESTMENT OPTIONS; AIM Variable Insurance Funds, Inc.; American Century Variable Portfolios, Inc.; Scudder Investments (formerly Deutsche Asset Management VIT Funds); Federated Insurance Series; INVESCO Variable Investment Funds, Inc.; Lord Abbett Series Fund, Inc.; MFS Variable Insurance Trust; PBHG Insurance Series Funds, Inc.; Seligman Portfolios, Inc.; Templeton Variable Products Series Fund; Fidelity Variable Insurance Products Funds
13		HIGHLIGHTS, OTHER CHARGES AND DEDUCTIONS (NOT CURRENTLY CHARGED), ELIMINATION, REDUCTION, OR REFUND OF CHARGES AND DEDUCTIONS, INCREASES IN BONUSES
14, 15		APPLICATION AND ISSUANCE OF A POLICY, Free Look Right, ALLOCATION OF PREMIUMS
16		PREMIUMS, ALLOCATION OF PREMIUMS, DETERMINATION OF ACCOUNT VALUE
17		SURRENDERS AND WITHDRAWALS; Surrenders; Withdrawals, MATURITY PROCEEDS; PAYMENT OF PROCEEDS
18		OUR TAXATION, DETERMINATION OF ACCOUNT VALUE, THE SEPARATE ACCOUNT, THE AVAILABLE OPTIONS, THE POLICIES, MORE ABOUT CHARGES AND DEDUCTIONS
19		REPORTS AND RECORDS, ADVERTISING PRACTICES, OTHER PROVISIONS OF THE POLICY
20		TRANSFERS AMONG INVESTMENT OPTIONS
21		POLICY LOANS, Preferred Loan Amounts, Immediate Loan Repayment, THE POLICIES

22, 23, 24		Inapplicable
25		PROTECTIVE LIFE INSURANCE COMPANY
26		Inapplicable
27		PROTECTIVE LIFE INSURANCE COMPANY
28		OUR MANAGEMENT
29		PROTECTIVE LIFE INSURANCE COMPANY
30, 31, 32, 33, 34		Inapplicable
35		STATE REGULATION
36		Inapplicable
37		Inapplicable
38, 39, 40, 41 (a)		DISTRIBUTION AND OTHER AGREEMENTS, PROTECTIVE LIFE INSURANCE COMPANY
41 (b), 41 (c), 42, 43		Inapplicable
44		DETERMINATION OF ACCOUNT VALUE
45		Inapplicable
46		SURRENDER AND WITHDRAWALS; Surrender; Withdrawals
47, 48, 49, 50		Inapplicable
51		POLICY BENEFITS AND VALUES
52		DEATH BENEFIT AMOUNTS, Face Amount and Guideline Single Premium, Face Amount and Additional Premium Payments
53 (a)		FEDERAL TAX MATTERS
53 (b), 54, 55		Inapplicable
56, 57, 58		Inapplicable
59		APPENDIX B: FINANCIAL STATEMENTS

Prospectus January 2, 2004

CAPITAL ONE PAY VL
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
Issued by
PROTECTIVE LIFE INSURANCE COMPANY
P.O. Box 830765
Birmingham, Alabama 35283-0765
Telephone: 1 (800) 228-1035

The Policy described in this prospectus provides life insurance coverage that is payable upon the death of the Insured. The Policy also permits you, the Owner, to accumulate Account Value based on the premiums you pay, the charges and expenses of the Policy, and the investment results of the underlying investment options. The Policy requires an initial premium payment of at least $10,000 and, subject to certain restrictions, you may also make additional premium payments under the Policy. Protective Life Insurance Company ("Protective Life," the "Company," "we," "us," or "our") does not currently offer the Policy for sale to new purchasers.

Generally, we determine the death benefit amount under the Policy on the Policy Date by treating the initial premium as equal to 100% of the "guideline single premium." After the Policy Date, we determine the death benefit amount monthly based on the Account Value at that time multiplied by the applicable death benefit factor shown in the Policy. We guarantee that the initial death benefit amount will remain in force for a minimum period as long as you pay the initial premium and take no withdrawals or loans of Account Value. The initial death benefit amount is the Face Amount shown in the Policy when issued. The minimum guarantee period is the later of the 10th Contract Anniversary or the Insured's 65th birthday.

You may allocate your premiums and your Policy's Account Value among the different investment options, to our Fixed Account, or to the investment options available through our segregated asset account called Separate Account VL (the "Separate Account"). The Separate Account invests in selected portfolios of various investment funds (the "Funds"). The portfolios currently available under the Policy are:

AIM Variable Insurance Funds, Inc. ("AIM")
V.I. Capital Appreciation
V.I. Growth

American Century Variable Portfolios, Inc. ("ACS")
V.P. Value
V.P. Income & Growth
V.P. International Growth
V.P. Ultra

Scudder Investments (formerly Deutsche Asset Management VIT Funds) ("Scudder")
EAFE Index
Equity 500 Index
Small Cap Index

Federated Insurance Series ("FIS")
Federated High Income Bond Fund II
Federated Prime Money Fund II
Federated U.S. Government Securities II

Fidelity Variable Insurance Products Funds ("FMR")
Contrafund®, Service Class 2 shares
Equity Income, Service Class 2 shares
Growth Opportunities, Service Class 2 shares
Growth & Income, Service Class 2 shares

INVESCO Variable Investment Funds, Inc. (INVESCO)
Dynamics
Financial Services
Health Sciences
Real Estate Opportunity

Lord Abbett Series Fund Inc. ("LA")
Growth & Income

MFS®* Variable Insurance Trust ("MFS")
Investors Growth Stock Series*
Investors Trust Series*
New Discovery Series*
Total Return Series
Utilities Series

Seligman Portfolios, Inc. ("SEL")
Communications & Information, Class 2
Small Cap Value, Class 2

Franklin Templeton Variable Insurance Products Series Fund ("VIPT")
Growth Securities, Class 2 shares
Foreign Securities Fund, Class 2 shares
Developing Markets Securities, Class 2 shares
Global Health Care Securities, Class 2 shares

PBHG Insurance Series Fund, Inc. ("PBHG")
Small Cap Growth

Initial Class Shares not available for new purchases or transfers.

This prospectus contains information you should know before investing.

The Policies are not bank deposits; are not federally insured; are not endorsed by any bank or government agency; are not guaranteed, and may be subject to loss of principal.

Neither the Securities and Exchange Commission nor any state securities commission approved or disapproved these securities or passed upon the accuracy or adequacy of the prospectus. Any representation to the contrary is a criminal offense. This prospectus and the current prospectuses of the Funds should be read and retained for future reference.

We have not authorized any person to give any information not contained in this prospectus (or in any sales literature we have approved.) We do not offer the Policies everywhere, and this prospectus does not constitute an offer anywhere that it would be unlawful. In certain jurisdictions, various time periods and other terms and conditions may vary from what is described in this prospectus. Any such variations that apply to your Policy will be included in the Policy or a related rider or endorsement.

TABLE OF CONTENTS

			Page
DEFINITIONS			4
HIGHLIGHTS			4
PROTECTIVE LIFE INSURANCE COMPANY			9
THE SEPARATE ACCOUNT			10
YOUR INVESTMENT OPTIONS			10
The Available Options			10
Transfers Among Investment Options			12
	General Requirements		12
	Automatic Transfer Programs		12
	Restrictions on Transfers		13
	Automatic Transfers of Small Accounts		13
Mixed and Shared Funding			13
MORE ABOUT CHARGES AND DEDUCTIONS			14
Monthly Deductions			14
Daily Deductions			14
Withdrawal Charges			14
Fund Expenses			15
Other Charges and Deductions (Not Currently Charged)			16
Elimination, Reduction, or Refund of Charges and Deductions; Increases in Bonuses			16
	Group and Sponsored Arrangements		16
	Gender-Neutral Policies		16
Purposes of Policy Charges			17
THE POLICIES			17
Application and Issuance of a Policy			17
	"Free Look" Right		17
Premiums			18
	Grace Period		18
Allocation of Premiums			18
Telephone Transactions			19
POLICY BENEFITS AND VALUES			19
Death Benefit			19
Death Benefit Amount			19
	Face Amount and Guideline Single Premium		20
	Face Amount and Additional Premium Payments		20
Accelerated Death Benefit Rider			20
Determination of Account Value			20
Policy Loans			21
	Preferred Loan Amounts		21
	Immediate Loan Repayment		21
Surrender and Withdrawals			21
	Surrender		21
	Withdrawals		22
Maturity Proceeds			22
Lapse and Reinstatement			22
Payment of Proceeds			22
Tax Withholding			22
Payout Options			22
	Annuitization Bonus		23
		OPTION A — Life Annuity	23
		OPTION B — Life Annuity with Period Certain of 120 Months	23
		OPTION C — Fixed Payments for A Period Certain	23
		OPTION D — Death Benefit Proceeds Remaining With Us	23
	Tax Impact		23
Right to Exchange for a Fixed Benefit Policy			23
OTHER PROVISIONS OF THE POLICY			23
Suicide Exclusion			23
Representations and Contestability			24
Misstatement of Age or Sex			24
Owner and Beneficiary			24
	Beneficiary		24
	Changes and Assignments		24
Assignments			24
Reports and Records			24
Voting Rights			25
Suspension of Payments and Transfers			25
Suspension of Policy			25
Nonparticipation in Our Dividends			25
DISTRIBUTION AND OTHER AGREEMENTS			26
OUR MANAGEMENT			26
Protective Directors and Executive Officers			27
FEDERAL TAX MATTERS			28
General			28
Our Taxation			28
Income Tax Treatment of Policy Benefits			29
	Life Insurance		29
	Acceleration of Death Benefits Rider		29
	Modified Endowment Contracts		29
	Other Tax Effects of Policy Changes		30
	Taxation of Pre-Death Distributions from a Policy that is a Modified Endowment Contract		30
	Taxation of Pre-Death Distributions from a Policy that is not a Modified Endowment Contract ("MEC")		31
Diversification Requirements			31
ADVERTISING PRACTICES			32
LEGAL MATTERS			32
State Regulation			32
Legal Proceedings			32
Counsel			32
EXPERTS			33
REGISTRATION STATEMENT			33
INDEX TO FINANCIAL STATEMENTS			F-1
APPENDICES
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, CASH SURRENDER VALUES AND ACCUMULATED VALUE OF PREMIUMS			A-1

DEFINITIONS

Beneficiary The person, persons or entity who will receive the Death Benefit. The Beneficiary is stated in the application for this Policy, unless changed in accordance with the Policy provisions.

Business Day — Each day the New York Stock Exchange is open for regular trading. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Each Business Day ends at the close of regular trading for the day on the exchange, which usually is 4:00 p.m. Eastern time.

Death Benefit The amount of insurance provided under a Policy on the life of the insured.

Insured — The person whose life is insured under the Policy.

Age — The attained age of the Insured on the date for which age is determined.

Policy Anniversary — An anniversary of the Policy Date.

Policy Date — The date the Policy takes effect, as shown on the Owner's Policy data page. Policy Months and Policy Years are measured from this date.

Policy Month — Each one-month period beginning on the Policy Date and generally on the same day of each month after that.

Policy Quarter — One quarter of a Policy Year. The first Policy Quarter begins on the Policy Date and ends on the last Business Day of the third Policy Month.

Policy Year — Each 12-month period beginning on the Policy Date.

Premium Rate Class — An insurance underwriting risk category that is used to determine certain benefits and charges under a Policy. For example, the initial premium and cost of insurance charges will vary by the premium rate class assigned the Insured. On the date of this prospectus, we use Smoker and Non- Smoker premium rate classes that will differ based on the sex of the Insured. These classes are further sub-divided into "standard" and "substandard" insurance classes. Charges are generally higher for substandard insurance classes.

Variable Service Center: Protective Life Insurance Company, P.O. Box 830765, Birmingham, Alabama, 35283-0765; telephone 1-800-228-1035; www.protective.com.

HIGHLIGHTS

These highlights discuss certain important aspects of the Policy. The rest of this prospectus explains these and other aspects in greater detail. You should be sure to read the prospectus and the prospectuses of the Funds for more complete information.

How do investment results affect a Policy?

You invest the Account Value under your Policy in one or more of the investment options we offer. Your Account Value increases or decreases by the amount of any positive or negative return it earns in those options. Your Account Value also will decrease by the amount of all charges and deductions we make under your Policy. The Death Benefit we pay under your Policy when the Insured dies can also vary as a result of the investment results achieved for your Account Value.

Account Value invested in our Separate Account investment options is not guaranteed, and you bear the entire investment risk under those options. Account Value allocated to our Fixed Account, however, is provided with our guarantees of principal and a minimum 3% rate of interest on an annual basis. (Similar guarantees apply to an amount of your Account Value that equals any Policy loans that you take out.)

How much can I (or must I) invest in a Policy?

You must pay the initial premium specified in the Policy for it to take effect. Payment of the initial premium specified in the Policy guarantees that the Policy will remain in force, unless you take a withdrawal or loan (including transfers of loans) of Account Value, for a minimum guarantee period. The minimum period is the later of the 10th Contract Anniversary or the Insured's 65th birthday.

The Policy is primarily intended to be a single premium Policy, but permits additional premium payments to be paid under limited circumstances. For example, additional premiums may be paid to keep the Policy in force after the minimum guarantee period, or for an amount limited to the lesser of 5% of the initial premium or $5,000. We will not permit you to pay so much premium that your Policy would fail to meet the definitions of a life insurance contract under the Internal Revenue Code ("Code").

Will I have access to my Account Value?

You may borrow up to 90% of your Policy's Cash Surrender Value, subject to certain limitations. (Cash Surrender Value is your Account Value less any loan, less any accrued loan interest, and less any applicable Surrender Charges.) You may surrender (i.e., cancel) your Policy at any time and we will pay you the Cash Surrender Value. Subject to certain limits, you also may make a partial withdrawal of your Cash Surrender Value. Withdrawals will, however, cause a reduction in your Policy's death benefit amount.

What general income tax consequences will I have from owning a Policy?

The Policy is generally designed to be a "modified endowment contract" for federal income tax purposes. Under current federal income tax law, any pre-death distributions from a modified endowment contract, or "MEC," including loans, assignments, partial withdrawals and surrenders, will be included in your taxable income on an income first basis, and a 10% penalty tax will be imposed on any such income distributed before you attain age 59¹/2.

Under current federal tax law, you generally do not pay income tax on increases in your Account Value unless and until there is a distribution. A complete surrender of the Policy will, and a partial withdrawal may, be included in your gross income to the extent that the distribution exceeds your investment in the Policy. Additional amounts may be taxable if a partial surrender during the first 15 Policy Years results in or is necessitated by a reduction in benefits.

Death Benefit Proceeds paid to the Beneficiary under the Policy are generally not subject to federal income tax.

Please review the FEDERAL TAX MATTERS section of this prospectus for additional information. We may make any change in a Policy or take any other action in order to comply with applicable state and federal law, including all tax law requirements for treatment as life insurance.

How much do we pay the Policy's Beneficiary when the Insured person dies?

Upon the death of the Insured, we will pay the Death Benefit Proceeds to the Beneficiary. The Death Benefit Proceeds are:

•: the current death benefit amount,
•: minus any outstanding Policy loans and interest thereon, and
•: minus any due and unpaid monthly deductions and charges under your Policy. The Beneficiary may receive the proceeds in a lump sum or in the form of one of our annuity payout options.

What are the charges and deductions under a Policy?

The Policy is subject to the following charges and deductions:

Monthly Deductions — composed of the following — composed of the following:

•: administrative charge — at an annualized rate of .40% of Account Value;
•: maintenance fee — $2.50 if Account Value is less than $100,000;
•: cost of insurance — at an annualized rate of .40% of Account Value for the first 10 Contract Years and then at an annualized rate of .55% of Account Value, based on the Company's current scale, which is not guaranteed; and
•: distribution, premium tax and federal tax charges for the first ten Contract Years, at an annualized rate of .65% of Account Value (.20% on an annual basis for distribution expenses; .25% on an annual basis for premium tax expenses; and .20% on an annual basis for federal tax expenses).

Daily Deductions — the charge currently equals an annual rate of 0.90% (which we may increase to not more than 1.20%) of the daily net assets in each Separate Account Investment Option.

Withdrawal Charge — will be assessed during the first 9 Policy Years upon withdrawals of Account Value, or if the Account Value is applied to an optional annuity payment option. The withdrawal charge decreases from 9.75% of premiums to 0% at the end of the ninth Contract Year. It is composed of a Sales Charge of up to 7.5% of premium(s) and an Unreimbursed Premium Tax Charge of up to 2.25% of premiums. No Withdrawal Charges will be taken on a partial withdrawal in any Contract Year unless the amount withdrawn exceeds the annual Free Withdrawal Amount. The annual Free Withdrawal Amount is equal to 15% of the premium payment(s) that have been made. (These 15% withdrawals do not reduce premium payments for purposes of computing the Withdrawal Charges.)

Fund Expenses — we purchase shares of the Portfolios of the Funds at net asset value, which reflects investment management fees, other operating expenses and any expense reimbursement paid by an investment adviser to the applicable Portfolio. Accordingly, these expenses reduce the return you earn in our related variable investment options. The Portfolio expenses used to prepare the following table were provided to Protective Life by the Funds. Protective Life has not independently verified such information. More detail concerning each Portfolio's fees and expenses are contained in the prospectus for each Portfolio. The expenses shown are the total annual expenses of the Portfolios as a percentage of average net assets for the year ended December 31, 2002.

Fund	Mgmt Fees		12b-1 Fees		Other Exp		Total Exp		Total After Reimbursement
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation (1)	0.61	%	None		0.24	%	0.85	%	0.85	%
AIM V.I. Growth (1)	0.63	%	None		0.28	%	0.91	%	0.91	%
American Century Variable Portfolios, Inc. ("ACS")
V.P. Value (2)(3)	0.95	%	None		0.00	%	0.95	%	0.95	%
V.P. Income & Growth (3)	0.70	%	None		0.00	%	0.70	%	0.70	%
V.P. International Growth (2)(4)	1.30	%	None		0.01	%	1.31	%	1.31	%
V.P. Ultra (2)(3)	1.00	%	None		0.00	%	1.00	%	1.00	%
Scudder Investments ("Scudder")
EAFE Index (5)(6)	0.05	%	None		0.06	%	0.11	%	0.10	%
Small Cap Index Fund (7)	0.35	%	None		0.26	%	0.61	%	0.45	%
Equity 500 Index (8)	0.20	%	None		0.12	%	0.32	%	0.30	%
Federated Insurance Series ("FIS")
Federated High Income	0.60	%	0.25	%	0.25	%	1.27	%	1.00	%
Bond Fund II (9)(10)(11)					0.17	%
Federated Prime Money	0.50	%	None		0.25	%	0.89	%	0.64	%

Fund II (12)(13)					0.14	%
Federated Fund for U.S.	0.60	%	None		0.25	%	0.97	%	0.72	%
Government Securities II (13)(14)					0.12	%
Lord Abbett Series Funds Inc. ("LA")
Growth and Income Portfolio (15)	0.50	%	None		0.46	%	0.96	%	0.96	%
MFS Variable Insurance Trust
Investors Growth Stock Series (16)	0.75	%	None		0.13	%	0.88	%	0.87	%
Investors Trust Series	0.75	%	None		0.13	%	0.88	%	0.88	%
New Discovery Series (16)	0.90	%	None		0.15	%	1.05	%	1.04	%
Total Return Series	0.75	%	None		0.11	%	0.86	%	0.86	%
Utilities Series (16)	0.75	%	None		0.19	%	0.94	%	0.93	%
Seligman Portfolios, Inc.
Communications and Information Portfolio (class 2)	0.75	%	0.25	%	0.23	%	1.23	%	1.23	%
Small-Cap Value Portfolio (class 2)	1.00	%	0.19	%	0.18	%	1.37	%	1.37	%
Franklin Templeton Variable Insurance products Series Fund
Growth Securities Fund (class 2) (17)(18)	0.81	%	0.25	%	0.06	%	1.12	%	1.12	%
Foreign Securities Fund (class 2) (19)	0.70	%	0.25	%	0.20	%	1.15	%	1.13	%
Developing Markets Securities Fund (class 2)	1.25	%	0.25	%	0.33	%	1.83	%	1.83	%
Small Cap Fund (class 2) (18)(19)	0.53	%	0.25	%	0.31	%	1.09	%	1.04	%
Fidelity Variable Insurance Products Funds ("FMR")
Contrafund Portfolio (service class 2) (20)	0.58	%	0.25	%	0.10	%	0.93	%	0.93	%
Equity-Income Portfolio (service class 2) (21)	0.48	%	0.25	%	0.10	%	0.83	%	0.83	%
Growth Opportunities Portfolio (service class 2) (21)	0.58	%	0.25	%	0.14	%	0.97	%	0.97	%
Growth & Income Portfolio (service class 2) (20)	0.48	%	0.25	%	0.12	%	0.85	%	0.85	%
Invesco Variable Investment Funds, Inc.
Dynamics Fund (22)(23)	0.75	%	None		0.37	%	1.12	%	1.12	%
Financial Services Fund (22)(23)	0.75	%	None		0.34	%	1.09	%	1.09	%
Health Sciences Fund (22)(23)	0.75	%	None		0.32	%	1.07	%	1.07	%
Real Estate Opportunity Fund (22)(23)(24)	0.90	%	None		0.99	%	1.89	%	1.36	%
PBHG Insurance Series Fund, Inc.
Small Cap Growth Portfolio (25)	0.85	%	None		0.84	%	1.69	%	1.20	%

Footnotes:

(1)		Except as otherwise noted, figures shown in the table are for the year ended December 31, 2002 and are expressed as a percentage of fund average daily net assets. There is no guarantee that actual expenses will be the same as those shown in the table.
(2)		The fund has a stepped fee schedule. As a result, the fund's management fee rate generally decreases as fund assets increase and increases as fund assets decrease.
(3)		Other expenses, which include the fees and expenses of the fund's independent directors and their legal counsel, as well as interest, were less than 0.005% for the most recent fiscal year.
(4)		Other expenses include the fees and expenses of the fund's independent directors and their legal counsel, as well as interest.

(5)		Annual operating expenses reflect the expenses of both the fund and the Equity 500 Index Portfolio, the master portfolio in which the fund invests its assets. A further discussion of the relationship between the fund and the master portfolio appears in the "Organizational Structure" section of this fund's prospectus.
(6)		For the 24-month period beginning April 25, 2003 (the inception of the investment subadvisory agreement), the advisor and the administrator have contractually agreed to waive a portion of their fees and/or reimburse expenses to the extent necessary to maintain the fund's expense ratio at the levels indicated as "Net Annual Operating Expenses."
(7)		The Advisor has contractually agreed to waive its fees and/or reimburse expenses of the Fund, to the extent necessary, to limit all expenses to 0.045% of the average daily net assets of the Fund until April 30, 2005.
(8)		The Advisor has contractually agreed to waive its fees and/or reimburse expenses of the Fund, to the extent necessary, to limit all expenses to 0.30% of the average daily net assets of the Fund until April 30, 2005.
(9)		Although not contractually obligated to do so, the distributor and the shareholder services provider waived certain amounts. These are shown below along with the net expenses the fund actually paid for the fiscal year ended December 31, 2002: Total waiver of Fund Expenses: 0.27%, Total Actual Annual Fund Operating Expenses (after waivers): 1.00%.
(10)		The distributor voluntarily elected not to accrue a portion of the distribution (12b-1) fee. The distribution (12b-1) fee paid by the Fund (after the voluntary reduction) was 0.20% for the period May 1, 2002 to fiscal year ended December 31, 2002.
(11)		The shareholder services provider voluntarily elected not to accrue a portion of the shareholder service fee. The shareholder services provider can terminate this voluntary reduction at any time. A portion of the Service Shares shareholder services fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Service Class Shares of the Fund (after the voluntary waiver) was 0.03% for the fiscal year ended December 31, 2002.
(12)		Although not contractually obligated to do so, the shareholder services provider waived certain amounts. These are shown below along with the expenses the Fund actually paid for the fiscal year ended December 31, 2002: Total waiver of Fund Expenses: 0.25%, Total Actual Annual Fund Operating Expenses (after waiver): 0.64%.
(13)		The Fund did not pay or accrue the shareholder services fee during the fiscal year ended December 31, 2002. The Fund has no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2003.
(14)		Although not contractually obligated to do so, the shareholder services provider waived certain amounts. These are shown below along with the expenses the Fund actually paid for the fiscal year ended December 31, 2002: Total waiver of Fund Expenses: 0.25%, Total Actual Annual Fund Operating Expenses (after waiver): 0.72%.
(15)		"Other Expenses" and "Total Annual Fund Operating Expenses" have been restated based on estimates for the current fiscal year.
(16)		Each series has an expense offset arrangement that reduces the series' custodian fee based upon 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. "Other Expenses" do not take into account these fee reductions, and are therefore higher than the actual expenses of the series. Had these fee reductions been taken into account, "Net Expenses" would be lower for certain series and would equal: 0.85% for Emerging Growth Series, 0.87% for Investors Growth Stock Series, 1.04% for New Discovery Series, 0.86% for Research Series, 0.93% for Utilities Series.
(17)		The Fund administration fee is paid indirectly through the management fee.
(18)		While the maximum amount payable under the Fund's Class 2 rule 12b-1 plan is 0.35% per year of the Fund's average daily net assets, the Fund's Board of Trustees has set the current rate at 0.25% per year.
(19)		The manager has agreed in advance to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's Board of Trustees (Board) and an order of the Securities and Exchange Commission (SEC).

(20)		Effective January 12, 2000, FMR has voluntarily agreed to reimburse Service Class 2 of the fund to the extent that total operating expenses (excluding interest, taxes, certain securities lending costs, brokerage commissions, and extraordinary expenses), as a percentage of its average net assets, exceed 1.25%. This arrangement may be discontinued by FMR at any time.
(21)		Effective January 12, 2000, FMR has voluntarily agreed to reimburse Service Class 2 of the fund to the extent that total operating expenses (excluding interest, taxes, certain securities lending costs, brokerage commissions, and extraordinary expenses), as a percentage of its average net assets, exceed 1.75%. This arrangement may be discontinued by FMR at any time.
(22)		The Fund's actual Other Expenses and Total Annual Fund Operating Expenses were lower than the figures shown because its custodian fees were reduced under an expense offset arrangement.
(23)		Effective June 1, 2002, INVESCO is entitled to reimbursement from the Fund for fees and expenses absorbed pursuant to a voluntary expense limitation commitment between INVESCO and the Fund if such reimbursement does not cause the Fund to exceed the expense limitation and the reimbursement is made within three years after INVESCO incurred the expense. The voluntary expense limitation may be changed at any time following consultation with the board of directors.
(24)		Certain expenses of the Fund were absorbed voluntarily by INVESCO pursuant to a commitment between the Fund and INVESCO. This commitment may be changed at any time following consultation with the board of directors. After absorption, but excluding any expense offset arrangements, the Fund's Other Expenses and Total Annual Operating Expenses for the fiscal year ended December 31, 2002 were 0.46% and 1.36%, respectively, of the Fund's average net assets.
(25)		These are the expenses you should expect to pay as an investor in this Portfolio for the fiscal year ending December 31, 2003. That's because for the fiscal year ending December 31, 2003, Pilgrim Baxter has contractually agreed to waive that portion, if any, of the annual management fees payable by the Portfolio and to pay certain expenses of the Portfolio to the extent necessary to ensure that the total annual fund operating expenses do not exceed 1.20%. You should also know that in any fiscal year in which the Portfolio's total assets are greater than $75 million and its total annual fund operating expenses are less than 1.20%, the Portfolio's Board of Trustees may elect to reimburse Pilgrim Baxter for any fees it waived or expenses it reimbursed on the Portfolio's behalf during the previous two fiscal years. The Board has made no reimbursement election for the fiscal year ended December 31, 2002.

The purpose of this Table is to assist you in understanding the various costs and expenses that you will bear directly and indirectly. The Table reflects charges and expenses of the Separate Account as well as the Funds. For additional information, see "MORE ABOUT CHARGES AND DEDUCTIONS" on page 14 and the Funds prospectuses.

Other Expenses — we also have the right to begin making the following additional charges under the Policies (which we have decided not to impose for now):

Transaction Fees — currently none, guaranteed not to exceed $10 for each transfer among Investment Options that you make in excess of twelve transfers per Policy Year.

Tax Charge — currently none, but we reserve the right to impose charges for other taxes that may be payable and are attributable to the Policies in the future.

PROTECTIVE LIFE INSURANCE COMPANY

Prior to January 1, 2004, the Policy was issued by First Variable Life Insurance Company ("First Variable"), an affiliate of Protective Life. On January 1, 2004, First Variable merged with and into Protective Life, and Protective Life assumed responsibility for First Variable's obligations under the Policy. A Tennessee stock life insurance company founded in 1907, Protective Life provides individual life insurance, annuities, 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, 2002, Protective Life had total assets of approximately $21.8 billion. Protective Life's principal office is located at 2801 Highway 280 South, Birmingham, Alabama 35223. 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 total assets of approximately $22.0 billion at December 31, 2002.

THE SEPARATE ACCOUNT

Separate Account VL (the "Separate Account") was established under Arkansas law on March 6, 1987; and the Separate Account has been registered with the Securities and Exchange Commission ("SEC") as a unit investment trust under the Investment Company Act of 1940, as amended (the "1940 Act"), and meets the definition of a separate account under federal securities laws. This registration does not involve supervision by the SEC of the management or investment policies or practices of the Separate Account. Previously a separate investment account of First Variable, the Separate Account was transferred to Protective Life on January 1, 2004 in connection with the merger of First Variable with and into Protective Life.

The Separate Account's assets belong to us. These assets are held separate from other assets and are not part of our general account. The portion of the assets of the Separate Account equal to our reserves and other contract liabilities with regard to the Separate Account will not be charged with liabilities that arise from any other business we may conduct. We may transfer to our general account any assets which exceed the reserves and other contract liabilities of the Separate Account. We may accumulate in the Separate Account the charge for mortality and expense risks and investment results applicable to those assets that are in excess of the net assets supporting the Policy. The income, gains and losses, both realized and unrealized, from the assets of the Separate Account are credited to or charged against the Separate Account without regard to any of our other income, gains or losses. The obligations under the Policy are our obligations.

The Separate Account has several different investment options within it. We invest the assets allocated to each investment option in one Portfolio of the Funds.

We may add other investment options to the Policies that, in turn, may be invested in other Portfolios of the Funds, or in portfolios of other funds. We may restrict these other investment options to customers of specified distributors.

YOUR INVESTMENT OPTIONS

The Available Options

We are no longer offering the Policy for sale to new purchasers.

You may allocate your premium payments and existing Account Value to one or more of our Separate Account investment options and/or to our Fixed Account. The currently available Portfolios for our Separate Account investment options are listed on the cover page of this prospectus. More complete information, including a discussion of potential risks, appears in the current prospectuses for the Funds. (The prospectuses for the Funds may also describe other portfolios that are not available under a Policy.) You should read this prospectus and the prospectuses for the Funds carefully before investing in any Separate Account investment option.There is no assurance that the stated objectives and policies of any of the Portfolios will be achieved.

The investment objectives and policies of certain Portfolios that the Separate Account investment options invest in are similar to the investment objectives and policies of other mutual funds that the investment advisers manage. Although the objectives and policies may be similar, the investment results of the Portfolios that the Separate Account investment options invest in may be higher or lower than the results of such other mutual funds. The investment advisers cannot guarantee, and make no representation, that the investment results of similar funds will compare even though the funds have the same advisers.

We may enter into certain arrangements under which we are reimbursed by the Portfolios' advisers, distributors and/or affiliates for the administrative services which we provide to the Portfolios.

For Portfolios that pay 12b-1 fees, our affiliate, First Variable Capital Services, Inc., the principal underwriter for the Policies, will receive 12b-1 fees deducted from Portfolio assets for providing certain distribution and shareholder support services to the Portfolio. Protective Life has entered into agreements with the investment managers or advisers of the Portfolios pursuant to which each such investment manager or adviser pays Protective Life a servicing fee based upon an annual percentage of the average daily net assets invested by the Separate Account (and other separate accounts of Protective Life and its affiliates) in the Portfolios managed by that manager or advisor. These percentages differ, and some investment managers or advisors pay us more than other investment managers or advisors. These fees are in consideration for administrative services provided to the Portfolios by Protective Life and its affiliates. Payments of fees under these agreements by managers or advisers do not increase the fees or expenses paid by the Portfolios or their shareholders. The amounts we receive under these agreements may be significant.

Each Portfolio sells its shares to the Separate Account in accordance with the terms of a participation agreement between the appropriate investment company and Protective Life. The termination provisions of these agreements vary. Should a participation agreement relating to a Portfolio terminate, the Separate Account may not be able to purchase additional shares of that Portfolio. In that event, Owners may no longer be able to allocate Separate Account value or premium to Investment Options investing in that Portfolio. In certain circumstances, it is also possible that a Portfolio may refuse to sell its shares to the Separate Account despite the fact that the participation agreement relating to that Portfolio has not been terminated. Should a Portfolio decide to discontinue selling its shares to the Separate Account, we would not be able to honor requests from Owners to allocate Purchase Payments or transfer Account Value to the Investment Option investing in shares of that Portfolio.

We reserve the right, subject to applicable law, to make additions to, deletions from, or substitutions for the shares that are held in the Separate Account or that the Separate Account may purchase. If the shares of a Portfolio are no longer available for investment or if in our judgment further investment in any Portfolio should become inappropriate in view of the purposes of the Separate Account, we may redeem the shares, if any, of that Portfolio and substitute shares of another registered open-end management company or unit investment trust. The new portfolios may have higher fees and charges than the ones they replaced. We will not substitute any shares attributable to a Policy's interest in the Separate Account without notice and any necessary approval of the SEC and state insurance authorities.

We also reserve the right to establish additional Investment Options of the Separate Account, each of which would invest in shares corresponding to a new Portfolio. Subject to applicable law and any required SEC approval, we may, in our sole discretion, establish new Investment Options or eliminate one or more Investment Options if marketing needs, tax considerations, or investment conditions warrant. We may make any new Investment Options available to existing Owner(s) on a basis we determine. All Investment Options and Portfolios may not be available to all classes of policies.

If we make any of these substitutions or changes, we may by appropriate endorsement change the Policy to reflect the substitution or other change. If we deem it to be in the best interest of Owner(s), and subject to any approvals that may be required under applicable law, we may operate the Separate Account as a management company under the 1940 Act, we may de-register it under that Act if registration is no longer required, or we may combine it with other Protective Life separate accounts. We reserve the right to make any changes to the Separate Account required by the 1940 Act or other applicable law or regulation.

This prospectus generally describes only the Policy and Separate Account investment options. Because of certain exemptions, interests in our Fixed Account are not registered under the securities laws, nor have we registered the Fixed Account as an investment company. Accordingly, the protections of the federal securities laws do not apply to our Fixed Account. We will credit your Account Values in the Fixed Account with at least a minimum effective rate of 4% per year. We may credit additional amounts of "current" interest in our sole discretion. New premium payments and transfers from the Separate Account or Loan Account to the Fixed Account may each receive different current interest rate(s) than the current interest rate(s) credited to Account Value that has been previously invested in

the Fixed Account. We determine current interest rates in advance, and credit interest daily to your Account Value in the Fixed Account. For each amount allocated or transferred to the Fixed Account, we apply the current interest rate to the end of the calendar year. At the end of that calendar year, we reserve the right to declare a new current interest rate on this amount and accrued interest thereon (which may be a different rate than the rate that applies to new allocations to the Fixed Account on that date). We guarantee the rate declared on this amount and accrued interest thereon at the end of each calendar year for the following calendar year. We allocate amounts from the Fixed Account for withdrawals, transfers to the Separate Account Investment Options, or charges on a last in, first out (i.e., LIFO) basis for the purpose of crediting interest.

We bear the full investment risk for all amounts allocated or transferred to the Fixed Account. You assume the risk that interest credited to amounts in the Fixed Account may not exceed the minimum 4% guaranteed rate.We have not registered the Fixed Account with the SEC, and the staff of the SEC has not reviewed the disclosure in this prospectus relating to the Fixed Account.

Transfers Among Investment Options

General Requirements. You may transfer Account Value among investment options by written request or telephone. The minimum amount you may transfer is the lesser of (a) $1,000 or (b) your entire interest in the applicable investment option. You should mail, fax or express written transfer requests to our Variable Service Center at the address shown on the front cover of this prospectus. You can also request a transfer by phoning 1-800-228-1035.

Transfer requests must clearly specify the amount to be transferred and the investment options affected. All transfer requests made at the same time for Separate Account investment options will be treated as a single request. The transfer will be effective at the prices we next compute after we receive the transfer request at our Variable Service Center.

You may transfer Account Value from the Fixed Account to other investment options only by request within 30 days of a Policy Anniversary, and you may not transfer the entire Account Value in the Fixed Account in less than 4 Policy Years. For example, transfers from the Fixed Account during the first Policy Year cannot total more than 25% of the Fixed Account Value on the Policy Date.

After the first Policy Year, your transfers from the Fixed Account during a Policy Year may not exceed the greater of:

•: 25% of your Fixed Account Value on the immediately preceding Policy Anniversary; or
•: 100% of your Fixed Account Value transferred to other investment options during the immediately preceding Policy Year.

We can impose a transaction fee if you make more than 12 "free" transfers in a Policy Year, but currently, do not do so.

Automatic Transfer Programs. You can participate in automatic transfer arrangements, including dollar cost averaging and asset rebalancing programs. You initiate these programs by making a written or telephone request to our Variable Service Center shown on the front cover of this prospectus. We make the automatic transfers on the last business day of whichever of the following intervals you request: quarterly, semi-annually, annually, monthly (for dollar cost averaging only), or at any other interval that we approve. You may make a request to us, at any time, to have automatic transfers terminated.

Automatic transfers from the Fixed Account are subject to the restrictions described above in General Requirements (except that, for dollar cost averaging only, you can transfer up to 100% of your Fixed Account Value within one Policy Year if you have selected the monthly interval.) Automatic transfers are not subject to any transaction fee and do not count toward the number of "free" transfers. We currently do not charge you for an automatic transaction program, or impose a transfer fee, although we reserve the right to do so in the future.

The dollar cost averaging program permits transfers from the FIS Prime Money Fund II investment option or the Fixed Account to other Separate Account investment options on a regularly scheduled basis. Such systematic transfers may prevent investing too much when the price of securities is high or too little when the price is low. There is no guarantee of this, however. Also, since systematic transfers, such as dollar cost averaging, involve continuous investment regardless of fluctuating price levels, you should consider your ability to continue purchases through all phases of the market cycle.

The minimum amount, for each dollar cost averaging transfer, is $100. You must have $1,200 of Account Value in the Prime Money Fund II investment option or the Fixed Account, as applicable, before a "dollar cost averaging" program may begin.

The asset rebalancing program enables you to select the percentage levels of Account Value you wish to maintain in particular investment options. At the intervals you select, we will automatically rebalance your Account Value to maintain the indicated percentages by transfers among the investment options. You must include all of your Account Value allocated to the Separate Account investment options in any asset rebalancing program.

Other investment programs, such as systematic transfers and systematic withdrawals, or other transfers or withdrawals may not work well in concert with the asset rebalancing program. Therefore, you should monitor your use of these programs while the asset rebalancing program is being used. Currently, dollar cost averaging and automatic account rebalancing may not be in effect simultaneously.

Restrictions on Transfers. Generally, you may make an unlimited number of transfers in any Policy Year. Frequent requests to transfer, however, may have a detrimental effect on the value of Portfolio shares held in the Separate Account. We may therefore limit the number of permitted transfers in any Policy Year, or refuse to honor any transfer request for an owner or a group of owners, if:

•: the purchase or redemption of shares of one or more of the Portfolios is to be restricted because of excessive trading; or
•: a specific transfer or group of transfers is deemed to have a detrimental effect on Policy Account Value or Portfolio share prices.

We may also at any time suspend or cancel acceptance of third party transfer requests on behalf of a Policyowner; or restrict the Investment Options that will be available for such transfers. Notice will be provided to the third party in advance of the restrictions. We will not impose any restrictions, however, if we have received satisfactory evidence that:

•: you have appointed the third party to act on your behalf for all financial affairs; or
•: a court of competent jurisdiction has appointed the third party to act on your behalf.

We also reserve the right at any time and without prior notice to otherwise modify, suspend or terminate the transfer privileges.

Automatic Transfers of Small Accounts. We reserve the right, subject to any applicable law, to transfer Account Value from any investment option, if less than $250, to the investment option with the greatest Account Value.

To the extent that we impose transfer restrictions, we apply them consistently to all Owners without waiver or exception.

Mixed and Shared Funding

We buy shares of the Funds for the Separate Account in connection with the Policies, and for allocation to separate accounts funding variable annuity policies and other variable life insurance policies issued by us. The Funds offer shares to other insurance companies and to other separate accounts, either affiliated or unaffiliated with us, for the same purpose. In the future, it may conceivably become disadvantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in one or more of the Funds' Portfolios simultaneously, if the interests of variable life insurance

and variable annuity policy owners differ. The boards of trustees of the Funds investing in those Portfolios intend to monitor events to identify any material irreconcilable conflicts that may arise and to determine what action, if any, they or the insurance companies should take in response.

MORE ABOUT CHARGES AND DEDUCTIONS

Monthly Deductions

On the first day of each Policy Month we make a Monthly Deduction from each Policy's Account Value. We make the deduction from your investment options in proportion to the amount of your Account Value in each (i.e., on a "pro-rata basis") or by any other method you select and we approve.

For example, we will permit you to have deductions first taken from one or more preselected investment options. You may also request deductions to be taken first from the investment option that has the best investment performance over the prior Policy Month.

The Monthly Deductions include the following charges:

Maintenance Fee. The monthly maintenance fee is $2.50 for a Contract with less than $100,000 in Account Value and helps compensate us for our expenses in administering the Policies.

Cost of Insurance. This is a charge for the cost of providing life insurance coverage for the Insured. This charge is guaranteed not to exceed the maximum cost of insurance charge determined on the basis of the mortality table guaranteed in the Contract, calculated, for standard risk Insureds, using the 1980 Commissioner's Standard Ordinary Mortality tables, Age Last Birthday ("1980 CSO"). These mortality tables are sex distinct and the guaranteed cost of insurance charge may vary by the attained age, sex and underwriting class of the Insured. The maximum cost of insurance charge for substandard risk Insureds are based on multiples or additives to the guaranteed standard rates established by the 1980 CSO.

Currently, a cost of insurance charge is taken that is not more than the maximum cost of insurance charge where an Insured is determined by the Company to be a standard nonsmoker underwriting risk. This monthly charge is equal to an effective annual rate of 0.40% of Account Value and is not guaranteed. For Contract Years 11 and later, this monthly charge is anticipated to be increased to an annual effective rate of 0.55% of Account Value.

Other Monthly Charges. We calculate these charges as a percentage of your Policy's net assets in each investment option. An Administrative Charge is made at an effective rate that is equal, on an annual basis, to 0.40% of Account Value to help compensate us for our expenses in administering the Policies and the Separate Account. A Distribution Charge is made during the first 10 Policy Years at an effective rate that is equal, on an annual basis, to 0.20% of Account Value. A Premium Tax Charge is made during the first 10 Policy Years at an effective rate that is equal, on an annual basis, to 0.25% of Account Value. (This charge is made to offset the average premium tax we expect to pay to various states and local jurisdictions, although it will not necessarily equal the premium taxes we paid with respect to a particular Policy.) A Federal Tax Charge is made at an effective rate that is equal, on an annual basis, to 0.20% of Account Value during the first 10 Policy Years to help compensate us for the increase in our federal tax liability from the application of Section 848 of the Code.

Daily Deductions

Each Business Day, we deduct a mortality and expense risk charge that we calculate as a percentage of your Policy's net assets in each Separate Account investment option. The charge is currently 0.90%, on an annual basis (which we guarantee will not be increased to more than 1.20%.) This charge helps compensate us for assuming mortality and expense risks under the Policies.

Withdrawal Charges

During the first 9 Policy Years, we may assess a withdrawal charge if you surrender your Policy, withdraw Account Value, or apply Account Value to an optional annuity payment option.

The withdrawal charge consists of two separate components, one for a sales charge and one for an unreimbursed premium tax charge, that are stated separately in your Policy. Overall, we determine the withdrawal charge by applying the percentages shown in the table below to the purchase payments we deem withdrawn, surrendered or applied to an optional annuity payment. Purchase payments are deemed withdrawn or surrendered in the order in which they are made. We take withdrawal charges from your investment options on a pro-rata basis, or by any other method you select and we approve.

Withdrawal Charge — as a percentage of purchase payments:
	Policy Year 1	9.75	%
	Policy Year 2	9.5	%
	Policy Year 3	9	%
	Policy Year 4	8	%
	Policy Year 5	7	%
	Policy Year 6	6	%
	Policy Year 7	5	%
	Policy Year 8	4	%
	Policy Year 9	3	%
	Policy Year 10+	NONE

Free Withdrawal Amount. We will not assess a withdrawal charge on a withdrawal of Account Value until the amount withdrawn for that Policy Year exceeds a "free withdrawal amount" equal to 15% of your purchase payments, less amounts taken as loans that year.

The 15% withdrawals do not reduce purchase payments for purposes of computing the withdrawal charge. The charge will continue to apply to the amount withdrawn or surrendered during any of the first 9 Policy Years that exceeds 15% of Purchase Payments. The unused portion of the "free withdrawal amount" for one Contract Year does not carry over to the next Contract Year.

The free withdrawal amount is not available on withdrawal requests that would result in less than $1,000 of remaining Account Value.

Waiver of Withdrawal Charges. We will waive the withdrawal charges:

•: after the first Contract Year and subject to state availability, if the Insured or the Insured's spouse is confined in an approved nursing home for 90 days;
•: if any Death Benefits are paid; or
•: if the Account Value is applied after five Contract Years to an optional annuity payment option.

To qualify for a waiver of the Withdrawal Charges based upon confinement in a qualified nursing home, the Insured or the Insured's spouse must never have been confined in a qualifying nursing home on or before the date your application for the Policy was signed. We may require evidence satisfactory to us for any of these conditions. You should review your Policy carefully for a complete description of these waivers.

Fund Expenses

Our Separate Account purchases shares of the Portfolios of the Funds at net asset value, which reflects investment management fees, other operating expenses and any expense reimbursement paid by an investment adviser to the applicable Portfolio. (See "Highlights — Fund Expenses.")

Other Charges and Deductions (Not Currently Charged)

We do not currently make the charges referred to after the caption "Tax Charge" in the "Highlights" segment of this prospectus. We reserve the right to do so, however.

Special Service Fees. We do not charge you for special services, such as additional reports, dollar cost averaging, and asset rebalancing. Although we do not currently intend to do so, we reserve the right to charge you for these special services.

Elimination, Reduction or Refund of Charges and Deductions; Increases in Bonuses

We may eliminate, reduce, or refund any charges and deductions on a Policy when sales of Policies are made to certain individuals or to group and sponsored arrangements. We will do this when we expect savings of sales, administration or other expenses, or in a reduction in the level of risks we expect to assume under the Policies. (This prospectus describes such groups under "Group and Sponsored Arrangements" below.) We determine any such adjustment to charges and deductions after examination of relevant factors such as:

•: the size and type of group, because large numbers of Policies tend to lower our per-Policy expenses;
•: the total amount of premium payments to be received, because certain expenses tend to be a smaller percentage of larger premium payments;
•: any prior or existing relationship we have with the purchaser, because of the likelihood of reduced marketing and implementation expenses;
•: other circumstances, of which we are not presently aware, which could result in reduced expenses; and
•: after a Policy is issued, if we anticipate expenses for later Policy Years that are lower than initially projected.

We also may eliminate, reduce or refund charges and deductions when we issue a Policy to an officer, director, employee or agent of ours or any of our affiliates. We do not, however, guarantee any adjustment in charges and deductions, and any adjustment may vary by group.

All adjustments will be made under our uniform administrative rules then in effect. In no event will adjustments to charges, or deductions be permitted if the adjustment would be unfairly discriminatory to any person.

Group and Sponsored Arrangements. Group arrangements include those in which a trustee, employer, association or similar entity purchases individual Policies covering a group of individuals on a group basis. An example of such an arrangement is a non-tax qualified deferred compensation plan. Sponsored arrangements include those in which an employer, an association or similar entity permits the Company to offer Policies to its employees or members on an individual basis.

Gender-Neutral Policies. In 1983, the United States Supreme Court decided in Arizona Governing Committee v. Norris that certain insurance contracts may not be used to fund certain employee benefit programs where the contracts provided values and benefits that varied with the gender of the insured person. We may therefore offer Policies that do not vary by gender for use in connection with certain employee benefit programs. We recommend that any employer proposing to offer the Policies to employees under a group or sponsored arrangement consult its attorney before doing so.

We may also offer the Policy with provisions and charges that are gender neutral in states where required, and where the "unisex" version of the Policy has been approved. Currently, the State of Montana prohibits the use of actuarial tables that distinguish between men and women in determining premiums and policy benefits.

Purposes of Policy Charges

We have designed the charges under the Policies to cover, on the whole, our direct and indirect costs of selling, administering and providing benefits under the Policies. These charges are also designed, on the whole to compensate us for the risks we assume under the Policies. These include mortality risks (such as the risk that insured persons will, on average, die before we expect, thereby increasing the amount of claims we must pay); investment risks (such as the risk that adverse investment performance will make it more costly for us to provide the transfer rights under the Policies or reduce the amount of our asset-based fee revenues below what we anticipate); sales risks (such as the risk that we sell fewer Policies and receive lower net revenue than we expect, thereby depriving us of expected economies of scale); regulatory risks (such as the risk that tax or other regulations may be changed in ways adverse to issuers of variable life insurance policies); and expense risks (such as the risk that the costs of administrative services that we must provide will exceed what we currently project).

If, as expected, the charges that we collect from the Policies exceed our total costs in connection with the Policies, we will earn a profit. Otherwise we will incur a loss. We have set the current and maximum rates of certain of our charges with reference to estimates of the amount of specific types of expenses or risks that we will incur. In some cases, this prospectus identifies such expenses or risks in the name of the charge: e.g., the administrative charge, distribution charge, cost of insurance charge, and mortality and expense risk charge. However, the fact that any charge bears the name of a particular expense or risk does not mean that the amount we collect from that charge will never be more than the amount of such expense or risk, or that we may not also be compensated for such expense or risk out of any other charges we may deduct under the terms of the Policies.

THE POLICIES

Application and Issuance of a Policy

We are no longer offering the Policy to new purchasers.

If you wish to purchase a Policy, you must submit an application to our Variable Service Center. You select:

•: The initial premium you intend to pay; and
•: The initial death benefit ("Face Amount") of the Policy; and
•: The investment options to which we will allocate your premium.

We will review an application under our underwriting rules, and we may request additional information or reject the application. Applicants between the ages of 0 and 80 are eligible for simplified underwriting without a medical examination under our current underwriting rules, which are subject to change. We generally will not issue Policies to insure persons older than age 85; nor will we generally issue Policies to employee benefit plans qualified under Section 401 of the Internal Revenue Code. If we decline an application, we will refund any premium payment made.

If we issue the Policy, Monthly Deductions will begin as of the Policy Date. If you make a premium payment with the application, the Policy Date generally will be the date we approve the application. If you instead pay the initial premium upon delivery of the Policy, the Policy Date generally will be five days after we issue the Policy.

Under limited circumstances, we may backdate a Policy, upon request, by assigning a Policy Date earlier than the date the application is signed. In that case, even though Monthly Deductions begin earlier, backdating may be advantageous, for example, to obtain a lower cost of insurance rate, based on a lower Age of the insured person.

"Free Look Right." You have the right to review your Policy during an initial inspection period specified in the Policy and, if dissatisfied, to return it to us or to the agent through whom you purchased

it. We will refund the Account Value, any Monthly Deductions, and any other charge we assessed on a Policy that is returned during the permitted period, unless a different amount is required by state law. The "free look" period is typically 10 days from your receipt of a Policy, but may be greater depending on state requirements.

Premiums

The Policy is designed for a large single premium (minimum $10,000) to be paid by you on or before the Policy Date, with a limited ability to make additional premium payments. Additional premium payments under the Policy are permitted under the following circumstances:

•: an additional premium payment is required to keep the Policy in force after the minimum guarantee period; or
•: an additional premium is paid equal to the lesser of 5% of the initial premium or $5,000.

We may require that any Policy loans be repaid prior to accepting any additional premium payments, and require evidence of insurability on the Insured before accepting an additional premium in excess of the permitted amounts.

The minimum death benefit guarantee period begins on the Policy Date and ends on the earliest of:

•: the 10th Policy Anniversary or the Insured's Age 65, whichever is later;
•: the date you first make a withdrawal of Account Value; or
•: the date you first take a Policy loan including a transferred loan (There is no minimum death benefit guarantee period if your Policy is issued subject to a Policy loan.)

Grace Period. After the end of your Policy's minimum guarantee period, your Policy will enter a grace period on the first Business Day of any Policy Month on which your Policy's Cash Surrender Value will not cover the current Monthly Deduction and accrued interest on any outstanding Policy loans you have taken.

The grace period runs for 61 days from the applicable Business Day. We will send you a notice at your last known address which will show the amount necessary to cover the Monthly Deduction(s) due plus an amount equal to three times the current Monthly Deduction. If you do not pay at least this amount by the end of the grace period, your Policy will end without value.

Allocation of Premiums

General. We allocate the premium payments you make (after any deductions) to the investment options you select. We use "Accumulation Units" to keep track of your interest in any Separate Account investment option you select. We determine the number of Accumulation Units credited to a Policy by dividing the amount allocated to a Separate Account investment option by the value of the applicable Accumulation Unit next determined after receipt of your premium payment. We calculate Accumulation Unit Values as of the end of each Business Day. Premium payments allocated to the Fixed Account are credited in dollars. Premium payments are generally allocated to the Separate Accounts or the Fixed Account as of the later of the Policy Date or the date we receive your premium.

Delayed Investment Allocation Date. We reserve the right to allocate premium payments to the FIS Prime Money Fund II investment option for an investment delay period before they will be invested (together with any investment gain) in any other investment option(s) you designate. In that case, we would reallocate your Account Value to the investment options you have selected at the end of your Policy's "free look" period. We would measure the investment delay period from the date your Policy is issued from our Variable Service Center and would include up to 5 extra days in addition to the applicable "free look" inspection period to provide time for mail or other delivery of the Policy to you.

If we elect to delay your investment allocation date, your Policy will contain a provision to that effect.

Telephone Transactions

You may initiate various transactions by calling 1-800-228-1035. These are: transfers of Account Value, notification of a change in your address, change of premium allocations among investment options, partial withdrawal requests, Policy loans and systematic withdrawals. You may authorize your representative to make these calls on your behalf.

You may also call 1-800-59-FUNDS for current Accumulation Unit values, current Account Value, and for telephone transfers of Account Value.

If you own a Policy jointly with another owner, unless both owners have advised us to the contrary, we will accept instructions from either one of the joint owners.

We will use reasonable procedures (such as requiring identifying information from the caller, tape recording the telephone instructions, and providing written confirmation of the transaction) in order to authenticate instructions communicated by telephone. You will be responsible for any telephone instructions we reasonably believe to be genuine. Therefore, you will bear any losses arising from any errors in the communication of instructions. If we do not employ reasonable procedures to confirm that instructions communicated by telephone are genuine, we may be liable to you for any losses due to dishonored or fraudulent instructions. We may modify or terminate our procedures for telephone transactions at any time.

POLICY BENEFITS AND VALUES

Death Benefit

If we receive proof that the Insured died while the Policy was in force, we will pay the Death Benefit Proceeds to the Beneficiary. You may elect for the Death Benefit Proceeds to be paid in a single sum or under one of our other Payout Options before the death of the Insured. If no such election is in effect at the death of the Insured, the Beneficiary may make the election during a 60-day period following our receipt of proof of death. We will hold up payment of the Death Benefit Proceeds in the meantime.

Death Benefit Amount

The death benefit amount under a Policy is the greater of:

•: the Face Amount or
•: the Account Value times the applicable percentage shown in the Minimum Death Benefit table.

The initial death benefit amount on the Policy Date is generally equal to the Face Amount. The death benefit amount is reviewed each Policy Month, based on the Account Value at the beginning of that Policy Month. We determine the final death benefit amount on the date we receive proof of the Insured's death.

MINIMUM DEATH BENEFIT
Age	Percentage of Account Value	Age	Percentage of Account Value
40 or less	250
41	243	61	128
42	236	62	126
43	229	63	124
44	222	64	122
45	215	65	120
46	209	66	119

47	203	67	118
48	197	68	117
49	191	69	116
50	185	70	115
51	178	71	113
52	171	72	111
53	164	73	109
54	157	74	107
55	150	75-90	105
56	146	91	104
57	142	92	103
58	138	93	102
59	134	94	101
60	130	95 or older	100

Face Amount and Guideline Single Premium. The Face Amount on the Policy Date is determined by treating the initial premium as a "guideline single premium." The "guideline single premium" is an amount necessary to keep the Policy in force until the Maturity Date, using the Policy's guaranteed charges, and assuming a 6% net investment return and other assumptions and calculations required by the Code for a Policy to qualify as a life insurance contract under what is commonly referred to as the "guideline premium test." The "guideline single premium" will vary by the Insured's age on the Policy Date, sex and underwriting risk class. This will generally result in the same initial premium providing a Face Amount that is higher for non-smokers than smokers, and a higher Face Amount for females than for males.

Face Amount and Additional Premium Payments. Additional premium payments may result in an increase in Death Benefit by an amount sufficient to permit a Policy to remain within the definition of a "life insurance contract" under Code section 7702. We may require additional evidence of the insurability of the Insured before accepting the additional payments.

Accelerated Death Benefit Rider

Subject to regulatory approval in your local area, an Acceleration of Death Benefit Rider is included in the Policy. The rider permits you to receive an advance of the Death Benefit when the Insured person has a terminal illness with a life expectancy of less than 12 months (all as defined in the rider).

We compute the maximum amount of advance under a formula set forth in the rider. In no event will we advance more that $50,000, however. Amounts advanced under the rider generally will be considered Death Benefits for federal income tax purposes. (See "FEDERAL TAX MATTERS — Income Tax Treatment of Policy Benefits.") We do not charge for this rider. For more complete information about the rider and its availability, you should consult your sales representative or request a copy of the form of the rider.

Determination of Account Value

Your Account Value under a Policy includes its value in the Separate Account, in the Fixed Account, and in the Loan Account. Your Account Value in a Separate Account investment option at any time equals the number of Accumulation Units you hold in that option multiplied by the then-current value of one such Accumulation Unit. We compute this value in such a way that the investment return on your Account Value in any Separate Account investment option will differ from the total return achieved by the underlying Fund Portfolio only by the amount of the charges and deductions we make under your Policy from that investment option.

Your Account Value in the Fixed Account investment option or in the Loan Account earns fixed rates of interest as described elsewhere in this prospectus. Your Account Value in the Fixed Account will increase by the amount of such interest, but will decrease by the amount of any charges or deductions that we take from that account for your Policy.

Your Account Value in any investment option, or in the Loan Account, will also vary by the amount of transfers we make among those components of Account Value in response to requests that you make, or that we make automatically in connection with any Policy loans that you take and the payment of principal and interest due thereon. Your Account Value in each investment option also will increase by the amount that you direct to that option from your premium payments and will decrease by the amount of any withdrawals that you take from that option.

Policy Loans

We will lend you up to 90% of your Policy's Cash Surrender Value at any time after the initial free-look period. You may request a Policy loan by submitting a request in writing or by telephone to our Variable Service Center shown on the front cover of this prospectus. (See "Telephone Transactions.")

Each loan must be at least $1,000. We will automatically transfer Account Value equal to the amounts you borrow to your Policy's Loan Account from the other investment options you are then using. We will make the transfer in proportion to the Account Value in each, unless you request a different allocation and we agree. We credit amounts in your Loan Account with interest at a minimum annual rate of 3%.

The interest you must pay us on a Policy loan accrues daily at an annual loan interest rate of 5% and is payable on each Policy Anniversary. If not paid when due, we will add it as an additional Policy loan and transfer additional Account Value to your Loan Account. A loan repayment increases your Account Value in your Policy's other investment options on a dollar-for-dollar basis.

Unless you request otherwise, loans and loan repayments are attributed to the Separate Account Investment Options and the Fixed Account in proportion to the Account Value in each. We may disapprove any such request, however. You must designate any loan repayment as such. Otherwise, we will treat the payment as a premium payment.

Preferred Loan Amounts. On the date of this prospectus, we credit interest on preferred loan amounts at an annual effective rate of 5%.

Immediate Loan Repayment. If, on the first Business Day of a Policy Month, the Account Value less the Withdrawal Charge is not sufficient to pay the Monthly Deduction, any loan interest then due and unpaid, and any other Policy charges, you must make a loan repayment within 61 days after such Business Day. We will send a notice to you or your assignee, if any. The Policy will terminate without value after 61 days, unless you make a sufficient repayment to reduce the Policy loans and pay any other amounts then due.

Surrender and Withdrawals

Surrender. You may surrender your Policy for its Cash Surrender Value at any time while the Insured is living, by a signed written request conforming to our administrative procedures. We calculate the Cash Surrender Value as of the close of the Business Day when your surrender request is received at our Variable Service Center. The Cash Surrender Value equals your Account Value reduced by any unpaid Policy loans and accrued interest and by any applicable withdrawal charges. You may elect to have all or part of the Cash Surrender Value applied to a payout option. (See "Payout Options.") The election must be in writing, except that we will accept telephone requests that apply to only part of the Cash Surrender Value. Our liability to pay the Death Benefit proceeds ends when you surrender your Policy.

Withdrawals. You may withdraw a portion of the Policy's Cash Surrender Value (minimum $1,000). This will reduce the Account Value and cause a proportionate reduction in the Policy's Face Amount and death benefit. A requested withdrawal requires our consent, however:

•: if the Death Benefit would be reduced below that required to qualify the Policy as life insurance; or
•: if the remaining Account Value would be less than $1,000.

We will take any withdrawals from your Policy's investment options on a pro-rata basis, unless you make a request in writing in advance for a different method. We reserve the right to approve or disapprove any such request.

Maturity Proceeds

If the Insured is living on the Policy's "Maturity Date" (the Policy anniversary of the Policy Date on which the Insured's Age is 100), we will pay the Cash Surrender Value. In such case, the Policy will terminate and we will have no further obligations under it. We will calculate the Cash Surrender Value for this purpose as of the Maturity Date, although we may defer paying such amount to you until you return your Policy to us.

Lapse and Reinstatement

If your Policy lapses following a 61-day grace period, you may still, within 3 years thereafter, request that we reinstate the Policy. You would need to provide us with satisfactory evidence, however, that the Insured is still insurable and pay certain amounts specified in the Policy.

Any reinstatement will be effective on the first Business Day of the first Policy Month that begins on or after we approve reinstatement. The values and terms and conditions of the reinstated Policy will be in accordance with our administrative procedures.

Payment of Proceeds

We ordinarily will pay any Cash Surrender Value, Death Benefit Proceeds, or loan proceeds from the Separate Account Investment Options, and begin Payout Options funded through Separate Account investment options, within seven days after receipt by our Variable Service Center of a request, or proof of death of the insured persons, and all other required elections and documentation in a form satisfactory to us. However, we may delay payment or transfers from a Separate Account investment option in certain circumstances. (See "Suspension of Payments and Transfers.") We may also delay payment if we contest the Policy. We will pay interest on Death Benefit Proceeds from the date they become payable to the date they are paid in one sum or, if a Payout Option is selected, to the effective date of the option.

Tax Withholding

All distributions from your Policy, or portions thereof, which are included in your gross income are subject to federal income tax withholding. We will withhold federal taxes at the rate of 10% from each distribution. However, you may elect not to have taxes withheld or to have taxes withheld at a different rate.

Payout Options

Payout Options provide a series of payments in lieu of a single sum payment by us. You may elect a Payout Option:

•: for all or part of the Cash Surrender Value payable when you make a withdrawal or surrender the Policy; or
•: for all or part of the Death Benefit Proceeds payable upon death of the Insured.

You may elect to change a previously elected Payout Option for Death Benefit Proceeds. Any such election or change relating to Death Benefit Proceeds must be made:

•: while the Insured is living; and
•: by written request to our Variable Service Center.

Annuitization Bonus. We will increase your Account Value by an "Annuitization Bonus" when Cash Surrender Value or the Death Benefit Proceeds are applied to a Payout Option. The increase will be based on your Account Value at the end of the Business Day immediately preceding the date the initial Payout Option amount is determined.

We determine the Annuitization Bonus rate for a Policy at the time of issue, but the Bonus may be modified, reduced or eliminated for subsequently issued Policies. On the date of this prospectus, the Annuitization Bonus rate is 3% of Account Value. We will pro-rate any increase among your Policy's investment options on the Annuity Date.

You may select the following Payout Options or any other Payout Option acceptable to us:

OPTION A — Life Annuity. Equal monthly payments during the life of the payee.

OPTION B — Life Annuity with Period Certain of 120 Months. Equal monthly payments during the lifetime of the payee, but for no less than 120 months.

OPTION C — Fixed Payments for a Period Certain. Equal monthly payments for any specified period (at least five years but not exceeding thirty years), as selected by you.

OPTION D — Death Benefit Proceeds Remaining With Us. The Death Benefit Proceeds will remain in our Fixed Account and be credited with interest at an effective annual rate of not less than 3%. The Payee may make full and partial withdrawals at any time with no Surrender Charge.

Each payment under Payment Options A, B, or C will be at least equal to the amounts calculated based on the annuity tables contained in your Policy. If the payee dies during a period certain (Payout Options B or C), any remaining payments will be made to the estate of the Payee. The estate may elect to have the commuted value of the remaining payments paid in a single sum instead. We will determine the commuted value by discounting the remaining payments at its then current interest rate used for commutation.

Tax Impact. Whether a Payout Option is chosen may have tax consequences for you or your Beneficiary. In addition, under current federal income tax rules, the annuitization bonus is deemed "income" on a Policy. Therefore, you should consult a qualified tax adviser before deciding whether to elect one or more Payout Options.

Right to Exchange for a Fixed Benefit Policy

During the first 24 Policy Months, if your Policy has not lapsed, you have an unconditional right to transfer all of your Account Value in the Separate Account investment option to the Fixed Account without any transaction charge.

OTHER PROVISIONS OF THE POLICY

Suicide Exclusion

If suicide of the Insured occurs within two years from the Policy Date (or less if required by state law), we will limit the Death Benefit to your Policy's Cash Surrender Value.

Representations and Contestability

Generally, we can challenge the validity of your Policy for two years from the Policy Date, based on any misrepresentations made in your application to us. We can challenge an increase in benefits requiring evidence of insurability for two years from the date of the increase. We can challenge a reinstatement of the Policy until that reinstatement has been in force for two years from its effective date. However, the two-year time limits on our right to challenge all or part of the Policy do not apply if the Insured dies within the two-year period.

Misstatement of Age or Sex

If any application for benefits under your Policy misstates the age or sex of the Insured, the Death Benefit will be the amount provided by the correct age and sex.

Owner and Beneficiary

Owner. The Policy application names the Policy owner, who in turn may name a new owner. At the death of the owner, his or her estate will become the owner, unless he or she has named a successor owner. Because the owner has the authority to exercise most rights under a Policy, this prospectus generally refers to the owner when it refers to "you" or "your". The owner's rights as such terminate when the Insured dies. If two or more people are named as owners, we will generally assume that one owner has the authority to act for all owners. However, we may require the consent of all owners for certain transactions under the Policy, such as an election to exchange the Policy for a fixed benefit policy.

Beneficiary. The Policy application also names the Beneficiary under the Policy and any contingent Beneficiary. You may change the Beneficiary of the Policy (other than an irrevocably named Beneficiary) at any time before the death of the Insured. The Beneficiary has no rights under the Policy until the death of the Insured and must survive that insured person in order to receive the Death Benefit Proceeds. If no named Beneficiary is alive when the Insured dies, we will pay the proceeds to the owner.

Changes and Assignments. A change of owner or Beneficiary requires a written request satisfactory to us that is dated and signed by all of the owners. The change will take effect on the date it is signed, but is subject to all payments made and actions taken by us under the Policy before we receive the request at our Variable Service Center.

Assignments

The owner may assign (transfer) the owner's rights in a Policy to someone else. An absolute assignment of the Policy designates the assignee as owner and Beneficiary. A collateral assignment of the Policy does not change the owner or Beneficiary, but their rights will be subject to the terms of the assignment. All collateral assignees of record must consent to any full surrender, partial withdrawals, or loans. An assignment requires a written request signed by all of the Policy's owners. An assignment will take effect only when we record it at our Variable Service Center. We have no responsibility for any assignment not submitted for recording; nor for the sufficiency or validity of any assignment.

Unfavorable tax consequences, including recognition of taxable income and the loss of income tax-free treatment for any death benefit payable to the Beneficiary may result from transferring ownership or making an assignment. Therefore, you should consult with a qualified tax adviser before doing so.

Reports and Records

We will mail to your last known address of record an annual statement showing your Policy's current Account Values, transactions since the last statement, Policy loan information, and any other information required by federal or state laws or regulations.

We will also send you annual and semi-annual reports containing the financial statements of the Portfolios you are using.

In addition, you will receive statements of significant transactions, such as changes in the Death Benefit, transfers among investment options, premium payments, Policy loans, Policy loan principal, Policy loan repayments, and Policy reinstatement or termination.

Voting Rights

We will vote the shares of the Portfolios held by the Separate Account at regular or special meetings of the Portfolio's shareholders in accordance with instructions received from you and other owners having the voting interest in the affected Portfolio(s). We compute the number of votes that an owner has the right to instruct for a particular Portfolio by dividing the owner's Account Value in that Portfolio by that Portfolio's net asset value per share. We will vote a Portfolio's shares held in our Separate Account for which we do not receive instructions, as well as shares held in our Separate Account that are not attributable to owners in the same proportion as we vote that Portfolio's shares held in the Separate Account for which we have received instructions.

We may disregard voting instructions under limited circumstances prescribed by SEC rule. We will include a summary of any such action and the reasons for it in the next semiannual report to owners.

SUSPENSION OF PAYMENTS OR TRANSFERS

Under certain circumstances, we may suspend or postpone transactions that pertain to a Separate Account investment option under your Policy. These include payment of Death Benefit Proceeds or Maturity Value, payment for surrenders, withdrawals and Policy loans, or transfers, purchase payments and loan repayments for any period when:

•: the New York Stock Exchange is closed for regular trading;
•: regular trading on the New York Stock Exchange is restricted by the SEC;
•: an emergency exists as a result of which disposition of securities held in the applicable Separate Account investment option is not reasonably practicable or it is not reasonably practicable to determine the value of such option's net assets; or
•: the SEC, by order, permits such suspension during any other period.

We also may defer payment for a surrender, withdrawal or Policy loan, or transfer from the Fixed Account, for the period permitted by law but not for more than six months after we receive your written request. We will pay interest to the extent provided under state insurance law on payments that are delayed.

Also, we may defer payment of any amount attributable to a check you have given us in order to allow a reasonable time (not to exceed 15 days) for the check to clear the banking system.

Suspension of Policy

If mandated under applicable law, we may be required to reject a premium. We also may be required to provide additional information about your Policy to government regulators or law enforcement authorities. In addition, we may be required to block an Owner's Policy and thereby refuse to pay any request for transfers, withdrawals, loans or Death Benefit Proceeds until instructions are received from the appropriate regulator or law enforcement authorities.

Nonparticipation in Our Dividends

The Policies are "nonparticipating". This means that they do not participate in (or receive) any dividend we pay or distribution of our surplus.

DISTRIBUTION AND OTHER AGREEMENTS

First Variable Capital Services, Inc. ("FVCS"), 2801 Highway 280 South, Birmingham, Alabama 35223, acts as principal underwriter and distributor of the Policies. FVCS, our wholly owned subsidiary, was incorporated in Arkansas on July 26, 1991. It is registered with the SEC as a broker/dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc., We offer the Policies on a continuous basis. While we anticipate continuing to offer the Policies, we reserve the right to discontinue the offering at any time. We are no longer offering the Policy for sale to new purchasers.

FVCS and we have agreements with various broker/dealers under which their registered representatives, who are also licensed insurance agents, will sell the Policies. The commissions payable to a broker/dealer for sales of a Policy may vary with the sales agreement. However, we do not expect that, on an aggregate basis they will exceed 8.50% of the first year premium payment. Broker/Dealers may also receive expense allowances, wholesaler fees, bonuses and training fees.

As compensation for marketing, training and/or other services provided, we may pay broker-dealers wholesaler fees, training fees, asset-based amounts, bonuses, overrides and expense and/or marketing allowances in addition to ordinary commissions. These payments, which may be different for different broker-dealers, will be made by Protective Life or FVCS out of their own assets and will not change the amounts paid by Owners to purchase, hold, or surrender their Policies. We may use any of our corporate assets to pay commissions and other costs of distributing the Policies, including any profit from the mortality and expense risk charge or other fees and charges imposed under the Policies.

Additionally, FVCS receives fees assessed against shares of many of the Portfolios attributable to the Policies. These Portfolios have adopted distribution plans pursuant to Rule 12b-1 under the 1940 Act for the class of shares sold to certain Separate Account Investment Options. The plans permit these Portfolios to pay fees out of their assets to broker-dealers that distribute that class of shares. FVCS may pay some or all of these amounts to us as compensation for our provision of distribution and shareholder support services relating to the Policies on FVCS' behalf.

We pay commissions to broker-dealers through FVCS. FVCS does not retain any commission payment or other amounts as principal underwriter for the Policies. However, we may pay some or all of FVCS' operating and other expenses.

The Company serves as the custodian of the assets of the Separate Account.

OUR MANAGEMENT

Here is a list of our directors and executive officers and their principal business experience during the past five years. Unless otherwise noted, our directors are located at 2801 Highway 280 South, Birmingham, Alabama 35223 and all our executive officers are located at 2801 Highway 280 South, Birmingham, Alabama 35223.

Protective 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's directors and executive officers.

Name	Age	Position with Protective
John D. Johns	51	Chairman of the Board and Director
Allen W. Ritchie	46	Executive Vice President, Chief Financial Officer and Director
R. Stephen Briggs	54	Executive Vice President, Life and Annuity and Director
Richard J. Bielen	43	Senior Vice President, Chief Investment Officer, Treasurer and Director
J. William Hamer, Jr.	59	Director
Thomas Davis Keyes	50	Director
Carolyn King	53	Senior Vice President and Director
Deborah J. Long	50	Senior Vice President, General Counsel, Secretary and Director
Wayne E. Stuenkel	50	Senior Vice President and Chief Actuary and Director
Carl S. Thigpen	47	Senior Vice President, Chief Mortgage & Real Estate Officer
Judy Wilson	45	Senior Vice President, Stable Value Products
Steven G. Walker	44	Vice President and Controller, and Chief Accounting Officer
Jerry W. DeFoor	51	Vice President

Mr. Johns has been President and Chief Executive Officer of PLC since December 2001 and President and Chairman of the Board of Protective Life since December 2001. He was President and Chief Operating Officer of PLC from August 1996 to December 2001. He is a director of National Bank of Commerce of Birmingham and Alabama National Bancorporation and John H. Harland Company. Mr. Johns has been employed by the PLC and its subsidiaries since 1993.

Mr. Ritchie has been Executive Vice President and Chief Financial Officer of PLC since August 2001 and Executive Vice President, Chief Financial Officer and a Director of Protective Life since November 2001. From July 1998 until 2000, Mr. Ritchie was President, Chief Executive Officer and Director of Per-Se Technologies, Inc. From April 1998 until July 1998, he served as Chief Operating Officer of Per-Se. From January 1998 until April 1998, Mr. Ritchie served as Executive Vice President and Chief Financial Officer of Per-Se Technologies, Inc.

Mr. Briggs has been Executive Vice President, Individual Life of PLC and Protective Life since October 1993 and has responsibility for the Individual Life Division. Mr. Briggs has been associated with PLC and its subsidiaries since 1977.

Mr. Bielen has been Senior Vice President, Chief Investment Officer and Treasurer of PLC and Protective Life since January 2002. From August 1996 to January 2002 he was Senior Vice President, Investments of PLC and Protective Life. He is a director of Protective Investment Company. Mr. Bielen has been employed by PLC and its subsidiaries since 1991.

Mr. Hamer has been Senior Vice President and Chief Human Resources Officer of PLC since May 2001, and a Director of Protective Life since June 2001. Mr. Hamer served as Vice President, Human Resources of PLC from May 1982 to May 2001. Mr. Hamer has been employed by PLC and its subsidiaries since May 1982.

Mr. Keyes has been Senior Vice President, Information Services of PLC since April 1999, and a Director of Protective Life since May 1999. He was Vice President, Information Services of PLC from May 1992 to April 1999. Mr. Keyes has been employed by PLC and its subsidiaries since 1982.

Ms. King has been Senior Vice President of PLC and of Protective Life since April 1995. She is a director of Protective Investment Company.

Ms. Long has been Senior VP, Secretary and General Counsel of PLC since November 1996 and of Protective Life since September 1996. Ms. Long has been employed by PLC and its subsidiaries since 1993.

Mr. Stuenkel has been Senior Vice President and Chief Actuary of Protective Life and PLC since March 1987. Mr. Stuenkel is a Fellow in the Society of Actuaries and has been employed by PLC and its subsidiaries since 1978.

Mr. Thigpen has been Senior Vice President, Chief Mortgage and Real Estate Officer of PLC and Protective Life since January 2002. From March 2001 to January 2002, he was Senior Vice President, Investments of PLC and Protective Life. From May 1996 to March 2001, he was Vice President, Investments for PLC and Protective Life. Mr. Thigpen has been employed by PLC and its subsidiaries since 1992.

Ms. Wilson has been Senior Vice President, Stable Value Products of Protective Life and PLC since January 1995. Ms. Wilson has been employed by PLC and its subsidiaries since 1991.

Mr. DeFoor has been Vice President of Protective Life and Vice President, Business Planning of PLC since September, 2003. From April 1989 to September 2003 he served as Vice President and Controller, and Chief Accounting Officer of Protective Life and PLC. Mr. DeFoor is a certified public accountant and has been employed by PLC and its subsidiaries since August 1982.

Steven G. Walker has been Vice President and Controller, and Chief Accounting Officer of Protective Life and Vice President and Controller of PLC since September, 2003. Mr. Walker has been employed by PLC and its subsidiaries since August, 2002. From November 1998 to July 2002, Mr. Walker served as Senior Vice President and Chief Financial Officer of Aon Integramark.

FEDERAL TAX MATTERS

General

BECAUSE OF THE COMPLEXITY OF THE LAW AND BECAUSE TAX RESULTS WILL VARY ACCORDING TO YOUR IDENTITY AND STATUS, YOU SHOULD SEEK INDIVIDUALIZED LEGAL AND TAX ADVICE BEFORE PURCHASING OR TAKING ANY ACTION UNDER A POLICY.

We cannot provide a comprehensive description of the federal income tax consequences regarding the Policies in this prospectus, and special tax rules may apply that we have not discussed herein. Nor does this discussion address any applicable state, local, gift, inheritance, estate, and foreign or other tax laws. This discussion assumes that you, the Policy's owner, are a natural person and a U.S. citizen and resident. Finally, we would caution that the law and the related regulations and interpretations on which we base our tax analysis can change, and such changes can be retroactive. Protective Life makes no guarantee regarding any tax treatment — federal, state or local — of any Policy or transaction involving a policy.

Our Taxation

Generally, under current federal income tax law, the operations of the Separate Account and the Fixed Account do not require us to pay any tax. Thus, we currently impose no charge for our federal income taxes. However, we may decide to charge the Separate Account or Fixed Account for our federal income taxes, if there are changes in federal tax law.

We may incur state and local taxes (in addition to premium taxes) in several states. At present, these taxes are not significant and, accordingly, we do not currently impose a charge for them. If they increase, however, we may impose a charge for such taxes attributable to the Separate Account and/or Fixed Account.

Income Tax Treatment of Policy Benefits

�� Life Insurance. Section 7702 of the Internal Revenue Code provides that if certain tests are met, your Policy will qualify as a life insurance contract for federal tax purposes. The death benefit under a life insurance contract is generally excluded from the gross income of the Beneficiary. Also, the owner of a life insurance contract is generally not taxed on increases in the account value until withdrawn or surrendered.

Section 7702 limits the amount of premiums that may be invested in a life insurance contract and requires certain minimum amounts of life insurance coverage, relative to the account value. We will monitor compliance with these tests. As a result, we believe that the Death Benefits received under the Policies are generally excludable from the gross income of the Beneficiary pursuant to the provisions of Section 101 of the Code.

Acceleration of Death Benefits Rider. Similarly, we believe that accelerated death benefit payments, if permitted under your Policy because of the terminal illness of the Insured, in most cases will not constitute taxable income for you. Such payments may be taxable income to you, however, if:

•: you are not an insured person; or
•: you have an insurable interest in the insured person's life because that insured person is a director, officer or employee of yours or is otherwise financially interested in any trade or business carried on by you.

Modified Endowment Contracts. The Code contains provisions affecting certain life insurance policies that the Code refers to as "modified endowment contracts."

Modified endowment contracts result when cumulative premiums paid under a Policy at any time during the first seven Policy Years exceed the sum of the premiums that would have been paid by then if the Policy provided for paid up future benefits after the payment of seven level annual premiums ("seven-pay test"). The amount of premiums payable under the seven-pay test is calculated based upon certain assumptions regarding the policy's earnings and the use of a reasonable mortality charge. Riders to a Policy are considered part of the Policy for purposes of applying the seven-pay test.

Whenever there is a "material change" under a Policy, the Policy generally will be:

•: treated as a new Policy for purposes of determining whether it is a modified endowment contract; and
•: subjected to a new seven-pay test.

The Policy would become a modified endowment contract if, at the time of the material change or at any time during the next seven years, it failed to satisfy such new seven-pay test. A material change for these purposes could result from a change in death benefit option, election of additional rider benefits, an increase in a Policy's Face Amount, and certain other changes.

If a Policy's benefits are reduced during the first seven Policy years (or within seven years after a material change), the seven-pay premium limit will be redetermined based on the reduced level of benefits and applied retroactively for purposes of the seven-pay test. (Such a reduction in benefits could include, for example, any decrease in Face Amount that you request or, in some cases, a partial withdrawal or termination or reduction of benefits under a rider.) If you have already paid (or subsequently pay) more premiums than permitted by the recalculated seven-pay limit, your Policy will become a modified endowment contract.

Any Policy that you acquire in exchange for another life insurance policy that is a modified endowment contract will also be a modified endowment contract. However, an exchange under Section 1035 of the Code of a life insurance policy entered into before June 21, 1988 will not make the

new policy a modified endowment contract if you pay no additional premiums and there is no benefit increase as a result of the exchange.

Other Tax Effects of Policy Changes. Changes made to your Policy (for example, a decrease in benefits or a lapse or reinstatement of a Policy) may have other tax effects. These include impacting the maximum amount of premiums you can pay under the Policy, as well as the maximum amount of Account Value you can maintain under the Policy.

Taxation of Pre-Death Distributions from a Policy that is a Modified Endowment Contract. If your Policy falls within the definition of a modified endowment contract, the following rules will apply to pre-death distributions:

•: You must include distributions, such as withdrawals, in your gross income subject to federal tax, to the extent the Account Value of the Policy exceeds your investment in the Policy. Any additional amounts you receive, other than Policy loans, will not constitute currently taxable income, but will reduce your investment in the Policy.
•: Policy Loans, including any increase in the amount of the loan to pay interest, also constitute distributions to you for these purposes. Your investment in the Policy, however, will increase by the amount of any loan included in your gross income.
•: If your Policy terminates after a grace period while there is a Policy loan, the cancellation of such loan and accrued loan interest will also constitute a distribution to you for these purposes to the extent not previously treated as such.
•: On the Maturity Date or upon a full surrender, any excess of the proceeds (including any amounts we use to discharge any loan and accrued loan interest) over your investment in the Policy, will also constitute a distribution to you for these purposes.
•: A change of ownership or Policy assignment also can constitute a distribution for these purposes. For example, a collateral assignment will subject any gain in the Policy to taxation.

For purposes of determining the amount of any distribution that is included in gross income, you must treat all modified endowment contracts that we or our affiliates issue to you during any calendar year as a single modified endowment contract.

The taxable amount of any distribution from a Policy that is a modified endowment contract also will incur an additional penalty tax equal to 10% of such taxable amount unless the distribution:

•: is made on or after you attain age 59¹/2;
•: results from your becoming disabled (as defined in the Code); or
•: forms part of a series of substantially equal periodic payments made no less frequently than annually for your life (or life expectancy) or for the joint lives (or life expectancies) of the owner or the Beneficiary.

The Monthly Deductions under a modified endowment contract attributable to any Other Insured Person Rider for a person who is not a member of your family may constitute distributions from your policy for tax purposes. However, the Beneficiary of this rider should not have to pay federal income tax on any benefit received.

Distributions that occur during a Policy Year in which a Policy becomes a modified endowment contract and during any subsequent Policy Years, will be taxed as described in the preceding paragraphs. In addition, any distributions from a Policy within two years before it becomes a modified endowment contract also will be subject to tax in this manner. This means that a distribution made from a Policy that is not a modified endowment contract could later become taxable as a distribution from a modified endowment contract.

Taxation of Pre-Death Distributions from a Policy that is not a Modified Endowment Contract ("MEC"). As long as a Policy remains in force as a non- modified endowment contract, you will not pay current income tax on the proceeds from any Policy loan. Interest you pay on the loan generally will not be tax deductible, however.

After the first 15 Policy Years, you will not pay current federal income tax on any partial withdrawals you make, except to the extent such withdrawals exceed your "investment" in the Policy. (The "investment" generally will equal the premiums you have paid, less the amount of any previous distributions from your Policy that were not taxable.) During the first 15 Policy Years, you could have to pay federal income tax on certain withdrawals that reduce the Death Benefit, to the extent that your Policy's Account Value exceeds your investment in the Policy.

On the Maturity Date or upon full surrender, any excess of proceeds (including amounts we use to discharge any Policy loan and accrued loan interest) over your investment in the Policy, will constitute taxable income to you for federal income tax purposes. In addition, if your Policy terminates after a grace period while you have a Policy loan outstanding, the cancellation of such loan and accrued loan interest will be treated as a distribution and could be subject to tax under the above rules. Finally, if you assign or transfer rights or benefits under your Policy, you may be deemed to have received a distribution from the Policy, all or part of which may be taxable.

Diversification Requirements

The Internal Revenue Code provides that a variable life insurance policy will not be treated as a life insurance contract under the Code for any period (and any subsequent period) for which the related investments are not adequately diversified. If your Policy did not qualify as life insurance, you would be subject to immediate taxation on the increases in your Policy's Account Value, plus the cost of insurance protection under your Policy. We intend that all Portfolios of the Funds in which your Policy may invest will comply with the diversification requirements.

Investment Control. In certain circumstances, variable life policy owners may be considered the owners, for federal income tax purposes, of the assets of a separate account used to support their policies. In those circumstances, income and gains from the separate account would be includable in the policy owners' gross income. The Internal Revenue Service has stated in published rulings that a policy owner will be considered the owner of the assets of a separate account if the owner possesses incidents of ownership in those assets such as the ability to exercise investment control over the assets. The amount of investment control which you may exercise under a Policy differs in some respects from the situation addressed in published rulings issued by the Internal Revenue Service in which it held that variable life insurance policy owners were not deemed, for federal income tax purposes, to own the related assets held in a separate account by the issuing insurance company. It is possible that these differences, such as your ability to transfer among investment choices or the number and type of investment choices available, would cause you to be taxed as if you were the owner of the Portfolio shares that are attributable to your Policy. In that case, you would be liable for income tax on an allocable portion of any current income and gains realized by the Separate Account, even though you have received no distribution of those amounts.

Due to the uncertainty in this area, we reserve the right to modify your Policy in an attempt to maintain its intended tax treatment.

ADVERTISING PRACTICES

From time to time, articles discussing the Separate Account's investment experience, performance rankings and other characteristics may appear in national publications. Some or all of these publishers or ranking services (including, but not limited to, Lipper Analytical Services Inc. and Morningstar, Inc.) may publish their own rankings or performance reviews of variable contract separate accounts, including the

Separate Account. We may use references to, reprints, or portions of reprints of such articles or rankings as sales literature or advertising material. We may also use rankings that indicate the names of other variable policy separate accounts and their investment experience.

We, the Funds, or other parties may develop articles and releases about the following matters in relation to the Separate Account, the Funds or individual Portfolios: asset levels, and sales volumes, statistics and analyses of industry sales volume and asset levels, or other characteristics. Our promotional material for the Policies and Separate Accounts can refer to, or be a reprint of, such articles and releases. Such literature may refer to personnel of an adviser or sub-adviser who have investment management responsibility, and their investment style. The reference may allude to or include excerpts from articles appearing in the media.

The advertising and sales literature for the Policies and the Separate Account may refer to historical, current and prospective economic trends. In addition, we may publish advertising and sales literature concerning topics of general investor interest for the benefit of registered representatives and prospective purchasers of Policies. These materials may include, but are not limited to, discussions of college planning, retirement planning, and reasons for investing and historical examples of the investment performance of various classes of securities, securities markets and indices.

LEGAL MATTERS

State Regulation

We are subject to the insurance laws of Tennessee and to regulation by the Tennessee Insurance Department. The National Association of Insurance Commissioners periodically examines our operations. Such regulation does not, however, involve any supervision of management or investment practices or policies. In addition, we are subject to regulation under the insurance laws of other jurisdictions in which we may operate. As a result, various time periods and other terms and conditions described in this prospectus may vary depending on where you reside. We will reflect any applicable variations in your Policy and riders, or related endorsements.

Legal Proceedings

Protective Life and its subsidiaries, like other insurance companies, in the ordinary course of business are involved in some class action and other lawsuits, or alternatively in arbitration. In some class action and other lawsuits involving insurance companies, substantial damages have been sought and material settlement payments have been made. Although the outcome of any litigation or arbitration cannot be predicted, Protective Life believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse impact on FVCS's, Protective Life's or the Variable Account's financial position.

INDEPENDENT ACCOUNTANTS

The statement of assets and liabilities of Separate Account VL as of December 31, 2002 and the related statements of operations and changes in net assets for the year then ended and the consolidated balance sheets of Protective Life Insurance Company as of December 31, 2002 and 2001 and the related consolidated statements of income, share-owner's equity and cash flows for each of the three years ended December 31, 2002 and the related financial statement schedules included in this Statement of Additional Information and in the registration statement have been so included herein in reliance on the reports of PricewaterhouseCoopers LLP, Birmingham, Alabama, independent accountants, given on the authority of said firm as experts in accounting and auditing.

The statement of assets and liabilities of Separate Account VL as of December 31, 2001 and the related statements of operations and changes in net assets for the years ended December 31, 2001 and

2000 have been included herein in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. Their principal business address is 303 East Wacker Drive Chicago, Illinois 60601.

With respect to the unaudited financial information for Protective Life and its subsidiaries for the three and nine-month periods ended September 30, 2003 and 2002 included in this Registration Statement on Form S-6 ("Registration Statement"), the independent accountants have reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report included in this Registration Statement states that they did not audit and they do not express an opinion on such interim financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. The accountants are not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended, for their report on the unaudited interim financial information because that report is not a "report" or a "part" of the Registration Statement prepared or certified by the accountants within the meaning of Sections 7 and 11 of the Securities Act of 1933, as amended.

The Statements of assets and liabilities of Separate Account VL as of September 30, 2003, and the related statements of operations and changes in net assets for the nine-month period then ended, appearing herein, are unaudited.

REGISTRATION STATEMENT

We have filed a registration statement with the SEC under the Securities Act of 1933. This prospectus omits certain information contained in the Registration Statement. You can obtain copies of such additional information from the SEC upon payment of the prescribed fee.

INDEX TO FINANCIAL STATEMENTS

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL
Report of Independent Accountants		F-2
Statement of Assets and Liabilities as of December 31, 2002		F-3
Statement of Operations for the year ended December 31, 2002		F-8
Statement of Changes in Net Assets for the year ended December 31, 2002		F-13
Notes to Financial Statements		F-18
Report of Independent Accountants		F-25
Statement of Assets and Liabilities as of December 31, 2001		F-26
Statement of Operations for the year ended December 31, 2001		F-31
Statement of Operations for the year ended December 31, 2000		F-36
Statement of Changes in Net Assets for the year ended December 31, 2001		F-41
Statement of Changes in Net Assets for the year ended December 31, 2000		F-46
Notes to Financial Statements		F-50
Condensed Statement of Assets and Liabilities as of September 30, 2003 (unaudited)		F-58
Condensed Statement of Operations for the nine month period ended September 30, 2003 (unaudited)		F-63
Condensed Statement of Changes in Net Assets for the period ended September 30, 2003 (unaudited)		F-68
Notes to Condensed Financial Statements		F-73
PROTECTIVE LIFE INSURANCE COMPANY
Report of Independent Auditors		F-80
Consolidated Condensed Statements of Income for the nine-month periods ended September 30, 2003 and 2002 (unaudited)		F-81
Consolidated Condensed Balance Sheet as of September 30, 2003 (unaudited)		F-82
Consolidated Condensed Statements of Cash Flows for the nine-month periods ended September 30, 2003 and 2002 (unaudited)		F-83
Notes to Consolidated Condensed Financial Statements (unaudited)		F-84
Report of Independent Accountants		F-94
Consolidated Statements of Income for the years ended December 31, 2002, 2001, and 2000		F-95
Consolidated Balance Sheets as of December 31, 2002 and 2001		F-96
Consolidated Statements of Share-Owner's Equity for the years ended December 31, 2002, 2001, and 2000		F-97
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000		F-98
Notes to Consolidated Financial Statements		F-99
Financial Statement Schedules:
	Schedule III — Supplementary Insurance Information	S-1
	Schedule IV — Reinsurance	S-2
	Schedule V — Valuation Accounts	S-3

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

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
First Variable Life Insurance Company and
Contract Owners of Separate Account VL

In our opinion, the accompanying statement of assets and liabilities and the related statements of operations and changes in net assets present fairly, in all material respects, the financial position of Separate Account VL (the Fund) at December 31, 2002 and the results of its operations and changes in net assets for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, 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 audit provides a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Birmingham, Alabama
June 13, 2003

F-2

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF ASSETS AND LIABILITIES
December 31, 2002
(In Thousands)

			Variable Investors Series Trust
	Federated Prime Money Fund II		Growth Division		High Income Bond Division		Multiple Strategies Division		Matrix Equity Division		US Government Bond Division		World Equity Division		Growth and Income Division		Small Capital Growth Division		AIM Capital Appreciation
Assets
Investments in mutual funds at fair value	$	2,434	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	1,733
Receivable from First Variable Life Insurance Company		0		0		0		0		0		0		0		0		0		0

Total assets		2,434		0		0		0		0		0		0		0		0		1,733

Liabilities
Payable to First Variable Life Insurance Company		1		0		0		0		0		0		0		0		0		0

Net assets-	$	2,433	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	1,733

The accompanying notes are an integral part of these financial statements.

F-3

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
December 31, 2002
(In Thousands)

	AIM Growth		American Century VP Value		DeAM VIT Equity Index		DeAM VIT Small Cap Index		Templeton Int'l Securities		Lord Abbett Growth and Income		MFS New Discovery (IC)		MFS Growth (IC)
Assets
Investments in mutual funds at fair value	$	1,472	$	1,680	$	1,798	$	527	$	1,155	$	1,729	$	399	$	48
Receivable from First Variable Life Insurance Company		1		1		0		0		0		0		0		0

Total assets		1,473		1,681		1,798		527		1,155		1,729		399		48

Liabilities
Payable to First Variable Life Insurance Company		0		0		0		0		0		0		0		0

Net assets-	$	1,473	$	1,681	$	1,798	$	527	$	1,155	$	1,729	$	399	$	48

The accompanying notes are an integral part of these financial statements.

F-4

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
December 31, 2002
(In Thousands)

	MFS Investors Trust Series I		Templeton Growth Securities		DeAM VIT EAFE Index		Fidelity Contra- fund		Fidelity Growth Opportunities		Fidelity Equity Income		Federated High Income Bond		Seligman Communication and Information
Assets
Investments in mutual funds at fair value	$	59	$	677	$	219	$	1,136	$	152	$	870	$	706	$	685
Receivable from First Variable Life Insurance Company		0		0		0		0		0		0		0		0

Total assets		59		677		219		1,136		152		870		706		685

Liabilities
Payable to First Variable Life Insurance Company		0		0		0		0		0		0		0		0

Net assets-	$	59	$	677	$	219	$	1,136	$	152	$	870	$	706	$	685

The accompanying notes are an integral part of these financial statements.

F-5

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
December 31, 2002
(In Thousands)

	MFS New Discovery (SC)		MFS Investors Growth Stock (SC)		Investors Trust Series II		Pilgrim Baxter Small Cap		Fidelity Growth and Income		American Century VP Ultra		American Century International		American Century VP Income and Growth		Federated US Government II
Assets
Investments in mutual funds at fair value	$	1,496	$	715	$	567	$	1,684	$	1,820	$	1,874	$	326	$	545	$	1,267
Receivable from First Variable Life Insurance Company		0		0		0		2		0		0		0		0		0

Total assets		1,496		715		567		1,686		1,820		1,874		326		545		1,267

Liabilities
Payable to First Variable Life Insurance Company		0		0		0		0		0		0		0		0		0

Net assets-	$	1,496	$	715	$	567	$	1,686	$	1,820	$	1,874	$	326	$	545	$	1,267

The accompanying notes are an integral part of these financial statements.

F-6

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
December 31, 2002
(In Thousands)

	Templeton Developing Markets		Franklin Small Cap		INVESCO Dynamics		INVESCO Health Sciences		INVESCO Financial Services		INVESCO Real Estate		MFS Utility		MFS Total Return — SC		Seligman Small Cap		Total
Assets
Investments in mutual funds at fair value	$	90	$	47	$	162	$	156	$	244	$	248	$	69	$	722	$	445	$	29,956
Receivable from First Variable Life Insurance Company		0		0		0		0		0		0		0		0		0		4

Total assets		90		47		162		156		244		248		69		722		445		29,960

Liabilities
Payable to First Variable Life Insurance Company		0		0		0		0		0		0		0		0		0		1

Net assets-	$	90	$	47	$	162	$	156	$	244	$	248	$	69	$	722	$	445	$	29,959

The accompanying notes are an integral part of these financial statements.

F-7

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF OPERATIONS
For the Year Ended December 31, 2002
(In Thousands)

			Variable Investors Series Trust
	Federated Prime Money Fund II		Growth Division		High Income Bond Division		Multiple Strategies Division		Matrix Equity Division		US Govt. Bond Division		World Equity Division		Growth and Income Division		Small Capital Growth Division
Investment income — dividends	$	40	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		22		0		0		0		0		0		0		0		0

Net investment income (loss)		18		0		0		0		0		0		0		0		0

Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		0		0		0		0		0		0		0		0		0
Net unrealized appreciation (depreciation) on investments during the year		0		0		0		0		0		0		0		0		0
Capital gain distribution		0		0		0		0		0		0		0		0		0

Net realized and unrealized gain (loss) on investments		0		0		0		0		0		0		0		0		0

Net increase (decrease) in net assets resulting from operations	$	18	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

The accompanying notes are an integral part of these financial statements.

F-8

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF OPERATIONS, CONTINUED
For the Year Ended December 31, 2002
(In Thousands)

	AIM Capital Appreciation			AIM Growth			American Century VP Value			DeAM VIT Equity Index			DeAM VIT Small Cap Index			Templeton International Securities			Lord Abbett Growth and Income			MFS New Discovery (IC)			MFS Growth (IC)
Investment income — dividends	$	0		$	0		$	16		$	21		$	4		$	18		$	11		$	0		$	0
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		16			12			14			14			5			9			16			5			1

Net investment income (loss)		(16	)		(12	)		2			7			(1	)		9			(5	)		(5	)		(1	)

Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		(625	)		(292	)		(13	)		(125	)		(84	)		(66	)		(90	)		(48	)		(17	)
Net unrealized appreciation (depreciation) on investments during the year		(3	)		(349	)		(355	)		(383	)		(102	)		(191	)		(347	)		(182	)		(6	)
Capital gain distribution		0			0			103			0			0			0			0			0			0

Net realized and unrealized gain (loss) on investments		(628	)		(641	)		(265	)		(508	)		(186	)		(257	)		(437	)		(230	)		(23	)

Net increase (decrease) in net assets resulting from operations	$	(644	)	$	(653	)	$	(263	)	$	(501	)	$	(187	)	$	(248	)	$	(442	)	$	(235	)	$	(24	)

The accompanying notes are an integral part of these financial statements.

F-9

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF OPERATIONS, CONTINUED
For the Year Ended December 31, 2002
(In Thousands)

	MFS Investors Trust Series I			Templeton Growth Securities			DeAM VIT EAFE Index			Fidelity Contrafund			Fidelity Growth Opportunities			Fidelity Equity Income			Federated High Income Bond			Seligman Comm. And Information
Investment income — dividends	$	0		$	17		$	4		$	9		$	1		$	13		$	81		$	0
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		0			5			2			9			1			7			6			6

Net investment income (loss)		0			12			2			0			0			6			75			(6	)

Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		(5	)		(39	)		(15	)		(43	)		(41	)		(28	)		(52	)		(243	)
Net unrealized appreciation (depreciation) on investments during the year		(13	)		(150	)		(45	)		(96	)		(26	)		(182	)		(25	)		(171	)
Capital gain distribution		0			17			0			0			0			19			0			0

Net realized and unrealized gain (loss) on investments		(18	)		(172	)		(60	)		(139	)		(67	)		(191	)		(77	)		(414	)

Net increase (decrease) in net assets resulting from operations	$	(18	)	$	(160	)	$	(58	)	$	(139	)	$	(67	)	$	(185	)	$	(2	)	$	(420	)

The accompanying notes are an integral part of these financial statements.

F-10

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF OPERATIONS, CONTINUED
For the Year Ended December 31, 2002
(In Thousands)

	MFS New Discovery (SC)			MFS Investors Growth Stock (SC)			Investors Trust Series II			Fidelity Pilgrim Baxter Small Cap			Growth and Income			American Century VP Ultra			American Century Int'l			American Century VP Income and Growth			Federated US Govt. II		Templeton Developing Markets
Investment income — dividends	$	0		$	0		$	3		$	0		$	31		$	4		$	4		$	5		$	47	$	2
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		12			7			5			12			17			17			4			4			10		1

Net investment income (loss)		(12	)		(7	)		(2	)		(12	)		14			(13	)		0			1			37		1

Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		(162	)		(212	)		(33	)		(198	)		(120	)		(94	)		(23	)		(36	)		21		(5	)
Net unrealized appreciation (depreciation) on investments during the year		(519	)		(98	)		(127	)		(641	)		(325	)		(500	)		(81	)		(74	)		40		(4	)
Capital gain distribution		0			0			0			0			0			0			0			0			0		0

Net realized and unrealized gain (loss) on investments		(681	)		(310	)		(160	)		(839	)		(445	)		(594	)		(104	)		(110	)		61		(9	)

Net increase (decrease) in net assets resulting from operations	$	(693	)	$	(317	)	$	(162	)	$	(851	)	$	(431	)	$	(607	)	$	(104	)	$	(109	)	$	98	$	(8	)

The accompanying notes are an integral part of these financial statements.

F-11

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF OPERATIONS, CONTINUED
For the Year Ended December 31, 2002
(In Thousands)

	Franklin Small Cap			INVESCO Dynamics			INVESCO Health Sciences			INVESCO Financial Services			INVESCO Real Estate			MFS Utility			MFS Total Return			Seligman Small Cap			Total
Investment income — dividends	$	0		$	0		$	0		$	2		$	3		$	1		$	13		$	0		$	350
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		0			1			1			2			1			0			6			5			255

Net investment income (loss)		0			(1	)		(1	)		0			2			1			7			(5	)		95

Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		(15	)		(57	)		(14	)		(18	)		(2	)		(4	)		(15	)		(51	)		(2,864	)
Net unrealized appreciation (depreciation) on investments during the year		(9	)		(51	)		(37	)		(36	)		(2	)		(11	)		(56	)		(108	)		(5,265	)
Capital gain distribution		0			0			0			0			0			0			11			6			156

Net realized and unrealized gain (loss) on investments		(24	)		(108	)		(51	)		(54	)		(4	)		(15	)		(60	)		(153	)		(7,973	)

Net increase (decrease) in net assets resulting from operations	$	(24	)	$	(109	)	$	(52	)	$	(54	)	$	(2	)	$	(14	)	$	(53	)	$	(158	)	$	(7,878	)

The accompanying notes are an integral part of these financial statements.

F-12

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 2002
(In Thousands)

				Variable Investors Series Trust
	Federated Prime Money Fund II			Growth Division		High Income Bond Division		Multiple Strategies Division		Matrix Equity Division		US Govt. Bond Division		World Equity Division		Growth and Income Division		Small Capital Growth Division
From operations:
Net investment income (loss)	$	18		$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Realized gain (loss) on fund shares redeemed		0			0		0		0		0		0		0		0		0
Net unrealized appreciation (depreciation) on investments during the period		0			0		0		0		0		0		0		0		0
Capital gain distributions		0			0		0		0		0		0		0		0		0

Net increase (decrease) in net assets resulting from operations		18			0		0		0		0		0		0		0		0

From contract owner transactions:
Contract owners' net payments		527			0		0		0		0		0		0		0		0
Cost of insurance and administrative charges		(225	)		0		0		0		0		0		0		0		0
Surrenders		(707	)		0		0		0		0		0		0		0		0
Death benefits		(29	)		0		0		0		0		0		0		0		0
Net policy loan repayments		37			0		0		0		0		0		0		0		0
Transfers (to) from other portfolios		327			0		0		0		0		0		0		0		0

Increase (decrease) in net assets from contract owner transactions		(70	)		0		0		0		0		0		0		0		0

Increase (decrease) in net assets		(52	)		0		0		0		0		0		0		0		0
Net assets at beginning of period		2,485			0		0		0		0		0		0		0		0

Net assets at end of period	$	2,433		$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

The accompanying notes are an integral part of these financial statements.

F-13

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF CHANGES IN NET ASSETS, CONTINUED
For the Year Ended December 31, 2002
(In Thousands)

	AIM Capital Appreciation			AIM Growth			American Century VP Value			DeAm VIT Equity Index			DeAm VIT Small Cap Index			Templeton Int'l Securities			Lord Abbett Growth & Income			MFS New Discovery (IC)			MFS Growth (IC)
From operations:
Net investment income (loss)	$	(16	)	$	(12	)	$	2		$	7		$	(1	)	$	9		$	(5	)	$	(5	)	$	(1	)
Realized gain (loss) on fund shares redeemed		(625	)		(292	)		(13	)		(125	)		(84	)		(66	)		(90	)		(48	)		(17	)
Net unrealized appreciation (depreciation) on investments during the period		(3	)		(349	)		(355	)		(383	)		(102	)		(191	)		(347	)		(182	)		(6	)
Capital gain distributions		0			0			103			0			0			0			0			0			0

Net increase (decrease) in net assets resulting from operations		(644	)		(653	)		(263	)		(501	)		(187	)		(248	)		(442	)		(235	)		(24	)

From contract owner transactions:
Contract owners' net payments		619			560			386			355			157			322			354			(3	)		0
Cost of insurance and administrative charges		(234	)		(186	)		(195	)		(157	)		(68	)		(162	)		(184	)		(31	)		(5	)
Surrenders		(92	)		(93	)		(78	)		(74	)		(28	)		(52	)		(113	)		(30	)		(10	)
Death benefits		(42	)		(23	)		(5	)		(2	)		(2	)		(2	)		(26	)		(25	)		0
Net policy loan repayments		(30	)		(5	)		(27	)		(15	)		(24	)		(13	)		(34	)		(14	)		0
Transfers (to) from other portfolios		(597	)		(147	)		(17	)		(40	)		(132	)		110			(163	)		(79	)		(4	)

Increase (decrease) in net assets from contract owner transactions		(376	)		106			64			67			(97	)		203			(166	)		(182	)		(19	)

Increase (decrease) in net assets		(1,020	)		(547	)		(199	)		(434	)		(284	)		(45	)		(608	)		(417	)		(43	)
Net assets at beginning of period		2,753			2,020			1,880			2,232			811			1,200			2,337			816			91

Net assets at end of period	$	1,733		$	1,473		$	1,681		$	1,798		$	527		$	1,155		$	1,729		$	399		$	48

The accompanying notes are an integral part of these financial statements.

F-14

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF CHANGES IN NET ASSETS, CONTINUED
For the Year Ended December 31, 2002
(In Thousands)

	MFS Investors Trust Series I			Templeton Growth Securities			DeAm VIT EAFE Index			Fidelity Contrafund			Fidelity Growth Opportunities			Fidelity Equity Income			Federated High Income Bond			Seligman Comm. & Information
From operations:
Net investment income (loss)	$	0		$	12		$	2		$	0		$	0		$	6		$	75		$	(6	)
Realized gain (loss) on fund shares redeemed		(5	)		(39	)		(15	)		(43	)		(41	)		(28	)		(52	)		(243	)
Net unrealized appreciation (depreciation) on investments during the period		(13	)		(150	)		(45	)		(96	)		(26	)		(182	)		(25	)		(171	)
Capital gain distributions		0			17			0			0			0			19			0			0

Net increase (decrease) in net assets resulting from operations		(18	)		(160	)		(58	)		(139	)		(67	)		(185	)		(2	)		(420	)

From contract owner transactions:
Contract owners' net payments		0			176			78			302			67			186			102			329
Cost of insurance and administrative charges		(6	)		(79	)		(23	)		(196	)		(52	)		(72	)		(69	)		(120	)
Surrenders		(1	)		(47	)		(8	)		(62	)		(4	)		(8	)		(24	)		(34	)
Death benefits		0			0			0			0			0			0			(3	)		0
Net policy loan repayments		(1	)		5			(1	)		(29	)		(2	)		(40	)		38			(9	)
Transfers (to) from other portfolios		(2	)		(33	)		3			53			36			112			(271	)		0

Increase (decrease) in net assets from contract owner transactions		(10	)		22			49			68			45			178			(227	)		166

Increase (decrease) in net assets		(28	)		(138	)		(9	)		(71	)		(22	)		(7	)		(229	)		(254	)
Net assets at beginning of period		87			815			228			1,207			174			877			935			939

Net assets at end of period	$	59		$	677		$	219		$	1,136		$	152		$	870		$	706		$	685

The accompanying notes are an integral part of these financial statements.

F-15

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF CHANGES IN NET ASSETS, CONTINUED
For the Year Ended December 31, 2002
(In Thousands)

	MFS New Discovery (SC)			MFS Investors Growth Stock (SC)			MFS Investors Trust Series II			Pilgrim Baxter Small Cap			Fidelity Growth and Income			American Century VP Ultra			American Century Int'l			American Century VP Income & Growth			Federated US Govt. II
From operations:
Net investment income (loss)	$	(12	)	$	(7	)	$	(2	)	$	(12	)	$	14		$	(13	)	$	0		$	1		$	37
Realized gain (loss) on fund shares redeemed		(162	)		(212	)		(33	)		(198	)		(120	)		(94	)		(23	)		(36	)		21
Net unrealized appreciation (depreciation) on investments during the period		(519	)		(98	)		(127	)		(641	)		(325	)		(500	)		(81	)		(74	)		40
Capital gain distributions		0			0			0			0			0			0			0			0			0

Net increase (decrease) in net assets resulting from operations		(693	)		(317	)		(162	)		(851	)		(431	)		(607	)		(104	)		(109	)		98

From contract owner transactions:
Contract owners' net payments		539			288			172			506			248			435			17			84			165
Cost of insurance and administrative charges		(211	)		(105	)		(70	)		(228	)		(150	)		(196	)		(24	)		(54	)		(116	)
Surrenders		(68	)		(54	)		(32	)		(62	)		(110	)		(99	)		(15	)		(16	)		(36	)
Death benefits		(23	)		0			(2	)		(11	)		(38	)		(46	)		(2	)		(3	)		(8	)
Net policy loan repayments		(36	)		(5	)		0			4			9			(19	)		(26	)		3			(10	)
Transfers (to) from other portfolios		(9	)		(364	)		(46	)		526			(238	)		(392	)		(44	)		103			(52	)

Increase (decrease) in net assets from contract owner transactions		192			(240	)		22			735			(279	)		(317	)		(94	)		117			(57	)

Increase (decrease) in net assets		(501	)		(557	)		(140	)		(116	)		(710	)		(924	)		(198	)		8			41
Net assets at beginning of period		1,997			1,272			707			1,802			2,530			2,798			524			537			1,226

Net assets at end of period	$	1,496		$	715		$	567		$	1,686		$	1,820		$	1,874		$	326		$	545		$	1,267

The accompanying notes are an integral part of these financial statements.

F-16

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENT OF CHANGES IN NET ASSETS, CONTINUED
For the Year Ended December 31, 2002
(In Thousands)

	Templeton Developing Markets			Franklin Small Cap			INVESCO Dynamics			INVESCO Health Sciences			INVESCO Financial Services			INVESCO Real Estate			MFS Utility			MFS Total Return			Seligman Small Cap			Total
From operations
Net investment income (loss)	$	1		$	0		$	(1	)	$	(1	)	$	0		$	2		$	1		$	7		$	(5	)	$	95
Realized gain (loss) on fund shares redeemed		(5	)		(15	)		(57	)		(14	)		(18	)		(2	)		(4	)		(15	)		(51	)		(2,864	)
Net unrealized appreciation (depreciation) on investments during the period		(4	)		(9	)		(51	)		(37	)		(36	)		(2	)		(11	)		(56	)		(108	)		(5,265	)
Capital gain distributions		0			0			0			0			0			0			0			11			6			156

Net increase (decrease) in net assets resulting from operations		(8	)		(24	)		(109	)		(52	)		(54	)		(2	)		(14	)		(53	)		(158	)		(7,878	)

From contract owner transactions:
Contract owners' net payments		19			16			67			61			62			31			32			118			117			7,494
Cost of insurance and administrative charges		(12	)		(5	)		(17	)		(25	)		(22	)		(17	)		(12	)		(73	)		(64	)		(3,465	)
Surrenders		(13	)		(1	)		(3	)		(14	)		(15	)		(16	)		(1	)		(38	)		(22	)		(2,080	)
Death benefits		0			0			0			0			0			0			(1	)		0			0			(293	)
Net policy loan repayments		(8	)		0			(8	)		(7	)		(8	)		0			0			(15	)		(23	)		(313	)
Transfers (to) from other portfolios		95			(109	)		54			17			55			196			11			24			59			(958	)

Increase (decrease) in net assets from contract owner transactions		81			(99	)		93			32			72			194			29			16			67			385

Increase (decrease) in net assets		73			(123	)		(16	)		(20	)		18			192			15			(37	)		(91	)		(7,493	)
Net assets at beginning of period		17			170			178			176			226			56			54			759			536			37,452

Net assets at end of period	$	90		$	47		$	162		$	156		$	244		$	248		$	69		$	722		$	445		$	29,959

The accompanying notes are an integral part of these financial statements.

F-17

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

NOTES TO FINANCIAL STATEMENTS

For the Year Ended December 31, 2002

1. ORGANIZATION

First Variable Life Insurance Company — Separate Account VL (the Fund), which began operations on March 31, 1997, is a segregated account of First Variable Life Insurance Company (First Variable Life) and is registered as a unit investment trust under the Investment Company Act of 1940, as amended (the 1940 Act).

On December 28, 2001, the Fund executed and filed with the Securities and Exchange Commission a substitution of shares of the eight portfolios of the Variable Investors Series Trust for shares of certain other portfolios of other variable insurance product funds. The remaining sub-accounts are invested in the Federated Prime Money Fund II, AIM Capital Appreciation, AIM Growth, American Century VP Value, DeAM VIT Equity Index, DeAM VIT Small Capital Index, Franklin Templeton International Securities, Lord Abbett Growth and Income, MFS New Discovery (IC), MFS Growth (IC), MFS Growth and Income (IC), Templeton Growth Securities, DeAM VIT EAFE Index, Fidelity Contrafund, Fidelity Growth Opportunities, Fidelity Equity Income, Federated High Income Bond II, Seligman Communication & Information, MFS New Discovery (SC), MFS Growth (SC), MFS Growth and Income (SC), Pilgrim Baxter Small Cap, Fidelity Income and Growth, American Century VP Ultra, American Century International, American Century VP Income & Growth, Federated US Government II, Templeton Developing Markets, Franklin Small Cap, INVESCO Dynamics, INVESCO Health Sciences, INVESCO Financial Services, INVESCO Real Estate, MFS Utility, MFS Total Return, and Seligman Small Cap, all of which are open-end management investment companies. Under applicable insurance law, the assets and liabilities of the Fund are clearly identified and distinguished from the other assets and liabilities of First Variable Life. The Fund cannot be charged with liabilities arising out of any other business of First Variable Life.

First Variable Life is a wholly-owned subsidiary of Protective Life Insurance Company (Protective) located in Birmingham, Alabama. Protective purchased First Variable Life on October 1, 2001. Prior to the sale, First Life was a subsidiary of Ilona Financial Group, Inc. (Ilona). First Variable Life is domiciled in the State of Arkansas.

The assets of the Fund are not available to meet the general obligations of First Variable Life or Protective, and are held for the exclusive benefit of the contract owners participating in the Fund.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Fund in preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America.

Investments — The Fund's investments in the corresponding series of mutual funds are stated at the net asset values of the respective series, which approximates fair value. Investment transactions are accounted for on the date the shares are purchased or sold. For purposes of determining realized gains and losses on the sales of investments, the cost of such investments is determined on the weighted average method. Dividends and capital gain distributions received from the mutual funds are reinvested in additional shares of the respective mutual funds and are recorded as income by the Fund on the ex-dividend date.

Federal Income Taxes — For Federal income tax purposes, operations of the Fund are combined with those of First Variable Life, which is taxed as a life insurance company. First Variable Life anticipates no tax liability resulting from the operations of the Fund. Therefore, no provision for income taxes has been charged against the Fund.

F-18

Contracts in Annuity Payment Period — Annuity reserves are computed for currently payable contracts according to the 1983 Individual Annuity Mortality Table, using an assumed investment return (AIR) equal to the AIR of the specific contracts, which varies between 3% and 4%. Charges to annuity reserves for mortality and risk expense are reimbursed to First Variable Life if the reserves required are less than originally estimated. If additional reserves are required, First Variable Life reimburses the account.

Surrender Charges — First Variable Life may assess a surrender charge on some products against the net policy assets of a contract owner if the policy is surrendered early. This surrender charge is deducted prior to the payment of any amounts to the contract owner. This surrender charge is made to reimburse First Variable Life for some of the expenses incurred with the initial distribution of the policies. Surrender charges are assessed and calculated based on various factors within the policies, and generally decline as the term of the policy increases.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

F-19

3. INVESTMENTS

The following table presents selected data for investments in each of the sub-accounts at December 31, 2002 (in thousands, except share data):

		2002
		Number of Shares	Cost		Market Value
Federated Prime Money Fund II		2,433,592	$	2,434	$	2,434
American Century VP International		62,489		422		326
American Century VP Income and Growth		105,576		630		545
American Century VP Ultra		254,941		2,423		1,874
AIM Capital Appreciation		105,436		2,897		1,733
AIM Growth		130,252		2,961		1,472
American Century VP Value		274,551		1,863		1,680
DeAM VIT Equity Index		195,405		2,518		1,798
DeAM VIT Small Cap Index		62,393		675		527
Templeton International Securities		122,624		1,801		1,155
Lord Abbett Growth and Income		91,831		2,125		1,729
MFS New Discovery (IC)		38,277		568		399
MFS Investors Growth Stock (IC)		6,816		96		48
MFS Investors Trust Series (IC)		4,369		89		59
Templeton Growth Securities		78,676		940		677
DeAM VIT EAFE Index		33,876		321		219
Fidelity Contrafund		63,290		1,307		1,136
Fidelity Growth Opportunities		13,034		182		152
Fidelity Equity Income		48,343		1,089		870
Federated High Income Bond II		99,674		767		706
Seligman Communication & Information		85,761		1,147		685
MFS New Discovery (SC)		144,181		2,083		1,496
MFS Investors Growth Stock (SC)		102,329		1,125		715
MFS Investors Trust Series II (SC)		42,290		762		567
Pilgrim Baxter Small Cap		328,851		2,308		1,684
Templeton Developing Markets		19,165		94		90
Franklin Small Cap		3,697		59		47
INVESCO Dynamics		18,927		232		162
INVESCO Health Sciences		11,320		191		156
INVESCO Financial Services		23,197		286		244
INVESCO Real Estate		23,646		249		248
Federated US Gov't II		105,727		1,201		1,267
Fidelity Growth and Income		169,617		2,167		1,820
MFS Utility		5,789		89		69
MFS Total Return	��	42,373		777		722
Seligman Small Cap		41,036		502		445

		5,393,351	$	39,380	$	29,956

F-20

The cost of purchases and proceeds from sales of investments for the year ended December 31, 2002 were as follows (in thousands):

	2002
	Purchases		Sales
Federated Prime Money Fund II	$	7,342	$	7,394
American Century VP International		16		109
American Century VP Income and Growth		303		186
American Century VP Ultra		312		643
AIM Capital Appreciation		773		1,165
AIM Growth		433		339
American Century VP Value		646		478
DeAM VIT Equity Index		575		501
DeAM VIT Small Cap Index		272		370
Templeton International Securities		365		152
Lord Abbett Growth and Income		553		723
MFS New Discovery (IC)		1,011		189
MFS Investors Growth Stock (IC)		331		22
MFS Investors Trust Series (IC)		1		11
Templeton Growth Securities		186		136
DeAM VIT EAFE Index		89		38
Fidelity Contrafund		402		335
Fidelity Growth Opportunities		1,619		1,576
Fidelity Equity Income		359		156
Federated High Income Bond II		339		492
Seligman Communication & Information		511		350
MFS New Discovery (SC)		3		830
MFS Investors Growth Stock (SC)		2		578
MFS Investors Trust Series II (SC)		137		116
Pilgrim Baxter Small Cap		1,992		1,272
Templeton Developing Markets		178		94
Franklin Small Cap		38		22
INVESCO Dynamics		226		134
INVESCO Health Sciences		95		63
INVESCO Financial Services		184		113
INVESCO Real Estate		272		76
Federated US Gov't II		729		749
Fidelity Growth and Income		812		1,077
MFS Utility		40		10
MFS Total Return		231		198
Seligman Small Cap		885		817

	$	22,262	$	21,514

F-21

4. CHANGES IN UNITS OUTSTANDING

The changes in units outstanding for the year ended December 31, 2002 were as follows:

	2002
	Units Issued	Units Redeemed	Net Increase (Decrease)
AIM Capital Appreciation	93,478	140,909	(47,431	)
AIM Growth	84,647	65,103	19,544
American Century VP Income and Growth	39,265	23,827	15,438
American Century VP International	1,696	15,318	(13,622	)
American Century VP Ultra	38,049	75,586	(37,537	)
American Century VP Value	47,009	42,161	4,848
DeAM VIT EAFE Index	14,768	6,675	8,093
DeAM VIT Equity Index	74,250	62,768	11,482
DeAM VIT Small Cap Index	25,944	38,556	(12,612	)
Federated High Income Bond II	27,693	52,543	(24,850	)
Federated Prime Money Fund II	623,991	630,530	(6,539	)
Federated US Gov't II	62,567	67,840	(5,273	)
Fidelity Contrafund	50,267	43,124	7,143
Fidelity Equity Income	33,843	16,345	17,498
Fidelity Growth and Income	90,132	123,950	(33,818	)
Fidelity Growth Opportunities	230,662	227,689	2,973
Franklin Small Cap	5,398	15,629	(10,231	)
INVESCO Dynamics	30,436	22,997	7,439
INVESCO Financial Services	19,590	13,184	6,406
INVESCO Health Sciences	10,939	7,826	3,113
INVESCO Real Estate	24,895	7,316	17,579
Lord Abbett Growth and Income	51,608	70,516	(18,908	)
MFS Investors Growth Stock (IC)	263	2,701	(2,438	)
MFS Investors Growth Stock (SC)	55,445	96,194	(40,749	)
MFS Investors Trust Series (IC)	18,445	16,265	2,180
MFS Investors Trust Series II (SC)	3	1,458	(1,455	)
MFS New Discovery (IC)	202	15,274	(15,072	)
MFS New Discovery (SC)	133,294	109,679	23,615
MFS Total Return	21,692	20,713	979
MFS Utility	6,447	1,687	4,760
Pilgrim Baxter Small Cap	304,621	184,440	120,181
Seligman Communication & Information	110,221	85,522	24,699
Seligman Small Cap	76,655	77,050	(395	)
Templeton Developing Markets	17,783	9,820	7,963
Templeton Growth Securities	16,350	14,308	2,042
Templeton International Securities	42,536	17,303	25,233
VIST Government Bond	—	—
VIST Growth	—	—
VIST Growth & Income	—	—
VIST High Income Bond	—	—
VIST Matrix Equity	—	—
VIST Mult. Strategies	—	—
VIST Small Cap Growth	—	—
VIST World Equity	—	—

	2,485,084	2,422,806	62,278

F-22

5. FINANCIAL HIGHLIGHTS

A summary of unit values and units outstanding for variable annuity contracts, net investment income ratios, and the expense ratios, excluding expenses of the underlying funds, for the year ended December 31, 2002 follows:

Account Division	Units	Min Unit Value	Max Unit Value	Net Assets	Min Expense As a % of Average Net Assets*		Max Expense As a % of Average Net Assets*		Investment Income Ratio**		Min Total Return***		Max Total Return***
AIM Capital Appreciation	244,691	7.04	7.09	1,732,513	0.70	%	0.90	%	(0.70	%)	(25.03	%)	(24.88	%)
AIM Growth	329,210	4.44	4.48	1,472,170	0.70	%	0.90	%	(0.70	%)	(31.59	%)	(31.45	%)
Amer Cent. VP Income & Growth	73,074	7.44	7.46	544,779	0.70	%	0.90	%	0.21	%	(20.09	%)	(19.93	%)
Amer Cent. VP International	50,257	6.47	6.49	325,557	0.70	%	0.90	%	0.00	%	(21.09	%)	(20.93	%)
Amer Cent. VP Ultra	257,632	7.26	7.28	1,873,878	0.70	%	0.90	%	(0.55	%)	(23.40	%)	(23.25	%)
Amer Cent. VP Value	161,791	10.33	10.41	1,681,016	0.70	%	0.90	%	0.13	%	(13.40	%)	(13.23	%)
DeAM VIT EAFE Index	42,534	5.13	5.16	219,188	0.70	%	0.90	%	0.83	%	(22.30	%)	(22.14	%)
DeAM VIT Equity 500 Index	269,325	6.63	6.69	1,797,799	0.70	%	0.90	%	0.33	%	(23.01	%)	(22.86	%)
DeAM VIT Small Cap Index	59,128	8.86	8.93	527,199	0.70	%	0.90	%	(0.16	%)	(21.30	%)	(21.14	%)
Fed US Govt Sec II	112,225	11.26	11.30	1,266,579	0.70	%	0.90	%	2.95	%	8.07	%	8.29	%
Federated High Income Bond	74,693	9.42	9.47	705,692	0.70	%	0.90	%	9.06	%	0.48	%	0.68	%
Federated Prime Money Fund	205,632	11.69	12.06	2,432,896	0.70	%	0.90	%	0.74	%	0.52	%	0.72	%
Fidelity Contrafund	155,070	7.29	7.33	1,136,106	0.70	%	0.90	%	(0.03	%)	(10.41	%)	(10.23	%)
Fidelity Equity Income	102,224	8.48	8.52	870,179	0.70	%	0.90	%	0.76	%	(17.89	%)	(17.73	%)
Fidelity Growth Opportunities	26,978	5.60	5.63	151,732	0.70	%	0.90	%	(0.25	%)	(22.71	%)	(22.55	%)
Fidelity Growth & Income	230,451	7.88	7.91	1,819,956	0.70	%	0.90	%	0.64	%	(17.59	%)	(17.43	%)
Franklin Small Cap — Class 2	7,018	6.67	6.69	46,954	0.70	%	0.90	%	(0.28	%)	(32.34	%)	(32.20	%)
INVESCO Dynamics	29,035	5.55	5.57	161,652	0.70	%	0.90	%	(0.98	%)	(32.51	%)	(32.37	%)
INVESCO Financial Services	29,629	8.20	8.23	243,566	0.70	%	0.90	%	(0.18	%)	(15.66	%)	(15.49	%)
INVESCO Health Sciences	20,198	7.68	7.71	155,646	0.70	%	0.90	%	(0.73	%)	(25.13	%)	(24.98	%)
INVESCO Real Estate Opps	23,137	10.69	10.73	248,035	0.70	%	0.90	%	0.98	%	5.42	%	5.63	%
Lord Abbett Grth&Income	189,616	9.07	9.14	1,729,164	0.70	%	0.90	%	(0.26	%)	(18.77	%)	(18.61	%)
MFS Investors Growth Stock	6,873	6.99	7.04	48,263	0.70	%	0.90	%	(0.75	%)	(28.18	%)	(28.04	%)
MFS Investors Growth Stock (class 2)	147,649	4.82	4.85	715,557	0.70	%	0.90	%	(0.69	%)	(28.36	%)	(28.22	%)
MFS Investors Trust	8,892	6.60	6.65	58,849	0.70	%	0.90	%	(0.25	%)	(21.67	%)	(21.51	%)
MFS Investors Trust (class 2)	87,157	6.48	6.52	567,369	0.70	%	0.90	%	(0.31	%)	(21.86	%)	(21.70	%)
MFS New Discovery	39,351	10.13	10.21	399,612	0.70	%	0.90	%	(0.78	%)	(32.24	%)	(32.11	%)
MFS New Discovery (class 2)	245,356	6.07	6.10	1,496,624	0.70	%	0.90	%	(0.69	%)	(32.41	%)	(32.28	%)
MFS Total Return (class 2)	77,923	9.25	9.28	722,437	0.70	%	0.90	%	0.93	%	(6.20	%)	(6.01	%)
MFS Utilities (class 2)	11,897	5.81	5.83	69,351	0.70	%	0.90	%	1.42	%	(23.59	%)	(23.44	%)
Pilgrim Baxter Small Cap Grwth	333,555	5.04	5.06	1,686,157	0.70	%	0.90	%	(0.69	%)	(40.24	%)	(40.12	%)
Seligman Comm. & Info.	186,434	3.66	3.68	685,455	0.70	%	0.90	%	(0.70	%)	(36.81	%)	(36.68	%)
Seligman Small Cap	43,873	10.13	10.16	445,209	0.70	%	0.90	%	(1.09	%)	(16.28	%)	(16.11	%)
Templeton Developing Mkts	9,579	9.36	9.40	89,971	0.70	%	0.90	%	2.35	%	(11.21	%)	(11.03	%)
Templeton Growth Securities	80,721	8.35	8.39	676,628	0.70	%	0.90	%	1.57	%	(19.22	%)	(19.06	%)
Templeton International	157,269	7.30	7.36	1,155,433	0.70	%	0.90	%	0.82	%	(19.29	%)	(19.13	%)

	4,130,075			29,959,172

These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. These ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded.

F-23

**		These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest.
***		These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period.

6. EXPENSES

As more fully disclosed in the prospectus, First Variable Life charges the Fund, based on the value of the Fund, various charges. For Cap One Pay policies, First Variable Life charges the Fund at an annual rate of .90% for mortality and expense risks. For Cap Solutions policies, First Variable Life charges the Fund at an annual rate of .70% for mortality and expense risks. Total charges to the Fund for the year ended December 31, 2002 were $84,331 and $172,005 for Cap One Pay policies and Cap Solutions policies, respectively.

7. DIVERSIFICATION REQUIREMENTS

Under the provisions of section 817(h) of the Internal Revenue Code (the Code), a variable life contract, other than a contract issued in connection with certain types of employee benefit plans, will not be treated as a life contract for Federal tax purposes for any period for which the investments of the segregated asset account on which the contract is based are not adequately diversified. The Code provides that the "adequately diversified" requirement may be met if the underlying investments satisfy either a statutory safe harbor test or diversification requirements set forth in regulations issued by the Secretary of Treasury.

The Internal Revenue Service has issued regulations under section 817(h) of the Code. First Variable Life believes that the Fund satisfied the current requirements of the regulations, and it intends that the Fund will continue to meet such requirements.

8. PRINCIPAL UNDERWRITER AND GENERAL DISTRIBUTOR

First Variable Capital Services, Inc., a wholly owned subsidiary of First Variable Life, is principal underwriter and general distributor of the contracts issued through the Fund.

F-24

Independent Auditors' Report

The Board of Directors and Policyholders of First Variable
Life Insurance Company and Contract Owners of
Separate Account VL:

We have audited the accompanying statement of assets and liabilities of each of the sub-accounts comprising First Variable Life Insurance Company — Separate Account VL, as of December 31, 2001 and the related statements of operations and changes in net assets for each of the periods indicated in the years ended December 31, 2001 and 2000 and the related financial highlights for each of the periods indicated in the year ended December 31, 2001. These financial statements and financial highlights are the responsibility of the First Variable Life Insurance Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included in confirmation of the securities owned as of December 31, 2001 by correspondence with the transfer agent. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the sub-accounts comprising First Variable Life Insurance Company — Separate Account VL as of December 31, 2001 and the results of their operations and changes in their net assets for each of the periods indicated for the years ended December 31, 2001 and 2000 and the financial highlights for each of the periods indicated in the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

s /KPMG LLP/
April 30, 2002

F-25

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2001

			Variable Investors Series Trust
	Federated Prime Money Fund II		Growth Division	High Income Bond Division	Multiple Strategies Division	Matrix Equity Division	US Government Bond Division	World Equity Division	Growth and Income Division	Small Capital Growth Division	AIM Capital Appreciation
Assets
Investments in mutual funds at net asset value (see cost below)	$	2,485,555	—	—	—	—	—	—	—	—	2,753,072
Receivable from First Variable Life Insurance Company		—	3	—	—	—	—	—	—	5	—

Total assets		2,485,555	3	—	—	—	—	—	—	5	2,753,072

Liabilities
Payable to First Variable Life Insurance Company		719	—	—	—	—	—	—	—	—	72

	$	2,484,836	3	—	—	—	—	—	—	5	2,753,000

Net assets
Annuity contracts in accumulation period	$	2,484,836	3	—	—	—	—	—	—	5	2,753,000
Annuity contracts in payment period		—	—	—	—	—	—	—	—	—	—

Total net assets-	$	2,484,836	3	—	—	—	—	—	—	5	2,753,000

Investments in mutual funds at cost	$	2,485,555	—	—	—	—	—	—	—	—	3,914,375

See accompanying notes to financial statements.

F-26

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
December 31, 2001

	AIM Growth		American Century VP Value	DeAM VIT Equity Index	DeAM VIT Small Cap Index	Templeton International Securities	Lord Abbett Growth and Income	MFS New Discovery (IC)	MFS Growth (IC)
Assets
Investments in mutual funds at net asset value (see cost below)	$	2,020,041	1,880,359	2,231,714	811,385	1,199,812	2,337,154	815,558	90,909
Receivable from First Variable Life Insurance Company		—	—	—	—	—	—	—	—

Total assets		2,020,041	1,880,359	2,231,714	811,385	1,199,812	2,337,154	815,558	90,909

Liabilities
Payable to First Variable Life Insurance Company		24	73	35	47	30	66	54	2

	$	2,020,017	1,880,286	2,231,679	811,338	1,199,782	2,337,088	815,504	90,907

Net assets
Annuity contracts in accumulation period	$	2,020,017	1,880,286	2,231,679	811,338	1,199,782	2,337,088	815,504	90,907
Annuity contracts in payment period		—	—	—	—	—	—	—	—

Total net assets-	$	2,020,017	1,880,286	2,231,679	811,338	1,199,782	2,337,088	815,504	90,907

Investments in mutual funds at cost	$	3,159,339	1,708,740	2,568,764	856,785	1,653,820	2,386,294	802,875	133,369

See accompanying notes to financial statements.

F-27

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
December 31, 2001

	MFS Growth and Income (IC)		Templeton Growth Securities	DeAM VIT EAFE Index	Fidelity Contrafund	Fidelity Growth Opportunities	Fidelity Equity Income	Federated High Income Bond II	Seligman Communication & Information
Assets
Investments in mutual funds at net asset value (see cost below)	$	87,391	815,211	227,999	1,207,486	174,373	877,039	935,088	939,293
Receivable from First Variable Life Insurance Company		—	—	—	—	—	—	—	—

Total assets		87,391	815,211	227,999	1,207,486	174,373	877,039	935,088	939,293

Liabilities
Payable to First Variable Life Insurance Company		1	23	3	30	3	19	9	47

	$	87,390	815,188	227,996	1,207,456	174,370	877,020	935,079	939,246

Net assets
Annuity contracts in accumulation period	$	87,389	815,188	227,996	1,207,456	174,370	877,020	935,079	939,246
Annuity contracts in payment period		—	—	—	—	—	—	—	—

Total net assets-	$	87,389	815,188	227,996	1,207,456	174,370	877,020	935,079	939,246

Investments in mutual funds at cost	$	104,486	928,019	284,988	1,282,668	179,474	913,576	972,225	1,229,600

See accompanying notes to financial statements.

F-28

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
December 31, 2001

	MFS New Discovery (SC)		MFS Growth (SC)	MFS Growth and Income (SC)	Pilgrim Baxter Small Cap	Fidelity Growth and Income	American Century VP Ultra	American Century International	American Century VP Income & Growth	Federated US Government II
Assets
Investments in mutual funds at net asset value (see cost below)	$	1,997,532	1,271,674	706,773	1,802,501	2,529,773	2,798,549	523,949	536,842	1,225,530
Receivable from First Variable Life Insurance Company		—	—	—	—	—	—	—	—	—

Total assets		1,997,532	1,271,674	706,773	1,802,501	2,529,773	2,798,549	523,949	536,842	1,225,530

Liabilities
Payable to First Variable Life Insurance Company		116	19	8	122	51	78	20	11	7

	$	1,997,416	1,271,655	706,765	1,802,379	2,529,722	2,798,471	523,929	536,831	1,225,523

Net assets
Annuity contracts in accumulation period	$	1,997,416	1,271,655	706,765	1,802,379	2,529,722	2,798,471	523,929	536,831	1,225,523
Annuity contracts in payment period		—	—	—	—	—	—	—	—	—

Total net assets-	$	1,997,416	1,271,655	706,765	1,802,379	2,529,722	2,798,471	523,929	536,831	1,225,523

Investments in mutual funds at cost	$	2,065,045	1,584,002	774,834	1,786,613	2,551,495	2,848,243	538,992	548,010	1,199,809

See accompanying notes to financial statements.

F-29

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
December 31, 2001

	Templeton Developing Markets		Templeton Health Care	INVESCO Dynamics	INVESCO Health Sciences	INVESCO Financial Services	INVESCO Real Estate	MFS Utility	MFS Total Return	Seligman Small Cap
Assets
Investments in mutual funds at net asset value (see cost below)	$	17,059	170,299	177,799	175,519	226,084	56,451	54,343	759,422	536,019
Receivable from First Variable Life Insurance Company		—	—	—	—	—	—	—	—	—

Total assets		17,059	170,299	177,799	175,519	226,084	56,451	54,343	759,422	536,019

Liabilities
Payable to First Variable Life Insurance Company		1	5	6	5	5	1	—	17	43

	$	17,058	170,294	177,793	175,514	226,079	56,450	54,343	759,405	535,976

Net Assets
Annuity contracts in accumulation period	$	17,058	170,294	177,793	175,514	226,079	56,450	54,343	759,405	535,976
Annuity contracts in payment period		—	—	—	—	—	—	—	—

Total net assets-	$	17,058	170,294	177,793	175,514	226,079	56,450	54,343	759,405	535,976

Investments in mutual funds at cost	$	17,079	172,800	197,227	173,920	232,003	56,385	62,423	758,195	485,549

See accompanying notes to financial statements.

F-30

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF OPERATIONS
Year ended December 31, 2001

			Variable Investors Series Trust
	Federated Prime Money Fund II		Growth Division		High Income Bond Division		Multiple Strategies Division		Matrix Equity Division		US Govt. Bond Division		World Equity Division		Growth and Income Division		Small Capital Growth Division
Investment income — dividends	$	76,900	—		89,448		9,644		—		52,403		—		23,139		—
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		16,538	26,838		3,589		16,459		4,462		5,480		5,817		16,977		14,216

Net investment income (loss)		60,362	(26,838	)	85,859		(6,815	)	(4,462	)	46,923		(5,817	)	6,162		(14,216	)
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		—	(3,473,442	)	(269,715	)	(1,313,892	)	(435,469	)	(11,383	)	(731,282	)	(32,267	)	(2,122,982	)
Net unrealized appreciation (depreciation) on investments during the year		—	1,753,013		179,620		573,893		245,323		(7,839	)	119,977		55,926		580,745
Capital gain distributions		—	950,824		—		318,792		128,305		—		432,899		8,898		449,528

Net realized and unrealized gain (loss) on investments		—	(769,605	)	(90,095	)	(421,207	)	(61,841	)	(19,222	)	(178,406	)	32,557		(1,092,709	)

Net increase (decrease) in net assets resulting from operations	$	60,362	(796,443	)	(4,236	)	(428,022	)	(66,303	)	27,701		(184,223	)	38,719		(1,106,925	)

See accompanying notes to financial statements.

F-31

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF OPERATIONS, CONTINUED
Year ended December 31, 2001

	AIM Capital Appreciation			AIM Growth		American Century VP Value		DeAM VIT Equity Index		DeAM VIT Small Cap Index		Templeton International Securities		Lord Abbett Growth & Income		MFS New Discovery (IC)		MFS Growth (IC)
Investment income — dividends	$	—		4,781		5,828		18,690		4,715		33,400		11,121		—		161
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		18,975		14,349		8,763		14,108		4,069		8,730		12,000		8,525		984

Net investment income (loss)		(18,975	)	(9,568	)	(2,935	)	4,582		646		24,670		(879	)	(8,525	)	(823	)
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		(330,548	)	(244,693	)	10,525		(79,069	)	(11,572	)	(71,272	)	28,324		(26,448	)	(27,338	)
Net unrealized appreciation (depreciation) on investments during the year		(572,572	)	(576,197	)	115,957		(196,563	)	(23,436	)	(430,395	)	(180,624	)	(81,015	)	(14,541	)
Capital gain distributions		220,920		—		—		1,948		37,955		262,687		46,668		41,441		1,229

Net realized and unrealized gain (loss) on investments		(682,300	)	(820,890	)	126,482		(273,684	)	2,947		(238,980	)	(105,632	)	(66,022	)	(40,650	)

Net increase (decrease) in net assets resulting from operations	$	(701,275	)	(830,458	)	123,547		(269,102	)	3,593		(214,310	)	(106,511	)	(74,547	)	(41,473	)

See accompanying notes to financial statements.

F-32

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF OPERATIONS, CONTINUED
Year ended December 31, 2001

	MFS Growth and Trust (IC)			Templeton Growth Securities		DeAM VIT EAFE Index		Fidelity Contrafund		Fidelity Growth Opportunities		Fidelity Equity Income		Federated High Income Bond		Seligman Comm. & Information
Investment income — dividends	$	712		13,265		—		2,545		156		1,047		52,357		—
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		973		4,895		1,322		5,606		800		3,728		4,301		6,532

Net investment income (loss)		(261	)	8,370		(1,322	)	(3,061	)	(644	)	(2,681	)	48,056		(6,532	)
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		(7,863	)	(9,336	)	(3,946	)	(16,926	)	(14,975	)	(3,015	)	(35,382	)	(122,049	)
Net unrealized appreciation (depreciation) on investments during the year		(21,194	)	(129,588	)	(44,381	)	(64,984	)	(607	)	(38,864	)	(28,431	)	(44,552	)
Capital gain distributions		3,652		119,029		—		9,543		—		3,013		—		179,084

Net realized and unrealized gain (loss) on investments		(25,405	)	(19,895	)	(48,327	)	(72,367	)	(15,582	)	(38,866	)	(63,813	)	12,483

Net increase (decrease) in net assets resulting from operations	$	(25,666	)	(11,525	)	(49,649	)	(75,428	)	(16,226	)	(41,547	)	(15,757	)	5,951

See accompanying notes to financial statements.

F-33

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF OPERATIONS, CONTINUED
Year ended December 31, 2001

	MFS New Discovery (SC)			MFS Growth (SC)		MFS Growth and Trust		Pilgrim Barter Small Cap (i)		Fidelity Growth and Income (i)		American Century VP Ultra (i)		American Century International (i)		American Century VP Income & Growth (i)		Federated US Govt. II (i)		Templeton Developing Markets (i)
Investment income — dividends	$	—		634		1,727		—		—		—		—		—		—		11
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		12,893		7,827		3,593		2,662		1,682		3,774		706		836		3,044		41

Net investment income (loss)		(12,893	)	(7,193	)	(1,866	)	(2,662	)	(1,682	)	(3,774	)	(706	)	(836	)	(3,044	)	(30	)
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		(198,750	)	(61,155	)	(16,160	)	(114,717	)	(2,319	)	(3,055	)	(3,596	)	(1,171	)	939		(86	)
Net unrealized appreciation (depreciation) on investments during the year		555		(220,440	)	(65,942	)	15,888		(21,722	)	(49,694	)	(15,043	)	(11,168	)	25,721		(19	)
Capital gain distributions		53,006		7,647		9,482		—		—		—		—		—		—		1,722

Net realized and unrealized gain (loss) on investments		(145,189	)	(273,948	)	(72,620	)	(98,829	)	(24,041	)	(52,749	)	(18,639	)	(12,339	)	26,660		1,617

Net increase (decrease) in net assets resulting from operations	$	(158,082	)	(281,141	)	(74,486	)	(101,491	)	(25,723	)	(56,523	)	(19,345	)	(13,175	)	23,616		1,587

(i)

From commencement of operations, May 1, 2001

See accompanying notes to financial statements.

F-34

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF OPERATIONS, CONTINUED
Year ended December 31, 2001

	Templeton Health Care (i)			INVESCO Dynamics (i)		INVESCO Health Sciences (i)		INVESCO Financial Services (i)		INVESCO Real Estate (i)		MFS Utility (i)		MFS Total Return (i)		Setigman Small Cap (i)
Investment income — dividends	$	—		—		563		746		570		—		—		1,860
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		507		623		532		650		189		252		2,830		2,061

Net investment income (loss)		(507	)	(623	)	31		96		381		(252	)	(2,830	)	(201	)
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		(386	)	(2,287	)	(301	)	(588	)	(1,882	)	(4,266	)	(749	)	22,371
Net unrealized appreciation (depreciation) on investments during the year		(2,501	)	(19,427	)	1,599		(5,919	)	66		(8,079	)	1,226		50,470
Capital gain distributions		452		—		—		190		—		—		—		—

Net realized and unrealized gain (loss) on investments		(2,435	)	(21,714	)	1,298		(6,317	)	(1,816	)	(12,345	)	477		72,841

Net increase (decrease) in net assets resulting from operations	$	(2,942	)	(22,337	)	1,329		(6,221	)	(1,435	)	(12,597	)	(2,353	)	72,640

(i)

From commencement of operations, May 1, 2001.

See accompanying notes to financial statements.

F-35

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF OPERATIONS, CONTINUED
Year ended December 31, 2000

			Variable Investors Series Trust
	Federated Prime Money Fund II		Growth Division		High Income Bond Division		Multiple Strategies Division		Matrix Equity Division		U.S. Government Bond Division		World Equity Division		Growth and Income Division		Small Capital Growth Division
Investment income — dividends	$	121,933	1,919,728		136,785		520,826		222,420		39,477		307,210		462,612		504,864
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		15,428	45,294		5,905		27,219		7,398		5,035		12,931		22,354		27,015

Net investment income (loss)		106,505	1,874,434		130,880		493,607		215,022		34,442		294,279		440,258		477,849

Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		—	210,654		(42,863	)	221,476		(13,853	)	(5,278	)	105,942		(91,246	)	243,687
Net unrealized appreciation (depreciation) on investments during the year		—	(2,954,664	)	(174,577	)	(1,203,194	)	(342,624	)	29,390		(536,976	)	(147,174	)	(1,418,783	)

Net realized and unrealized gain (loss) on investments		—	(2,744,010	)	(217,440	)	(981,718	)	(356,477	)	24,112		(431,034	)	(238,420	)	(1,175,096	)

Net increase (decrease) in net assets resulting from operations	$	106,505	(869,576	)	(86,560	)	(488,111	)	(141,455	)	58,554		(136,755	)	201,838		(697,247	)

See accompanying notes to financial statements.

F-36

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF OPERATIONS, CONTINUED
Year ended December 31, 2000

	AIM Capital Appreciation			AIM Growth		American Century VP Value		DeAM VIT Equity Index		DeAM VIT Small Cap Index
Investment income — dividends	$	77,931		74,456		6,247		841		1,842
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		15,728		12,441		1,655		7,759		1,432

Net investment income (loss)		62,203		62,015		4,592		(6,918	)	410

Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		228,225		(12,071	)	(3,652	)	35,679		5,849
Net unrealized appreciation (depreciation) on investments during the year		(751,394	)	(635,697	)	60,082		(179,137	)	(28,222	)

Net realized and unrealized gain (loss) on investments		(523,169	)	(647,768	)	56,430		(143,458	)	(22,373	)

Net increase (decrease) in net assets resulting from operations	$	(460,966	)	(585,753	)	61,022		(150,376	)	(21,963	)

See accompanying notes to financial statements.

F-37

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF OPERATIONS, CONTINUED
Year ended December 31, 2000

	Templeton International Securities			Lord Abbett Growth and Income		MFS New Discovery (IC)		MFS Growth (IC)		MFS Growth and Income (IC)
Investment income — dividends	$	61,849		9,404		37,853		2,967		3,283
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		5,455		4,154		13,774		2,932		1,657

Net investment income (loss)		56,394		5,250		24,079		35		1,626

Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		(15,062	)	(1,894	)	98,456		90,852		4,136
Net unrealized appreciation (depreciation) on investments during the year		(42,881	)	137,851		(196,049	)	(80,258	)	(4,786	)

Net realized and unrealized gain (loss) on investments		(57,943	)	135,957		(97,593	)	10,594		(650	)

Net increase (decrease) in net assets resulting from operations	$	(1,549	)	141,207		(73,514	)	10,629		976

See accompanying notes to financial statements.

F-38

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF OPERATIONS, CONTINUED
Year ended December 31, 2000

	Templeton Growth Securities (i)			DeAM VIT EAFE Index (i)		Fidelity ContraFund (i)		Fidelity Growth Opportunities (i)		Fidelity Equity Income (i)
Investment income — dividends	$	—		2,312		—		—		—
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		1,540		347		541		78		85

Net investment income (loss)		(1,540	)	1,965		(541	)	(78	)	(85	)

Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		3,303		(495	)	(19	)	(114	)	70
Net unrealized appreciation (depreciation) on investments during the year		16,780		(12,608	)	(10,199	)	(4,494	)	2,327

Net realized and unrealized gain (loss) on investments		20,083		(13,103	)	(10,218	)	(4,608	)	2,397

Net increase (decrease) in net assets resulting from operations	$	18,543		(11,138	)	(10,759	)	(4,686	)	2,312

(i)

From commencement of operations, May 1, 2000.

See accompanying notes to financial statements.

F-39

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF OPERATIONS, CONTINUED
Year ended December 31, 2000

	Federated High Income Bond II (i)			Seligman Communication & Information (i)		MFS New Discovery (SC) (i)		MFS Growth (SC) (i)		MFS Growth and Income (SC) (i)
Investment income — dividends	$	—		67,365		—		—		—
Expenses:
Fees paid to First Variable Life Insurance Company — risk and administrative charges		437		1,228		4,468		3,501		671

Net investment income (loss)		(437	)	66,137		(4,468	)	(3,501	)	(671	)

Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed		(94	)	(2,359	)	(22,409	)	(703	)	(241	)
Net unrealized appreciation (depreciation) on investments during the year		(8,705	)	(245,755	)	(68,068	)	(91,188	)	(2,119	)

Net realized and unrealized gain (loss) on investments		(8,799	)	(248,114	)	(90,477	)	(92,591	)	(2,360	)

Net increase (decrease) in net assets resulting from operations	$	(9,236	)	(181,977	)	(94,945	)	(96,092	)	(3,031	)

(i)

From commencement of operations, May 1, 2000.

See accompanying notes to financial statements.

F-40

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF CHANGES IN NET ASSETS
Year ended December 31, 2001

				Variable Investors Series Trust
	Federated Prime Money Fund II			Growth Division		High Income Bond Division		Multiple Strategies Division		Matrix Equity Division		US Govt. Bond Division		World Equity Division		Growth and Income Division		Small Capital Growth Division
Operations:
Net investment income (loss)	$	60,362		(26,838	)	85,859		(6,815	)	(4,462	)	46,923		(5,817	)	6,162		(14,216	)
Realized gain (loss) on fund shares redeemed		—		(3,473,442	)	(269,715	)	(1,313,892	)	(435,469	)	(11,383	)	(731,282	)	(32,267	)	(2,122,982	)
Net unrealized appreciation (depreciation) on investments during the period		—		1,753,013		179,620		573,893		245,323		(7,839	)	119,977		55,926		580,745
Capital gain distributions		—		950,824		—		318,792		128,305		—		432,899		8,898		449,528

Net increase (decrease) in net assets resulting from operations		60,362		(796,443	)	(4,236	)	(428,022	)	(66,303	)	27,701		(184,223	)	38,719		(1,106,925	)

From contract owner transactions:
Net proceeds from sale or transfer of accumulation units		1,125,111		704,151		70		465,198		81,626		178,959		50		198,200		858,034
Policy contract charges		(277,152	)	(221,126	)	(13,065	)	(137,924	)	(41,453	)	(47,650	)	(23,566	)	(101,030	)	(256,193	)
Cost of accumulation units terminated and exchanged		(36,922	)	(4,668,047	)	(493,760	)	(3,154,251	)	(784,619	)	(878,394	)	(988,995	)	(2,818,739	)	(2,952,901	)

Increase (decrease) in net assets from contract owner transactions		811,037		(4,185,022	)	(506,755	)	(2,826,977	)	(744,446	)	(747,085	)	(1,012,511	)	(2,721,569	)	(2,351,060	)

Increase (decrease) in net assets		871,399		(4,981,465	)	(510,991	)	(3,254,999	)	(810,749	)	(719,384	)	(1,196,734	)	(2,682,850	)	(3,457,985	)
Net assets at beginning of period		1,613,437		4,981,468		510,991		3,254,999		810,749		719,384		1,196,734		2,682,850		3,457,990

Net assets at end of period	$	2,484,836		3		—		—		—		—		—		—		5

See accompanying notes to financial statements.

F-41

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
Year ended December 31, 2001

	AIM Capital Appreciation			AIM Growth		American Century VP Value		DeAM VIT Equity Index		DeAM VIT Small Cap Index		Templeton International Securities		Lord Abbett Growth and Income		MFS New Discovery (IC)		MFS Growth (IC)
Operations:
Net investment income (loss)	$	(18,975	)	(9,568	)	(2,935	)	4,582		646		24,670		(879	)	(8,525	)	(823	)
Realized gain (loss) on fund shares redeemed		(330,548	)	(244,693	)	10,525		(79,069	)	(11,572	)	(71,272	)	28,324		(26,448	)	(27,338	)
Net unrealized appreciation (depreciation) on investments during the period		(572,672	)	(576,197	)	115,957		(196,563	)	(23,436	)	(430,395	)	(180,624	)	(81,015	)	(14,541	)
Capital gain distributions		220,920		—		—		1,948		37,955		262,687		46,668		41,441		1,229

Net increase (decrease) in net assets resulting from operations		(701,275	)	(830,458	)	123,547		269,102		3,593		(214,310	)	(106,511	)	(74,547	)	(41,473	)

From contract owner transactions:
Net proceeds from sale or transfer of accumulation units		1,032,585		1,004,860		1,550,281		1,238,741		515,898		496,094		1,332,755		4		141
Policy contract charges		(243,548	)	(208,510	)	(150,924	)	(149,194	)	(54,042	)	(110,945	)	(142,259	)	(64,032	)	(9,823	)
Cost of accumulation units terminated and exchanged		(121,407	)	(189,467	)	(82,466	)	(46,647	)	(10,670	)	(152,445	)	(101,636	)	(563,832	)	(111,526	)

Increase (decrease) in net assets from contract owner transactions		667,630		606,883		1,316,891		1,042,900		451,186		232,704		1,088,860		(627,860	)	(121,208	)

Increase (decrease) in net assets		(33,645	)	(223,575	)	1,440,438		773,798		454,779		18,394		982,349		(702,407	)	(162,681	)
Net assets at beginning of period		2,786,645		2,243,592		439,848		1,457,881		356,559		1,181,388		1,354,739		1,517,911		253,588

Net assets at end of period	$	2,753,000		2,020,017		1,880,286		2,231,679		811,338		1,199,782		2,337,088		815,504		90,907

See accompanying notes to financial statements.

F-42

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
Year ended December 31, 2001

	MFS Growth and Income (IC)			Templeton Growth Securities		DeAM VIT EAFE Index		Fidelity Contrafund		Fidelity Growth Opportunities		Fidelity Equity Income		Federated High Income Bond		Seligman Comm. & Information
Operations:
Net investment income (loss)	$	(261	)	8,370		(1,322	)	(3,061	)	(644	)	(2,681	)	48,056		(6,532	)
Realized gain (loss) on fund shares redeemed		(7,863	)	(9,336	)	(3,946	)	(16,926	)	(14,975	)	(3,015	)	(35,382	)	(122,049	)
Net unrealized appreciation (depreciation) on investments during the period		(21,194	)	(129,588	)	(44,381	)	(64,984	)	(607	)	(38,864	)	(28,431	)	(44,552	)
Capital gain distributions		3,652		119,029		—		9,543		—		3,013		—		179,084

Net increase (decrease) in net assets resulting from operations		(25,666	)	(11,525	)	(49,649	)	(75,428	)	(16,226	)	(41,547	)	(15,757	)	5,951

From contract owner transactions:
Net proceeds from sale or transfer of accumulation units		27		419,678		158,601		1,100,011		167,301		923,557		868,172		598,019
Policy on contract charges		(9,194	)	(83,586	)	(18,186	)	(115,111	)	(14,316	)	(39,635	)	(53,095	)	(176,706	)
Cost of accumulation units terminated and exchanged		(81,259	)	(11,700	)	(2,841	)	(19,976	)	(6,714	)	(17,498	)	(35,987	)	(57,410	)

Increase (decrease) in net assets from contract owner transactions		(90,426	)	324,392		137,574		964,924		146,271		866,424		779,090		363,903

Increase (decrease) in net assets		(116,092	)	312,867		87,925		889,496		130,045		824,877		763,333		369,854
Net assets at beginning of period		203,481		502,321		140,071		317,960		44,325		52,143		171,746		569,392

Net assets at end of period	$	87,389		815,188		227,996		1,207,456		174,370		877,020		935,079		939,246

See accompanying notes to financial statements.

F-43

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
Year ended December 31, 2001

	MFS New Discovery (SC)			MFS Growth (SC)		MFS Growth & Income (SC)		Pilgrim Boxier Small Cap (i)		Fidelity Growth and Income (i)		American Century VP Ultra (i)		American Century International (i)		American Century VP Income & Growth (i)		Federated US Govt. II (i)
Operations:
Net investment income (loss)	$	(12,893	)	(7,193	)	(1,866	)	(2,662	)	(1,682	)	(3,774	)	(706	)	(836	)	(3,044	)
Realized gain (loss) on fund shares redeemed		(198,750	)	(61,155	)	(16,160	)	(114,717	)	(2,319	)	(3,055	)	(3,596	)	(1,171	)	939
Net unrealized appreciation (depreciation) on investments during the period		555		(220,440	)	(65,942	)	15,888		(21,722	)	(49,694	)	(15,043	)	(11,168	)	25,721
Capital gain distributions		53,006		7,647		9,482		—		—		—		—		—		—

Net increase (decrease) in net assets resulting from operations		(158,082	)	(281,141	)	(74,486	)	(101,491	)	(25,723	)	(56,523	)	(19,345	)	(13,175	)	23,616

From contract owner transactions:
Net proceeds from sale or transfer of accumulation units		1,006,557		736,429		648,502		1,973,114		2,571,841		2,908,185		555,925		560,228		1,231,540
Policy contract charges		(243,461	)	(98,309	)	(42,568	)	(58,574	)	(15,645	)	(47,166	)	(7,639	)	(9,486	)	(26,442	)
Cost of accumulation units terminated and exchanged		(54,891	)	(23,552	)	(56,259	)	(10,670	)	(751	)	(6,025	)	(5,012	)	(736	)	(3,191	)

Increase (decrease) in net assets from contract owner transactions		708,205		614,568		549,675		1,903,870		2,555,445		2,854,994		543,274		550,006		1,201,907

Increase (decrease) in net assets		550,123		333,427		455,189		1,802,379		2,529,722		2,798,471		523,929		536,831		1,225,523
Net assets at beginning of period		1,447,293		938,228		251,576		—		—		—		—		—		—

Net assets at end of period	$	1,997,416		1,271,655		706,765		1,802,379		2,529,722		2,798,471		523,929		536,831		1,225,523

(i)

From commencement of operation, May 1, 2001.

See accompanying notes to financial statements.

F-44

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
Year ended December 31, 2001

	Templeton Developing Markets (i)			Templeton Health Care (i)		INVESCO Dynamics (i)		INVESCO Health Sciences (i)		INVESCO Financial Services (i)		INVESCO Real Estate (i)		MFS Utility (i)		MFS Total Return (i)		Seligman Small Cap (i)
Operations:
Net investment income (loss)	$	(30	)	(507	)	(623	)	31		96		381		(252	)	(2,830	)	(201	)
Realized gain (loss) on fund shares redeemed		(86	)	(386	)	(2,287	)	(301	)	(588	)	(1,882	)	(4,266	)	(749	)	22,371
Net unrealized appreciation (depreciation) on investments during the period		(19	)	(2,501	)	(19,427	)	1,599		(5,919	)	66		(8,079	)	1,226		50,470
Capital gain distributions		1,722		452		—		—		190		—		—		—		—

Net increase (decrease) in net assets resulting from operations		1,587		(2,942	)	(22,337	)	1,329		(6,221	)	(1,435	)	(12,597	)	(2,353	)	72,640

From contract owner transactions:
Net proceeds from sale or transfer of accumulation units		19,658		180,424		212,169		187,708		240,746		59,801		71,808		800,376		518,025
Policy contract charges		(555	)	(5,283	)	(11,230	)	(13,515	)	(6,434	)	(1,852	)	(4,143	)	(30,809	)	(48,235	)
Cost of accumulation units terminated and exchanged		(3,632	)	(1,905	)	(809	)	(8	)	(2,012	)	(64	)	(725	)	(7,809	)	(6,454	)

Increase (decrease) in net assets from contract owner transactions		15,471		173,236		200,130		174,185		232,300		57,885		66,940		761,758		463,336

Increase (decrease) in net assets		17,058		170,294		177,793		175,514		226,079		56,450		54,343		759,405		535,976
Net assets at beginning of period		—		—		—		—		—		—		—		—		—

Net assets at end of period	$	17,058		170,294		177,793		175,514		226,079		56,450		54,343		759,405		535,976

(i)

From commencement of operations, May 1, 2001.

See accompanying notes to financial statements.

F-45

FIRST VARIABLE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF CHANGES IN NET ASSETS
Year ended December 31, 2000

				Variable Investors Series Trust
	Federated Prime Money Fund II			Growth Division			High Income Bond Division			Multiple Strategies Division			Matrix Equity Division			U.S. Government Bond Division			World Equity Division			Growth and Income Division			Small Capital Growth Division
Operations:
Net investment income (loss)	$	106,505		$	1,874,434		$	130,880		$	493,507		$	215,022		$	34,442		$	294,279		$	440,258		$	477,849
Realized gain (loss) on fund shares redeemed		—			210,654			(42,863	)		221,476			(13,853	)		(5,278	)		105,942			(91,246	)		243,687
Net unrealized appreciation (depreciation) on investments during the year		—			(2,954,664	)		(174,577	)		(1,203,194	)		(342,624	)		29,390			(536,976	)		(147,174	)		(1,418,783	)

Net increase (decrease) in net assets resulting from operations		106,505			(869,576	)		(86,560	)		(488,111	)		(141,455	)		58,554			(136,755	)		201,838			(697,247	)

From contract owner transactions:
Net proceeds from sale of accumulated units		1,862,426			1,692,692			44,375			1,140,994			168,572			147,527			209,298			364,214			2,433,210
Policy contract charges		(228,943	)		(274,069	)		(20,864	)		(165,425	)		(44,784	)		(22,991	)		(61,145	)		(108,384	)		(259,678	)
Cost of accumulation units terminated and exchanged		(2,695,568	)		(896,998	)		(292,485	)		(327,755	)		(118,635	)		(1,566	)		(194,441	)		(474,146	)		(379,675	)

Increase (decrease) in net assets from contract owner transactions		(1,062,085	)		521,625			(268,974	)		647,814			5,154			122,970			(46,288	)		(218,316	)		1,793,857

Increase (decrease) in net assets		(955,580	)		(347,951	)		(355,534	)		159,703			(136,301	)		181,524			(183,043	)		(16,478	)		1,096,610
Net assets at beginning of year		2,569,017			5,329,419			866,525			3,095,296			947,050			537,860			1,379,777			2,699,328			2,361,380

Net assets at end of year	$	1,613,437		$	4,981,468		$	510,991		$	3,254,999		$	810,749		$	719,384		$	1,196,734		$	2,682,850		$	3,457,990

See accompanying notes to financial statements.

F-46

FIRST VARIABLE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
Year ended December 31, 2000

	AIM Capital Appreciation			AIM Growth			American Century VP Value			DeAM VIT Equity Index			DeAM VIT Small Cap Index			Templeton International Securities			Lord Abbett Growth and Income			MFS New Discovery (IC)			MFS Growth (IC)
Operations:
Net investment income (loss)	$	62,203		$	62,015		$	4,592		$	(6,918	)	$	410		$	56,394		$	5,250		$	24,079		$	35
Realized gain (loss) on fund shares redeemed		228,225			(12,071	)		(3,652	)		35,679			5,849			(15,062	)		(1,894	)		98,456			90,852
Net unrealized appreciation (depreciation) on investments during the year		(751,394	)		(635,697	)		60,082			(179,137	)		(28,222	)		(42,881	)		137,851			(196,049	)		(80,258	)

Net increase (decrease) in net assets resulting from operations		(460,966	)		(585,753	)		61,022			(150,376	)		(21,963	)		(1,549	)		141,207			(73,514	)		10,629

From contract owner transactions:
Net proceeds from sale of accumulated units		2,584,773			2,233,217			294,534			1,114,841			322,699			1,055,988			1,002,772			606,453			110,074
Policy contract charges		(147,273	)		(146,395	)		(38,602	)		(87,492	)		(23,881	)		(74,720	)		(56,357	)		(114,339	)		(36,432	)
Cost of accumulation units terminated and exchanged		(45,515	)		(44,884	)		(8,376	)		(23,846	)		(3,443	)		(22,195	)		(9,208	)		(103,346	)		(206,033	)

Increase (decrease) in net assets from contract owner transactions		2,391,985			2,041,938			247,556			1,003,503			295,375			959,073			937,207			388,768			(132,391	)

Increase (decrease) in net assets		1,931,019			1,456,185			308,578			853,127			273,412			957,524			1,078,414			315,254			(121,762	)
Net assets at beginning of year		855,626			787,407			131,270			604,754			83,147			223,864			276,325			1,202,657			375,350

Net assets at end of year	$	2,786,645		$	2,243,592		$	439,848		$	1,457,881		$	356,559		$	1,181,388		$	1,354,739		$	1,517,911		$	253,588

See accompanying notes to financial statements.

F-47

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
Year ended December 31, 2000

	MFS Growth and Income (IC)			Templeton Growth Securities (i)			DeAM VIT EAFE Index (i)			Fidelity ContraFund (i)			Fidelity Growth Opportunities (i)			Fidelity Equity Income (i)
Operations:
Net investment income (loss)	$	1,626		$	(1,540	)	$	1,965		$	(541	)	$	(78	)	$	(85	)
Realized gain (loss) on fund shares redeemed		4,136			3,303			(495	)		(19	)		(114	)		70
Net unrealized appreciation (depreciation) on investments during the year		(4,786	)		16,780			(12,608	)		(10,199	)		(4,494	)		2,327

Net increase (decrease) in net assets resulting from operations		976			18,543			(11,138	)		(10,759	)		(4,686	)		2,312

From contract owner transactions:
Net proceeds from sale of accumulated units		68,219			546,174			154,205			339,128			52,612			51,218
Policy contract charges		(19,791	)		(40,798	)		(2,937	)		(10,398	)		(3,374	)		(1,386	)
Cost of accumulation units terminated and exchanged		(21,253	)		(21,598	)		(59	)		(11	)		(227	)		(1	)

Increase (decrease) in net assets from contract owner transactions		27,175			483,778			151,209			328,719			49,011			49,831

Increase (decrease) in net assets		28,151			502,321			140,071			317,960			44,325			52,143
Net assets at beginning of year		175,330			—			—			—			—			—

Net assets at end of year	$	203,481		$	502,321		$	140,071		$	317,960		$	44,325		$	52,143

(i)

From commencement of operations, May 1, 2000.

See accompanying notes to financial statements.

F-48

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
Year ended December 31, 2000

	Federated High Income Bond II (i)			Seligman Communication & Information (i)			MFS New Discovery (SC) (i)			MFS Growth (SC) (i)			MFS Growth and Income(SC) (i)
Operations:
Net investment income (loss)	$	(437	)	$	66,137		$	(4,468	)	$	(3,501	)	$	(671	)
Realized gain (loss) on fund shares redeemed		(94	)		(2,359	)		(22,409	)		(703	)		(241	)
Net unrealized appreciation (depreciation) on investments during the year		(8,705	)		(245,755	)		(68,068	)		(91,888	)		(2,119	)

Net increase (decrease) in net assets resulting from operations		(9,236	)		(181,977	)		(94,945	)		(96,092	)		(3,031	)

From contract owner transactions:
Net proceeds from sale of accumulated units		184,962			808,361			1,649,803			1,068,163			270,722
Policy contract charges		(3,963	)		(19,364	)		(100,149	)		(32,412	)		(15,710	)
Cost of accumulation units terminated and exchanged		(17	)		(37,628	)		(7,416	)		(1,431	)		(405	)

Increase (decrease) in net assets from contract owner transactions		180,982			751,369			1,542,238			1,034,320			254,606

Increase (decrease) in net assets		171,746			569,392			1,447,293			938,228			251,575
Net assets at beginning of year		—			—			—			—			—

Net assets at end of year	$	171,746		$	569,392		$	1,447,293		$	938,228		$	251,575

(1)

From commencement of operations, May 1, 2000.

See accompanying notes to financial statements.

F-49

FIRST VARIABLE LIFE INSURANCE COMPANY —
SEPARATE ACCOUNT VL

NOTES TO FINANCIAL STATEMENTS

December 31, 2001 and 2000

(1) ORGANIZATION

On December 28, 2001, the Fund executed and filed with the Securities and Exchange Commission a substitution of shares of the eight portfolios of the Variable Investors Series Trust for shares of certain other portfolios of other variable insurance product funds. The remaining sub-accounts are invested in the Federated Prime Money Fund II, AIM Capital Appreciation, AIM Growth, American Century VP Value, DeAM VIT Equity Index, DeAM VIT Small Capital Index, Franklin Templeton International Securities, Lord Abbett Growth and Income, MFS New Discovery (IC), MFS Growth (IC), MFS Growth and Income (IC), Templeton Growth Securities, DeAM VIT EAFE Index, Fidelity Contrafund, Fidelity Growth Opportunities, Fidelity Equity Income, Federated High Income Bond II, Seligman Communication & Information, MFS New Discovery (SC), MFS Growth (SC), MFS Growth and Income (SC), Pilgrim Baxter Small Cap, Fidelity Income and Growth, American Century VP Ultra, American Century International, American Century VP Income & Growth, Federated US Government II, Templeton Developing Markets., Templeton Health Care, INVESCO Dynamics, INVESCO Health Sciences, INVESCO Financial Services, INVESCO Real Estate, MFS Utility, MFS Total Return, and Seligman Small Cap, all of which are open-end management investment companies. Under applicable insurance law, the assets and liabilities of the Fund are clearly identified and distinguished from the other assets and liabilities of First Variable Life. The Fund cannot be charged with liabilities arising out of any other business of First Variable Life.

First Variable Life is a wholly owned subsidiary of Protective Life Insurance Company (Protective) located in Birmingham, AL. Protective purchased First Variable Life in October 1, 2001. Prior to the sale, First Life was a subsidiary of ILona Financial Group, Inc. (ILona). First Variable Life is domiciled in the State of Arkansas.

The assets of the Fund are not available to meet the general obligations of First Variable Life or Protective, and are held for the exclusive benefit of the contract owners participating in the Fund.

(2) SIGNIFICANT ACCOUNTING POLICIES

Investments

The Fund's investments in the corresponding series of mutual funds are stated at the net asset values of the respective series, which approximates fair value, per share of the respective portfolios. Investment transactions are accounted for on the date the shares are purchased or sold. Effective August 1, 2000 the cost of shares sold and redeemed is being determined on the weighted average method due to the implementation of a new computer system. Prior to that date the first in, first out method was used to determine these amounts. The change in methods resulted in a reclassification and had no impact on net assets or on net increase (decrease) in net assets resulting from operations. Dividends and capital gain

F-50

distributions received from the mutual funds are reinvested in additional shares of the respective mutual funds and are recorded as income by the Fund on the ex-dividend date.

Federal Income Taxes

For Federal income tax purposes, operations of the Fund are combined with those of First Variable Life, which is taxed as a life insurance company. First Variable Life anticipates no tax liability resulting from the operations of the Fund. Therefore, no provision for income taxes has been charged against the Fund.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

F-51

(3) INVESTMENTS

The following table presents selected data for investments in each of the sub-accounts at December 31, 2001:

	2001
	Number of shares	Cost		Net asset value
Federated Prime Money Fund II	2,485,555	$	2,485,555	$	2,485,555
AIM Capital Appreciation	126,753		3,914,375		2,753,072
AIM Growth	123,399		3,159,339		2,020,041
American Century VP Value	252,736		1,708,740		1,880,359
DeAM VIT Equity Index	186,287		2,568,764		2,231,714
DeAM VIT Small Cap Index	75,618		856,785		811,385
Templeton International Securities	102,199		1,653,820		1,199,812
Lord Abbett Growth and Income	101,132		2,386,294		2,337,154
MFS New Discovery (IC)	53,409		802,875		815,558
MFS Growth (IC)	9,305		133,369		90,909
MFS Growth and Income (IC)	5,102		104,486		87,391
Templeton Growth Securities	74,043		928,019		815,211
DeAM VIT EAFE Index	27,175		284,988		227,999
Fidelity Contrafund	60,374		1,282,668		1,207,486
Fidelity Growth Opportunities	11,594		179,474		174,373
Fidelity Equity Income	38,824		913,576		877,039
Federated High Income Bond II	121,125		972,225		935,088
Seligman Communication & Information	74,964		1,229,600		939,293
MFS New Discovery (SC)	131,244		2,065,045		1,997,532
MFS Growth (SC)	131,507		1,584,002		1,271,674
MFS Growth and Income (SC)	41,380		774,834		706,773
Pilgrim Baxter Small Cap	212,309		1,786,613		1,802,501
Fidelity Growth and Income	193,556		2,551,495		2,529,773
American Century VP Ultra	293,657		2,848,243		2,798,549
American Century International	79,507		538,992		523,949
American Century VP Income & Growth	83,102		548,010		536,842
Federated US Government II	107,220		1,199,809		1,225,530
Templeton Developing Markets	3,584		17,079		17,059
Templeton Health Care	13,222		172,800		170,299
INVESCO Dynamics	14,179		197,227		177,799
INVESCO Health Sciences	9,644		173,920		175,519
INVESCO Financial Services	18,203		232,003		226,084
INVESCO Real Estate	5,662		56,385		56,451
MFS Utility	3,418		62,423		54,343
MFS Total Return	40,961		758,195		759,422
Seligman Small Cap	41,106		485,549		536,019

	5,353,085	$	41,617,576	$	37,455,557

F-52

(4) NET ASSETS

Variable life net assets at December 31, 2001 consists of the following:

	Accumulation units	Accumulation unit value		Net assets		2001 Total Return
*Cap One Pay policies:*
Federated Prime Money Fund II	55,000	$	12.00137	$	660,074	2.83
Growth Division	—		15.12784		—	(18.43	)
High Income Bond Division	—		9.88102		—	(1.43	)
Multiple Strategies Division	—		14.24092		—	(17.35	)
Matrix Equity Division	—		12.68419		—	(11.12	)
U.S. Government Bond Division	—		13.06092		—	4.57
World Equity Division	—		13.5997		—	(18.10	)
Growth and Income Division	—		15.51356		—	(0.91	)
Small Capital Growth Division	—		10.79868		—	(37.94	)
AIM Capital Appreciation	83,636		9.38483		784,905	(23.97	)
AIM Growth	59,347		6.49237		385,302	(34.48	)
American Century VP Value	42,036		11.92944		501,469	11.81
DeAM VIT Equity Index	58,833		8.61618		506,918	(12.97	)
DeAM VIT Small Cap Index	9,935		11.2526		111,791	1.15
Templeton International Securities	25,539		9.04391		230,974	(16.75	)
Lord Abbett Growth and Income	62,479		11.16191		697,830	(7.56	)
MFS New Discovery (IC)	31,702		14.94779		473,872	(5.88	)
MFS Growth (IC)	3,721		9.72886		36,202	(24.83	)
MFS Growth and Income (IC)	5,341		8.4219		44,985	(16.71	)
Templeton Growth Securities	14,094		10.33252		145,628	(2.20	)
DeAM VIT EAFE Index	4,426		6.60049		29,215	(25.37	)
Fidelity Contrafund	27,761		8.14035		225,984	(13.26	)
Fidelity Growth Opportunities	4,888		7.24474		35,412	(15.41	)
Fidelity Equity Income	15,925		10.32327		164,396	(6.08	)
Federated High Income Bond II	47,036		9.37718		441,067	0.47
Seligman Communication & Information	21,749		5.79049		125,935	4.13
MFS New Discovery (SC)	25,822		8.98127		231,916	(6.11	)
MFS Growth (SC)	66,563		6.73523		448,316	(25.51	)
MFS Growth and Income (SC)	21,100		8.29623		175,050	(16.86	)
Pilgrim Baxter Small Cap	57,703		8.43872		486,940	(15.61	)
Fidelity Growth and Income	138,366		9.56643		1,323,663	(5.45	)
American Century VP Ultra	100,375		9.47252		950,808	(5.27	)
American Century International	41,433		8.19802		339,670	(18.73	)
American Century VP Income & Growth	19,632		9.30586		182,692	(8.01	)
Federated US Government II	58,118		10.42314		605,767	3.95
Templeton Developing Markets	810		10.54682		8,543	5.47
Templeton Health Care	2,714		9.86114		26,765	(1.52	)
INVESCO Dynamics	24		8.22178		195	(19.06	)
INVESCO Health Services	1,266		10.26043		12,993	2.09
INVESCO Financial Services	2,065		9.72323		20,082	(3.52	)
INVESCO Real Estate	1,024		10.14355		10,383	1.13
MFS Utility	917		7.60541		6,977	(24.31	)
MFS Total Return	21,205		9.8599		209,076	(1.82	)
Seligman Small Cap	9,532		12.09487		115,287	20.50

F-53

	Accumulation units	Accumulation unit value		Net assets		2001 Total Return
*Cap Solutions policies:*
Federal Prime Money Fund II	157,170	$	11.610099	$	1,824,762	3.03
Growth Division	—		12.82926		—	(18.26	)
High Income Bond Division	—		8.86027		—	(1.23	)
Multiple Strategic Division	—		12.16751		—	(17.19	)
Matrix Equity Division	—		10.45352		—	(10.94	)
U.S. Government Bond Division	—		12.00992		—	4.78
World Equity Division	—		12.36313		—	(17.94	)
Growth and Income Division	—		12.6625		—	(0.71	)
Small Capital Growth Division	—		9.2711		—	(37.81	)
AIM Capital Appreciation	208,486		9.43996		1,968,095	(23.82	)
AIM Growth	250,319		6.53052		1,634,715	(34.35	)
American Century VP Value	114,907		11.99943		1,378,817	12.03
DeAM VIT Equity Index	199,009		8.66675		1,724,761	(12.80	)
DeAM VIT Small Cap Index	61,805		11.31869		699,547	1.35
Templeton International Securities	106,497		9.09701		968,808	(16.58	)
Lord Abbett Growth and Income	146,045		11.22739		1,639,708	(7.37	)
MFS New Discovery (IC)	22,722		15.03554		341,632	(5.69	)
MFS Growth (IC)	5,590		9.78597		54,705	(24.67	)
MFS Growth and Income (IC)	5,006		8.47134		42,404	(16.54	)
Templeton Growth Securities	64,585		10.36712		669,560	(2.00	)
DeAM VIT EAFE Index	30,016		6.62262		198,781	(25.22	)
Fidelity Contrafund	120,166		8.16764		981,472	(13.08	)
Fidelity Growth Opportunities	19,116		7.26903		138,958	(15.24	)
Fidelity Equity Income	68,800		10.35783		712,624	(5.89	)
Federated High Income Bond II	52,507		9.40857		494,012	0.67
Seligman Communication & Information	139,986		5.80996		813,311	4.34
MFS New Discovery (SC)	195,919		9.01139		1,765,500	(5.92	)
MFS Growth (SC)	121,835		6.75781		823,339	(25.36	)
MFS Growth and Income (SC)	63,877		8.32402		531,715	(16.69	)
Pilgrim Baxter Small Cap	155,672		8.45009		1,315,439	(15.50	)
Fidelity Growth and Income	125,903		9.57929		1,206,059	(5.32	)
American Century VP Ultra	194,793		9.48526		1,847,663	(5.15	)
American Century International	22,446		8.20907		184,259	(18.62	)
American Century VP Income & Growth	38,004		9.31838		354,139	(7.88	)
Federated US Government II	59,380		10.43713		619,756	4.09
Templeton Developing Markets.	806		10.56103		8,515	5.61
Templeton Health Care	14,535		9.87441		143,529	(1.39	)
INVESCO Dynamics	21,572		8.23288		177,598	(18.95	)
INVESCO Health Sciences	15,818		10.27422		162,521	2.22
INVESCO Financial Services	21,158		9.73632		205,997	(3.39	)
INVESCO Real Estate	4,535		10.15719		46,067	1.27
MFS Utility	6,220		7.61565		47,366	(24.21	)
MFS Total Return	55,739		9.87324		550,329	(1.69	)
Seligman Small Cap	34,736		12.11112		420,689	20.66

F-54

(5) PURCHASES AND SALES OF SECURITIES

Cost of purchases and proceeds from sales of each mutual fund during the year ended December 31, 2001 are shown below:

	2001
	Purchases		Proceeds from sales
Federated Prime Money Fund II	$	11,865,562	$	11,000,985
Growth Division		1,669,379		4,930,349
High Income Bond Division		89,466		510,362
Multiple Strategies Division		780,303		3,295,265
Matrix Equity Division		300,838		921,434
U.S. Government Bond Division		630,064		1,330,226
World Equity Division		495,707		1,081,139
Growth and Income Division		509,169		3,215,694
Small Capital Growth Division		5,315,337		7,231,057
AIM Capital Appreciation		1,710,899		841,236
AIM Growth		1,154,460		557,106
American Century VP Value		1,763,080		449,052
DeAM VIT Equity Index		1,480,692		431,222
DeAM VIT Small Cap Index		659,275		169,443
Templeton International Securities		846,988		326,905
Lord Abbett Growth and Income		2,020,831		886,115
MFS New Discovery (IC)		205,309		800,214
MFS Growth (IC)		1,431		122,230
MFS Growth and Income (IC)		4,368		166,809
Templeton Growth Securities		570,808		118,996
DeAM VIT EAFE Index		155,823		19,568
Fidelity Contrafund		1,119,614		148,179
Fidelity Growth Opportunities		639,563		493,932
Fidelity Equity Income		901,302		34,527
Federated High Income Bond II		1,254,136		426,981
Seligman Communication & Information		1,134,468		597,964
MFS New Discovery (SC)		3,164,184		2,415,763
MFS Growth (SC)		833,664		218,619
MFS Growth and Income (SC)		704,109		91,401
Pilgrim Baxter Small Cap		3,505,480		1,604,150
Fidelity Growth and Income		2,631,163		77,350
American Century VP Ultra		2,883,130		31,833
American Century International		571,783		29,192
American Century VP Income & Growth		561,183		12,002
Federated US Government II		1,232,676		33,806
Templeton Developing Markets		21,365		4,200
Templeton Health Care		179,171		5,985
INVESCO Dynamics		211,671		12,158
INVESCO Health Sciences		192,815		18,595
INVESCO Financial Services		239,180		6,590
INVESCO Real Estate		87,000		28,734
MFS Utility		108,954		42,265
MFS Total Return		790,707		31,762
Seligman Small Cap		1,553,234		1,090,057

	$	56,750,341	$	45,861,452

F-55

(6) FINANCIAL HIGHLIGHTS

Account Division	Units	Unit value	Net assets		Expense as a % of average net assets*	Investment income ratio		2001 total return**
Federated Prime Money Fund II	212,170	$11.61 to 12.00	$	2,484,836	0.70% to 0.90%	2.71	%	2.83% to 3.03%
Growth Division	—	12.83 to 15.13		3	0.70% to 0.90%	(.77	)	(18.43) to (18.26)
High Income Bond Division	—	8.86 to 9.88		—	0.70% to 0.90%	20.34		(1.43) to (1.23)
Multiple Strategies Division	—	12.17 to 14.24		—	0.70% to 0.90%	(.31	)	(17.35) to (17.19)
Matrix Equity Division	—	10.45 to 12.68		—	0.70% to 0.90%	(.76	)	(11.12) to (10.94)
U.S. Government Bond Division	—	12.01 to 13.06		—	0.70% to 0.90%	6.65		4.57 to 4.78
World Equity Division	—	12.36 to 13.60		—	0.70% to 0.90%	(.80	)	(18.10) to (17.94)
Growth and Income Division	—	12.66 to 15.51		—	0.70% to 0.90%	.29		(0.91) to (0.71)
Small Capital Growth Division	—	9.27 to 10.80		5	0.70% to 0.90%	(.72	)	(37.94) to (37.81)
AIM Capital Appreciation	292,122	9.38 to 9.44		2,753,000	0.70% to 0.90%	(.76	)	(23.97) to (23.82)
AIM Growth	309,666	6.49 to 6.53		2,020,017	0.70% to 0.90%	(.49	)	(34.48) to (34.35)
American Century VP Value	156,943	11.93 to 12.00		1,880,286	0.70% to 0.90%	(.25	)	11.81 to 12.03
DeAM VIT Equity Index	257,842	8.62 to 8.67		2,231,679	0.70% to 0.90%	(.24	)	(12.97) to (12.80)
DeAM VIT Small Cap Index	71,740	11.26 to 11.32		811,338	0.70% to 0.90%	.12		1.15 to 1.35
Templeton International Securities	132,036	9.04 to 9.10		1,199,782	0.70% to 0.90%	2.11		(16.75) to (16.58)
Lord Abbett Growth and Income	208,524	11.16 to 11.23		2,337,088	0.70% to 0.90%	(.05	)	(7.56) to (7.37)
MFS New Discovery (IC)	54,424	14.95 to 15.04		815,504	0.70% to 0.90%	(.78	)	(5.88) to (5.69)
MFS Growth (IC)	9,311	9.73 to 9.79		90,907	0.70% to 0.90%	(.62	)	(24.83) to (24.67)
MFS Growth and Income (IC)	10,347	8.42 to 8.47		87,389	0.70% to 0.90%	(.21	)	(16.71) to (16.54)
Templeton Growth Securities	78,679	10.33 to 10.37		815,188	0.70% to 0.90%	1.27		(2.20) to (2.00)
DeAM VIT EAFE Index	34,442	6.60 to 6.62		227,996	0.70% to 0.90%	(.72	)	(25.37) to (25.22)
Fidelity Contrafund	147,927	8.14 to 8.17		1,207,456	0.70% to 0.90%	(.40	)	(13.26) to (13.08)
Fidelity Growth Opportunities	24,004	7.24 to 7.27		174,370	0.70% to 0.90%	(.62	)	(15.41) to (15.24)
Fidelity Equity Income	84,725	10.32 to 10.36		877,020	0.70% to 0.90%	(.54	)	(6.08) to (5.89)
Federated High Income Bond II	99,543	9.37 to 9.41		935,079	0.70% to 0.90%	8.60		0.47 to 0.67
Seligman Communication & Information	161,735	5.79 to 5.81		939,246	0.70% to 0.90%	(.75	)	4.13 to 4.34
MFS New discovery (SC)	221,741	8.98 to 9.01		1,997,416	0.70% to 0.90%	(.73	)	(6.11) to (5.92)
MFS Growth (SC)	188,398	6.74 to 6.76		1,271,655	0.70% to 0.90%	(.71	)	(25.51) to (25.36)
MFS Growth and Income (SC)	84,977	8.30 to 8.32		706,765	0.70% to 0.90%	(.38	)	(16.86) to (16.69)
Pilgrim Baxter Small Cap***	213,375	8.44 to 8.45		1,802,379	0.70% to 0.90%	(.34	)	(15.61) to (15.50)
Fidelity Growth and Income***	264,269	9.57 to 9.58		2,529,722	0.70% to 0.90%	(.29	)	(5.45) to (5.32)
American Century VP Ultra***	295,168	9.47 to 9.49		2,798,471	0.70% to 0.90%	(.36	)	(5.27) to (5.15)
American Century Int'l***	63,879	8.20 to 8.21		523,929	0.70% to 0.90%	(.38	)	(18.73) to (18.62)
American Century VP Income & Growth***	57,636	9.31 to 9.32		536,831	0.70% to 0.90%	(.37	)	(8.01) to (7.88)
Federated US Govt. II***	117,498	10.42 to 10.44		1,225,523	0.70% to 0.90%	(.46	)	3.95 to 4.09
Templeton Developing Markets***	1,616	10.55 to 10.56		17,058	0.70% to 0.90%	(.30	)	5.47 to 5.61
Templeton Health Care***	17,249	9.86 to 9.87		170,294	0.70% to 0.90%	(.38	)	(1.52) to (1.39)
INVESCO Dynamics***	21,596	8.22 to 8.23		177,793	0.70% to 0.90%	(.45	)	(19.06) to (18.95)
INVESCO Health Sciences***	17,084	10.26 to 10.27		175,514	0.70% to 0.90%	.02		2.09 to 2.22
INVESCO Financial Services***	23,223	9.72 to 9.74		226,079	0.70% to 0.90%	.06		(3.52) to (3.39)
INVESCO Real Estate***	5,559	10.14 to 10.16		56,450	0.70% to 0.90%	.78		1.13 to 1.27
MFS Utility***	7,137	7.61 to 7.62		54,343	0.70% to 0.90%	(.51	)	(24.31) to (24.21)
MFS Total Return***	76,944	9.86 to 9.87		759,405	0.70% to 0.90%	(.47	)	(1.82) to (1.69)
Seligman Small Cap***	44,268	12.09 to 12.11		535,976	0.70% to 0.90%	(.05	)	20.50 to 20.66

These ratios represent the annualized contract expenses of the active contract owners of the separate account for each period indicated and includes only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units are excluded.

F-56

**		These amounts represents the total return for the periods indicated and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented.
***		These are new subaccounts for 2001 that are an investment option for policyholders as of May 1, 2001.

(7) EXPENSES

As more fully disclosed in the prospectus, First Variable Life charges the Fund, based on the value of the Fund, various charges. For Cap One Pay policies, First Variable Life charges the Fund at an annual rate of .90% for mortality and expense risks. For Cap Solutions policies, First Variable Life charges the Fund at an annual rate of .70% for mortality and expense risks. Total charges to the Fund for the years ended December 31, 2001 and 2000 were $103,334 and $170,405, $129,245 and $119,217 for Cap One Pay policies and Cap Solutions policies, respectively.

(8) DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Internal Revenue Code (the Code), a variable life contract, other than a contract issued in connection with certain types of employee benefits plans, will not be treated as a life contract for Federal tax purposes for any period for which the investments of the segregated asset account on which the contract is based are not adequately diversified. The Code provides that the "adequately diversified" requirement may be met if the underlying investments satisfy either a statutory safe harbor test or diversification requirements set forth in regulations issued by the Secretary of Treasury.

(9) PRINCIPAL UNDERWRITER AND GENERAL DISTRIBUTOR

First Variable Capital Services, Inc., a wholly owned subsidiary of First Variable Life, is principal underwriter and general distributor of the contracts issued through the Fund.

F-57

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF ASSETS AND LIABILITIES
September 30, 2003
(unaudited)
(In Thousands)

	AIM Capital Appreciation		AIM Growth		American Century VP Value		American Century International		American Century VP Income & Growth		DeAM Small Cap Index		DeAM VIT EAFE Index
Assets
Investment in mutual funds at fair value	$	2,035	$	1,903	$	1,800	$	341	$	549	$	680	$	271
Receivable from First Variable Life Insurance Company		0		0		0		0		0		0		0

Total assets-		2,035		1,903		1,800		341		549		680		271

Liabilities
Payable to First Variable Life Insurance Company		0		0		0		0		0		0		0

Net assets-	$	2,035	$	1,903	$	1,800	$	341	$	549	$	680	$	271

The accompanying notes are an integral part of these financial statements.

F-58

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
September 30, 2003
(unaudited)
(In Thousands)

	DeAM VIT Equity Index		Federated US Government II		Federated High Income Bond		Federated Prime Money Fund II		Templeton Developing Markets		Templeton Growth Securites		Franklin Small Cap		INVESCO Dynamics		INVESCO Health Sciences
Assets
Investment in mutual funds at fair value	$	1,902	$	1,419	$	1,028	$	2,846	$	175	$	801	$	65	$	307	$	237
Receivable from First Variable Life Insurance Company		0		0		0		0		0		0		0		0		0

Total assets-		1,902		1,419		1,028		2,846		175		801		65		307		237

Liabilities
Payable to First Variable Life Insurance Company		0		0		0		0		0		0		0		0		0

Net assets-	$	1,902	$	1,419	$	1,028	$	2,846	$	175	$	801	$	65	$	307	$	237

The accompanying notes are an integral part of these financial statements.

F-59

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
September 30, 2003
(unaudited)
(In Thousands)

	INVESCO Financial Services		INVESCO Real Estate		Lord Abbett Growth and Income		MFS Investors Trust Series I		MFS Utility		MFS Total Return — SC		MFS Investors Growth Stock (SC)		MFS New Discovery (SC)		Investors Trust Series II
Assets
Investment in mutual funds at fair value	$	333	$	330	$	1,919	$	61	$	108	$	734	$	855	$	1,697	$	633
Receivable from First Variable Life Insurance Company		0		0		0		0		0		0		0		0		0

Total assets-		333		330		1,919		61		108		734		855		1,697		633

Liabilities
Payable to First Variable Life Insurance Company		0		0		0		0		0		0		0		1		0

Net assets-	$	333	$	330	$	1,919	$	61	$	108	$	734	$	855	$	1,696	$	633

The accompanying notes are an integral part of these financial statements.

F-60

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
September 30, 2003
(unaudited)
(In Thousands)

	MFS Growth (IC)		MFS New Discovery (IC)		Pilgrim Baxter Small Cap		Seligman Communication & Information		Seligman Small Cap		Templeton Int'l Securities
Assets
Investment in mutual funds at fair value	$	46	$	440	$	1,689	$	940	$	521	$	1,260
Receivable from First Variable Life Insurance Company		0		0		0		0		0		0

Total assets-		46		440		1,689		940		521		1,260

Liabilities
Payable to First Variable Life Insurance Company		0		0		0		0		0		0

Net assets-	$	46	$	440	$	1,689	$	940	$	521	$	1,260

The accompanying notes are an integral part of these financial statements.

F-61

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
September 30, 2003
(unaudited)
(In Thousands)

	Fidelity Equity Income		Fidelity Contrafund		Fidelity Growth and Income		Fidelity Growth Opportunities		American Century VP Ultra		Total
Assets
Investment in mutual funds at fair value	$	936	$	1,265	$	2,009	$	283	$	2,065	$	34,483
Receivable from First Variable Life Insurance Company		0		0		0		0		0		0

Total assets-		936		1,265		2,009		283		2,065		34,483

Liabilities
Payable to First Variable Life Insurance Company		0		0		0		0		0		1

Net assets-	$	936	$	1,265	$	2,009	$	283	$	2,065	$	34,482

The accompanying notes are an integral part of these financial statements.

F-62

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF OPERATIONS
For the Period Ended September 30, 2003
(unaudited)
(In Thousands)

	AIM Capital Appreciation			AIM Growth			American Century VP Value			American Century International			American Century VP Income & Growth			DeAM Small Cap Index			DeAM VIT EAFE Index
Investment income
Dividends	$	0		$	0		$	18		$	3		$	8		$	6		$	11
Expense
Fees paid to First Variable Life Insurance Company — risk and administrative charges		10			9			9			2			3			3			1

Net investment income (loss)		(10	)		(9	)		9			1			5			3			10

Net realized and unrealized gains on investments
Realized gain (loss) on fund shares redeemed		(227	)		(262	)		(28	)		(8	)		(27	)		(12	)		(8	)
Capital gain distribution		0			0			0			0			0			0			0

Net realized gain (loss) on investments		(227	)		(262	)		(28	)		(8	)		(27	)		(12	)		(8	)
Net unrealized appreciation (depreciation) on investments during the year		501			514			221			34			81			159			31

Net realized and unrealized gain (loss) on investments		274			252			193			26			54			147			23

Net increase (decrease) in net assets resulting from operations	$	264		$	243		$	202		$	27		$	59		$	150		$	33

The accompanying notes are an integral part of these financial statements.

F-63

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF OPERATIONS, CONTINUED
For the Period Ended September 30, 2003
(unaudited)
(In Thousands)

	DeAM VIT Equity Index			Federated US Government II			Federated High Income Bond			Federated Prime Money Fund II			Templeton Developing Markets		Templeton Growth Securites			Franklin Small Cap			INVESCO Dynamics			INVESCO Health Sciences
Investment income
Dividends	$	24		$	50		$	68		$	16		$	1	$	12		$	0		$	0		$	0
Expense
Fees paid to First Variable Life Insurance Company — risk and administrative charges		10			8			6			17			1		4			0			1			1

Net investment income (loss)		14			42			62			(1	)		0		8			0			(1	)		(1	)

Net realized and unrealized gains on investments
Realized gain (loss) on fund shares redeemed		(106	)		14			(5	)		0			3		(50	)		(1	)		(11	)		(5	)
Capital gain distribution		0			7			0			0			0		0			0			0			0

Net realized gain (loss) on investments		(106	)		21			(5	)		0			3		(50	)		(1	)		(11	)		(5	)
Net unrealized appreciation (depreciation) on investments during the year		339			(42	)		80			0			21		153			10			48			30

Net realized and unrealized gain (loss) on investments		233			(21	)		75			0			24		103			9			37			25

Net increase (decrease) in net assets resulting from operations	$	247		$	21		$	137		$	(1	)	$	24	$	111		$	9		$	36		$	24

The accompanying notes are an integral part of these financial statements.

F-64

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF OPERATIONS, CONTINUED
For the Period Ended September 30, 2003
(unaudited)
(In Thousands)

	INVESCO Financial Services			INVESCO Real Estate			Lord Abbett Growth and Income			MFS Investors Trust Series I			MFS Utility			MFS Total Return — SC			MFS Investors Growth Stock (SC)			MFS New Discovery (SC)			Investors Trust Series II
Investment income
Dividends	$	0		$	0		$	0		$	0		$	2		$	13		$	0		$	0		$	3
Expense
Fees paid to First Variable Life Insurance Company — risk and administrative charges		2			2			10			0			1			4			5			8			4

Net investment income (loss)		(2	)		(2	)		(10	)		0			1			9			(5	)		(8	)		(1	)

Net realized and unrealized gains on investments
Realized gain (loss) on fund shares redeemed		(4	)		3			(85	)		(2	)		(1	)		(3	)		(91	)		(89	)		(54	)
Capital gain distribution		0			0			0			0			0			0			0			0			0

Net realized gain (loss) on investments		(4	)		3			(85	)		(2	)		(1	)		(3	)		(91	)		(89	)		(54	)
Net unrealized appreciation (depreciation) on investments during the year		46			63			349			7			19			52			193			409			114

Net realized and unrealized gain (loss) on investments		42			66			264			5			18			49			102			320			60

Net increase (decrease) in net assets resulting from operations	$	40		$	64		$	254		$	5		$	19		$	58		$	97		$	312		$	59

The accompanying notes are an integral part of these financial statements.

F-65

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF OPERATIONS, CONTINUED
For the Period Ended September 30, 2003
(unaudited)
(In Thousands)

	MFS Growth (IC)			MFS New Discovery (IC)			Pilgrim Baxter Small Cap			Seligman Communication & Information			Seligman Small Cap			Templeton Int'l Securities
Investment income
Dividends	$	0		$	0		$	0		$	0		$	0		$	21
Expenses
Fees paid to First Variable Life Insurance Company—risk and administrative charges		0			3			8			4			3			6

Net investment income (loss)		0			(3	)		(8	)		(4	)		(3	)		15

Net realized and unrealized gains on investments
Realized gain (loss) on fund shares redeemed		(7	)		(17	)		(248	)		(69	)		(2	)		(108	)
Capital gain distribution		0			0			0			0			0			0

Net realized gain (loss) on investments		(7	)		(17	)		(248	)		(69	)		(2	)		(108	)
Net unrealized appreciation (depreciation) on investments during the year		13			103			734			264			116			275

Net realized and unrealized gain (loss) on investments		6			86			486			195			114			167

Net increase (decrease) in net assets resulting from operations	$	6		$	83		$	478		$	191		$	111		$	182

The accompanying notes are an integral part of these financial statements.

F-66

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF OPERATIONS, CONTINUED
For the Period Ended September 30, 2003
(unaudited)
(In Thousands)

	Fidelity Equity Income			Fidelity Contrafund			Fidelity Growth and Income			Fidelity Growth Opportunities			American Century VP Ultra			Total
Investment income
Dividends	$	15		$	4		$	20		$	1		$	0		$	296
Expense
Fees paid to First Variable Life Insurance Company — risk and administrative charges		5			6			11			1			11			179

Net investment income (loss)		10			(2	)		9			0			(11	)		117

Net realized and unrealized gains on investments
Realized gain (loss) on fund shares redeemed		(24	)		(38	)		(24	)		(6	)		(50	)		(1,652	)
Capital gain distribution		0			0			0			0			0			7

Net realized gain (loss) on investments		(24	)		(38	)		(24	)		(6	)		(50	)		(1,645	)
Net unrealized appreciation (depreciation) on investments during the year		124			193			260			34			304			5,852

Net realized and unrealized gain (loss) on investments		100			155			236			28			254			4,207

Net increase (decrease) in net assets resulting from operations	$	110		$	153		$	245		$	28		$	243		$	4,324

The accompanying notes are an integral part of these financial statements.

F-67

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended September 30, 2003
(unaudited)
(In Thousands)

	AIM Capital Appreciation			AIM Growth			American Century VP Value			American Century International			American Century VP Income & Growth			DeAM Small Cap Index			DeAM VIT EAFE Index
From operations
Net investment income (loss)	$	(10	)	$	(9	)	$	9		$	1		$	5		$	3		$	10
Realized gain (loss) on fund shares redeemed		(227	)		(262	)		(28	)		(8	)		(27	)		(12	)		(8	)
Net unrealized appreciation (depreciation) on investments during the period		501			514			221			34			81			159			31

Net increase (decrease) in net assets resulting from operations		264			243			202			27			59			150			33

From contract owner transactions
Contract owners' net payments		324			295			206			8			54			61			47
Contract maintenance fees		(165	)		(130	)		(97	)		(12	)		(39	)		(45	)		(15	)
Surrenders		(90	)		(74	)		(31	)		(4	)		(12	)		(11	)		(5	)
Death benefits					0			0			0			0			0			0
Annuity Benefits		(6	)		(2	)		(42	)		0			(10	)		(10	)		0
Transfer (to) from other portfolios		1			106			(113	)		3			(45	)		16			(7	)
Cost of Insurance		0			0			0			0			0			0			0
Net policy loan repayments		(26	)		(8	)		(6	)		(7	)		(3	)		(8	)		(1	)

Net increase (decrease) in net assets from contract owner transactions		38			187			(83	)		(12	)		(55	)		3			19

Increase (decrease) in net assets		302			430			119			15			4			153			52
Net assets
Net assets beginning of period		1,733			1,473			1,681			326			545			527			219

Net assets at end of period	$	2,035		$	1,903		$	1,800		$	341		$	549		$	680		$	271

The accompanying notes are an integral part of these financial statements.

F-68

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF CHANGES IN NET ASSETS, CONTINUED
For the Period Ended September 30, 2003
(unaudited)
(In Thousands)

	DeAM VIT Equity Index			Federated US Government II			Federated High Income Bond			Federated Prime Money Fund II			Templeton Developing Markets			Templeton Growth Securites			Franklin Small Cap			INVESCO Dynamics			INVESCO Health Sciences
From operations
Net investment income (loss)	$	14		$	42		$	62		$	(1	)	$	0		$	8		$	0		$	(1	)	$	(1	)
Realized gain (loss) on fund shares redeemed		(106	)		21			(5	)		0			3			(50	)		(1	)		(11	)		(5	)
Net unrealized appreciation (depreciation) on investments during the period		339			(42	)		80			0			21			153			10			48			30

Net increase (decrease) in net assets resulting from operations		247			21			137			(1	)		24			111			9			36			24

From contract owner transactions
Contract owners' net payments		189			157			106			421			11			104			5			41			47
Contract maintenance fees		(116	)		(81	)		(58	)		(179	)		(7	)		(55	)		(4	)		(12	)		(19	)
Surrenders		(57	)		(21	)		(20	)		(113	)		(5	)		(37	)		(1	)		(17	)		(5	)
Death benefits		0			0			0			0			0			0			0			0			0
Annuity Benefits		(1	)		0			0			0			0			0			0			0			0
Transfer (to) from other portfolios		(150	)		101			152			253			62			8			9			99			35
Cost of Insurance		0			0			0			0			0			0			0			0			0
Net policy loan repayments		(8	)		(25	)		5			32			0			(7	)		0			(2	)		(1	)

Net increase (decrease) in net assets from contract owner transactions		(143	)		131			185			414			61			13			9			109			57

Increase (decrease) in net assets		104			152			322			413			85			124			18			145			81
Net assets
Net assets beginning of period		1,798			1,267			706			2433			90			677			47			162			156

Net assets at end of period	$	1,902		$	1,419		$	1,028		$	2,846		$	175		$	801		$	65		$	307		$	237

The accompanying notes are an integral part of these financial statements.

F-69

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF CHANGES IN NET ASSETS, CONTINUED
For the Period Ended September 30, 2003
(unaudited)
(In Thousands)

	INVESCO Financial Services			INVESCO Real Estate			Lord Abbett Growth and Income			MFS Investors Trust Series I			MFS Utility			MFS Total Return — SC			MFS Investors Growth Stock (SC)			MFS New Discovery (SC)			MFS Investors Trust Series II
From operations
Net investment income (loss)	$	(2	)	$	(2	)	$	(10	)	$	0		$	1		$	9		$	(5	)	$	(8	)	$	(1	)
Realized gain (loss) on fund shares redeemed		(4	)		3			(85	)		(2	)		(1	)		(3	)		(91	)		(89	)		(54	)
Net unrealized appreciation (depreciation) on investments during the period		46			63			349			7			19			52			193			409			114

Net increase (decrease) in net assets resulting from operations		40			64			254			5			19			58			97			312			59

From contract owner transactions
Contract owners' net payments		39			38			212			0			15			67			175			281			97
Contract maintenance fees		(16	)		(21	)		(114	)		(2	)		(11	)		(44	)		(61	)		(160	)		(40	)
Surrenders		(2	)		0			(60	)		(1	)		(2	)		(34	)		(62	)		(156	)		(49	)
Death benefits		0			0			0			0			0			0			0			0			0
Annuity Benefits		0			0			(27	)		0			0			(2	)		0			(3	)		0
Transfer (to) from other portfolios		30			2			(62	)		0			18			(31	)		(8	)		(60	)		(1	)
Cost of Insurance		0			0			0			0			0			0			0			0			0
Net policy loan repayments		(2	)		(1	)		(13	)		0			0			(2	)		(1	)		(14	)		0

Net increase (decrease) in net assets from contract owner transactions		49			18			(64	)		(3	)		20			(46	)		43			(112	)		7

Increase (decrease) in net assets		89			82			190			2			39			12			140			200			66
Net assets
Net assets beginning of period		244			248			1,729			59			69			722			715			1,496			567

Net assets at end of period	$	333		$	330		$	1,919		$	61		$	108		$	734		$	855		$	1,696		$	633

The accompanying notes are an integral part of these financial statements.

F-70

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF CHANGES IN NET ASSETS, CONTINUED
For the Period Ended September 30, 2003
(unaudited)
(In Thousands)

	MFS Growth (IC)			MFS New Discovery (IC)			Pilgrim Baxter Small Cap			Seligman Communication & Information			Seligman Small Cap			Templeton Int'l Securities
From operations
Net investment income (loss)	$	0		$	(3	)	$	(8	)	$	(4	)	$	(3	)	$	15
Realized gain (loss) on fund shares redeemed		(7	)		(17	)		(248	)		(69	)		(2	)		(108	)
Net unrealized appreciation (depreciation) on investments during the period		13			103			734			264			116			275

Net increase (decrease) in net assets resulting from operations		6			83			478			191			111			182

From contract owner transactions
Contract owners' net payments		0			0			250			199			42			197
Contract maintenance fees		(2	)		(19	)		(191	)		(98	)		(41	)		(107	)
Surrenders		(4	)		(6	)		(88	)		(39	)		(6	)		(44	)
Death benefits		0			0			0			0			0			0
Annuity Benefits		0			(3	)		(3	)		(1	)		0			(8	)
Transfer (to) from other portfolios		(2	)		(10	)		(426	)		9			(27	)		(107	)
Cost of Insurance		0			0			0			0			0			0
Net policy loan repayments		0			(4	)		(17	)		(6	)		(3	)		(8	)

Net increase (decrease) in net assets from contract owner transactions		(8	)		(42	)		(475	)		64			(35	)		(77	)

Increase (decrease) in net assets		(2	)		41			3			255			76			105
Net assets
Net assets beginning of period		48			399			1,686			685			445			1,155

Net assets at end of period	$	46		$	440		$	1,689		$	940		$	521		$	1,260

The accompanying notes are an integral part of these financial statements.

F-71

FIRST VARIABLE LIFE INSURANCE COMPANY — SEPARATE ACCOUNT VL

CONDENSED STATEMENT OF CHANGES IN NET ASSETS, CONTINUED
For the Period Ended September 30, 2003
(unaudited)
(In Thousands)

	Fidelity Equity Income			Fidelity Contrafund			Fidelity Growth and Income			Fidelity Growth Opportunities			American Century VP Ultra			Total
From operations
Net investment income (loss)	$	10		$	(2	)	$	9		$	0		$	(11	)	$	117
Realized gain (loss) on fund shares redeemed		(24	)		(38	)		(24	)		(6	)		(50	)		(1,645	)
Net unrealized appreciation (depreciation) on investments during the period		124			193			260			34			304			5,852

Net increase (decrease) in net assets resulting from operations		110			153			245			28			243			4,324

From contract transactions
Contract owners' net payments		99			181			142			36			240			4,386
Contract maintenance fees		(50	)		(88	)		(96	)		(17	)		(132	)		(2,344	)
Surrenders		(37	)		(35	)		(43	)		(6	)		(78	)		(1,255	)
Death benefits		0			0			0			0			0			0
Annuity Benefits		0			0			(13	)		0			(13	)		(144	)
Transfer (to) from other portfolios		(48	)		(72	)		(30	)		91			(60	)		(264	)
Cost of Insurance		0			0			0			0			0			0
Net policy loan repayments		(8	)		(10	)		(16	)		(1	)		(9	)		(180	)

Net increase (decrease) in net assets from contract owner transactions		(44	)		(24	)		(56	)		103			(52	)		199

Increase (decrease) in net assets		66			129			189			131			191			4,523
Net assets
Net assets beginning of period		870			1,136			1,820			152			1,874			29,959

Net assets at end of period	$	936		$	1,265		$	2,009		$	283		$	2,065		$	34,482

The accompanying notes are an integral part of these financial statements.

F-72

FIRST VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL

NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited)

For the Nine Months Ended September 30, 2003

1. ORGANIZATION

The assets of the Fund are not available to meet the general obligations of First Variable Life or Protective, and are held for the exclusive benefit of the contract owners participating in the Fund.

2. SIGNIFICANT ACCOUNTING POLICIES

Investments —The Fund's investments in the corresponding series of mutual funds are stated at the net asset values of the respective series, which approximates fair value. Investment transactions are accounted for on the date the shares are purchased or sold. For purposes of determining realized gains and losses on the sales of investments, the cost of such investments is determined on the weighted average method. Dividends and capital gain distributions received from the mutual funds are reinvested in additional shares of the respective mutual funds and are recorded as income by the Fund on the exdividend date.

F-73

tax liability resulting from the operations of the Fund. Therefore, no provision for income taxes has been charged against the Fund.

Contracts in Annuity Payment Period —Annuity reserves are computed for currently payable contracts according to the 1983 Individual Annuity Mortality Table, using an assumed investment return (AIR) equal to the AIR of the specific contracts, which varies between 3% and 4%. Charges to annuity reserves for mortality and risk expense are reimbursed to First Variable Life if the reserves required are less than originally estimated. If additional reserves are required, First Variable Life reimburses the account.

Surrender Charges —First Variable Life may assess a surrender charge on some products against the net policy assets of a contract owner if the policy is surrendered early. This surrender charge is deducted prior to the payment of any amounts to the contract owner. This surrender charge is made to reimburse First Variable Life for some of the expenses incurred with the initial distribution of the policies. Surrender charges are assessed and calculated based on various factors within the policies, and generally decline as the term of the policy increases.

Use of Estimates —The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

F-74

3. INVESTMENTS

The following table presents selected data for investments in each of the sub-accounts at September 30, 2003 (in thousands, except share data):

	Number of Shares	Cost		Market Value
AIM Capital Appreciation	106,871	$	2,699	$	2,035
AIM Growth	142,571		2,878		1,903
Amer Cent. VP Income & Growth	94,576		554		549
Amer Cent. VP International	60,316		403		341
Amer Cent. VP Ultra	246,068		2,310		2,065
Amer Cent. VP Value	262,409		1,762		1,800
DeAM VIT EAFE Index	38,349		342		271
DeAM VIT Equity 500 Index	183,012		2,282		1,902
DeAM VIT Small Cap Index	63,551		669		680
Federated High Income Bond — Class P	135,425		1,009		1,028
Federated Prime Money Fund	2,846,207		2,846		2,846
Federated US Government II — Class A	120,963		1,395		1,419
Fidelity Contrafund — Class 2	61,490		1,244		1,265
Fidelity Equity Income — Class 2	46,647		1,031		936
Fidelity Growth & Income — Class 2	165,364		2,096		2,009
Fidelity Growth Opportunities — Class 2	20,992		280		283
Franklin Small Cap — Class 2	4,229		67		65
INVESCO Dynamics	29,601		329		307
INVESCO Financial Services	27,380		330		333
INVESCO Health Sciences	15,010		241		237
INVESCO Real Estate Opportunities	25,043		269		330
Lord Abbett Grth&Income	88,403		1,965		1,919
MFS Investors Growth Stock Series — IC	5,723		81		46
MFS Investors Growth Stock Series — SC	107,316		1,072		855
MFS Investors Trust Series — SC	42,903		714		633
MFS Investors Trust Series — IC	4,142		84		61
MFS New Discovery — IC	34,212		505		440
MFS New Discovery — SC	133,131		1,876		1,696
MFS Total Return — SC	40,408		736		734
MFS Utility — SC	7,534		108		108
Pilgrim Baxter Small Cap Growth	232,337		1,580		1,689
Seligman Comm. & Info. — Class 2	92,023		1,138		940
Seligman Small Cap Portfolio — Class 2	37,418		463		521
Templeton Developing Markets Securities (Fund 2)	29,285		158		175
Templeton Growth Securities (Fund 2)	81,195		910		801
Templeton International Securities (Fund 2)	116,304		1,629		1,260

	5,748,408	$	38,055	$	34,482

F-75

The cost of purchases and proceeds from sales of investments for the nine months September 30, 2003, were as follows (in thousands):

	Purchases		Sales
AIM Capital Appreciation	$	560	$	521
AIM Growth		565		377
Amer Cent. VP Income & Growth		439		494
Amer Cent. VP International		15		26
Amer Cent. VP Ultra		148		201
Amer Cent. VP Value		221		305
DeAM VIT EAFE Index		37		18
DeAM VIT Equity 500 Index		235		379
DeAM VIT Small Cap Index		109		105
Federated High Income Bond — Class P		455		271
Federated Prime Money Fund		2,700		2,286
Federated US Government II — Class A		626		494
Fidelity Contrafund — Class 2		303		326
Fidelity Equity Income — Class 2		78		122
Fidelity Growth & Income — Class 2		119		175
Fidelity Growth Opportunities — Class 2		265		161
Franklin Small Cap — Class 2		18		8
INVESCO Dynamics		146		36
INVESCO Financial Services		83		34
INVESCO Health Sciences		113		56
INVESCO Real Estate Opportunities		83		66
Lord Abbett Grth&Income		441		506
MFS Investors Growth Stock Series — IC		—		8
MFS Investors Growth Stock Series — SC		319		277
MFS Investors Trust Series — SC		324		318
MFS Investors Trust Series — IC		0		3
MFS New Discovery — IC		0		43
MFS New Discovery — SC		176		286
MFS Total Return — SC		70		116
MFS Utility — SC		39		21
Pilgrim Baxter Small Cap Growth		236		711
Seligman Comm. & Info. — Class 2		205		141
Seligman Small Cap Portfolio — Class 2		57		92
Templeton Developing Markets Securities (Fund 2)		165		104
Templeton Growth Securities (Fund 2)		236		223
Templeton International Securities (Fund 2)		148		226

	$	9,734	$	9,536

F-76

4. CHANGES IN UNITS OUTSTANDING

The changes in units outstanding for the nine months ended September 30, 2003, were as follows:

	Units Issued	Units Redeemed	Net Change
AIM Capital Appreciation	71,404	66,678	4,726
AIM Growth	112,873	79,758	33,115
Amer Cent. VP Income & Growth	54,069	62,354	(8,285	)
Amer Cent. VP International	2,126	4,008	(1,882	)
Amer Cent. VP Ultra	19,184	26,767	(7,583	)
Amer Cent. VP Value	20,436	28,862	(8,426	)
DeAM VIT EAFE Index	6,974	3,446	3,528
DeAM VIT Equity 500 Index	33,400	52,350	(18,950	)
DeAM VIT Small Cap Index	11,437	10,680	757
Federated High Income Bond — Class P	45,442	25,928	19,514
Federated Prime Money Fund	228,562	193,525	35,037
Federated US Government II — Class A	55,295	43,579	11,716
Fidelity Contrafund — Class 2	40,469	44,587	(4,118	)
Fidelity Equity Income — Class 2	8,742	13,666	(4,924	)
Fidelity Growth & Income — Class 2	13,987	21,092	(7,105	)
Fidelity Growth Opportunities — Class 2	41,971	25,502	16,469
Franklin Small Cap — Class 2	2,268	1,215	1,053
INVESCO Dynamics	22,684	6,065	16,619
INVESCO Financial Services	9,554	4,021	5,533
INVESCO Health Sciences	13,470	6,745	6,725
INVESCO Real Estate Opportunities	7,352	5,851	1,501
Lord Abbett Grth&Income	48,292	54,358	(6,066	)
MFS Investors Growth Stock Series — IC	—	1,066	(1,066	)
MFS Investors Growth Stock Series — SC	59,636	51,668	7,968
MFS Investors Trust Series — SC	49,378	48,082	1,296
MFS Investors Trust Series — IC	0	465	(465	)
MFS New Discovery — IC	3	3,954	(3,951	)
MFS New Discovery — SC	27,029	44,646	(17,617	)
MFS Total Return — SC	7,515	11,990	(4,475	)
MFS Utility — SC	6,417	3,106	3,311
Pilgrim Baxter Small Cap Growth	42,970	139,919	(96,949	)
Seligman Comm. & Info. — Class 2	50,278	35,684	14,594
Seligman Small Cap Portfolio — Class 2	4,734	8,371	(3,637	)
Templeton Developing Markets Securities (Fund 2)	14,566	9,611	4,955
Templeton Growth Securities (Fund 2)	27,724	25,956	1,768
Templeton International Securities (Fund 2)	19,752	29,697	(9,945	)

	1,179,993	1,195,252	(15,259	)

F-77

5. FINANCIAL HIGHLIGHTS

Account Division	Units	Min Unit Value	Max Unit Value	Net Assets	Min Expense as a % of Average Net Assets*		Max Expense as a % of Average Net Assets*		Investment Income Ratio**		Min Total Return***		Max Total Return***
AIM Capital Appreciation	249,425	8.10	8.17	2,034,830	0.70	%	0.90	%	(0.85	%)	15.11	%	15.28	%
AIM Growth	362,326	5.21	5.26	1,903,318	0.70	%	0.90	%	(0.91	%)	17.35	%	17.53	%
Amer Cent. VP Income & Growth	64,788	8.45	8.49	549,487	0.70	%	0.90	%	0.83	%	13.62	%	13.79	%
Amer Cent. VP International	48,375	7.03	7.06	340,786	0.70	%	0.90	%	(0.54	%)	8.67	%	8.84	%
Amer Cent. VP Ultra	250,050	8.23	8.27	2,064,512	0.70	%	0.90	%	(1.00	%)	13.38	%	13.55	%
Amer Cent. VP Value	153,379	11.65	11.76	1,800,125	0.70	%	0.90	%	0.15	%	12.80	%	12.97	%
DeAM VIT EAFE Index	46,061	5.83	5.87	270,362	0.70	%	0.90	%	4.39	%	13.74	%	13.91	%
DeAM VIT Equity 500 Index	250,376	7.54	7.61	1,901,496	0.70	%	0.90	%	0.96	%	13.63	%	13.80	%
DeAM VIT Small Cap Index	59,885	11.26	11.37	680,002	0.70	%	0.90	%	0.36	%	27.14	%	27.33	%
Federated High Income Bond — Class P	94,206	10.87	10.94	1,027,879	0.70	%	0.90	%	5.48	%	15.32	%	15.49	%
Federated Prime Money Fund	240,669	11.70	12.05	2,846,207	0.70	%	0.90	%	(0.34	%)	(0.12	%)	0.03	%
Federated US Government II — Class A	123,940	11.41	11.47	1,418,902	0.70	%	0.90	%	2.66	%	1.33	%	1.49	%
Fidelity Contrafund — Class 2	150,952	8.33	8.39	1,265,456	0.70	%	0.90	%	(0.61	%)	14.29	%	14.46	%
Fidelity Equity Income — Class 2	97,301	9.57	9.64	936,216	0.70	%	0.90	%	0.88	%	12.90	%	13.07	%
Fidelity Growth & Income — Class 2	223,347	8.97	9.02	2,009,168	0.70	%	0.90	%	0.21	%	13.81	%	13.98	%
Fidelity Growth Opportunities — Class 2	43,446	6.48	6.53	283,180	0.70	%	0.90	%	(0.62	%)	15.75	%	15.92	%
Franklin Small Cap — Class 2	8,072	8.01	8.05	64,914	0.70	%	0.90	%	(1.09	%)	20.06	%	20.24	%
INVESCO Dynamics	45,654	6.70	6.73	307,253	0.70	%	0.90	%	(1.12	%)	20.73	%	20.91	%
INVESCO Financial Services	35,161	9.44	9.49	333,218	0.70	%	0.90	%	(1.09	%)	15.13	%	15.30	%
INVESCO Health Sciences	26,922	8.75	8.79	236,703	0.70	%	0.90	%	(1.07	%)	13.92	%	14.09	%
INVESCO Real Estate Opportunities	24,638	13.36	13.42	330,316	0.70	%	0.90	%	(1.89	%)	24.90	%	25.08	%
Lord Abbett Grth&Income	183,550	10.38	10.48	1,918,352	0.70	%	0.90	%	(0.96	%)	14.47	%	14.64	%
MFS Investors Growth Stock	5,807	7.93	8.00	46,300	0.70	%	0.90	%	(0.88	%)	13.50	%	13.67	%
MFS Investors Growth Stock Class 2	155,622	5.46	5.50	855,311	0.70	%	0.90	%	(0.88	%)	13.26	%	13.43	%
MFS Investors Trust	88,456	7.12	7.17	633,241	0.70	%	0.90	%	(0.39	%)	9.85	%	10.02	%
MFS Investors Trust Class 2	8,427	7.26	7.33	61,432	0.70	%	0.90	%	(0.20	%)	10.12	%	10.28	%
MFS New Discovery	35,400	12.38	12.50	439,622	0.70	%	0.90	%	(1.05	%)	22.26	%	22.44	%
MFS New Discovery Class 2	227,742	7.41	7.46	1,697,419	0.70	%	0.90	%	(1.05	%)	22.01	%	22.19	%
MFS Total Return Class 2	73,448	9.96	10.00	733,813	0.70	%	0.90	%	0.88	%	7.64	%	7.80	%
MFS Utilities Class 2	15,208	7.03	7.06	107,356	0.70	%	0.90	%	1.46	%	20.92	%	21.10	%
Pilgrim Baxter Small Cap Growth	236,614	7.11	7.15	1,689,087	0.70	%	0.90	%	(0.17	%)	41.04	%	41.25	%
Seligman Comm. & Info. — Class 2	201,032	4.65	4.68	940,473	0.70	%	0.90	%	(1.23	%)	27.05	%	27.24	%
Seligman Small Cap Portfolio — Class 2	40,235	12.90	12.97	520,863	0.70	%	0.90	%	(1.37	%)	27.44	%	27.63	%
Templeton Developing Markets Securities (Fund 2)	14,534	12.00	12.06	175,123	0.70	%	0.90	%	(0.78	%)	28.17	%	28.37	%
Templeton Growth Securities (Fund 2)	82,490	9.65	9.72	800,579	0.70	%	0.90	%	0.56	%	15.65	%	15.82	%
Templeton International Securities (Fund 2)	147,325	8.48	8.56	1,259,568	0.70	%	0.90	%	0.62	%	16.20	%	16.37	%

	4,114,863			34,482,869

F-78

**		These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest.
***		These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period.

F-79

REPORT OF INDEPENDENT AUDITORS

To the Directors and Share Owner
Protective Life Insurance Company

We have reviewed the accompanying consolidated condensed balance sheet of Protective Life Insurance Company and subsidiaries as of September 30, 2003, and the related consolidated condensed statements of income for each of the three-month and nine-month periods ended September 30, 2003 and 2002, and the consolidated condensed statements of cash flows for the nine-month periods ended September 30, 2003 and 2002. These financial statements are the responsibility of the company's management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2002, and the related consolidated statements of income, share-owner's equity, and cash flows for the year then ended (not presented herein), and in our report dated March 19, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2002 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Birmingham, Alabama
November 7, 2003

F-80

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Dollars in thousands)
(Unaudited)

			Three Months Ended September 30						Nine Months Ended September 30
			2003			2002			2003			2002
REVENUES
	Premiums and policy fees		$	420,244		$	392,471		$	1,197,430		$	1,146,545
	Reinsurance ceded			(233,768	)		(121,744	)		(620,874	)		(498,739	)

	Premiums and policy fees, net of reinsurance ceded			186,476			270,727			576,556			647,806
	Net investment income			239,257			248,265			741,021			722,052
	Realized investment gains (losses)
		Derivative financial instruments		(7,492	)		(9,532	)		(23,089	)		(9,384	)
		All other investments		27,042			5,237			62,288			13,298
	Other income			9,586			10,299			40,709			31,000

				454,869			524,996			1,397,485			1,404,772

BENEFITS AND EXPENSES
	Benefits and settlement expenses (net of reinsurance ceded: three months: 2003 — $214,347; 2002 — $140,504 nine months: 2003 — $643,118; 2002 — $469,638)			281,693			306,464			863,901			873,485
	Amortization of deferred policy acquisition costs			56,243			112,022			176,804			214,167
	Other operating expenses (net of reinsurance ceded: three months: 2003 — $27,767; 2002 — $30,896 nine months: 2003 — $90,781; 2002 — $106,529)			33,342			42,471			112,922			120,458

				371,278			460,957			1,153,627			1,208,110

INCOME BEFORE INCOME TAX				83,591			64,039			243,858			196,662
Income tax expense				28,811			22,290			82,180			65,368

NET INCOME			$	54,780		$	41,749		$	161,678		$	131,294

See notes to consolidated condensed financial statements

F-81

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands)

				September 30 2003 (Unaudited)			December 31 2002
ASSETS
	Investments:
		Fixed maturities, at market (amortized cost: 2003 — $11,799,123; 2002 — $11,212,765)		$	12,449,525		$	11,655,465
		Equity securities, at market (amortized cost: 2003 — $35,291; 2002 — $51,095)			36,250			48,799
		Mortgage loans on real estate			2,678,360			2,518,151
		Investment in real estate, net			11,723			15,499
		Policy loans			523,869			543,161
		Other long-term investments			241,130			210,381
		Short-term investments			576,930			447,155

			Total investments		16,517,787			15,438,611
	Cash				80,694			85,850
	Accrued investment income				193,074			180,950
	Accounts and premiums receivable, net				42,655			50,544
	Reinsurance receivables				2,259,664			2,333,800
	Deferred policy acquisition costs				1,817,442			1,709,254
	Goodwill				35,143			35,143
	Property and equipment, net				43,352			38,878
	Other assets				235,717			262,127
	Assets related to separate accounts
		Variable annuity			1,813,738			1,513,824
		Variable universal life			148,511			114,364
		Other			4,380			4,330

					23,192,157			21,767,675

LIABILITIES
	Policy liabilities and accruals			$	9,491,923		$	9,090,462
	Stable value investment contract deposits				4,135,212			4,018,552
	Annuity account balances				3,538,368			3,697,495
	Other policyholders' funds				172,131			174,665
	Other liabilities				883,433			620,731
	Accrued income taxes				8,784			36,859
	Deferred income taxes				312,865			206,845
	Debt
		Notes payable			2,249			2,264
		Indebtedness to related parties						2,000
	Securities sold under repurchase agreements				111,725			0
	Liabilities related to separate accounts
		Variable annuity			1,813,738			1,513,824
		Variable universal life			148,511			114,364
		Other			4,380			4,330

					20,623,319			19,482,391

COMMITMENTS AND CONTINGENT LIABILITIES — NOTE B 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, shares authorized and issued: 5,000,000				5,000			5,000
	Additional paid-in capital				846,619			846,619
	Note receivable from PLC Employee Stock Ownership Plan				(3,426	)		(3,838	)
	Retained earnings				1,361,456			1,201,587
	Accumulated other comprehensive income:
		Net unrealized gains on investments (net of income tax: 2003 — $192,161; 2002 — $128,145)			356,871			237,983
		Accumulated gain (loss) — hedging (net of income tax: 2003 — $1,247; 2002 — $(1,114))			2,316			(2,069	)

					2,568,838			2,285,284

				$	23,192,157		$	21,767,675

See notes to consolidated condensed financial statements

F-82

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)
(Unaudited)

			Nine Months Ended September 30
			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income		$	161,678		$	131,294
	Adjustments to reconcile net income to net cash provided by operating activities:
		Realized investment (gains) losses		(39,199	)		(3,914	)
		Amortization of deferred policy acquisition costs		176,804			214,167
		Capitalization of deferred policy acquisition costs		(296,582	)		(353,266	)
		Depreciation expense		8,500			8,234
		Deferred income tax		38,519			34,448
		Accrued income tax		(28,075	)		(66,084	)
		Interest credited to universal life and investment products		494,054			742,426
		Policy fees assessed on universal life and investment products		(240,747	)		(195,393	)
		Change in accrued investment income and other receivables		69,901			(59,737	)
		Change in policy liabilities and other policyholders' funds of traditional life and health products		92,014			144,386
		Change in other liabilities		(123,917	)		27,431
		Other (net)		32,366			(5,194	)

	Net cash provided by operating activities			345,316			618,798

CASH FLOWS FROM INVESTING ACTIVITIES
	Maturities and principal reductions of investments
		Investments available for sale		10,013,774			7,298,674
		Other		314,810			242,797
	Sale of investments
		Investments available for sale		12,692,100			14,090,163
		Other		6,915			13,818
	Cost of investments acquired
		Investments available for sale		(23,027,659	)		(22,470,156	)
		Other		(458,230	)		(299,451	)
	Acquisitions and bulk reinsurance assumptions			0			130,515
	Purchase of property and equipment			(13,224	)		(8,021	)
	Sale of property and equipment			0			48

	Net cash used in investing activities			(471,514	)		(1,001,613	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from borrowings under line of credit arrangements and debt			2,654,501			2,029,272
	Principal payments on line of credit arrangement and debt			(2,542,791	)		(2,104,292	)
	Dividend to share owner			(1,808	)		0
	Principal payment on surplus notes to PLC			0			(2,000	)
	Investment product deposits and change in universal life deposits			1,325,893			1,244,764
	Investment product withdrawals			(1,314,753	)		(832,044	)

	Net cash provided by financing activities			121,042			335,700

DECREASE IN CASH				(5,156	)		(47,115	)
CASH AT BEGINNING OF PERIOD				85,850			107,166

CASH AT END OF PERIOD			$	80,694		$	60,051

See notes to consolidated condensed financial statements

F-83

PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
(Amounts in tables are in thousands)

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements of Protective Life Insurance Company and subsidiaries ("Protective Life") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair statement have been included. Operating results for the nine month period ended September 30, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the consolidated financial statements and notes thereto included in Protective Life's annual report on Form 10-K for the year ended December 31, 2002.

Protective Life is a wholly-owned subsidiary of Protective Life Corporation ("PLC").

NOTE B — 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 Life 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 and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very little appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. Protective Life, like other financial services companies, in the ordinary course of business is involved in such litigation or, alternatively, in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, Protective Life 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 Life.

NOTE C — OPERATING SEGMENTS

Protective Life operates several business segments. An operating segment is generally distinguished by products and/or channels of distribution. A brief description of each segment follows:

Life Marketing. The Life Marketing segment markets level premium term and term-like insurance, universal life, and variable universal life products on a national basis primarily through networks of independent insurance agents and brokers, and in the "bank owned life insurance" market.

F-84

Acquisitions. The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment's primary focus is on life insurance policies sold to individuals.

Annuities. The Annuities segment 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 Life Marketing segment's sales force.

Stable Value Contracts. The Stable Value Contracts segment markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans, and sells funding agreements to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. The segment also markets fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds.

Asset Protection. The Asset Protection segment primarily markets vehicle and recreational marine extended service contracts. The segment also markets credit life and disability insurance products through banks, consumer finance companies and automobile dealers. On October 30, 2003, Protective Life announced that it has entered into an agreement with Life of the South Corporation ("LOTS") in which LOTS will assume the administration and marketing responsibilities for a portion of the Asset Protection segment's credit insurance business based in Raleigh, North Carolina.

Corporate and Other. Protective Life 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 segments above (including net investment income on unallocated capital). This segment also includes earnings from several lines of business which Protective Life is not actively marketing (mostly cancer insurance and group annuities), various investment-related transactions, and the operations of several small subsidiaries.

Protective Life 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. The measure used by Protective Life's chief operating decision maker to assess segment performance is operating income. Operating segment income is generally income before income tax adjusted to exclude any pretax minority interest in income of consolidated subsidiaries, net realized investment gains and losses, and the related amortization of deferred policy acquisition costs and gains (losses) on derivative instruments. 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 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-85

of income tax expense. Asset adjustments represent the inclusion of assets related to discontinued operations.

			Operating Segment Income for the Nine Months Ended September 30, 2003
			Life Marketing			Acquisitions			Annuities		Stable Value Contracts
Premiums and policy fees			$	607,770		$	216,292		$	19,134
Reinsurance ceded				(433,645	)		(54,730	)

	Net of reinsurance ceded			174,125			161,562			19,134
Net investment income				171,654			185,820			170,881	$	174,063
Realized investment gains (losses)										19,815		7,303
Other income				518			2,118			2,655

		Total revenue		346,297			349,500			212,485		181,366

Benefits and settlement expenses				205,638			218,070			152,710		140,096
Amortization of deferred policy acquisition cost				52,705			26,372			31,861		1,660
Other operating expenses				(28,895	)		32,214			17,480		3,548

		Total benefits and expenses		229,448			276,656			202,051		145,304

Income before income tax				116,849			72,844			10,434		36,062
Less: realized investment gains (losses)										19,815		7,303
Add back: related amortization of deferred policy acquisition cost										18,265

Operating income				116,849			72,844			8,884		28,759

			Asset Protection			Corporate and Other			Adjustments		Total Consolidated
Premiums and policy fees			$	324,715		$	29,519				$	1,197,430
Reinsurance ceded				(128,838	)		(3,661	)				(620,874	)

	Net of reinsurance ceded			195,877			25,858					576,556
Net investment income				29,728			8,875					741,021
Realized investment gains (losses)									$	12,081		39,199
Other income				33,114			2,304					40,709

		Total revenue		258,719			37,037			12,081		1,397,485

Benefits and settlement expenses				123,998			23,389					863,901
Amortization of deferred policy acquisition cost				63,324			882					176,804
Other operating expenses				64,142			24,433					112,922

		Total benefits and expenses		251,464			48,704					1,153,627

Income (loss) before income tax				7,255			(11,667	)				243,858
Less: realized investment gains (losses)
Add back: related amortization of deferred policy acquisition cost

Operating income (loss)				7,255			(11,667	)
Income tax expense										82,180		82,180

Net income											$	161,678

F-86

			Operating Segment Income for the Three Months Ended September 30, 2003
			Life Marketing			Acquisitions			Annuities		Stable Value Contracts
Premiums and policy fees			$	219,410		$	71,903		$	6,864
Reinsurance ceded				(167,706	)		(17,573	)

	Net of reinsurance ceded			51,704			54,330			6,864
Net investment income				57,885			61,004			54,660	$	56,441
Realized investment gains (losses)										8,583		9,745
Other income				(663	)		(329	)		1,058

		Total revenue		108,926			115,005			71,165		66,186

Benefits and settlement expenses				68,541			72,500			48,385		45,374
Amortization of deferred policy acquisition cost				12,788			7,817			13,508		542
Other operating expenses				(11,369	)		9,584			6,356		1,002

		Total benefits and expenses		69,960			89,901			68,249		46,918

Income from continuing operations before income tax				38,966			25,104			2,916		19,268
Less: realized investment gains (losses)										8,583		9,745
Add back: related amortization of deferred policy acquisition cost										8,167

Operating income				38,966			25,104			2,500		9,523

			Asset Protection			Corporate and Other			Adjustments		Total Consolidated
Premiums and policy fees			$	113,090		$	8,977				$	420,244
Reinsurance ceded				(48,006	)		(483	)				(233,768	)

	Net of reinsurance ceded			65,084			8,494					186,476
Net investment income				10,275			(1,008	)				239,257
Realized investment gains (losses)									$	1,222		19,550
Other income				8,602			918					9,586

		Total revenue		83,961			8,404			1,222		454,869

Benefits and settlement expenses				39,301			7,592					281,693
Amortization of deferred policy acquisition cost				21,354			234					56,243
Other operating expenses				19,791			7,978					33,342

		Total benefits and expenses		80,446			15,804					371,278

Income (loss) before income tax				3,515			(7,400	)				83,591
Less: realized investment gains (losses)
Add back: related amortization of deferred policy acquisition cost

Operating income (loss)				3,515			(7,400	)
Income tax expense										28,811		28,811

Net income											$	54,780

F-87

			Operating Segment Income for the Nine Months Ended September 30, 2002
			Life Marketing			Acquisition			Annuities		Stable Value Contracts
Premiums and policy fees			$	474,195		$	223,600		$	19,864
Reinsurance ceded				(275,102	)		(48,360	)

	Net of reinsurance ceded			199,093			175,240			19,864
Net investment income				153,918			184,639			162,211	$	183,258
Realized investment gains (losses)										3,602		(6,110	)
Other income				843			1,242			2,549

		Total revenue		353,854			361,121			188,226		177,148

Benefits and settlement expenses				181,255			227,597			135,914		147,201
Amortization of deferred policy acquisition cost				104,518			28,597			19,411		1,741
Other operating expenses				(20,795	)		35,431			19,214		3,378

		Total benefits and expenses		264,978			291,625			174,539		152,320

Income before income tax				88,876			69,496			13,687		24,828
Less: realized investment gains (losses)										3,602		(6,110	)
Add back: related amortization of deferred policy acquisition costs										1,684

Operating income				88,876			69,496			11,769		30,938

			Asset Protection			Corporate and Other			Adjustments		Total Consolidated
Premiums and policy fees			$	386,332		$	42,554				$	1,146,545
Reinsurance ceded				(159,881	)		(15,396	)				(498,739	)

	Net of reinsurance ceded			226,451			27,158					647,806
Net investment income				33,001			5,025					722,052
Realized investment gains (losses)									$	6,422		3,914
Other income				25,320			1,046					31,000

		Total revenue		284,772			33,229			6,422		1,404,772

Benefits and settlement expenses				153,675			27,843					873,485
Amortization of deferred policy acquisition cost				58,763			1,137					214,167
Other operating expenses				60,964			22,266					120,458

		Total benefits and expenses		273,402			51,246					1,208,110

Income (loss) before income tax				11,370			(18,017	)				196,662
Less: realized investment gains (losses)
Add back: related amortization of deferred policy acquisition costs

Operating income (loss)				11,370			(18,017	)
Income tax expense										65,368		65,368

Net income											$	131,294

F-88

			Operating Segment Income for the Three Months Ended September 30, 2002
			Life Marketing			Acquisition			Annuities		Stable Value Contracts
Premiums and policy fees			$	164,904		$	79,341		$	6,414
Reinsurance ceded				(51,959	)		(12,468	)

	Net of reinsurance ceded			112,945			66,873			6,414
Net investment income				52,409			67,127			56,757	$	61,725
Realized investment gains (losses)										365		(6,366	)
Other income				463			169			754

		Total revenue		165,817			134,169			64,290		55,359

Benefits and settlement expenses				57,365			83,332			48,466		48,290
Amortization of deferred policy acquisition cost				76,221			11,891			5,734		581
Other operating expenses				(8,081	)		13,522			7,637		1,431

		Total benefits and expenses		125,505			108,745			61,837		50,302

Income before income tax				40,312			25,424			2,453		5,057
Less: realized investment gains (losses)										365		(6,366	)
Add back: related amortization of deferred policy acquisition cost										365

Operating income				40,312			25,424			2,453		11,423

			Asset Protection			Corporate and Other			Adjustments		Total Consolidated
Premiums and policy fees			$	127,874		$	13,938				$	392,471
Reinsurance ceded				(52,304	)		(5,013	)				(121,744	)

	Net of reinsurance ceded			75,570			8,925					270,727
Net investment income				11,018			(771	)				248,265
Realized investment gains (losses)									$	1,706		(4,295	)
Other income				8,370			543					10,299

		Total revenue		94,958			8,697			1,706		524,996

Benefits and settlement expenses				58,262			10,749					306,464
Amortization of deferred policy acquisition cost				17,267			328					112,022
Other operating expenses				20,593			7,369					42,471

		Total benefits and expenses		96,122			18,446					460,957

Income (loss) before income tax				(1,164	)		(9,749	)				64,039
Less: realized investment gains (losses)
Add back: related amortization of deferred policy acquisition cost

Operating income (loss)				(1,164	)		(9,749	)
Income tax expense										22,290		22,290

Net income											$	41,749

		Operating Segment Assets September 30, 2003
		Life Marketing		Acquisitions		Annuities		Stable Value Contracts
Investments and other assets		$	4,826,714	$	4,438,724	$	4,758,117	$	4,010,543
Deferred policy acquisition costs			1,131,814		385,703		94,400		4,301
Goodwill

	Total assets	$	5,958,528	$	4,824,427	$	4,852,517	$	4,014,844

F-89

		Asset Protection		Corporate and Other		Adjustments		Total Consolidated
Investments and other assets		$	1,015,567	$	2,177,648	$	112,259	$	21,339,572
Deferred policy acquisition costs			193,654		7,570				1,817,442
Goodwill			35,143						35,143

	Total assets	$	1,244,364	$	2,185,218	$	112,259	$	23,192,157

		Operating Segment Assets December 31, 2002
		Life Marketing		Acquisitions		Annuities		Stable Value Contracts
Investments and other assets		$	4,193,732	$	4,553,955	$	4,821,398	$	3,930,669
Deferred policy acquisition costs			973,631		435,592		93,140		4,908
Goodwill

	Total assets	$	5,167,363	$	4,989,547	$	4,914,538	$	3,935,577

		Asset Protection		Corporate and Other		Adjustments		Total Consolidated
Investments and other assets		$	1,043,933	$	1,355,762	$	123,829	$	20,023,278
Deferred policy acquisition costs			194,281		7,702				1,709,254
Goodwill			35,143						35,143

	Total assets	$	1,273,357	$	1,363,464	$	123,829	$	21,767,675

NOTE D — STATUTORY REPORTING PRACTICES

Financial statements prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. In accordance with statutory reporting practices, at September 30, 2003, and for the nine months then ended, Protective Life and its insurance subsidiaries had combined share-owners' equity of $917.6 million and net income of $94.7 million.

NOTE E — REINSURANCE RECEIVABLE

In 2002, Protective Life discovered that it had overpaid reinsurance premiums to several reinsurance companies of approximately $94.5 million. At December 31, 2002, Protective Life had recorded cash and receivables totaling $69.7 million, which reflected the amounts received and Protective Life's then current estimate of amounts to be recovered in the future, based upon the information then available. The corresponding increase in premiums and policy fees resulted in $62.5 million of additional amortization of deferred policy acquisition costs in 2002. The amortization of deferred policy acquisition costs took into account the amortization relating to the increase in premiums and policy fees as well as the additional amortization required should the remainder of the overpayment not be collected.

As of the date of this report, Protective Life has received payment from substantially all of the affected reinsurance companies. As a result, Protective Life increased premiums and policy fees by $2.8 million in the first quarter of 2003 and $15.6 million in the second quarter of 2003. The increase in premiums and policy fees resulted in $1.0 million of additional amortization of deferred policy acquisition costs in the first quarter of 2003 and $5.1 million in the second quarter of 2003. As a result, Protective Life's pretax income for the first quarter of 2003 increased by $1.8 million and $10.5 million in

F-90

the second quarter of 2003. There were no changes in estimates recorded during the third quarter of 2003.

NOTE F — RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2003, the Derivatives Implementation Group of the Financial Accounting Standards Board (FASB) cleared Issue No. B36, "Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments" (DIG B36). DIG B36 requires the bifurcation of embedded derivatives within modified coinsurance and funds withheld coinsurance arrangements that expose the creditor to credit risk of a company other than the debtor, even if the debtor owns as investment assets the third-party securities to which the creditor is exposed. The effective date of the implementation guidance in DIG B36 is for the first fiscal quarter beginning after September 15, 2003, and should be applied on a prospective basis. Protective Life is currently evaluating the impact of this pronouncement on its financial statements, but does not anticipate a material impact on its financial condition or results of operations.

In April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. This Statement is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively. The adoption of SFAS No. 149 did not have a material effect on Protective Life's financial position or results of operations.

In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS No. 150 did not have a material effect on Protective Life's financial position or results of operations.

In July 2003, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts." SOP 03-1 is effective for fiscal years beginning after December 15, 2003. SOP 03-1 provides guidance related to the reporting and disclosure of certain insurance contracts and separate accounts, including the calculation of guaranteed minimum death benefits (GMDB). SOP 03-1 also addresses the capitalization and amortization of sales inducements to contract holders. Had the provision been effective at September 30, 2003, Protective Life would have reported a GMDB accrual $1.2 million higher than currently reported. Protective Life is currently evaluating the impact of the other requirements of SOP 03-1, but does not anticipate a material impact on its financial condition or results of operations.

In January 2003, the FASB issued FASB Interpretation No. (FIN) 46 "Consolidation of Variable Interest Entities." FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from the other parties. The FASB has deferred implementation of FIN 46 for variable interest entities (VIEs) created before February 1, 2003, until periods ending after December 15, 2003. Protective Life does not expect that FIN 46 will have a material impact on its financial condition or results of operations.

F-91

NOTE G — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Fair-Value Hedges

As of September 30, 2003, and during the nine months then ended, Protective Life had no hedging relationships designated as a fair-value hedge.

Cash-Flow Hedges

Protective Life has entered into a foreign currency swap to hedge the risk of changes in the value of interest and principal payments to be made on certain of its foreign-currency-based stable value contracts. Under the terms of the swap, Protective Life pays a fixed U.S.-dollar-denominated rate and receives a fixed foreign-currency-denominated rate. Effective July 1, 2002, Protective Life designated this swap as a cash flow hedge and therefore recorded the change in the fair value of the swap during the period in accumulated other comprehensive income. In the third quarter of 2003, the income recognized by Protective Life related to the ineffective portion of the hedging instrument was immaterial. For the nine months ended September 30, 2003, Protective Life recognized income of $0.3 million related to the ineffective portion of the hedging instrument. There were no components of the hedging instrument excluded from the assessment of hedge ineffectiveness. During the three and nine month periods ended September 30, 2003, a pretax loss of $5.3 million and $35.6 million, respectively, representing the change in fair value of the hedged contracts during the period, and a gain of like amount representing the application of hedge accounting to this transaction, were recorded in Realized Investment Gains (Losses) — Derivative Financial Instruments in Protective Life's consolidated condensed statements of income. Additionally, at September 30, 2003, Protective Life reported an increase in accumulated other comprehensive income of $2.3 million (net of income tax of $1.2 million) related to its derivatives designated as cash flow hedges. During the next twelve months, Protective Life expects to reclassify out of accumulated other comprehensive income and into earnings, as a reduction of interest expense, approximately $1.5 million.

Other Derivatives

Protective Life uses certain interest rate swaps, caps, floors, options and futures contracts as economic hedges against the changes in value or cash flows of outstanding mortgage loan commitments and certain owned investments of Protective Life. For the three and nine months ended September 30, 2003, Protective Life recognized total pretax losses of $9.8 million and $26.1 million, respectively, representing the change in fair value of these derivative instruments as well as the realized gain or loss on contracts closed during the period.

On its foreign currency swaps, Protective Life recognized a $1.9 million pretax gain for the first nine months of fiscal 2003 and a $22.7 million pretax loss for the current quarter while recognizing a $1.4 million foreign exchange pretax loss on the related foreign-currency-denominated stable value contracts for the nine month period and a $23.2 million pretax gain for the current quarter. The net change primarily results from the difference in the forward and spot exchange rates used to revalue the currency swaps and the stable value contracts, respectively. This net change is reflected in Realized Investment Gains (Losses) — Derivative Financial Instruments in Protective Life's consolidated condensed statements of income.

Protective Life has entered into asset swap arrangements to, in effect, sell the equity options embedded in owned convertible bonds in exchange for an interest rate swap that converts the remaining host bond to a variable rate instrument. For the nine months ended September 30, 2003, Protective Life recognized a $1.5 million pretax gain for the change in the asset swaps' fair value and recognized a $0.7 million pretax gain to separately record the embedded equity options at fair value. For the three

F-92

months ended September 30, 2003, Protective Life recognized a $0.5 million pretax gain for the change in the asset swaps' fair value and recognized a $1.3 million pretax gain to separately record the embedded equity options at fair value.

NOTE H — COMPREHENSIVE INCOME

The following table sets forth Protective Life's comprehensive income for the periods shown:

	Three Months Ended September 30						Nine Months Ended September 30
	2003			2002			2003			2002
Net income	$	54,780		$	41,749		$	161,678		$	131,294
Change in net unrealized gains/losses on investments (net of income tax: three months: 2003 — $(46,261); 2002 — $87,547 nine months: 2003 — $85,817; 2002 — $118,978)		(85,914	)		162,588			159,375			220,960
Change in accumulated gain-hedging (net of income tax: three months: — 2003 — $615; 2002 — $(2,411) nine months: — 2003 — $2,361; 2002 — $(2,411))		1,143			(4,477	)		4,385			(4,477	)
Reclassification adjustment for amounts included in net income (net of income tax: three months: 2003 — $(9,465); 2002 — $(1,833); nine months: 2003 — $(21,801); 2002 — $(4,654))		(17,577	)		(3,404	)		(40,487	)		(8,644	)

Comprehensive income (loss)	$	(47,568	)	$	196,456		$	284,951		$	339,133

NOTE I — 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 previously reported net income or share-owner's equity.

NOTE J — ACQUISITIONS

In June 2002, Protective Life coinsured a block of traditional life and interest-sensitive life insurance policies from Conseco Variable Insurance Company. The transaction has been accounted for as a purchase, and the results of the transaction have been included in the accompanying financial statements since the transaction's effective date.

Summarized below are the consolidated results of operations for the period presented below on an unaudited pro forma basis, as if the acquisition had occurred as of January 1, 2002. The pro forma financial information does not purport to be indicative of results of operations that would have occurred had the transaction occurred on the basis assumed above nor are they indicative of results of the future operations of the combined enterprises.

		Nine Months Ended September 30, 2002 (UNAUDITED)
Total revenues		$	1,419,816
Net income			135,043

F-93

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Share Owner
Protective Life Insurance Company
Birmingham, Alabama

In our opinion, the consolidated financial statements listed in the index on page F-1 of this Form S-6 present fairly, in all material respects, the financial position of Protective Life Insurance Company and Subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index on page F-1 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 auditing standards generally accepted in the United States of America, 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 our opinion.

As discussed in Note A of the Notes to the Consolidated Financial Statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" and effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities".

PricewaterhouseCoopers LLP

Birmingham, Alabama
March 19, 2003

F-94

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands)

			Year Ended December 31
			2002			2001			2000
REVENUES
	Premiums and policy fees		$	1,529,834		$	1,389,819		$	1,175,943
	Reinsurance ceded			(746,980	)		(771,151	)		(686,108	)

		Net of reinsurance ceded		782,854			618,668			489,835
	Net investment income			980,059			839,103			692,081
	Realized investment gains (losses):
		Derivative financial instruments		(12,959	)		(1,718	)		2,157
		All other investments		12,314			(6,123	)		(16,756	)
	Other income			41,483			38,578			35,194

				1,803,751			1,488,508			1,202,511

BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: 2002 — $699,808; 2001 — $609,996; 2000 — $538,291)				1,162,231			972,624			760,778
Amortization of deferred policy acquisition costs				239,490			147,058			143,180
Amortization of goodwill				0			2,827			2,514
Other operating expenses (net of reinsurance ceded: 2002 — $177,509; 2001 — $167,243; 2000 — $223,498)				160,407			152,041			121,417

				1,562,128			1,274,550			1,027,889

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX				241,623			213,958			174,622
INCOME TAX EXPENSE
	Current			75,335			118,421			12,180
	Deferred			8,894			(47,964	)		49,298

				84,229			70,457			61,478

Net income from continuing operations before cumulative effect of change in accounting principle				157,394			143,501			113,144
Income (loss) from discontinued operations, net of income tax				0			(9,856	)		16,299
Loss from sale of discontinued operations, net of income tax				0			(17,754	)		0

Net income before cumulative effect of change in accounting principle				157,394			115,891			129,443
Cumulative effect of change in accounting principle, net of income tax				0			(8,341	)		0

NET INCOME			$	157,394		$	107,550		$	129,443

See notes to consolidated financial statements.

F-95

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

			December 31
			2002			2001
ASSETS
Investments:
	Fixed maturities, at market (amortized cost: 2002 — $11,212,765; 2001 — $9,719,057)		$	11,655,465		$	9,812,091
	Equity securities, at market (cost: 2002 — $51,095; 2001 — $62,051)			48,799			60,493
	Mortgage loans on real estate			2,518,151			2,512,844
	Investment real estate, net of accumulated depreciation (2002 — $1,099; 2001 — $1,452)			15,499			24,173
	Policy loans			543,161			521,840
	Other long-term investments			210,381			100,686
	Short-term investments			447,155			228,396

		Total investments		15,438,611			13,260,523
Cash				85,850			107,166
Accrued investment income				180,950			158,841
Accounts and premiums receivable, net of allowance for uncollectible amounts (2002 — $2,825; 2001 — $3,025)				50,544			55,809
Reinsurance receivables				2,382,223			2,173,987
Deferred policy acquisition costs				1,683,224			1,532,683
Goodwill, net				35,143			35,992
Property and equipment, net				38,878			46,337
Other assets				259,627			219,355
Assets related to separate accounts:
	Variable Annuity			1,513,824			1,910,651
	Variable Universal Life			114,364			77,162
	Other			4,330			3,997

			$	21,787,568		$	19,582,503

LIABILITIES
Policy liabilities and accruals:
	Future policy benefits and claims		$	8,316,171		$	6,974,685
	Unearned premiums			781,008			901,653

	Total policy liabilities and accruals			9,097,179			7,876,338
Stable value contract deposits				4,018,552			3,716,530
Annuity deposits				3,744,000			3,248,218
Other policyholders' funds				141,336			132,124
Other liabilities				620,731			410,621
Accrued income taxes				36,859			125,835
Deferred income taxes				206,845			72,403
Note payable				2,264			2,291
Indebtedness to related parties				2,000			6,000
Securities sold under repurchase agreements				0			117,000
Liabilities related to separate accounts:
	Variable Annuity			1,513,824			1,910,651
	Variable Universal Life			114,364			77,162
	Other			4,330			3,997

		Total liabilities		19,502,284			17,699,170

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, shares authorized and issued: 5,000,000				5,000			5,000
Additional paid-in capital				846,619			785,419
Note receivable from PLC Employee Stock Ownership Plan				(3,838	)		(4,499	)
Retained earnings				1,201,587			1,044,243
Accumulated other comprehensive income
	Net unrealized gains (losses) on investments (net of income tax: 2002 — $128,145; 2001 — $28,629)			237,983			53,168
	Accumulated gain (loss) — hedging (net of income tax: 2002 — $(1,114))			(2,069	)

		Total share-owner's equity		2,285,284			1,883,333

			$	21,787,568		$	19,582,503

See notes to consolidated financial statements

F-96

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF SHARE-OWNER'S EQUITY

(Dollars in thousands, except per share amounts)

		Preferred Stock		Common Stock		Additional Paid-In Capital		Note Receivable From PLC ESOP			Retained Earnings			Net Unrealized Gains (Losses) on Investments			Accumu- lated Gain (Loss) Hedging			Total Share- Owner's Equity
Balance, December 31, 1999		$	2	$	5,000	$	570,419	$	(5,148	)	$	812,302		$	(146,080	)	$	0		$	1,236,495

	Net income for 2000											129,443									129,443
	Change in net unrealized gains/losses on investments (net of income tax — $45,887)														85,221						85,221
	Reclassification adjustment for amounts included in net income (net of income tax — $5,110)														9,489						9,489

	Comprehensive income for 2000																				224,153

	Capital contribution						81,000														81,000
	Common dividend ($0.40 per share)											(2,000	)								(2,000	)
	Decrease in note receivable from PLC ESOP								307												307

Balance, December 31, 2000			2		5,000		651,419		(4,841	)		939,745			(51,370	)		0			1,539,955

	Net income for 2001											107,550									107,550
	Change in net unrealized gains/losses on investments (net of income tax — $52,019)														96,607						96,607
	Reclassification adjustment for amounts included in net income (net of income tax — $2,143)														3,980						3,980
	Transition adjustment on derivative financial instruments (net of income tax — $2,127)														3,951						3,951

Comprehensive income for 2001																					212,088

Capital contribution							134,000														134,000
Common dividend — transfer of subsidiary to PLC (See Note A												(2,052	)								(2,052	)
Preferred dividend ($500.00 per share)												(1,000	)								(1,000	)
Decrease in note receivable from PLC ESOP									342												342

Balance, December 31, 2001			2		5,000		785,419		(4,499	)		1,044,243			53,168			0			1,883,333

	Net income for 2002											157,394									157,394
	Change in net unrealized gains/losses on investments (net of income tax — $103,826)														192,819						192,819
	Reclassification adjustment for amounts included in net income (net of income tax — $(4,310))														(8,004	)					(8,004	)
	Change in accumulated gain (loss) — hedging (net of income tax — $(1,114))																	(2,069	)		(2,069	)

	Comprehensive income for 2002																				340,140

	Capital contribution						61,200														61,200
	Preferred dividend ($25.00 per share)											(50	)								(50	)
	Decrease in note receivable from PLC ESOP								661												661

Balance, December 31, 2002		$	2	$	5,000	$	846,619	$	(3,838	)	$	1,201,587		$	237,983		$	(2,069	)	$	2,285,284

See notes to consolidated financial statements.

F-97

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

			December 31
			2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income		$	157,394		$	107,550		$	129,443
	Adjustments to reconcile net income to net cash provided by operating activities:
		Realized investment (gains) losses		645			7,841			14,599
		Amortization of deferred policy acquisition costs		239,490			154,383			149,574
		Amortization of goodwill		0			8,328			7,797
		Capitalization of deferred policy acquisition costs		(437,325	)		(317,626	)		(338,685	)
		Loss from sale of discontinued operations		0			17,754			0
		Depreciation expense		10,409			11,651			9,581
		Deferred income taxes		8,894			(40,970	)		55,161
		Accrued income taxes		(88,976	)		139,016			13,715
		Interest credited to universal life and investment products		900,930			944,098			766,004
		Policy fees assessed on universal life and investment products		(268,191	)		(222,415	)		(197,581	)
		Change in accrued investment income and other receivables		(303,497	)		(238,097	)		(158,107	)
		Change in policy liabilities and other policyholder funds of traditional life and health products		493,714			444,119			499,674
		Change in other liabilities		93,368			132,497			(21,592	)
		Other (net)		76,597			9,306			(35,103	)

Net cash provided by operating activities				883,452			1,157,435			894,480

CASH FLOWS FROM INVESTING ACTIVITIES
	Maturities and principal reduction of investments:
		Investments available for sale		12,780,736			3,062,262			12,828,276
		Other		485,639			283,181			133,814
	Sale of investments:
		Investments available for sale		22,862,420			8,943,123			810,716
		Other		15,798			0			5,222
	Cost of investments acquired:
		Investments available for sale		(37,145,100	)		(13,652,930	)		(14,369,630	)
		Corporate owned life insurance		0			(100,000	)		0
		Other		(475,733	)		(378,520	)		(463,909	)
	Acquisitions and bulk reinsurance assumptions			130,515			(118,557	)		(162,409	)
	Purchase of property and equipment			(8,982	)		(10,099	)		(5,084	)
	Sale of discontinued operations, net of cash transferred			0			216,031			0
	Sale of property and equipment			48			70			0

Net cash used in investing activities				(1,354,659	)		(1,755,439	)		(1,223,004	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Borrowings under line of credit arrangements and long-term debt			2,050,772			2,574,954			2,197,800
	Capital contribution from PLC			60,785			134,000			81,000
	Principal payments on line of credit arrangements and long-term debt			(2,167,799	)		(2,457,979	)		(2,197,823	)
	Principal payment on surplus note to PLC			(4,000	)		(4,000	)		(4,000	)
	Dividends to share owner			(50	)		(1,000	)		(2,000	)
	Investment product deposits and change in universal life deposits			1,687,213			1,735,653			1,811,484
	Investment product withdrawals			(1,177,030	)		(1,315,179	)		(1,553,282	)

Net cash provided by financing activities				449,891			666,449			333,179

INCREASE (DECREASE) IN CASH				(21,316	)		68,445			4,655
CASH AT BEGINNING OF YEAR				107,166			38,721			34,066

CASH AT END OF YEAR			$	85,850		$	107,166		$	38,721

See notes to consolidated financial statements.

F-98

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 accounting principles generally accepted in the United States of America. 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 accounting principles generally accepted in the United States of America 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. Actual results could differ from these estimates.

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. The consolidated financial statements also include the accounts of special trusts or entities that do not have substantive residual equity holders which bear risks and rewards of ownership, formed to purchase funding agreements issued by Protective.

On October 1, 2000, PLC transferred its ownership of twenty companies (that marketed prepaid dental products) to Protective. On May 1, 2001, PLC transferred its ownership of another five companies (that marketed prepaid dental products) to Protective. Protective has recorded these transactions on a pooling of interests basis whereby Protective's financial statements reflect the consolidation of the contributed entities as if they had been wholly owned by Protective for all periods in which common control existed.

On December 31, 2001, Protective sold substantially all of the companies transferred from PLC as part of the sale of the Dental Benefits Division. For more information see the discussion under the heading "Discontinued Operations" included in Note A herein.

Nature of Operations

Protective provides financial services through the production, distribution, and administration of insurance and investment products. Protective markets individual life insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. Protective also maintains a separate division devoted 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 changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, persistency, and other factors.

Recently Issued Accounting Standards

On January 1, 2001, Protective adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS Nos. 137 and 138, requires Protective to record all derivative financial instruments, at fair value on the balance sheet. Changes in fair value of a derivative instrument are reported in net income or other comprehensive income, depending on the designated use of the derivative instrument. The adoption of

F-99

SFAS No. 133 resulted in a cumulative charge to net income, net of income tax, of $8.3 million and a cumulative after-tax increase to other comprehensive income of $4.0 million on January 1, 2001. The charge to net income and increase to other comprehensive income primarily resulted from the recognition of derivative instruments embedded in Protective's corporate bond portfolio. In addition, the charge to net income includes the recognition of the ineffectiveness on existing hedging relationships including the difference in spot and forward exchange rates related to foreign currency swaps used as an economic hedge of foreign-currency-denominated stable value contracts. Prospectively, the adoption of SFAS No. 133 may introduce volatility into Protective's reported net income and other comprehensive income depending on future market conditions and Protective's hedging activities.

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS Nos. 141, "Business Combinations", and 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that business combinations initiated after June 30, 2001, be accounted for using the purchase method. SFAS No. 142 revises the standards for accounting for acquired goodwill and other intangible assets. Protective adopted SFAS No. 142 in the first quarter of 2002. Protective has performed an impairment test and determined that its goodwill was not impaired at January 1, or October 31, 2002.

The following table illustrates adjusted income from continuing operations before cumulative effect of change in accounting principle as if these pronouncements were adopted as of January 1, 2000:

		Year Ended December 31
		2002		2001			2000
Adjusted net income:
	Income from continuing operations before cumulative effect of change in accounting principle	$	157,394	$	143,501		$	113,144
	Add back amortization of goodwill, net of income tax		0		1,838			1,634

	Adjusted income from continuing operations before cumulative effect of change in accounting principle	$	157,394	$	145,339		$	114,778
	Income (loss) from discontinued operations, net of income tax		0		(9,856	)		16,299
	Loss from sale of discontinued operations, net of income tax		0		(17,754	)		0

	Adjusted net income before cumulative effect of change in accounting principle		157,394		117,729			131,077
	Cumulative effect of change in accounting principle, net of income tax		0		(8,341	)		0

	Adjusted net income	$	157,394	$	109,388		$	131,077

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires that companies record the fair value of a liability for an asset retirement obligation in the period in which the liability is incurred. The Statement is effective for fiscal years beginning after June 15, 2002. Protective does not expect the adoption of SFAS No. 143 go have a material effect on Protective's financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that the same accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, expands the use of discontinued operations accounting to include more types of transactions and changes the timing of when discontinued operations accounting is applied. Protective adopted SFAS No. 144 on January 1, 2002, and the adoption did not have a material effect on Protective's financial position or results of operations.

F-100

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002." SFAS No. 145 rescinds SFAS No. 4, which required companies to treat the extinguishment of debt as an extraordinary item. SFAS No. 145 requires companies to apply APB Opinion 30 when determining the accounting for the extinguishment of debt. The statement also rescinds and amends other statements to make various technical corrections and clarifications. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. Protective does not accept the adoption of SFAS No. 145 to have a material effect on Protective's financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to record a liability for a cost associated with an exit or disposal activity when the liability is incurred. The statement is effective for exit or disposal activities initiated after December 31, 2002. Protective does not expect the adoption of SFAS No. 146 to have a material effect on Protective's financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of SFAS No. 123." SFAS No. 148 amends SFAS No. 123 to offer alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Protective adopted the fair value based method prescribed by SFAS No. 123 in 1995, therefore SFAS No. 148 will have no effect on Protective's financial position or results of operations.

In November, 2002, the FASB issued FASB Interpretation No. (FIN) 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Others." FIN 45 clarifies the requirements of SFAS No. 5 "Accounting for Contingencies" relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Protective does not expect FIN 45 to have a material effect on Protective's financial position or results of operations.

In January, 2003, the FASB issued FIN 46 "Consolidation of Variable Interest Entities." FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from the other parties. Protective is currently assessing the impact that FIN 46 will have on its financial condition and results of operations. FIN 46 potentially will affect the accounting related to a lease arrangement currently accounted for as an operating lease that involves a special purpose vehicle (SPV). Although Protective does not expect the provisions of FIN 46 to have a material impact on its results of operations, had the provision been effective at December 31, 2002, Protective's reported assets and liabilities would have increased by approximately $75 million.

In May 2002, the Derivatives Implementation group of the FASB exposed for comment Issue No. B36, "Bifurcation of Embedded Credit Derivatives" (DIG B36). DIG B36 would require the bifurcation of potential embedded derivatives within modified coinsurance and funds withheld coinsurance arrangements in which the terms require the future payment of a principal amount plus a return based on a specified proportion of the ceding company's return on either its general account assets or a specified block of those assets. The proposed effective date of the implementation guidance in DIG B36 is for the first fiscal quarter beginning after June 15, 2003 and would be applied on a

F-101

prospective basis. Protective is currently evaluating the impact of this pronouncement on its financial statements but does not anticipate a material impact on its financial condition or results of operations.

Investments

Protective has classified all of its investments in fixed maturities, equity securities, and short-term investments as "available for sale."

Investments are reported on the following bases less allowances for uncollectible amounts on investments, if applicable:

•: Fixed maturities (bonds and redeemable preferred stocks) — at current market value. Where market values are unavailable, Protective obtains estimates from independent pricing services or estimates market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics.
•: Equity securities (common and nonredeemable preferred stocks) — at current market value.
•: Mortgage loans — 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.

Estimated market values were derived from the durations of Protective's fixed maturities and mortgage loans. Duration measures the relationship between changes in market value to changes in interest rates. While these estimated market values generally provide an indication of how sensitive the market values of Protective's fixed maturities and mortgage loans are to changes in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.

Substantially all short-term investments have maturities of three months or less at the time of acquisition and include approximately $0.6 million in bank deposits voluntarily restricted as to withdrawal.

As prescribed by generally accepted accounting principles, 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.

Protective believes that an insurance company's balance sheet may be difficult to analyze without disclosing the effects of recording accumulated other comprehensive income (including unrealized gains and losses on investments). The carrying value of Protective's investments, deferred policy acquisition costs, deferred income taxes and share-owner's equity are all affected by recording unrealized gains and losses on investments, therefore these items are separately identified in the table below. The captions "all

F-102

other assets" and "all other liabilities" represent the assets and liabilities unaffected by recording unrealized gains and losses on investments. Protective's balance sheets at December 31, adjusted for the effects of recording accumulated other comprehensive income (including unrealized gains and losses on investments), are as follows:

	2002		2001
Total investments	$	14,982,469	$	13,157,623
Deferred policy acquisition costs		1,776,421		1,553,786
All other assets		4,665,733		4,789,297

	$	21,424,623	$	19,500,706

Deferred income taxes	$	79,814	$	43,774
All other liabilities		19,295,439		17,626,767

		19,375,253		17,670,541
Share-owner's equity		2,049,370		1,830,165

	$	21,424,623	$	19,500,706

Realized gains and losses on sales of investments are recognized in net income using the specific identification basis.

Derivative Financial Instruments

Protective utilizes a risk management strategy that incorporates the use of derivative financial instruments, primarily to reduce its exposure to interest rate risk as well as currency exchange risk.

Combinations of interest rate swap contracts, options and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments and mortgage-backed securities. Interest rate swap contracts generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date. Interest rate futures generally involved exchange traded contracts to buy or sell treasury bonds and notes in the future at specified prices. Interest rate options represent contracts that allow the holder of the option to receive cash or purchase, sell or enter into a financial instrument at a specified price within a specified period of time. Protective uses interest rate swap contracts, caps, and floors to modify the interest characteristics of certain investments and liabilities. Swap contracts are also used to alter the effective durations of assets and liabilities. Protective uses foreign currency swaps to reduce its exposure to currency exchange risk on certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.

Derivative instruments expose Protective to credit and market risk. Protective minimizes its credit risk by entering into transactions with highly rated counterparties. Protective manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken.

Protective monitors its use of derivatives in connection with its overall asset/liability management programs and procedures. Protective's asset/liability committee is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into Protective's overall interest rate and currency exchange risk management strategies.

F-103

All derivatives are recognized on the balance sheet (in "other long-term investments" or "other liabilities") at their fair value (primarily estimates from independent pricing services). On the date the derivative contract is entered into, Protective designates the derivative as (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value" hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), or (3) as a derivative either held for investment purposes or held as a natural hedging instrument designed to act as an economic hedge against the changes in value or cash flows of a hedged item ("other" derivative). Changes in the fair value of a derivative that is highly effective as — and that is designated and qualifies as — a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as — and that is designated and qualified as — a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows. Changes in the fair value of other derivatives are recognized in current earnings and reported in "Realized Investment Gains (Losses) — Derivative Financial Instruments" in Protective's consolidated statements of income.

Protective formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. Protective also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, Protective discontinues hedge accounting prospectively, as discussed below.

Protective discontinues hedge accounting prospectively when (1) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) the derivative is designated as a hedge instrument, because it is unlikely that a forecasted transaction will occur; (4) because a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument is no longer appropriate.

When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative will continue to be carried on the balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative will continue to be carried on the balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment will be removed from the balance sheet and recognized as a gain or loss in current-period earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income will remain therein until such time as they are reclassified to earnings as originally forecasted to occur. In all situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the balance sheet, with changes in its fair value recognized in current-period earnings.

F-104

Fair-Value Hedges. Protective has designated, as a fair value hedge, callable interest rate swaps used to modify the interest characteristics of certain stable value contracts. In assessing hedge effectiveness, Protective excludes the embedded call option's time value component from each derivative's total gain or loss. In 2002 and 2001, total measured ineffectiveness for the fair value hedging relationships was insignificant while the excluded time value component resulted in a pre-tax gain of $0 and $1.3 million, respectively. Both the measured ineffectiveness and the excluded time value component are reported in "Realized Investment Gains (Losses) — Derivative Financial Instruments" in Protective's consolidated statements of income.

Cash-Flow Hedges. Protective has entered into a foreign currency swap to hedge the risk of changes in the value of interest and principal payments to be made on certain of its foreign-currency-based stable value contracts. Under the terms of the swap, Protective pays a fixed U.S.-dollar-denominated rate and receives a fixed foreign-currency-denominated rate. Effective July 1, 2002, Protective designated this swap as a cash flow hedge and therefore recorded the change in the fair value of the swap during the period in accumulated other comprehensive income. During 2002, a pretax loss of $19.8 million representing the change in fair value of the hedged contracts and a gain of like amount representing the application of hedge accounting to this transaction, were recorded in "Realized Investment Gains (Losses) — Derivative Financial Instruments" in Protective's consolidated statements of income. For the year ended December 31, 2002, the amount of the hedge's ineffectiveness reported as a loss was insignificant. Additionally, as of December 31, 2002, Protective reported a reduction to accumulated other comprehensive income of $2.1 million (net of income tax of $1.1 million) related to its derivative designated as a cash flow hedge. During 2003, Protective expects to reclassify out of accumulated other comprehensive income and into earnings, as a reduction of interest expenses, approximately $0.9 million.

Other Derivatives. Protective uses certain interest rate swaps, caps, floors, options and futures contracts as economic hedges against the changes in value or cash flows of outstanding mortgage loan commitments and certain owned investments. In 2002 and 2001, Protective recognized total pre-tax losses of $3.0 million and $1.2 million, respectively, representing the change in fair value of these derivative instruments as well as realized gain or loss on contracts closed during the period.

On its foreign currency swaps, Protective recognized a $70.8 million pre-tax gain in 2002 while recognizing a $74.9 million foreign exchange pre-tax loss on the related foreign-currency-denominated stable value contracts. In 2001, Protective recognized an $8.2 million pre-tax loss on its foreign currency swaps while recognizing an $11.2 million foreign exchange pre-tax gain on the related foreign-currency-denominated stable value contracts. The net loss and net gain in 2002 and 2001, respectively, primarily results from the difference in the forward and spot exchange rates used to revalue the currency swaps and the stable value contracts, respectively. This net loss and net gain is reflected in "Realized Investment Gains (Losses) — Derivative Financial Instruments" in Protective's consolidated statements of income.

Protective has entered into asset swap arrangements to, in effect, sell the equity options embedded in owned convertible bonds in exchange for an interest rate swap that converts the remaining host bond to a variable rate instrument. In 2002 and 2001, Protective recognized a $2.0 million and $12.2 million pre-tax gain, respectively, for the change in the asset swaps' fair value and recognized a $7.8 million and $16.9 million pre-tax loss, respectively, to separately record the embedded equity options at fair value.

At December 31, 2002 and 2001, contracts with a notional amount of $6.0 billion were in an $83.9 million net gain position. At December 31, 2001, contracts with a notional amount of $4.5 billion were in a $3.5 million net loss position.

F-105

Protective's derivative financial instruments are with highly rated counterparties.

Cash

Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. Protective has deposits with certain financial institutions which exceed federally insured limits. Protective has reviewed the credit worthiness of these financial institutions and believes there is minimal risk of a material loss.

Deferred Policy Acquisition Costs

Commissions and other costs of acquiring traditional life and health insurance, credit 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 the present value of the total anticipated premium income. Credit insurance acquisition costs are being amortized in proportion to earned premium. Acquisition costs for universal life and investment products are 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 (equal to the rate used to compute liabilities for future policy benefits; currently 3.0% to 9.4%) 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 $542.5 million and $523.4 million at December 31, 2002 and 2001, respectively. During 2002, $62.5 million of present value of future profits was capitalized (relating to acquisitions and adjustments made during the year), a $2.1 million reduction came from the sale of a small subsidiary, and $41.3 was amortized. During 2001, $221.9 million of present value of future profits was capitalized and $42.1 million was amortized.

The expected amortization of the present value of future profits for the next five years is as follows:

Year	Expected Amortization
2003	$	33,600
2004		32,400
2005		30,500
2006		29,100
2007		28,100

F-106

Goodwill

The goodwill balance at December 31, 2002 and 2001, was $35.1 million and $36.0 million, respectively. The decrease of $0.9 million in 2002 relates to the sale of a small subsidiary in the first quarter. At October 31, 2002, Protective evaluated its goodwill and determined that fair value had not decreased below carrying value and no adjustment to impair goodwill was necessary in accordance with SFAS No. 142.

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. Protective's Home Office building is depreciated over a thirty-nine year useful life, furniture is depreciated over a ten year useful life, office equipment and machines are depreciated over a five year useful life, and software and computers are depreciated over a three year useful life. 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:

	2002		2001
Home office building	$	45,297	$	42,980
Other, principally furniture and equipment		67,059		67,128

		112,356		110,108
Accumulated depreciation		73,478		63,771

	$	38,878	$	46,337

Separate Accounts

The assets and liabilities related to separate accounts in which Protective does not bear the investment risk are valued at market and reported separately as assets and liabilities related to separate accounts in the accompanying consolidated financial statements.

Stable Value Contracts Account Balances

Protective markets guaranteed investment contracts (GICs) to 401(k) and other qualified retirement savings plans, and fixed and floating rate funding agreements to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. GICs and funding agreements are generally contracts that specify a return on deposits for a specified period and often provide flexibility for withdrawals at book value in keeping with the benefits provided by the plan. Stable value contract account balances include GICs and funding agreements issued by Protective as well as the obligations of consolidated special purpose trusts or entities formed to purchase funding agreements issued by Protective. At December 31, 2002 and 2001 Protective had $2.2 billion and $1.7 billion of stable value contract account balances marketed through structured programs. Most GICs and funding agreements written by Protective have maturities of three to five years. At December 31, 2002, maturities of stable value contracts were $1.1 billion in 2003, $1.6 billion in 2004-2005, $1.3 billion in 2006-2007, and $59.2 million after 2007.

F-107

Revenues and Benefits Expense

•: Traditional Life, Health, and Credit 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 and credit 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. Gross premiums in excess of net premiums related to immediate annuities are deferred and recognized over the life of the policy.

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, health, and credit 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:

			2002			2001			2000
Balance beginning of year			$	100,023		$	109,973		$	120,575
		Less reinsurance		33,723			25,830			47,661

	Net balance beginning of year			66,300			84,143			72,914

	Incurred related to:
	Current year			258,612			383,371			311,633
	Prior year			(338	)		(1,080	)		(4,489	)

		Total incurred		258,274			382,291			307,144

	Paid related to:
	Current year			243,206			312,748			241,566
	Prior year			22,528			81,220			60,972

		Total paid		265,734			393,968			302,538

	Other changes:
		Acquisitions and reserve transfers		2,609			(6,166	)		6,623

	Net balance end of year			61,449			66,300			84,143
		Plus reinsurance		54,765			33,723			25,830

Balance end of year			$	116,214		$	100,023		$	109,973

•: Universal Life and Investment Products — Universal life and investment products include universal life insurance, guaranteed investment contracts, deferred annuities, and annuities without life contingencies. Premiums and policy fees for universal life and investment products consist of fees that have been assessed against policy account balances for the costs of insurance,

F-108

policy administration, and surrenders. Such fees are recognized when assessed and earned. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest credit rates for universal life and investment products ranged from 3.0% to 9.4% in 2002.

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.

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 basis of assets and liabilities determined for financial reporting purposes and the basis of assets and liabilities determined for financial reporting purposes and the basis 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.

Discontinued Operations

On December 31, 2001, Protective completed the sale to Fortis, Inc. of substantially all of its Dental Benefits Division (Dental Division) and discontinued other remaining Dental Division related operations, primarily other health insurance lines.

The operating results and charges related to the sale of the Dental Division and discontinuance of other related operations at December 31 are as follows:

		2002		2001			2000
Total revenues		$	15,809	$	350,988		$	368,319
Income (loss) before
	income taxes from discontinued operations	$	0	$	(12,749	)	$	26,988
Income tax (expense)
	Benefit		0		2,893			(10,689	)

Income (loss) from discontinued operations		$	0	$	(9,856	)	$	16,299

Gain from sale of discontinued operations before income tax				$	27,221
Income tax expense related to sale					(44,975	)

Loss from sale of discontinued operations				$	(17,754	)

Assets and liabilities related to the discontinued lines of business of approximately $5.1 million and $6.7 million, respectively, remain at December 31, 2002.

F-109

Supplemental Cash Flow Information

The following table sets forth supplemental cash flow information for the years ended December 31:

		December 31
		2002			2001			2000
Cash paid during the year:
	Interest on debt	$	987		$	1,390		$	3,310
	Income taxes	$	125,039		$	27,395		$	25,638

Noncash investing and financing activities
Reduction of principal on note from ESOP		$	661		$	342		$	307
Acquisitions, related reinsurance transactions and subsidiary transfer
	Assets acquired	$	358,897		$	2,549,484		$	533,866
	Liabilities assumed	$	(489,412	)	$	(2,430,927	)	$	(371,457	)

	Net	$	(130,515	)	$	118,557		$	162,409

Reclassifications

NOTE B — RECONCILIATION WITH STATUTORY REPORTING PRACTICES

Financial statements prepared in conformity with accounting principles generally accepted in the United States of America differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. The most significant differences are as follows: (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 not subject to statutory limitations as to amounts recognized and are recognized through earnings as opposed to being charged to share-owners' equity; (d) the Asset Valuation Reserve and Interest Maintenance Reserve are restored to share-owners' 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 assets); (f) certain items of interest income, such as mortgage and bond discounts, are amortized differently; and (g) bonds are recorded at their market values instead of amortized cost. The National Association of Insurance Commissioners (NAIC) has adopted the Codification of Statutory Accounting Principles (Codification). Codification changed statutory accounting rules in several areas and was effective January 1, 2001. The adoption of Codification did not have a material effect on Protective's statutory capital.

F-110

The reconciliations of net income and share-owners' equity prepared in conformity with statutory reporting practices to that reported in the accompanying consolidated financial statements are as follows:

			Net Income									Share-Owner's Equity
			2002			2001			2000			2002			2001			2000
In conformity with statutory reporting practices:(1)			$	67,242		$	163,181		$	66,694		$	852,645		$	775,138		$	628,274
	Additions (deductions) by adjustment:
		Deferred policy acquisition costs, net of amortization		197,835			163,243			157,617			1,683,224			1,532,683			1,189,380
		Deferred income tax		(8,894	)		47,964			(52,580	)		(206,844	)		(74,083	)		(72,065	)
		Asset Valuation Reserve											189,828			108,062			103,853
		Interest Maintenance Reserve		(3,344	)		(10,444	)		(3,540	)		24,015			16,959			9,715
		Nonadmitted items											272,137			139,500			97,447
		Other timing and valuation adjustments		(63,189	)		(32,564	)		(38,349	)		(357,244	)		(334,198	)		(195,445	)
		Discontinued operations					(193,688	)
		Noninsurance affiliates		15,920			19,022			21,276
		Consolidation elimination		(48,176	)		(49,164	)		(21,675	)		(172,477	)		(280,728	)		(221,204	)

In conformity with generally accepted accounting principles			$	157,394		$	107,550		$	129,443		$	2,285,284		$	1,883,333		$	1,539,955

(1)

Consolidated

As of December 31, 2002, Protective had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $81.4 million.

NOTE C — INVESTMENT OPERATIONS

Major categories of net investment income for the years ended December 31 are summarized as follows:

	2002		2001		2000
Fixed maturities	$	673,393	$	609,578	$	529,990
Equity securities		3,500		2,247		2,532
Mortgage loans		218,165		208,830		177,917
Investment real estate		881		2,094		2,027
Policy loans		37,463		31,763		14,977
Other		103,826		36,695		12,532

		1,037,228		891,207		739,975
Investment expenses		57,169		52,104		47,894

	$	980,059	$	839,103	$	692,081

F-111

Realized investment gains (losses) for all other investments for the years ended December 31 are summarized as follows:

	2002			2001			2000
Fixed maturities	$	12,606		$	(4,693	)	$	(14,787	)
Equity securities		65			2,462			1,685
Mortgage loans and other investments		(357	)		(3,892	)		(3,654	)

	$	12,314		$	(6,123	)	$	(16,756	)

In 2002, gross gains on the sale of investments available for sale (fixed maturities, equity securities, and short-term investments) were $73.0 million, and gross losses were $60.3 million. In 2001, gross gains were $27.5 million, and gross losses were $29.7 million. In 2000, gross gains were $8.7 million, and gross losses were $28.4 million.

Each quarter Protective reviews investments with material unrealized losses and tests for other-than-temporary impairments. Protective analyzes various factors to determine if any specific other than temporary asset impairments exist. Once a determination has been made that a specific other-than-temporary impairment exists, a realized loss is incurred and the cost basis of the impaired asset is adjusted to its fair value. During 2002 and 2001, respectively, Protective recorded other than temporary impairments in its investments of $17.8 million and $12.6 million. Protective did not record any other-than-temporary impairments in its investments in 2000.

Realized investment gains (losses) for derivative financial instruments for the years ended December 31 are summarized as follows:

		2002			2001			2000
Derivative financial instruments		$	(12,959	)	$	(1,718	)	$	2,157

F-112

The amortized cost and estimated market values of Protective's investments classified as available for sale at December 31 are as follows:

2002			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Values
Fixed maturities:
	Bonds:
		Mortgage-backed securities	$	4,168,026	$	199,316	$	28,311	$	4,339,031
		United States Government and authorities		90,647		5,752		0		96,399
		States, municipalities, and political subdivision		27,005		2,349		0		29,354
		Public utilities		1,153,710		61,831		42,139		1,173,402
		Convertibles and bonds with warrants		115,728		2,656		5,872		112,512
		All other corporate bonds		5,655,949		348,809		101,818		5,902,940
	Redeemable preferred stocks			1,700		127		0		1,827

				11,212,765		620,840		178,140		11,655,465
Equity securities				51,095		2,409		4,705		48,799
Short-term investments				447,155		0		0		447,155

			$	11,711,015	$	623,249	$	182,845	$	12,151,419

2001			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Values
Fixed maturities:
	Bonds:
		Mortgage-backed securities	$	3,709,118	$	84,965	$	33,759	$	3,760,324
		United States Government and authorities		98,967		4,088		0		103,055
		States, municipalities, and political subdivision		94,022		4,009		0		98,031
		Public utilities		807,773		19,763		4,860		822,676
		Convertibles and bonds with warrants		96,951		7,423		6,184		98,190
		All other corporate bonds		4,910,614		117,092		99,500		4,928,206
	Redeemable preferred stocks			1,612		0		3		1,609

				9,719,057		237,340		144,306		9,812,091
Equity securities				62,051		3,565		5,123		60,493
Short-term investments				228,396		0		0		228,396

			$	10,009,504	$	240,905	$	149,429	$	10,100,980

The amortized cost and estimated market values of fixed maturities at December 31, by expected maturity, are shown as follows. Expected maturities are derived from rates of prepayment that may differ from actual rates of prepayment.

F-113

2002	Estimated Amortized Cost		Estimated Market Values
Due in one year or less	$	844,795	$	845,577
Due after one year through five years		2,678,879		2,742,360
Due after five years through ten years		2,601,183		2,765,927
Due after ten years		5,087,908		5,301,601

	$	11,212,765	$	11,655,465

At December 31, 2002 and 2001, Protective had bonds which were rated less than investment grade of $860.6 million and $421.3 million, respectively, having an amortized cost of $960.8 million and $499.9 million, respectively. At December 31, 2002, approximately $70.9 million of the bonds rated less than investment grade were securities issued in company-sponsored commercial mortgage loan securitizations. Approximately $1,968.1 million of bonds are not publicly traded.

The change in unrealized gains (losses), net of income tax, on fixed maturity and equity securities for the years ended December 31 is summarized as follows:

		2002			2001			2000
Fixed maturities		$	227,283		$	108,307		$	109,625
Equity securities			(480	)		715			(820	)

At December 31, 2002, all of Protective's mortgage loans were commercial loans of which 76% were retail, 8% were apartments, 7% were office buildings, and 7% were warehouses, and 2% were other. 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 3.1% of mortgage loans. Approximately 75% of the mortgage loans are on properties located in the following states listed in decreasing order of significance: Texas, Tennessee, Georgia, North Carolina, South Carolina, Alabama, Florida, Virginia, California, Mississippi, Pennsylvania, Washington, and Ohio.

Many of the mortgage loans have call provisions after 3 to 10 years. Assuming the loans are called at their next call dates, approximately $86.7 million would become due in 2003, $399.6 million in 2004 to 2007, and $355.0 million in 2008 to 2012, and $27.2 million thereafter.

At December 31, 2002, the average mortgage loan was approximately $2.1 million, and the weighted average interest rate was 7.5%. The largest single mortgage loan was $24.8 million.

For several years Protective has offered a type of commercial mortgage loan under which Protective will permit a slightly higher loan-to-value ratio in exchange for a participating interest in the cash flows from the underlying real estate. As of December 31, 2002 and 2001, approximately $475.5 million and $548.4 million respectively, of Protective's mortgage loans have this participation feature.

At December 31, 2002 and 2001, Protective's problem mortgage loans (over ninety days past due) and foreclosed properties totaled $20.6 million and $29.6 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.

At December 31, 2002 and 2001, Protective had investments related to retained beneficial interests of mortgage loan securitizations of $295.7 million and $286.4 million, respectively.

F-114

Certain investments with a carrying value of $87.6 million were non-income producing for the twelve months ended December 31, 2002.

Policy loan interest rates generally range from 4.5% to 8.0%.

On December 31, 2001, Protective Life Insurance Company had $117.0 million of securities sold under repurchase agreements with an interest rate of 2.0%. The agreement-to-repurchase liability is recorded as securities sold under repurchase agreements.

NOTE D — FEDERAL INCOME TAXES

Protective's effective income tax rate related to continuing operations varied from the maximum federal income tax rate as follows:

	2002		2001		2000
Statutory federal income tax rate applied to pretax income	35.0	%	35.0	%	35.0	%
Dividends received deduction and tax-exempt interest	(2.3	)	(1.7	)	(0.6	)
Low-income housing credit	(0.5	)	(0.5	)	(0.4	)
Other	2.1		(0.1	)	0.0
State income taxes	0.6		0.2		1.2

Effective income tax rate	34.9	%	32.9	%	35.2	%

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:

	2002			2001			2000
Deferred policy acquisition costs	$	51,998		$	81,015		$	41,533
Benefits and other policy liability changes		(22,359	)		(127,189	)		10,969
Temporary differences of investment income		(28,637	)		7,145			(3,333	)
Other items		7,892			(8,935	)		129

	$	8,894		$	(47,964	)	$	49,298

F-115

The components of Protective's net deferred income tax liability as of December 31 were as follows:

	2002		2001
Deferred income tax assets:
Policy and policyholder liability reserves	$	320,081	$	334,876
Other		3,001		10,893

		323,082		345,769

Deferred income tax liabilities:
Deferred policy acquisition costs		431,069		379,072
Unrealized gains (losses) on investments		98,857		39,100

		529,926		418,172

Net deferred income tax liability	$	206,844	$	72,403

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, 2002 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 $1.1 billion, 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 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

Under revolving line of credit arrangements with several banks, PLC can borrow up to $200 million on an unsecured basis. No compensating balances are required to maintain the line of credit. These lines of credit arrangements contain, among other provisions, requirements for maintaining certain financial ratios, and restrictions on indebtedness incurred by PLC's subsidiaries including Protective. Additionally, PLC, on a consolidated basis, cannot incur debt in excess of 40% of its total capital. At December 31, 2002, PLC had $30.0 million of borrowings outstanding under these credit arrangements at an interest rate of 1.92%.

Protective has a mortgage note on investment real estate amounting to approximately $2.3 million that matures in 2003.

Included in indebtedness to related parties is a surplus debenture issued by Protective to PLC. At December 31, 2002, the balance of the surplus debenture was $2 million. The debenture matures in 2003 and has an interest rate of 8.5%.

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.

F-116

Interest expense on debt totaled $1.4 million, $1.8 million, and $3.8 million in 2002, 2001, and 2000, respectively.

NOTE F — RECENT ACQUISITIONS

In January 2001, Protective coinsured a block of individual life policies from Standard Insurance Company.

In October 2001, Protective completed the acquisition of the stock of Inter-State Assurance Company (Inter-State) and First Variable Life Insurance Company (First Variable) from ILona Financial Group, Inc., a subsidiary of Irish Life & Permanent plc of Dublin, Ireland. The purchase price was approximately $250 million. The assets acquired included $166.1 million of present value of future profits.

In June 2002, Protective coinsured a block of traditional life and interest-sensitive life insurance policies from Conseco Variable Insurance Company.

These transactions have been accounted for as purchases, and the results of the transactions have been included in the accompanying financial statements since their respective effective dates.

Summarized below are the consolidated results of operations for 2002 and 2001, on an unaudited pro forma basis, as if the Inter-State, First Variable, and Conseco transactions had occurred as of January 1, 2001. The pro forma information is based on Protective's consolidated results of operations for 2002 and 2001, and on data provided by the acquired companies, after giving effect to certain pro forma adjustments. The pro forma financial information does not purport to be indicative of results of operations that would have occurred had the transaction occurred on the basis assumed above nor are they indicative of results of the future operations of the combined enterprises.

(unaudited)		2002			2001
Total revenues		$	1,844,221		$	1,649,798
Net income			160,020			121,577

NOTE G — COMMITMENTS AND CONTINGENT LIABILITIES

Protective leases administrative and marketing office space in approximately 60 cities including Birmingham, with most leases being for periods of three to ten years. The aggregate annualized rent is approximately $10.8 million.

In February 2000, Protective entered into an arrangement related to the construction of a building contiguous to its existing home office complex. In connection with the arrangement Protective established a special purpose vehicle (SPV) that owns the building and leases it to Protective. The lease is accounted for as an operating lease under SFAS No. 13 "Accounting For Leases". The SPV is funded and its equity is held by outside investors, and as a result, neither the debt nor the building owned by the SPV are included in Protective's consolidated financial statements. Lease payments commence upon completion, which occurred January 31, 2003, and is based on then current LIBOR interest rates and the cost of the building. At the end of the lease term, February 1, 2007, Protective may purchase the building for the original building cost of approximately $75 million. Based upon current interest rates, annual lease payments are estimated to be $1.6 million. Were Protective not to purchase the building, a payment of approximately $66.8 million would be due at the end of the lease term.

F-117

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 and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives' relationships with agents or persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very little appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. Protective, like other financial service companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted 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, 2002, approximately $1,384.0 million of consolidated share-owner's equity, excluding net unrealized gains on investments, represented net assets of Protective and its subsidiaries that cannot be transferred to PLC in the form of dividends, loans, or advances. In addition, Protective and its subsidiaries are subject to various state statutory and regulatory restrictions on their ability to pay dividends 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 2003 is estimated to be $93.1 million.

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). The stock pays, when and if declared, noncumulative participating dividends to the extent PL&A's statutory earnings for the immediately preceding fiscal year exceeded $1.0 million. In 2002, PL&A paid a $50.0 thousand preferred dividend to PLC. PL&A paid a $1.0 million preferred dividend to PLC in 2001, and paid no preferred dividend during 2000.

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, $3.8 million at December 31, 2002, is accounted for as a reduction to share-owner's equity. The

F-118

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 $3.5 million in 2002, $4.0 million in 2001, and $4.0 million in 2000. Protective purchases data processing, legal, investment and management services from affiliates. The costs of such services were $88.0 million, $82.6 million, and $76.7 million in 2002, 2001, and 2000, respectively. Commissions paid to affiliated marketing organizations of $8.2, $10.0 million, and $12.0 million in 2002, 2001, and 2000, respectively, were included in deferred policy acquisition costs.

Certain corporations with which PLC's directors were affiliated paid Protective premiums and policy fees or other amounts for various types of insurance and investment products. Such premiums, policy fees, and other amounts totaled $16.0 million, $19.6 million and $50.9 million in 2002, 2001, and 2000, respectively. Protective and/or PLC paid commissions, interest on debt and investment products, and fees to these same corporations totaling $1.6 million, $5.9 million and $28.2 million in 2002, 2001, and 2000, respectively.

For a discussion of indebtedness to related parties, see Note E.

NOTE K — OPERATING SEGMENTS

Protective operates business segments, each having a strategic focus which can be grouped into three general categories: life insurance, retirement savings and investment products, and specialty insurance products. An operating segment is generally distinguished by products and/or channels of distribution. A brief description of each division follows.

Life Insurance

The Life Marketing segment markets level premium term and term-like insurance, universal life, and variable universal life products on a national basis primarily through networks of independent insurance agents and brokers, and in the "bank owned life insurance" market.

The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment's primary focus is on life insurance policies sold to individuals.

Retirement Savings and Investment Products

The Stable Value Contracts segment markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans. The segment also markets fixed and floating rate funding agreements to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. Additionally, the segment sells funding agreements to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations.

The Annuities segment 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 Life Marketing segment's sales force.

F-119

Specialty Insurance Products

The Asset Protection segment markets credit life and disability insurance products through banks, consumer finance companies, and automobile dealers, and markets vehicle and recreational marine extended service contracts.

Corporate and Other

Protective has an additional business segment herein referred to as the Corporate and Other segment. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on unallocated capital and interest on substantially all debt). This segment also includes earning from several lines of business which Protective is not actively marketing (mostly cancer insurance and group annuities), various investment-related transactions, and the operations of several subsidiaries.

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, adjusted to exclude any pretax minority interest in income of consolidated subsidiaries. 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.

The following table sets forth total operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses), the recognition of income tax expense, income from discontinued operations, and cumulative effect of change in accounting principle. Asset adjustments represent the inclusion of assets related to discontinued operations.

In December 2001, Protective sold substantially all of its Dental Division and discontinued other Dental related operations. Additionally, other adjustments were made to combine its life insurance marketing operations into a single segment, and to reclassify certain smaller businesses. Prior period segment results have been restated to reflect these changes.

F-120

		Life Insurance						Retirement Savings and Investment Products
Operating Segment Income		Life Marketing			Acquisitions			Stable Value Contracts			Annuities
2002
Gross premiums and policy fees		$	642,852		$	315,347			—		$	25,826
Reinsurance ceded			(422,668	)		(76,333	)		—			—

	Net premium and policy fees		220,184			239,014			—			25,826
Net investment income			208,451			252,147		$	246,098			220,433
Realized investment gains (losses)			—			—			(7,061	)		2,277
Other income			1,344			1,826			—			3,229

	Total revenues		429,979			492,987			239,037			251,765

Benefits and settlement expenses			228,225			315,929			196,576			186,107
Amortization of deferred policy acquisition costs			117,836			35,245			2,304			24,669
Other operating expenses			(41,501	)		45,395			4,946			26,037

	Total benefits and expenses		304,560			396,569			203,826			236,813

Income from continuing operations before income tax			125,419			96,418			35,211			14,952
Income tax expense
Discontinued operations, net of income tax
Change in accounting principle, net of income tax

Net income

2001
Gross premiums and policy fees		$	542,407		$	243,914			—		$	28,145
Reinsurance ceded			(421,411	)		(61,482	)		—			—

	Net premium and policy fees		120,996			182,432			—			28,145
Net investment income			178,866			187,535		$	261,079			167,809
Realized investment gains (losses)			—			—			7,218			1,139
Other income			1,134			345			—			3,441

	Total revenues		300,996			370,312			268,297			200,534

Benefits and settlement expenses			190,538			238,877			222,306			137,204
Amortization of deferred policy acquisition costs and goodwill			41,399			20,500			1,662			24,021
Other operating expenses			(22,957	)		41,684			3,961			24,073

	Total benefits and expenses		208,980			301,061			227,929			185,298

Income from continuing operations before income tax			92,016			69,251			40,368			15,236
Income tax expense
Discontinued operations, net of income tax
Change in accounting principle, net of income tax

Net income

2000
Gross premiums and policy fees		$	487,720		$	134,099			—		$	30,127
Reinsurance ceded			(387,907	)		(31,102	)		—			—

	Net premium and policy fees		99,813			102,997			—			30,127
Net investment income			152,317			116,940		$	243,133			132,204
Realized investment gains (losses)			—			—			(6,556	)		410
Other income			(1,379	)		(4	)		—			2,809

	Total revenues		250,751			219,933			236,577			165,550

Benefits and settlement expenses			149,430			125,151			207,143			109,607
Amortization of deferred policy acquisition costs and goodwill			48,770			17,081			900			24,156
Other operating expenses			(23,255	)		24,077			3,882			18,203

	Total benefits and expenses		174,945			166,309			211,925			151,966

Income from continuing operations before income tax			75,806			53,624			24,652			13,584
Income tax expense
Discontinued operations, net of income tax
Change in accounting principle, net of income tax

Net income

Operating Segment Assets
2002
Investments and other assets		$	4,193,732		$	4,574,470		$	3,930,669		$	4,821,398
Deferred policy acquisition costs			973,631			438,092			4,908			93,140
Goodwill			—			—			—			—

Total assets		$	5,167,363		$	5,012,562		$	3,935,577		$	4,914,538

2001
Investments and other assets			3,431,441		$	4,091,672		$	3,872,637		$	4,501,667
Deferred policy acquisition costs			829,021			418,268			6,374			128,488
Goodwill			—			—			—			—

Total assets		$	4,260,462		$	4,509,940		$	3,879,011		$	4,630,155

(1)

Adjustments to net income represent the inclusion of unallocated realized investment gains (losses), the recognition of income tax expense, income from discontinued operations, and cumulative effect of change in accounting principle. Asset adjustments represent the inclusion of assets related to discontinued operations.

F-121

		Specialty Insurance Products
Operating Segment Income		Asset Protection			Corporate And Other			Adjustments(1)			Total Consolidated
2002
Gross premiums and policy fees		$	490,452		$	55,357			—		$	1,529,834
Reinsurance ceded			(228,719	)		(19,260	)		—			(746,980	)

	Net premium and policy fees		261,733			36,097			—			782,854
Net investment income			43,789			9,141			—			980,059
Realized investment gains (losses)			—			—		$	4,139			(645	)
Other income			33,670			1,414			—			41,483

	Total revenues		339,192			46,652			—			1,803,751

Benefits and settlement expenses			200,958			34,436			—			1,162,231
Amortization of deferred policy acquisition costs			57,957			1,479			—			239,490
Other operating expenses			95,469			30,061			—			160,407

	Total benefits and expenses		354,384			65,976			—			1,562,128

Income from continuing operations before income tax			(15,192	)		(19,324	)		4,139			241,623
Income tax expense									84,229			84,229
Discontinued operations, net of income tax									—			—
Change in accounting principle, net of income tax									—			—

Net income											$	157,394

2001
Gross premiums and policy fees		$	524,281		$	51,072			—		$	1,389,819
Reinsurance ceded			(274,220	)		(14,038	)		—			(771,151	)

	Net premium and policy fees		250,061			37,034			—			618,668
Net investment income			48,617			(4,803	)		—			839,103
Realized investment gains (losses)			—			—		$	(16,198	)		(7,841	)
Other income			31,907			1,751			—			38,578

	Total revenues		330,585			33,982			(16,198	)		1,488,508

Benefits and settlement expenses			154,893			28,806			—			972,624
Amortization of deferred policy acquisition costs and goodwill			60,508			1,795			—			149,885
Other operating expenses			79,453			25,827			—			152,041

	Total benefits and expenses		294,854			56,428			—			1,274,550

Income from continuing operations before income tax			35,731			(22,446	)		(16,198	)		213,958
Income tax expense									70,457			70,457
Discontinued operations, net of income tax									(27,610	)		(27,610	)
Change in accounting principle, net of income tax									(8,341	)		(8,341	)

Net income											$	107,550

2000
Gross premiums and policy fees		$	479,397		$	44,600			—		$	1,175,943
Reinsurance ceded			(258,931	)		(8,168	)		—			(686,108	)

	Net premium and policy fees		220,466			36,432			—			489,835
Net investment income			46,464			1,023			—			692,081
Realized investment gains (losses)			—			—		$	(8,453	)		(14,599	)
Other income			28,352			5,416			—			35,194

	Total revenues		295,282			42,871			(8,453	)		1,202,511

Benefits and settlement expenses			135,494			33,953			—			760,778
Amortization of deferred policy acquisition costs and goodwill			52,646			2,141			—			145,694
Other operating expenses			72,316			26,194			—			121,417

	Total benefits and expenses		260,456			62,288			—			1,027,889

Income from continuing operations before income tax			34,826			(19,417	)		(8,453	)		174,622
Income tax expense									61,478			61,478
Discontinued operations, net of income tax									16,299			16,299
Change in accounting principle, net of income tax									—			—

Net income											$	129,443

Operating Segment Assets
2002
Investments and other assets		$	1,069,341		$	1,355,762		$	123,829		$	20,069,201
Deferred policy acquisition costs			165,751			7,702			—			1,683,224
Goodwill			34,795			348			—			35,143

Total assets		$	1,269,887		$	1,363,812		$	123,829		$	21,787,568

2001
Investments and other assets		$	1,050,546		$	955,984		$	109,881		$	18,013,828
Deferred policy acquisition costs			142,230			8,302			—			1,532,683
Goodwill			35,644			348			—			35,992

Total assets		$	1,228,420		$	964,634		$	109,881		$	19,582,503

(1)

F-122

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. 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 funding 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:

	2002			2001
Projected benefit obligation, beginning of the year	$	50,869		$	45,538
Service cost — benefits earned during the year		3,724			3,739
Interest cost — on projected benefit obligation		4,111			3,531
Actuarial gain (loss)		6,353			(357	)
Plan amendment					1,162
Divestiture					(2,165	)
Benefits paid		(2,878	)		(579	)

Projected benefit obligation, end of the year		62,179			50,869

Fair value of plan assets beginning of the year		44,024			40,822
Actual return on plan assets		(7,845	)		(1,440	)
Employer contribution		16,149			5,221
Benefits paid		(2,878	)		(579	)

Fair value of plan assets end of the year		49,450			44,024

Plan assets less than the projected benefit obligation		(12,729	)		(6,845	)
Unrecognized net actuarial loss from past experience different from that assumed.		28,252			10,213
Unrecognized prior service cost		1,886			2,026

Net pension asset recognized in balance sheet	$	17,409		$	5,394

Net pension cost of the defined benefit pension plan includes the following components for the years ended December 31:

	2002			2001			2000
Service cost	$	3,723		$	3,739		$	3,338
Interest cost		4,111			3,531			3,195
Expected return on plan assets		(4,265	)		(3,669	)		(3,049	)
Amortization of prior service cost		263			176			176
Amortization of transition asset								(17	)
Amortization of losses		302			141
Recognized net actuarial loss
Cost of divestiture					186

Net pension cost	$	4,134		$	4,104		$	3,643

F-123

Assumptions used to determine the benefit obligations as of December 31 were as follows:

	2002		2001		2000
Weighted average discount rate	6.75	%	7.25	%	7.50	%
Rates of increase in compensation level	4.50		5.00		5.25
Expected long-term rate of return on assets	8.50		8.50		8.50

At December 31, 2002 approximately $7.7 million of the assets of the pension plan were in a group annuity contract with Protective and therefore are included in the general assets of Protective. Approximately $41.7 million of the assets of the pension plan are invested in a collective trust managed by Northern Trust Corporation.

Prior to July 1999, upon retirement, the amount of pension plan assets vested in the retiree were 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 such retirees. Beginning July 1999, retiree obligations are being fulfilled from pension plan assets.

PLC also sponsors an unfunded excess benefits plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed on qualified plans by federal tax law. At December 31, 2002 and 2001, the projected benefit obligation of this plan totaled $17.1 million and $15.9 million, respectively, of which $14.5 million and $13.8 million, respectively, have been recognized in PLC's financial statements.

Net pension costs of the excess benefits plan includes the following components for the years ended December 31:

	2002		2001		2000
Service cost	$	455	$	686	$	736
Interest cost		1,178		1,121		1,067
Amortization of prior service cost		16		19		19
Amortization of transition asset				37		37
Recognized net actuarial loss		71		233		194
Cost of divestiture and special termination benefits				1,807

Net pension cost	$	1,720	$	3,903	$	2,053

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, 2002 and 2001, the liability for such benefits was approximately $1.2 million. The expense recorded by PLC was $0.1 million in 2002, 2001 and 2000. 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 from $10,000 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 retirement 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. 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 or sales incentive plan. Expense related to the ESOP

F-124

consists of the cost of the shares allocated to participating employees plus the interest expense on the ESOP's note payable to Protective less dividends on shares held by the ESOP. At December 31, 2002, PLC had committed approximately 134,293 shares to be released to fund employee benefits. The expense recorded by PLC for these employee benefits was less than $0.1 million in 2002, 2001, and 2000.

PLC sponsors a deferred compensation plan for certain directors, officers, agents, and others. Compensation deferred is credited to the participants in cash, PLC Common Stock, or as a combination thereof.

Protective's share of net costs related to employee benefit plans was approximately $3.4 million, $5.4 million, and $4.1 million, in 2002, 2001, and 2000, respectively.

NOTE M — STOCK BASED COMPENSATION

Certain Protective employees participate in PLC's stock-based incentive plans and receive stock appreciation rights (SARs) from PLC.

Since 1973, Protective has had stock-based incentive plans to motivate management to focus on PLC's long-range performance through the awarding of stock-based compensation. Under plans approved by share owners in 1997 and 1998, up to 5,000,000 shares may be issued in payment of awards.

The criteria for payment of performance awards is based primarily upon a comparison of PLC's average return on average equity and total rate of 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 and multiline insurance 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. Awards are paid in shares of PLC Common Stock.

Performance shares and performance-based stock appreciation rights (P-SARs) awarded in 2000, 2001, and 2002, and the estimated fair value of the awards at grant date are as follows:

Year Awarded	Performance Shares	P-SARs	Estimated Fair Value
2002	192,360		$	5,700
2001	153,490	40,000		4,900
2000	3,330	513,618		3,700

A performance share is equivalent in value to one share of PLC Common Stock. Each P-SAR will convert to the equivalent of one stock appreciation right (SAR) if earned. Of the 2000 P-SARs awarded, 68,392 have been canceled and 100,072 have been converted to SARs. The remaining 345,154 P-SARs will convert to SARs in 2004 if earned. The 40,000 P-SARs awarded in 2001 were not earned and have been canceled. The P-SARs, if earned and converted to SARs, expire 10 years after the grant date. At December 31, 2002, the total outstanding performance shares and P-SARs related to these performance-based plans measured at maximum payouts were 589,029 and 540,689, respectively.

Between 1996 and 2002 SARs were granted (in addition to the P-SARs discussed above) to certain officers of PLC to provide long-term incentive compensation based solely on the performance of Protective's Common Stock. The SARs are exercisable after five years (earlier upon the death, disability, or retirement of the officer, or in certain circumstances, of a change in control of PLC) and expire after

F-125

ten years or upon termination of employment. The SARs activity as well as weighted average base price for 2000, 2001, and 2002 is as follows:

	Wtd. Avg. Base Price		No. of SARs
Balance at December 31, 1999	$	17.44	675,000
SARs Granted		22.31	217,500
SARs Cancelled		18.14	(17,500	)

Balance at December 31, 2000	$	18.64	875,000
SARs Granted		26.34	138,751
P-SARs Converted		22.31	100,072

Balance at December 31, 2001	$	19.92	1,113,823
SARs Granted		32.00	480,000
SARs Exercised		32.60	(80,000	)
SARs Cancelled		22.31	(15,000	)

Balance at December 31, 2002	$	23.90	1,498,823

The outstanding SARs at December 31, 2002, were at the following base prices:

Base Price		SARs Outstanding	Remaining Life in Years	Currently Exercisable
$	17.44	580,000	3	580,000
	22.31	376,323	7	183,823
	31.26	50,000	8	0
	31.29	12,500	8	2,500
	32.00	480,000	9	0

The SARs issued in 2000, 2001, and 2002 had estimated fair values at grant date of $1.5 million, $0.6 million, and $3.7 million, respectively. The fair value of the 2002 SARs was estimated using a Black-Scholes option pricing model. Assumptions used in the model were as follows: expected volatility of 24.6% (approximately equal to that of the S&P Life and Health Insurance Index), a risk-free interest rate of 3.4%, a dividend rate of 2.0%, and an expected exercise date of 2008.

PLC will pay an amount equal to the difference between the specified base price of PLC's Common Stock and the market value at the exercise date for each SAR.

The expense recorded by PLC for its stock-based compensation plans was $5.2 million, $5.6 million, and $4.1 million in 2002, 2001, and 2000, respectively. PLC's obligations of its stock-based compensation plans that are expected to be settled in shares of PLC's Common Stock are reported as a component of share-owners' equity.

NOTE N — REINSURANCE

Protective reinsures certain of its risks with, and assumes risks from other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Under yearly renewable term agreements, Protective generally pays specific premiums to the reinsurer and receives specific amounts from the reinsurer as reimbursement for certain expenses. Coinsurance agreements are accounted for by passing a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate part of

F-126

the premiums less commissions and is liable for a corresponding part of all benefit payments. Modified coinsurance is accounted for similarly to coinsurance except that the liability for future policy benefits is held by the original company, and settlements are made on a net basis between the companies. A substantial portion of Protective's new life insurance and credit insurance sales is being reinsured. Protective reviews the financial condition of its reinsurers and monitors the amount of reinsurance it has with its reinsurers.

Protective has reinsured approximately $216.1 billion, $169.5 billion and $126.0 billion in face amount of life insurance risks with other insurers representing $546.0 million, $565.1 million and $496.4 million of premium income for 2002, 2001, and 2000, respectively. Protective has also reinsured accident and health risks representing $61.5 million, $122.7 million and $125.8 million of premium income for 2002, 2001, and 2000, respectively. In 2002 and 2001, policy and claim reserves relating to insurance ceded of $2,304.9 million and $2,059.0 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, 2002 and 2001, Protective had paid $45.5 million and $46.4 million, respectively, of ceded benefits which are recoverable from reinsurers. In addition, at December 31, 2002, Protective had receivables of $66.1 million related to insurance assumed.

In 2002, Protective discovered that it had overpaid reinsurance premiums to several reinsurance companies of approximately $94.6 million. At December 31, 2002, Protective had recorded cash and receivables totaling $69.7 million, which reflects the amounts received and Protective's current estimate of amounts to be recovered in the future, based upon the information available. The corresponding increase in premiums and policy fees resulted in $62.5 million of additional amortization of deferred policy acquisition costs in 2002. The amortization of deferred policy acquisition costs takes into account the amortization relating to the increase in premiums and policy fees as well as the additional amortization required should the remainder of the overpayment not be collected. As a result of the foregoing, Protective's 2002 pretax income increased $7.2 million.

NOTE O — ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amount and estimated fair values of Protective's financial instruments at December 31 are as follows:

		2002				2001
		Carrying Amount		Estimated Fair Values		Carrying Amount			Estimated Fair Values
Assets (see Notes A and C):
Investments:
	Fixed maturities	$	11,655,465	$	11,655,465	$	9,812,091		$	9,812,091
	Equity securities		48,799		48,799		60,493			60,493
	Mortgage loans on real estate		2,518,151		2,826,133		2,512,844			2,671,074
	Short-term investments		447,155		447,155		228,396			228,396
Liabilities (see Notes A and E):
	Stable value account balances		4,018,552		4,124,192		3,716,530			3,821,955
	Annuity account balances		3,744,000		3,795,794		3,248,218			3,166,052
	Notes payable		2,264		2,264		2,291			2,291
Other (see Note A):
	Derivative Financial Instruments		86,766		86,766		(1,634	)		(1,634	)

F-127

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 to banks approximates 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.

Protective estimates the fair value of its derivative financial instruments using market quotes or derivative pricing models. The fair value represents the net amount of cash Protective would have received (or paid) had the contracts been terminated on December 31.

F-128

SCHEDULE III — SUPPLEMENTARY INSURANCE INFORMATION

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(in thousands)


COL. A			COL. B		COL. C		COL. D		COL. E		COL. F		COL. G			COL. H		COL. I		COL. J
Segment			Deferred Policy Acquisition Costs		Future Policy Benefits and Claims		Unearned Premiums		GIC, Annuity Deposits and Other Policyholders' Funds		Net Premiums and Policy Fees		Net Investment Income(1)			Benefits and Settlement Expenses		Amortization of Deferred Policy Acquisitions Costs		Other Operating Expenses(1)
Year Ended December 31, 2002:
	Life Marketing		$	973,631	$	4,031,021	$	318	$	48,558	$	220,184	$	208,451		$	228,225	$	117,836	$	(41,501	)
	Acquisitions			438,092		3,240,407		395		1,054,031		239,014		252,147			315,929		35,245		45,395
	Stable Value Contracts			4,908		0		0		3,930,668		0		246,098			196,576		2,304		4,945
	Annuities			93,140		571,109		0		2,742,642		25,826		220,433			186,107		24,669		26,038
	Asset Protection			165,751		328,849		777,797		8,714		261,733		43,789			200,958		57,957		95,469
	Corporate and Other			7,702		55,863		2,212		96,118		36,097		9,141			34,436		1,479		30,061
	Adjustments(2)			0		88,922		286		23,157		0		0			0		0		0

		TOTAL	$	1,683,224	$	8,316,171	$	781,008	$	7,903,888	$	782,854	$	980,059		$	1,162,231	$	239,490	$	160,407

Year Ended December 31, 2001:
	Life Marketing		$	829,021	$	3,326,841	$	303	$	86,937	$	120,996	$	178,866		$	190,538	$	41,399	$	(22,957	)
	Acquisitions			418,268		3,046,401		434		876,221		182,432		187,535			238,877		20,500		41,684
	Stable Value Contracts			6,374		0		0		3,872,637		0		261,079			222,306		1,662		3,961
	Annuities			128,488		281,074		0		2,232,779		28,145		167,809			137,204		24,021		24,073
	Asset Protection			142,230		211,713		898,340		3,856		250,061		48,617			154,893		57,681		82,280
	Corporate and Other			8,302		16,572		2,242		247		37,034		(4,803	)		28,806		1,795		25,827
	Adjustments(2)			0		92,084		334		24,195		0		0			0		0		0

		TOTAL	$	1,532,683	$	6,974,685	$	901,653	$	7,096,872	$	618,668	$	839,103		$	972,624	$	147,058	$	154,868

Year Ended December 31, 2000:
	Life Marketing										$	99,813	$	152,317		$	149,430	$	48,771	$	(23,255	)
	Acquisitions											102,997		116,940			125,151		17,081		24,077
	Stable Value Contracts											—		243,133			207,143		900		3,882
	Annuities											30,127		132,204			109,607		24,156		18,203
	Asset Protection											220,466		46,464			135,494		50,132		74,830
	Corporate and Other											36,432		1,024			33,953		2,140		26,196
	Adjustments(2)											0		0			0		0		0

		TOTAL									$	489,835	$	692,082		$	760,778	$	143,180	$	123,933

(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.
(2)		Asset adjustments represent the inclusion of assets related to discontinued operations.

S-1

SCHEDULE IV — REINSURANCE

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(Dollars in thousands)

COL. A			COL. B		COL. C		COL. D		COL. E		COL. F
			Gross Amount		Ceded to Other Companies		Assumed from Other Companies		Net Amount		Percentage of Amount Assumed to Net
Year Ended December 31, 2002:
	Life insurance in force		$	248,994,479	$	219,025,215	$	21,523,110	$	51,492,374	41.8	%

Premiums and policy fees:
	Life insurance		$	854,813	$	545,976	$	235,198	$	544,035	43.2	%
	Accident and health insurance			103,858		61,512		44,337		86,683	51.1	%
	Property and liability insurance			194,601		152,730		110,543		152,414	72.5	%

		TOTAL	$	1,153,272	$	760,218	$	390,078	$	783,132

Year Ended December 31, 2001:
	Life insurance in force		$	191,105,511	$	171,449,182	$	23,152,614	$	42,808,943	54.1	%

Premiums and policy fees:
	Life insurance		$	774,294	$	565,130	$	198,832	$	407,996	48.7	%
	Accident and health insurance			181,508		122,747				58,761	0.0	%
	Property and liability insurance			158,890		83,274		76,295		151,911	50.2	%

		TOTAL	$	1,114,692	$	771,151	$	275,127	$	618,668

Year Ended December 31, 2000:
Life insurance in force			$	153,371,754	$	128,374,583	$	17,050,342	$	42,047,513	40.6	%

Premiums and policy fees:
	Life insurance		$	670,113	$	493,793	$	112,668	$	288,988	39.0	%
	Accident and health insurance			203,475		128,520		17,164		92,119	18.6	%
	Property and liability insurance			159,354		63,795		13,169		108,728	12.1	%

		TOTAL	$	1,032,942	$	686,108	$	143,001	$	489,835

S-2

SCHEDULE V — VALUATION ACCOUNTS

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(Dollars in thousands)

COL. A	COL. B		COL. C				COL. D		COL. E
Additions
Description	Balance at beginning of period		(1) Charged to costs and expenses		(2) Charges to other accounts		Deductions		Balance at end of period
Allowance for Uncollected Reinsurance Receivable	$	0	$	0	$	24,833	$	0	$	24,833

S-3

APPENDIX: A

ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES,
CASH SURRENDER VALUES AND ACCUMULATED VALUE OF PREMIUMS

The tables in this Appendix A show how a Policy's Death Benefit, Cash Surrender Value and Account Value could change over an extended period of time, assuming constant gross annual rates of return for the Separate Account of 0%, 6% and 12%. ("Gross return" for this purpose means the assumed rate of return the underlying Portfolio has earned before deducting any of its expenses or any Policy Charges and deductions). The tables are based on an initial premium of $30,000 to provide insurance coverage on females aged 55 and males aged 65. The insureds are assumed to be in the nonsmoker standard risk classification. The first version of each of the tables assumes our current (i.e., non-guaranteed) rates for the cost of insurance charge, and other charges we make under a Policy on a daily or monthly basis. The next table is based on our contractually guaranteed rates for those items.

The Death Benefits, Cash Surrender Values and Account Values shown in the tables also reflect an unweighted average of the investment advisory fees and other operating expenses incurred as of December 31, 2000 by the Portfolios that were available to Contract Owners on May 1, 2001, at an annual rate of 1.01% of the average daily net assets of the Portfolios. This average reflects a voluntary "cap" on the investment advisory fees. If the investment adviser discontinued these caps, the values illustrated on the following pages could be less. (See "Highlights"). If the unweighted average included the investment advisory fees and other operating expenses after expense waiver reimbursement or cap, incurred as of December 31, 2002, by the Portfolios currently available to Contract Owners, the average investment advisory fee and other operating expenses would be less and the values illustrated on the following pages would be more.

Taking account of the charges for mortality and expense risks and administrative expense in the Separate Account and the average investment advisory fee and operating expenses of the Portfolios, the gross current annual rates of return of 0%, 6% and 12% correspond to net investment experience at constant annual rates of -1.91%, 4.09% and 10.09% and -2.21%, 3.79% and 9.79%, respectively for the "current" and "guaranteed" tables. The tables do not reflect any tax charges attributable to the Separate Account since we currently make no such charges. If we impose any such charges in the future, the gross annual rate of return would have to exceed the rates shown by an amount sufficient to cover the tax charges, in order to produce the Death Benefits, Cash Surrender Values and Account Values illustrated.

The second column of each table shows the amount that would accumulate if you instead invested your assumed premiums to earn interest, after taxes of 5% per year, compounded annually.

A-1

$30,000 INITIAL PREMIUM
$97,565 SPECIFIED AMOUNT

FEMALE NONSMOKER: AGE 55
CURRENT RATES

F, 55		Hypothetical Gross Investment Return — Current Rates
End of Contract Year	Premium Paid plus Int. at 5%	0% Acct. Value	0% Surr. Value	0% Death Benefit	6% Acct. Value	6% Surr. Value	6% Death Benefit	12% Acct. Value	12% Surr. Value	12% Death Benefit
1	31,500	28,974	26,049	97,565	30,747	27,822	97,565	32,520	29,595	97,565
2	33,075	27,981	25,131	97,565	31,513	28,663	97,565	35,254	32,404	97,565
3	34,729	27,022	24,322	97,565	32,299	29,599	97,565	38,221	35,521	97,565
4	36,465	26,095	23,695	97,565	33,105	30,705	97,565	41,440	39,040	97,565
5	38,288	25,198	23,098	97,565	33,932	31,832	97,565	44,932	42,832	97,565
6	40,202	24,331	22,531	97,565	34,781	32,981	97,565	48,722	46,922	97,565
7	42,212	23,493	21,993	97,565	35,652	34,152	97,565	52,834	51,334	97,565
8	44,323	22,683	21,483	97,565	36,545	35,345	97,565	57,296	56,096	97,565
9	46,539	21,900	21,000	97,565	37,461	36,561	97,565	62,137	61,237	97,565
10	48,866	21,143	21,143	97,565	38,401	38,401	97,565	67,390	67,390	97,565
15	62,366	18,169	18,169	97,565	44,583	44,583	97,565	103,741	103,741	120,340
20	79,596	15,593	15,593	97,565	51,787	51,787	97,565	159,976	159,976	171,174
25	101,588	13,363	13,363	97,565	60,181	60,181	97,565	246,693	246,693	259,028
30	129,654	11,432	11,432	97,565	69,961	69,961	97,565	380,416	380,416	399,437

THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE 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 INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.

A-2

$30,000 INITIAL PREMIUM
$97,565 SPECIFIED AMOUNT

FEMALE NONSMOKER: AGE 55
GUARANTEED RATES

F, 55		Hypothetical Gross Investment Return — Guaranteed Rates
End of Contract Year	Premium Paid plus Int. at 5%	0% Acct. Value	0% Surr. Value	0% Death Benefit	6% Acct. Value	6% Surr. Value	6% Death Benefit	12% Acct. Value	12% Surr. Value	12% Death Benefit
1	31,500	28,576	25,651	97,565	30,347	27,422	97,565	32,119	29,194	97,565
2	33,075	27,156	24,306	97,565	30,674	27,824	97,565	34,404	31,554	97,565
3	34,729	25,739	23,039	97,565	30,979	28,279	97,565	36,872	34,172	97,565
4	36,465	24,332	21,932	97,565	31,270	28,870	97,565	39,551	37,151	97,565
5	38,288	22,917	20,817	97,565	31,531	29,431	97,565	42,448	40,348	97,565
6	40,202	21,491	19,691	97,565	31,761	29,961	97,565	45,588	43,788	97,565
7	42,212	20,045	18,545	97,565	31,952	30,452	97,565	48,992	47,492	97,565
8	44,323	18,567	17,367	97,565	32,093	30,893	97,565	52,684	51,484	97,565
9	46,539	17,028	16,128	97,565	32,160	31,260	97,565	56,684	55,784	97,565
10	48,866	15,416	15,416	97,565	32,142	32,142	97,565	61,026	61,026	97,565
15	62,366	6,369	6,369	97,565	31,705	31,705	97,565	92,751	92,751	107,591
20	79,596	0	0	0	26,958	26,958	97,565	142,898	142,898	152,900
25	101,588	0	0	0	10,537	10,537	97,565	220,780	220,780	231,819
30	129,654	0	0	0	0	0	0	338,053	338,053	354,956

A-3

$30,000 INITIAL PREMIUM
$58,178 SPECIFIED AMOUNT

MALE NONSMOKER: AGE 65
CURRENT RATES

M, 65		Hypothetical Gross Investment Return — Current Rates
End of Contract Year	Premium Paid plus Int. at 5%	0% Acct. Value	0% Surr. Value	0% Death Benefit	6% Acct. Value	6% Surr. Value	6% Death Benefit	12% Acct. Value	12% Surr. Value	12% Death Benefit
1	31,500	28,974	26,049	58,178	30,747	27,822	58,178	32,520	29,595	58,178
2	33,075	27,981	25,131	58,178	31,513	28,663	58,178	35,254	32,404	58,178
3	34,729	27,022	24,322	58,178	32,299	29,599	58,178	38,221	35,521	58,178
4	36,465	26,095	23,695	58,178	33,105	30,705	58,178	41,440	39.040	58,178
5	38,288	25,198	23,098	58,178	33,932	31,832	58,178	44,932	42,832	58,178
6	40,202	24,331	22,531	58,178	34,781	32,981	58,178	48,722	46,922	58,178
7	42,212	23,493	21,993	58,178	35,652	34,152	58,178	52,834	51,334	59,703
8	44,323	22,683	21,483	58,178	36,545	35,345	58,178	57,296	56,096	63,599
9	46,539	21,900	21,000	58,178	37,461	36,561	58,178	62,137	61,237	67,730
10	48,866	21,143	21,143	58,178	38,401	38,401	58,178	67,390	67,390	72,107
15	62,366	18,169	18,169	58,178	44,583	44,583	58,178	103,741	103,741	108,929
20	79,596	15,593	15,593	58,178	51,787	51,787	58,178	159,976	159,976	167,975
25	101,588	13,363	13,363	58,178	60,181	60,181	63,190	246,693	246,693	259,028
30	129,654	11,432	11,432	58,178	69,961	69,961	70,661	380,416	380,416	384,220

A-4

$30,000 INITIAL PREMIUM
$58,178 SPECIFIED AMOUNT

MALE NONSMOKER: AGE 65
GUARANTEED RATES

M, 65		Hypothetical Gross Investment Return — Guaranteed Rates
End of Contract Year	Premium Paid plus Int. at 5%	0% Acct. Value	0% Surr. Value	0% Death Benefit	6% Acct. Value		6% Surr. Value	6% Death Benefit	12% Acct. Value	12% Surr. Value	12% Death Benefit
1	31,500	28,369	25,444	58,178	30,147		27,222	58,178	31,926	29,001	58,178
2	33,075	26,683	23,833	58,178	30,233		27,383	58,178	34,002	31,152	58,178
3	34,729	24,930	22,230	58,178	30,252		27,552	58,178	36,252	33,552	58,178
4	36,465	23,093	20,693	58,178	30,193		27,793	58,178	38,704	36,304	58,178
5	38,288	21,150	19,050	58,178	30,040		27,940	58,178	41,388	39,288	58,178
6	40,202	19,075	17,275	58,178	29,778		27,978	58,178	44,346	42,546	58,178
7	42,212	16,834	15,334	58,178	29,382		27,882	58,178	47,627	46,127	58,178
8	44,323	14,383	13,183	58,178	28,822		27,622	58,178	51,297	50,097	58,178
9	46,539	11,669	10,769	58,178	28,062	��	27,162	58,178	55,417	54,517	60,405
10	48,866	8,630	8,630	58,178	27,060		27,060	58,178	59,948	59,948	64,145
15	62,366	0	0	0	17,412		17,412	58,178	91,877	91,877	96,471
20	79,596	0	0	0	0		0	0	139,576	139,576	146,555
25	101,588	0	0	0	0		0	0	208,807	208,807	219,247
30	129,654	0	0	0	0		0	0	315,246	315,246	318,398

A-5

PART II
UNDERTAKING TO FILE REPORTS

Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section.

UNDERTAKING REGARDING INDEMNIFICATION

Insofar as indemnification for liability arising under the Securities Act of 1933 ("Act") may be permitted to directors and officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public Contract as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public Contract as expressed in the Act and will be governed by the final adjudication of such issue.

REPRESENTATION PURSUANT TO
SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF 1940

In accordance with section 26(e) of the Investment Company Act of 1940, Protective Life Insurance Company represents that the fees and charges deducted under the Contracts described in this Registration Statement on Form S-6, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Protective Life Insurance Company. Protective Life Insurance Company bases its representation on its assessment of all the facts and circumstances, including such relevant factors as: the nature and extent of such services, expenses and risks, the need for Protective Life Insurance Company to earn a profit, the degree to which the Contracts include innovative features, and regulatory standards for the grant of exemptive relief under the Investment Company Act of 1940 used prior to October 1996, including the range of industry practice. This representation applies to all Contracts sold pursuant to this Registration Statement, including those sold on the terms specifically described in the prospectus contained herein, or in any variations thereof based on supplements, endorsements, or riders to any Contracts or prospectus, or otherwise.

CONTENTS OF REGISTRATION STATEMENT

This Registration Statement comprises the following papers and documents:

The facing sheet.

Cross-Reference Sheet.

The prospectus consisting of 108 pages.

The undertaking to file reports.

The undertaking regarding indemnification.

The representation pursuant to Section 26(e) of the Investment Company Act of 1940.

The signatures.

II-1

The following exhibits:

1.A.	(1)		Resolution of the Board of Directors of the Company authorizing the establishment of the Separate Account.*
	(2)		Not Applicable.
	(3)	(a)	Underwriting Agreement.#
		(b)	Broker-Dealer Agreement.#
		(c)	Form of Sales Agreement.**
	(4)		Not Applicable.
	(5)	(a)	Specimen Variable Life Insurance Contract.*
		(b)	Specimen Accelerated Death Benefit Endorsement.#
		(c)	Specimen Extended Death Benefit Rider#
	(6)	(a)	Articles of Incorporation of Protective Life Insurance Company.†
		(b)	By-Laws of Protective Life Insurance Company.†
		(c)	Consent of Protective Life Insurance Company to Merger with First Variable Life Insurance Company.††
	(7)		Not Applicable.
	(8)	(a)	Form of Fund Participation Agreement with Variable Investors Series Trust; Form of Participation Agreements with AIM Variable Insurance Funds, Inc., et al; American Century Investment Management, Inc.; Deutsche Asset Management VIT Funds (formerly known as BT Insurance Funds, et al); Federated Insurance Series; Lord Abbett Series Fund, Inc., et al; MFS Variable Insurance Trust, et al; and Templeton Variable Insurance Products Series Fund, et al.####
		(b)	Form of Fund Participation Agreement with Fidelity Variable Insurance Products Fund; Fidelity Variable Insurance Products Funds II; Fidelity Variable Insurance Products Funds III; and Seligman Portfolios, Inc.****
		(c)	Form of Participation Agreement with Invesco Variable Investment Funds, Inc. and PBHG Insurance Series Fund, Inc.#####
	(9)		Not Applicable.
	(10)		Specimen Single Premium Variable Life Insurance Application.*
2.			Opinion and consent of Nancy Kane, Esq.##
3.			Not Applicable.
4.			Not Applicable.
5.			Not Applicable.
6.			Opinion and Consent of Actuary##
7.		(a)	Consent of KPMG LLP Independent Auditors##
		(b)	Consent of PricewaterhouseCoopers LLP Independent Auditors##
8.			Powers of Attorney. ##

*		Incorporated herein by reference to the Form S-6 Registration Statement of First Variable Life Insurance Company and Separate Account VL, filed electronically with the Securities and Exchange Commission on June 3, 1996 (File No. 333-05053).
**		Incorporated herein by reference to Post-Effective Amendment No. 22 to the Form N-4 Registration Statement of First Variable Life Insurance Company and First Variable Annuity Fund E, filed electronically with the Securities and Exchange Commission on September 18, 1996 (File No. 333-12197).
***		Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement of First Variable Life Insurance Company and Separate Account VL, filed electronically with the Securities and Exchange Commission on November 15, 1996 (File No. 333-05053).

II-2

****		Incorporated by Reference to the Registrant's Post-Effective Amendment No. 5 to the Form N-4 Registration Statement (Registration No. 333-12197) filed electronically with the Securities and Exchange Commission on or about April 28, 2000.
#		Incorporated herein by reference to Post-Effective Amendment No. 1 to the Form S-6 Registration Statement of First Variable Life Insurance Company and Separate Account VL, filed electronically with the Securities and Exchange Commission on April 30, 1997 (File No. 333-05053).
##		Filed herewith.
###		Incorporated by reference to Post-Effective Amendment No. 1 to the Form S-6 Registration Statement of First Variable Life Insurance Company Separate Account VL, filed electronically with the Securities and Exchange Commission on or about April 27, 1998 (File No. 333-19193).
####		Incorporated herein by reference to Pre-Effective Amendment No. 4 to the Form N-4 Registration Statement of First Variable Life Insurance Company and First Variable Annuity Fund E, Filed electronically with the Securities and Exchange Commission on or about April 27,1999 (File No. 333-12197).
#####		Incorporated by reference to Post-Effective Amendment No. 13 to the Form N-4 Registration Statement of First Variable Life Insurance Company and First Variable Annuity Fund E, filed electronically with the Securities and Exchange Commission on or about May 1, 2001 (File No. 333-35749).
†		Incorporated herein by reference to the initial filing of the Form S-6 Registration Statement of Protective Life Insurance Company, (File No. 33-61599) as filed with the Commission on August 4, 1995.
††		Incorporated herein by reference to the initial filing of the Form N-4 Registration Statement of Protective Life Insurance Company (File No. 333-111690) as filed with the Commission on January 2, 2004.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant of this Registration Statement has duly caused the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Birmingham, State of Alabama, on January 2, 2004.

		SEPARATE ACCOUNT VL

		By:		/s/ JOHN D. JOHNS John D. Johns,President Protective Life Insurance Company

		PROTECTIVE LIFE INSURANCE COMPANY

		By:		/s/ JOHN D. JOHNS John D. Johns,President Protective Life Insurance Company

As required by the Securities Act of 1933, the amendment to this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

Signature	Title	Date

/s/ JOHN D. JOHNS John D. Johns	Chairman of the Board, President, and Director (Principal Executive Officer)	January 2, 2004
/s/ ALLEN W. RITCHIE Allen W. Ritchie	Executive Vice President, Chief Financial Officer, and Director (Principal Financial Officer)	January 2, 2004
/s/ STEVE WALKER Steve Walker	Vice President, Controller, and Chief Accounting Officer (Principal Accounting Officer)	January 2, 2004
/s/ R. STEPHEN BRIGGS R. Stephen Briggs	Director	January 2, 2004
/s/ WAYNE E. STUENKEL Wayne E. Stuenkel	Director	January 2, 2004

II-4

/s/ DEBORAH J. LONG Deborah J. Long	Director	January 2, 2004
/s/ CAROLYN KING Carolyn King	Director	January 2, 2004
/s/ RICHARD J. BIELEN Richard J. Bielen	Director	January 2, 2004
/s/ J. WILLIAM HAMER, JR. J. William Hamer, Jr.	Director	January 2, 2004
/s/ T. DAVIS KEYES T. Davis Keyes	Director	January 2, 2004