P R O S P E C T U S

MODIFIED GUARANTEED ANNUITY CONTRACTS
Issued by
Protective Life Insurance Company
("Protective")
P.O. Box 2606
Birmingham, Alabama 35202
(205) 879-9230
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This Prospectus describes interests in a Group Modified Guaranteed Annuity
Contract and an Individual Modified Guaranteed Annuity Contract. Both are
designed and offered to provide annuity payments in connection with retirement
programs that may or may not qualify for special income tax treatment under the
Internal Revenue Code. With respect to the Group Contract, eligible individuals
include persons who have established accounts with certain broker-dealers which
have entered into distribution agreements to offer interests in the Group
Modified Guaranteed Annuity Contract, and members of other eligible groups. (See
"Distribution of Contracts"). An Individual Modified Guaranteed Annuity Contract
is offered in certain states.

Participation in a Group Contract will be separately accounted for by the
issuance of a Certificate evidencing your interest under the Group Contract.
Participation in an Individual Contract is evidenced by the issuance of an
Individual Modified Guaranteed Annuity Contract. The Group Contract, Certificate
and Individual Modified Guaranteed Annuity Contract are hereafter referred to
collectively as the "Contract".

An Annuity Deposit of at least $10,000 is required in order to purchase a
Contract. Additional Annuity Deposit(s) can be made to the Contract. Regardless
of the number of Annuity Deposit(s) made, only one Contract will be issued.
Protective Life Insurance Company reserves the right to limit the total amount
of your Annuity Deposit(s).

Each Annuity Deposit (less Premium Taxes, if applicable) will be allocated
at your direction to one or more Sub-Accounts which correspond to the Guaranteed
Periods chosen by you and will accumulate at the Guaranteed Interest Rate or
Rates applicable to such Guaranteed Periods established by Protective. Several
Guaranteed Periods are currently offered by the Company. PARTIAL AND FULL
SURRENDERS MADE PRIOR TO THE END OF A GUARANTEED PERIOD MAY BE SUBJECT TO A
SURRENDER CHARGE, AND WILL BE SUBJECT TO A MARKET VALUE ADJUSTMENT, WHICH COULD
EITHER INCREASE OR DECREASE YOUR ACCOUNT VALUE.

PLEASE READ THIS PROSPECTUS CAREFULLY. INVESTORS SHOULD KEEP A COPY FOR
FUTURE REFERENCE.

AN INVESTMENT IN THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, NOR IS THE CONTRACT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THE CONTRACT INVOLVES CERTAIN RISKS, INCLUDING THE LOSS OF ANNUITY DEPOSITS
(PRINCIPAL).
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus is May 1, 1996

CAPSULE SUMMARY OF THE CONTRACT

This Prospectus describes Group and Individual Modified Guaranteed Annuity
Contracts issued by Protective Life Insurance Company. These Contracts may be
issued to any eligible employer, entity or other organized group acceptable to
us or to an individual in certain states.

The Contract may be issued pursuant to nonqualified retirement plans or
plans qualifying for special tax treatment such as Individual Retirement
Annuities or Accounts, H.R. 10 plans, corporate pension or profit-sharing plans,
Tax-Sheltered Annuities or Section 457 Deferred Compensation ("Section 457")
plans.

You must submit properly completed application information along with an
Annuity Deposit to receive a Contract. Your initial Annuity Deposit must be at
least $10,000 unless approved by the Company. Additional Annuity Deposits can be
made to the Contract. Regardless of the number of Annuity Deposits made, only
one Contract will be issued. We reserve the right to limit the total amount of
your Annuity Deposit(s). Each Annuity Deposit will be allocated to one or more
Sub-Accounts which correspond to the Guaranteed Periods that you specify. The
minimum allocation to a Sub-Account is $10,000. You select Initial Guaranteed
Period(s) from among those offered by Protective. A Guaranteed Period is the
period of years for which a rate of interest is guaranteed. During an Initial
Guaranteed Period, the portion of your Annuity Deposit allocated to a
Sub-Account and any initial interest credited thereon will earn interest at the
applicable Initial Guaranteed Interest Rate as established by Protective, as an
effective interest rate after daily compounding of interest has been taken into
account.

Unless you elect a different duration from among those then offered by us
within twenty days prior to or ten days after the end of an Initial Guaranteed
Period, the corresponding Sub-Account Value will be automatically transferred to
a Subsequent Guaranteed Period of either (i) the same duration as the Initial
Guaranteed Period if then offered by us; or (ii) the shortest duration then
offered by us which is closest to the same duration as the Initial Guaranteed
Period. The Sub-Account Value as of the first day of each Subsequent Guaranteed
Period will earn interest at the Subsequent Guaranteed Interest Rate.
PROTECTIVE'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION AS TO GUARANTEED RATES
TO BE DECLARED. WE CANNOT PREDICT NOR DO WE GUARANTEE FUTURE GUARANTEED RATES.
(See "Establishment of Guaranteed Interest Rates").

We make no charges to your Annuity Deposit when it is received by us (except
deduction for premium taxes, where applicable). Full and partial surrenders from
each Sub-Account are permitted subject to certain restrictions. A full or
partial surrender made prior to the end of a Guaranteed Period will be subject
to a Market Value Adjustment and may be subject to a Surrender Charge, which
could result in the receipt of less than your Annuity Deposit(s). A Surrender
Charge will apply during the first seven years of each Initial and each
Subsequent Guaranteed Period. For each Initial or Subsequent Guaranteed Period
with durations longer than seven years, a Surrender Charge will only apply
during the first seven years. The Surrender Charge is equal to a specified
Surrender Charge Percentage (maximum 6%) applied to the amount of each full or
partial surrender requested less any amount available as an Interest Withdrawal.
(See "Interest Withdrawals" and "Surrender Charges").

You may withdraw all or a portion of the interest that has been credited
during the prior Contract Year at any time during the current Contract Year if
you so request in a form and manner acceptable to Protective. We reserve the
right to limit such withdrawals to once during a Contract Year. No Surrender
Charge or Market Value Adjustment will be imposed on such Interest Withdrawals.
Any such withdrawal may, however, be subject to tax, including the 10% penalty
tax under the Internal Revenue Code.

from which the full or partial surrender is being made, and (ii) the Treasury
Rate initially established for the Guaranteed Period from which the full or
partial surrender is being made. The Treasury Rate is the annual effective
interest rate credited to United States Treasury instruments, as published by a
nationally recognized service. It is possible that Treasury Rates may be higher
at the time of surrender than at the time a Sub-Account is established;
therefore the amount you would receive upon a full or partial surrender of your
Contract may be less than the portion of your Annuity Deposit allocated to each
Sub-Account plus any interest credited thereon. If such Treasury Rates are lower
at the time of surrender than at the time a Sub-Account is established, the
amount you would receive upon a full or partial surrender may be more than the
portion of your Annuity Deposit allocated to each Sub-Account plus any interest
credited thereon. (See "Market Value Adjustment").

Partial or full surrenders are generally taxable, and may also may be
subject to a 10% penalty tax under the Internal Revenue Code (See the discussion
on page ). We may defer payment of any full or partial surrender for a period
not exceeding 6 months from the date of our receipt of your notice of surrender
or the period permitted by state insurance law, if less.

On the Annuity Commencement Date specified by you, Protective will make a
lump-sum payment or start to pay a series of payments based on the Annuity
Option selected by you. Surrender Charges and a Market Value Adjustment will be
deducted upon the application of your Net Account Value to purchase an Annuity
on the Annuity Commencement Date. To elect an Annuity Option you must notify us
of the Annuity Option you are electing, 30 days prior to the Annuity
Commencement Date. (See "Annuity Benefits").

This Contract provides for a Death Benefit. If any Participant dies before
the Annuity Commencement Date a Death Benefit will be payable to the
Beneficiary. If no Beneficiary designation is in effect or if there is no
designated Beneficiary living, the Death Benefit will be paid to the estate of
the deceased Participant. If any Participant is not an individual, the death or
change of Annuitant will be treated as the death of a Participant.

The Death Benefit will generally equal the greater of: (1) the Account
Value, less applicable Premium Taxes; or (2) the Net Account Value. The Death
Benefit is calculated as of the date due proof of death is received by the
Company. If a claim is received six (6) months after the date of death, however,
the Death Benefit will equal the Net Account Value. If any Participant of this
Contract is not a natural person, upon the change of the Annuitant, the Death
Benefit will equal the Net Account Value. Only one Death Benefit is payable
under this Contract, even though the Contract may continue beyond a
Participant's death.

The Death Benefit may be paid in one sum. In all events, the entire Death
Benefit, including any interest accrued thereon, must be distributed within five
years of the date of death unless: (a) it is payable over the life of the
Beneficiary with distributions beginning within one year of the date of death;
or (b) it is payable over a period not extending beyond the life expectancy of
the Beneficiary with distributions beginning within one year of the date of
death; or (c) the deceased Participant's spouse is the Beneficiary and, in lieu
of receiving the Death Benefit, continues the Contract and becomes the new
Participant.

If the deceased Participant's spouse continues the Contract and becomes the
new Participant, upon such spouse's death, a Death Benefit will become payable
to the new Beneficiary (determined at the time of the spouse's death). The Death
Benefit, including any interest accrued thereon must be distributed within five
years of the spouse's death.

Under any Contract subject to Premium Tax, the Premium Tax will be deducted,
as provided under applicable law, from the Annuity Deposit when received, upon
full or partial surrender, from the amount applied to effect an Annuity at the
time Annuity payments commence, or from the Death Benefit.

We will furnish you with a report annually showing your Account Value,
Sub-Account Values and interest credited. The report will not include our
financial statements.

You may cancel your Contract within twenty days after receipt by returning
or mailing it to us or our Agent. We will refund your Annuity Deposit, and the
Contract will be as though it had never been issued.

CONTRACTS PURCHASED PRIOR TO MAY 1, 1996, PROVIDE RIGHTS AND BENEFITS, AND
MAY IMPOSE SURRENDER CHARGES AND A MARKET VALUE ADJUSTMENT, THAT DIFFER IN
CERTAIN IMPORTANT RESPECTS FROM THE RIGHTS, BENEFITS, CHARGES, AND MARKET VALUE
ADJUSTMENT DESCRIBED BELOW. A PARTICIPANT SHOULD CONSULT HIS OR HER CONTRACT. IN
ADDITION, IF YOU PURCHASED YOUR CONTRACT PRIOR TO MAY 1, 1996 BUT ON OR AFTER
SEPTEMBER 10, 1991, YOU SHOULD CONSULT APPENDIX B TO THIS PROSPECTUS. IF YOU
PURCHASED YOUR CONTRACT PRIOR TO SEPTEMBER 10, 1991, YOU SHOULD CONSULT APPENDIX
C TO THIS PROSPECTUS. IF YOU HAVE QUESTIONS REGARDING YOUR CONTRACT, CONTACT OUR
ADMINISTRATIVE OFFICE.

TABLE OF CONTENTS

PAGE
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GLOSSARY OF SPECIAL TERMS..................................................................................... 1
DESCRIPTION OF CONTRACTS...................................................................................... 3
A. General............................................................................................. 3
B. Application Information, Annuity Deposit............................................................ 3
C. Initial and Subsequent Guaranteed Periods........................................................... 4
D. Establishment of Guaranteed Interest Rates.......................................................... 6
E. Surrenders.......................................................................................... 7
1. Surrender Charges.................................................................................. 7
2. Market Value Adjustment............................................................................ 8
3. Interest Withdrawals............................................................................... 9
F. Premium Taxes....................................................................................... 9
G. Death Benefit....................................................................................... 9
H. Annuity Benefits.................................................................................... 10
1. Electing the Annuity Commencement Date and Form of Annuity......................................... 10
2. Change of Annuity Commencement Date, Annuity Option, or Annuitant.................................. 10
3. Annuity Options.................................................................................... 11
4. Annuity Payment.................................................................................... 11
5. Death of Annuitant or Participant After Annuity Commencement Date.................................. 11
INVESTMENTS BY PROTECTIVE..................................................................................... 12
OTHER PROVISIONS.............................................................................................. 13
A. Contract Transactions............................................................................... 13
B. Amendment of Contracts.............................................................................. 13
C. Assignment of Contracts............................................................................. 13
DISTRIBUTION OF CONTRACTS..................................................................................... 13
FEDERAL TAX MATTERS........................................................................................... 14
A. Introduction........................................................................................ 14
B. The Company's Tax Status............................................................................ 14
C. Taxation of Annuities in General --................................................................. 14
1. Tax Deferral During Accumulation Period............................................................ 14
2. Taxation of Partial and Full Withdrawals........................................................... 15
3. Taxation of Annuity Payments....................................................................... 15
4. Taxation of Death Benefit Proceeds................................................................. 16
5. Penalty Tax on Premature Distributions............................................................. 16
6. Aggregation of Contracts........................................................................... 16
D. Qualified Retirement Plans............................................................................... 16
1. In General......................................................................................... 16
a. Individual Retirement Annuities................................................................ 17
b. Simplified Employee Pensions (SEP-IRAs)........................................................ 17
c. Corporate and Self-Employed ("H.R. 10" and "Keogh") Pension and Profit-Sharing Plans........... 17
d. Tax-Sheltered Annuities........................................................................ 17
e. Deferred Compensation Plans of State and Local Governments and Tax-Exempt Organizations........ 17
2. Direct Rollover Rules.............................................................................. 18
E. Federal Income Tax Withholding........................................................................... 18

PAGE
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PROTECTIVE LIFE INSURANCE COMPANY............................................................................. 18
A. Business............................................................................................ 18
B. Selected Financial Data............................................................................. 22
C. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 23
1. Results of Operations.............................................................................. 23
a. Premiums and Policy Fees....................................................................... 23
b. Net Investment Income.......................................................................... 23
c. Realized Investment Gains (Losses)............................................................. 24
d. Other Income................................................................................... 24
e. Income Before Income Tax....................................................................... 25
f. Income Tax Expense............................................................................. 27
g. Net Income..................................................................................... 27
h. Known Trends and Uncertainties................................................................. 27
i. Recently Issued Accounting Standards........................................................... 30
2. Liquidity and Capital Resources.................................................................... 31
3. Impact of Inflation................................................................................ 34
D. Insurance in Force.................................................................................. 35
E. Underwriting........................................................................................ 36
F. Investments......................................................................................... 36
G. Indemnity Reinsurance............................................................................... 40
H. Reserves............................................................................................ 41
I. Federal Income Tax Consequences..................................................................... 41
J. Competition......................................................................................... 41
K. Regulation.......................................................................................... 42
L. Employees........................................................................................... 44
M. Properties.......................................................................................... 44
DIRECTORS AND EXECUTIVE OFFICERS.............................................................................. 45
EXECUTIVE COMPENSATION........................................................................................ 46
LEGAL PROCEEDINGS............................................................................................. 54
EXPERTS....................................................................................................... 54
LEGAL MATTERS................................................................................................. 54
REGISTRATION STATEMENT........................................................................................ 54
APPENDIX A.................................................................................................... A-1
APPENDIX B.................................................................................................... B-1
APPENDIX C.................................................................................................... C-1
FINANCIAL STATEMENTS.......................................................................................... F-1

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THAT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF, OR SOLICITATION OF AN OFFER TO
ACQUIRE, ANY CONTRACTS OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION TO ANYONE
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION.

GLOSSARY OF SPECIAL TERMS

"We", "Us", "Our", "Protective", and "Company" refer to Protective Life
Insurance Company. With respect to a Group Modified Guaranteed Annuity Contract,
"You", "Your", and "Participant" refer to a person/persons who has/have been
issued a Certificate. With respect to an Individual Modified Guaranteed Annuity
Contract, "You", "Your", and "Participant" refer to a person who has been issued
a Contract. The Group Modified Guaranteed Annuity Contract, Certificate, and
Individual Modified Guaranteed Annuity Contract are hereinafter referred to
collectively as "Contract".

DEFINITIONS

ACCOUNT VALUE -- The sum of all Sub-Account Values.

ADMINISTRATIVE OFFICE -- 2801 Highway 280 South, Birmingham, Alabama 35223.

ANNUITANT -- Annuity payments may depend upon the continuation of the life
of a person. That person is called an Annuitant and is named in the Certificate.
If an Annuitant is not a Participant and dies prior to the Annuity Commencement
Date, the Participant first named on the Application will become the Annuitant,
unless the Participant designates otherwise. The Annuitant is the "Payee" for
the purposes of the Annuity Table.

ANNUITY -- A series of predetermined periodic payments.

ANNUITY COMMENCEMENT DATE -- The date on which annuity payments begin.

ANNUITY DEPOSIT(S) -- Annuity Deposits (less Premium Taxes, if applicable)
made and allocated to the Guaranteed Period(s) you select under the Contract.
Each Annuity Deposit and each allocation to a Guaranteed Period must be at least
$10,000. We reserve the right to limit the amount of your Annuity Deposits. Only
one Contract will be issued regardless of the number of Annuity Deposits you
make.

BENEFICIARY -- The person entitled to receive the benefits under the
Contract, if any, upon the death of any Participant.

PRIMARY -- The person named to receive the death benefits upon any
Participant's death. Upon the death of any Participant, the surviving
Participant, if any, will become the Primary Beneficiary.

CONTINGENT -- The person named to receive the death benefits if the
Primary Beneficiary is not living at the time of a Participant's death. If
no Beneficiary designation is in effect or if no Beneficiary is living at
the time of a Participant's death, the estate of the deceased Participant
will be the Beneficiary.

IRREVOCABLE -- An irrevocable Beneficiary is one whose consent is needed
to change the Beneficiary designation, or to exercise certain other rights
under the Contract.

CERTIFICATE -- The individual Certificate issued by the Company to a
Participant or to the Contract Holder for delivery to the Participant together
with any endorsements attached, and the application information. The Certificate
summarizes the provisions of the Contract and evidences that an Annuity Deposit
has been made by or on behalf of a Participant under the Contract.

CERTIFICATE DATE OR CONTRACT DATE -- The date shown on the Certificate and
on which the Certificate takes effect. The Contract Date is the date shown on
the Contract and on which the Contract takes effect. "Certificate Years" or
"Contract Years" are measured from the Certificate Date or Contract Date.

COMPANY -- Protective Life Insurance Company.

CONTRACT -- The Certificate evidencing an interest in the Group Modified
Guaranteed Annuity Contract as set forth in this Prospectus together with any
endorsements attached, and the application information. Also, any reference in
this Prospectus to Contract includes the underlying Group Modified Guaranteed
Annuity Contract and the Individual Modified Guaranteed Annuity Contract issued
in certain states.

GUARANTEED PERIOD -- The period for which either an Initial or Subsequent
Guaranteed Interest Rate will be credited to a Sub-Account under a Contract.
Guaranteed Periods will be designated as being either "Initial" or "Subsequent".

INITIAL GUARANTEED INTEREST RATE -- For each Annuity Deposit, the effective
rate of interest, calculated after daily compounding of interest has been taken
into account, which is used in determining the interest credited to a
Sub-Account during the Initial Guaranteed Period. The rate(s) applicable to the
original Annuity Deposit is specified in each Contract.

MARKET VALUE ADJUSTMENT -- The adjustment made to a Sub-Account Value when a
full or partial surrender is requested prior to the end of an Initial or
Subsequent Guaranteed Period.

NET ACCOUNT VALUE -- The sum of all Net Sub-Account Values.

NET SUB-ACCOUNT VALUE -- The Sub-Account Value after application of the
Market Value Adjustment and deductions for any Surrender Charges and applicable
Premium Taxes.

PARTICIPANT -- The person(s) eligible to participate pursuant to the
eligibility requirements set forth in the Contract and for whom the Company has
received an Annuity Deposit.

QUALIFIED PLAN -- Retirement plans which receive favorable tax treatment
under sections 401, 403, 408, or 457 of the Internal Revenue Code of 1986, as
amended.

SUB-ACCOUNT -- Each Annuity Deposit will be allocated to one or more
Sub-Accounts as directed by the Participant. Each Sub-Account will correspond to
a specified Guaranteed Period and Guaranteed Interest Rate.

SUB-ACCOUNT VALUES -- The amount equal to that part of each Annuity Deposit
allocated by a Participant to a Sub-Account(s), or any amount transferred to a
Sub-Account(s) at the end of a Guaranteed Period increased by all interest
credited and decreased by amounts due to previous full or partial surrenders
(including Surrender Charges, Market Value Adjustments, and Premium Taxes
thereon) and previous interest withdrawals. The Sub-Account Value of each
Sub-Account under this Certificate must be $10,000 at all times.

SUBSEQUENT GUARANTEED INTEREST RATE -- The effective rate of interest,
calculated after daily compounding of interest has been taken into account,
which is established by Protective for any applicable Subsequent Guaranteed
Period.

SURRENDER CHARGE -- A Surrender Charge, if applicable, is deducted from any
Sub-Account Value from which a full or partial surrender is made prior to the
end of an Initial or Subsequent Guaranteed Period. A Surrender Charge will apply
during the first seven years of each Initial and each Subsequent Guaranteed
Period. The Surrender Charge is equal to a specified Surrender Charge Percentage
(maximum 6%) applied to the amount of each full or partial surrender requested
less any amount available under Interest Withdrawals.

SURRENDER DATE -- The date Protective receives the request for a surrender.

SURRENDER VALUE -- The amount available for a full or partial surrender.

WRITING -- A written form satisfactory to the Company and filed at the
Administrative Office of the Company in Birmingham, Alabama. All correspondence
should be sent to P. O. Box 2606, Birmingham, Alabama 35202.

DESCRIPTION OF CONTRACTS

A. GENERAL

The Contract is a group allocated contract pursuant to which specific
accounts are maintained for each Participant. The Contract may be issued to any
employer, entity or other organized group acceptable to Protective. The Contract
may be issued in connection with either Qualified or Nonqualified Plans.
Qualified Plans include "H.R. 10" plans, Individual Retirement Annuities or
Accounts, corporate pension and profit-sharing plans, Tax-Sheltered Annuities
and Section 457 Deferred Compensation Plans. An Individual Modified Guaranteed
Annuity Contract is offered in certain states.

An eligible member of a group to which a Contract has been issued may become
a Participant by completing application information and forwarding payment of an
Annuity Deposit to us. Protective reserves the right to accept or decline a
request to issue a Contract. The rights and benefits of a Participant under a
Contract are summarized in a Certificate issued to the Participant. Provisions
of the Contract are controlling. All such rights and benefits may be exercised
without the consent of the Contract Holder. However, provisions of any plan in
connection with which the Contract has been issued may restrict a person's
eligibility to participate under the Contract, the minimum or maximum amount of
the Annuity Deposit, and the Participant's ability to exercise the rights and/or
receive the benefits provided under the Contract.

Contracts will be issued to Protective Financial Insurance Trust (AmSouth
Bank, Birmingham, Alabama, Trustee) as Contract Holder for a group comprised of
account holders of broker-dealers, employers, or other entities and organized
groups. Participation under these groups is not permissible in some states.
However, only a group contract is offered for sale in the State of California.
An Individual Modified Guaranteed Annuity Contract may be available in certain
states where participation under this group is not permitted.

Each Annuity Deposit(s) (less Premium Taxes, if applicable) will be
allocated at your direction to one or more Sub-Accounts corresponding to the
Guaranteed Periods chosen by you. Each Annuity Deposit will accumulate at a
specified Guaranteed Interest Rate. Your Account Value is the sum of all of your
Sub-Account Values. Each Sub-Account Value is equal to the amount you allocated
to the Sub-Account (either as an Annuity Deposit or as part of a transfer of a
Sub-Account Value at the end of the previous Guaranteed Period), plus the
interest credited thereto at the Guaranteed Interest Rate, as adjusted for any
full or partial surrenders (including Market Value Adjustments, Surrender
Charges, Premium Taxes thereon and previous interest withdrawals). We quote a
Guaranteed Interest Rate for each Guaranteed Period currently being offered by
the Company.

B. APPLICATION INFORMATION, ANNUITY DEPOSIT

To apply for a Contract, an Annuity Deposit must accompany application
information provided to Protective. The minimum Annuity Deposit is $10,000.
Protective retains the right to limit the total amount of Annuity Deposit(s)
that can be made, without Administrative Office approval. This amount currently
is $1,000,000.

You will start earning interest on the day your Contract is issued. The
effective date of your Contract will be the date we receive your Annuity Deposit
at our Administrative Office.

Additional Annuity Deposit(s) can be made to the Contract. Regardless of the
number of Annuity Deposit(s) made, only one Contract will be issued.

C. INITIAL AND SUBSEQUENT GUARANTEED PERIODS

You may select the duration of the Guaranteed Periods for each Annuity
Deposit from among those durations then offered by us. You may contact our
Administrative Office for the Guaranteed Periods currently being offered. The
Guaranteed Period(s) you select for each of your Annuity Deposit(s) will
determine the Initial Guaranteed Interest Rate applicable to each Annuity
Deposit. We will establish a Sub-Account corresponding to each specified
Guaranteed Interest Rate and Guaranteed Period. The minimum allocation to a
Sub-Account is $10,000. The Sub-Account will earn interest at this Initial
Guaranteed Interest Rate which will be an effective rate per year during the
entire Initial Guaranteed Period after taking into account daily compounding of
interest.

Set forth below is an illustration of how interest will be credited to your
Account Value during each Guaranteed Period. For the purpose of this example we
have made the assumptions as indicated.

NOTE: THE FOLLOWING EXAMPLE ASSUMES NO SURRENDERS OR WITHDRAWALS OF ANY AMOUNT
AND NO PREMIUM TAX DUE ON ISSUANCE. A MARKET VALUE ADJUSTMENT AND SURRENDER
CHARGE MAY APPLY TO ANY SUCH PARTIAL OR FULL SURRENDER MADE PRIOR TO THE END OF
A GUARANTEED PERIOD (SEE "SURRENDERS"). THE HYPOTHETICAL INTEREST RATES ARE
ILLUSTRATIVE ONLY AND ARE NOT INTENDED TO PREDICT FUTURE INTEREST RATES TO BE
DECLARED UNDER THE CONTRACT. ACTUAL INTEREST RATES DECLARED FOR ANY GIVEN
GUARANTEED PERIOD MAY BE MORE OR LESS THAN THOSE SHOWN.

EXAMPLE OF COMPOUNDING AT THE GUARANTEED INTEREST RATE

Deposit: $100,000.00
Guaranteed Period: 5 years
Guaranteed Interest Rate: 6.00%

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------------- ------------- ------------- ------------- -------------

Beginning of Year 1 Account Value: $ 100,000.00
X (1 + Guaranteed Interest Rate): 1.06
= End of Year 1 Account Value: $ 106,000.00
Beginning of Year 2 Account Value: $ 106,000.00
X (1 + Guaranteed Interest Rate): 1.06
= End of Year 2 Account Value: $ 112,360.00
Beginning of Year 3 Account Value: $ 112,360.00
X (1 + Guaranteed Interest Rate): 1.06
= End of Year 3 Account Value: $ 119,101.60
Beginning of Year 4 Account Value: $ 119,101.60
X (1 + Guaranteed Interest Rate): 1.06
= End of Year 4 Account Value: $ 126,247.70
Beginning of Year 5 Account Value: $ 126,247.70
X (1 + Guaranteed Interest Rate): 1.06
= End of Year 5 Account Value: $ 133,822.56

Total Interest Credited in Guaranteed Period: $133,822.56 - $100,000.00 =
$33,822.56
Account Value at End of Guaranteed Period: $100,000.00 + $33,822.56 =
$133,822.56

Unless you elect to make a full surrender (see "Surrenders"), for each
Sub-Account a Subsequent Guaranteed Period will automatically commence at the
end of the Initial or Subsequent Guaranteed Period for each Sub-Account. Upon
notice to us, Sub-Account Values can be transferred from one Sub-Account to a
new Sub-Account at the end of a Guaranteed Period. You may not transfer a
Sub-Account Value to any other Sub-Account(s) prior to the end of the existing
Sub-Account's Guaranteed Period. The amount remaining in the Sub-Account after
transfer must be at least $10,000. Unless you elect a different duration from
among those then offered by us within twenty days prior to or ten days after the
end of the Guaranteed Period, your Sub-Account Values will be automatically
transferred to a Subsequent Guaranteed Period of either (i) the same duration as
your previous Guaranteed Period if then offered by us; or (ii) the shortest
duration then offered by us which is closest to the same duration as your
previous Guaranteed Period. If you elect a different duration, a minimum of
$10,000 must be transferred to the Sub-Account with the different duration, and
the amount remaining in the Sub-Account with the same duration must be at least
$10,000, or $0.

In no event may Initial or Subsequent Guaranteed Periods extend beyond the
Annuity Commencement Date then in effect, which cannot extend beyond the
Annuitant's 85th birthday (or a date agreed upon by us). Any request for
extension of the maximum Annuity Commencement Date must be approved by the Home
Office. For example, if you are age 62 upon the expiration of an Initial
Guaranteed Period for a Sub-Account, and you have chosen age 65 as the Annuity
Commencement Date, we will automatically provide a three year Subsequent
Guaranteed Period for that Sub-Account to equal the number of years remaining
before your Annuity Commencement Date (unless a shorter Subsequent Guaranteed
Period is requested or is determined in accordance with the guidelines above).
Your Sub-Account Value will then earn interest at the Subsequent Guaranteed
Interest Rate which we have declared for that duration. The Subsequent
Guaranteed Interest Rate for the Subsequent Guaranteed Period automatically
applied in these circumstances may be higher or lower than the Initial
Guaranteed Rate for longer durations.

The Sub-Account Value at the beginning of any Subsequent Guaranteed Period
will be equal to the Sub-Account Value at the end of the previous Guaranteed
Period. This Sub-Account Value will earn interest at the Subsequent Guaranteed
Interest Rate. The minimum reinvestment of any one Sub-Account is $10,000.

At your request within 20 days prior to or ten days after the end of a
Guaranteed Period, we will provide you with the then effective Subsequent
Guaranteed Interest Rate for specified Subsequent Guaranteed Periods. THE ACTUAL
SUBSEQUENT GUARANTEED INTEREST RATE WILL BE DETERMINED AT THE BEGINNING OF THE
SUBSEQUENT GUARANTEED PERIOD YOU SELECT, OR THAT IS DETERMINED IN ACCORDANCE
WITH THE GUIDELINES ABOVE.

D. ESTABLISHMENT OF GUARANTEED INTEREST RATES

Protective has no specific formula for determining the Guaranteed Interest
Rates applicable for different Guaranteed Periods. Increased rates may be
credited on an initial or subsequent Guaranteed Period if, at the time an
initial or additional Annuity Deposit is made or renewed, Account Values then
equal or exceed $100,000. Guaranteed interest rates credited to current Account
Values will not be changed until renewal. The determination will be reflective
of interest rates available on the types of instruments in which Protective
intends to invest the proceeds attributable to the Contracts. (See "Investments
By Protective"). In addition, Protective's management may also consider various
other factors in determining current Guaranteed Interest Rates for a given
period, including regulatory and tax requirements; sales commissions and
administrative expenses borne by Protective; general economic trends; and
competitive factors. PROTECTIVE'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION
AS TO GUARANTEED INTEREST RATES TO BE DECLARED. WE CANNOT PREDICT NOR DO WE
GUARANTEE FUTURE GUARANTEED INTEREST RATES.

E. SURRENDERS

Full surrenders from the Sub-Accounts may be made at any time. Partial
surrenders may only be made if each remaining Sub-Account Value is at least
$10,000. You must specify the Sub-Accounts from which the partial surrender is
to be made. If a Sub-Account has the same Guaranteed Period as any other
Sub-Account, the partial surrender must come first from the Sub-Account with the
shortest time remaining in the Guaranteed Period.

In the case of certain Qualified Plans, Federal tax law imposes restrictions
on the form and manner in which benefits may be paid. For example, spousal
consent may be needed in certain instances before a distribution may be made.

1. SURRENDER CHARGES

A Surrender Charge, if applicable, will be applied to a full or partial
surrender from a Sub-Account requested prior to the end of a Guaranteed Period.
A Surrender Charge will apply during the first seven years of each Initial and
each Subsequent Guaranteed Period. The Surrender Charge is equal to a specified
Surrender Charge Percentage (set forth below) applied to the amount of each full
or partial surrender requested less any amount available as an Interest
Withdrawal. The Surrender Charge will be deducted from the remaining Sub-Account
Value from which the full or partial surrender is made.

NUMBER OF COMPLETED YEARS SURRENDER CHARGE
IN A GUARANTEED PERIOD PERCENTAGE
- ------------------------------- ---------------------

0 6%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%

There is no Surrender Charge after the first seven years of each Initial or
Subsequent Guaranteed Periods with a duration greater than seven years. In
addition, for purposes of determining amounts subject to the Surrender Charge,
we will consider surrendered amounts first to be interest withdrawals, to the
extent interest credited to your Sub-Accounts during the prior Contract Year has
not yet been withdrawn. No Surrender Charge (or Market Value Adjustment) is
imposed on these interest withdrawal amounts. (See "Interest Withdrawals").

Surrender Charges and Market Value Adjustments will not apply to full or
partial surrenders made from Sub-Accounts at the end of an Initial or Subsequent
Guaranteed Period. The Surrender Value will equal the Sub-Account Value on this
date. A request for a surrender at the end of an Initial or Subsequent
Guaranteed Period must be received in a form acceptable to Protective within
twenty days prior to or ten days after the end of such Initial or Subsequent
Guaranteed Period.

If the date we receive your request for a full or partial surrender is prior
to the end of an Initial or Subsequent Guaranteed Period, the Surrender Value
will be calculated as of the Surrender Date by the Company using the following
formula:

SURRENDER VALUE = (A - S - M - P), WHERE:

A = the amount of the full or partial surrender;
S = the amount of Surrender Charge;
M = the amount of the Market Value Adjustment; and
P = the amount of applicable Premium Taxes;

Protective will, upon the date of receipt of your request, inform you of the
amounts available for full or partial surrenders.

Any full or partial surrender may be subject to Federal and state income tax
(see "Federal Tax Matters"). and, in some cases, Premium Tax (See "Premium
Taxes"). Under certain Qualified Plans, the consent of your spouse may be
required. Under Tax-Sheltered Annuities withdrawals attributable to
contributions made pursuant to a salary reduction agreement may be made only in
limited circumstances.

Surrender Charges and a Market Value Adjustment will be deducted upon the
application of your Net Account Value to purchase an Annuity on the Annuity
Commencement Date. To elect an Annuity Option you must notify us in writing
within 30 days prior to the Annuity Commencement Date.

We may defer payment of any full or partial surrender for a period not
exceeding 6 months from the date of our receipt of your notice of surrender or
the period permitted by state insurance law, if less.

2. MARKET VALUE ADJUSTMENT

The amount payable on a full or partial surrender made prior to the end of
any Guaranteed Period will be adjusted up or down by the application of the
Market Value Adjustment formula. Such a Market Value Adjustment is applied to
the Sub-Account Value. For purposes of determining amounts subject to the Market
Value Adjustment, we will consider surrendered amounts first to be interest
withdrawals, to the extent interest credited to your Sub-Accounts during the
prior Contract Year has not yet been withdrawn. No Market Value Adjustment (or
Surrender Charge) is imposed on these interest withdrawal amounts. (See
"Interest Withdrawals").

In the case of either a full or partial surrender from a Sub-Account, the
Market Value Adjustment reflects the relationship between (i) the Treasury Rate
currently established for the same term as the Guaranteed Period from which you
request the surrender, and (ii) the Treasury Rate initially established for the
Guaranteed Period from which you make a full or partial surrender. The Treasury
Rate is the annual effective interest rate credited to United States Treasury
instruments, as published by a nationally recognized service. On the fifteenth
day and the last day of each month, the Company will identify a Treasury Rate
for each Guaranteed Period. The method used by the Company to determine the
Treasury Rates under this Contract shall be consistent and is binding upon any
Participant, Annuitant and Beneficiary.

The Market Value Adjustment formula includes a set percentage factor (.25%)
designed to compensate Protective Life for certain expenses and losses that
might be incurred as a direct or indirect result or consequence of surrenders.

THE EFFECT OF THE MARKET VALUE ADJUSTMENT WILL BE RELATED TO THE LEVEL OF
TREASURY RATES ESTABLISHED FOR THE GUARANTEED PERIODS. IT IS POSSIBLE,
THEREFORE, THAT, SHOULD TREASURY RATES BE HIGHER (OR UP TO .25% LOWER) WHEN THE
MARKET VALUE ADJUSTMENT IS APPLIED THAN FROM THE TIME YOU ALLOCATED AMOUNTS TO
THE AFFECTED SUB-ACCOUNT, THE

EFFECT OF THE MARKET VALUE ADJUSTMENT, COUPLED WITH THE APPLICATION OF THE
SURRENDER CHARGE AND/OR PREMIUM TAXES, COULD RESULT IN THE AMOUNT YOU RECEIVE
BEING LESS THAN THE AMOUNT ALLOCATED. IF TREASURY RATES ARE MORE THAN .25% LOWER
WHEN THE MARKET VALUE ADJUSTMENT IS APPLIED THAN AT THE TIME YOU ALLOCATED
AMOUNTS TO THE AFFECTED SUB-ACCOUNT, THE EFFECT OF THE MARKET VALUE ADJUSTMENT,
COUPLED WITH THE APPLICATION OF THE SURRENDER CHARGE AND/OR PREMIUM TAXES, COULD
RESULT IN THE AMOUNT YOU RECEIVE BEING MORE THAN THE AMOUNT ALLOCATED. HOWEVER,
IN ORDER FOR THERE TO BE A POSITIVE MARKET VALUE ADJUSTMENT, THE TREASURY RATE
MUST HAVE DECREASED SUFFICIENTLY TO OFFSET THE PERCENTAGE FACTOR (.25%)
DESCRIBED ABOVE.

The formula for calculating the Market Value Adjustment is as follows:

MARKET VALUE ADJUSTMENT PERCENTAGE = (C - I + 0.25%) X (N/12) WHERE:

C = the Treasury Rate currently established for the same term as the
Guaranteed Period from which the surrender is being made;

I = the Treasury Rate initially established for the Guaranteed Period from
which the surrender is being made;

N = The number of months remaining in the Guaranteed Period from which the
surrender is being made.

Please refer to Appendix A to this Prospectus, which contains an example of
the application of the Market Value Adjustment Percentage as it is applied to
the amount of each full or partial surrender requested.

3. INTEREST WITHDRAWALS

Once each Contract Year, we will send you all or a portion of the interest
that has been credited to your Sub-Accounts during the prior Contract Year (to
the extent not previously withdrawn or considered part of a surrender) if you so
request in a form acceptable to Protective. For most Guaranteed Periods, you may
elect to receive automatic interest withdrawals monthly, quarterly,
semi-annually or annually. Options other than annual may total less than annual
withdrawals because of the interruption of compounding. Upon notice to you we
reserve the right to limit such withdrawals to once per contract year. No
Surrender Charge or Market Value Adjustment will be imposed on withdrawals of
such interest. Any such withdrawal may, however, be subject to tax, including
the 10% penalty tax under the Internal Revenue Code.

F. PREMIUM TAXES

Premium Taxes (including related retaliatory taxes, if any) will be
deducted, if applicable. On any Contract subject to Premium Taxes, the tax will
be deducted, as provided under applicable law, either from Annuity Deposit(s)
when received, upon full or partial surrenders, from the amount applied to
effect an Annuity at the time annuity payments commence, or from the Death
Benefit. (Where applicable, the rate of these taxes currently ranges up to
3.50%).

G. DEATH BENEFIT

If an Annuitant is not a Participant and dies prior to the Annuity
Commencement Date, the Participant first named on the Application will become
the new Annuitant unless the Participant designates otherwise. If any
Participant is not a natural person, the death or change of the Annuitant will
be treated as the death of a Participant.

If any Participant dies while this Contract is in force prior to the Annuity
Commencement Date, a Death Benefit will be payable to the Beneficiary. With
regard to joint Participants, at the first death of a joint Participant prior to
the Annuity Commencement Date, the Beneficiary will be the surviving
Participant, if

any. If there is no surviving Participant, the Death Benefit will be paid to the
Beneficiary named by the Participant. If no Beneficiary designation is in effect
or if there is no designated Beneficiary living, the Death Benefit will be paid
to the estate of the deceased Participant. In the case of certain Contracts
issued in connection with Qualified Plans, regulations promulgated by the
Treasury Department prescribe certain limitations on the designation of a
Beneficiary.

The Death Benefit will be determined as of the date due proof of death is
received by the Company. If a claim for the Death Benefit is received at our
Administrative Office within six (6) months of the date of death, the Death
Benefit will equal the greater of: (1) the Account Value, less applicable
Premium Taxes; or (2) the Net Account Value. If a claim is received six (6)
months or more after the date of death, the Death Benefit will equal the Net
Account Value. If any Participant is not a natural person, upon the change of
the Annuitant, the Death Benefit will equal the Net Account Value. Only one
Death Benefit is payable under this Contract, even though the Contract may
continue beyond an Participant's death.

The Death Benefit may be taken in one sum immediately or in all events the
entire Death Benefit, including any interest accrued thereon, must be
distributed within five years of the date of death unless: (a) it is payable
over the life of the Beneficiary with distributions beginning within one year of
the date of death; or (b) it is payable over a period not extending beyond the
life expectancy of the Beneficiary with distributions beginning within one year
of the date of death; or (c) the deceased Participant's spouse is the
Beneficiary and, in lieu of receiving the Death Benefit, continues the Contract
and becomes the new Participant.

H. ANNUITY BENEFITS

1. ELECTING THE ANNUITY COMMENCEMENT DATE AND FORM OF ANNUITY

Upon purchasing a Contract, you select an Annuity Commencement Date. The
Annuity Commencement Date selected: (1) cannot be before the end of any
Guaranteed Period; and (2) must be on or before the Annuitant's 85th birthday or
the date shown in the Contract. Any request for extension of the maximum Annuity
Commencement Date must be approved by the Administrative Office. You may elect
to have all of your Net Account Value or a portion thereof applied on the
Annuity Commencement Date under any of the Annuity Options described below. In
the absence of such election if the Annuitant is alive on the Annuity
Commencement Date, the Net Account Value will be applied on the Annuity
Commencement Date under Option 2-Life Income with Payments for a 10 Year
Guaranteed Period.

(For Contracts issued in connection with certain Qualified Plans, the
Annuity Commencement Date may not be later than April 1 of the year after the
year in which the Annuitant attains age 70 1/2).

2. CHANGE OF ANNUITY COMMENCEMENT DATE, ANNUITY OPTION OR ANNUITANT

You may change the Annuity Commencement Date and/or the Annuity Option from
time to time, but any such change must be made in Writing and received by us
within 30 days prior to the scheduled Annuity Commencement Date. You may change
the Annuitant prior to the Annuity Commencement Date provided the change is made
in Writing on a form acceptable to us. Once the request is received and
acknowledged at our Administrative Office, any change will relate back to and
take effect on the date the request was signed. If an Annuitant is not a
Participant and dies prior to the Annuity Commencement Date, the Participant
first named on the application becomes the Annuitant, unless the Participant
designates otherwise. The Annuitant is the "Payee" for purposes of the annuity
rates utilized by the Company.

3. ANNUITY OPTIONS

Any one of the following Annuity Options may be elected. For Qualified
Certificates, certain restrictions apply.

OPTION 1 -- PAYMENT FOR A FIXED PERIOD. Equal monthly payments will be made
for any period of not less than 5 nor more than 30 years. The amount of each
payment depends on the total amount applied, the period selected and the monthly
payment rates we are using when the first payment is due.

OPTION 2 -- LIFE INCOME WITH PAYMENTS FOR A GUARANTEED PERIOD. Equal
monthly payments are based on the life of the named Annuitant. Payments will
continue for the lifetime of that person with payments guaranteed for 10 or 20
years. Payments stop at the end of the selected guaranteed period or when the
named person dies, whichever is later.

OPTION 3 -- PAYMENTS OF A FIXED AMOUNT. Equal monthly payments will be for
an agreed fixed amount. The amount of each payment may not be less than $10 for
each $1,000 applied. Interest will be credited each month on the unpaid balance
and added to it. This interest will be at a rate set by us, but not less than an
effective interest rate of 4% per year. Payments continue until the amount we
hold runs out. The last payment will be for the balance only.

MINIMUM AMOUNTS -- We reserve the right to pay the Net Account Value of
this Contract in one lump sum, if less than $5,000. If monthly payments are less
than $100, we may make payments quarterly, semi-annually, or annually, at our
option.

The dollar amount of monthly payments under each available Annuity Option
for each $1,000 applied is calculated in accordance with annuity tables set
forth in the Contract. These tables are based on the 1983 Individual Annuity
Mortality Table A projected 4 years with interest at 4% per annum. One year will
be deducted from the attained age of the Annuitant for every completed three
years beyond the year 1987. If we have available, at the time an Annuity Option
is elected, options or rates on a more favorable basis than those guaranteed,
the higher benefits shall apply.

4. ANNUITY PAYMENT

The first payment under any Annuity Option will be made one month following
the Annuity Commencement Date. Subsequent payments will be made in accordance
with the manner of payment selected.

The Annuity Option elected must result in a payment of an amount at least
equal to the minimum payment amount according to Protective's rules then in
effect. If at any time payments are less than the minimum payment amount, we
have the right to change the frequency to an interval resulting in a payment at
least equal to the minimum. If any amount due is less than the minimum per year,
we may make other arrangements that are equitable to the Annuitant.

Once annuity payments have commenced, no surrender of the annuity benefit
can be made for the purpose of receiving a lump sum settlement in lieu thereof.

5. DEATH OF ANNUITANT OR PARTICIPANT AFTER ANNUITY COMMENCEMENT DATE

If any Participant or Annuitant dies on or after the Annuity Commencement
Date and before all the benefits under the Annuity Option selected have been
paid, any remaining payments will be distributed at least as rapidly as under
the Annuity Option being used as of the date of death.

INVESTMENTS BY PROTECTIVE

Protective's investment philosophy is to maintain a portfolio that is
matched to its liabilities with respect to yield, risk, and cash flow
characteristics. The types of assets in which Protective may invest are governed
by state laws which prescribe qualified investment assets. Within the parameters
of these laws, Protective invests its assets giving consideration to such
factors as liquidity needs, investment quality, investment return, matching of
assets and liabilities, and the composition of the investment portfolio by asset
type and credit exposure. Because liquidity is important, Protective continually
balances maturity against yield and quality considerations in selecting new
investments.

In establishing Guaranteed Interest Rates, Protective intends to take into
account the yields available on the instruments in which it intends to invest
the proceeds from the Contracts. (See "Establishment of Guaranteed Interest
Rates" commencing on page 6.) Protective's investment strategy with respect to
the proceeds attributable to the Contracts will be to primarily invest in
investment-grade debt instruments having durations tending to match the
applicable Guaranteed Periods. It is anticipated that some portion of the
portfolio will be invested in mortgages. Protective may also invest in lower
than investment-grade issues, depending upon relative spreads in the capital
markets.

Investment-grade debt instruments in which Protective intends to invest the
proceeds from the Contracts include:

Securities issued by the United States Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the United
States Government.

Mortgaged-backed and corporate debt securities which have an investment
grade, at the time of purchase, within the four highest-grades assigned by
Moody's Investors Service, Inc. (Aaa, Aa, A, Baa), Standard & Poor's
Corporation ("S&P") (AAA, AA, A, or BBB) or any other nationally recognized
rating service. Protective considers bonds rated Baa or higher by Moody's or
BBB or higher by S&P to be investment grade. At December 31, 1995, 97.9% of
bonds in which Protective invests were considered investment grade; 20.1% of
these bonds were rated Baa or BBB.

Mortgaged-backed securities are based upon residential mortgages which have
been pooled into securities. Mortgage-backed securities may have greater cash
flow volatility as a result of the pass-through of prepayments of principal on
the underlying loans. Prepayments of principal on the underlying residential
loans can be expected to accelerate with decreases in interest rates and
diminish with increases in interest rates.

Debt obligations which have a Moody's or Standard & Poor's rating below
investment-grade may comprise a portion of the portfolio. Risks associated with
investments in less than investment-grade debt obligations may be significantly
higher than risks associated with investments in debt securities rated
investment-grade. Risk of loss upon default by the borrower is significantly
greater with respect to such debt obligations than with other debt securities
because these obligations may be unsecured or subordinated to other creditors.
Additionally, there is often a thinly traded market for such securities and
current market quotations are frequently not available for some of these
securities. Issuers of less than investment-grade debt obligations usually have
higher levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates, than
investment-grade issuers. Protective carefully selects, and closely monitors,
such investments.

Fixed maturity securities rated BBB may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturity securities. Protective may also
invest in those bank loan participations that are the most senior debt issued in
highly leveraged

transactions. They are generally unrated by the credit rating agencies. In
selecting bank participations for investment, Protective requires cash flows,
without asset sales, to cover all interest and scheduled amortization of the
bank debt by 140% and to cover total debt service by 110%. The debt is generally
secured by most of the tangible assets of the issuing company.

Protective's primary mortgage lending emphasis for the past twenty years has
been on strip shopping centers located in smaller towns and anchored by one or
more strong regional or national retail stores. The anchor tenants enter into
long-term noncancelable leases with Protective's borrowers. The centers provide
the basic necessities of life such as food, pharmaceuticals, and clothing, and
are relatively insensitive to changes in economic conditions. Protective also
makes loans on credit-oriented commercial properties. In the twenty years that
Protective has implemented its mortgage loan strategy, it has had no significant
loss of principal on mortgages it has originated. Protective carefully selects,
and closely monitors, such investments.

The federal government or its instrumentalities does not guarantee the
Contracts. Protective backs the guarantees associated with the Contracts.

While the foregoing generally describes our investment strategy with respect
to the proceeds attributable to the Contracts, we are not obligated to invest
the proceeds attributable to the Contracts according to any particular strategy,
except as may be required by the insurance laws of Tennessee and other states.

OTHER PROVISIONS

CONTRACT TRANSACTIONS

Currently, each request for a change or transaction under your Contract
(such as making an additional Annuity Deposit, requesting a surrender or
interest withdrawal, selecting certain Guaranteed Periods, changing the Annuity
Commencement Date, Annuity Option, or Annuitant, or making a death benefit
claim) must be made in Writing on a form acceptable to Protective. The request
must provide all information that is necessary for Protective to make the change
or effect the transaction. For additional information on how to make a change or
effect a transaction, contact Protective at its Administrative Office.

AMENDMENT OF CONTRACTS

We reserve the right to amend the Contract to meet the requirements of
applicable Federal or state laws, regulations or rulings. We will notify you of
any such amendments.

ASSIGNMENT OF CONTRACTS

Your rights, as evidenced by a Contract, may be assigned as permitted by
applicable law. An assignment will not be binding upon us until we receive
notice from you in Writing. We assume no responsibility for the validity or
effect of any assignment. You should consult your tax advisor regarding the tax
consequences of an assignment. Generally Qualified Contracts cannot be assigned.

DISTRIBUTION OF CONTRACTS

Investment Distributors, Inc. ("IDI") serves as principal underwriter for
the Contracts. IDI has agreed to use its best efforts to sell the Contracts. IDI
is a wholly-owned subsidiary of Protective Life Corporation ("PLC") and is
registered with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc. ("NASD").

IDI has entered into Distribution Agreements with certain broker-dealers
registered under the Securities Exchange Act of 1934. Under the Distribution
Agreements such broker-dealers may offer Contracts to persons who have
established an account with the broker-dealer. In addition, IDI may offer
Contracts to

members of certain other eligible groups or certain individuals. The maximum
commission Protective will pay is 7% of the Annuity Deposit for the sale of a
Contract. In addition, the maximum renewal commission Protective will pay is
7.0% of the Sub-Account Value(s) transferred to a Subsequent Guaranteed Period.

FEDERAL TAX MATTERS

INTRODUCTION

The following discussion of the federal income tax treatment of the
Contracts is not exhaustive, does not purport to cover all situations, and is
not intended as tax advice. The federal income tax treatment of the Contracts is
unclear in certain circumstances, and a qualified tax adviser should always be
consulted with regard to the application of law to individual circumstances.
This discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, and interpretations existing on the date of this
Prospectus. These authorities, however, are subject to change by Congress, the
Treasury Department, and judicial decisions.

This discussion does not address state or local tax consequences associated
with the purchase of the Contracts. In addition, THE COMPANY MAKES NO GUARANTEE
REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY CONTRACT OR OF
ANY TRANSACTION INVOLVING A CONTRACT.

THE COMPANY'S TAX STATUS

The Company is taxed as a life insurance company under Subchapter L of the
Code. The assets underlying the Contracts will be owned by the Company, and the
income derived from such assets will be includible in the Company's income for
federal income tax purposes.

TAXATION OF ANNUITIES IN GENERAL

TAX DEFERRAL DURING ACCUMULATION PERIOD

Under existing provisions of the Code (and except as described below), the
Contracts should be treated as annuities and any increase in a Participant's
Account Value is generally not taxable to the Participant or Annuitant until
received, either in the form of Annuity payments as contemplated by the
Contracts, or in some other form of distribution.

As a general rule, Contracts held by "non-natural persons" such as a
corporation, trust or other similar entity, as opposed to a natural person, are
not treated as annuities for federal tax purposes. The income on such Contracts
(as defined in the tax law) is taxed as ordinary income that is received or
accrued by the Participant during the taxable year. There are several exceptions
to this general rule for Contracts held by non-natural persons. First, Contracts
will generally be treated as held by a natural person if the nominal owner is a
trust or other entity which holds the Contract as an agent for a natural person.
Thus, if a group Contract is held by a trust or other entity as an agent for
Certificate owners who are individuals, those individuals should be treated as
owning an annuity for federal income tax purposes. However, this exception will
not apply in the case of any employer who is the nominal owner of a Contract
under a non-qualified deferred compensation arrangement for its employees.

In addition, exceptions to the general rule for non-natural Contract owners
will apply with respect to (1) Contracts acquired by an estate of a decedent by
reason of the death of the decedent, (2) Contracts issued in connection with
certain Qualified Plans, (3) Contracts purchased by employers upon the
termination of certain Qualified Plans, (4) certain Contracts used in connection
with structured settlement agreements, and (5) Contracts purchased with a single
premium when the annuity starting date is no later than a year from purchase of
the Contract and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period.

In addition to the foregoing, if the Contract's Annuity Commencement Date
occurs at a time when the Annuitant is at an advanced age, such as over age 85,
it is possible that the Participant will be taxable currently on the annual
increase in the Account Value.

The remainder of this discussion assumes that the Contract will constitute
an annuity for federal tax purposes.

TAXATION OF PARTIAL AND FULL WITHDRAWALS

In the case of a partial withdrawal, amounts received generally are
includible in income to the extent the Participant's Account Value before the
withdrawal exceeds his or her "investment in the contract." In the case of a
full withdrawal, amounts received are includible in income to the extent they
exceed the "investment in the contract." For these purposes the investment in
the contract at any time equals the premiums paid under the Contract (to the
extent such premium payments were neither deductible when made nor excludable
from income as, for example, in the case of certain employer contributions to
Qualified Plans) less any amounts previously received from the Contract which
were not included in income.

Other than in the case of Contracts issued in connection with certain
Qualified Plans (which generally cannot be assigned or pledged), any assignment
or pledge (or agreement to assign or pledge) any portion of the Account Value is
treated as a withdrawal of such amount or portion. The investment in the
contract is increased by the amount includible as income with respect to such
assignment or pledge, though it is not affected by any other aspect of the
assignment or pledge (including its release). If a Participant transfers a
Contract without adequate consideration to a person other than the Participant's
spouse (or to a former spouse incident to divorce), the Participant will be
taxed on the difference between his or her Account Value and the investment in
the contract at the time of transfer. In such case, the transferee's investment
in the contract will be increased to reflect the increase in the transferor's
income.

There is some uncertainty regarding the treatment of the Market Value
Adjustment for purposes of determining the amount includible in income as a
result of any partial withdrawal or transfer without adequate consideration.
There is legislation currently pending in Congress which would grant regulatory
authority to the Internal Revenue Service (the "IRS") to address this
uncertainty.

TAXATION OF ANNUITY PAYMENTS

Normally, the portion of each Annuity payment taxable as ordinary income is
equal to the excess of the payment over the exclusion amount. The exclusion
amount is the amount determined by multiplying (1) the payment by (2) the ratio
of the investment in the contract, adjusted for any period certain or refund
feature, to the total expected value of Annuity payments for the term of the
Contract (determined under Treasury Department regulations).

Once the total amount of the investment in the contract is excluded using
this ratio, Annuity payments will be fully taxable. If Annuity payments cease
because of the death of the Annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the Annuitant in his last taxable year.

There may be special income tax issues present in situations where the
Participant and the Annuitant are not the same person or are not married. For
example, where the Participant and the Annuitant are not the same person and are
not married, the Participant may be taxed on the Annuity Commencement Date on
the difference between the Account Value and the investment in the contract.

TAXATION OF DEATH BENEFIT PROCEEDS

Amounts may be distributed from a Contract because of the death of a
Participant or the Annuitant. Such death benefit proceeds are includible in
income as follows: (1) if distributed in a lump sum, they are taxed in the same
manner as a full withdrawal, as described above, or (2) if distributed under an
Annuity Option, they are taxed in the same manner as Annuity payments, as
described above.

PENALTY TAX ON PREMATURE DISTRIBUTIONS

Where a Contract has not been issued in connection with a Qualified Plan,
there generally is a 10% penalty tax on the taxable amount of any payment from
the Contract unless the payment is: (a) received on or after the Participant
reaches age 59 1/2; (b) attributable to the Participant becoming disabled (as
defined in the tax law); (c) made on or after the death of the Participant; (d)
made as a series of substantially equal periodic payments (not less frequently
than annually) for the life (or life expectancy) of the Annuitant or the joint
lives (or joint life expectancies) of the Annuitant and a designated
beneficiary; or (e) made under a Contract purchased with a single premium when
the Annuity Commencement Date is no later than a year from purchase of the
Contract and substantially equal periodic payments are made, not less frequently
than annually, during the Annuity period. (Similar rules generally apply in the
case of Contracts issued in connection with certain Qualified Plans.)

AGGREGATION OF CONTRACTS

In certain circumstances, the IRS may determine the amount of an Annuity
payment or a withdrawal from a Contract that is includible in income by
combining some or all of the annuity contracts owned by an individual which are
not issued in connection with a Qualified Plan. For example, if a person
purchases a Contract offered by this Prospectus and also purchases at
approximately the same time an immediate annuity, the IRS may treat the two
contracts as one contract. In addition, if a person purchases two or more
deferred annuity contracts from the same insurance company (or its affiliates)
during any calendar year, all such contracts will be treated as one contract for
purposes of determining whether any payment not received as an annuity
(including withdrawals prior to the Annuity Commencement Date) is includible in
income. The effects of such aggregation are not clear; however, it could affect
the time when income is taxable and the amount which might be subject to the 10%
penalty tax described above.

QUALIFIED RETIREMENT PLANS

IN GENERAL

The Contracts are also designed for use in connection with certain types of
qualified retirement plans which receive favorable treatment under the Code.
Numerous special tax rules apply to the Participants in Qualified Plans and to
the Contracts used in connection with Qualified Plans. These tax rules vary
according to the type of plan and the terms and conditions of the plan itself.
For example, for both withdrawals and Annuity payments under certain Contracts
issued in connection with Qualified Plans, there may be no "investment in the
contract" and the total amount received may be taxable. Also, special rules
apply to the time at which distributions must commence and the form in which the
distributions must be paid. Therefore, no attempt is made to provide more than
general information about the use of Contracts with the various types of
Qualified Plans.

When issued in connection with a Qualified Plan, a Contract will be amended
as generally necessary to conform to the requirements of that type of plan.
However, Participants, Annuitants, and Beneficiaries are cautioned that the
rights of any person to any benefits under Qualified Plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contract. In addition, the Company shall not be bound by terms
and conditions of Qualified Plans to the extent such terms and conditions
contradict the Contract, unless the Company consents.

Following are brief descriptions of various types of Qualified Plans in
connection with which Protective will generally issue a Contract.

INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA." IRAs are subject to limits on the
amounts that may be contributed, the persons who may be eligible and on the time
when distributions may commence. Also, distributions from certain Qualified
Plans may be "rolled over" on a tax-deferred basis into an IRA.

SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRAS). Section 408(k) of the Code allows
employers to establish simplified employee pension plans for their employees,
using the employees' IRAs for such purposes, if certain criteria are met. Under
these plans the employer may, within specified limits, make deductible
contributions on behalf of the employees to IRAs. Employers intending to use the
Contract in connection with such plans should seek competent advice.

CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND
PROFIT-SHARING PLANS. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
Contract in order to provide benefits under the plans. Employers intending to
use the Contract in connection with such plans should seek competent advice.

TAX-SHELTERED ANNUITIES. Section 403(b) of the Code permits public school
employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code to have
their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. These annuity contracts are commonly referred to as "tax-sheltered
annuities." Purchasers of the Contracts for such purposes should seek competent
advice as to eligibility, limitations on permissible amounts of purchase
payments and other tax consequences associated with the Contracts. Section
403(b) Policies contain restrictions on withdrawals of (i) contributions made
pursuant to a salary reduction agreement in years beginning after December 31,
1988, (ii) earnings on those contributions, and (iii) earnings in such years on
amounts held as of the last year beginning before January 1, 1989. These amounts
can be paid only if the employee has reached age 59 1/2 separated from service,
died, become disabled, or in the case of hardship. Amounts permitted to be
distributed in the event of hardship shall be limited to actual contributions;
earnings thereon shall not be distributed on account of hardship. (These
limitations on withdrawals do not apply to the extent the Company is directed to
transfer some or all of the Amount Value to the issuer of another tax-sheltered
annuity or into a Section 403(b)(7) custodial account.)

DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT
ORGANIZATIONS. Section 457 of the Code permits employees of state and local
governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. To the extent the Contract is used in
connection with an eligible plan, employees are considered general creditors of
the employer and the employer as owner of the Contract has the sole right to the
proceeds of the Contract. Generally, a contract purchased by a state or local
government or a tax-exempt organization will not be treated as an annuity
contract for federal income tax purposes. Those who intend to use the Contracts
in connection with such plans should seek competent advice.

DIRECT ROLLOVER RULES

In the case of Contracts used in connection with a pension, profit-sharing,
or annuity plan qualified under Sections 401(a) or 403(a) of the Code, or in the
case of a Section 403(b) tax sheltered annuity, any "eligible rollover
distribution" from the Contract will be subject to direct rollover and mandatory
withholding requirements. An eligible rollover distribution generally is any
taxable distribution from a qualified pension plan under Section 401(a) of the
Code, qualified annuity plan under Section 403(a) of the Code, or Section 403(b)
tax sheltered annuity or custodial account, excluding certain amounts (such as
minimum distributions required under Section 401(a)(9) of the Code and
distributions which are part of a "series of substantially equal periodic
payments" made for life or a specified period of 10 years or more).

Under these requirements, withholding at a rate of 20 percent will be
imposed on any eligible rollover distribution. In addition, the participant in
these qualified retirement plans cannot elect out of withholding with respect to
an eligible rollover distribution. However, this 20 percent withholding will not
apply if, instead of receiving the eligible rollover distribution, the
participant elects to have amounts directly transferred to certain qualified
retirement plans (such as to an Individual Retirement Annuity).

FEDERAL INCOME TAX WITHHOLDING

The Company will withhold and remit to the U.S. government a part of the
taxable portion of each distribution made under a Contract unless the
distributee notifies the Company at or before the time of the distribution that
he or she elects not to have any amounts withheld. In certain circumstances,
Protective may be required to withhold tax. The withholding rates applicable to
the taxable portion of periodic Annuity payments are the same as the withholding
rates generally applicable to payments of wages. The withholding rate applicable
to the taxable portion of non-periodic payments (including withdrawals prior to
the Annuity Commencement Date) is 10%. As described above, the withholding rate
applicable to eligible rollover distributions is 20%.

PROTECTIVE LIFE INSURANCE COMPANY

A. BUSINESS

Protective Life Insurance Company ("Protective"), a stock life insurance
company, was founded in 1907. Protective is a wholly-owned and the principal
operating subsidiary of Protective Life Corporation ("PLC"), an insurance
holding company whose common stock is traded on the New York Stock Exchange.
Protective provides financial services through the production, distribution, and
administration of insurance and investment products. Protective has six
operating divisions: Acquisitions, Financial Institutions, Group, Guaranteed
Investment Contracts, Individual Life, and Investment Products. Protective also
has an additional business segment which is described herein as Corporate and
Other. Unless the context otherwise requires, "Protective" refers to the
consolidated group of Protective Life Insurance Company and its subsidiaries.

Protective markets individual life insurance; group life, health, dental,
and cancer insurance; annuities and investment products; credit life and
disability insurance; and guaranteed investment contracts. Its products are
distributed nationally through independent agents and brokers; through
broker-dealers and financial institutions to their customers; through full-time
sales representatives; and through other insurance companies. Protective also
seeks to acquire blocks of insurance policies from other insurers.

ACQUISITIONS DIVISION

PLC actively seeks to acquire blocks of insurance policies. These
acquisitions may be accomplished through acquisitions of companies or through
the assumption or reinsurance of policies. Most acquisitions

do not include PLC's acquisition of an active sales force, but some do. Blocks
of policies acquired through the Acquisitions Division are usually administered
as "closed" blocks; i.e., no new policies are sold. Therefore, the amount of
insurance in force for a particular acquisition is expected to decline with time
due to lapses and deaths of the insureds.

PLC has entered into thirty-five separate transactions since 1970. Many of
these transactions included Protective. Management believes a favorable
environment for acquisitions will likely continue into the immediate future.
Insurance companies are facing heightened regulatory and market pressure to
increase statutory capital and thus may seek to increase capital by selling
blocks of policies. Insurance companies also appear to be selling blocks of
policies in conjunction with programs to narrow strategic focus. In addition,
smaller companies may face difficulties in marketing and thus may seek to be
acquired. However, it appears that other companies are entering this market;
therefore, PLC may face increased competition for future acquisitions.

Several states have enacted statutes that decreased the attractiveness of
assumption reinsurance transactions and increased the attractiveness of
coinsurance transactions. In coinsurance transactions, the seller remains
contingently liable with respect to the coinsured policies should Protective
become unable to fulfill its obligations to the seller under the coinsurance
agreement. This has caused sellers to place more emphasis on the financial
condition and acquisition experience of the purchaser. Management believes this
favorably impacts Protective's competitive position.

Total revenues and income before income tax from the Acquisitions Division
are expected to decline with time unless new acquisitions are made. Therefore,
the Division's revenues and earnings may fluctuate from year-to-year depending
upon the level of acquisition activity.

In the third quarter of 1993, Protective acquired Wisconsin National Life
Insurance Company and coinsured a small block of universal life policies. In
1994, Protective coinsured a small block of payroll deduction policies in the
second quarter and coinsured a block of 130,000 policies in the fourth quarter.
In the second quarter of 1995, Protective coinsured a block of 28,000 policies.
In March 1996, Protective coinsured a block of 38,000 policies.

FINANCIAL INSTITUTIONS DIVISION

The Financial Institutions Division specializes in marketing insurance
products through commercial banks, savings and loan associations, and mortgage
bankers. The Division markets an array of life and health products, which cover
consumer and mortgage loans made by financial institutions located primarily in
the southeastern United States. The Division also markets life and health
products nationally through the consumer finance industry and through automobile
dealerships. The Division markets through employee field representatives,
independent brokers, and an affiliate. The Division also offers certain products
through direct mail solicitation to customers of financial institutions. The
demand for credit life and credit health insurance is related to the general
level of loan demand.

In 1992, Protective acquired the credit insurance business of Durham Life
Insurance Company. The acquisition more than doubled the size of the Division
and provided significant market share in the southeastern states not previously
covered by Protective.

The Division has entered into a reinsurance arrangement whereby all of the
Division's new credit insurance sales are being ceded to a reinsurer. In the
second quarter of 1995, the Division also ceded a block of older policies.
Though these reinsurance transactions will reduce the Division's earnings, the
Division's return on investment is expected to improve.

GROUP DIVISION

The Group Division manufactures, distributes, and services group, payroll
deduction, cancer, and dental insurance products. Group accident and health
insurance is generally considered to be cyclical. Profits rise or fall as
competitive forces allow or prevent rate increases to keep pace with changes in
group health medical costs. Protective is placing marketing emphasis on other
health insurance products which have not been as subject to medical cost
inflation as traditional group health products. These products include dental
insurance policies and hospital indemnity policies which are distributed
nationally through the Division's existing distribution system, as well as
through joint marketing arrangements with independent marketing organizations,
and through reinsurance contracts with other insurers. These products also
include an individual cancer insurance policy marketed through a nationwide
network of agents. It is anticipated that a significant part of the growth in
Protective's health insurance premium income in the next several years will be
from dental products.

The Division offers substantially all forms of group insurance customary in
the industry, making available complete packages of life and accident and health
insurance to employers. The life and accident and health insurance packages
offered by this Division include hospital and medical coverages as well as
dental and disability coverages. To address rising health care costs, the
Division provides cost containment services such as utilization review and
catastrophic case management.

The Division markets its group insurance products primarily in the
southeastern and southwestern United States using the services of brokers who
specialize in group products. Sales offices in Alabama, Florida, Georgia,
Illinois, Missouri, North Carolina, Ohio, Oklahoma, Tennessee, and Texas are
maintained to serve these brokers. Group policies are directed primarily at
employers and associations with between 25 and 1,000 employees. The Division
also markets group insurance to small employers through a marketing organization
affiliated with an insurer, and reinsures the business produced by the marketing
organization. The Division receives a ceding commission from these arrangements.

In 1993 the Division established a special marketing unit to sell dental
plans through mail and telephone solicitations. The unit has sales offices in
Arizona, Colorado, Florida, Georgia, Illinois, Kentucky, Michigan, North
Carolina, Ohio, Tennessee, Texas and Wisconsin.

GUARANTEED INVESTMENT CONTRACTS DIVISION

In 1989, Protective began selling guaranteed investment contracts ("GICs").
Protective's GICs are contracts, generally issued to a 401(k) or other
retirement savings plan, which guarantee a fixed return on deposits for a
specified period and often provide flexibility for withdrawals, in keeping with
the benefits provided by the plan. Protective also offers related products
through this Division including fixed rate contracts offered to trustees of
municipal bond proceeds, floating rate contracts issued to bank trust
departments, and long-term annuity contracts used to fund certain state
obligations.

Since 1989, life insurer credit concerns and a demand shift to
non-traditional GIC alternatives have generally caused the GIC market to
contract somewhat, although broadening the Division's product offerings has
allowed it to maintain strong sales.

Most GIC contracts written by Protective have maturities of 3 to 5 years.
Prior to 1993, few GIC contracts were maturing because the contracts were newly
written. Therefore, GIC account balances grew at a significant rate. Beginning
in 1993, GIC contracts began to mature as contemplated when the contracts were
sold. Hence, the rate of growth in GIC deposits has decreased as the amount of
maturing contracts has increased.

INDIVIDUAL LIFE DIVISION

The Individual Life Division primarily utilizes a distribution system based
on experienced independent personal producing general agents who are recruited
by regional sales managers. At December 31, 1995, there were 22 regional sales
managers located throughout the United States. Honors Club members, agents who
produce at least $30 thousand of new premium per year, totaled 258 at December
31, 1995. Honors Club members represent approximately 39% of the Division's new
premium. In 1993, the Division began distributing insurance products through
stock brokers. The Division also distributes insurance products through the
payroll deduction market and in the life insurance brokerage market.

Marketing efforts in the Individual Life Division are directed toward
Protective's various universal life products and products designed to compete in
the term marketplace. Universal life products combine traditional life insurance
protection with the ability to tailor a more flexible payment schedule to the
individual's needs, provide an accumulation of cash values on which income taxes
are deferred, and permit Protective to change interest rates credited on policy
cash values to reflect current market rates. Protective currently emphasizes
back-end loaded universal life policies which reward the continuing policyholder
and which should help maintain the persistency of its universal life business.
The products designed to compete in the term marketplace are term-like policies
with guaranteed level premiums for the first 10, 15, or 20 years which provide a
competitive net cost to the insured.

INVESTMENT PRODUCTS DIVISION

The Investment Products Division manufactures, sells, and supports annuity
products. These products are sold through broker-dealers, financial
institutions, and the Individual Life Division.

In April 1990, Protective began sales of modified guaranteed annuity
products which guarantee an interest rate for a fixed period. Because contract
values are "market-value adjusted" upon surrender prior to maturity, these
products afford Protective a measure of protection from changes in interest
rates.

In 1992, the Division ceased most new sales of single premium deferred
annuities. In 1994, the Division introduced a variable annuity product to
broaden the Division's product line.

The demand for annuity products is related to the general level of interest
rates and performance of the equity markets.

CORPORATE AND OTHER

The Corporate and Other segment consists of several small insurance lines of
business, net investment income and expenses not attributable to the business
segments described above (including interest on substantially all debt). The
earnings of this segment may fluctuate from year to year.

B. SELECTED FINANCIAL DATA

The following Selected Financial Data for Protective and its subsidiaries
should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere in this Prospectus.

SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------------- --------------- --------------- --------------- ------------

INCOME STATEMENT DATA
Premiums and policy fees................ $ 369,888 $ 402,772 $ 351,423 $ 323,136 $ 273,975
Net investment income................... 458,433 408,933 354,165 274,991 222,619
Realized investment gains (losses)...... 1,951 6,298 5,054 (154) (3,085)
Other income............................ 3,543 11,977 4,756 10,675 7,495
--------------- --------------- --------------- --------------- ------------
Total revenues...................... $ 833,815 $ 829,980 $ 715,398 $ 608,648 $ 501,004
--------------- --------------- --------------- --------------- ------------
--------------- --------------- --------------- --------------- ------------
Benefits and expenses................... $ 716,082 $ 724,402 $ 629,286 $ 549,885 $ 456,039
Income tax expense...................... $ 40,037 $ 32,855 $ 29,957(1) $ 17,393 $ 12,024
Minority interest....................... $ 90 $ 1,437
Net income.............................. $ 77,696 $ 72,723 $ 56,155 $ 40,227(2) $ 31,504

DECEMBER 31
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------------- --------------- --------------- --------------- ------------

BALANCE SHEET DATA
Total assets............................ $ 7,178,693 $ 6,110,704 $ 5,307,849 $ 4,000,157 $ 3,120,354
Long-term debt.......................... $ 98 $ 2,014 $ 2,048
Total debt (3).......................... $ 34,693 $ 39,443 $ 49,061 $ 43,191 $ 28,022
Redeemable preferred stock.............. $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000
Stockholder's equity.................... $ 651,237(4) $ 395,075(4) $ 469,990(4) $ 335,516 $ 298,468
Stockholder's equity excluding net
unrealized gains and losses on
investments............................ $ 593,374 $ 502,607 $ 430,706 $ 332,360 $ 294,487

- ------------------------
(1) Increased by a one-time adjustment to income tax expense of $1.2 million due
to an increase in the corporate federal income tax rate from 34% to 35%.

(2) Includes a $1.1 million reduction to 1992 income representing the cumulative
effect of a change in accounting principle for the adoption of SFAS No. 106.

(3) Includes indebtedness to related parties. At December 31, 1995 such
indebtedness totaled $34.7 million. See also Note E to the Consolidated
Financial Statements.

(4) Reflects the adoption of SFAS No. 115.

C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS

PREMIUMS AND POLICY FEES

The following table sets forth for the periods shown the amount of premiums
and policy fees and the percentage change from the prior period:

PREMIUMS AND POLICY FEES

PERCENTAGE
YEAR ENDED INCREASE
DECEMBER 31 (DECREASE)
- --------------------------------------------- AMOUNT ---------
---------------
(IN THOUSANDS)

1993....................................... $ 351,423 8.8%
1994....................................... 402,772 14.6
1995....................................... 369,888 (8.2)

Premiums and policy fees increased $51.3 million or 14.6% in 1994 over 1993.
Wisconsin National and the reinsured block of universal life policies
represented $10.5 million of the increase in premiums and policy fees in 1994.
The reinsurance of a block of payroll deduction policies effective April 2, 1994
resulted in a $7.9 million increase. On October 3, 1994 Protective acquired
through coinsurance a block of policies from Reliance Standard Life Insurance
Company ("Reliance Standard"), which added $12.5 million of premiums in 1994.
Decreases in older acquired blocks of policies represented a $3.1 million
decrease in premiums and policy fees. Increases in premiums and policy fees from
the Financial Institutions, Group, and Individual Life Divisions represent
increases of $10.7 million, $5.1 million, and $7.6 million, respectively.

Premiums and policy fees decreased $32.9 million or 8.2% in 1995 over 1994.
Premiums and policy fees from the Financial Institutions Division decreased
$74.2 million. This resulted from a reinsurance arrangement begun in the 1995
first quarter whereby all of the Division's new credit insurance sales are being
ceded to a reinsurer. Increases in premiums and policy fees from the Group and
Individual Life Divisions represent increases of $11.4 million and $14.1
million, respectively. Policy fees related to Protective's annuity products
increased $2.9 million in 1995. The 1994 assumptions of two blocks of policies
resulted in a $11.1 million increase in premiums and policy fees in 1995. On
June 15, 1995, Protective coinsured a block of policies which resulted in a $8.3
million increase in premiums and policy fees. Decreases in older acquired blocks
resulted in a $7.2 million decrease in premiums and policy fees.

NET INVESTMENT INCOME

The following table sets forth for the periods shown the amount of net
investment income, the percentage change from the prior period, and the
percentage earned on average cash and investments:

NET INVESTMENT INCOME

PERCENTAGE EARNED
YEAR ENDED PERCENTAGE ON AVERAGE CASH
DECEMBER 31 INCREASE AND INVESTMENTS
- --------------------------------------------- AMOUNT ---------- ------------------
--------------
(IN THOUSANDS)

1993....................................... $ 354,165 28.8 % 8.4%
1994....................................... 408,933 15.5 8.2
1995....................................... 458,433 12.1 7.9

Net investment income for 1994 was $54.8 million or 15.5% higher, and for
1995 was $49.5 million or 12.1% higher, than for the preceding year, primarily
due to increases in the average amount of invested assets. Invested assets have
increased primarily due to receiving annuity and guaranteed investment contract
("GIC") deposits and to acquisitions. (Annuity and GIC deposits are not
considered revenues in accordance

with generally accepted accounting principles.) Wisconsin National and other
recent acquisitions represented $23.9 million of the increase in net investment
income in 1994. The assumption of two blocks of policies in 1994 and one block
of policies in the second quarter of 1995 resulted in an increase in net
investment income of $8.9 million in 1995.

Protective's percentage earned on average cash and investments decreased in
1994 primarily due to ending, on account of rising interest rates, the strategy
of funding investments ahead of receiving deposits, and an increase in the
amount of investments with short durations in order to bring the durations of
assets and liabilities into balance. The percentage earned on average cash and
investments was 8.2% in 1994 and 7.9% in 1995.

REALIZED INVESTMENT GAINS (LOSSES)

Protective generally purchases its investments with the intent to hold to
maturity by purchasing investments that match future cash flow needs. However,
Protective may sell any of its investments to maintain proper matching of assets
and liabilities. Accordingly, Protective has classified its fixed maturities and
certain other investments as "available for sale."

The sales of investments that have occurred generally result from portfolio
management decisions to maintain proper matching of assets and liabilities. The
following table sets forth realized investment gains or losses for the periods
shown:

REALIZED INVESTMENT GAINS (LOSSES)

YEAR ENDED
DECEMBER 31
- --------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)

1993....................................... $ 5,054
1994....................................... 6,298
1995....................................... 1,951

Protective maintains an allowance for uncollectible amounts on investments.
The allowance totaled $32.7 million at December 31, 1995 and $35.2 million at
December 31, 1994. Additions to the allowance are treated as realized investment
losses. In 1994, realized investment gains of $14.9 million were partially
offset by realized investment losses of $8.6 million. Realized investment gains
in 1995 of $21.6 million were largely offset by realized investment losses of
$19.6 million. Realized investment losses were reduced by a $2.5 million
reduction to the allowance for uncollectible amounts on investments.

OTHER INCOME

The following table sets forth other income for the periods shown:

OTHER INCOME

YEAR ENDED DECEMBER 31
- --------------------------------------------- AMOUNT
-------------
(IN
THOUSANDS)

1993....................................... $ 4,756
1994....................................... 11,977
1995....................................... 3,543

Other income consists primarily of fees from administrative-services-only
types of group accident and health insurance contracts, and from rental of space
in Protective's administrative building to PLC. During

1994, Protective recognized approximately $8.2 million in settlement of
litigation in which Protective was a plaintiff relating to an acquisition made
in 1974. Other income from all other sources decreased $1.0 million in 1994 and
$0.2 million in 1995.

INCOME BEFORE INCOME TAX

The following table sets forth income or loss before income tax by business
segment for the periods shown:

INCOME (LOSS) BEFORE INCOME TAX
YEAR ENDED DECEMBER 31
(IN THOUSANDS)

BUSINESS SEGMENT 1993 1994 1995
- ---------------------------------------------------------- ---------- ---------- ----------

Acquisitions.............................................. $ 29,845 $ 39,176 $ 52,136
Financial Institutions.................................... 7,220 8,176 8,212
Group..................................................... 10,435 11,169 10,502
Guaranteed Investment Contracts........................... 27,218 33,197 30,555
Individual Life........................................... 20,324 17,223 17,713
Investment Products....................................... 3,402 107 11,951
Corporate and Other....................................... (14,208) (8,736) (14,257)
Unallocated Realized Investment Gains (Losses)............ 1,876 5,266 921
---------- ---------- ----------
$ 86,112 $ 105,578 $ 117,733
---------- ---------- ----------
---------- ---------- ----------

Earnings from the Acquisitions Division are normally expected to decline
over time (due to the lapsing of policies resulting from deaths of insureds or
terminations of coverage) unless new acquisitions are made. In the ordinary
course of business, the Acquisitions Division regularly considers acquisitions
of smaller insurance companies or blocks of policies. 1994 pretax earnings from
the Division of $39.2 million were $9.3 million higher than 1993. The two
acquisitions completed in 1993 added $9.2 million to the Division's 1994
earnings. The acquisition of a block of policies from Reliance Standard in the
1994 fourth quarter reduced earnings $1.3 million. The remaining increase was
due to improved claims experience in the Division's other blocks of acquired
policies. Pretax earnings from the Division increased $13.0 million in 1995 as
compared to 1994. The two blocks of policies coinsured during 1994 and the block
of policies coinsured during the second quarter of 1995 represent $11.7 million
of the increase.

The Financial Institutions Division's 1994 pretax earnings of $8.2 million
were $1.0 million higher than 1993 primarily due to premium growth and improved
claims ratios. The Division's 1995 pretax earnings were relatively unchanged as
compared to 1994. The Division has entered into a reinsurance arrangement
whereby all of the Division's new credit insurance sales are being ceded to a
reinsurer. In the 1995 second quarter the Division also ceded a block of older
policies. Though the Division's reported earnings were reduced approximately
$2.0 million, these reinsurance transactions are expected to improve the
Division's return on investment.

Group 1994 pretax earnings of $11.2 million were $0.8 million higher than
1993. Higher traditional group life and health earnings were complemented by
higher earnings from the Division's cancer and dental products. The Division's
1994 results include approximately $3.0 million of expenses to establish a
special marketing unit to sell dental plans through mail and telephone
solicitations. The Division's 1995 pretax earnings were $0.7 million lower than
1994. Although total dental earnings were up $2.6 million, lower traditional
group life and health earnings offset the increase.

The Guaranteed Investment Contracts ("GIC") Division had pretax operating
earnings of $34.5 million in 1995 and $30.2 million in 1994. Operating earnings
in 1995 were benefited by lower expenses and a favorable interest rate
environment. This increase was also partially due to the growth in GIC deposits
placed with Protective. At December 31, 1995, GIC deposits totaled $2.5 billion
compared to $2.3 billion one year earlier. Realized investment gains associated
with this Division in 1994 were $3.0 million as compared to realized investment
losses of $3.9 million in 1995. As a result, total pretax earnings were $33.2
million in 1994 and $30.6 million in 1995. The rate of growth in GIC deposits
has decreased as the amount of maturing contracts increased.

The Individual Life Division had 1994 pretax earnings of $17.2 million, $3.1
million lower than 1993. Mortality experience, while still favorable, was
approximately $2.5 million less favorable than 1993. The Division also spent
approximately $3.0 million during 1994 to develop new ventures. The Division had
1995 pretax earnings of $17.7 million, $0.5 million higher than 1994. At
December 31, 1994 Protective reduced the statutory policy liabilities for
certain of its term-like products to be more consistent with current regulation
and industry practice. This reduced investment income allocated to the Division
in 1995 by approximately $2.6 million when compared to 1994. Additionally,
expenses to develop a new variable universal life product were $1.3 million in
1995. These decreases were partially offset by increased earnings from favorable
mortality experience and a growing amount of business in force.

The Investment Products Division reported pretax operating earnings of $0.9
million for 1994. These results are after approximately $2.0 million of
additional amortization of deferred policy acquisition costs related to the
compression of interest spreads caused by rising interest rates on the
Division's fixed annuities, and expenses of approximately $4.5 million related
to the development and introduction of the Division's variable annuity. The
Division's 1995 pretax operating earnings of $8.6 million were $7.7 million
higher than 1994. During 1994 the Division completed the amortization of the
deferred policy acquisition costs related to its book value annuities.
Accordingly, 1995 operating earnings were $7.2 million higher due to lower
amortization. The Division also benefited from a favorable interest rate
environment. Realized investment losses, net of related amortization of deferred
policy acquisition costs, were $0.8 million in 1994 as compared with realized
investment gains, net of amortizaion, of $3.4 million in 1995. As a result,
total pretax earnings were $0.1 million in 1994 and $12.0 million in 1995. Fixed
annuity deposits totaled $996 million and variable annuity deposits totaled $392
million at December 31, 1995. Variable annuity deposits of $322 million are
reported in the accompanying financial statements as "liabilities related to
separate accounts."

The Corporate and Other segment consists of several small insurance lines of
business, net investment income and other operating expenses not identified with
the preceding operating divisions (including interest on substantially all
debt). Pretax losses for this segment were $5.5 million lower in 1994 and $5.5
million higher in 1995 as compared to the previous year. The segment's 1994
results include approximately $8.2 million received in settlement of litigation
relating to an acquisition made in 1974. All other expenses increased $2.5
million in 1994 and decreased $2.7 million in 1995 as compared to the previous
year.

INCOME TAX EXPENSE

The following table sets forth the effective income tax rates for the
periods shown:

INCOME TAX EXPENSE

YEAR ENDED
DECEMBER 31 EFFECTIVE INCOME TAX RATES
- -------------------------------------------------------------------- ---------------------------

1993.............................................................. 33.4%
1994.............................................................. 31.1
1995.............................................................. 34.0

In August 1993, the corporate income tax rate was increased from 34% to 35%
which resulted in a one-time increase to income tax expense of $1.2 million due
to a recalculation of Protective's deferred income tax liability. The effective
income tax rate for 1993, excluding the one-time increase, was 33.4%. The
effective income tax rate for 1994 was 31.1%. The estimated income tax rate for
1995 was increased from 33% to 34% during the 1995 third quarter. Management's
current estimate of the effective income tax rate for 1996 is 34%.

NET INCOME

The following table sets forth net income for the periods shown:

NET INCOME

YEAR ENDED PERCENTAGE
DECEMBER 31 INCREASE
- ------------------------------------------------------------ AMOUNT ----------
-----------------
(IN THOUSANDS)

1993...................................................... $ 56,155 39.6%
1994...................................................... 72,723 29.5
1995...................................................... 77,696 6.8

Net income in 1994 was 29.5% higher than 1993, reflecting improved earnings
in the Acquisitions, Financial Institutions, Group, and GIC Divisions and
Corporate and Other segment, and higher realized investment gains partially
offset by lower earnings in the Individual Life and Investment Products
Divisions. Compared to 1994, net income in 1995 increased 6.8%, reflecting
improved earnings in the Acquisitions, Financial Institutions, Individual Life,
and Investment Products Divisions, and higher investment income partially offset
by lower earnings in the Group and GIC Divisions and the Corporate and Other
segment as well as lower realized investment gains.

KNOWN TRENDS AND UNCERTAINTIES

The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors. Certain known trends and uncertainties
which may affect future reported results of Protective are discussed more fully
below.

COMPETITION. Protective operates in a highly competitive industry. In
connection with the development and sale of its products, Protective encounters
significant competition from other insurance companies, many of which have
financial resources or ratings greater than those of Protective. Certain of
Protective's products compete against other investment alternatives, including
bonds, stocks and mutual funds.

products. Management believes that Protective's ability to compete is dependent
upon, among other things, its ability to attract and retain agents to market its
insurance products, its ability to develop competitive and profitable products,
and its maintenance of a high rating from rating agencies.

Bank products provide competitive alternatives to Protective's GICs and
annuities. Banks may also compete by selling annuity products provided by other
insurance companies. In addition, in the future banks and other financial
institutions may be granted approval to underwrite and sell annuities or other
insurance products that compete directly with Protective. Likewise,
nontraditional sources of healthcare coverages, such as health maintenance
organizations and preferred provider organizations, provide competitive
alternatives to Protective's traditional group health products.

Protective competes against other insurance companies and financial
institutions in the origination of commercial mortgage loans.

RATINGS. Ratings have become an increasingly important factor in
establishing the competitive position of insurance companies. Rating
organizations continue to review the financial performance and condition of
insurers, including Protective. A downgrade in the ratings of Protective could
materially adversely affect its business operations, particularly its ability to
attract annuity and guaranteed investment contract deposits and its ability to
compete for attractive acquisition opportunities.

Rating organizations assign ratings based upon several factors. While most
of the considered factors relate to the rated company, some of the factors
relate to general economic conditions and other factors outside the rated
company's control. Therefore, ratings downgrades may result for reasons other
than a deterioration in a rated company's financial condition or competitive
position.

POLICY CLAIMS FLUCTUATIONS. Protective's results may fluctuate from year to
year on account of fluctuations in policy claims received by Protective during
the year. Due to the long-term nature of the insurance business, there should be
a review of operating results for a period of several years in order to obtain a
more accurate indication of performance.

INTEREST RATE FLUCTUATIONS. Rising interest rates could cause market values
to fall below amortized cost for many of the Protective's fixed maturity
investments. Therefore, realized investment losses might be incurred upon sales
of investments to maintain proper matching of assets and liabilities. Rising
interest rates could cause disintermediation of GIC and annuity deposits and
individual life policy cash values. In addition, the market value of
Protective's fixed maturity investments would generally decrease, and Protective
may be unable to fully enforce the call provisions of its mortgage loans. The
difference between the interest rate earned on investments and the interest rate
credited to interest-sensitive products may also be adversely affected by rising
interest rates.

Falling interest rates could cause some of Protective's corporate bonds that
have call features to be called, which could cause Protective to have to
reinvest the proceeds at lower interest rates.

Protective's mortgage loans are entered into, and mortgage-backed securities
are purchased, based on assumptions regarding rates of prepayments. To the
extent that actual prepayments are earlier or later than anticipated due to
falling or rising interest rates, Protective may not receive cash flows when
expected. Most of Protective's mortgage loans, however, have significant
prepayment penalties.

INVESTMENT RISKS. Protective invests its assets giving consideration to
such factors as liquidity needs, investment quality, investment return, matching
of assets and liabilities, and the composition of the investment portfolio by
asset type and credit exposure. However, Protective's actual investment results
may be adversely affected by interest rate fluctuations, financial market and
general economic conditions, and other external factors.

CONTINUING SUCCESS OF ACQUISITION STRATEGY. Protective has actively pursued
a strategy of acquiring blocks of insurance policies. This acquisition strategy
has increased Protective's earnings in part by allowing Protective to position
itself to realize certain unit cost reductions and operating efficiencies
associated with economies of scale. There can be no assurance, however, that
suitable acquisitions, presenting opportunities for continued growth and
operating efficiencies, will continue to be available to Protective, or that
Protective will realize the anticipated financial results from its acquisitions.

REGULATION AND TAXATION. Protective is subject to government regulation in
each of the states in which it conducts business. Such regulation is vested in
state agencies having broad administrative power dealing with all aspects of the
insurance business, including rates, policy forms, and capital adequacy, and is
concerned primarily with the protection of policyholders rather than
stockholders. Protective cannot predict the form of any future regulatory
initiatives.

The design and administration of Protective's insurance products, the
conduct of Protective's agents, and the content of advertising and other sales
materials are also regulated by these agencies. Recently, some regulatory
agencies have enhanced their enforcement efforts resulting in disciplinary
actions being taken against insurers, including the assessment of fines.

Under insurance guaranty fund laws in most states, insurance companies doing
business in a participating state can be assessed up to prescribed limits for
policyholder losses incurred by insolvent or failed insurance companies.
Although Protective cannot predict the amount of any future assessments,
Protective does not believe that any such assessments will be materially
different from amounts already provided for in the financial statements. Most
insurance guaranty fund laws currently provide that an assessment may be excused
or deferred if it would threaten an insurer's financial strength.

Under the Internal Revenue Code of 1986, as amended (the "Code"), income tax
payable by policyholders on investment earnings is deferred during the
accumulation period of certain life insurance and annuity products. This
favorable tax treatment may give certain of Protective's products a competitive
advantage over other retirement products that do not offer this benefit. To the
extent that the Code is revised to reduce the tax-deferred status of life
insurance and annuity products, or to increase the tax-deferred status of
competing products, Protective's competitive position may be adversely affected.

The President and Congress have from time to time advocated changes to the
current healthcare delivery system which will address both affordability and
availability issues. The ultimate scope and effective date of any healthcare
reform proposals are unknown at this time. It is anticipated that any such
proposals may adversely affect certain products in Protective's group health
insurance business. In addition to the federal initiatives, a number of states
are considering legislative programs that are intended to affect the
accessibility and affordability of health care. Some states have recently
enacted healthcare reform legislation. These various state programs (which could
be preempted by any federal program) may also adversely affect Protective's
group health insurance business. However, in light of the small relative
proportion of Protective's earnings attributable to group health insurance,
management does not expect that either the federal or state proposals will have
a material adverse effect on Protective's earnings.

Protective cannot predict what future initiatives the President or Congress
may propose which may affect Protective.

LITIGATION. A number of civil jury verdicts have been returned against life
and health insurers in the jurisdictions in which Protective does business
involving the insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents, and other matters. Some of the lawsuits have resulted
in the award of substantial judgments against the insurer, including material
amounts of punitive damages. In some states, juries have substantial discretion
in awarding punitive damages in these circumstances. Protective, like other life
and health insurers, from time to time is involved in such litigation. Although
the outcome of any litigation cannot be predicted with certainty, to date no
such lawsuit has resulted in the award of any significant amount of damages
against Protective.

RELIANCE UPON THE PERFORMANCE OF OTHERS. Protective has entered into
various ventures involving other parties. Examples include, but are not limited
to: the Investment Products Division's variable annuity deposits are invested in
funds managed by Goldman Sachs Asset Management and its affiliates; a
significant amount of the Investment Products Division's fixed annuity sales
come from four broker-dealers; and a portion of the sales in the Financial
Institutions and Group Divisions comes from arrangements with unrelated
marketing organizations. Therefore Protective's results may be affected by the
performance of others.

INDEMNITY REINSURANCE. As is customary in the insurance industry,
Protective cedes insurance to other insurance companies. The ceding insurance
company remains contingently liable with respect to ceded insurance should any
reinsurer be unable to meet the obligations assumed by it. Protective sets a
limit on the amount of insurance retained on the life of any one person. For
example, in the individual lines Protective will not retain, generally, more
than $500,000, including accidental death benefits, on any one life. For group
insurance, the maximum amount retained on any one life is generally $100,000. At
December 31, 1995, Protective had insurance in force of $61.9 billion of which
approximately $17.5 billion was ceded to reinsurers.

RECENTLY ISSUED ACCOUNTING STANDARDS

In 1995 Protective adopted Statement of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No.
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures." Under these new standards, a loan is considered impaired if it is
probable that Protective will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Based on Protective's evaluation of its mortgage loan portfolio,
Protective does not expect any material losses on its mortgage loans, and
therefore no allowance for losses is required under SFAS No. 114 at December 31,
1995.

In 1995 PLC adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which changes the way stock-based compensation expense is measured and requires
additional disclosures relating to PLC's stock-based compensation plan. The
adoption of SFAS No. 123 had no material effect on either PLC's or Protective's
financial statements.

In 1995 the Financial Accounting Standards Board issued: SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts;" SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of;" and SFAS No. 122, "Accounting for Mortgage Servicing Rights."
Protective anticipates that the impact of adapting these three accounting
standards will be immaterial to its financial condition.

LIQUIDITY AND CAPITAL RESOURCES

Protective's operations usually produce a positive cash flow. This cash flow
is used to fund an investment portfolio to finance future benefit payments
including those arising from various types of deposit contracts. Since future
benefit payments largely represent long-term obligations reserved using certain
assumed interest rates, Protective's investments are predominantly in medium and
long-term, fixed-rate investments such as bonds and mortgage loans which provide
a sufficient return to cover these obligations.

Many of Protective's products contain surrender charges and other features
which reward persistency and penalize the early withdrawal of funds. With
respect to such products, surrender charges are generally sufficient to cover
Protective's unamortized, deferred policy acquisition costs with respect to the
policy being surrendered. GICs and certain annuity contracts have market value
adjustments which protect Protective against investment losses if interest rates
are higher at the time of surrender as compared to interest rates at the time of
issue.

In accordance with SFAS No. 115, Protective's investments in debt and equity
securities are reported at market value, and investments in mortgage loans are
reported at amortized cost. At December 31, 1995, the fixed maturity investments
(bonds, bank loan participations, and redeemable preferred stocks) had a market
value of $3,891.9 million, which is 2.4% above amortized cost (less allowances
for uncollectible amounts on investments) of $3,798.9 million. Protective had
$1,835.1 million in mortgage loans at December 31, 1995. While Protective's
mortgage loans do not have quoted market values, at December 31, 1995,
Protective estimates the market value of its mortgage loans to be $2,001.1
million (using discounted cash flows from the next call date) which is 9.0% in
excess of amortized book value. These assets are invested for terms
approximately corresponding to anticipated future benefit payments. Thus, market
fluctuations should not adversely affect liquidity. Most of Protective's
mortgage loans have significant prepayment penalties.

For several years Protective has offered a type of commercial 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.
Approximately $361 million of Protective's mortgage loans have this
participation feature.

At December 31, 1995, delinquent mortgage loans and foreclosed properties
were $26.1 million or 0.4% of assets. Bonds rated less than investment grade
were $75.7 million or 1.1% of assets. Additionally, Protective had bank loan
participations that were less than investment grade, representing $206.0 million
or 2.9% of assets. Protective does not expect these investments to adversely
affect its liquidity or ability to hold its other investments to maturity.
Protective's allowance for uncollectible amounts on investments was $32.7
million at December 31, 1995.

Policy loans at December 31, 1995 were $143.4 million, a decrease of $4.2
million from December 31, 1994. Policy loan rates are generally in the 4.5% to
8.0% range. Such rates at least equal the assumed interest rates used for future
policy benefits.

Protective believes its asset/liability matching practices and certain
product features provide significant protection for Protective against the
effects of changes in interest rates. However, approximately one-fourth of
Protective's liabilities relate to products (primarily whole life insurance) the
profitability of which may be affected by changes in interest rates. The effect
of such changes in any one year is not expected to be material. Additionally,
Protective believes its asset/liability matching practices provide sufficient
liquidity to enable it to fulfill its obligation to pay benefits under its
various insurance and deposit contracts.

Protective's asset/liability matching practices involve the monitoring of
asset and liability durations for various product lines; cash flow testing under
various interest rate scenarios; and the continuous rebalancing of assets and
liabilities with respect to yield, risk, and cash flow characteristics. It is
Protective's policy to maintain asset and liability durations within 10% of one
another.

During 1994, interest rates rose approximately three percentage points
causing the duration of Protective's assets to increase somewhat above the
duration of its liabilities. Protective responded to the duration mismatch by
adjusting the composition of its assets to bring the durations of assets and
liabilities into balance. During 1995, interest rates fell approximately 2.5
percentage points. Likewise, Protective adjusted the composition of its assets
to eliminate any significant duration mismatches.

Protective does not use derivative financial instruments for trading
purposes. Combinations of futures contracts and options on treasury notes are
sometimes used as hedges for asset/liability management of certain investments,
primarily mortgage loans on real estate and liabilities arising from
interest-sensitive products such as GICs and annuities. Realized investment
gains and losses of such contracts are deferred and amortized over the life of
the hedged asset. Net realized losses, incurred due to a decline in interest
rates, of $15.2 million were deferred in 1995. At December 31, 1995, open
futures contracts with a notional amount of $25.0 million were in a $0.6 million
net unrealized loss position.

Protective uses interest rate swap contracts to convert certain investments
from a variable rate of interest to a fixed rate of interest. At December 31,
1995, related open interest rate swap contracts with a notional amount of $170.3
million were in a $1.3 million net unrealized gain position.

Protective entered the GIC market in late 1989. Most GIC contracts written
by Protective have maturities of 3 to 5 years. Prior to 1993, few GIC contracts
were maturing because the contracts were newly written. Beginning in 1993, and
continuing into 1994 and 1995, GIC contracts began to mature as contemplated
when the contracts were sold. Withdrawals related to GIC contracts were
approximately $700 million during 1994 and $800 million in 1995. Withdrawals
related to GIC contracts are estimated to be approximately $700 million in 1996.
Protective's asset/liability matching practices take into account maturing
contracts. Accordingly, Protective does not expect maturing contracts to have an
unusual effect on the future operations and liquidity of Protective.

In anticipation of receiving GIC and annuity deposits, Protective was
committed at December 31, 1995 to fund mortgage loans and to purchase fixed
maturity and other long-term investments in the amount of $278.5 million.
Protective held $53.1 million in cash and short-term investments at December 31,
1995.

In order to provide additional liquidity, Protective plans a commercial
mortgage securitization during the 1996 first quarter. Proceeds from the
securitization of approximately $400 million will be reinvested in
publicly-traded investment grade bonds.

While Protective generally anticipates that the cash flows from operations
will be sufficient to meet its investment commitments and operating cash needs,
Protective recognizes that investment commitments scheduled to be funded may
from time to time exceed the funds then available. Therefore, Protective has
arranged sources of credit to fund investments in such circumstances. Protective
expects that the rate received on its investments will equal or exceed its
borrowing rate. Additionally, Protective may from time to time sell
short-duration GICs to complement its cash management practices.

At December 31, 1995, Protective had no borrowings under its credit
arrangements.

As disclosed in the Notes to the Consolidated Financial Statements, $329
million of consolidated stockholder's equity, excluding net unrealized
investment gains and losses, represented net assets of Protective that cannot be
transferred to PLC in the form of dividends, loans, or advances. In addition,
Protective is subject to various state statutory and regulatory restrictions on
its 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 1996 is estimated to be $129 million. Also,
distributions, including cash dividends to PLC from Protective in excess of
approximately $322 million, would be subject to federal income tax at rates then
effective. Protective does not anticipate involuntarily making distributions
that would be subject to tax.

For the foregoing reasons and due to the expected growth of Protective's
insurance sales, Protective will retain substantial portions of its earnings
primarily to support future growth.

A life insurance company's statutory capital is computed according to rules
prescribed by the National Association of Insurance Commissioners (NAIC), as
modified by the insurance company's state of domicile. Statutory accounting
rules are different from generally accepted accounting principles and are
intended to reflect a more conservative view by, for example, requiring
immediate expensing of policy acquisition costs. The achievement of long-term
growth will require growth in the statutory capital of Protective. Protective
may secure additional statutory capital through various sources, such as
internally generated statutory earnings or equity contributions by PLC from
funds generated through debt or equity offerings.

The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to identify inadequately
capitalized insurance companies based upon the types and mixtures of risks
inherent in the insurer's operations. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. Based upon
their December 31, 1995 statutory financial reports, Protective and its
insurance subsidiaries are adequately capitalized under the formula.

Protective is not aware of any litigation that will have a material adverse
effect on the financial position of Protective. Protective does not believe that
the regulatory initiatives currently under consideration by various regulatory
agencies will have a material adverse impact on Protective. Protective is not
aware of any material pending or threatened regulatory action with respect to
Protective. Protective does not believe that any insurance guaranty fund
assessments will be materially different from amounts already provided for in
the financial statements.

As noted above, SFAS No. 115 requires Protective to carry its investment in
fixed maturities and certain other securities at market value instead of
amortized cost. As prescribed by SFAS No. 115, these investments are recorded at
their market values with the resulting unrealized gains and losses, net of
income tax, reported as a component of stockholder's equity reduced by a related
adjustment to deferred policy acquisition costs. The market values of fixed
maturities increase or decrease as interest rates fall or rise. Therefore,
although the adoption of SFAS No. 115 does not affect Protective's operations,
its reported stockholder's equity will fluctuate significantly as interest rates
change.

During 1994 interest rates rose approximately three percentage points. SFAS
No. 115 required Protective to report a $146.8 million decrease in stockholder's
equity at December 31, 1994, as compared to December 31, 1993. During 1995
interest rates fell approximately 2.5 percentage points, which required
Protective to report a $165.4 million increase in stockholder's equity at
December 31, 1995, as compared to December 31, 1994.

IMPACT OF INFLATION

Inflation increases the need for insurance. Many policyholders who once had
adequate insurance programs increase their life insurance coverage to provide
the same relative financial benefits and protection. The effect of inflation on
medical costs leads to accident and health policies with higher benefits. Thus,
inflation has increased the need for life and accident and health products.

The higher interest rates that have traditionally accompanied inflation also
affect Protective's investment operation. Policy loans increase as policy loan
interest rates become relatively more attractive. As interest rates increase,
disintermediation of GIC and annuity deposits and individual life policy cash
values may increase, the market value of Protective's fixed-rate, long-term
investments may decrease, and Protective may be unable to implement fully the
interest rate reset and call provisions of its mortgage loans. The difference
between the interest rate earned on investments and the interest rate credited
to interest-sensitive products may also be adversely affected by rising interest
rates.

Inflation has increased the cost of health care. The adequacy of premium
rates in relation to the level of accident and health claims is constantly
monitored, and where appropriate, premium rates on such policies are increased
as policy benefits increase. Failure to make such increases commensurate with
healthcare cost increases may result in a loss from health insurance.

Protective does not believe the current rate of inflation will significantly
affect is operations.

D. INSURANCE IN FORCE

Protective's total consolidated life insurance in force at December 31, 1995
was $61.9 billion. The following table shows sales by face amount and insurance
in force for Protective's business segments.

YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)

New Business Written
Financial Institutions............. $ 3,563,177 $ 2,524,212 $ 2,776,276 $ 1,149,265 $ 1,057,886
Group.............................. 119,357 184,429 252,345 328,258 390,141
Individual Life.................... 7,564,983 6,329,630 4,440,510 4,877,038 4,244,903
------------- ------------- ------------- ------------- -------------
Total............................ $ 11,247,517 $ 9,038,271 $ 7,469,131 $ 6,354,561 $ 5,692,930
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Business Acquired
Acquisitions....................... $ 6,129,159 $ 4,756,371 $ 4,378,812 $ 1,302,330
Financial Institutions............. 1,432,338
------------- ------------- ------------- ------------- -------------
Total............................ $ 6,129,159 $ 4,756,371 $ 4,378,812 $ 2,734,668 $ 0
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Insurance in Force at End of Year (1)
Acquisitions....................... $ 16,778,359 $ 11,728,569 $ 8,452,114 $ 3,836,066 $ 4,385,948
Financial Institutions............. 6,233,256 4,841,318 4,306,179 3,690,610 2,446,815
Group.............................. 6,371,313 7,464,501 6,716,724 6,315,410 7,088,931
Individual Life.................... 32,500,935 25,843,232 22,975,577 20,634,927 16,655,923
------------- ------------- ------------- ------------- -------------
Total............................ $ 61,883,863 $ 49,877,620 $ 42,450,594 $ 34,477,013 $ 30,577,617
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------

- ------------------------
(1) Reinsurance assumed has been included; reinsurance ceded (1995-$17,524,366;
1994-$8,639,272; 1993-$7,484,566; 1992-$6,982,127; 1991-$5,292,080) has not
been deducted.

The ratio of voluntary terminations of individual life insurance to mean
individual life insurance in force, which is determined by dividing the amount
of insurance terminated due to surrenders and lapses during the year by the mean
of the insurance in force at the beginning and end of the year, adjusted for the
timing of major acquisitions and assumptions was:

RATIO OF
YEAR ENDED VOLUNTARY
DECEMBER 31 TERMINATIONS
- -------------------------------------------------------------------------------- ----------------

1991.......................................................................... 8.9%
1992.......................................................................... 9.0
1993.......................................................................... 8.7
1994.......................................................................... 7.0
1995.......................................................................... 6.9

Net terminations reflect voluntary lapses and cash surrenders, some of which
may be due to the replacement of Protective's products with competitors'
products. Also, a higher percentage of voluntary lapses typically occurs in the
first 15 months of a policy, and accordingly, lapses will tend to increase or
decrease in proportion to the change in new insurance written during the
immediately preceding periods.

The amount of investment products in force is measured by account balances.
The following table shows guaranteed investment contract and annuity account
balances.

GUARANTEED MODIFIED
YEAR ENDED INVESTMENT GUARANTEED FIXED VARIABLE
DECEMBER 31 CONTRACTS ANNUITIES ANNUITIES ANNUITIES
- ------------------------------------------ ------------ ----------- ---------- ----------
(DOLLARS IN THOUSANDS)

1991.................................... $ 1,264,603 $ 115,477 $ 324,662
1992.................................... 1,694,530 299,608 374,451
1993.................................... 2,015,075 468,689 537,053
1994.................................... 2,281,673 661,359 542,766 $ 170,454
1995.................................... 2,451,693 741,849 472,656 392,237

E. UNDERWRITING

The underwriting policies of Protective are established by management. With
respect to individual insurance, Protective uses information from the
application and, in some cases, inspection reports, attending physician
statements, or medical examinations to determine whether a policy should be
issued as applied for, rated, or rejected. Medical examinations of applicants
are required for individual life insurance in excess of certain prescribed
amounts (which vary based on the type of insurance) and for most ordinary
insurance applied for by applicants over age 50. In the case of "simplified
issue" policies, which are issued primarily through the Financial Institutions
Division and the payroll deduction market, coverage is rejected if the responses
to certain health questions contained in the application indicate adverse health
of the applicant. For other than "simplified issue" policies, medical
examinations are requested of any applicant, regardless of age and amount of
requested coverage, if an examination is deemed necessary to underwrite the
risk. Substandard risks may be referred to reinsurers for full or partial
reinsurance of the substandard risk.

Protective requires blood samples to be drawn with ordinary insurance
applications for coverage over $100,000 (ages 16-50) or $150,000 (age 51 and
above). Blood samples are tested for a wide range of chemical values and are
screened for antibodies to the HIV virus. Applications also contain questions
permitted by law regarding the HIV virus which must be answered by the proposed
insureds.

Group insurance underwriting policies are administered by experienced group
underwriters. The underwriting policies are designed for single employer groups.
Initial premium rates are based on prior claim experience and manual premium
rates with relative weights depending on the size of the group and nature of the
benefits.

F. INVESTMENTS

The types of assets in which Protective may invest are influenced by state
laws which prescribe qualified investment assets. Within the parameters of these
laws, Protective invests its assets giving consideration to such factors as
liquidity needs, investment quality, investment return, matching of assets and
liabilities, and the composition of the investment portfolio by asset type and
credit exposure. Because liquidity is important, Protective continually balances
maturity against yield and quality considerations in selecting new investments.

Protective's asset/liability matching practices involve monitoring of asset
and liability durations for various product lines, cash flow testing under
various interest rate scenarios, and rebalancing of assets and liabilities with
respect to yield, risk, and cash-flow characteristics.

The following table shows Protective's investments at December 31, 1995,
valued on the basis of generally accepted accounting principles.

PERCENT OF TOTAL
INVESTMENTS
ASSET VALUE ----------------
----------------------
(DOLLARS IN THOUSANDS)

Fixed maturities:
Bonds:
Mortgage-backed securities.............................. $2,049,775 34.0%
United States Government and government agencies and
authorities............................................ 107,577 1.8
States, municipalities, and political subdivisions...... 11,590 0.2
Public utilities........................................ 327,244 5.4
Convertibles and bonds with warrants attached........... 493 --
All other corporate bonds............................... 1,168,848 19.4
Bank loan participations.................................. 220,811 3.7
Redeemable preferred stocks............................... 5,594 0.1
----------- -----
Total fixed maturities.................................. 3,891,932 64.6
----------- -----
Equity securities:
Common stocks -- industrial, miscellaneous, and all
other.................................................... 28,746 0.5
Nonredeemable preferred stocks............................ 9,965 0.2
----------- -----
Total equity securities................................. 38,711 0.7
----------- -----
Mortgage loans on real estate............................... 1,835,057 30.5
Investment real estate...................................... 20,788 0.3
Policy loans................................................ 143,372 2.4
Other long-term investments................................. 43,875 0.7
Short-term investments...................................... 46,891 0.8
----------- -----
Total investments..................................... $6,020,626 100.0%
----------- -----
----------- -----

A significant portion of Protective's bond portfolio is invested in
mortgage-backed securities. Mortgage-backed securities are constructed from
pools of residential mortgages, and may have cash flow volatility as a result of
changes in the rate at which prepayments of principal occur with respect to the
underlying loans. Prepayments of principal on the underlying residential loans
can be expected to accelerate with decreases in interest rates and diminish with
increases in interest rates.

In management's view, the overall quality of Protective's investment
portfolio continues to be strong. Protective obtains ratings of its fixed
maturities from Moody's Investor Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P"). If a bond is not rated by Moody's or S&P, Protective uses
ratings from the Securities Valuation Office of the National Association of
Insurance Commissioners ("NAIC"), or Protective rates the bond based upon a
comparison of the unrated issue to rated issues of the same issuer or rated
issues of other issuers with similar risk characteristics. At December 31, 1995,
approximately 98% of bonds were rated by Moody's, S&P, or the NAIC.

The following table shows the approximate percentage distribution of
Protective's fixed maturities by rating category, utilizing S&P's rating
categories, at December 31, 1995:

PERCENTAGE OF
FIXED
TYPE MATURITIES
- -------------------------------------------------------------------------------- --------------

Bonds
AAA........................................................................... 56.1%
AA............................................................................ 4.5
A............................................................................. 12.6
BBB........................................................................... 19.0
BB or less.................................................................... 2.0
Bank Loan Participations
Investment Grade.............................................................. 0.4
Non-Investment Grade.......................................................... 5.3
Redeemable Preferred Stock...................................................... 0.1
-----
Total........................................................................... 100.0%
-----
-----

At December 31, 1995, approximately $3,589.9 million of Protective's
$3,665.6 million bond portfolio was invested in U.S. Government-backed
securities or investment grade corporate bonds and only approximately $75.7
million of its bond portfolio was rated less than investment grade.
Approximately $292.6 million of bonds are not publicly traded.

Risks associated with investments in less than investment grade debt
obligations may be significantly higher than risks associated with investments
in debt securities rated investment grade. Risk of loss upon default by the
borrower is significantly greater with respect to such debt obligations than
with other debt securities because these obligations may be unsecured or
subordinated to other creditors. Additionally, there is often a thinly traded
market for such securities and current market quotations are frequently not
available for some of these securities. Issuers of less than investment grade
debt obligations usually have higher levels of indebtedness and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than investment-grade issuers.

Protective also invests in bank loan participations. Generally, such
investments constitute the most senior debt incurred by the borrower in highly
leveraged transactions. They are generally unrated by the credit rating
agencies. Of the $220.8 million of bank loan participations owned by Protective
at December 31, 1995, $206.0 million were classified by Protective as less than
investment grade.

Protective also invests a significant portion of its portfolio in mortgage
loans. Results for these investments have been excellent due to careful
management and a focus on a specialized segment of the market. Protective
generally does not lend on speculative properties and has specialized in making
loans on either credit-oriented commercial properties, or credit-anchored strip
shopping centers.

The following table shows a breakdown of Protective's mortgage loan
portfolio by property type:

PERCENTAGE OF
MORTGAGE LOANS
PROPERTY TYPE ON REAL ESTATE
- ----------------------------------------------------------------------------- -----------------

Retail....................................................................... 80.6%
Warehouses................................................................... 7.3
Office Building.............................................................. 6.2
Apartments................................................................... 4.0
Mixed-use.................................................................... 1.1
Other........................................................................ 0.8
-----
Total........................................................................ 100.0%
-----
-----

Credit-anchored strip shopping center loans are generally on strip shopping
centers located in smaller towns and anchored by one or more strong regional or
national retail stores. The anchor tenants enter into long-term leases with
Protective's borrowers. These centers provide the basic necessities of life,
such as food, pharmaceuticals, and clothing, and have been relatively
insensitive to changes in economic conditions. The following are some of the
largest anchor tenants (measured by Protective's exposure) in the strip shopping
centers at December 31, 1995:

PERCENTAGE OF
MORTGAGE LOANS
ANCHOR TENANTS ON REAL ESTATE
- ----------------------------------------------------------------------------- ---------------------

K-Mart....................................................................... 4%
Food Lion.................................................................... 4
Winn Dixie................................................................... 4
Wal-Mart..................................................................... 3
Bi-Lo........................................................................ 3
Revco........................................................................ 2

Protective's mortgage lending criteria generally require that the
loan-to-value ratio on each mortgage be at or under 75% at the time of
origination, although in certain circumstances Protective will lend on the basis
of an 85% loan-to-value ratio. Projected rental payments from credit anchors
(i.e., excluding rental payments from smaller local tenants) generally exceed
70% of the property's projected operating expenses and debt service.

For several years Protective has offered a commercial loan product 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.
Approximately $361.2 million of Protective's mortgage loans have this
participation feature.

The average size mortgage loan in Protective's portfolio is approximately
$1.6 million. The largest single loan amount is $13.1 million.

Many of Protective's mortgage loans have call or interest rate reset
provisions after five to seven years. However, if interest rates were to
significantly increase, Protective may be unable to increase the interest rates
on its existing mortgage loans commensurate with the significantly increased
market rates, or call the loans.

In order to provide additional liquidity, Protective plans a commercial
mortgage securitization during the first quarter of 1996. Proceeds from the
securitization will be reinvested in publicly-traded investment grade bonds.

At December 31, 1995, $26.1 million or 1.4% of the mortgage loan portfolio
was nonperforming. It is Protective's policy to cease accrued interest on loans
that are over 90 days delinquent. For loans less than 90 days delinquent,
interest is accrued unless it is determined that the accrued interest is not
collectible. If a loan becomes over 90 days delinquent, it is Protective's
general policy to initiate foreclosure proceedings unless a workout arrangement
to bring the loan current is in place.

As a general rule, Protective does not invest directly in real estate. The
investment real estate held by Protective consists largely of properties
obtained through foreclosures or the acquisition of other insurance companies.
In Protective's experience, the appraised value of foreclosed properties often
equals or exceeds the mortgage loan balance on the property plus costs of
foreclosure. Also, foreclosed properties often generate a positive cash flow
enabling Protective to hold and manage the property until the property can be
profitably sold.

Protective has established an allowance for uncollectible amounts on
investments. This allowance was $32.7 million at December 31, 1995.

Combinations of futures contracts and options on treasury notes are
sometimes used as hedges for asset/liability management of certain investments,
primarily mortgage loans on real estate, and liabilities arising from interest
sensitive products such as GICs and annuities. Realized investment gains and
losses on such contracts are deferred and amortized over the life of the hedged
asset. Protective also uses interest rate swap contracts to convert certain
investments from a variable rate of interest to a fixed rate of interest.

For further discussion regarding Protective's investments and the maturity
of and the concentration of risk among Protective's invested assets, see Note C
to the Consolidated Financial Statements.

The following table shows the investment results of Protective for the years
1991 through 1995:

PERCENTAGE
CASH, ACCRUED EARNED ON
INVESTMENT INCOME, NET AVERAGE OF REALIZED
YEAR ENDED AND INVESTMENTS AT INVESTMENT CASH AND INVESTMENT
DECEMBER 31 DECEMBER 31 INCOME INVESTMENTS GAINS (LOSSES)
- ---------------------------------------------------- ------------------ ----------- --------------- --------------
(DOLLARS IN THOUSANDS)

1991.............................................. $ 2,829,353 $ 222,619 8.7% $ 6,298
1992.............................................. 3,650,024 274,991 8.6 (154)
1993.............................................. 4,841,209 354,165 8.4 5,054
1994.............................................. 5,355,988 408,933 8.2 6,298
1995.............................................. 6,087,828 458,433 7.9 1,951

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" included herein for certain
information relating to Protective's investments and liquidity.

G. INDEMNITY REINSURANCE

As is customary in the insurance industry, Protective cedes insurance to
other insurance companies. The ceding insurance company remains contingently
liable with respect to ceded insurance should any reinsurer be unable to meet
the obligations assumed by it. Protective sets a limit on the amount of
insurance retained on the life of any one person. For example, in the individual
lines Protective will not retain, generally, more

than $500,000, including accidental death benefits, on any one life. For group
insurance, the maximum amount retained on any one life is generally $100,000. At
December 31, 1995, Protective had insurance in force of $61.9 billion of which
approximately $17.5 billion was ceded to reinsurers.

H. RESERVES

The applicable insurance laws under which Protective operates requires that
each insurance company report policy reserves as liabilities to meet future
obligations on the outstanding policies. These reserves are the amounts which,
with the additional premiums to be received and interest thereon compounded
annually at certain assumed rates, are calculated in accordance with applicable
law to be sufficient to meet the various policy and contract obligations as they
mature. These laws specify that the reserves shall not be less than reserves
calculated using certain named mortality tables and interest rates.

The reserves carried in Protective's financial reports (presented on the
basis of generally accepted accounting principles) differ from those specified
by the laws of the various states and carried in Protective and its insurance
subsidiaries' statutory financial statements (presented on the basis of
statutory accounting principles mandated by state insurance regulation). For
policy reserves other than those for universal life policies, annuity contracts,
and GICs, these differences arise from the use of mortality and morbidity tables
and interest rate assumptions which are deemed under generally accepted
accounting principles to be more appropriate for financial reporting purposes
than those required for statutory accounting purposes; from the introduction of
lapse assumptions into the reserve calculation; and from the use of the net
level premium reserve method on all business. Policy reserves for universal life
policies, annuity contracts, and GICs are carried in Protective's financial
reports at the account value of the policy or contract.

I. FEDERAL INCOME TAX CONSEQUENCES

Under pre-1984 tax law, certain income of Protective was not taxed
currently, but was accumulated in the "Policyholders' Surplus Account" to be
taxed only when such income was distributed to the stockholders or when certain
limits on accumulated amounts were exceeded. Consistent with current tax law,
amounts accumulated in the Policyholders' Surplus Account have been carried
forward, although no accumulated income may be added to these accounts. As of
December 31, 1995, the combined Policyholders' Surplus Accounts for Protective
and its life insurance subsidiaries and the estimated tax which would become
payable on these amounts if distributed to stockholders were $50.7 million and
$17.7 million, respectively. Protective does not anticipate exceeding applicable
limits on amounts accumulated in these accounts and, therefore, does not expect
to involuntarily pay tax on the amounts held therein.

J. COMPETITION

Protective operates in a highly competitive industry. In connection with the
development and sale of its products, Protective encounters significant
competition from other insurance companies, many of which have financial
resources or ratings greater than those of Protective. Certain of Protective's
products compete against other investment alternatives, including bonds, stocks
and mutual funds.

The insurance industry is a mature industry. In recent years, the industry
has experienced virtually no growth in life insurance sales, though the aging
population has increased the demand for retirement savings products. Management
believes that Protective's ability to compete is dependent upon, among other
things, its ability to attract and retain agents to market its insurance
products, its ability to develop competitive and profitable products, and its
maintenance of a high rating from rating agencies.

products that compete directly with Protective. Likewise, nontraditional sources
of health care coverages, such as health maintenance organizations and preferred
provider organizations, are developing rapidly in Protective's operating
territory and provide competitive alternatives to Protective's group health
products.

K. REGULATION

Protective is subject to government regulation in each of the states in
which it conducts business. Such regulation is vested in state agencies having
broad administrative power dealing with all aspects of the insurance business,
including premium rates, policy forms and capital adequacy, and is concerned
primarily with the protection of policyholders rather than stockholders.
Protective's management does not believe that the regulatory initiatives
currently under consideration would have a material adverse impact on
Protective; however, Protective cannot predict the form of any future proposals
or regulation.

A life insurance company's statutory capital is computed according to rules
prescribed by the NAIC as modified by the insurance company's state of domicile.
Statutory accounting rules are different from generally accepted accounting
principles and are intended to reflect a more conservative view. The NAIC's
risk-based capital requirements require insurance companies to calculate and
report information under a risk-based capital formula. These risk-based capital
requirements are intended to allow insurance regulators to identify inadequately
capitalized insurance companies based upon the types and mixtures of risks
inherent in the insurer's operations. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. Based upon the
December 31, 1995 statutory financial reports, management believes that
Protective and its insurance subsidiaries are adequately capitalized under the
formula.

Protective is required to file detailed annual reports with the supervisory
agencies in each of the jurisdictions in which it does business and its business
and accounts is subject to examination by such agencies at any time. Under the
rules of the NAIC, insurance companies are examined periodically (generally
every three to five years) by one or more of the supervisory agencies on behalf
of the states in which they do business. To date, no such insurance department
examinations have produced any significant adverse findings regarding Protective
or any of its insurance subsidiaries.

Under insurance guaranty fund laws in most states, insurance companies doing
business in a participating state can be assessed up to prescribed limits for
policyholder losses incurred by insolvent or failed insurance companies.
Protective was assessed immaterial amounts in 1995, which will be partially
offset by credits against future state premium taxes. Although Protective cannot
predict the amount of any future assessments; most insurance guaranty fund laws
currently provide that an assessment may be excused or deferred if it would
threaten an insurer's financial strength.

In addition, many states, including the state in which Protective is
domiciled, have enacted legislation or adopted regulations regarding insurance
holding company systems. These laws require registration of and periodic
reporting by insurance companies domiciled within the jurisdiction which control
or are controlled by other corporations or persons so as to constitute an
insurance holding company system. These laws also affect the acquisition of
control of insurance companies as well as transactions between insurance
companies and companies controlling them. Most states, including Tennessee,
where Protective is domiciled, require administrative approval of the
acquisition of control of an insurance company domiciled in the state or the
acquisition of control of an insurance holding company whose insurance
subsidiary is incorporated in the

state. In Tennessee, the acquisition of 10% of the voting securities of a person
is generally deemed to be the acquisition of control for the purpose of the
insurance holding company statute and requires not only the filing of detailed
information concerning the acquiring parties and the plan of acquisition, but
also administrative approval prior to the acquisition.

Protective is subject to various state statutory and regulatory restrictions
on its 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 1996 is estimated to be $129 million. No
assurance can be given that more stringent restrictions will not be adopted from
time to time by states in which Protective and its subsidiaries are domiciled,
which restrictions could have the effect, under certain circumstances, of
significantly reducing dividends or other amounts payable to PLC by Protective
without affirmative prior approval by state regulatory authorities.

Protective acts as a fiduciary and is subject to regulation by the
Department of Labor ("DOL") when providing a variety of products and services to
employee benefit plans governed by the Employee Retirement Income Security Act
of 1974 ("ERISA"). Severe penalties are imposed by ERISA on fiduciaries which
violate ERISA's prohibited transaction provisions by breaching their duties to
ERISA covered plans. In a case decided by the United States Supreme Court in
December, 1993 (JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY V. HARRIS TRUST AND
SAVINGS BANK) the Court concluded that an insurance company general account
contract that had been issued to a pension plan should be divided into its
guaranteed and nonguaranteed components and that certain ERISA fiduciary
obligations applied with respect to the assets underlying the nonguaranteed
components. Although Protective has not issued contracts identical to the one
involved in HARRIS TRUST, some of its policies relating to ERISA-covered plans
may be deemed to have nonguaranteed components subject to the principles
announced by the Court.

The full extent to which HARRIS TRUST makes the fiduciary standards and
prohibited transaction provisions of ERISA applicable to all or part of
insurance company general account assets, however, cannot be determined at this
time. The Supreme Court's opinion did not resolve whether the assets at issue in
the case may be subject to ERISA for some purposes and not others. The life
insurance industry is currently discussing with the DOL the possibility of
exemptions from the prohibited transaction provisions of ERISA in view of HARRIS
TRUST. In August of 1994, the DOL published a notice of a proposed class
exemption which, if adopted in final form, would exempt from the prohibited
transaction rules, prospectively and retroactively to January 1, 1995, certain
transactions engaged in by insurance company general accounts in which employee
benefit plans have an interest. The proposed exemption would not cover all such
transactions, and the insurance industry is seeking further relief. Until these
and other matters are clarified, Protective is unable to determine whether the
decision will result in any liability and, if so, its nature and scope.

Existing federal laws and regulations affect the taxation of Protective's
products. Congress has from time to time considered proposals that, if enacted,
would have had an adverse impact on the federal income tax treatment of certain
individual annuity and life insurance policies offered by Protective. If these
proposals were to be adopted, they would adversely affect the ability of
Protective to sell such products and could result in the surrender of existing
contracts and policies. Although it cannot be predicted whether future
legislation will contain provisions that alter the treatment of these products,
such provisions are not part of any tax legislation currently under active
consideration in Congress.

The Federal Government has from time to time advocated changes to the
current health care delivery system which will address both affordability and
availability issues. The ultimate scope and effective date of any health care
reform proposals are unknown at this time and are likely to be modified as they
are considered for enactment by Congress. It is anticipated that these proposals
may adversely affect certain products in Protective's group health insurance
business. In addition to the federal initiatives, a number of states are
considering legislative programs that are intended to affect the accessibility
and affordability of health care. Some states have recently enacted health care
reform legislation. These various state programs (which could be preempted by
any federal program) may also adversely affect Protective's group health
insurance business. However, in light of the small relative proportion of
Protective's earnings attributable to group health insurance, management does
not expect that either the federal or state proposals will have a material
adverse effect on Protective's earnings.

The Federal Government has advocated the repeal the Glass-Steagall Act,
which would allow banks to diversify into securities and other businesses
including insurance. The ultimate scope and effective date of any proposals are
unknown at this time and are likely to be modified as they are considered for
enactment by Congress. It is anticipated that these proposals may increase
competition and, therefore, may adversely affect Protective.

Additional issues related to regulation of Protective are discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" included herein.

L. EMPLOYEES

Protective had 892 full-time employees, including 763 in the Home Office in
Birmingham, Alabama at December 31, 1995. These employees are covered by
contributory major medical insurance, group life, and long-term disability
insurance plans. The cost of these benefits in 1995 amounted to approximately
$2.2 million for Protective. In addition, substantially all of the employees are
covered by a pension plan. Protective also matches employee contributions to its
401(k) Plan. See Note L to Consolidated Financial Statements.

M. PROPERTIES

Protective's administrative office building is located at 2801 Highway 280
South, Birmingham, Alabama. This building includes the original 142,000
square-foot building which was completed in 1976 and a second contiguous 220,000
square-foot building which was completed in 1985. In addition, parking is
provided for approximately 1,000 vehicles.

Protective leases administrative space in 4 cities, substantially all under
leases for periods of three to five years. The aggregate monthly rent is
approximately $61 thousand.

Marketing offices are leased in 10 cities, substantially all under leases
for periods of three to five years with only two leases running longer than five
years. The aggregate monthly rent is approximately $23 thousand.

DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors of Protective are as follows:

Drayton Nabers, Jr. 55 President and a Director
R. Stephen Briggs 46 Executive Vice President and a Director
John D. Johns 43 Executive Vice President and Chief Financial Officer
and a Director
Ormond L. Bentley 60 Senior Vice President, Group and a Director
Deborah J. Long 42 Senior Vice President and General Counsel and a
Director
Jim E. Massengale 53 Senior Vice President and a Director
Steven A. Schultz 42 Senior Vice President, Financial Institutions and a
Director
Wayne E. Stuenkel 42 Senior Vice President and Chief Actuary and a
Director
A. S. Williams III 59 Senior Vice President, Investments and Treasurer and
a Director
Judy Wilson 37 Senior Vice President, Guaranteed Investment
Contracts
Carolyn King 46 Senior Vice President, Investment Products
Jerry W. DeFoor 43 Vice President and Controller, and Chief Accounting
Officer

All executive officers and directors are elected annually. Executive
officers serve at the pleasure of the Board of Directors and directors are
elected by PLC at the annual meeting of shareholders of Protective. None of the
individuals listed above is related to any director of PLC or Protective or to
any executive officer.

Mr. Nabers has been Chairman of the Board, President and Chief Executive
Officer and a Director of PLC since May 1994. From May 1992 to May 1994, he has
been President and Chief Executive Officer and a Director of PLC. Mr. Nabers had
been President of Protective and PLC since August 1982, and had been Senior Vice
President of each from September 1981 to August 1982. From February 1980 to
September 1981, he served as Senior Vice President, Operations of Protective.
From 1979 to February 1980, he was Senior Vice President, Operations and General
Counsel of Protective. He is a director of Energen Corporation, and National
Bank of Commerce of Birmingham, and Alabama National Bancorporation.

Mr. Briggs has been Executive Vice President of PLC and Protective since
October 1993. From January 1993 to October 1993 he was Senior Vice President,
Life Insurance and Investment Products of Protective and PLC. Mr. Briggs had
been Senior Vice President, Ordinary Marketing of PLC since August 1988 and of
Protective since April 1986. From July 1983 to April 1986, he was President of
First Protective Insurance Group, Inc.

Mr. Johns has been Executive Vice President and Chief Financial Officer of
PLC and Protective since October 1993. From August 1988 to October 1993, he
served as Vice President and General Counsel of Sonat, Inc. He is a director of
National Bank of Commerce of Birmingham, Alabama National Bancorporation, and
Parisian Services, Inc.

Mr. Bentley has been Senior Vice President, Group of Protective since
December 1978. He has also served as Senior Vice President, Group of PLC since
August 1988. Mr. Bentley has been employed by Protective since October 1965.

Ms. King has been Senior Vice President, Investment Products Division of PLC
and of Protective since April 1995. From August 1994 to March 1995, she served
as Senior Vice President and Chief Investment

Officer of Provident Life and Accident Insurance Company of America. She served
as President of Provident National Assurance Company from November 1987 to March
1995. From November 1986 to August 1994, she served as Vice President of
Provident Life and Accident Insurance Company and of its parent company,
Provident Life and Accident Insurance Company of America. Since 1975, Ms. King
served in a number of capacities with Provident National Assurance Company.

Ms. Long has been Senior Vice President and General Counsel of PLC and
Protective since February 1994. From August 1993 to January 1994, Ms. Long
served as General Counsel of PLC and from February 1984 to January 1994 she
practiced law with the law firm of Maynard, Cooper & Gale, P.C.

Mr. Massengale has been Senior Vice President of Protective and PLC since
May 1992. From May 1989 to May 1992 Mr. Massengale was Senior Vice President,
Operations and Systems of Protective and PLC. From January 1983 to May 1989, he
was Senior Vice President, Corporate Systems of Protective and PLC.

Mr. Schultz has been Senior Vice President, Financial Institutions of
Protective and PLC since March 1993. Mr. Schultz served as Vice President,
Financial Institutions of Protective from February 1989 to March 1993 and of PLC
from February 1993 to March 1993. From June 1977 through January 1989, he was
employed by and served in a number of capacities with The Minnesota Mutual Life
Insurance Company, finally serving as Director, Group Sales.

Mr. Stuenkel has been Senior Vice President and Chief Actuary of Protective
and PLC since March 1987. From June 1986 to March 1987. From January 1982 to
June 1986, he served as Vice President and Ordinary Actuary of Protective. Mr.
Stuenkel is a Fellow in the Society of Actuaries and has been employed by
Protective since September 1978.

Mr. Williams has been Senior Vice President, Investments and Treasurer of
PLC since July 1981. Mr. Williams also serves as Senior Vice President,
Investments and Treasurer of Protective. Mr. Williams has been employed by
Protective since November 1964.

Ms. Wilson has been Senior Vice President, Guaranteed Investment Contracts
since January 1995. From July 1991 to December 31, 1994, she served as Vice
President, Guaranteed Investment Contracts. From October 1989 to July 1991, Ms.
Wilson was employed by an affiliated insurer.

Mr. DeFoor has been Vice President and Controller, and Chief Accounting
Officer of Protective and PLC since April 1989. Mr. DeFoor is a certified public
accountant and has been employed by Protective since August 1982.

EXECUTIVE COMPENSATION

Executive officers of Protective also serve as executive officers and/or
directors of one or more affiliate companies of PLC. Compensation allocations
are made as to each individual's time devoted to duties as an executive officer
of Protective and its affiliates. The following table shows the total
compensation paid to the named executive officers of Protective by Protective or
any of its affiliates including PLC. Of the amounts of total compensation shown
in the Summary Compensation Table and other executive compensation information
below, approximately 100% of Mr. Nabers', Mr. Williams', Mr. Bentley's, and Mr.
Briggs' total compensation, and 50% of Mr. Johns' total compensation is
attributable to services performed for or on behalf of Protective. Directors of
Protective who are also employees receive no compensation in addition to their
compensation as employees of Protective.

PLC has established a Deferred Compensation Plan for Officers of PLC (the
"Officers' Plan") whereby eligible officers may voluntarily elect to defer to a
specified date receipt of all or any portion of their Annual

Incentive Plan and Performance Share Plan bonuses. The bonuses so deferred are
credited to the officers in cash or PLC stock equivalents or a combination
thereof. The cash portion earns interest at approximately PLC's short-term
borrowing rate. The stock equivalent portion is credited with dividends in the
form of additional stock equivalents. Deferred bonuses will be distributed in
stock or cash as specified by the officers in accordance with the Officers' Plan
unless distribution is accelerated under certain provisions, including upon a
change in control of PLC.

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ----------------

OTHER LONG-TERM ALL
ANNUAL INCENTIVE PLAN OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1)(2) BONUS(1)(2)(3) COMPENSATION PAYOUTS(1)(3)(4) COMPENSATION(5)
(A) (B) (C) (D) (E) (H) (I)
------------------------------------------------------------------------------------------------------------------

DRAYTON NABERS, JR. 1995 $499,163 $459,000 $3,970 $738,439(6) $4,500
Chairman of the Board, President 1994 438,550 400,500 1,188 605,979 4,500
and Chief Executive Officer 1993 398,583 365,700 2,238 520,122 6,746
------------------------------------------------------------------------------------------------------------------

JOHN D. JOHNS 1995 282,500 190,000 -0- 141,328(6) 4,500
Executive Vice President and Chief 1994 268,333 189,000 -0- 84,457 4,500
Financial Officer since October 1993 1993 60,001 75,020 -0- -0- -0-
------------------------------------------------------------------------------------------------------------------

R. STEPHEN BRIGGS 1995 282,500 190,000 1,056 279,123(6) 4,500
Executive Vice President 1994 268,333 153,900 3,168 236,479 4,500
1993 222,392 149,100 4,218 204,345 6,746
------------------------------------------------------------------------------------------------------------------

A. S. WILLIAMS III 1995 263,333 159,000 2,970 317,988(6) 4,500
Senior Vice President, Investments 1994 252,500 153,000 2,970 255,482 4,500
and Treasurer 1993 227,008 137,800 4,020 217,077 6,746
------------------------------------------------------------------------------------------------------------------

JIM E. MASSENGALE 1995 203,333 123,000 753 268,523(6) 4,500
Senior Vice President 1994 193,550 117,000 728 235,020 4,500
1993 184,417 97,800 1,249 158,966 5,991
------------------------------------------------------------------------------------------------------------------

- ------------------------
Footnotes:
(1) Includes amounts that the named executive officer may have voluntarily
elected to contribute to PLC's 401(k) and Stock Ownership Plan.

(2) Includes amounts that the named executive officer may have voluntarily
deferred under PLC's Deferred Compensation Plan for Officers.

(3) For further information, see the "Long-Term Incentive Plan -- Awards In Last
Fiscal Year" table.

(4) Matching contributions to PLC's 401(k) and Stock Ownership Plan.

(5) 1995 long-term compensation is not yet determinable. The amount shown is the
best estimate available as of the date hereof.

The above table sets forth certain information for the year ended December
31, 1995 relating to the Chief Executive Officer and the four most highly
compensated executive officers of PLC.

PERFORMANCE SHARE PLAN
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR

ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS (IN SHARES)
------------------------------------------

NUMBER OF PERFORMANCE OR
SHARES, OTHER PERIOD
UNITS OR UNTIL
OTHER RIGHTS MATURATION OR
NAME (#) PAYOUT THRESHOLD TARGET MAXIMUM
(A) (B) (C) (D) (E) (F)
------------------------------------------------------------------------------------------------------------------

14,280
Drayton Nabers, Jr. shares December 31, 1998 7,140 14,280 24,276
- ------------------------------------------------------------------------------------------------------------------
John D. Johns 5,640 shares December 31, 1998 2,820 5,640 9,588
- ------------------------------------------------------------------------------------------------------------------
R. Stephen Briggs 5,640 shares December 31, 1998 2,820 5,640 9,588
- ------------------------------------------------------------------------------------------------------------------
A. S. Williams III 4,400 shares December 31, 1998 2,200 4,400 7,480
- ------------------------------------------------------------------------------------------------------------------
Jim E. Massengale 3,360 shares December 31, 1998 1,680 3,360 5,712
- ------------------------------------------------------------------------------------------------------------------

In 1995, the Compensation and Management Succession Committee of PLC's Board
of Directors awarded performance shares, as indicated, to the above named
executives, which are not payable, if at all, until the results of the
comparison group of companies for the four-year period ending December 31, 1998
are known.

With respect to 1995 awards, awarded to the named executive officers, 125%
of the award is earned if PLC's average return on average equity for the
four-year period ranks at the top 25% of the comparison group. If PLC ranks at
the top 10% of the comparison group, 170% of the award is earned. If PLC ranks
at the median of the comparison group, 50% of the award is earned and if PLC's
results are below the median of the comparison group, no portion of the award is
earned. The Performance Share Plan provides for interpolation between thresholds
to determine the exact percentage to be paid.

PENSION PLAN
PENSION PLAN TABLE

REMUNERATION YEARS OF SERVICE
- ---------- --------------------------------------------------------------------

15 20 25 30 35

$ 125,000 $27,932 $37,242 $46,553 $56,864 $65,174
150,000 33,932 45,242 56,553 67,864 79,174
175,000* 39,932 53,242 66,553 79,864 93,174
200,000* 45,932 61,242 76,553 91,864 107,174
225,000* 51,932 69,242 86,553 103,864 121,174*
250,000* 57,932 77,242 96,553 115,864 135,174*
275,000* 63,932 85,242 106,553 127,864* 149,174*
300,000* 69,932 93,242 116,553 139,864* 163,174*
400,000* 93,932 125,242* 156,553* 187,864* 219,174*
500,000* 117,932 157,242* 196,553* 235,864* 275,174*
600,000* 141,932* 189,242* 236,553* 283,864* 331,174*
700,000* 165,932* 221,242* 276,553* 331,864* 387,174*
800,000* 189,932* 253,242* 316,553* 379,864* 443,174*
900,000* 213,932* 285,242* 356,553* 427,864* 499,174*
1,000,000* 237,932* 317,242* 396,553* 475,864* 555,174*

- ------------------------
*Current pension law limits the maximum annual benefit payable at normal
retirement age under a defined benefit plan to $120,000 for 1996 and is subject
to increase in later years. In addition, in 1996, such a plan may not take into
account annual compensation in excess of $150,000, which amount is similarly
subject to increase in later years. PLC's Excess Benefit Plan ("Excess Benefit
Plan"), adopted effective September 1, 1984, and amended and restated as of
January 1, 1989, provides for payment, outside of the PLC Pension Plan
("Pension Plan"), of the difference between (1) the fully accrued benefits
which would be due under the Pension Plan absent both of the aforesaid
limitations and (2) the amount actually payable under the Pension Plan as so
limited.

The above table illustrates estimated gross annual benefits which would be
payable for life in a straight life annuity commencing at normal retirement age
under the Pension Plan and the Excess Benefit Plan for employees with average
compensation (remuneration under the table above) and years of service. Benefits
in the above table are not reduced by social security or other offset amounts.

Compensation covered by the Pension Plan (for purposes of pension benefits)
excludes commissions and performance share awards and generally corresponds to
that shown under the heading "Annual Compensation" in the Summary Compensation
Table. Compensation is calculated based on the average of the highest level of
compensation paid during a period of 36 consecutive whole months. Only three
Annual Incentive Plan bonuses (whether paid or deferred under a Deferred
Compensation Plan maintained by PLC) may be included in obtaining the average
compensation.

The named executives and their estimated length of service as of December
31, 1995 are provided in the following table.

------------------------------------------------

NAME YEARS OF SERVICE
- ----------------------- -----------------------------

Drayton Nabers, Jr. 17
John D. Johns 2
R. Stephen Briggs 24
A. S. Williams III 31
Jim E. Massengale 12
- ------------------------------------------------

SEVERANCE COMPENSATION AGREEMENTS

PLC has entered into Severance Compensation Agreements with all executive
officers and several other officers. These agreements provide for certain
payments upon termination of employment or reduction in duties or compensation
following certain events constituting a "change in control". The agreements may
be terminated or modified by the Board of Directors at any time prior to a
change in control. The benefits granted upon termination of employment are (i)
continuation (for up to twenty-four months) in PLC's hospital, medical,
accident, disability, and life insurance plans as provided to the executive
immediately prior to the date of his termination of employment and (ii) a plan
distribution. The distribution shall consist of (1) the payment in full of all
pending performance share awards as if fully earned, using the higher of the
market price or price of PLC's Common Stock in the transaction effecting the
change in control, and (2) delivery of an annuity to equal increased benefits
under the Pension Plan and the Excess Benefit Plan resulting from an additional
three years of credited service (subject to the Pension Plan's maximum on
crediting service).

The maximum benefits are limited to two times the sum of the executive's
most recent annualized base salary plus the last earned bonus under PLC's Annual
Incentive Plan (not to exceed certain tax law limitations). The Severance
Compensation Agreements also provide that if the Performance Share Plan has
terminated before the time of payment of benefits, the amount of benefits under
the Severance Compensation Agreements would be reduced by any payment to the
executive due to the termination of the Performance Share Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation and Management Succession Committee of PLC
("Committee") are Messrs. McMahon (Chairman), Woods, Dahlberg, Kuehn, and
Sklenar. Messrs. McMahon, Woods, Dahlberg, Kuehn, and Sklenar are executive
officers of McWane, Inc., AmSouth Bancorporation, The Southern Company, Sonat
Inc., and Vulcan Materials Company, respectively.

No member of the Committee was an officer or employee of PLC or any of its
subsidiaries at any time during 1995. Also, no member of the Committee was
formerly an officer of PLC or any of its subsidiaries.

During 1995, McWane, Inc. and National Bank of Commerce of Birmingham, with
which Committee member Mr. McMahon was affiliated, paid Protective or its
affiliates premiums, fees, or investment product deposits for various types of
insurance in the amounts of $264,747 and $89,825, respectively. Likewise, Sonat
Inc., with which Committee member Mr. Kuehn was affiliated, and Vulcan Materials
Company, with which Committee member Mr. Sklenar was affiliated, paid Protective
premiums, fees, or investment product deposits for various types of insurance in
the amounts of $360,000 and $4,396,374, respectively.

Mr. Rushton, PLC's Chairman Emeritus (formerly, its Chairman of the Board),
served as a director of AmSouth Bancorporation through April 1995. Mr. Woods,
the Chairman of the Board of AmSouth Bancorporation, serves as a member of PLC's
Committee. AmSouth Bancorporation and subsidiaries maintain a group life
insurance program with Protective (which through reinsurance is shared with two
other companies). In 1995, Protective and PLC paid $1,490,270 in credit and
mortgage insurance and annuity commissions and $3,771,425 in interest, mortgage
loan service fees, and other charges to AmSouth Bank of Alabama and other
subsidiaries of AmSouth Bancorporation. Additionally, during 1995, AmSouth
Bancorporation and certain of its subsidiaries paid Protective premiums, fees,
or investment product deposits for various types of insurance in the amount of
$5,004,741.

Mr. Rushton serves as a director of The Southern Company. Mr. Dahlberg, the
Chairman of the Board, President and Chief Executive Officer of The Southern
Company, serves on PLC's Committee, and Mr. Addison, formerly, Chairman of the
Board and Chief Executive Officer of The Southern Company and a director of PLC
through December 1995, served on the Committee through May 1994. During 1995,
affiliates of The Southern Company paid Protective premiums, fees, or investment
product deposits for various types of insurance in the amount of $180,722. The
Company is a 25% member of a limited liability company which acquired an office
building adjacent to the Company's home office from an affiliate of The Southern
Company which continues to lease portions of the building. During 1995, the
limited liability company received $1,631,268 in lease payments from affiliates
of The Southern Company.

MANAGEMENT OWNERSHIP OF PLC STOCK

No director or named executive officer of Protective owns any stock of
Protective or of any affiliated corporation except for the shares of PLC common
stock which are shown as owned as of March 1996:

AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP (1)
--------------------------------- PERCENT OF
NAME AND BENEFICIAL OWNER SOLE POWER SHARED POWER (2) CLASS (1)
- ------------------------------------ ----------- ----------------- ----------

William J. Rushton III 654,547(3) 11,094(4) 2.3%
Drayton Nabers, Jr. 100,614(5) 10,554 *
R. Stephen Briggs 55,632(6) -0- *
John D. Johns 9,090(7) 2,100 *
Ormond L. Bentley 37,963(8) -0- *
Deborah J. Long 2,911(9) -0- *
Jim E. Massengale 52,191(10) 350 *
Wayne E. Stuenkel 22,576(11) -0- *
A. S. Williams III 43,789(12) -0- *
Steven A. Schultz 10,294(13) -0- *
Judy Wilson 4,294(14) -0- *
Carolyn King 207(15) -0-
All directors and executive officers
as a group (12 persons) 994,108(16) 24,098(2) 3.2%

- ------------------------
* less than one percent

(1) The number of shares reflected are shares which under applicable
regulations of the Securities and Exchange Commission are deemed to be
beneficially owned. Shares deemed to be beneficially owned, under such
regulations, include shares as to which, directly or indirectly, through any
contract, relationship, understanding or otherwise, either voting power or
investment power is held or shared. The total

number of shares beneficially owned is subdivided, where applicable, into
two categories: shares as to which voting/investment power is held solely
and shares as to which voting/investment power is shared. Unless otherwise
indicated in the following notes, if a beneficial owner has sole power, he
has sole voting and investment power, and if a beneficial owner has shared
power, he has shared voting and investment power. The percentage calculation
is based on the aggregate number of shares beneficially owned.

(2) This column may include shares held in the name of a spouse, minor
children, or certain other relatives sharing the same home as the director
or officer, or held by the director or officer, or the spouse of the
director or officer, as a trustee or as a custodian for children, as to all
of which beneficial ownership is disclaimed by the respective directors and
officers except as otherwise noted below.

(3) Includes 30,953 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Rushton has sole voting power.

(4) Shares owned by the wife of Mr. Rushton.

(5) Includes 5,833 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Nabers has sole voting power. Also, includes 50,059 share
equivalents allocated to Mr. Nabers' deferred compensation account pursuant
to the terms of PLC's Deferred Compensation Plan for Officers. Upon
distribution, share equivalents will be distributed in shares of PLC Common
Stock. Such shares will be issued directly to Mr. Nabers who will have sole
voting power over the shares at that time.

(6) Includes 12,249 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Briggs has sole voting power. Also, includes 19,770 share
equivalents allocated to Mr. Briggs' deferred compensation account pursuant
to the terms of PLC's Deferred Compensation Plan for Officers. Upon
distribution, share equivalents will be distributed in shares of PLC Common
Stock. Such shares will be issued directly to Mr. Briggs who will have sole
voting power over the shares at that time.

(7) Includes 781 shares held in PLC's 401(k) and Stock Ownership Plan for which
Mr. John's has sole voting power. Also, includes 6,109 share equivalents
allocated to Mr. Johns' deferred compensation account pursuant to the terms
of PLC's Deferred Compensation Plan for Officers. Upon distribution, share
equivalents will be distributed in shares of PLC Common Stock. Such shares
will be issued directly to Mr. Johns who will have sole voting power over
the shares at that time.

(8) Includes 3,052 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Bentley has sole voting power. Also, includes 18,941 share
equivalents allocated to Mr. Bentley's deferred compensation account
pursuant to the terms of PLC's Deferred Compensation Plan for Officers. Upon
distribution, share equivalents will be distributed in shares of PLC Common
Stock. Such shares will be issued directly to Mr. Bentley who will have sole
voting power over the shares at that time.

(9) Includes 361 shares held in PLC's 401(k) and Stock Ownership Plan for which
Ms. Long has sole voting power.

(10) Includes 14,381 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Massengale has sole voting power. Also includes 8,880 share
equivalents allocated to Mr. Massengale's deferred compensation account
pursuant to the terms of PLC's Deferred Compensation Plan for Officers. Upon
distribution, share equivalents will be distributed in shares of PLC Common
Stock. Such shares will be issued directly to Mr. Massengale who will have
sole voting power over the shares at that time.

(11) Includes 2,873 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Stuenkel has sole voting power. Also includes 14,935 share
equivalents allocated to Mr. Stuenkel's deferred compensation account
pursuant to the terms of PLC's Deferred Compensation Plan for Officers. Upon
distribution, share equivalents will be distributed in shares of PLC Common
Stock. Such shares will be issued directly to Mr. Stuenkel who will have
sole voting power over the shares at that time.

(12) Includes 11,930 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Williams has sole voting power. Also, includes 21,119 share
equivalents allocated to Mr. Williams' deferred compensation account
pursuant to the terms of PLC's Deferred Compensation Plan for Officers. Upon
distribution, share equivalents will be distributed in shares of PLC Common
Stock. Such shares will be issued directly to Mr. Williams who will have
sole voting power over the shares at that time.

(13) Includes 2,464 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Schultz has sole voting power. Also includes 6,656 share
equivalents allocated to Mr. Schultz's deferred compensation account
pursuant to the terms of PLC's Deferred Compensation Plan for Officers. Upon
distribution, share equivalents will be distributed in shares of PLC Common
Stock. Such shares will be issued directly to Mr. Schultz who will have sole
voting power over the shares at that time.

(14) Includes 2,294 shares held in PLC's 401(k) and Stock Ownership Plan for
which Ms. Wilson has sole voting power.

(15) Includes 207 shares held in PLC's 401(k) and Stock Ownership Plan for which
Ms. King has sole voting power.

(16) Included are the interests of the persons as of December 31, 1995 in 91,261
shares held in PLC's 401(k) and Stock Ownership Plan, which owned a total of
1,285,774 shares on such date. Each 401(k) and Stock Ownership Plan
participant has sole voting power with respect to the shares held in the
participant's accounts. The 743,462 shares held in PLC's 401(k) Stock
Ownership Plan Trust which have not been allocated to participants will be
voted by the Trustees in accordance with the majority vote of all
participants. Also, includes 157,761 share equivalents allocated to the
deferred compensation accounts of participating directors and executive
officers as a group pursuant to the Company's Deferred Compensation Plan for
Directors Who Are Not Employees of the Company and the Company's Deferred
Compensation Plan for Officers.

CERTAIN TRANSACTIONS

Director Woods is Chairman of the Board of AmSouth Bancorporation, a bank
holding company which owns all of the stock of AmSouth Bank of Alabama. In
addition to Mr. Woods, one of the directors of PLC, is also a director of such
bank and two are directors of AmSouth Bancorporation. Through April 1995,
Director Rushton was also a director of AmSouth Bancorporation and AmSouth Bank
of Alabama. AmSouth Bancorporation and subsidiaries maintain a group life
insurance program with Protective (which through reinsurance is shared with two
other companies). In 1995, Protective and PLC paid $1,490,270 in credit and
mortgage insurance and annuity commissions and $3,771,425 in interest, mortgage
loan service fees, and other charges to AmSouth Bank of Alabama and other
subsidiaries of AmSouth Bancorporation.

In 1995, PLC received $20,206 from the National Bank of Commerce of
Birmingham ("NBC"), in connection with the provision of a partial guaranty of
mortgage loan participations previously sold to NBC, which has two directors in
common with PLC.

PLC is a 25% member of a limited liability company which acquired an office
building adjacent to the PLC's home office from an affiliate of The Southern
Company which continues to lease portions of the building. During 1995, the
limited liability company received $1,631,268 in lease payments from affiliates
of The Southern Company. The Southern Company has two directors in common with
the PLC. Financing for the purchase of the office building was provided to the
limited liability company by SunTrust Bank, Atlanta, which has two directors in
common with the PLC. In 1995, the limited liability company paid $429,618 in
interest and PLC paid $14,354 in credit and mortgage insurance commissions and
mortgage loan service fees to SunTrust Bank, Atlanta.

In 1995, PLC paid $4,648 in fees to Equifax, Inc., which has one director in
common with PLC.

During 1995, the following corporations with which one or more of PLC's
directors were affiliated paid Protective premiums, fees, or investment product
deposits for various types of insurance as follows:

Alabama Power Company.................................................. $ 714,563
AmSouth Bancorporation and subsidiaries................................ 5,004,741
Coca-Cola Bottling Company United, Inc................................. 108,856
McWane, Inc. and affiliates............................................ 264,747
National Bank of Commerce of Birmingham................................ 89,825
Pattillo Construction Company, Inc..................................... 16,420
Sonat Inc. and subsidiaries............................................ 360,000
Southern Research Institute............................................ 61,336
SunTrust Banks, Inc. and affiliates.................................... 10,023,355
Vulcan Materials Company............................................... 4,396,374

LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business of PLC and Protective, to which PLC or
Protective or any of its subsidiaries is a party or of which any of PLC or
Protective's properties is the subject. For additional information regarding
legal proceedings see Note G to the Consolidated Financial Statements included
herein.

EXPERTS

The consolidated balance sheets of Protective Life Insurance Company and
subsidiaries as of December 31, 1995 and 1994 and the consolidated statements of
income, stockholder's equity, and cash flows for each of the three years in the
period ended December 31, 1995 and the related financial statement schedules, in
this Prospectus, have been included herein in reliance on the report, which
includes an explanatory paragraph with respect to changes in the Company's
method of accounting for certain investments in debt and equity securities in
1993, of Coopers & Lybrand L.L.P., independent certified public accountants,
given on the authority of that firm as experts in auditing and accounting.

LEGAL MATTERS

Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on
certain matters relating to federal securities laws.

REGISTRATION STATEMENT

A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended with respect to the
Contracts. This Prospectus does not contain all information set forth in the
Registration Statement, its amendments and exhibits, to all of which reference
is made for further information concerning Protective and the Contracts.
Statements contained in this Prospectus as to the content of the Contracts and
other legal instruments are summaries. For a complete statement of the terms
thereof, reference is made to the instruments as filed in the Registration
Statement.

APPENDIX A
MARKET VALUE ADJUSTMENT

The Market Value Adjustment is equal to the Market Value Adjustment
Percentage indicated below, applied to the amount of each full or partial
surrender requested. We will consider surrendered amounts to be interest
withdrawals first to the extent interest credited during the prior Contract Year
has not yet been withdrawn from the Contract at the time of the full or partial
surrender. (See "Market Value Adjustment").

MARKET VALUE ADJUSTMENT PERCENTAGE = (C - I + 0.25%) X (N/12), WHERE:

C = the Treasury Rate currently established for the same term as the
Guaranteed Period from which the surrender is being made;

I = the Treasury Rate initially established for the Guaranteed Period from
which the surrender is being made;

N = The number of months remaining in the Guaranteed Period from which the
surrender is being made.

The Treasury Rate is the annual effective interest rate credited to United
States Treasury instruments, as published by a nationally recognized source. On
the fifteenth day and the last day of each month, the Company will identify a
Treasury Rate for each Guaranteed Period. The method used by the Company to
determine the Treasury Rates under this Contract shall be consistent and is
binding upon any Participant, Annuitant and Beneficiary.

A Surrender Charge will apply during the first seven years of each Initial
and each Subsequent Guaranteed Period. The Surrender Charge is equal to a
specified Surrender Charge Percentage (maximum 6%) applied to the amount of each
full or partial surrender requested less any amount available under the Interest
Withdrawals. (See "Surrender Charge").

MARKET VALUE ADJUSTMENT AND SURRENDER CHARGE EXAMPLES
FULL SURRENDER AFTER COMPLETION OF YEAR 3

GUARANTEED PERIOD (YEARS): 3 5 7 TOTAL
- --------------------------------------------------------- ------------ ------------ ------------ ------------

Initially --
Annuity Deposit: $10,000.00 $10,000.00 $10,000.00 $30,000.00
Guaranteed Interest Rate: 5.00% 5.50% 6.00%
Initial Treasury Rate: 4.00% 4.50% 5.00%
Year 1 --
Beginning of Year Account Value: $10,000.00 $10,000.00 $10,000.00 $30,000.00
X (1 + Guaranteed Interest Rate): 1.050 1.055 1.060
= End of Year Account Value: $10,500.00 $10,550.00 $10,600.00 $31,650.00
- Beginning of Year Account Value: $10,000.00 $10,000.00 $10,000.00 $30,000.00
= Interest Earned during Year: $500.00 $550.00 $600.00 $1,650.00

A-1

GUARANTEED PERIOD (YEARS): 3 5 7 TOTAL
- --------------------------------------------------------- ------------ ------------ ------------ ------------
Year 2 --

Beginning of Year Account Value: $10,500.00 $10,550.00 $10,600.00 $31,650.00
X (1 + Guaranteed Interest Rate): 1.050 1.055 1.060
= End of Year Account Value: $11,025.00 $11,130.25 $11,236.00 $33,391.25
- Beginning of Year Account Value: $10,500.00 $10,550.00 $10,600.00 $31,650.00
= Interest Earned during Year: $525.00 $580.25 $636.00 $1,741.25
Year 3 --
Beginning of Year Account Value: $11,025.00 $11,130.25 $11,236.00 $33,391.25
X (1 + Guaranteed Interest Rate): 1.050 1.055 1.060
= End of Year Account Value: $11,576.25 $11,742.41 $11,910.16 $35,228.82
- - Beginning of Year Account Value: $11,025.00 $11,130.25 $11,236.00 $33,391.25
= Interest Earned during Year: $551.25 $612.16 $674.16 $1,837.57
After Completion of Year 3 --
Account Value: $11,576.25 $11,742.41 $11,910.16 $35,228.82
- Prior Year's Interest: $551.25 $612.16 $674.16 $1,837.57
=Amount Subject to Surrender Charge and Market Value
Adjustment: $11,025.00 $11,130.25 $11,236.00 $33,391.25
Surrender Charge Percentage: 0.00% 4.00% 4.00%
X Subjected Amount: $11,025.00 $11,130.25 $11,236.00 $33,391.25
= Surrender Charge: $0.00 $445.21 $449.44 $894.65
Number of Months Remaining in the Guaranteed Period: 0 24 48

EXAMPLE #1 -- INCREASING TREASURY RATE ENVIRONMENT
Current Treasury Rate: 4.75% 5.25% 5.75%
- Initial Treasury Rate: 4.00% 4.50% 5.00%
+ 0.25%: 0.25% 0.25% 0.25%
X Number Months Remaining / 12: 0.00 2.00 4.00
= Market Value Adjustment Percentage: 0.00% 2.00% 4.00%
X Subjected Amount: $11,025.00 $11,130.25 $11,236.00 $33,391.25
= Market Value Adjustment: $0.00 $222.60 $449.44 $672.04
Account Value: $11,576.25 $11,742.41 $11,910.16 $35,228.82
- Surrender Charge: $0.00 $445.21 $449.44 $894.65
- Market Value Adjustment: $0.00 $222.60 $449.44 $672.04
= Net Account Value: $11,576.25 $11,074.60 $11,011.28 $33,662.13

A-2

GUARANTEED PERIOD (YEARS): 3 5 7 TOTAL
- --------------------------------------------------------- ------------ ------------ ------------ ------------
EXAMPLE #2 -- DECREASING TREASURY RATE ENVIRONMENT

Current Treasury Rate: 3.25% 3.75% 4.25%
- Initial Treasury Rate: 4.00% 4.50% 5.00%
+ 0.25%: 0.25% 0.25% 0.25%
X Number Months Remaining / 12: 0.00 2.00 4.00
= Market Value Adjustment Percentage: 0.00% -1.00% -2.00%
X Subjected Amount: $11,025.00 $11,130.25 $11,236.00 $33,391.25
= Market Value Adjustment: $0.00 ($111.30) ($224.72) ($336.02)
Account Value: $11,576.25 $11,742.41 $11,910.16 $35,228.82
- Surrender Charge: $0.00 $445.21 $449.44 $894.65
- Market Value Adjustment: $0.00 ($111.30) ($224.72) ($336.02)
= Net Account Value: $11,576.25 $11,408.51 $11,685.44 $34,670.20

A-3

APPENDIX B
MATTERS RELATING TO CONTRACTS
OFFERED IN CERTAIN STATES AFTER SEPTEMBER 10, 1991
AND PRIOR TO MAY 1, 1996

THE FOLLOWING SECTIONS DESCRIBE CONTRACTS OFFERED AFTER SEPTEMBER 10, 1991
TO MARCH 1, 1996. THE TERMS DEFINED BELOW, AND THE FOLLOWING DESCRIPTIONS OF
CERTAIN PROVISIONS SHOULD BE SUBSTITUTED IN THEIR ENTIRETY FOR THE RELATED TERMS
AND DESCRIPTIONS FOUND ELSEWHERE IN THIS PROSPECTUS. THE PAGE REFERENCES LISTED
BELOW INDICATE WHERE IN THE PROSPECTUS THE SUBSTITUTED TERMS AND DESCRIPTIONS
CAN BE FOUND. REFER TO YOUR CONTRACT FOR COMPLETE DETAILS OF THESE PROVISIONS.

A. CAPSULE SUMMARY OF THE CONTRACT

The paragraphs in the Capsule Summary describing the guaranteed Death
Benefit, Market Value Adjustment, and Surrender Charge should be revised to read
as follows:

A Surrender Charge will apply during the first seven years of each
Initial and each Subsequent Guaranteed Period. For each Initial or
Subsequent Guaranteed Period with durations longer than seven years, a
Surrender Charge will only apply during the first seven years. The
Surrender Charge is equal to six months of interest on the amount
withdrawn from the Sub-Account Value. The Surrender Charge for all full
and partial surrenders made during an Initial or Subsequent Guaranteed
Period shall not exceed, in the aggregate, a total of six months'
interest on the amount of the Annuity Deposit or Sub-Account Value(s)
originally allocated in the case of an Initial Guaranteed Period, or
transferred, in the case of a Subsequent Guaranteed Period from which
the full or partial surrender is made.

A Market Value Adjustment is applied when you request a full or
partial surrender from a Sub-Account prior to the end of the
Sub-Account's Guaranteed Period. The Market Value Adjustment reflects
the relationship between (i) the current Guaranteed Interest Rate that
we are crediting for a Guaranteed Period equal to the time remaining in
the Guaranteed Period at the time you request a full or partial
surrender, and (ii) the then applicable Guaranteed Interest Rate being
applied to the Sub-Account from which you select to make a full or
partial surrender.

This Contract provides for a guaranteed Death Benefit. If any
Participant dies before the Annuity Commencement Date the guaranteed
Death Benefit will be payable to the surviving Participant, if any. If
there is no surviving Participant, the Death Benefit will be paid to the
Beneficiary named by the Participant.

The guaranteed Death Benefit will equal the Account Value.

If applicable, the guaranteed Death Benefit for all Guaranteed
Periods will be totalled to obtain the guaranteed Death Benefit payable.

The Beneficiary will have sixty (60) days from the date of death to
exercise their right to the guaranteed Death Benefit. If this right is
not exercised within the 60-day period, any payments will be treated as
a surrender request, and will be subject to the surrender charge and a
market value adjustment.

B-1

B. GLOSSARY OF SPECIAL TERMS (PAGE 1)

ANNUITY DEPOSIT(S) -- The Annuity Deposit(s) made will be allocated to each
Guaranteed Period(s) selected under each Contract. Each Annuity Deposit must be
at least $5,000 unless approved by the Company. Additional Annuity Deposits can
be made except in the states of California, Minnesota, South Carolina and
Michigan.

ANNUITANT -- Annuity payments may depend upon the continuation of the life
of a person. That person is called an Annuitant and is named in the Contract.
The Annuitant may be changed prior to the Annuity Commencement Date provided
such change is made in writing on a form acceptable to us.

BENEFICIARY -- PRIMARY -- The person named to receive the Death Benefit
under the Contract upon the death of any Participant. You may change the
Beneficiary at any time by sending a request in Writing to the Administrative
Office. Upon the death of any Participant, the surviving Participant, if any,
will be the Beneficiary.

CONTINGENT -- The person named to receive the Death Benefit if the
Primary Beneficiary is not living at any Participant's death.

IRREVOCABLE -- One whose consent is necessary to change the Beneficiary
or exercise certain other rights.

SURRENDER CHARGE -- A Surrender Charge, if applicable, is deducted from any
Sub-Account Value from which a full or partial surrender is made prior to the
end of an Initial or Subsequent Guaranteed Period. The Surrender Charge is equal
to six months of interest on the amount withdrawn from a Sub-Account Value. The
Surrender Charge for all full and partial surrenders made during an Initial
Guaranteed Period shall not exceed, in the aggregate, a total of six months'
interest on the amount of the Annuity Deposit originally allocated to the
Sub-Account(s) from which the full or partial surrender is made. The Surrender
Charge for all full and partial surrenders made during a Subsequent Guaranteed
Period shall not exceed, in the aggregate, a total of six months' interest on
the amount of the Sub-Account Value(s) originally transferred to a Subsequent
Guaranteed Period from which the full or partial surrender is made.

C. SURRENDER CHARGES (PAGE 7)

A Surrender Charge, if applicable, will be applied to a full or partial
surrender from a Sub-Account requested prior to the end of a Guaranteed Period.
The Surrender Charge is equal to six months of interest on the amount
surrendered from a Sub-Account. The Surrender Charge for all full and partial
surrenders made during an Initial Guaranteed Period shall not exceed, in the
aggregate, a total of six months' interest on the amount of the Annuity
Deposit(s) originally allocated to the Sub-Account from which the full or
partial surrender is made. The Surrender Charge for all full and partial
surrenders made during a Subsequent Guaranteed Period shall not exceed, in the
aggregate, a total of six months' interest on the amount of the Sub-Account
Value originally transferred to a Subsequent Guaranteed Period from which the
full or partial surrender is made. Interest will be computed at the same
interest rate we are crediting the Sub-Account from which the withdrawal is
made. The Surrender Charge will be deducted from the remaining Sub-Account Value
from which the full or partial surrender is made. A Surrender Charge will apply
during the first seven years of all Initial Guaranteed Periods, and during the
first seven years of all Subsequent Guaranteed Periods. There is no Surrender
Charge after the first seven years of each Initial or Subsequent Guaranteed

B-2

Periods with a duration greater than seven years. In addition, for purposes of
determining amounts subject to the Surrender Charge, we will consider
surrendered amounts first to be interest withdrawals, to the extent interest
credited to your Sub-Accounts during the prior Contract Year has not yet been
withdrawn. No Surrender Charge (or Market Value Adjustment) is imposed on these
interest withdrawal amounts.

Surrender Charges and Market Value Adjustments will not apply to full or
partial surrenders made from Sub-Accounts at the end of an Initial or Subsequent
Guaranteed Period. The Surrender Value will equal the Sub-Account Value on this
date. A request for a surrender at the end of an Initial or Subsequent
Guaranteed Period must be received in a form acceptable to Protective within
twenty days prior to the end of such Initial or Subsequent Guaranteed Period.

[(A X B) - SC] where:

A = the Sub-Account Value of the Sub-Account from which a full or
partial surrender is requested
B = the Market Value Adjustment described above
SC = the Surrender Charge plus any unpaid Premium Taxes, if applicable

Protective will, upon the date of receipt of your request, inform you of the
amounts available for full or partial surrenders.

Any full or partial surrender may be subject to Federal and state income tax
and, in some cases, Premium Tax.

Because the Initial and Subsequent Guaranteed Periods may not extend beyond
the Annuity Commencement Date then in effect, no Surrender Charge or Market
Value Adjustment will be deducted upon the application of your Net Account Value
to purchase an Annuity on the Annuity Commencement Date.

D. MARKET VALUE ADJUSTMENT (PAGE 8)

The amount payable on a full or partial surrender made prior to the end of
any Guaranteed Period may be adjusted up or down by the application of the
Market Value Adjustment formula. Such a Market Value Adjustment is applied to
the Sub-Account Value, before it has been reduced by any Surrender Charge. For
purposes of determining amounts subject to the Market Value Adjustment, we will
consider surrendered amounts first to be interest withdrawals, to the extent
interest credited to your Sub-Accounts during the prior Contract Year has not
yet been withdrawn. No Market Value Adjustment (or Surrender Charge) is imposed
on these interest withdrawal amounts.

The formula which will be used to determine the Market Value Adjustment is:

(1+G) N/12
----
(1+C)

g = The Guaranteed Interest Rate in effect for the current Guaranteed Period
(expressed as a decimal, e.g., 1% = .01).

c = The current Guaranteed Interest Rate that the Company is offering for a
Guaranteed Period of a duration measured in months as represented by N
(expressed as a decimal, e.g., 1% = .01).

B-3

N = The number of months from the Surrender Date to the end of the current
Guaranteed Period.

In the case of either a full or partial surrender from a Sub-Account, the
Market Value Adjustment will reflect the relationship between (i) the current
Guaranteed Interest Rate that the Company is crediting for a Guaranteed Period
equal to the time remaining in the Sub-Account's Guaranteed Period at the time
you request the surrender, and (ii) the then applicable Guaranteed Interest Rate
being applied to the Sub-Account from which you select to make a full or partial
surrender.

Generally, if your Guaranteed Interest Rate is lower than the applicable
current Guaranteed Interest Rate being credited by Protective for a Guaranteed
Period equal to the time remaining in the Sub-Account's Guaranteed Period, then
the application of the Market Value Adjustment may result in a Surrender Value
that is less than the portion of your Annuity Deposit(s) allocated to a
Sub-Account plus interest credited thereon. Similarly, if your Guaranteed
Interest Rate is higher than the applicable current Guaranteed Interest Rate,
the application of the Market Value Adjustment may result in a Surrender Value
that is greater than the portion of your Annuity Deposit(s) allocated to a
Sub-Account plus interest credited thereon.

Since current Guaranteed Interest Rates are based in part upon the
investment yields then available to Protective, the effect of the Market Value
Adjustment will be related to the levels of such yields. It is possible,
therefore, that, should such yields increase from the time you purchased your
Contract, the effect of the Market Value Adjustment, coupled with the
application of the Surrender Charge and/or Premium Taxes, could result in the
amount you receive upon a full surrender of your Contract being LESS than your
Annuity Deposit(s).

E. DEATH BENEFIT (PAGE 9)

If any Participant dies before the Annuity Commencement Date, a guaranteed
Death Benefit will be payable. With regard to joint Participants, at the first
death of a joint Participant prior to the Annuity Commencement Date, the
Beneficiary will be the surviving Participant, if any. If there is no surviving
Participant, the Death Benefit will be paid to the Beneficiary named by the
Participant. If no Beneficiary designation is in effect or if there is no
designated Beneficiary living, the Death Benefit will be paid to the estate of
the deceased Participant.

If any Participant is not an individual, the death or change of the
Annuitant will be treated as the death of a Participant.

The guaranteed Death Benefit during an Initial or Subsequent Guaranteed
Period will equal the Account Value. The guaranteed Death Benefit is calculated
as of the date of death. If applicable, the guaranteed Death Benefit for all
Guaranteed Periods will be totalled to obtain the guaranteed Death Benefit
payable.

F. WAIVER OF SURRENDER CHARGES

The Company will waive any applicable Surrender Charges in the event you, at
any time after Contract Year 1, (1) enter for a period of at least ninety (90)
days a facility which is licensed by the State and qualifies as a skilled
nursing home facility under Medicare or Medicaid; or (2) you are first diagnosed
as having a terminal illness by a physician that is not related to you or the
Annuitant. The term "terminal illness" is defined in the Contract. Written proof
of a terminal illness satisfactory to Protective must be submitted. Protective
reserves the right to require an examination by a physician of its choice to
verify the terminal illness. A Market Value Adjustment will be imposed if
applicable. The Waiver of Surrender Charges provision is not available in all
states due to applicable insurance laws.

B-4

G. ANNUITY BENEFITS (PAGE 10)

OPTION 4 -- The total amount applied may be used to purchase an annuity of
any kind issued by us on the date this option is elected.

H. FEDERAL TAX MATTERS (PAGE 14)

In order to be treated as an annuity contract for federal tax purposes,
section 72(s) of the Code requires that contracts that are held by persons other
than individuals (other than contracts that are issued in connection with
certain Qualified Plans) contain certain provisions relating to distributions
upon the death of an annuitant. Certain Contracts do not contain these
provisions. The income under such Contracts is taxable as it accrues. We issue
Forms 1099 in respect of such Contracts.

B-5

APPENDIX C
MATTERS RELATING TO CONTRACTS
OFFERED IN CERTAIN STATES
PRIOR TO SEPTEMBER 10, 1991

THE FOLLOWING SECTIONS DESCRIBE CONTRACTS WITH A CERTIFICATE DATE PRIOR TO
SEPTEMBER 10, 1991, AND CERTAIN CONTRACTS WITH A CERTIFICATE DATE AFTER THAT
DATE. THESE CONTRACTS CONTAIN PROVISIONS THAT DIFFER FROM THOSE DESCRIBED IN THE
PROSPECTUS. IN PARTICULAR, SURRENDER CHARGE, DEATH BENEFIT, AND CERTAIN ANNUITY
BENEFIT PROVISIONS MAY BE DIFFERENT. REFER TO YOUR CONTRACT FOR COMPLETE DETAILS
OF THESE PROVISIONS. THE TERMS DEFINED BELOW, AND THE FOLLOWING DESCRIPTIONS OF
CERTAIN PROVISIONS SHOULD BE SUBSTITUTED IN THEIR ENTIRETY FOR THE RELATED TERMS
AND DESCRIPTIONS FOUND ELSEWHERE IN THIS PROSPECTUS. THE PAGE REFERENCES LISTED
BELOW INDICATE WHERE IN THE PROSPECTUS THE SUBSTITUTED TERMS AND DESCRIPTIONS
CAN BE FOUND.

A. CAPSULE SUMMARY OF THE CONTRACT

The paragraphs in the Capsule Summary describing the guaranteed Death
Benefit, Market Value Adjustment, and Surrender Charge provided in the Contract
should be revised to read as follows:

This Contract provides for a guaranteed Death Benefit. If the
Annuitant or Participant dies before the Annuity Commencement Date, the
guaranteed Death Benefit will be payable to the Beneficiary as
determined under the provisions of the Contract. The guaranteed Death
Benefit is calculated as of the date of death.

The guaranteed Death Benefit will equal the Account Value.

If applicable, the guaranteed Death Benefit for all Guaranteed
Periods will be totalled to obtain the guaranteed Death Benefit payable.
With regard to joint Participants, at the first death of a joint
Participant prior to the Annuity Commencement Date, the Beneficiary will
be the surviving Participant. If the named Beneficiary is the spouse of
the Participant and if the Annuitant is living, the spouse may elect, in
lieu of receiving the guaranteed Death Benefit, to become the
Participant and continue the Contract.

B. GLOSSARY OF SPECIAL TERMS (PAGE 1)

ANNUITANT -- Annuity payments may depend upon the continuation of the life
of a person. That person is called an Annuitant and is named in the Contract.
The Annuitant cannot be changed.

C-1

BENEFICIARY -- PRIMARY -- The person named to receive the Death Benefit
under the Contract upon the death of either the Annuitant or the Participant, as
applicable.

CONTINGENT -- The person named to receive the Death Benefit if the
Primary Beneficiary is not living when the Annuitant or Participant dies.

IRREVOCABLE -- One whose consent is necessary to change the Beneficiary
or exercise certain other rights.

SURRENDER CHARGE -- A Surrender Charge, if applicable, is deducted from any
Sub-Account Value from which a full or partial surrender is made prior to the
end of an Initial or Subsequent Guaranteed Period. The Surrender Charge is equal
to six months of interest on the amount withdrawn from a Sub-Account Value. The
Surrender Charge for all full and partial surrenders made during an Initial
Guaranteed Period shall not exceed, in the aggregate, a total of six months'
interest on the amount of the Annuity Deposit originally allocated to the
Sub-Account(s) from which the full or partial surrender is made. The Surrender
Charge for all full and partial surrenders made during a Subsequent Guaranteed
Period shall not exceed, in the aggregate, a total of six months' interest on
the amount of the Sub-Account Value(s) originally transferred to a Subsequent
Guaranteed Period from which the full or partial surrender is made.

C. SURRENDER CHARGES (PAGE 7)

Surrender Charges and Market Value Adjustments will not apply to full or
partial surrenders made from Sub-Accounts at the end of an Initial or Subsequent
Guaranteed Period. The Surrender Value will

C-2

equal the Sub-Account Value on this date. A request for a surrender at the end
of an Initial or Subsequent Guaranteed Period must be received in a form
acceptable to Protective within twenty days prior to the end of such Initial or
Subsequent Guaranteed Period.

[(A X B) - SC] where:

Protective will, upon the date of receipt of your request, inform you of the
amounts available for full or partial surrenders.

Any full or partial surrender may be subject to Federal and state income tax
and, in some cases, Premium Tax.

D. MARKET VALUE ADJUSTMENT (PAGE 8)

The formula which will be used to determine the Market Value Adjustment is:

(1+G) N/12
----
(1+C)

g = The Guaranteed Interest Rate in effect for the current Guaranteed Period
(expressed as a decimal, e.g., 1% = .01).

c = The current Guaranteed Interest Rate that the Company is offering for a
Guaranteed Period of a duration measured in months as represented by N
(expressed as a decimal, e.g., 1% = .01).

N = The number of months from the Surrender Date to the end of the current
Guaranteed Period.

C-3

E. DEATH BENEFIT (PAGE 9)

If an Annuitant or Participant dies before the Annuity Commencement Date, a
guaranteed Death Benefit will be payable to the Beneficiary named by the
Participant or Annuitant as the case may be. With regard to joint Participants,
at the first death of a joint Participant prior to the Annuity Commencement
Date, the Beneficiary will be the surviving Participant.

If the Beneficiary is the surviving spouse of the deceased Participant or
deceased Annuitant, the guaranteed Death Benefit may be taken in one sum
immediately or it may be applied under any of the Annuity Options available
under the Contract. However, if the Beneficiary is the spouse of the deceased
Participant, and if the Annuitant is living, such spouse may elect, in lieu of
receiving the guaranteed Death Benefit, to become the Participant and continue
the Contract.

For any Beneficiary who is not the surviving spouse of the deceased
Participant or deceased Annuitant, the guaranteed Death Benefit may be taken in
one sum immediately or it may be applied under an Annuity Option available under
the Contract which either (i) provides that all amounts will be distributed
within 5 years of the date of death or (ii) provides that amounts will be
payable over the life of the Beneficiary or over a period not extending beyond
the life expectancy of the Beneficiary, and such distribution must commence
within one year of the date of death.

F. WAIVER OF SURRENDER CHARGES

C-4

G. ANNUITY BENEFITS (PAGE 10)

1. ELECTING THE ANNUITY COMMENCEMENT DATE AND FORM OF ANNUITY (PAGE 10)

Upon application for a Contract, you select an Annuity Commencement Date.
The Annuity Commencement Date you choose may never extend beyond the Contract
Year closest to the Annuitant's 85th birthday. Any request for extension of the
maximum Annuity Commencement Date must be approved by the Administrative Office.
You may elect to have all of your Net Account Value or a portion thereof applied
on the Annuity Commencement Date under any of the Annuity Options described
below. In the absence of such election, the Net Account Value will be applied on
the Annuity Commencement Date under Option 2 -- Life Income With Payments for a
10 Year Guaranteed Period.

2. CHANGE OF ANNUITY COMMENCEMENT DATE OR ANNUITY OPTION (PAGE 10)

You may change the Annuity Commencement Date from time to time, but any such
change must be made in Writing and received by us within 30 days prior to the
scheduled Annuity Commencement Date. In no event may Initial or Subsequent
Guaranteed Periods extend beyond the Annuity Commencement Date then in effect.

G. ANNUITY OPTIONS (PAGE 11)

OPTION 4 -- The total amount applied may be used to purchase an annuity of
any kind issued by us on the date this option is elected.

H. FEDERAL TAX MATTERS (PAGE 14)

C-5

INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants.................................................... F-2
Consolidated Statements of Income for the years ended December 31, 1995, 1994, and
1993................................................................................ F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994......................... F-4
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1995, 1994, and 1993................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994,
and 1993............................................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information................................ S-1
Schedule IV -- Reinsurance......................................................... S-2

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 Directors and Stockholder
Protective Life Insurance Company
Birmingham, Alabama

We have audited the consolidated financial statements and the financial
statement schedules of Protective Life Insurance Company and Subsidiaries listed
in the index on page F-1 of this registration statement on Form S-1. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Protective Life
Insurance Company and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.

As discussed in Note A to the Consolidated Financial Statements, the Company
changed its method of accounting for certain investments in debt and equity
securities in 1993.

/s/ COOPERS & LYBRAND L.L.P.

Birmingham, Alabama
February 12, 1996

F-2

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
---------- ---------- ----------

REVENUES
Premiums and policy fees (net of reinsurance ceded: 1995 - $333,173; 1994 -
$172,575; 1993 - $126,912)................................................ $ 369,888 $ 402,772 $ 351,423
Net investment income...................................................... 458,433 408,933 354,165
Realized investment gains (losses)......................................... 1,951 6,298 5,054
Other income............................................................... 3,543 11,977 4,756
---------- ---------- ----------
833,815 829,980 715,398
---------- ---------- ----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: 1995 -
$247,224; 1994 - $112,922; 1993 - $84,949)................................ 509,506 517,110 461,636
Amortization of deferred policy acquisition costs.......................... 84,500 88,089 73,335
Other operating expenses (net of reinsurance ceded: 1995 - $84,855; 1994 -
$14,326; 1993 - $10,759).................................................. 122,076 119,203 94,315
---------- ---------- ----------
716,082 724,402 629,286
---------- ---------- ----------
INCOME BEFORE INCOME TAX..................................................... 117,733 105,578 86,112
INCOME TAX EXPENSE
Current.................................................................... 47,009 37,586 33,039
Deferred................................................................... (6,972) (4,731) (3,082)
---------- ---------- ----------
40,037 32,855 29,957
---------- ---------- ----------
NET INCOME................................................................... $ 77,696 $ 72,723 $ 56,155
---------- ---------- ----------
---------- ---------- ----------

See notes to consolidated financial statements.

F-3

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

DECEMBER 31
------------------------
1995 1994
---------- ----------

ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1995-$3,798,868;
1994-$3,698,370)............................................................. $3,891,932 $3,493,646
Equity securities, at market (cost: 1995-$35,498;1994-$45,958)................ 38,711 45,005
Mortgage loans on real estate................................................. 1,835,057 1,488,495
Investment real estate, net of accumulated depreciation (1995-$1,032;
1994-$695)................................................................... 20,788 20,170
Policy loans.................................................................. 143,372 147,608
Other long-term investments................................................... 43,875 50,751
Short-term investments........................................................ 46,891 54,683
---------- ----------
Total investments........................................................... 6,020,626 5,300,358
Cash............................................................................ 6,198
Accrued investment income....................................................... 61,004 55,630
Accounts and premiums receivable, net of allowance for uncollectible
amounts (1995-$2,342; 1994-$2,464)............................................. 35,492 28,928
Reinsurance receivables......................................................... 271,018 122,175
Deferred policy acquisition costs............................................... 410,183 434,200
Property and equipment, net..................................................... 34,211 33,185
Receivables from related parties................................................ 1,961 281
Other assets.................................................................... 13,096 11,802
Assets related to separate accounts............................................. 324,904 124,145
---------- ----------
$7,178,693 $6,110,704
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims............................................. $1,928,154 $1,694,295
Unearned premiums............................................................. 193,767 103,479
---------- ----------
2,121,921 1,797,774
Guaranteed investment contract deposits......................................... 2,451,693 2,281,673
Annuity deposits................................................................ 1,280,069 1,251,318
Other policyholders' funds...................................................... 134,380 144,461
Other liabilities............................................................... 109,538 94,181
Accrued income taxes............................................................ 838 (4,699)
Deferred income taxes........................................................... 67,420 (14,667)
Indebtedness to related parties................................................. 34,693 39,443
Liabilities related to separate accounts........................................ 324,904 124,145
---------- ----------
Total liabilities......................................................... 6,525,456 5,713,629
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
REDEEMABLE PREFERRED STOCK, $1.00 par value, at redemption value
Shares authorized and issued: 2,000............................................ 2,000 2,000
---------- ----------
STOCKHOLDER'S EQUITY
Common Stock, $1.00 par value................................................... 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital...................................................... 144,494 126,494
Net unrealized gains on investments (Net of income tax: 1995-$31,157;
1994-$(57,902))................................................................ 57,863 (107,532)
Retained earnings............................................................... 449,645 377,049
Note receivable from PLC Employee Stock Ownership Plan.......................... (5,765) (5,936)
---------- ----------
Total stockholder's equity................................................ 651,237 395,075
---------- ----------
$7,178,693 $6,110,704
---------- ----------
---------- ----------

See notes to consolidated financial statements.

F-4

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NET NOTE
ADDITIONAL UNREALIZED RECEIVABLE TOTAL
COMMON PAID-IN GAINS (LOSSES) RETAINED FROM PLC STOCKHOLDER'S
STOCK CAPITAL ON INVESTMENTS EARNINGS ESOP EQUITY
------ ---------- --------------- -------- ---------- -------------

Balance, December 31, 1992................... $5,000 $ 85,494 $ 3,156 $247,986 $ (6,120) $ 335,516
Net income for 1993........................ 56,155 56,155
Preferred dividends ($750 per share)....... (1,500) (1,500)
Transfer of Southeast Health Plan, Inc.
common stock to PLC....................... 2,535 2,535
Increase in net unrealized gains on
investments............................... 36,128 36,128
Capital contribution from PLC.............. 41,000 41,000
Decrease in note receivable from PLC
ESOP...................................... 156 156
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1993................... 5,000 126,494 39,284 305,176 (5,964) 469,990
Net income for 1994........................ 72,723 72,723
Preferred dividends ($425 per share)....... (850) (850)
Decrease in net unrealized gains on
investments............................... (146,816) (146,816)
Decrease in note receivable from PLC
ESOP...................................... 28 28
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1994................... 5,000 126,494 (107,532) 377,049 (5,936) 395,075
Net income for 1995........................ 77,696 77,696
Common dividends ($1.00 per share)......... (5,000) (5,000)
Preferred dividends ($50 per share)........ (100) (100)
Increase in net unrealized gains on
investments............................... 165,395 165,395
Capital contribution from PLC.............. 18,000 18,000
Decrease in note receivable form PLC
ESOP...................................... 171 171
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1995................... $5,000 $ 144,494 $ 57,863 $449,645 $ (5,765) $ 651,237
------ ---------- --------------- -------- ---------- -------------
------ ---------- --------------- -------- ---------- -------------

See notes to consolidated financial statements.

F-5

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................... $ 77,696 $ 72,723 $ 56,155
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred policy acquisition costs........................... 84,501 88,089 73,335
Capitalization of deferred policy acquisition costs......................... (89,266) (127,566) (92,935)
Depreciation expense........................................................ 4,317 4,280 2,660
Deferred income taxes....................................................... (6,971) (4,731) 16,987
Accrued income taxes........................................................ 5,537 (12,182) 5,040
Interest credited to universal life and investment products................. 286,710 260,081 220,772
Policy fees assessed on universal life and investment products.............. (100,840) (85,532) (67,314)
Change in accrued investment income and other receivables................... (161,924) (32,242) (91,864)
Change in policy liabilities and other policyholder funds of traditional
life and health products................................................... 201,353 61,322 47,212
Change in other liabilities................................................. (3,270) 18,564 11,970
Other (net)................................................................. (6,634) (1,475) 10,517
----------- ----------- -----------
Net cash provided by operating activities....................................... 291,209 241,331 192,535
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments:
Investments available for sale.............................................. 2,014,060 386,498
Other....................................................................... 78,568 153,945 1,319,590
Sale of investments:
Investment available for sale............................................... 1,523,454 630,095
Other....................................................................... 141,184 59,550 244,683
Cost of investments acquired:
Investments available for sale.............................................. (3,626,877) (1,807,658)
Other....................................................................... (540,648) (220,839) (2,320,628)
Acquisitions and bulk reinsurance assumptions................................. 106,435 14,170
Principal payments on subordinated debenture of PLC...........................
Purchase of property and equipment............................................ (5,629) (4,889) (3,451)
Sale of property and equipment................................................ 286 470 1,817
----------- ----------- -----------
Net cash used in investing activities........................................... (415,602) (696,393) (743,819)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing under line of credit arrangements and long-term
debt......................................................................... 1,162,700 572,586 574,423
Proceeds from surplus note to PLC............................................. 35,000
Capital contribution from PLC................................................. 18,000 41,000
Principal payments on line of credit arrangements and long-term debt.......... (1,162,700) (572,704) (577,767)
Principal payment on surplus note to PLC...................................... (4,750) (9,500) (22,500)
Dividends to stockholder...................................................... (5,100) (850) (1,500)
Investment product deposits and change in universal life deposits............. 908,063 1,417,980 1,198,263
Investment product withdrawals................................................ (785,622) (976,401) (683,251)
----------- ----------- -----------
Net cash provided by financing activities....................................... 130,591 431,111 563,668
----------- ----------- -----------
INCREASE(DECREASE) IN CASH...................................................... 6,198 (23,951) 12,384
CASH AT BEGINNING OF YEAR....................................................... 0 23,951 11,567
----------- ----------- -----------
CASH AT END OF YEAR............................................................. $ 6,198 $ 0 $ 23,951
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt............................................................ $ 6,029 $ 5,029 $ 3,803
Income taxes................................................................ $ 41,397 $ 49,765 $ 27,432
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Minority interest in consolidated subsidiary.................................. $ (1,311)
Reduction of principal on note from ESOP...................................... $ 171 $ 28 $ 156
Acquisitions and bulk reinsurance assumptions
Assets acquired............................................................. $ 613 $ 117,349 $ 423,140
Liabilities assumed......................................................... (21,800) (166,595) (429,580)
----------- ----------- -----------
Net......................................................................... $ (21,187) $ (49,246) $ (6,440)
----------- ----------- -----------
----------- ----------- -----------

See notes to consolidated financial statements.

F-6

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements of Protective Life
Insurance Company and subsidiaries ("Protective") are prepared on the basis of
generally accepted accounting principles. Such accounting principles differ from
statutory reporting practices used by insurance companies in reporting to state
regulatory authorities. (See also Note B.)

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make various estimates
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, as well as the reported amounts of revenues
and expenses.

ENTITIES INCLUDED

The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its wholly-
owned subsidiaries including Wisconsin National Life Insurance Company
("Wisconsin National") and American Foundation Life Insurance Company ("American
Foundation"). Protective is a wholly-owned subsidiary of Protective Life
Corporation ("PLC"), an insurance holding company.

NATURE OF OPERATIONS

RECENTLY ISSUED ACCOUNTING STANDARDS

Protective adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities," at
December 31, 1993, which requires Protective to carry its investment in fixed
maturities and certain other securities at market value instead of amortized
cost.

In 1995 Protective adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures." Under these new standards, a
loan is considered impaired, based on current information and events, if it is
probable that Protective will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the historical effective
interest rate, except that all collateral-dependent loans are measured for
impairment based on the fair value of the collateral.

F-7

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, and
therefore no allowance for losses is required under SFAS No. 114 at December 31,
1995.

In 1995 PLC adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which changes the way stock-based compensation expense is measured and requires
additional disclosures relating to PLC's stock-based compensation plans. The
adoption of this accounting standard did not have a material effect on PLC's or
Protective's financial statements.

In 1995 the Financial Accounting Standards Board issued: SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts;" SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of;" and SFAS No. 122, "Accounting for Mortgage Servicing Rights."
Protective anticipates that the impact of adopting these three accounting
standards will be immaterial to its financial condition.

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, bank loan participations, and redeemable
preferred stocks) -- at current market value.

- Equity securities (common and nonredeemable preferred stocks) -- at
current market value.

- Mortgage loans on real estate -- at unpaid balances, adjusted for loan
origination costs, net of fees, and amortization of premium or discount.

- Investment real estate -- at cost, less allowances for depreciation
computed on the straight-line method. With respect to real estate acquired
through foreclosure, cost is the lesser of the loan balance plus
foreclosure costs or appraised value.

- Policy loans -- at unpaid balances.

- Other long-term investments -- at a variety of methods similar to those
listed above, as deemed appropriate for the specific investment.

- Short-term investments -- at cost, which approximates current market
value.

Substantially all short-term investments have maturities of three months or
less at the time of acquisition and include approximately $5.2 million in bank
deposits voluntarily restricted as to withdrawal.

F-8

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As prescribed by SFAS No. 115, 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 stockholder's equity. The market values of fixed
maturities increase or decrease as interest rates fall or rise. Therefore,
although the adoption of SFAS No. 115 does not affect Protective's operations,
its reported stockholder's equity will fluctuate significantly as interest rates
change.

Protective's balance sheets at December 31, prepared on the basis of
reporting investments at amortized cost rather than at market values, are as
follows:

1995 1994
------------ ------------

Total investments................................................. $ 5,915,357 $ 5,499,511
Deferred policy acquisition costs................................. 426,432 400,480
All other assets.................................................. 747,884 376,146
------------ ------------
$ 7,089,673 $ 6,276,137
------------ ------------
------------ ------------
Deferred income taxes............................................. $ 36,263 $ 43,235
All other liabilities............................................. 6,458,036 5,728,296
------------ ------------
6,494,299 5,771,531
Redeemable preferred stock........................................ 2,000 2,000
Stockholder's equity.............................................. 593,374 502,606
------------ ------------
$ 7,089,673 $ 6,276,137
------------ ------------
------------ ------------

Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.

DERIVATIVE FINANCIAL INSTRUMENTS

Protective does not use derivative financial instruments for trading
purposes. Combinations of futures contracts and options on treasury notes are
currently being used as hedges for asset/liability management of certain
investments, primarily mortgage loans on real estate, and liabilities arising
from interest-sensitive products such as guaranteed investment contracts and
individual annuities. Realized investment gains and losses on such contracts are
deferred and amortized over the life of the hedged asset. Net realized losses of
$15.2 million were deferred in 1995 and net realized gains of $7.9 million were
deferred in 1994. At December 31, 1995 and 1994, open futures contracts with
notional amounts of $25.0 million and $137.5 million, respectively, had net
unrealized losses of $0.6 million and $0.4 million respectively.

Protective uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1995, related open
interest rate swap contracts with a notional amount of $170.3 million were in a
$1.3 million net unrealized gain position. At December 31, 1994, related open
interest rate swap contracts with a notional amount of $230.0 million were in an
$8.9 million net unrealized loss position.

F-9

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH

Cash includes all demand deposits reduced by the amount of outstanding
checks and drafts.

PROPERTY AND EQUIPMENT

Property and equipment are reported at cost. Protective uses both
accelerated and straight-line methods of depreciation based upon the estimated
useful lives of the assets. Major repairs or improvements are capitalized and
depreciated over the estimated useful lives of the assets. Other repairs are
expensed as incurred. The cost and related accumulated depreciation of property
and equipment sold or retired are removed from the accounts, and resulting gains
or losses are included in income.

Property and equipment consisted of the following at December 31:

1995 1994
--------- ---------

Home office building.................................................... $ 35,284 $ 35,321
Other, principally furniture and equipment.............................. 30,356 25,687
--------- ---------
65,640 61,008
Accumulated depreciation................................................ 31,429 27,823
--------- ---------
$ 34,211 $ 33,185
--------- ---------
--------- ---------

SEPARATE ACCOUNTS

Protective operates separate accounts, some in which Protective bears the
investment risk and others in which the investments risk rests with the
contractholder. The assets and liabilities related to separate accounts in which
Protective does not bear the investment risk are valued at market and reported
separately as assets and liabilities related to separate accounts in the
accompanying consolidated financial statements.

REVENUES, BENEFITS, CLAIMS, AND EXPENSES

- Traditional Life and Health Insurance Products -- Traditional life
insurance products consist principally of those products with fixed and
guaranteed premiums and benefits and include whole life insurance
policies, term life insurance policies, limited-payment life insurance
policies, and certain annuities with life contingencies. Life insurance
and immediate annuity premiums are recognized as revenue when due. Health
insurance premiums are recognized as revenue over the terms of the
policies. Benefits and expenses are associated with earned premiums so
that profits are recognized over the life of the contracts. This is
accomplished by means of the provision for liabilities for future policy
benefits and the amortization of deferred policy acquisition costs.

Liabilities for future policy benefits on traditional life insurance
products have been computed using a net level method including assumptions
as to investment yields, mortality, persistency, and other assumptions
based on Protective's experience modified as necessary to reflect
anticipated trends and to include provisions for possible adverse
deviation. Reserve investment yield assumptions are graded and range from
2.5% to 7.0%. The liability for future policy benefits and claims on
traditional

F-10

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
life and health insurance products includes estimated unpaid claims that
have been reported to Protective and claims incurred but not yet reported.
Policy claims are charged to expense in the period that the claims are
incurred.

Activity in the liability for unpaid claims is summarized as follows:

1995 1994 1993
---------- ---------- ----------

Balance beginning of year................................ $ 79,462 $ 77,191 $ 68,203
Less reinsurance....................................... 5,024 3,973 3,809
---------- ---------- ----------
Net balance beginning of year............................ 74,438 73,218 64,394
---------- ---------- ----------
Incurred related to:
Current year............................................. 217,366 203,453 194,394
Prior year............................................... (8,337) (6,683) (5,123)
---------- ---------- ----------
Total incurred....................................... 209,029 196,770 189,271
---------- ---------- ----------
Paid related to:
Current year............................................. 164,321 148,548 141,361
Prior year............................................... 48,834 47,002 39,086
---------- ---------- ----------
Total paid........................................... 213,155 195,550 180,447
---------- ---------- ----------
Net balance end of year.................................. 70,312 74,438 73,218
Plus reinsurance....................................... 3,330 5,024 3,973
---------- ---------- ----------
Balance end of year...................................... $ 73,642 $ 79,462 $ 77,191
---------- ---------- ----------
---------- ---------- ----------

- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, guaranteed investment
contracts, deferred annuities, and annuities without life contingencies.
Revenues for universal life and investment products consist of policy fees
that have been assessed against policy account balances for the costs of
insurance, policy administration, and surrenders. That is, universal life
and investment product deposits are not considered revenues in accordance
with generally accepted accounting principles. Benefit reserves for
universal life and investment products represent policy account balances
before applicable surrender charges plus certain deferred policy
initiation fees that are recognized in income over the term of the
policies. Policy benefits and claims that are charged to expense include
benefit claims incurred in the period in excess of related policy account
balances and interest credited to policy account balances. Interest credit
rates for universal life and investment products ranged from 3.0% to 9.4%
in 1995.

At December 31, 1995, Protective estimates the fair value of its
guaranteed investment contracts to be $2,660.0 million using discounted
cash flows. The surrender value of Protective's annuities which
approximates fair value was $1,296.7 million.

- Policy Acquisition Costs -- Commissions and other costs of acquiring
traditional life and health insurance, universal life insurance, and
investment products that vary with and are primarily related to the
production of new business have been deferred. Traditional life and health
insurance acquisition costs are amortized over the premium-payment period
of the related policies in proportion to the

F-11

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ratio of annual premium income to total anticipated premium income.
Acquisition costs for universal life and investment products are being
amortized over the lives of the policies in relation to the present value
of estimated gross profits from surrender charges and investment,
mortality, and expense margins. Under SFAS No. 97, "Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and
for Realized Gains and Losses from the Sale of Investments," Protective
makes certain assumptions regarding the mortality, persistency, expenses,
and interest rates it expects to experience in future periods. These
assumptions are to be best estimates and are to be periodically updated
whenever actual experience and/or expectations for the future change from
initial assumptions. 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, discounted at interest rates averaging 15%. For
acquisitions occurring after 1988, Protective amortizes the present value
of future profits over the premium payment period including accrued
interest at 8%. The unamortized present value of future profits for such
acquisitions was approximately $102.5 million and $84.4 million at
December 31, 1995 and 1994, respectively. During 1995 $26.5 million of
present value of future profits on acquisitions made during the year was
capitalized, and $3.2 million was amortized. The unamortized present value
of future profits for all acquisitions was $123.9 million at December 31,
1995 and $110.3 million at December 31, 1994.

PARTICIPATING POLICIES

Participating business comprises approximately 1% of the individual life
insurance in force and 2% of the individual life insurance premium income.
Policyholder dividends totaled $2.6 million in 1995, 1994, and 1993.

INCOME TAXES

Protective uses the asset and liability method of accounting for income
taxes. Income tax provisions are generally based on income reported for
financial statement purposes. Deferred federal income taxes arise from the
recognition of temporary differences between the bases of assets and liabilities
determined for financial reporting purposes and the bases determined for income
tax purposes. Such temporary differences are principally related to the deferral
of policy acquisition costs and the provision for future policy benefits and
expenses.

RECLASSIFICATIONS

Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
net income, total assets, or stockholder's equity.

F-12

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principals ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The most significant differences are: (a) acquisition costs of
obtaining new business are deferred and amortized over the approximate life of
the policies rather than charged to operations as incurred, (b) benefit
liabilities are computed using a net level method and are based on realistic
estimates of expected mortality, interest, and withdrawals as adjusted to
provide for possible unfavorable deviation from such assumptions, (c) deferred
income taxes are provided for temporary differences between financial and
taxable earnings, (d) the Asset Valuation Reserve and Interest Maintenance
Reserve are restored to stockholder's equity, (e) furniture and equipment,
agents' debit balances, and prepaid expenses are reported as assets rather than
being charged directly to surplus (referred to as nonadmitted items), (f)
certain items of interest income, principally accrual of mortgage and bond
discounts are amortized differently, and (g) bonds are stated at market instead
of amortized cost.

F-13

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES (CONTINUED)
The reconciliations of net income and stockholder's equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:

NET INCOME STOCKHOLDER'S EQUITY
------------------------------- ---------------------------------
1995 1994 1993 1995 1994 1993
--------- --------- --------- ---------- ---------- ---------

In conformity with statutory reporting
practices:
Protective Life Insurance Company.......... $ 105,744 $ 54,812 $ 41,471 $ 322,416 $ 304,858 $ 263,075
Wisconsin National Life Insurance
Company................................... 10,954 10,132 9,591 62,529 57,268 50,885
American Foundation Life Insurance
Company................................... 3,330 3,072 1,415 18,781 20,327 18,290
Capital Investors Life Insurance Company... 182 170 207 1,315 1,125 824
Empire General Life Assurance
Corporation............................... 1,003 690 408 20,685 21,270 10,588
Protective Life Insurance Corporation of
Alabama................................... 546 69 16 2,675 2,133 2,064
Consolidation elimination.................. (6,500) 30 (103,985) (100,123) (80,651)
--------- --------- --------- ---------- ---------- ---------
115,259 68,945 53,138 324,416 306,858 265,075
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net of
amortization.............................. (765) 41,718 25,686 410,183 434,200 299,307
Policy liabilities and accruals............ (48,330) (34,632) (15,586) (186,512) (140,298) (69,844)
Deferred income tax........................ 6,972 4,731 3,081 (67,420) 14,667 (69,118)
Asset Valuation Reserve.................... 105,769 24,925 43,398
Interest Maintenance Reserve............... (1,235) (1,716) (1,432) 14,412 3,583 10,489
Nonadmitted items.......................... 20,603 21,445 7,742
Timing and valuation differences on
mortgage loans on real estate and fixed
maturity investments...................... (619) (961) 1,645 25,060 6,877 7,350
Net unrealized gains and losses on
investments............................... 57,863 (107,532) 39,284
Realized investment gains (losses)......... 6,781 (6,664) (7,860)
Noninsurance affiliates.................... (22) (12) 9 31
Consolidation elimination.................. 2,515 (4,415) (2,107) (46,222) (162,835) (65,620)
Other adjustments, net..................... (2,860) 5,717 (398) (4,924) (4,815) 1,896
--------- --------- --------- ---------- ---------- ---------
In conformity with generally accepted
accounting principles....................... $ 77,696 $ 72,723 $ 56,155 $ 653,237 $ 397,075 $ 469,990
--------- --------- --------- ---------- ---------- ---------
--------- --------- --------- ---------- ---------- ---------

F-14

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE C -- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:

1995 1994 1993
---------- ---------- ----------

Fixed maturities......................................... $ 272,942 $ 237,264 $ 211,566
Equity securities........................................ 1,338 2,435 1,519
Mortgage loans on real estate............................ 162,135 141,751 130,262
Investment real estate................................... 1,855 1,950 2,119
Policy loans............................................. 8,958 8,397 7,558
Other, principally short-term investments................ 40,348 35,062 18,779
---------- ---------- ----------
487,576 426,859 371,803
Investment expenses...................................... 29,143 17,926 17,638
---------- ---------- ----------
$ 458,433 $ 408,933 $ 354,165
---------- ---------- ----------
---------- ---------- ----------

Realized investment gains (losses) for the years ended December 31 are
summarized as follows:

1995 1994 1993
---------- ---------- ----------

Fixed maturities.......................................... $ 6,118 $ (8,646) $ 10,508
Equity securities......................................... 44 7,735 2,230
Mortgage loans and other investments...................... (4,211) 7,209 (7,684)
---------- ---------- ----------
$ 1,951 $ 6,298 $ 5,054
---------- ---------- ----------
---------- ---------- ----------

Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $32.7 million at December 31, 1995 and $35.2
million at December 31, 1994. Additions to the allowance are included in
realized investment gains (losses). Without such additions/reductions,
Protective had realized investment losses of $0.5 million in 1995 and realized
investment gains of $6.3 million and $13.8 million in 1994 and 1993,
respectively.

In 1995, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $18.0 million and
gross losses were $11.8 million. In 1994, gross gains were $15.2 million and
gross losses were $16.4 million. In 1993, gross gains on the sale of fixed
maturities were $8.3 million and gross losses were $0.4 million.

F-15

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of Protective's investments
classified as available for sale at December 31 are as follows:

GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1995 COST GAINS LOSSES VALUES
- ----------------------------------------- ------------ ----------- ----------- ------------

Fixed maturities:
Bonds:
Mortgage-backed securities........... $ 2,006,858 $ 46,934 $ 4,017 $ 2,049,775
United States Government and
authorities......................... 105,388 2,290 101 107,577
States, municipalities, and political
subdivisions........................ 10,888 702 0 11,590
Public utilities..................... 322,110 5,904 770 327,244
Convertibles and bonds with
warrants............................ 638 0 145 493
All other corporate bonds............ 1,126,318 50,103 7,573 1,168,848
Bank loan participations............... 220,811 0 0 220,811
Redeemable preferred stocks............ 5,857 61 324 5,594
------------ ----------- ----------- ------------
3,798,868 105,994 12,930 3,891,932
Equity securities........................ 35,448 6,438 3,175 38,711
Short-term investments................... 46,891 0 0 46,891
------------ ----------- ----------- ------------
$ 3,881,207 $ 112,432 $ 16,105 $ 3,977,534
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------

GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1994 COST GAINS LOSSES VALUES
- ----------------------------------------- ------------ ---------- ---------- ------------

Fixed maturities:
Bonds:
Mortgage-backed securities........... $ 2,002,842 $ 7,538 $ 112,059 $ 1,898,321
United States Government and
authorities......................... 90,468 290 8,877 81,881
States, municipalities, and political
subdivisions........................ 10,902 5 1,230 9,677
Public utilities..................... 414,011 1,091 36,982 378,120
Convertibles and bonds with
warrants............................ 687 0 302 385
All other corporate bonds............ 927,779 3,437 56,788 874,428
Bank loan participations............... 244,881 0 0 244,881
Redeemable preferred stocks............ 6,800 37 884 5,953
------------ ---------- ---------- ------------
3,698,370 12,398 217,122 3,493,646
Equity securities........................ 45,958 3,994 4,947 45,005
Short-term investments................... 54,683 0 0 54,683
------------ ---------- ---------- ------------
$ 3,799,011 $ 16,392 $ 222,069 $ 3,593,334
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------

F-16

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of fixed maturities at
December 31, by expected maturity, are shown below. Expected maturities are
derived from rates of prepayment that may differ from actual rates of
prepayment.

ESTIMATED
AMORTIZED MARKET
COST VALUES
------------ ------------

1995
- -----------------------------------------------------------------------
Due in one year or less.............................................. $ 410,489 $ 411,839
Due after one year through five years................................ 1,090,323 1,101,226
Due after five years through ten years............................... 1,481,248 1,524,555
Due after ten years.................................................. 816,808 854,312
------------ ------------
$ 3,798,868 $ 3,891,932
------------ ------------
------------ ------------

1994
- -----------------------------------------------------------------------
Due in one year or less.............................................. $ 577,146 $ 540,223
Due after one year through five years................................ 1,351,435 1,299,248
Due after five years through ten years............................... 994,994 929,764
Due after ten years.................................................. 774,795 724,411
------------ ------------
$ 3,698,370 $ 3,493,646
------------ ------------
------------ ------------

The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:

RATING 1995 1994
- ------------------------------------------------------------ ------ ------

AAA......................................................... 56.1% 57.6%
AA.......................................................... 4.5 5.5
A........................................................... 12.6 12.5
BBB
Bonds..................................................... 19.0 14.9
Bank loan participations.................................. 0.4 1.4
BB or Less
Bonds..................................................... 2.0 2.3
Bank loan participations.................................. 5.3 5.6
Redeemable preferred stocks................................. 0.1 0.2
------ ------
100.0% 100.0%
------ ------
------ ------

At December 31, 1995 and 1994, Protective had bonds which were rated less
than investment grade of $75.7 million and $82.5 million, respectively, having
an amortized cost of $82.2 million and $89.4 million, respectively.
Additionally, Protective had bank loan participations which were rated less than
investment grade of $206.0 million and $195.1 million, respectively, having an
amortized cost of $206.0 million and $195.1 million, respectively.

F-17

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All dollar amounts in tables are in thousands)

NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The change in unrealized gains (losses), net of income tax, on fixed
maturity and equity securities for the years ended December 31 is summarized as
follows:

1995 1994 1993
---------- ----------- ---------

Fixed maturities........................................... $ 193,562 $ (175,723) $ 1,198
Equity securities.......................................... $ 2,740 $ (5,342) $ 1,565

At December 31, 1995, all of Protective's mortgage loans were commercial
loans of which 81% were retail, 7% were warehouses, and 6% were office
buildings. Protective specializes in making mortgage loans on either
credit-oriented or credit-anchored commercial properties, most of which are
strip shopping centers in smaller towns and cities. No single tenant's leased
space represents more than 4% of mortgage loans. Approximately 82% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: South Carolina, Georgia, Alabama, Tennessee,
Texas, Florida, North Carolina, Virginia, California, Mississippi, Colorado,
Ohio, Kentucky, Louisiana, Indiana, and Illinois.

Many of the mortgage loans have call provisions after five to seven years.
Assuming the loans are called at their next call dates, approximately $174.3
million would become due in 1996, $497.3 million in 1997 to 2000, and $275.7
million in 2001 to 2005.

At December 31, 1994, the average mortgage loan was $1.6 million, and the
weighted average interest rate was 9.3%. The largest single mortgage loan was
$13.1 million. While Protective's mortgage loans do not have quoted market
values, at December 31, 1995 and 1994, Protective estimates the market value of
its mortgage loans to be $2,001.1 million and $1,535.3 million, respectively,
using discounted cash flows from the next call date.

At December 31, 1995 and 1994, Protective's problem mortgage loans and
foreclosed properties totaled $26.1 million and $24.0 million, respectively.
Protective expects no significant loss of principal.

Certain investments, principally real estate, with a carrying value of $9.5
million were nonincome producing for the twelve months ended December 31, 1995.

Mortgage loans to affiliates of both Fletcher Bright and Edens & Avant
totaled $95.4 million and $69.1 million, respectively, at December 31, 1995.
Most of such loans were not made to, or in reliance on the credit of, Mr. Bright
or Edens & Avant.

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. Policy loan interest rates generally
range from 4.5% to 8.0%. The fair values of Protective's other long-term
investments approximate cost.

F-18

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:

1995 1994 1993
----------- ----------- -----------

Statutory federal income tax rate applied to pretax income.. 35.0% 35.0% 35.0%
Dividends received deduction and tax-exempt interest........ (0.5) (0.4) (0.5)
Low-income housing credit................................... (0.7) (0.7)
Tax benefits arising from prior acquisitions and other
adjustments................................................ 0.2 (2.8) (1.1)
--- --- ---
Effective income tax rate................................... 34.0% 31.1% 33.4%
--- --- ---
--- --- ---

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:

1995 1994 1993
---------- ---------- ----------

Deferred policy acquisition costs......................... $ (11,606) $ 34,561 $ 8,861
Benefit and other policy liability changes................ 52,496 (52,288) (10,416)
Temporary differences of investment income................ (34,175) 15,524
Other items............................................... (13,687) (2,528) (1,527)
---------- ---------- ----------
$ (6,972) $ (4,731) $ (3,082)
---------- ---------- ----------
---------- ---------- ----------

The components of Protective's net deferred income tax liability as of
December 31 were as follows:

1995 1994
---------- ----------

Deferred income tax assets:
Policy and policyholder liability reserves.......................... $ 63,830 $ 116,326
Unrealized loss on investments...................................... 23,485
Other............................................................... 2,303
---------- ----------
66,133 139,811
---------- ----------
Deferred income tax liabilities:
Deferred policy acquisition costs................................... 102,154 113,760
Unrealized gain on investments...................................... 31,399
Other............................................................... 11,384
---------- ----------
133,553 125,144
---------- ----------
Net deferred income tax liability................................... $ 67,420 $ (14,667)
---------- ----------
---------- ----------

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, 1995 was approximately $50.7 million. Should the accumulation in
the Policyholders' Surplus account

F-19

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
exceed certain stated maximums, or should distributions including cash dividends
be made to PLC in excess of approximately $322 million, such excess would be
subject to federal income taxes at rates then effective. Deferred income taxes
have not been provided on amounts designated as Policyholders' Surplus.
Protective does not anticipate involuntarily paying income tax on amounts in the
Policyholders' Surplus accounts.

At December 31, 1995 Protective has an unused capital loss carryforward of
$5.7 million which will expire in 2000.

Protective's income tax returns are included in the consolidated income tax
returns of PLC. The allocation of income tax liabilities among affiliates is
based upon separate income tax return calculations.

NOTE E -- DEBT
At December 31, 1995, PLC had borrowed under a term note that contains,
among other provisions, requirements for maintaining certain financial ratios,
and restrictions on indebtedness incurred by PLC's subsidiaries including
Protective. Additionally, PLC, on a consolidated basis, cannot incur debt in
excess of 50% of its total capital.

Included in indebtedness to related parties are three surplus debentures
issued by Protective to PLC. At December 31, 1995, the balance of the three
surplus debentures combined was $34.7 million. Future maturities of these
debentures are $14.7 million in 1996 and $20.0 million in 2003.

Interest expense totaled $6.0 million, $5.0 million, and $5.0 million, in
1995, 1994, and 1993, respectively.

NOTE F -- ACQUISITIONS
In April 1994 Protective acquired through coinsurance a block of payroll
deduction policies. In October 1994, Protective acquired through coinsurance a
block of individual life insurance policies. In June 1995 Protective acquired
through coinsurance a block of term life insurance policies.

These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.

NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. Protective does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.

A number of civil jury verdicts have been returned against life and health
insurers in the jurisdictions in which Protective does business involving the
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. Some of the lawsuits have resulted in the
award of substantial judgments against the insurer, including material amounts
of punitive damages. In some states, juries have substantial discretion in
awarding punitive damages in these circumstances. Protective and its
subsidiaries,

F-20

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
like other life and health insurers, from time to time are involved in such
litigation. To date, no such lawsuit has resulted in the award of any
significant amount of damages against Protective. Although the outcome of any
litigation cannot be predicted with certainty, Protective is not aware of any
litigation that will have a material adverse effect on the financial position of
Protective.

NOTE H -- STOCKHOLDER'S EQUITY AND RESTRICTIONS
At December 31, 1995, approximately $329 million of consolidated
stockholder's equity excluding net unrealized gains and losses represented net
assets of Protective that cannot be transferred in the form of dividends, loans,
or advances to PLC. In general, dividends up to specified levels are considered
ordinary and may be paid thirty days after written notice to the insurance
commissioner of the state of domicile unless such commissioner objects to the
dividend prior to the expiration of such period. Dividends in larger amounts are
considered extraordinary and are subject to affirmative prior approval by such
commissioner. The maximum amount that would qualify as ordinary dividends to PLC
by Protective in 1996 is estimated to be $129 million.

NOTE I -- REDEEMABLE PREFERRED STOCK
PLC owns all of the 2,000 shares of redeemable preferred stock issued by
Protective's subsidiary, American Foundation. The entire issue was reissued in
1991 and will be redeemed September 30, 1996 for $1 thousand per share, or $2
million. The stock pays, when and if declared, annual minimum cumulative
dividends of $50 per share, and noncumulative participating dividends to the
extent American Foundation's statutory earnings for the immediately preceding
fiscal year exceed $1 million. Dividends of $0.1 million, $0.9 million, and $1.5
million were paid to PLC in 1995, 1994, and 1993, respectively.

NOTE J -- RELATED PARTY MATTERS
Receivables from related parties consisted of receivables from affiliates
under control of PLC in the amounts of $2.0 million and $0.3 million at December
31, 1995 and 1994, respectively. 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.

On August 6, 1990, PLC announced that its Board of Directors approved the
formation of an Employee Stock Ownership Plan ("ESOP"). On December 1, 1990,
Protective transferred to the ESOP 520,000 shares of PLC's common stock held by
it in exchange for a note. The outstanding balance of the note, $5.8 million at
December 31, 1995, is accounted for as a reduction to stockholder's equity. The
stock will be used to match employee contributions to PLC's existing 401(k)
Plan. The ESOP shares are dividend paying. Dividends on the shares are used to
pay the ESOP's note to Protective.

Protective leases furnished office space and computers to affiliates. Lease
revenues were $3.1 million in 1995, $2.8 million in 1994, and $2.8 million in
1993. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $38.1 million, $29.8
million, and $20.4 million in 1995, 1994, and 1993, respectively. Commissions
paid to affiliated marketing organizations of $10.9 million, $10.1 million, and
$5.8 million in 1995, 1994, and 1993, respectively, were included in deferred
policy acquisition costs.

F-21

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE J -- RELATED PARTY MATTERS (CONTINUED)
Certain corporations with which PLC's directors were affiliated paid
Protective premiums and policy fees for various types of group insurance. Such
premiums and policy fees amounted to $21.2 million, $21.1 million, and $10.3
million in 1995, 1994, and 1993, respectively. Protective and/or PLC paid
commissions, interest, and service fees to these same corporations totaling $5.3
million, $4.9 million, and $6.1 million, in 1995, 1994, and 1993, respectively.

For a discussion of indebtedness to related parties, see Note E.

NOTE K -- BUSINESS SEGMENTS
Protective operates predominantly in the life and accident and health
insurance industry. The following table sets forth total revenues, income before
income tax, and identifiable assets of Protective's business segments. The
primary components of revenues are premiums and policy fees, net investment
income, and realized investment gains and losses. Premiums and policy fees are
attributed directly to each business segment. Net investment income is allocated
based on directly related assets required for transacting that segment of
business.

Realized investment gains (losses) and expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.

Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.

There are no significant intersegment transactions.

F-22

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE K -- BUSINESS SEGMENTS (CONTINUED)

1995 1994 1993
------------ ------------ ------------

TOTAL REVENUES
Acquisitions.................................................. $ 193,544 $ 170,659 $ 123,855
Financial Institutions........................................ 33,152 107,194 96,443
Group......................................................... 159,263 148,313 143,423
Guaranteed Investment Contracts............................... 199,468 183,591 167,233
Individual Life............................................... 139,424 122,248 111,497
Investment Products........................................... 104,984 79,773 69,550
Corporate and Other........................................... 3,059 12,936 1,521
Unallocated Realized Investment Gains (Losses)................ 921 5,266 1,876
------------ ------------ ------------
$ 833,815 $ 829,980 $ 715,398
------------ ------------ ------------
------------ ------------ ------------
Acquisitions.................................................. 23.2% 20.6% 17.3%
Financial Institutions........................................ 4.0 12.9 13.5
Group......................................................... 19.1 17.9 20.0
Guaranteed Investment Contracts............................... 23.9 22.1 23.4
Individual Life............................................... 16.7 14.7 15.6
Investment Products........................................... 12.6 9.6 9.7
Corporate and Other........................................... 0.4 1.6 0.2
Unallocated Realized Investment Gains (Losses)................ 0.1 0.6 0.3
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------

F-23

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE K -- BUSINESS SEGMENTS (CONTINUED)

1995 1994 1993
------------ ------------ ------------

INCOME BEFORE INCOME TAX
Acquisitions.................................................. $ 52,136 $ 39,176 $ 29,845
Financial Institutions........................................ 8,212 8,176 7,220
Group......................................................... 10,502 11,169 10,435
Guaranteed Investment Contracts............................... 30,555 33,197 27,218
Individual Life............................................... 17,713 17,223 20,324
Investment Products........................................... 11,951 107 3,402
Corporate and Other........................................... (14,257) (8,736) (14,208)
Unallocated Realized Investment Gains (Losses)................ 921 5,266 1,876
------------ ------------ ------------
$ 117,733 $ 105,578 $ 86,112
------------ ------------ ------------
------------ ------------ ------------
Acquisitions.................................................. 44.3% 37.1% 34.6%
Financial Institutions........................................ 7.0 7.7 8.4
Group......................................................... 8.9 10.6 12.1
Guaranteed Investment Contracts............................... 26.0 31.5 31.6
Individual Life............................................... 15.0 16.3 23.6
Investment Products........................................... 10.1 0.1 4.0
Corporate and Other........................................... (12.1) (8.3) (16.5)
Unallocated Realized Investment Gains (Losses)................ 0.8 5.0 2.2
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------

F-24

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE K -- BUSINESS SEGMENTS (CONTINUED)

1995 1994 1993
------------ ------------ ------------

IDENTIFIABLE ASSETS
Acquisitions.................................................. $ 1,255,542 $ 1,204,883 $ 1,076,182
Financial Institutions........................................ 265,132 211,652 189,943
Group......................................................... 240,222 215,904 208,790
Guaranteed Investment Contracts............................... 2,536,939 2,211,079 2,041,463
Individual Life............................................... 887,927 752,168 641,992
Investment Products........................................... 1,578,789 1,284,186 876,691
Corporate and Other........................................... 414,142 230,832 272,788
------------ ------------ ------------
$ 7,178,693 $ 6,110,704 $ 5,307,849
------------ ------------ ------------
------------ ------------ ------------
Acquisitions.................................................. 17.5% 19.7% 20.3%
Financial Institutions........................................ 3.7 3.5 3.6
Group......................................................... 3.3 3.5 3.9
Guaranteed Investment Contracts............................... 35.3 36.2 38.5
Individual Life............................................... 12.4 12.3 12.1
Investment Products........................................... 22.0 21.0 16.5
Corporate and Other........................................... 5.8 3.8 5.1
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------

NOTE L -- EMPLOYEE BENEFIT PLANS
PLC has a defined benefit pension plan covering substantially all of its
employees. The plan is not separable by affiliates participating in the plan.
However, approximately 80% of the participants in the plan are employees of
Protective. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. PLC's funding policy is
to contribute amounts to the plan sufficient to meet the minimum 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.

F-25

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The actuarial present value of benefit obligations and the funded status of
the plan taken as a whole at December 31 is as follows:

1995 1994
--------- ---------

Accumulated benefit obligation, including vested benefits of $16,676 in 1995 and
$11,992 in 1994.................................................................. $ 17,415 $ 12,348
--------- ---------
Projected benefit obligation for service rendered to date......................... $ 24,877 $ 20,302
Plan assets at fair value (group annuity contract with Protective)................ 18,254 15,679
--------- ---------
Plan assets less than the projected benefit obligation............................ (6,623) (4,623)
Unrecognized net loss from past experience different from that assumed............ 4,882 2,400
Unrecognized prior service cost................................................... 805 905
Unrecognized net transition asset................................................. (84) (101)
--------- ---------
Net pension liability recognized in balance sheet................................. $ (1,020) $ (1,419)
--------- ---------
--------- ---------

Net pension cost includes the following components for the years ended
December 31:

1995 1994 1993
--------- --------- ---------

Service cost -- benefits earned during the year............... $ 1,540 $ 1,433 $ 1,191
Interest cost on projected benefit obligation................. 1,636 1,520 1,396
Actual return on plan assets.................................. (1,358) (1,333) (1,270)
Net amortization and deferral................................. 114 210 704
--------- --------- ---------
Net pension cost.............................................. $ 1,932 $ 1,830 $ 2,021
--------- --------- ---------
--------- --------- ---------

Protective's share of the net pension cost was $1.2 million, $1.2 million,
and $1.5 million, in 1995, 1994, and 1993, respectively.

Assumptions used to determine the benefit obligations as of December 31 were
as follows:

1995 1994 1993
----------- ----------- -----------

Weighted average discount rate................................... 7.25% 8.00% 7.50%
Rates of increase in compensation level.......................... 5.25% 6.00% 5.50%
Expected long-term rate of return on assets...................... 8.50% 8.50% 8.50%

Assets of the pension plan are included in the general assets of Protective.
Upon retirement, the amount of pension plan assets vested in the retiree is used
to purchase a single premium annuity from Protective in the retiree's name.
Therefore, amounts presented above as plan assets exclude assets relating to
retirees.

PLC also sponsors an unfunded Excess Benefits Plan, which is a nonqualified
plan that provides defined pension benefits in excess of limits imposed by
federal income tax law. At December 31, 1995, the projected benefit obligation
of this plan totaled $5.7 million.

F-26

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
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, 1995, the liability for such benefits
totaled $1.5 million. The expense recorded by PLC was $0.2 million in 1995,
1994, and 1993. PLC's obligation is not materially affected by a 1% change in
the healthcare cost trend assumptions used in the calculation of the obligation.

Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation. This plan is partially funded at a maximum of $50,000 face amount
of insurance.

PLC sponsors a defined contribution plan which covers substantially all
employees. Employee contributions are made on a before-tax basis as provided by
Section 401(k) of the Internal Revenue Code. In 1990, PLC established an
Employee Stock Ownership Plan to match employee contributions to PLC's 401(k)
Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees who are
not otherwise under a bonus plan. Expense related to the ESOP consists of the
cost of the shares allocated to participating employees plus the interest
expense on the ESOP's note payable to Protective less dividends on shares held
by the ESOP. At December 31, 1995, PLC had committed 70,088 shares to be
released to fund employee benefits. The expense recorded by PLC for this
employee benefit was $0.7 million, $0.6 million and $0.2 million in 1995, 1994,
and 1993, respectively.

NOTE M -- REINSURANCE
Protective assumes risks from and reinsures certain parts of its risks with
other insurers under yearly renewable term, coinsurance, and modified
coinsurance agreements. Yearly renewable term and coinsurance agreements are
accounted for by passing a portion of the risk to the reinsurer. Generally, the
reinsurer receives a proportionate part of the premiums less commissions and is
liable for a corresponding part of all benefit payments. Modified coinsurance is
accounted for similarly to coinsurance except that the liability for future
policy benefits is held by the original company, and settlements are made on a
net basis between the companies. While the amount retained on an individual life
will vary based upon age and mortality prospects of the risk, Protective,
generally, will not carry more than $500,000 individual life insurance on a
single risk.

Protective has reinsured approximately $17.5 billion, $8.6 billion, and $7.5
billion, in face amount of life insurance risks with other insurers representing
$116.1 million, $46.0 million, and $37.9 million of premium income for 1995,
1994, and 1993, respectively. Protective has also reinsured accident and health
risks representing $217.1 million, $126.5 million and $88.9 million, of premium
income for 1995, 1994, and 1993, respectively. In 1995 and 1994, policy and
claim reserves relating to insurance ceded of $232.3 million and $120.0 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, 1995 and 1994,
Protective had paid $4.1 million and $5.4 million, respectively, of ceded
benefits which are recoverable from reinsurers.

F-27

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE M -- REINSURANCE (CONTINUED)
During 1995 the Company entered into a reinsurance agreement whereby all of
the Company's new credit insurance sales are being ceded to a reinsurer.
Included in the preceding paragraph are credit life and credit accident and
health insurance premiums of $68.2 million and $57.6 million respectively, and
reserves totaling $100.8 million which were ceded during 1995.

NOTE N -- ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated market values of Protective's financial
instruments at December 31 are as follows:

1995 1994
-------------------------- --------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
------------ ------------ ------------ ------------

Assets (see Notes A and C):
Investments:
Fixed maturities....................................... $ 3,891,932 $ 3,891,932 $ 3,493,646 $ 3,493,646
Equity securities...................................... 38,711 38,711 45,005 45,005
Mortgage loans on real estate.......................... 1,835,057 2,001,100 1,488,495 1,535,300
Short-term investments................................. 46,891 46,891 54,683 54,683
Cash..................................................... 6,198 6,198
Other (see Note A):
Futures contracts........................................ (633) (416)
Interest rate swaps...................................... 1,299 (8,952)

F-28

SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)

- --------------------------------------------------------------------------------------------------

COL. A COL. B COL. C COL. D COL. E COL. F
- --------------------------------------------------------------------------------------------------
GIC AND
FUTURE ANNUITY
DEFERRED POLICY DEPOSITS PREMIUMS
POLICY BENEFITS AND OTHER AND
ACQUISITION AND UNEARNED POLICYHOLDERS' POLICY
SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES
- ----------------------------------- ----------- ---------- -------- -------------- --------

Year Ended
December 31, 1995:
Acquisitions..................... $123,889 $ 851,994 $ 590 $ 250,550 $98,501
Financial Institutions........... 36,283 84,162 189,973 1,495 23,875
Group............................ 24,974 123,279 2,806 85,925 142,483
Guaranteed Investment
Contracts....................... 993 68,704 0 2,451,693 0
Individual Life.................. 186,496 672,569 336 14,709 99,018
Investment Products.............. 37,534 127,104 0 1,061,507 4,566
Corporate and Other.............. 14 342 62 263 1,445
Unallocated Realized Investment
Gains (Losses).................. 0 0 0 0 0
----------- ---------- -------- -------------- --------
TOTAL.......................... $410,183 $1,928,154 $193,767 $3,866,142 $369,888
----------- ---------- -------- -------------- --------
----------- ---------- -------- -------------- --------
Year Ended
December 31, 1994:
Acquisitions..................... $110,203 $ 856,889 $ 381 $ 266,828 $86,376
Financial Institutions........... 68,060 43,198 99,798 2,758 98,027
Group............................ 22,685 116,324 2,905 84,689 131,096
Guaranteed Investment
Contracts....................... 996 0 0 2,281,674 0
Individual Life.................. 162,186 571,070 320 13,713 84,925
Investment Products.............. 70,053 102,705 0 1,027,527 1,635
Corporate and Other.............. 17 4,109 75 263 713
Unallocated Realized Investment
Gains (Losses).................. 0 0 0 0 0
----------- ---------- -------- -------------- --------
TOTAL.......................... $434,200 $1,694,295 $103,479 $3,677,452 $402,772
----------- ---------- -------- -------------- --------
----------- ---------- -------- -------------- --------
Year Ended
December 31, 1993:
Acquisitions..................... $ 69,942 $ 705,487 $ 501 $ 259,513 $58,562
Financial Institutions........... 59,163 39,508 85,042 2,913 87,355
Group............................ 20,520 99,412 2,786 83,522 126,027
Guaranteed Investment
Contracts....................... 1,464 0 0 2,015,075 0
Individual Life.................. 129,265 483,604 368 11,762 77,338
Investment Products.............. 18,934 52,516 0 789,668 856
Corporate and Other.............. 19 318 88 339 1,285
Unallocated Realized Investment
Gains (Losses).................. 0 0 0 0 0
----------- ---------- -------- -------------- --------
TOTAL.......................... $299,307 $1,380,845 $88,785 $3,162,792 $351,423
----------- ---------- -------- -------------- --------
----------- ---------- -------- -------------- --------

- ----------------------------------- ------------------------------------------------------------------

COL. A COL. G COL. H COL. I COL. J
- -----------------------------------
------------------------------------------------------------------
AMORTIZATION
REALIZED BENEFITS OF DEFERRED OTHER
NET INVESTMENT AND POLICY OPERATING
INVESTMENT GAINS SETTLEMENT ACQUISITION EXPENSES
SEGMENT INCOME (1) (LOSSES) EXPENSES COSTS (1)
- ----------------------------------- ---------- ----------- ---------- ------------ -----------

Year Ended
December 31, 1995:
Acquisitions..................... $ 95,018 $ 0 $100,016 $20,601 $ 20,791
Financial Institutions........... 9,276 0 (19,574) 28,609 15,905
Group............................ 14,329 0 109,447 3,052 36,262
Guaranteed Investment
Contracts....................... 203,376 (3,908) 165,963 386 2,564
Individual Life.................. 40,237 0 80,067 20,403 21,241
Investment Products.............. 95,661 4,938 72,111 11,446 9,476
Corporate and Other.............. 536 0 1,476 3 15,837
Unallocated Realized Investment
Gains (Losses).................. 0 921 0 0 0
---------- ----------- ---------- ------------ -----------
TOTAL.......................... $458,433 $ 1,951 $509,506 $84,500 $122,076
---------- ----------- ---------- ------------ -----------
---------- ----------- ---------- ------------ -----------
Year Ended
December 31, 1994:
Acquisitions..................... $ 83,750 $ 532 $ 97,649 $14,460 $ 19,374
Financial Institutions........... 9,164 46,360 36,592 16,065
Group............................ 14,381 98,930 2,724 35,490
Guaranteed Investment
Contracts....................... 180,591 3,000 147,383 892 2,119
Individual Life.................. 37,319 67,451 18,771 18,803
Investment Products.............. 80,759 (2,500) 58,424 14,647 6,595
Corporate and Other.............. 2,969 913 3 20,757
Unallocated Realized Investment
Gains (Losses).................. 0 5,266 0 0 0
---------- ----------- ---------- ------------ -----------
TOTAL.......................... $408,933 $ 6,298 $517,110 $88,089 $119,203
---------- ----------- ---------- ------------ -----------
---------- ----------- ---------- ------------ -----------
Year Ended
December 31, 1993:
Acquisitions..................... $ 65,290 $ 73,463 $ 7,831 $ 12,715
Financial Institutions........... 8,921 42,840 31,202 15,181
Group............................ 14,522 101,266 2,272 29,450
Guaranteed Investment
Contracts....................... 166,058 $ 1,175 137,380 1,170 1,466
Individual Life.................. 34,153 55,972 18,069 17,133
Investment Products.............. 66,691 2,003 49,569 12,788 3,790
Corporate and Other.............. (1,470) 1,146 3 14,580
Unallocated Realized Investment
Gains (Losses).................. 0 1,876 0 0 0
---------- ----------- ---------- ------------ -----------
TOTAL.......................... $354,165 $ 5,054 $461,636 $73,335 $ 94,315
---------- ----------- ---------- ------------ -----------
---------- ----------- ---------- ------------ -----------
<FN>
- ------------------------------
(1) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if
different methods were applied.

S-1

SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)

- ------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------------- ------------- ------------- ------------- -------------

Year Ended December 31, 1995:
Life insurance in force............... $ 50,346,719 $ 17,524,366 $ 11,537,144 $ 44,359,497 26.0%
------------- ------------- ------------- ------------- ---
------------- ------------- ------------- ------------- ---
Premiums and policy fees:
Life insurance...................... $ 287,526 $ 116,091 $ 66,565 $ 238,000 28.0%
Accident/health insurance........... 335,387 217,082 13,583 131,888 10.3%
------------- ------------- ------------- -------------
TOTAL............................. $ 622,913 $ 333,173 $ 80,148 $ 369,888
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Year Ended December 31, 1994:
Life insurance in force............... $ 40,909,454 $ 8,639,272 $ 8,968,166 $ 41,238,348 21.7%
------------- ------------- ------------- ------------- ---
------------- ------------- ------------- ------------- ---
Premiums and policy fees:
Life insurance...................... $ 256,840 $ 46,029 $ 31,032 $ 241,843 12.8%
Accident/health insurance........... 283,883 126,545 3,591 160,929 2.2%
------------- ------------- ------------- -------------
TOTAL............................. $ 540,723 $ 172,574 $ 34,623 $ 402,772
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Year Ended December 31, 1993:
Life insurance in force............... $ 40,149,017 $ 7,484,566 $ 2,301,577 $ 34,966,028 6.6%
------------- ------------- ------------- ------------- ---
------------- ------------- ------------- ------------- ---
Premiums and policy fees:
Life insurance...................... $ 230,706 $ 37,995 $ 8,329 $ 201,040 4.1%
Accident/health insurance........... 254,672 88,917 3,963 169,718 2.3%
------------- ------------- ------------- -------------
TOTAL............................. $ 485,378 $ 126,912 $ 12,292 $ 370,758
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

S-2