PROTECTIVE LIFE INSURANCE CO, POS AM, 1997-04-23

PROTECTIVE LIFE INSURANCE CO
POS AM, 1997-04-23
LIFE INSURANCE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL , 1997

REGISTRATION NO. 333-02249

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

POST-EFFECTIVE AMENDMENT
NO. 1

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PROTECTIVE LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

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TENNESSEE 63-0169720 6355
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial
incorporation or organization) Identification Number) Classification Code)
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2801 Highway 280 South

Birmingham, Alabama 35223

(205) 879-9230

(Address, including zip code, and telephone number, including area code,
of principal executive office)

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Carolyn King
Senior Vice President, Investment Products Division

Protective Life Insurance Company
P. O. Box 2606
Birmingham, Alabama 35202
(205) 879-9230

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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COPIES TO:

Stephen E. Roth, Esq. Steve M. Callaway, Esq.
Sutherland, Asbill & Brennan, L.L.P. Protective Life Insurance Company
1275 Pennsylvania Avenue, N.W. P. O. Box 2606
Washington, D.C. 20004-2404 Birmingham, Alabama 35202

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If any of the securities that have been registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. /X/

Pursuant to Rule 429 under the Securities Act of 1933, the prospectus
contained herein also relates to Registration Statement Nos. 33-31940, 33-39345,
and 33-57052.

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PROTECTIVE LIFE INSURANCE COMPANY
Cross Reference Sheet Pursuant to
Regulation S-K, Item 501(b)

FORM S-1 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS

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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus...... Outside Front Cover Page

2. Inside Front and Outside Back Cover Pages of
Prospectus.................................. Capsule Summary of the Contract; Table of
Contents

3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................ Outside Front Cover Page; Capsule Summary
of the Contract; Glossary of Special
Terms

4. Use of Proceeds............................. Investments by Protective

5. Determination of Offering Price............. Not Applicable

6. Dilution.................................... Not Applicable

7. Selling Security Holders.................... Not Applicable

8. Plan of Distribution........................ Distribution of Contracts

9. Description of Securities to be
Registered.................................. Capsule Summary of the Contract;
Description of Contracts, Appendix B;
Appendix C

10. Interests of Named Experts and Counsel...... Not Applicable

11. Information with Respect to the
Registrant.................................. Protective Life Insurance Company;
Executive Officers and Directors;
Executive Compensation; Financial
Statements; Legal Proceedings

12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. Undertakings
</TABLE>
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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, 1997

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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 at the time an Annuity Deposit
is made. 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, at 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.

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
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the relationship between (i) the Treasury Rate currently established for the
same term as the Guaranteed Period 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. Any applicable Surrender Charges and 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 or more 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.
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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.
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TABLE OF CONTENTS

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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.................................. 11
3. Annuity Options.................................................................................... 11
4. Annuity Payment.................................................................................... 11
5. Death of Annuitant or Participant After Annuity Commencement Date.................................. 12
INVESTMENTS BY PROTECTIVE..................................................................................... 12
OTHER PROVISIONS.............................................................................................. 13
A. Contract Transactions............................................................................... 13
B. Amendment of Contracts.............................................................................. 14
C. Assignment of Contracts............................................................................. 14
DISTRIBUTION OF CONTRACTS..................................................................................... 14
FEDERAL TAX MATTERS........................................................................................... 14
A. Introduction........................................................................................ 14
B. The Company's Tax Status............................................................................ 14
C. Taxation of Annuities in General --................................................................. 15
1. Tax Deferral During Accumulation Period............................................................ 15
2. Taxation of Partial and Full Withdrawals........................................................... 15
3. Taxation of Annuity Payments....................................................................... 16
4. Taxation of Death Benefit Proceeds................................................................. 16
5. Penalty Tax on Premature Distributions............................................................. 16
6. Aggregation of Contracts........................................................................... 17
D. Qualified Retirement Plans............................................................................... 17
1. In General......................................................................................... 17
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........... 18
d. Tax-Sheltered Annuities........................................................................ 18
e. Deferred Compensation Plans of State and Local Governments and Tax-Exempt Organizations........ 18
2. Direct Rollover Rules.............................................................................. 18
E. Federal Income Tax Withholding........................................................................... 19
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PAGE
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PROTECTIVE LIFE INSURANCE COMPANY............................................................................. 20
A. Business............................................................................................ 20
B. Selected Financial Data............................................................................. 23
C. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 24
1. Results of Operations.............................................................................. 24
a. Premiums and Policy Fees....................................................................... 24
b. Net Investment Income.......................................................................... 25
c. Realized Investment Gains (Losses)............................................................. 25
d. Other Income................................................................................... 26
e. Income Before Income Tax....................................................................... 26
f. Income Tax Expense............................................................................. 28
g. Net Income..................................................................................... 28
h. Known Trends and Uncertainties................................................................. 28
i. Recently Issued Accounting Standards........................................................... 30
2. Liquidity and Capital Resources.................................................................... 31
3. Impact of Inflation................................................................................ 33
D. Insurance in Force.................................................................................. 34
E. Underwriting........................................................................................ 35
F. Investments......................................................................................... 35
G. Indemnity Reinsurance............................................................................... 39
H. Policy Liabilities and Accruals..................................................................... 40
I. Federal Income Tax Consequences..................................................................... 40
J. Competition......................................................................................... 40
K. Regulation.......................................................................................... 41
L. Recent Developments................................................................................. 43
M. Employees........................................................................................... 43
N. Properties.......................................................................................... 43
DIRECTORS AND EXECUTIVE OFFICERS.............................................................................. 44
EXECUTIVE COMPENSATION........................................................................................ 45
CERTAIN TRANSACTIONS.......................................................................................... 53
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
</TABLE>

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.
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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

1
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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.

2
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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. 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

3
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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 offered by us at the time the Annuity Deposit
is made. Not all Guaranteed Periods are available in all states. 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. Initial Annuity Deposits of $100,000 or more are currently credited
with an interest rate in excess of that credited to smaller Initial Annuity
Deposits. In addition, if your account value exceeds $100,000 all subsequent
Annuity Deposits and renewals will be credited with the increased interest rate.
Protective Life reserves the right to change or discontinue crediting the
increased interest rate for future Annuity Deposits at its discretion.

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.

4
<PAGE>
EXAMPLE OF COMPOUNDING AT THE GUARANTEED INTEREST RATE

<TABLE>
<S> <C>
Deposit: $100,000.00
Guaranteed Period: 5 years
Guaranteed Interest Rate: 6.00%
</TABLE>

<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>

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

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<PAGE>
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

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<PAGE>
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.

<TABLE>
<CAPTION>
NUMBER OF COMPLETED YEARS SURRENDER CHARGE
IN A GUARANTEED PERIOD PERCENTAGE
- ------------------------------- ---------------------
<S> <C>
0 6%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
</TABLE>

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.

7
<PAGE>
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:

<TABLE>
<C> <C> <S>
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;
</TABLE>

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.

Any applicable 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 (at the time of full or partial surrender) for the same
term as the Guaranteed Period from which you request the surrender, and (ii) the
Treasury Rate initially established (at the time the Guaranteed Period was
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.

8
<PAGE>
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

9
<PAGE>
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 before six (6) months after 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).

10
<PAGE>
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

11
<PAGE>
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" 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, 1996, 97.5% of
bonds in which Protective invests were considered investment grade; 21.5% 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.

12
<PAGE>
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.

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<PAGE>
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 for the sale of a Contract is 7% of
each Annuity Deposit, or of transferred Sub-Account Value at the start of each
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.

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<PAGE>
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

15
<PAGE>
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.)

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<PAGE>
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.

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<PAGE>
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,

18
<PAGE>
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%.

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<PAGE>
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
under the symbol "PL.". 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
stockbrokers and financial institutions to their customers; through Company
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.

The Division focuses solely on acquiring, converting and servicing business
acquired from other companies. PLC has entered into thirty-eight separate
transactions since 1970, including 11 since 1989. Many of these transactions
included Protective. Generally, the Division focuses on transactions in the $10
million to $50 million range, although the Division does consider larger
transactions. Management believes a favorable environment for acquisitions will
likely continue into the immediate future. Insurance companies may seek to raise
capital by selling blocks of policies or may sell 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 liable
with respect to the coinsured policies should the buyer fail to fulfill its
obligations 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.

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<PAGE>

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 January 1996, Protective coinsured a block of 38,000 policies. In
December 1996, the Division acquired Community National Assurance Company with
16,000 policies and coinsured a related block of 22,000 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. The Division also
markets life and health products 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. In 1996, the Division coinsured a closed block
of credit insurance policies.

In 1995, the Division entered into a reinsurance arrangement whereby most 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. The Division is placing
marketing emphasis on dental products which are distributed through the
Division's existing distribution system, as well as through joint marketing
arrangements with independent marketing organizations and reinsurance contracts
with other insurers. In addition, the Division has established a special
marketing unit to sell dental and other products through mail and telephone
solicitations.

Approximately 80% of the Division's sales and 25% of premiums and policy
fees (including premium equivalents) in 1996 came from dental products. It is
anticipated that most of the growth in the Division's premiums and policy fee
income 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. 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. The Division also offers an individual cancer insurance policy
marketed through a nationwide network of agents.

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<PAGE>
GUARANTEED INVESTMENT CONTRACTS DIVISION

Guaranteed investment contracts ("GICs") are contracts, 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.

Life insurer credit concerns and a demand shift to non-traditional GIC
alternatives and equity based products 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, 1996, there were 24 regional sales
managers located throughout the United States. Approximately 62% of the
Division's 1996 sales came from this distribution system. In addition, the
Division distributes insurance products in the life insurance brokerage market,
representing approximately 32% of sales.

The Division also distributes insurance products through the payroll
deduction market and through stockbrokers and banks, and the Division offers its
products to other insurance companies and their distribution systems under
private label arrangements.

Marketing emphasis is placed on the Division's various universal life
products and products designed to compete in the term marketplace. The Division
emphasizes back-end loaded universal life policies, both variable and fixed,
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. The Division has experienced increased sales even though the life
insurance industry is a mature industry.

INVESTMENT PRODUCTS DIVISION

The Investment Products Division manufactures, sells, and supports annuity
products. These products are primarily sold through stockbrokers, but are also
sold through financial institutions and the Individual Life Division. Some of
the Division's annuity products are also sold through Pro Equities, Inc., an
affiliated securities broker-dealer.

Since 1990, the Division has offered 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 which offers the policyholder
the opportunity to invest in mutual funds managed by Goldman Sachs Asset
Management and its affiliates. Variable annuity products

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<PAGE>

represented approximately 46% of the Division's 1996 sales. 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 net investment income on capital and
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)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums and policy fees................ $ 462,050 $ 411,682 $ 402,772 $ 351,423 $ 323,136
Net investment income................... 498,781 458,433 408,933 354,165 274,991
Realized investment gains (losses)...... 5,510 1,951 6,298 5,054 (154)
Other income............................ 5,010 1,355 11,977 4,756 10,675
--------------- --------------- --------------- --------------- ------------
Total revenues...................... $ 971,351 $ 873,421 $ 829,980 $ 715,398 $ 608,648
--------------- --------------- --------------- --------------- ------------
--------------- --------------- --------------- --------------- ------------
Benefits and expenses................... $ 846,042 $ 755,688 $ 724,402 $ 629,286 $ 549,885
Income tax expense...................... $ 42,766 $ 40,037 $ 32,855 $ 29,957(1) $ 17,393
Minority interest....................... $ 90
Net income.............................. $ 82,543 $ 77,696 $ 72,723 $ 56,155 $ 40,227(2)

DECEMBER 31
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............................ $ 8,163,343 $ 7,178,693 $ 6,110,704 $ 5,307,849 $ 4,000,157
Long-term debt.......................... $ 98 $ 2,014
Total debt(3)........................... $ 25,014 $ 34,693 $ 39,443 $ 49,061 $ 43,191
Redeemable preferred stock.............. $ 2,000 $ 2,000 $ 2,000 $ 2,000
Stockholder's equity.................... $ 776,191 $ 651,237 $ 395,075 $ 469,990 $ 335,516
Stockholder's equity excluding net
unrealized gains and losses on
investments........................... $ 769,503 $ 593,374 $ 502,607 $ 430,706 $ 332,360
</TABLE>

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

(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.

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<PAGE>

(3) Includes indebtedness to related parties. At December 31, 1996 such
indebtedness totaled $25.0 million. See also Note E to the Consolidated
Financial Statements.

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

<TABLE>
<CAPTION>
YEAR ENDED PERCENTAGE
DECEMBER 31 AMOUNT INCREASE
- --------------------------------------------- --------------- ---------
(IN THOUSANDS)
<S> <C> <C>
1994....................................... $ 402,772 14.6%
1995....................................... 411,682 2.2
1996....................................... 462,050 12.2
</TABLE>

Premiums and policy fees increased $8.9 million or 2.2% in 1995 over 1994.
Premiums and policy fees from the Financial Institutions Division decreased
$32.4 million. This resulted from a reinsurance arrangement begun in the 1995
first quarter whereby most 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.

Premiums and policy fees increased $50.4 million or 12.2% in 1996 over 1995.
The coinsurance by the Acquisitions Division of three blocks of policies in the
first and fourth quarters of 1996 resulted in a $19.2 million increase in
premiums and policy fees. Decreases in older acquired blocks resulted in an
$11.1 million decrease in premiums and policy fees. Premiums and policy fees
from the Financial Institutions Division increased $7.8 million. This resulted
from the coinsurance of a block of policies in the second quarter of 1996
representing a $32.6 million increase in premiums and policy fees. This increase
was largely offset by decreases resulting from the reinsurance arrangement begun
in 1995. Premiums and policy fees from the Group Division increased $14.1
million. Premiums and policy fees related to the Group Division's dental
business increased $22.5 million. This increase was partially offset by a
reduction to premiums related to a refund of premiums to certain cancer
insurance policyholders and to decreases in traditional group health premiums.
Increases in premiums and policy fees from the Individual Life and Investment
Product Divisions were $17.7 million and $3.6 million, respectively.

On October 7, 1996, PLC and Protective announced that they would make
voluntary refunds to certain of its cancer insurance policyholders and would
reduce premium rates charged to such policyholders until certain conditions are
met. The estimated refunds reduced the Group Division's premiums and policy
fees, as noted above.

24
<PAGE>
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

<TABLE>
<CAPTION>
PERCENTAGE EARNED
YEAR ENDED PERCENTAGE ON AVERAGE CASH
DECEMBER 31 AMOUNT INCREASE AND INVESTMENTS
- --------------------------------------------- -------------- ---------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
1994....................................... $ 408,933 15.5 % 8.2%
1995....................................... 458,433 12.1 7.9
1996....................................... 498,781 8.8 7.8
</TABLE>

Net investment income for 1995 was $49.5 million or 12.1% higher, and for
1996 was $40.3 million or 8.8% 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. 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. The assumption of
four blocks of policies during 1996 resulted in an increase in net investment
income of $18.4 million in 1996.

The percentage earned on average cash and investments was 7.9% in 1995 and
7.8% in 1996, each slightly below that of the preceding year due to a general
decline in interest rates.

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 securities 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 for the periods shown:

REALIZED INVESTMENT GAINS (LOSSES)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 AMOUNT
- --------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1994....................................... $ 6,298
1995....................................... 1,951
1996....................................... 5,510
</TABLE>

Protective maintains an allowance for uncollectible amounts on investments.
The allowance totaled $30.9 million at December 31, 1996 and $32.7 million at
December 31, 1995. 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. Realized investment gains in 1996 of $10.9
million were largely offset by realized investment losses of $5.4 million. In
the 1996 first quarter, Protective sold $554 million of its commercial mortgage
loans in a securitization transaction, resulting in a $6.1 million realized
investment gain. Realized investment losses in 1996 were reduced by a $1.8
million reduction to the allowance for uncollectible amounts on investments.

25
<PAGE>
OTHER INCOME

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

OTHER INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- --------------------------------------------- -------------
(IN
THOUSANDS)
<S> <C>
1994....................................... $ 11,977
1995....................................... 1,355
1996....................................... 5,010
</TABLE>

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 received
$8.2 million in settlement of litigation. Other income from all other sources
decreased $0.2 million in 1995. Other income increased $3.7 million in 1996.

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)

<TABLE>
<CAPTION>
BUSINESS SEGMENT 1994 1995 1996
- --------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Acquisitions............................................. $ 37,719 $ 50,376 $ 53,564
Financial Institutions................................... 7,544 7,701 8,966
Group.................................................... 10,122 9,107 821
Guaranteed Investment Contracts.......................... 31,933 28,979 32,130
Individual Life.......................................... 15,957 16,206 15,898
Investment Products...................................... (796) 10,933 9,823
Corporate and Other...................................... (2,167) (6,490) (2,410)
Unallocated Realized Investment Gains (Losses)........... 5,266 921 6,517
---------- ---------- ----------
$ 105,578 $ 117,733 $ 125,309
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

In the 1996 first quarter Protective changed the way it allocates certain
expenses to its operating divisions. Accordingly, prior period division results
have been restated to reflect the change.

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. Pretax earnings from the
Division increased $12.7 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 Division's
1996 pretax earnings increased $3.2 million to $53.6 million. The Division's
most recent acquisitions resulted in a $4.7 million increase in pretax earnings.

The Financial Institutions Division's 1995 pretax earnings were $0.2 million
higher as compared to 1994. In 1995 the Division 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

26
<PAGE>

of older policies. Though the Division's reported earnings were reduced by
approximately $2.0 million, these reinsurance transactions are expected to
improve the Division's return on investment. The Division's pretax earnings
increased $1.3 million to $9.0 million in 1996. Included in the Division's 1996
results are earnings from the coinsurance of a block of policies in the second
quarter of 1996. The reinsurance arrangement begun in the first quarter of 1995
reduced the Division's reported earnings by approximately $3.3 million, which
was contemplated when the arrangement was entered into.

Group 1995 pretax earnings were $1.0 million lower than 1994. Although total
dental earnings were up $2.6 million, lower traditional group life and health
earnings offset the increase. The Division's 1996 pretax earnings of $0.8
million were $8.3 million lower than 1995. The previously discussed refund of
cancer premiums and related expenses resulted in a $6.8 million decrease in the
Division's pretax earnings. Improved dental earnings were offset by lower
traditional group health earnings.

The Guaranteed Investment Contracts ("GIC") Division had pretax operating
earnings of $40.1 million in 1996 and $33.0 million in 1995. 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.
The 1996 increase was due to improved operating spreads and to the growth in GIC
deposits placed with Protective. Realized investment losses associated with this
Division in 1995 were $4.0 million as compared to $8.0 million in 1996. As a
result, total pretax earnings were $29.0 million in 1995 and $32.1 million in
1996. The rate of growth in GIC deposits has decreased as the amount of maturing
contracts has increased.

The Individual Life Division had 1995 pretax earnings of $16.2 million, $0.2
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 Division had 1996 pretax operating earnings of $14.7 million, $1.4
million below 1995. Realized investment gains, net of related amortization of
deferred policy acquisition costs, associated with this Division were $1.2
million in 1996. As a result, total pretax earnings were $15.9 million in 1996
which was $0.3 million lower than 1995 in which there were no realized
investment gains.

The Investment Products Division's 1995 pretax operating earnings of $7.5
million were $7.5 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 gains, net of related amortization of
deferred policy acquisition costs, were $3.3 million in 1995 as compared with
$2.0 million in 1996. As a result, total pretax earnings were $10.9 million in
1995 and $9.8 million in 1996. Fixed annuity deposits totaled $1,042.1 million
and variable annuity deposits totaled $624.7 million at December 31, 1996.
Variable annuity deposits of $546.9 million are reported in the accompanying
financial statements as "liabilities related to separate accounts."

The Corporate and Other segment consists of 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 $4.3 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. Pretax losses for this
segment were $4.1 million lower in 1996 as compared to 1995, due to higher net
investment income on capital.

27
<PAGE>
INCOME TAX EXPENSE

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

INCOME TAX EXPENSE

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 EFFECTIVE INCOME TAX RATES
- -------------------------------------------------------------------- ---------------------------
<S> <C>
1994.............................................................. 31.1%
1995.............................................................. 34.0
1996.............................................................. 34.1
</TABLE>

Management's current estimate of the effective income tax rate for 1997 is
34%.

NET INCOME

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

NET INCOME

<TABLE>
<CAPTION>
YEAR ENDED PERCENTAGE
DECEMBER 31 AMOUNT INCREASE
- ------------------------------------------------------------ ----------------- ----------
(IN THOUSANDS)
<S> <C> <C>
1994...................................................... $ 72,723 29.5%
1995...................................................... 77,696 6.8
1996...................................................... 82,543 6.2
</TABLE>

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. Compared to 1995, net income
in 1996 increased 6.2%, reflecting improved operating earnings in the
Acquisitions, Financial Institutions, GIC and Investment Products Divisions, and
the Corporate and Other segment, and higher realized investment gains, offset by
lower operating earnings in the Group and Individual Life Division.

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 results of Protective are discussed more fully below.

COMPETITION. Life and health insurance 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. Life and health insurance is a highly competitive industry and
Protective's Divisions encounter significant competition in all their respective
lines of business from other insurance companies, many of which have greater
financial resources than Protective, as well as competition from other providers
of financial services.

Management believes that Protective's ability to compete is dependent upon,
among other things, its ability to attract and retain distribution channels to
market its insurance and investment products, its ability to develop competitive
and profitable products, its ability to maintain low unit costs, and its
maintenance of strong claims-paying and financial strength ratings from rating
agencies.

28
<PAGE>

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

RATINGS. Ratings are an important factor in the competitive position of
life insurance companies. Ratings organizations periodically review the
financial performance and condition of insurers, including Protective's
insurance subsidiaries. A downgrade in the ratings of Protective's life
insurance subsidiaries could adversely affect its ability to sell its products
and its ability to compete for attractive acquisition opportunities.

Rating organizations assign ratings based upon several factors. While most
of the considered factors related to the rated company, some of the factors
relate to general economic conditions and circumstances outside the rated
company's control.

POLICY CLAIMS FLUCTUATIONS. Protective's results may fluctuate from year to
year on account of fluctuations in policy claims received by Protective.

LIQUIDITY AND INVESTMENT PORTFOLIO. Many of the products offered by
Protective's life insurance subsidiaries allow policyholders and contractholders
to withdraw their funds under defined circumstances. Protective's life insurance
subsidiaries design products and configure investment portfolios so as to
provide and maintain sufficient liquidity to support anticipated withdrawal
demands and contract benefits and maturities. Asset/liability management
programs and procedures are used to monitor the relative duration of
Protective's assets and liabilities. While Protective's life insurance
subsidiaries own a significant amount of liquid assets, many of their assets are
relatively illiquid. Significant unanticipated withdrawal or surrender activity
could, under some circumstances, compel Protective's life insurance subsidiaries
to dispose of illiquid assets on unfavorable terms, which could have a material
adverse effect on Protective.

INTEREST RATE FLUCTUATIONS. Significant changes in interest rates expose
life insurance companies to the risk of not earning anticipated spreads between
the interest rate earned on investments and the interest rate credited to its
life insurance and investment products. Both rising and declining interest rates
can negatively affect Protective's spread income. For example, certain of
Protective's insurance and investment products guarantee a minimum credited
interest rate. While Protective develops and maintains asset/ liability
management programs and procedures designed to preserve spread income in rising
or falling interest rate environments, no assurance can be given that
significant changes in interest rates will not materially affect such spreads.

Lower interest rates may result in lower sales of Protective's life
insurance and investment products.

INVESTMENT RISKS. Protective's invested assets are subject to inherent
risks of defaults and changes in market values. The value of Protective's
commercial mortgage portfolio depends in part on the financial condition of the
tenants occupying the properties on which Protective has made loans. Factors
that may affect the overall default rate on, and market value of, Protective's
invested assets include the level of interest rates, performance of the
financial markets, and general economic conditions, as well as particular
circumstances affecting the businesses of individual borrowers and tenants.

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 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.

29
<PAGE>

REGULATION AND TAXATION. Protective's insurance subsidiaries are subject to
government regulation in each of the states in which they conduct business. Such
regulation is vested in state agencies having broad administrative power dealing
with all aspects of the insurance business including premium rates, benefits,
marketing practices, advertising, policy forms, underwriting standards, 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.

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 non-insurance products. 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, all life
insurance companies, including Protective's subsidiaries, would be adversely
affected.

Protective cannot predict what future initiatives the President or Congress
may propose which may affect the life and health insurance industry and
Protective.

LITIGATION. A number of civil 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. Increasingly these lawsuits have resulted
in the award of substantial judgments against the insurer that are
disproportionate to the actual damages, including material amounts of punitive
damages. In some states (including Alabama), juries have substantial discretion
in awarding punitive damages which creates the potential for unpredictable
material adverse judgments in any given punitive damages suit. Protective and
its subsidiaries, like other life and health insurers, in the ordinary course of
business, are involved in such litigation. The outcome of any such litigation
cannot be predicted with certainty. In addition, in some lawsuits involving
insurers' sales practices, insurers have made material settlement payments to
end litigation.

RELIANCE UPON THE PERFORMANCE OF OTHERS. Protective has entered into
various ventures involving other parties. Examples include, but are not limited
to: many of Protective's products are sold through independent distribution
channels; the Investment Products Division's variable annuity deposits are
invested in funds managed by Goldman Sachs Asset Management and its affiliates;
a portion of the sales in the Financial Institutions, Group, and Individual Life
Divisions comes from arrangements with unrelated marketing organizations; and
Individual Life Divisions comes from arrangements with unrelated marketing
organizations; and Protective has entered the Hong Kong insurance market in a
joint venture with the Lippo Group. Therefore, Protective's results may be
affected by the performance of others.

REINSURANCE. As is customary in the insurance industry, Protective's
insurance subsidiaries cede insurance to other insurance companies. However, the
ceding insurance company remains liable with respect to ceded insurance should
any reinsurer fail to meet the obligations assumed by it. Additionally,
Protective assumes policies of other insurers. Any regulatory or other adverse
development affecting the ceding insurer could also have an adverse effect on
Protective.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This statement is
effective for transactions entered into after January 1, 1997.

30
<PAGE>
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.
Since future benefit payments largely represent medium and 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.

Many of Protective's products contain surrender charges and other features
which reward persistency and penalize the early withdrawal of funds. 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
than at the time of issue.

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, 1996, the fixed maturity investments (bonds, bank loan
participations, and redeemable preferred stocks) had a market value of $4,663.0
million, which is 0.3% above amortized cost (less allowances for uncollectible
amounts on investments) of $4,648.5 million. Protective had $1,503.1 million in
mortgage loans at December 31, 1996. While Protective's mortgage loans do not
have quoted market values, at December 31, 1996, Protective estimates the market
value of its mortgage loans to be $1,581.7 million (using discounted cash flows
from the next call date) which is 5.2% in excess of amortized cost. 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 $498 million of Protective's mortgage loans have this
participation feature.

At December 31, 1996, delinquent mortgage loans and foreclosed properties
were 0.3% of assets. Bonds rated less than investment grade were 1.4% of assets.
Additionally, Protective had bank loan participations that were less than
investment grade, representing 0.5% of assets. Protective does not expect these
investments to adversely affect its liquidity or ability to maintain proper
matching of assets and liabilities. Protective's allowance for uncollectible
amounts on investments was $30.9 million at December 31, 1996.

Policy loans at December 31, 1996 were $166.7 million, a decrease of $0.8
million from December 31, 1995 (after excluding the $24.1 million of policy
loans obtained through acquisitions). 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 management programs and procedures
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 management
programs and procedures provide sufficient liquidity to enable it to fulfill its
obligation to pay benefits under its various insurance and deposit contracts.

Protective's asset/liability management programs and procedures 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

31
<PAGE>

Protective's general policy to maintain asset and liability durations within 10%
of one another, although from time to time a broader interval may be used.

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, mortgage-backed securities, 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 $0.2 million were deferred in 1996. At
December 31, 1996, open futures contracts with a notional amount of $805.0
million were in a $1.9 million net unrealized loss position.

Protective may also use interest rate swap contracts and options to enter
into interest rate swap contracts (swaptions) to convert certain investments
from a variable rate of interest to a fixed rate of interest and from a fixed
rate to a variable rate of interest. At December 31, 1996, related open interest
rate swap contracts with a notional amount of $150.3 million were in a $0.7
million net unrealized loss position.

Withdrawals related to GIC contracts were approximately $600 million during
1996. Withdrawals related to GIC contracts are estimated to be approximately
$600 million in 1997 . 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.

On March 22, 1996, Protective sold approximately $554 million of its
commercial mortgage loans in a securitization transaction. Proceeds from the
sale consisted of cash of approximately $400 million, net of expenses, and
securities issued in the securitization transaction of approximately $161
million. The sale resulted in a realized gain of approximately $6.1 million. The
cash proceeds were reinvested in fixed maturity and short-term investments. On
December 17, 1996, Protective sold approximately $315 million of its bank loan
participations in a larger securitization transaction. The sale resulted in a
realized gain of approximately $0.5 million. The proceeds were reinvested in
fixed maturity and short-term investments. In a related transaction, PLC
purchased $23 million of the securities issued in the securitization
transaction. Protective is investigating other securitization opportunities.

In anticipation of receiving GIC and annuity deposits, Protective was
committed at December 31, 1996 to fund mortgage loans and to purchase fixed
maturity and other long-term investments in the amount of $331.5 million.
Protective held $215.6 million in cash and short-term investments at December
31, 1996.

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 use when needed. 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, 1996, Protective had no borrowings under its credit
arrangements.

As disclosed in the Notes to the Consolidated Financial Statements, $413
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. Also, distributions, including cash
dividends to PLC from Protective in excess of approximately

32
<PAGE>

$439 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
retained statutory earnings or equity contributions by PLC.

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 companies. Protective does not believe
that any such assessments will be materially different from amounts already
reflected in the financial statements.

Protective, like other life and health insurers, in the course of business
is involved in litigation. Pending litigation includes a class action filed in
Jefferson County (Birmingham), Alabama with respect to the previously discussed
cancer premium refunds. Although the outcome of any litigation cannot be
predicted with certainty, Protective believes that at the present time there are
no pending or threatened lawsuits that are reasonably likely to have a material
adverse effect on the financial position, results of operations, or liquidity of
Protective.

Rating downgrades have exceeded upgrades for the past several years, and
public pronouncements by the rating agencies indicate that this trend is
expected to continue for the near future.

Protective is not aware of any material pending or threatened regulatory
action with respect to Protective.

IMPACT OF INFLATION

Inflation increases the need for life insurance. Many policyholders who once
had adequate insurance programs increase their life insurance coverage to
provide the same relative financial benefits and protection. Inflation increases
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.

The higher interest rates that have traditionally accompanied inflation may
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.

33
<PAGE>
D. INSURANCE IN FORCE

Protective's total consolidated life insurance in force at December 31, 1996
was $69.3 billion. The following table shows sales by face amount and insurance
in force for Protective's business segments.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
New Business Written
Financial Institutions...... $3,956,581 $3,563,177 $2,524,212 $2,776,276 $1,149,265
Group....................... 115,748 119,357 184,429 252,345 328,258
Individual Life............. 9,245,002 7,564,983 6,329,630 4,440,510 4,877,038
---------- ---------- ---------- ---------- ----------
Total..................... $13,317,331 $11,247,517 $9,038,271 $7,469,131 $6,354,561
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Business Acquired
Acquisitions................ $1,286,673 $6,129,159 $4,756,371 $4,378,812 $1,302,330
Financial Institutions...... 1,607,463 1,432,338
---------- ---------- ---------- ---------- ----------
Total..................... $2,894,136 $6,129,159 $4,756,371 $4,378,812 $2,734,668
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Insurance in Force at End of
Year (1)
Acquisitions................ $20,037,857 $16,778,359 $11,728,569 $8,452,114 $3,836,066
Financial Institutions...... 7,468,761 6,233,256 4,841,318 4,306,179 3,690,610
Group....................... 6,054,947 6,371,313 7,464,501 6,716,724 6,315,410
Individual Life............. 35,765,841 32,500,935 25,843,232 22,975,577 20,634,927
---------- ---------- ---------- ---------- ----------
Total..................... $69,327,406 $61,883,863 $49,877,620 $42,450,594 $34,477,013
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>

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

(1) Reinsurance assumed has been included; reinsurance ceded (1996-18,840,221;
1995-$17,524,366; 1994-$8,639,272; 1993-$7,484,566; 1992-$6,982,127) 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 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:

<TABLE>
<CAPTION>
RATIO OF
YEAR ENDED VOLUNTARY
DECEMBER 31 TERMINATIONS
- -------------------------------------------------------------------------------- ----------------
<S> <C>
1992.......................................................................... 9.0%
1993.......................................................................... 8.7
1994.......................................................................... 7.0
1995.......................................................................... 6.9
1996.......................................................................... 6.4
</TABLE>

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.

34
<PAGE>
The amount of investment products in force is measured by account balances.
The following table shows guaranteed investment contract and annuity account
balances.

<TABLE>
<CAPTION>
GUARANTEED MODIFIED
YEAR ENDED INVESTMENT GUARANTEED FIXED VARIABLE
DECEMBER 31 CONTRACTS ANNUITIES ANNUITIES ANNUITIES
- ---------------------------------- --------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
1996............................ 2,474,728 862,747 390,461 624,714
</TABLE>

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 individual insurance
applications for coverage at age 16 and above, except in the payroll deduction
market where the face amount must be $100,000 or more before blood testing is
required. 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.

35
<PAGE>

The following table shows Protective's investments at December 31, 1996,
valued on the basis of generally accepted accounting principles.

<TABLE>
<CAPTION>
PERCENT OF TOTAL
ASSET VALUE INVESTMENTS
---------------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities.............................. $2,202,092 33.8%
United States Government and government agencies and
authorities........................................... 347,602 5.3
States, municipalities, and political subdivisions...... 5,553 0.1
Public utilities........................................ 366,560 5.6
Convertibles and bonds with warrants attached........... 521 --
All other corporate bonds............................... 1,683,767 25.9
Bank loan participations.................................. 49,829 0.8
Redeemable preferred stocks............................... 7,072 0.1
----------- -----
Total fixed maturities.................................. 4,662,996 71.6
----------- -----
Equity securities:
Common stocks -- industrial, miscellaneous, and all
other................................................... 23,053 0.3
Nonredeemable preferred stocks............................ 12,197 0.2
----------- -----
Total equity securities................................. 35,250 0.5
----------- -----
Mortgage loans on real estate............................... 1,503,781 23.1
Investment real estate...................................... 14,172 0.2
Policy loans................................................ 166,704 2.6
Other long-term investments................................. 29,193 0.4
Short-term investments...................................... 101,215 1.6
----------- -----
Total investments..................................... $6,513,311 100.0%
----------- -----
----------- -----
</TABLE>

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 its mortgage-backed securities portfolio,
Protective has focused on sequential and planned amortization class securities,
which tend to be less volatile than other classes of mortgage-backed securities.

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, 1996, approximately 99% of bonds
were rated by Moody's, S&P, or the NAIC.

36
<PAGE>

The following table shows the approximate percentage distribution of
Protective's fixed maturities by rating, utilizing S&P's rating categories, at
December 31, 1996:

<TABLE>
<CAPTION>
PERCENTAGE OF
FIXED
TYPE MATURITIES
- -------------------------------------------------------------------------------- --------------
<S> <C>
Bonds
AAA........................................................................... 48.3%
AA............................................................................ 4.4
A............................................................................. 22.6
BBB........................................................................... 21.1
BB or less.................................................................... 2.5
Bank Loan Participations
Investment Grade.............................................................. 0.1
Non-Investment Grade.......................................................... 0.9
Redeemable Preferred Stock...................................................... 0.1
-----
Total........................................................................... 100.0%
-----
-----
</TABLE>

At December 31, 1996, approximately $4,488.6 million of Protective's
$4,606.1 million bond portfolio was invested in U.S. Government or agency-backed
securities or investment grade corporate bonds and only approximately $117.5
million of its bond portfolio was rated less than investment grade.
Approximately $498.5 million of bonds are not publicly traded.

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 $49.8 million of bank loan participations owned by Protective
at December 31, 1996, $43.6 million were classified by Protective as less than
investment grade.

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.

On December 17, 1996, Protective sold approximately $315 million of its bank
loan participations in a securitization transaction involving Protective and
other unrelated parties. An affiliate of Protective will serve as portfolio
manager for the securitization's underlying portfolio of bank loan
participations and other assets which total approximately $667 million.

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 average size of loans made during 1996 was $2.9 million.
The average size mortgage loan in Protective's portfolio is approximately $1.7
million. The largest single loan amount is $13.6 million.

37
<PAGE>
The following table shows a breakdown of Protective's mortgage loan
portfolio by property type:

<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
PROPERTY TYPE ON REAL ESTATE
- ----------------------------------------------------------------------------- -----------------
<S> <C>
Retail....................................................................... 77.4%
Office Building.............................................................. 7.6
Warehouses................................................................... 7.4
Apartments................................................................... 6.2
Mixed-use.................................................................... 1.3
Other........................................................................ 0.1
-----
Total........................................................................ 100.0%
-----
-----
</TABLE>

Retail 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, 1996:

<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
ANCHOR TENANTS ON REAL ESTATE
- ----------------------------------------------------------------------------- ---------------------
<S> <C>
Food Lion.................................................................... 4%
Wal-Mart..................................................................... 4
K-Mart....................................................................... 4
Winn Dixie................................................................... 3
Revco........................................................................ 2
Ahold USA.................................................................... 2
</TABLE>

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. 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 loan-to-value ratio of up to 85% in exchange for
a participating interest in the cash flows from the underlying real estate.
Approximately $498 million of Protective's mortgage loans have this
participation feature.

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.

At December 31, 1996, $23.7 million or 1.6% of the mortgage loan portfolio
was nonperforming. It is Protective's policy to cease to carry 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.

38
<PAGE>

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
approximates 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 $30.9 million at December 31, 1996.

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, mortgage-backed securities, 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
1992 through 1996 (dollars in thousands):

<TABLE>
<CAPTION>
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)
- ---------------------------------------------------- ------------------ ----------- --------------- --------------
<S> <C> <C> <C> <C>
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
1996.............................................. 6,698,236 498,781 7.8 5,510
</TABLE>

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 liable with
respect to ceded insurance should any reinsurer fail to meet the obligations
assumed by it. Protective sets a limit on the amount of insurance retained on
the life of any one person. In the individual lines it will not retain 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, 1996, Protective had insurance in force of $69.3 billion of which
approximately $18.8 billion was ceded to reinsurers.

39
<PAGE>

H. POLICY LIABILITIES AND ACCRUALS

The applicable insurance laws under which Protective operates require that
each insurance company report policy liabilities to meet future obligations on
the outstanding policies. These liabilities 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 liabilities shall not be less than liabilities
calculated using certain named mortality tables and interest rates.

The policy liabilities and accruals 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's and its insurance subsidiaries' statutory financial statements
(presented on the basis of statutory accounting principles mandated by state
insurance regulation). For policy liabilities 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 method on all business.
Policy liabilities 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, 1996, 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

Life and health insurance 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. Life
and health insurance is a highly competitive industry and the Protective's
divisions encounter significant competition in all their respective lines of
business from other insurance companies, many of which have greater financial
resources than Protective, as well as competition from other providers of
financial services.

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

40
<PAGE>
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, marketing practices, advertising, 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 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, for example, by
requiring immediate expensing of policy acquisition costs and more conservative
computations of policy liabilities. 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 the December 31, 1996 statutory
financial reports, 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 are 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 such a 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; most
insurance guaranty fund laws currently provide that an assessment may be excused
or deferred if it would threaten an insurer's financial strength. Protective was
assessed immaterial amounts in 1996, which will be partially offset by credits
against future state premium taxes.

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 without prior approval. Dividends
in larger amounts are subject to approval by the insurance commissioner of the
state of domicile. The maximum amount that would qualify as ordinary dividends
to PLC by Protective in 1997 is

41
<PAGE>

estimated to be $98 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 that
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 requested that the DOL issue exemptions from the prohibited
transaction provisions of ERISA in view of HARRIS TRUST. In July of 1995, the
DOL published, in final form, a prohibited transaction class exemption (PTE
95-60) which exempts from the prohibited transaction rules, prospectively and
retroactively to January 1, 1975, certain transactions engaged in by insurance
company general accounts in which employee benefit plans have an interest. The
exemption does not cover all such transactions, and the insurance industry is
seeking further relief. Pursuant to the Small Business Job Protection Act signed
into law on August 20, 1996, the DOL is required to publish final regulations
clarifying the HARRIS TRUST decision. 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. Income tax payable by policyholders on investment earnings is deferred
during the accumulation period of certain life insurance and annuity 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 such products, or
would increase the tax deterred status of competing products. If these proposals
were to be adopted, they could adversely affect the ability of all life
insurance companies, including 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. 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 enacted health
care reform legislation. 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.

42
<PAGE>

The Federal Government has advocated the repeal the Glass-Steagall Act and
certain other legislative changes, which would allow banks to diversify into
securities and other businesses, including possibly 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. 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. RECENT DEVELOPMENTS

On April 8, 1997, Protective entered into a definitive agreement to acquire
all of the outstanding capital stock of West Coast Life Insurance Company ("West
Coast") from Nationwide Corporation, a member of the Nationwide Insurance
Enterprise, for $257.0 million in cash. The acquisition is subject to regulatory
approvals and certain other conditions, and is expected to be financed from
funds internally generated at Protective. West Coast's principal products are
universal life and traditional ordinary life. As of December 31, 1996, West
Coast had approximately $750.0 million of assets and $150.0 million of statutory
capital and surplus. In 1996, West Coast generated $100.0 million of premium
revenue. Protective expects to operate West Coast as a subsidiary, with its
headquarters in California, and retain West Coast's sales force.

Protective expects that its various administrative systems will have the
capability to process transactions beyond 1999 by the second quarter of 1998.
The costs to complete its efforts to modify or replace such systems are not
expected to be material.

M. EMPLOYEES

Protective had approximately 1,000 full-time employees, including
approximately 800 in the Home Office in Birmingham, Alabama at December 31,
1996. These employees are covered by contributory major medical, dental, group
life, and long-term disability insurance plans. The cost of these benefits in
1996 amounted to approximately $2.4 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.

N. 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 $51 thousand.

Marketing offices are leased in 14 cities, substantially all under leases
for periods of three to five years with five leases running longer than five
years. The aggregate monthly rent is approximately $43 thousand.

43
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors of Protective are as follows:

<TABLE>
<S> <C> <C>
Drayton Nabers, Jr. 56 Chairman of the Board

R. Stephen Briggs 47 Executive Vice President and a Director

John D. Johns 45 President and Chief Financial Officer and a Director

Ormond L. Bentley 61 Executive Vice President, Group and a Director

Deborah J. Long 43 Senior Vice President, General Counsel, Secretary
and a Director

Jim E. Massengale 54 Executive Vice President, Acquisitions and a
Director

Danny L. Bentley 39 Senior Vice President, Group and a Director

Richard J. Bielen 36 Senior Vice President and a Director

Steven A. Schultz 43 Senior Vice President, Financial Institutions and a
Director

Wayne E. Stuenkel 43 Senior Vice President, Chief Actuary and a Director

A. S. Williams III 60 Executive Vice President, Investments and Treasurer
and a Director

Judy Wilson 38 Senior Vice President, Guaranteed Investment
Contracts

Carolyn King 46 Senior Vice President, Investment Products and a
Director

Jerry W. DeFoor 44 Vice President and Controller, and Chief Accounting
Officer
</TABLE>

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 and a Director of Protective Life
since August 1996. Mr. Nabers has been Chairman of the Board and Chief Executive
Officer of PLC and a Director since August 1996. From May 1994 to August 1996,
Mr. Nabers was Chairman of the Board, President and Chief Executive Officer and
a Director of PLC. From May 1992 to May 1994, he was President and Chief
Executive Officer and a Director of PLC. Mr. Nabers was President and Chief
Operating Officer and a Director of PLC from August 1982 until May 1992. He is
also a director of Energen Corporation, 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.

Mr. Johns has been President and Chief Operating Officer of PLC since August
1996 and President of Protective Life since August 1996. He was Executive Vice
President and Chief Financial Officer of PLC and of Protective Life from October
1993 to August 1996. From August 1988 to October 1993, he served as Vice
President and General Counsel of Sonat Inc. He is a director of National Bank of
Commerce of Birmingham and Alabama National Bancorporation.

44
<PAGE>

Mr. Ormond L. Bentley has been Executive Vice President, Group of Protective
and PLC since August 1996. From December 1978 to August 1996 he served as Senior
Vice President, Group of Protective. He has also served as Senior Vice
President, Group of PLC from August 1988 to August 1996.

Ms. Long has been Senior Vice President, Secretary and General Counsel of
PLC since November 1996 and of Protective since September 1996. Ms. Long was
Senior Vice President and General Counsel of PLC from February 1994 to November
1996 and of Protective from February 1994 to September 1996. From August 1993 to
January 1994, Ms. Long served as General Counsel of PLC and from February 1984
to January 1994 she practiced law with the law firm of Maynard, Cooper & Gale,
P.C.

Mr. Massengale has been Executive Vice President, Acquisitions of Protective
and PLC since August 1996. From May 1992 to August 1996 he served as Senior Vice
President of Protective and PLC. From May 1989 to May 1992 Mr. Massengale was
Senior Vice President, Operations and Systems of Protective and PLC.

Mr. Danny L. Bentley has been Senior Vice President, Group of Protective and
PLC since August 1996. From May 1989 to August 1996, he was Vice President,
Group Marketing of Protective.

Mr. Bielen has been Senior Vice President, Investments of PLC and Protective
since August 1996. From August 1991 to August 1996, he was Vice President,
Investments of Protective.

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.

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

Mr. Williams has been Executive Vice President, Investments and Treasurer of
Protective and PLC since August 1996. From July 1981 to August 1996 he was
Senior Vice President, Investments and Treasurer of PLC and Protective.

Ms. Wilson has been Senior Vice President, Guaranteed Investment Contracts
of Protective and PLC since January 1995. From July 1991 to December 31, 1994,
she served as Vice President, Guaranteed Investment Contracts of Protective.

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 and of its parent company, Provident Life and
Accident Insurance Company of America. She served as President of Provident
National Assurance Company from November 1987 to March 1995. From November 1986
to August 1994, she served as Vice President of Provident Life and Accident
Insurance Company of America.

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.

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.

45
<PAGE>
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
-------------------------------------------- ------------------------------
AWARDS PAYOUTS
----------- -----------------

SECURITIES
UNDERLYING
OTHER OPTIONS/ LONG-TERM ALL
ANNUAL SARS INCENTIVE PLAN OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1)(2) COMPENSATION (#) PAYOUTS(2)(3) COMPENSATION(4)
(A) (B) (C) (D) (E) (G) (H) (I)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>

DRAYTON NABERS, JR. 1996 $ 535,000 $ 691,063(5) $ 2,970 150,000 $ 757,492(7) $ 4,500
Chairman of the Board and 1995 499,167 459,000 2,970 694,733 4,500
Chief Executive Officer 1994 438,550 400,500 1,188 624,499 4,500
----------------------------------------------------------------------------------------------------------------------------------

JOHN D. JOHNS 1996 312,917 306,316(6) -0- 75,000 166,026 4,500
President and Chief
Operating 1995 282,500 200,000 -0- 132,964 4,500
Officer 1994 268,333 189,000 -0- 87,041 4,500
----------------------------------------------------------------------------------------------------------------------------------

R. STEPHEN BRIGGS 1996 293,333 181,700 -0- 20,000 249,038(7) 4,500
Executive Vice President 1995 282,500 190,000 1,056 262,598 4,500
1994 268,333 153,900 3,168 243,706 4,500
----------------------------------------------------------------------------------------------------------------------------------

A. S. WILLIAMS III 1996 273,333 442,500 5,742 20,000 280,168(7) 4,500
Senior Vice President,
Investments 1995 263,333 240,603 2,970 299,170 4,500
and Treasurer 1994 252,500 153,000 2,970 263,283 4,500
----------------------------------------------------------------------------------------------------------------------------------

JIM E. MASSENGALE 1996 225,417 148,100 756 20,000 233,474(7) 4,500
Executive Vice President, 1995 203,333 123,000 753 252,639 4,500
Acquisitions 1994 193,550 117,000 728 235,020 4,500
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

(2) Includes amounts that the named executives 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.

46
<PAGE>

(5) Includes a one-time bonus award of $205,063 in shares of PLC's Common Stock.

(6) Includes a one-time bonus award of $53,316 in shares of PLC's Common Stock.

(7) 1996 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, 1996 relating to the Chief Executive Officer and the four most highly
compensated executive officers of PLC.

The following table sets forth information regarding the stock appreciation
rights granted to named executives during 1996.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

GRANT DATE
INDIVIDUAL GRANTS VALUE
---------------

PERCENT OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES OR GROSS
OPTION/SARS(1) IN FISCAL BASE PRICE DATE EXPIRATION GRANT DATE
NAME GRANTED (#) YEAR ($/SB) PRICE DATE PRESENT VALUE $
(A) (B) (C) (D) ($/SB) (A) (H)(2)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Drayton Nabers, Jr. 150,000 44.4% $ 34,875 $35.00 August 15, 2006 $ 1,332,750
- ------------------------------------------------------------------------------------------------------------------
John D. Johns 75,000 22.2 34,875 35.00 August 15, 2006 666,375
- ------------------------------------------------------------------------------------------------------------------
R. Stephen Briggs 20,000 5.9 34,875 35.00 August 15, 2006 177,700
- ------------------------------------------------------------------------------------------------------------------
A. S. Williams III 20,000 5.9 34,875 35.00 August 15, 2006 177,700
- ------------------------------------------------------------------------------------------------------------------
Jim E. Massengale 20,000 5.9 34,875 35.00 August 15, 2006 177,700
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

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

(1) The stock appreciation rights are exercisable after five years (earlier upon
the death, disability or retirement of the executive or, in certain
circumstances, upon a change in control of PLC). Unexercised rights expire
upon termination of employment, and rights exercised within the one-year
period prior to termination are recoverable by PLC if the executive becomes
employed by a competitor of PLC.

(2) The stock appreciation rights were valued using the Roll-Geske variation of
the Black-Scholes option pricing model. Expected volatility was assumed to
approximately equal that of the S&P Life Insurance Index or 15%. Other
assumptions include a risk-free rate of 6.35%, a dividend yield of 1.97%,
and an expected time of exercise of August 15, 2002.

47
<PAGE>

The following table sets forth the value of the stock appreciation rights
held by the named executives based upon the value of the Common Stock as of
December 31, 1996.

AGGREGATED FY-END OPTION/SAR VALUES

NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END (#) FY-END ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
(A) (D) (E)
------------------------------------------------------------------------
<S> <C> <C>
Drayton Nabers, Jr. 0/150,000 $0/$750,000
- ------------------------------------------------------------------------
John D. Johns 0/ 75,000 0/ 375,000
- ------------------------------------------------------------------------
R. Stephen Briggs 0/ 20,000 0/ 100,000
- ------------------------------------------------------------------------
A. S. Williams III 0/ 20,000 0/ 100,000
- ------------------------------------------------------------------------
Jim E. Massengale 0/ 20,000 0/ 100,000
- ------------------------------------------------------------------------
</TABLE>

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 (#)(1) PAYOUT THRESHOLD TARGET MAXIMUM
(A) (B) (C) (D) (E) (F)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10,650
Drayton Nabers, Jr. shares December 31, 1999 5,325 13,313 18,105
- ------------------------------------------------------------------------------------------------------------------
John D. Johns 3,880 shares December 31, 1999 1,940 4,850 6,596
- ------------------------------------------------------------------------------------------------------------------
R. Stephen Briggs 3,880 shares December 31, 1999 1,940 4,850 6,596
- ------------------------------------------------------------------------------------------------------------------
A. S. Williams III 2,980 shares December 31, 1999 1,490 3,725 5,066
- ------------------------------------------------------------------------------------------------------------------
Jim E. Massengale 2,300 shares December 31, 1998 1,150 2,875 3,910
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

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

(1) In the event of a change in control, payment will be made with respect to
all outstanding awards based upon performance at the target level (which,
for all outstanding awards, is deemed to be at the seventy-fifth percentile)
or, if greater, performance as of the December 31 preceding the change in
control.

In 1996, 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, 1999
are known.

With respect to 1996 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

48
<PAGE>
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
<S> <C> <C> <C> <C> <C>
$ 125,000 $27,802 $37,070 $46,337 $55,604 $64,872
150,000 33,802 45,070 56,337 67,604 78,872
175,000* 39,802 53,070 66,337 79,604 92,872
200,000* 45,802 61,070 76,337 91,604 106,872
225,000* 51,802 69,070 86,337 103,604 120,872
250,000* 57,802 77,070 96,337 115,604 134,872*
275,000* 63,802 85,070 106,337 127,604* 148,872*
300,000* 69,802 93,070 116,337 139,604* 162,872*
400,000* 93,802 125,070* 156,337* 187,604* 218,872*
500,000* 117,802 157,070* 196,337* 235,604* 274,872*
600,000* 141,802* 189,070* 236,337* 283,604* 330,872*
700,000* 165,802* 221,070* 276,337* 331,604* 386,872*
800,000* 189,802* 253,070* 316,337* 379,604* 442,872*
900,000* 213,802* 285,070* 356,337* 427,604* 498,872*
1,000,000* 237,802* 317,070* 396,337* 475,604* 554,872*
1,100,000* 261,802* 349,070* 436,337* 523,604* 610,872*
1,200,000* 285,802* 381,070* 476,337* 571,604* 666,872*
1,300,000* 309,802* 413,070* 516,337* 619,604* 722,872*
</TABLE>

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

*Current pension law limits the maximum annual benefit payable at normal
retirement age under a defined benefit plan to $125,000 for 1997 and is subject
to increase in later years. In addition, in 1997, such a plan may not take into
account annual compensation in excess of $160,000, 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

49
<PAGE>
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.

<TABLE>
<CAPTION>
------------------------------------------------

NAME YEARS OF SERVICE
- ----------------------- -----------------------------
<S> <C>
Drayton Nabers, Jr. 18
John D. Johns 3
R. Stephen Briggs 25
A. S. Williams III 32
Jim E. Massengale 13
- ------------------------------------------------
</TABLE>

ADDITIONAL 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.

The Board of Directors of PLC has authorized PLC to enter into Employment
Continuation Agreements with each of the named executives which provide for
certain benefits in the event such executive's employment is actually or
constructively (by means of a reduction in duties or compensation) terminated
following certain events constituting a "change in control". Such benefits
include (i) a payment equal to three times the sum of the annual base salary in
effect at the time of the change in control and the average annual incentive
plan bonus for the three years preceding the change in control; (ii)
continuation (for 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; (iii) 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); and (iv) an additional payment, if
necessary, to reimburse the executive for any additional tax (other than normal
Federal, state and local income taxes) incurred as a result of any benefits
received in connection with the change in control.

50
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation and Management Succession Committee
("Committee") are Messrs. McMahon (Chairman), Woods, Dahlberg, Kuehn, and
Sklenar. No member of the Committee was an officer or employee of PLC or any of
its subsidiaries at any time during 1996. Also, no member of the Committee was
formerly an officer of PLC or any of its subsidiaries.

Mr. Dahlberg is the Chairman of the Board, President and Chief Executive
Officer of The Southern Company. PLC is a 25% member of a limited liability
company which acquired an office building adjacent to PLC's home office from an
affiliate of The Southern Company which continues to lease portions of the
building. During 1996, the limited liability company received $1,913,930 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 1997:

<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP (1)
--------------------------------- PERCENT OF
NAME AND BENEFICIAL OWNER SOLE POWER SHARED POWER (2) CLASS (1)
- ------------------------------------ ----------- ----------------- ----------
<S> <C> <C> <C>
William J. Rushton III 641,352(3) 11,094(4) 2.1%
Drayton Nabers, Jr. 124,664(5) 10,667 *
R. Stephen Briggs 64,726(6) -0- *
John D. Johns 14,775(7) 2,100 *
Ormond L. Bentley 46,204(8) -0- *
Deborah J. Long 4,122(9) -0- *
Jim E. Massengale 57,378(10) 350 *
Danny L. Bentley 19,593(11) -0- *
Richard J. Bielen 7,585(12) -0- *
Wayne E. Stuenkel 29,179(13) -0- *
A. S. Williams III 45,605(14) -0- *
Steven A. Schultz 13,333(15) -0- *
Judy Wilson 4,472(16) -0- *
Carolyn King 4,033(17) -0- *
All directors and executive officers
as a group (14 persons) 1,077,020(18) 24,161(2) 3.6%
</TABLE>

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

* 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

51
<PAGE>
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 31,593 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 6,085 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Nabers has sole voting power. Also, includes 78,103 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. Does not include 150,000 stock
appreciation rights awarded under PLC's 1996 Stock Incentive Plan.

(6) Includes 12,937 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Briggs has sole voting power. Also, includes 27,832 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. Does not include 20,000 stock
appreciation rights awarded under PLC's 1996 Stock Incentive Plan.

(7) Includes 1,184 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. John's has sole voting power. Also, includes 11,391 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. Does not include 75,000 stock
appreciation rights awarded under PLC's 1996 Stock Incentive Plan.

(8) Includes 3,241 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Bentley has sole voting power. Also, includes 26,987 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 493 shares held in PLC's 401(k) and Stock Ownership Plan for which
Ms. Long has sole voting power. Also includes 1,079 share equivalents
allocated to Ms. Long'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 Ms. Long who will have sole voting powers over
the shares at that time.

(10) Includes 14,808 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Massengale has sole voting power. Also includes 16,440 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. Does not include 20,000
stock appreciation rights awarded under PLC's 1996 Stock Incentive Plan.

52
<PAGE>

(11) Includes 4,285 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Bentley has sole voting power. Also includes 11,254 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.

(12) Includes 3,847 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Bielen has sole voting power.

(13) Includes 3,063 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Stuenkel has sole voting power. Also includes 21,348 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.

(14) Includes 12,588 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Williams has sole voting power. Also, includes 27,832 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. Does not include 20,000
stock appreciation rights awarded under PLC's 1996 Stock Incentive Plan.

(15) Includes 2,635 shares held in PLC's 401(k) and Stock Ownership Plan for
which Mr. Schultz has sole voting power. Also includes 9,506 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.

(16) Includes 2,472 shares held in PLC's 401(k) and Stock Ownership Plan for
which Ms. Wilson has sole voting power.

(17) Includes 407 shares held in PLC's 401(k) and Stock Ownership Plan for which
Ms. King has sole voting power. Also, includes 3,626 share equivalents
allocated to Ms. King'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 Ms. King who will have sole voting power over the
shares at that time.

(18) Included are the interests of the persons as of December 31, 1996 in 91,506
shares held in PLC's 401(k) and Stock Ownership Plan, which owned a total of
1,312,410 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 693,120 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 253,120 share equivalents allocated to the
deferred compensation accounts of participating directors and executive
officers as a group pursuant to the PLC's Deferred Compensation Plan for
Directors Who Are Not Employees of the PLC and the PLC's Deferred
Compensation Plan for Officers.

CERTAIN TRANSACTIONS

PLC is a 25% member of a limited liability company which acquired an office
building adjacent to PLC's home office from an affiliate of The Southern Company
which continues to lease portions of the building. During 1996, the limited
liability company received $1,913,930 in lease payments from affiliates

53
<PAGE>

of The Southern Company. Mr. Dahlberg is the Chairman of the Board, President
and Chief Executive Officer of The Southern Company.

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, 1996 and 1995 and the consolidated statements of
income, stockholder's equity, and cash flows for each of the three years in the
period ended December 31, 1996 and the related financial statement schedules, in
this Prospectus, have been included herein in reliance on the report 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, L.L.P. 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.

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<PAGE>
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

<TABLE>
<CAPTION>
GUARANTEED PERIOD (YEARS): 3 5 7 TOTAL
- --------------------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
</TABLE>

A-1
<PAGE>
<TABLE>
<CAPTION>
GUARANTEED PERIOD (YEARS): 3 5 7 TOTAL
- --------------------------------------------------------- ------------ ------------ ------------ ------------
Year 2 --
<S> <C> <C> <C> <C>
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
</TABLE>

A-2
<PAGE>
<TABLE>
<CAPTION>
GUARANTEED PERIOD (YEARS): 3 5 7 TOTAL
- --------------------------------------------------------- ------------ ------------ ------------ ------------
EXAMPLE #2 -- DECREASING TREASURY RATE ENVIRONMENT
<S> <C> <C> <C> <C>

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
</TABLE>

A-3
<PAGE>
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 MAY 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
<PAGE>
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)

B-2
<PAGE>
years of all Subsequent Guaranteed Periods. 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.

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.

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 as follows:

[(A X B) - SC] where:

<TABLE>
<C> <C> <S>
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
</TABLE>

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:

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

B-3
<PAGE>
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.

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

B-4
<PAGE>
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.

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
<PAGE>
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:

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. Since our current guaranteed rates are based in part
upon the investment yields available to Protective, the effect of the
Market Value Adjustment will be related to the levels of such yields.

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
<PAGE>
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.

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)

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
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.

C-2
<PAGE>
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:

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:

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
<PAGE>
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.

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
<PAGE>
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.

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
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-2

Consolidated Statements of Income for the years ended
December 31, 1996, 1995, and 1994.................................................. F-3

Consolidated Balance Sheets as of December 31, 1996 and 1995......................... F-4

Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1996, 1995, and 1994.................................................. F-5

Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994.................................................. F-6

Notes to Consolidated Financial Statements........................................... F-7

Financial Statement Schedules:

Schedule III -- Supplementary Insurance Information................................ S-1

Schedule IV -- Reinsurance......................................................... S-2
</TABLE>

All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the 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 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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.

COOPERS & LYBRAND L.L.P.

February 11, 1997
Birmingham, Alabama

F-2
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
REVENUES
Premiums and policy fees (net of reinsurance ceded: 1996-$308,174;
1995-$333,173; 1994-$172,575)............................................ $ 462,050 $ 411,682 $ 402,772
Net investment income...................................................... 498,781 458,433 408,933
Realized investment gains (losses)......................................... 5,510 1,951 6,298
Other income............................................................... 5,010 1,355 11,977
---------- ---------- ----------
971,351 873,421 829,980
---------- ---------- ----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: 1996-$215,424;
1995-$247,224; 1994-$112,922)............................................ 626,893 553,100 517,110
Amortization of deferred policy acquisition costs.......................... 91,001 82,700 88,089
Other operating expenses (net of reinsurance ceded: 1996-$81,839;
1995-$84,855; 1994-$14,326).............................................. 128,148 119,888 119,203
---------- ---------- ----------
846,042 755,688 724,402
---------- ---------- ----------
INCOME BEFORE INCOME TAX..................................................... 125,309 117,733 105,578
INCOME TAX EXPENSE (BENEFIT)
Current.................................................................... 44,908 47,009 37,586
Deferred................................................................... (2,142) (6,972) (4,731)
---------- ---------- ----------
42,766 40,037 32,855
---------- ---------- ----------
NET INCOME................................................................... $ 82,543 $ 77,696 $ 72,723
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1996 1995
--------- ---------
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1996-$4,648,525; 1995-$3,789,926).......... $4,662,997 $3,891,932
Equity securities, at market (cost: 1996-$31,669; 1995-$35,448)......................... 35,250 38,711
Mortgage loans on real estate........................................................... 1,503,781 1,835,057
Investment real estate, net of accumulated depreciation (1996-$911; 1995-$1,032)........ 14,172 20,788
Policy loans............................................................................ 166,704 143,372
Other long-term investments............................................................. 29,193 43,875
Short-term investments.................................................................. 101,215 46,891
--------- ---------
Total investments..................................................................... 6,513,312 6,020,626
Cash...................................................................................... 114,384 6,198
Accrued investment income................................................................. 70,541 61,004
Accounts and premiums receivable, net of allowance for uncollectible amounts (1996-$2,525;
1995-$2,342)............................................................................ 43,469 35,492
Reinsurance receivables................................................................... 332,614 271,018
Deferred policy acquisition costs......................................................... 488,201 410,183
Property and equipment, net............................................................... 35,489 34,211
Receivables from related parties.......................................................... 1,961
Other assets.............................................................................. 14,636 13,096
Assets related to separate accounts....................................................... 550,697 324,904
--------- ---------
$8,163,343 $7,178,693
--------- ---------
--------- ---------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims....................................................... $2,448,449 $1,928,154
Unearned premiums....................................................................... 257,553 193,767
--------- ---------
2,706,002 2,121,921
Guaranteed investment contract deposits................................................... 2,474,728 2,451,693
Annuity deposits.......................................................................... 1,331,067 1,280,069
Other policyholders' funds................................................................ 142,221 134,380
Other liabilities......................................................................... 117,847 109,538
Accrued income taxes...................................................................... 1,854 838
Deferred income taxes..................................................................... 37,722 67,420
Indebtedness to related parties........................................................... 25,014 34,693
Liabilities related to separate accounts.................................................. 550,697 324,904
--------- ---------
Total liabilities..................................................................... 7,387,152 6,525,456
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
REDEEMABLE PREFERRED STOCK, $1.00 par value, at redemption value Shares authorized and
issued: 2,000........................................................................... 2,000
---------

STOCKHOLDER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation
preference $2,000....................................................................... 2
Common Stock, $1.00 par value............................................................. 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital................................................................ 237,992 144,494
Net unrealized gains on investments (net of income tax: 1996-$3,601; 1995-$31,157)........ 6,688 57,863
Retained earnings......................................................................... 532,088 449,645
Note receivable from PLC Employee Stock Ownership Plan.................................... (5,579) (5,765)
--------- ---------
Total stockholder's equity............................................................ 776,191 651,237
--------- ---------
$8,163,343 $7,178,693
--------- ---------
--------- ---------
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NOTE
NET RECEIVABLE
ADDITIONAL UNREALIZED FROM TOTAL
PREFERRED COMMON PAID-IN GAINS (LOSSES) RETAINED PLC STOCKHOLDER'S
STOCK STOCK CAPITAL ON INVESTMENTS EARNINGS ESOP EQUITY
--------- ------ ---------- -------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 from PLC
ESOP................................ 171 171
--
------ ---------- -------------- --------- ---------- -------------
Balance, December 31, 1995.............. 5,000 144,494 57,863 449,645 (5,765) 651,237
Net income for 1996................... 82,543 82,543
Redemption feature of preferred stock
removed-Note I...................... $2 1,998 2,000
Preferred dividends ($50 per share)... (100) (100)
Decrease in net unrealized gains on
investments......................... (51,175) (51,175)
Capital contribution from PLC......... 91,500 91,500
Decrease in note receivable from PLC
ESOP................................ 186 186
--
------ ---------- -------------- --------- ---------- -------------
Balance, December 31, 1996.............. $2 $5,000 $237,992 $ 6,688 $532,088 $(5,579) $776,191
--
--
------ ---------- -------------- --------- ---------- -------------
------ ---------- -------------- --------- ---------- -------------
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................................ $ 82,543 $ 77,696 $ 72,723
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred policy acquisition costs................................... 91,001 84,501 88,089
Capitalization of deferred policy acquisition costs................................. (77,078) (89,266) (127,566)
Depreciation expense................................................................ 5,333 4,317 4,280
Deferred income taxes............................................................... (2,442) (6,971) (4,731)
Accrued income taxes................................................................ 893 5,537 (12,182)
Interest credited to universal life and investment products......................... 280,377 286,710 260,081
Policy fees assessed on universal life and investment products...................... (116,401) (100,840) (85,532)
Change in accrued investment income and other receivables........................... (70,987) (161,924) (32,242)
Change in policy liabilities and other policyholder funds of traditional life and
health products.................................................................... 133,621 201,353 61,322
Change in other liabilities......................................................... 7,209 (3,270) 18,564
Other (net)......................................................................... (4,281) (6,634) (1,475)
---------- ---------- ----------
Net cash provided by operating activities............................................... 329,788 291,209 241,331
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale...................................................... 1,327,323 2,014,060 386,498
Other............................................................................... 168,898 78,568 153,945
Sale of investments:
Investment available for sale....................................................... 1,569,119 1,523,454 630,095
Other............................................................................... 568,218 141,184 59,550
Cost of investments acquired:
Investments available for sale...................................................... (3,798,631) (3,626,877) (1,807,658)
Other............................................................................... (400,322) (540,648) (220,839)
Acquisitions and bulk reinsurance assumptions......................................... 264,126 106,435
Purchase of property and equipment.................................................... (6,899) (5,629) (4,889)
Sale of property and equipment........................................................ 288 286 470
---------- ---------- ----------
Net cash used in investing activities................................................... (307,880) (415,602) (696,393)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt....................... 941,438 1,162,700 572,586
Capital contribution from PLC......................................................... 91,500 18,000
Principal payments on line of credit arrangements and long-term debt.................. (941,438) (1,162,700) (572,704)
Principal payment on surplus note to PLC.............................................. (10,000) (4,750) (9,500)
Dividends to stockholder.............................................................. (100) (5,100) (850)
Investment product deposits and change in universal life deposits..................... 949,122 908,063 1,417,980
Investment product withdrawals........................................................ (944,244) (785,622) (976,401)
---------- ---------- ----------
Net cash provided by financing activities............................................... 86,278 130,591 431,111
---------- ---------- ----------
INCREASE(DECREASE) IN CASH.............................................................. 108,186 6,198 (23,951)
CASH AT BEGINNING OF YEAR............................................................... 6,198 0 23,951
---------- ---------- ----------
CASH AT END OF YEAR..................................................................... $ 114,384 $ 6,198 $ 0
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt.................................................................... $ 4,633 $ 6,029 $ 5,029
Income taxes........................................................................ 43,478 $ 41,397 $ 49,765
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP.............................................. $ 186 $ 171 $ 28
Acquisitions and bulk reinsurance assumptions
Assets acquired..................................................................... $ 296,935 $ 613 $ 117,349
Liabilities assumed................................................................. (364,862) (21,800) (166,595)
---------- ---------- ----------
Net................................................................................. $ (67,927) $ (21,187) $ (49,246)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

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

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

ENTITIES INCLUDED

The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its
wholly-owned subsidiaries 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

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
stockbrokers and financial institutions to their customers; through company
sales representatives; and through other insurance companies. Protective also
seeks to acquire blocks of insurance policies from other insurers.

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,
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. The adoption of this accounting standard did not have a
material effect on Protective's financial statements.

F-7
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 1996 Protective adopted 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." The adoption of
these accounting standards did not have a material effect on Protective's
financial statements.

INVESTMENTS

Protective has classified all of its investments in fixed maturities, equity
securities, and short-term investments as "available for sale."

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 $3.4 million in bank
deposits voluntarily restricted as to withdrawal.

As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," certain investments are recorded at their market values
with the resulting unrealized gains and losses reduced by a related adjustment
to deferred policy acquisition costs, net of income tax, reported as a component
of stockholder's equity. The market values of fixed maturities increase or
decrease as interest

F-8
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Total investments................................................. $ 6,495,259 $ 5,915,357
Deferred policy acquisition costs................................. 495,965 426,432
All other assets.................................................. 1,161,830 747,884
------------ ------------
$ 8,153,054 $ 7,089,673
------------ ------------
------------ ------------
Deferred income taxes............................................. $ 34,121 $ 36,263
All other liabilities............................................. 7,349,430 6,458,036
------------ ------------
7,383,551 6,494,299
Redeemable preferred stock........................................ 2,000
Stockholder's equity.............................................. 769,503 593,374
------------ ------------
$ 8,153,054 $ 7,089,673
------------ ------------
------------ ------------
</TABLE>

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, mortgage-backed
securities, and liabilities arising from interest-sensitive products such as
guaranteed investment contracts and individual annuities. Realized investment
gains and losses on such contracts are deferred and amortized over the life of
the hedged asset. Net realized losses of $0.2 million and $15.2 million were
deferred in 1996 and 1995 respectively. At December 31, 1996 and 1995, options
and open futures contracts with notional amounts of $805.0 million and $25.0
million, respectively, had net unrealized losses of $1.9 million and $0.6
million respectively.

Protective uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1996, related open
interest rate swap contracts with a notional amount of $150.3 million were in a
$0.7 million net unrealized loss position. 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.

F-9
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Home office building.................................................... $ 36,586 $ 35,284
Other, principally furniture and equipment.............................. 35,401 30,356
--------- ---------
71,987 65,640
Accumulated depreciation................................................ 36,498 31,429
--------- ---------
$ 35,489 $ 34,211
--------- ---------
--------- ---------
</TABLE>

SEPARATE ACCOUNTS

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

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.

F-10
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Liabilities for future policy benefits on traditional life insurance
products have been computed using a net level method including assumptions
as to investment yields, mortality, persistency, and other assumptions
based on Protective's experience modified as necessary to reflect
anticipated trends and to include provisions for possible adverse
deviation. Reserve investment yield assumptions are graded and range from
2.5% to 7.0%. The liability for future policy benefits and claims on
traditional life and health insurance products includes estimated unpaid
claims that have been reported to Protective and claims incurred but not
yet reported. Policy claims are charged to expense in the period that the
claims are incurred.

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

<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Balance beginning of year................................... $ 73,642 $ 79,462 $ 77,191
Less reinsurance.......................................... 3,330 5,024 3,973
---------- --------- ---------
Net balance beginning of year............................... 70,312 74,438 73,218
---------- --------- ---------
Incurred related to:
Current year................................................ 288,816 217,366 203,453
Prior year.................................................. (2,417) (8,337) (6,683)
---------- --------- ---------
Total incurred............................................ 286,399 209,029 196,770
---------- --------- ---------
Paid related to:
Current year................................................ 197,163 164,321 148,548
Prior year.................................................. 57,812 48,834 47,002
---------- --------- ---------
Total paid................................................ 254,975 213,155 195,550
---------- --------- ---------
Net balance end of year..................................... 101,736 70,312 74,438
Plus reinsurance.......................................... 6,423 3,330 5,024
---------- --------- ---------
Balance end of year......................................... $ 108,159 $ 73,642 $ 79,462
---------- --------- ---------
---------- --------- ---------
</TABLE>

- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, guaranteed investment
contracts, deferred annuities, and annuities without life contingencies.
Revenues for universal life and investment products consist of policy fees
that have been assessed against policy account balances for the costs of
insurance, policy 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

F-11
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 1996.

At December 31, 1996, Protective estimates the fair value of its
guaranteed investment contracts to be $2,462.0 million using discounted
cash flows. The surrender value of Protective's annuities which
approximates fair value was $1,322.3 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 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. 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 $138.2 million and $102.5 million at December 31,
1996 and 1995, respectively. During 1996 $57.6 million of present value of
future profits on acquisitions made during the year was capitalized, and $10.8
million was amortized. The unamortized present value of future profits for all
acquisitions was $155.9 million at December 31, 1996 and $123.9 million at
December 31, 1995.

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 $4.1 million in 1996 and $2.6 million in 1995 and
1994.

F-12
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.

NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES

Financial statements prepared in conformity with generally accepted
accounting principles ("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
<PAGE>
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:

<TABLE>
<CAPTION>
NET INCOME STOCKHOLDER'S EQUITY
------------------------------- -------------------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory reporting practices:
Protective Life Insurance Company....................... $ 97,779 $ 105,744 $ 54,812 $ 454,320 $ 322,416 $ 304,858
Wisconsin National Life Insurance Company............... 15,011 10,954 10,132 66,577 62,529 57,268
American Foundation Life Insurance Company.............. 2,558 3,330 3,072 18,031 18,781 20,327
Capital Investors Life Insurance Company................ 81 182 170 1,458 1,315 1,125
Empire General Life Assurance Corporation............... 905 1,003 690 20,509 20,685 21,270
Protective Life Insurance Corporation of Alabama........ 484 546 69 2,660 2,675 2,133
Protective Life Insurance Company of Kentucky........... 19 3,030
Community National Assurance Company.................... 5,100
Consolidation elimination............................... (14,500) (6,500) (115,365) (103,985) (100,123)
--------- --------- --------- --------- --------- ---------
102,337 115,259 68,945 456,320 324,416 306,858
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net of
amortization.......................................... (2,830) (765) 41,718 488,201 410,183 434,200
Policy liabilities and accruals......................... (11,633) (48,330) (34,632) (192,628) (186,512) (140,298)
Deferred income tax..................................... 2,142 6,972 4,731 (37,722) (67,420) 14,667
Asset Valuation Reserve................................. 64,233 105,769 24,925
Interest Maintenance Reserve............................ (2,142) (1,235) (1,716) 17,682 14,412 3,583
Nonadmitted items....................................... 21,610 20,603 21,445
Timing and valuation differences on mortgage loans on
real estate and fixed maturity investments............ 5,913 (619) (961) (1,708) 27,158 6,258
Net unrealized gains and losses on investments.......... 4,361 55,765 (106,913)
Realized investment gains (losses)...................... (468) 6,781 (6,664)
Noninsurance affiliates................................. 11,104 (22) 154,143 (9) 0
Consolidation elimination............................... (16,858) 2,515 (4,415) (191,049) (46,222) (162,835)
Other adjustments, net.................................. (5,022) (2,860) 5,717 (7,252) (4,906) (4,815)
--------- --------- --------- --------- --------- ---------
In conformity with generally accepted accounting
principles.............................................. $ 82,543 $ 77,696 $ 72,723 $ 776,191 $ 653,237 $ 397,075
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

F-14
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE C -- INVESTMENT OPERATIONS

Major categories of net investment income for the years ended December 31
are summarized as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities............................................................. $ 310,353 $ 272,942 $ 237,264
Equity securities............................................................ 2,124 1,338 2,435
Mortgage loans on real estate................................................ 153,463 162,135 141,751
Investment real estate....................................................... 1,875 1,855 1,950
Policy loans................................................................. 10,378 8,958 8,397
Other, principally short-term investments.................................... 51,637 40,348 35,062
---------- ---------- ----------
529,830 487,576 426,859
Investment expenses.......................................................... 31,049 29,143 17,926
---------- ---------- ----------
$ 498,781 $ 458,433 $ 408,933
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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

<TABLE>
<S> <C> <C> <C>
Fixed maturities.............................................. $ (7,101) $ 6,118 $ (8,646)
Equity securities............................................. 1,733 44 7,735
Mortgage loans and other investments.......................... 10,878 (4,211) 7,209
--------- --------- ---------
$ 5,510 $ 1,951 $ 6,298
--------- --------- ---------
--------- --------- ---------
</TABLE>

Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $30.9 million at December 31, 1996 and $32.7
million at December 31, 1995. Additions and reductions to the allowance are
included in realized investment gains (losses). Without such additions/
reductions, Protective had net realized investment gains of $3.7 million in
1996, net realized investment losses of $0.5 million in 1995, and net realized
investment gains of $6.3 million in 1994.

In 1996, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $6.9 million and
gross losses were $11.8 million. In 1995, gross gains were $18.0 million and
gross losses were $11.8 million. In 1994, gross gains on the sale of fixed
maturities were $15.2 million and gross losses were $16.4 million.

F-15
<PAGE>
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:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1996 COST GAINS LOSSES VALUES
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed.......................................... $ 2,192,978 $ 29,925 $ 20,810 $ 2,202,093
United States Government and authorities................. 348,318 661 1,377 347,602
States, municipalities, and political subdivisions....... 5,515 47 9 5,553
Public utilities......................................... 364,692 2,205 337 366,560
Convertibles and bonds with warrants..................... 679 0 158 521
All other corporate bonds................................ 1,679,276 33,879 29,388 1,683,767
Bank loan participations................................... 49,829 0 0 49,829
Redeemable preferred stocks................................ 7,238 60 226 7,072
------------ ----------- ----------- ------------
4,648,525 66,777 52,305 4,662,997
Equity securities............................................ 31,669 9,570 5,989 35,250
Short-term investments....................................... 101,215 0 0 101,215
------------ ----------- ----------- ------------
$ 4,781,409 $ 76,347 $ 58,294 $ 4,799,462
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1995 COST GAINS LOSSES VALUES
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed.......................................... $ 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................................ 1,117,376 59,045 7,573 1,168,848
Bank loan participations................................... 220,811 0 0 220,811
Redeemable preferred stocks................................ 5,857 61 324 5,594
------------ ----------- ----------- ------------
3,789,926 114,936 12,930 3,891,932
Equity securities............................................ 35,448 6,438 3,175 38,711
Short-term investments....................................... 46,891 0 0 46,891
------------ ----------- ----------- ------------
$ 3,872,265 $ 121,374 $ 16,105 $ 3,977,534
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>

F-16
<PAGE>
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.

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1996 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 417,463 $ 420,774
Due after one year through five years............................. 1,547,805 1,546,278
Due after five years through ten years............................ 2,090,149 2,095,781
Due after ten years............................................... 593,108 600,164
------------ ------------
$ 4,648,525 $ 4,662,997
------------ ------------
------------ ------------
</TABLE>

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1995 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 409,514 $ 411,839
Due after one year through five years............................. 1,087,735 1,101,226
Due after five years through ten years............................ 1,477,807 1,524,555
Due after ten years............................................... 814,870 854,312
------------ ------------
$ 3,789,926 $ 3,891,932
------------ ------------
------------ ------------
</TABLE>

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

<TABLE>
<CAPTION>
RATING 1996 1995
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
AAA........................................................................ 48.3% 56.1%
AA......................................................................... 4.4 4.5
A.......................................................................... 22.6 12.6
BBB
Bonds.................................................................... 21.1 19.0
Bank loan participations................................................. 0.1 0.4
BB or Less
Bonds.................................................................... 2.5 2.0
Bank loan participations................................................. 0.9 5.3
Redeemable preferred stocks................................................ 0.1 0.1
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>

F-17
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
At December 31, 1996 and 1995, Protective had bonds which were rated less
than investment grade of $117.5 million and $75.7 million, respectively, having
an amortized cost of $137.0 million and $82.2 million, respectively.
Additionally, Protective had bank loan participations which were rated less than
investment grade of $43.6 million and $206.0 million, respectively, having an
amortized cost of $43.6 million and $206.0 million, respectively.

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

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Fixed maturities......................................... $ (56,898) $ 199,024 $ (175,723)
Equity securities........................................ $ 207 $ 2,740 $ (5,342)
</TABLE>

At December 31, 1996, all of Protective's mortgage loans were commercial
loans of which 78% were retail, 8% were office buildings, and 7% were
warehouses. 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 84% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: South Carolina, Florida, Georgia, Tennessee,
Texas, North Carolina, Alabama, Virginia, Mississippi, Kentucky, Ohio, Indiana,
Arizona, and Washington.

Many of the mortgage loans have call provisions after five to seven years.
Assuming the loans are called at their next call dates, approximately $126.7
million would become due in 1997, $761.8 million in 1998 to 2001, and $250.8
million in 2002 to 2006.

At December 31, 1996, the average mortgage loan was $1.7 million, and the
weighted average interest rate was 9.3%. The largest single mortgage loan was
$13.6 million. While Protective's mortgage loans do not have quoted market
values, at December 31,1996 and 1995, Protective estimates the market value of
its mortgage loans to be $1,581.7 million and $2,001.1 million, respectively,
using discounted cash flows from the next call date.

At December 31, 1996 and 1995, Protective's problem mortgage loans and
foreclosed properties totaled $23.7 million and $26.1 million, respectively.
Protective's mortgage loans are collateralized by real estate, any assessment of
impairment is based upon the estimated fair value of the real estate. Based on
Protective's evaluation of its mortgage loan portfolio, Protective does not
expect any material losses on its mortgage loans.

Certain investments, principally real estate, with a carrying value of $18.8
million were nonincome producing for the twelve months ended December 31, 1996.

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

F-18
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
generally range from 4.5% to 8.0%. The fair values of Protective's other
long-term investments approximate cost.

NOTE D -- FEDERAL INCOME TAXES

Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax income......................... 35.0% 35.0% 35.0%
Dividends received deduction and tax-exempt interest............................... (0.4) (0.5) (0.4)
Low-income housing credit.......................................................... (0.6) (0.7) (0.7)
Tax benefits arising from prior acquisitions and other adjustments................. 0.1 0.2 (2.8)
--- --- ---
Effective income tax rate.......................................................... 34.1% 34.0% 31.1%
--- --- ---
--- --- ---
</TABLE>

The provision for federal income tax differs from amounts currently payable
due to certain items reported for financial statement purposes in periods which
differ from those in which they are reported for income tax purposes.

Details of the deferred income tax provision for the years ended December 31
are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs............................................. $ (16,321) $ (11,606) $ 34,561
Benefit and other policy liability changes.................................... 15,542 52,496 (52,288)
Temporary differences of investment income.................................... (1,163) (34,175) 15,524
Other items................................................................... (200) (13,687) (2,528)
---------- ---------- ----------
$ (2,142) $ (6,972) $ (4,731)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

F-19
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
The components of Protective's net deferred income tax liability as of
December 31 were as follows:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred income tax assets
Policy and policyholder liability reserves.............................................. $ 80,151 $ 63,830
Other................................................................................... 2,503 2,303
---------- ----------
82,654 66,133
---------- ----------
Deferred income tax liabilities:
Deferred policy acquisition costs....................................................... 117,696 102,154
Unrealized gain on investments.......................................................... 2,680 31,399
---------- ----------
120,376 133,553
---------- ----------
Net deferred income tax liability....................................................... $ 37,722 $ 67,420
---------- ----------
---------- ----------
</TABLE>

Under pre-1984 life insurance company income tax laws, a portion of
Protective's gain from operations which was not subject to current income
taxation was accumulated for income tax purposes in a memorandum account
designated as Policyholders' Surplus. The aggregate accumulation in this account
at December 31, 1996 was approximately $50.7 million. Should the accumulation in
the Policyholders' Surplus account exceed certain stated maximums, or should
distributions including cash dividends be made to PLC in excess of approximately
$439 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.

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, 1996, 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.

Protective has arranged sources of credit to temporarily fund scheduled
investment commitments. Protective expects that the rate received on its
investments will equal or exceed its borrowing rate. Protective had no such
temporary borrowings outstanding at December 31, 1996 and 1995.

Included in indebtedness to related parties are three surplus debentures
issued by Protective to PLC. At December 31, 1996, the balance of the three
surplus debentures combined was $24.7 million. Future maturities of these
debentures are $4.7 million in 1997 and $20.0 million in 2003.

F-20
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE E -- DEBT (CONTINUED)
Interest expense on borrowed money totaled $4.6 million, $6.0 million, and
$5.0 million, in 1996, 1995, and 1994, respectively.

NOTE F -- ACQUISITIONS

In June 1995 Protective acquired through coinsurance a block of term life
insurance policies. In January 1996 Protective acquired through coinsurance a
block of life insurance policies. In June 1996 Protective acquired through
coinsurance a block of credit life insurance policies. In December 1996
Protective acquired a small life insurance company and acquired through
coinsurance a block of 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. Increasingly these lawsuits have resulted
in the award of substantial judgments against the insurer that are
disproportionate to the actual damages, including material amounts of punitive
damages. In some states, juries have substantial discretion in awarding punitive
damages which creates the potential for unpredictable material adverse judgments
in any given punitive damage suit. Protective and its subsidiaries, like other
life and health insurers, from time to time are involved in such litigation.
Pending litigation includes a class action filed in Jefferson County
(Birmingham), Alabama with respect to cancer premium refunds. Although the
outcome of any litigation cannot be predicted with certainty, Protective
believes that at the present time there are no pending or threatened lawsuits
that are reasonably likely to have a material adverse effect on the financial
position of Protective.

NOTE H -- STOCKHOLDER'S EQUITY AND RESTRICTIONS

At December 31, 1996, approximately $413 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

F-21
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE H -- STOCKHOLDER'S EQUITY AND RESTRICTIONS (CONTINUED)

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 1997 is estimated to be $98 million.

NOTE I -- PREFERRED STOCK

PLC owns all of the 2,000 shares of preferred stock issued by Protective's
subsidiary, American Foundation. During 1996, American Foundation's articles of
incorporation were amended such that the preferred stock is redeemable solely at
the discretion of American Foundation. At December 31, 1995 the preferred stock
was reported "Redeemable Preferred Stock", whereas at December 31, 1996 it is
reported as a component of stockholder's equity. 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, $0.1 million, and $0.9 million were paid to PLC in
1996, 1995, and 1994, respectively.

NOTE J -- RELATED PARTY MATTERS

Receivables from related parties consisted of receivables from affiliates
under control of PLC in the amount of $2.0 million at December 31, 1995.
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, $5.6 million at
December 31, 1996, 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 $3.7 million in 1996, $3.1 million in 1995, and $2.8 million in
1994. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $50.4 million, $38.1
million, and $29.8 million in 1996, 1995, and 1994, respectively. Commissions
paid to affiliated marketing organizations of $7.4 million, $10.9 million, and
$10.1 million in 1996, 1995, and 1994, respectively, were included in deferred
policy acquisition costs.

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 $31.2 million, $21.2 million, and $21.1
million in 1996, 1995, and 1994, respectively. Protective and/or PLC paid
commissions, interest, and service fees to these same corporations totaling $5.0
million, $5.3 million, and $4.9 million, in 1996, 1995, and 1994, respectively.

F-22
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE J -- RELATED PARTY MATTERS (CONTINUED)
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. In the 1996 first quarter, Protective changed the way it allocates
certain expenses to its business segments. Accordingly, prior period segment
results have been restated to reflect the change.

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.

F-23
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE K -- BUSINESS SEGMENTS (CONTINUED)
There are no significant intersegment transactions.

<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
TOTAL REVENUES
Acquisitions............................................................ $ 213,199 $ 193,544 $ 171,259
Financial Institutions.................................................. 87,320 72,758 107,481
Group................................................................... 174,971 159,263 148,835
Guaranteed Investment Contracts......................................... 206,407 199,468 184,212
Individual Life......................................................... 169,306 139,424 122,915
Investment Products..................................................... 110,821 104,984 80,076
Corporate and Other..................................................... 2,810 3,059 9,936
Unallocated Realized Investment Gains (Losses).......................... 6,517 921 5,266
------------ ------------ ------------
$ 971,351 $ 873,421 $ 829,980
------------ ------------ ------------
------------ ------------ ------------
Acquisitions............................................................ 21.9% 22.2% 20.7%
Financial Institutions.................................................. 9.0 8.3 12.9
Group................................................................... 18.0 18.2 17.9
Guaranteed Investment Contracts......................................... 21.3 22.8 22.3
Individual Life......................................................... 17.4 16.0 14.7
Investment Products..................................................... 11.4 12.0 9.7
Corporate and Other..................................................... 0.3 0.4 1.2
Unallocated Realized Investment Gains (Losses).......................... 0.7 0.1 0.6
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-24
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE K -- BUSINESS SEGMENTS (CONTINUED)

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAX
Acquisitions................................................................. $ 53,564 $ 50,376 $ 37,719
Financial Institutions....................................................... 8,966 7,701 7,544
Group........................................................................ 821 9,107 10,122
Guaranteed Investment Contracts.............................................. 32,130 28,979 31,933
Individual Life.............................................................. 15,898 16,206 15,957
Investment Products.......................................................... 9,823 10,933 (796)
Corporate and Other.......................................................... (2,410) (6,490) (2,167)
Unallocated Realized Investment Gains (Losses)............................... 6,517 921 5,266
---------- ---------- ----------
$ 125,309 $ 117,733 $ 105,578
---------- ---------- ----------
---------- ---------- ----------
Acquisitions................................................................. 42.7% 42.8% 35.7%
Financial Institutions....................................................... 7.2 6.5 7.1
Group........................................................................ 0.7 7.7 9.6
Guaranteed Investment Contracts.............................................. 25.6 24.6 30.2
Individual Life.............................................................. 12.7 13.8 15.1
Investment Products.......................................................... 7.8 9.3 (0.7)
Corporate and Other.......................................................... (1.9) (5.5) (2.0)
Unallocated Realized Investment Gains (Losses)............................... 5.2 0.8 5.0
---------- ---------- ----------
100.0% 100.0% 100.0%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

F-25
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE K -- BUSINESS SEGMENTS (CONTINUED)

<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Acquisitions............................................................ $ 1,579,253 $ 1,255,542 $ 1,204,883
Financial Institutions.................................................. 344,866 265,132 211,652
Group................................................................... 233,640 240,222 215,904
Guaranteed Investment Contracts......................................... 2,608,037 2,536,939 2,211,079
Individual Life......................................................... 1,034,960 887,927 752,168
Investment Products..................................................... 1,871,887 1,578,789 1,284,186
Corporate and Other..................................................... 490,700 414,142 230,832
------------ ------------ ------------
$ 8,163,343 $ 7,178,693 $ 6,110,704
------------ ------------ ------------
------------ ------------ ------------
Acquisitions............................................................ 19.3% 17.5% 19.7%
Financial Institutions.................................................. 4.2 3.7 3.5
Group................................................................... 2.9 3.3 3.5
Guaranteed Investment Contracts......................................... 32.0 35.3 36.2
Individual Life......................................................... 12.7 12.4 12.3
Investment Products..................................................... 22.9 22.0 21.0
Corporate and Other..................................................... 6.0 5.8 3.8
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

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 finding
requirements of ERISA plus such additional amounts as PLC may determine to be
appropriate from time to time. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future.

F-26
<PAGE>
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 are as follows:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $14,720 in 1996 and $16,676 in
1995...................................................................................... $ 15,475 $ 17,415
--------- ---------
Projected benefit obligation for service rendered to date................................... $ 25,196 $ 24,877
Plan assets at fair value (group annuity contract with Protective).......................... 19,779 18,254
--------- ---------
Plan assets less than the projected benefit obligation...................................... (5,417) (6,623)
Unrecognized net loss from past experience different from that assumed...................... 3,559 4,882
Unrecognized prior service cost............................................................. 705 805
Unrecognized net transition asset........................................................... (67) (84)
--------- ---------
Net pension liability recognized in balance sheet........................................... $ (1,220) $ (1,020)
--------- ---------
--------- ---------
</TABLE>

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

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year................................... $ 1,908 $ 1,540 $ 1,433
Interest cost on projected benefit obligation..................................... 1,793 1,636 1,520
Actual return on plan assets...................................................... (1,674) (1,358) (1,333)
Net amortization and deferral..................................................... 374 114 210
--------- --------- ---------
Net pension cost.................................................................. $ 2,401 $ 1,932 $ 1,830
--------- --------- ---------
--------- --------- ---------
</TABLE>

Protective's share of the net pension cost was $1.5 million, $1.2 million,
and $1.2 million, in 1996, 1995, and 1994, respectively.

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

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate........................................................ 7.75% 7.25% 8.00%
Rates of increase in compensation level............................................... 5.75% 5.25% 6.00%
Expected long-term rate of return on assets........................................... 8.50% 8.50% 8.50%
</TABLE>

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

F-27
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
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, 1996 and 1995, the projected benefit
obligation of this plan totaled $7.2 million and $5.7 million, respectively.

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, 1996 and 1995, the liability for such
benefits totaled $1.4 million and $1.5 million, respectively. The expense
recorded by PLC was $0.1 million in 1996 and $0.2 million in 1995 and 1994.
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, 1996, PLC had committed 52,388 shares to be
released to fund employee benefits. The expense recorded by PLC for these
employee benefits was $1.0 million, $0.7 million and $0.6 million in 1996, 1995,
and 1994, respectively.

NOTE M -- STOCK BASED COMPENSATION

Certain Protective employees participate in PLC's Performance Share Plan and
receive stock appreciation rights (SARs) from PLC.

Since 1973 PLC has had a Performance Share Plan to motivate senior
management to focus on PLC's long-range earnings performance. The criterion for
payment of performance share awards is based upon a comparison of PLC's average
return on average equity over a four year award period (earlier upon the death,
disability or retirement of the executive, or in certain circumstances, of a
change in control of PLC) to that of a comparison group of publicly held life
insurance companies, multiline insurers, and insurance holding companies. If
PLC's results are below the median of the comparison group, no portion of the
award is earned. If PLC's results are at or above the 90th percentile, the award
maximum is earned. Under the plan approved by stockholders in 1992, up to
1,200,000 shares may be issued in payment of awards. The number of shares
granted in 1996, 1995, and 1994 were 52,290, 72,610, and 62,140 shares,
respectively, having an approximate market value on the grant date of $1.8
million, $1.6 million, and $1.4 million, respectively. At December 31, 1996,
outstanding awards measured at target and maximum payouts were 279,648 and
375,470 shares, respectively. The expense recorded by PLC for the Performance
Share Plan was $3.0 million, $2.9 million, and $3.6 million in 1996, 1995, and
1994, respectively.

F-28
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE M -- STOCK BASED COMPENSATION (CONTINUED)
During 1996, stock appreciation rights (SARs) were granted to certain
executives of PLC to provide long-term incentive compensation based on the
performance of PLC's Common Stock. Under this arrangement PLC will pay (in
shares of PLC Common Stock) an amount equal to the difference between the
specified base price of PLC's Common Stock and the market value at the exercise
date. The SARs are exercisable after five years (earlier upon the death,
disability or retirement of the executive, or in certain circumstances, of a
change in control of PLC) and expire in 2006 or upon termination of employment.
The number of SARs granted during 1996 and outstanding at December 31, 1996 was
337,500. The SARs have a base price of $34.875 per share of PLC Common Stock
(the market price on the grant date was $35.00 per share). The estimated fair
value of the SARs on the grant date was $3.0 million. This estimate was derived
using the Roll-Geske variation of the Black-Sholes option pricing model.
Assumptions used in the pricing model are as follows: expected volatility rate
of 15% (approximately equal to that of the S & P Life Insurance Index), a risk
free interest rate of 6.35%, a dividend yield rate of 1.97%, and an expected
exercise date of August 15, 2002. The expense recorded by PLC for the SARs was
$0.2 million in 1996.

NOTE N -- REINSURANCE

Protective assumes risks from and reinsures certain parts of its risks with
other insurers under yearly renewable term, coinsurance, and modified
coinsurance agreements. Yearly renewable term and coinsurance agreements are
accounted for by passing a portion of the risk to the reinsurer. Generally, the
reinsurer receives a proportionate part of the premiums less commissions and is
liable for a corresponding part of all benefit payments. Modified coinsurance is
accounted for similarly to coinsurance except that the 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 $18.8 billion, $17.5 billion, and
$8.6 billion, in face amount of life insurance risks with other insurers
representing $113.5 million, $116.1 million, and $46.0 million of premium income
for 1996, 1995, and 1994, respectively. Protective has also reinsured accident
and health risks representing $194.7 million, $217.1 million, and $126.5
million, of premium income for 1996, 1995, and 1994, respectively. In 1996 and
1995, policy and claim reserves relating to insurance ceded of $325.9 million
and $266.9 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, 1996
and 1995, Protective had paid $6.7 million and $4.1 million, respectively, of
ceded benefits which are recoverable from reinsurers.

During 1995 Protective entered into a reinsurance agreement whereby most of
Protective'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 $47.7 million and $55.3 million respectively, and reserves
totaling $135.8 million which were ceded during 1996. Also included are credit
life and credit accident and

F-29
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE N -- REINSURANCE (CONTINUED)
health insurance premiums of $68.2 million and $57.6 million, respectively, and
reserves totaling $100.8 million which were ceded during 1995.

NOTE O -- ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS

The carrying amount and estimated market values of Protective's financial
instruments at December 31 are as follows:

<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities............................ $4,662,997 $4,662,997 $3,891,932 $3,891,932
Equity securities........................... 35,250 35,250 38,711 38,711
Mortgage loans on real estate............... 1,503,781 1,581,694 1,835,057 2,001,100
Short-term investments...................... 101,215 101,215 46,891 46,891
Cash.......................................... 114,384 114,384 6,198 6,198
Other (see Note A):
Futures contracts........................... (1,708) (633)
Interest rate swaps......................... (679) 1,299
</TABLE>

F-30
<PAGE>
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H
- ------------------------------------------------------------------------------------------------------------------------------
GIC AND
FUTURE ANNUITY
DEFERRED POLICY DEPOSITS PREMIUMS REALIZED BENEFITS
POLICY BENEFITS AND OTHER AND NET INVESTMENT AND
ACQUISITION AND UNEARNED POLICYHOLDERS' POLICY INVESTMENT GAINS SETTLEMENT
SEGMENT COSTS COSTS PREMIUMS FUNDS FEES INCOME (1) (LOSSES) EXPENSES
- ------------------------- ----------- ---------- -------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1996:
Acquisitions........... $156,172 $1,117,159 $ 1,087 $ 251,450 $106,543 $106,015 $ 0 $118,181
Financial
Institutions......... 32,040 119,242 253,154 1,880 73,422 13,898 0 42,781
Group.................. 27,944 119,010 2,572 83,632 156,530 16,249 0 125,797
Guaranteed Investment
Contracts............ 1,164 149,755 0 2,474,728 0 214,369 (7,963) 169,927
Individual Life........ 220,232 793,370 685 15,577 116,710 48,442 3,098 96,404
Investment Products.... 50,637 149,743 0 1,120,557 8,189 98,719 3,858 73,093
Corporate and Other.... 12 170 55 192 656 1,089 0 710
Unallocated Realized
Investment Gains
(Losses)............. 0 0 0 0 0 0 6,517 0
----------- ---------- -------- -------------- -------- ---------- ---------- ----------
TOTAL................ $488,201 $2,448,449 $257,553 $3,948,016 $462,050 $498,781 $ 5,510 $626,893
----------- ---------- -------- -------------- -------- ---------- ---------- ----------
----------- ---------- -------- -------------- -------- ---------- ---------- ----------
Year Ended December 31,
1995:
Acquisitions........... $123,889 $ 851,994 $ 590 $ 250,550 $98,501 $ 95,018 $ 0 $100,016
Financial
Institutions......... 36,283 84,162 189,973 1,495 65,669 9,276 0 24,020
Group.................. 24,974 123,279 2,806 85,925 142,483 14,329 0 109,447
Guaranteed Investment
Contracts............ 993 68,704 0 2,451,693 0 203,376 (3,908) 165,963
Individual Life........ 186,496 672,569 336 14,709 99,018 40,237 0 80,067
Investment Products.... 37,534 127,104 0 1,061,507 4,566 95,661 4,938 72,111
Corporate and Other.... 14 342 62 263 1,445 536 0 1,476
Unallocated Realized
Investment Gains
(Losses)............. 0 0 0 0 0 0 921 0
----------- ---------- -------- -------------- -------- ---------- ---------- ----------
TOTAL................ $410,183 $1,928,154 $193,767 $3,866,142 $411,682 $458,433 $ 1,951 $553,100
----------- ---------- -------- -------------- -------- ---------- ---------- ----------
----------- ---------- -------- -------------- -------- ---------- ---------- ----------
Year Ended December 31,
1994:
Acquisitions........... $110,203 $ 856,889 $ 381 $ 266,828 $86,376 $ 84,350 $ 532 $ 97,649
Financial
Institutions......... 68,060 43,198 99,798 2,758 98,027 9,451 46,360
Group.................. 22,685 116,324 2,905 84,689 131,096 14,903 98,930
Guaranteed Investment
Contracts............ 996 0 0 2,281,674 0 181,212 3,000 147,383
Individual Life........ 162,186 571,070 320 13,713 84,925 37,986 67,451
Investment Products.... 70,053 102,705 0 1,027,527 1,635 81,062 (2,500) 58,424
Corporate and Other.... 17 4,109 75 263 713 (31) 913
Unallocated Realized
Investment Gains
(Losses)............. 0 0 0 0 0 0 5,266 0
----------- ---------- -------- -------------- -------- ---------- ---------- ----------
TOTAL................ $434,200 $1,694,295 $103,479 $3,677,452 $402,772 $408,933 $ 6,298 $517,110
----------- ---------- -------- -------------- -------- ---------- ---------- ----------
----------- ---------- -------- -------------- -------- ---------- ---------- ----------

<CAPTION>
- -------------------------
COL. A COL. I COL. J
- -------------------------

AMORTIZATION
OF DEFERRED
POLICY OTHER
ACQUISITION OPERATING
SEGMENT COSTS EXPENSES (1)
- ------------------------- ------------ ------------
<S> <C> <C>
Year Ended December 31,
1996:
Acquisitions........... $17,162 $ 24,292
Financial
Institutions......... 24,900 10,673
Group.................. 5,326 43,027
Guaranteed Investment
Contracts............ 509 3,840
Individual Life........ 28,393 28,611
Investment Products.... 14,710 13,197
Corporate and Other.... 1 4,508
Unallocated Realized
Investment Gains
(Losses)............. 0 0
------------ ------------
TOTAL................ $91,001 $128,148
------------ ------------
------------ ------------
Year Ended December 31,
1995:
Acquisitions........... $20,601 $ 22,551
Financial
Institutions......... 26,809 14,229
Group.................. 3,052 37,657
Guaranteed Investment
Contracts............ 386 4,140
Individual Life........ 20,403 22,748
Investment Products.... 11,446 10,494
Corporate and Other.... 3 8,069
Unallocated Realized
Investment Gains
(Losses)............. 0 0
------------ ------------
TOTAL................ $82,700 $119,888
------------ ------------
------------ ------------
Year Ended December 31,
1994:
Acquisitions........... $14,460 $ 21,431
Financial
Institutions......... 36,592 16,984
Group.................. 2,724 37,059
Guaranteed Investment
Contracts............ 892 4,004
Individual Life........ 18,771 20,736
Investment Products.... 14,647 7,801
Corporate and Other.... 3 11,188
Unallocated Realized
Investment Gains
(Losses)............. 0 0
------------ ------------
TOTAL................ $88,089 $119,203
------------ ------------
------------ ------------
</TABLE>

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

(1) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if
different methods were applied.

S-1
<PAGE>
SCHEDULE IV -- REINSURANCE

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- -----------------------------------------------------------------------------------------------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Life insurance in force............. $53,052,020 $18,840,221 $16,275,386 $50,487,185 32.2%
---------- ---------- ---------- ---------- ---
---------- ---------- ---------- ---------- ---
Premiums and policy fees:
Life insurance...................... $ 272,331 $ 113,487 $ 129,717 $ 288,561 45.0%
Accident and health insurance....... 338,709 194,687 29,467 173,489 17.0%
---------- ---------- ---------- ----------
TOTAL............................... $ 611,040 $ 308,174 $ 159,184 $ 462,050
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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...................... $ 308,422 $ 116,091 $ 66,565 $ 258,896 25.7%
Accident/health insurance........... 356,285 217,082 13,583 152,786 8.9%
---------- ---------- ---------- ----------
TOTAL............................... $ 664,707 $ 333,173 $ 80,148 $ 411,682
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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........... 283,884 126,546 3,591 160,929 2.2%
---------- ---------- ---------- ----------
TOTAL............................... $ 540,724 $ 172,575 $ 34,623 $ 402,772
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

S-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*

The expenses of the issuance and distribution of the Contracts, other than
any underwriting discounts and commissions, are as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fees.................. $68,965.52
Printing and engraving................................................ 0
Accounting fees and expenses.......................................... 0
Legal fees and expenses............................................... 0
Miscellaneous......................................................... 0
--------
TOTAL EXPENSES.................................................. $68,965.52
--------
--------
</TABLE>

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

*Estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 6.5 of Article VI of the Certificate of Incorporation of PLC
provides, in substance, that any of PLC's directors and officers and certain
directors and officers of Protective, who is a party or is threatened to be made
a party to any action, suit or proceeding, other than an action by or in the
right of PLC, by reason of the fact that he is or was an officer or director,
shall be indemnified by PLC against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of PLC and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. If the action or
suit is or was by or in the right of PLC to procure a judgment in its favor,
such person shall be indemnified by PLC against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to PLC unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper. To the extent that any officer or director has been successful on
the merits or otherwise in defense of any such action, suit or proceeding, or in
defense of any issue or matter therein, he shall be indemnified by PLC against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith without the necessity of any action being taken by PLC
other than the determination, in good faith, that such defense has been
successful. In all other cases, unless ordered by a court, indemnification shall
be made by PLC only as authorized in the specific case upon a determination that
indemnification of the officer or director is proper in the circumstances
because he has met the applicable standard of conduct. Such determination shall
be made (a) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion or (c) by the holders of a majority of the shares of capital stock of
PLC entitled to vote thereon. By means of a by-law, Protective offers its
directors and certain executive officers similar indemnification.

In addition, the executive officers and directors are insured by PLC's
Directors' and Officers' Liability Insurance Policy including Company
Reimbursement and are indemnified by a written contract with PLC which
supplements such coverage.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Not applicable.

II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------------ -------------------------------------------------------------------------------- ----------------
<C> <C> <C> <S> <C>
* 1(a) -- Underwriting Agreement
***** 1(b) -- Form of Distribution Agreement
**** 2 -- Stock Purchase Agreement
* 3(a) -- Articles of Incorporation
* 3(b) -- By-laws
** 4(a) -- Group Modified Guaranteed Annuity Contract
*** 4(b) -- Individual Certificate
** 4(h) -- Tax-Sheltered Annuity Endorsement
** 4(i) -- Qualified Retirement Plan Endorsement
** 4(j) -- Individual Retirement Annuity Endorsement
** 4(l) -- Section 457 Deferred Compensation Plan Endorsement
* 4(m) -- Qualified Plan Endorsement
** 4(n) -- Application for Individual Certificate
** 4(o) -- Adoption Agreement for Participation in Group Modified Guaranteed Annuity
*** 4(p) -- Individual Modified Guaranteed Annuity Contract
** 4(q) -- Application for Individual Modified Guaranteed Annuity Contract
** 4(r) -- Tax-Sheltered Annuity Endorsement
** 4(s) -- Individual Retirement Annuity Endorsement
** 4(t) -- Section 457 Deferred Compensation Plan Endorsement
** 4(v) -- Qualified Retirement Plan Endorsement
**** 4(w) -- Endorsement -- Group Policy
**** 4(x) -- Endorsement -- Certificate
**** 4(y) -- Endorsement -- Individual Contract
**** 4(z) -- Endorsement (Annuity Deposits) -- Group Policy
**** 4(aa) -- Endorsement (Annuity Deposits) -- Certificate
**** 4(bb) -- Endorsement (Annuity Deposits) -- Individual Contract
** 4(cc) -- Endorsement -- Individual
** 4(dd) -- Endorsement -- Group Contract/Certificate
***** 4(ee) -- Endorsement (96) -- Individual
***** 4(ff) -- Endorsement (96) -- Group Contract
***** 4(gg) -- Endorsement (96) -- Group Certificate
***** 4(hh) -- Individual Modified Guaranteed Annuity Contract (96)
4(ii) -- Settlement Endorsement
* 5 -- Opinion re legality
* 10(a) -- Bond Purchase Agreement
* 10(b) -- Escrow Agreement
24(a) -- Consent of Coopers & Lybrand L.L.P.
24(b) -- Consent of Sutherland, Asbill & Brennan, L.L.P.
25 -- Power of Attorney
</TABLE>

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

*Previously filed in Form S-1 Registration Statement, Registration No.
33-31940.

**Previously filed in Amendment No. 1 to Form S-1 Registration Statement,
Registration No. 33-31940.

***Previously filed in Amendment No. 2 to Form S-1 Registration Statement,
Registration No. 33-31940.

****Previously filed in Amendment No. 2 to Form S-1 Registration Statement,
Registration No. 33-57052.

*****Previously filed in Form S-1 Registration Statement, Registration No.
333-02249.

II-2
<PAGE>

<TABLE>
<CAPTION>
FINANCIAL
STATEMENTS
SCHEDULES FILED WITH THIS AMENDMENT
- ------------ -----------------------------------------------------------
<S> <C> <C>
Schedule III -- Supplementary Insurance Information
Schedule IV -- Reinsurance
</TABLE>

Schedules other than those referred to above are not required or are
inapplicable and therefore have been omitted.

ITEM 17. UNDERTAKINGS.

(A) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement,
including (but not limited to) any addition or deletion of a managing
underwriter;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(B) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officers or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to its Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Birmingham, State of Alabama on April 23, 1997.

<TABLE>
<S> <C> <C>
PROTECTIVE LIFE INSURANCE COMPANY

By: /s/ JOHN D. JOHNS
-----------------------------------------
John D. Johns
President
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement on Form S-1 has been signed by the following persons in the capacities
and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------- ---------------------------------------------- ----------------
<S> <C> <C> <C>

(i) Principal Executive Officer

* Chairman of the Board April 23, 1997
-------------------------------
Drayton Nabers, Jr.

(ii) Principal Financial Officer

/s/ JOHN D. JOHNS President and April 23, 1997
------------------------------- Chief Financial Officer
John D. Johns

(iii) Principal Accounting Officer

/s/ JERRY W. DEFOOR Vice President and Controller, April 23, 1997
------------------------------- and Chief Accounting Officer
Jerry W. DeFoor

(iv) Board of Directors:

* Director April 23, 1997
-------------------------------
Drayton Nabers, Jr.

/s/ JOHN D. JOHNS Director April 23, 1997
-------------------------------
John D. Johns

* Director April 23, 1997
-------------------------------
Ormond L. Bentley

* Director April 23, 1997
-------------------------------
R. Stephen Briggs

* Director April 23, 1997
-------------------------------
Jim E. Massengale

* Director April 23, 1997
-------------------------------
Wayne E. Stuenkel

* Director April 23, 1997
-------------------------------
A. S. Williams III
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------- ---------------------------------------------- ----------------
<S> <C> <C> <C>
* Director April 23, 1997
-------------------------------
Deborah J. Long

* Director April 23, 1997
-------------------------------
Carolyn King

* Director April 23, 1997
-------------------------------
Richard J. Bielen

* Director April 23, 1997
-------------------------------
Danny L. Bentley

*By: /s/ STEVE M. CALLAWAY April 23, 1997
-------------------------------
Steve M. Callaway
ATTORNEY-IN-FACT
</TABLE>

II-5
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
NUMBERING SYSTEM
NUMBER DESCRIPTION WHERE EXHIBIT LOCATED
- ------ ------------------------------------------------------- ---------------------
<C> <C><S> <C>
1(a) -- Underwriting Agreement *
1(b) -- Form of Distribution Agreement *****
2 -- Stock Purchase Agreement ****
3(a) -- Articles of Incorporation *
3(b) -- By-laws *
4(a) -- Group Modified Guaranteed Annuity Contract **
4(b) -- Individual Certificate ***
4(h) -- Tax-Sheltered Annuity Endorsement **
4(i) -- Qualified Retirement Plan Endorsement **
4(j) -- Individual Retirement Annuity Endorsement **
4(l) -- Section 457 Deferred Compensation Plan Endorsement **
4(m) -- Qualified Plan Endorsement *
4(n) -- Application for Individual Certificate **
4(o) -- Adoption Agreement for Participation in Group Modified **
Guaranteed Annuity
4(p) -- Individual Modified Guaranteed Annuity Contract ***
4(q) -- Application for Individual Modified Guaranteed Annuity **
Contract
4(r) -- Tax-Sheltered Annuity Endorsement **
4(s) -- Individual Retirement Annuity Endorsement **
4(t) -- Section 457 Deferred Compensation Plan Endorsement **
4(v) -- Qualified Retirement Plan Endorsement **
4(w) -- Endorsement -- Group Policy ****
4(x) -- Endorsement -- Certificate ****
4(y) -- Endorsement -- Individual Contract ****
4(z) -- Endorsement (Annuity Deposits) -- Group Policy ****
4(aa) -- Endorsement (Annuity Deposits) -- Certificate ****
4(bb) -- Endorsement (Annuity Deposits) -- Individual Contract ****
4(cc) -- Endorsement -- Individual **
4(dd) -- Endorsement -- Group Contract/Certificate **
4(ee) -- Endorsement (96) -- Individual *****
4(ff) -- Endorsement (96) -- Group Contract *****
4(gg) -- Endorsement (96) -- Group Certificate *****
4(hh) -- Individual Modified Guaranteed Annuity Contract (96) *****
4(ii) -- Settlement Endorsement
5 -- Opinion re legality *
10(a) -- Bond Purchase Agreement *
10(b) -- Escrow Agreement *
24(a) -- Consent of Coopers & Lybrand L.L.P.
24(b) -- Consent of Sutherland, Asbill & Brennan, L.L.P.
25 -- Power of Attorney
</TABLE>

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

*Previously filed in Form S-1 Registration Statement, Registration
No. 33-31940.

**Previously filed in Amendment No. 1 to Form S-1 Registration Statement,
Registration
No. 33-31940.

***Previously filed in Amendment No. 2 to Form S-1 Registration Statement,
Registration
No. 33-31940.

****Previously filed in Amendment No. 2 to Form S-1 Registration Statement,
Registration
No. 33-57052.

*****Previously filed in Form S-1 Registration Statement, Registration No.
333-02249.

<PAGE>

EXHIBIT 4(II)
SETTLEMENT ENDORSEMENT
PROTECTIVE LIFE INSURANCE COMPANY
P.O. BOX 2606
BIRMINGHAM, ALABAMA 35202
ENDORSEMENT

The Contract or Certificate to which this Endorsement is attached is amended as
of its Effective Date.

The following sentence is added to the GENERAL PROVISION entitled Settlement:

The Owner/Participant may elect to apply settlement proceeds, including
any full or partial surrender proceeds or the death benefit, to any
payout option offered by us for such payments at the time the election
is made.

Signed for the Company as of the
Effective Date.
PROTECTIVE LIFE INSURANCE COMPANY

/s/ John K. Wright

Secretary

<PAGE>
EXHIBIT 24(A)

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 11, 1996, on our audits of the consolidated financial
statements and financial statement schedules of Protective Life Insurance
Company and subsidiaries. We also consent to the reference to our firm under the
caption "Experts."

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

COOPERS & LYBRAND L.L.P.

Birmingham, Alabama
April 23, 1997

<PAGE>
EXHIBIT 24(B)

CONSENT OF SUTHERLAND, ASBILL & BRENNAN, L.L.P.

We consent to the reference to our firm under the heading "Legal Matters" in
the prospectus included in Post-Effective Amendment No. 1 to the Registration
Statement on Form S-1 for certain modified guaranteed annuity contracts issued
by Protective Life Insurance Company. In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.

/s/ SUTHERLAND, ASBILL & BRENNAN, L.L.P.
--------------------------------------------

SUTHERLAND, ASBILL & BRENNAN, L.L.P.

WASHINGTON, D.C.
APRIL 23, 1997

<PAGE>

EXHIBIT 25

DIRECTORS'
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors of
Protective Life Insurance Company, a Tennessee corporation, ("Company") by his
execution hereof or upon an identical counterpart hereof, does hereby constitute
and appoint John D. Johns, Steve M. Callaway or Jerry W. DeFoor, and each or any
of them, his true and lawful attorney-in-fact and agent, for him and in his
name, place and stead, to execute and sign all post-effective amendments to the
Registration Statement on Form S-1 to be filed by the Company with respect to
insurance products with the Securities and Exchange Commission, pursuant to the
provisions of the Securities Exchange Act of 1933 and the Investment Company Act
of 1940 and, further, to file same, with all exhibits and schedules thereto and
all other documents in connection therewith, with the Securities and Exchange
Commission and with such state securities as may be appropriate, granting unto
said attorney-in-fact and agent, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes of the
undersigned might or could do in person, hereby ratifying and confirming all the
acts of said attorney-in-fact and agent or any of them which they may lawfully
do in the premises or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and
seal this 22nd day of April, 1997.

WITNESS TO ALL SIGNATURES:

<TABLE>
<S> <C>
/s/ DEBORAH J. LONG
- -------------------------------------------
Deborah J. Long

/s/ DRAYTON NABERS, JR. /s/ DANNY L. BENTLEY
- ------------------------------------------- -------------------------------------------
Drayton Nabers, Jr. Danny L. Bentley

/s/ JOHN D. JOHNS /s/ RICHARD J. BIELEN
- ------------------------------------------- -------------------------------------------
John D. Johns Richard J. Bielen

/s/ R. STEPHEN BRIGGS /s/ CAROLYN KING
- ------------------------------------------- -------------------------------------------
R. Stephen Briggs Carolyn King

/s/ ORMOND L. BENTLEY /s/ JIM E. MASSENGALE
- ------------------------------------------- -------------------------------------------
Ormond L. Bentley Jim E. Massengale

/s/ STEVEN A. SCHULTZ /s/ WAYNE E. STUENKEL
- ------------------------------------------- -------------------------------------------
Steven A. Schultz Wayne E. Stuenkel

/s/ A. S. WILLIAMS, III
- -------------------------------------------
A. S. Williams, III
</TABLE>