PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT, N-4/A, 1998-10-26

PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
N-4/A, 1998-10-26

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 26, 1998

FILE NO. 333-60149
FILE NO. 811-8108

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-4/A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 1
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 8 /X/
</TABLE>

PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT

(Exact Name of Registrant)

PROTECTIVE LIFE INSURANCE COMPANY

(Name of Depositor)

2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223

(Address of Depositor's Principal Executive Offices)

Depositor's Telephone Number, including Area Code: (205) 879-9230
------------------------

STEVE M. CALLAWAY, Esquire
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama, 35223

(Name and Address of Agent for Services)

COPY TO:

STEPHEN E. ROTH, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 383-0158

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

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the registration statement.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), SHALL
DETERMINE.

TITLE OF SECURITIES BEING REGISTERED: INTERESTS IN A SEPARATE
ACCOUNT ISSUED THROUGH VARIABLE ANNUITY CONTRACTS.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULES 481(A) AND 495(A)

Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required by Form N-4.

<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
PART A

1. Cover Page........................................... Cover Page

2. Definitions.......................................... Definitions

3. Synopsis............................................. Expense Tables; Summary

4. Condensed Financial Information...................... Condensed Financial Information; Yields and Total
Returns

5. General Description of Registrant, Depositor and The Company, Variable Account and Funds
Portfolio Companies................................

a. Depositor......................................... The Company, Variable Account and Funds-- Protective
Life Insurance Company
b. Registrant........................................ The Company, Variable Account and Funds-- The
Protective Variable Annuity Separate Account
c. Portfolio Company................................. The Company, Variable Account and Funds-- The Funds
d. Fund Prospectus................................... The Company, Variable Account and Funds-- The Funds
e. Voting Rights..................................... Voting Rights
f. Administrators.................................... The Company, Variable Account and Funds--

6. Deductions and Expenses.............................. Charges and Deductions

a. General........................................... Charges and Deductions
b. Sales Load %...................................... Charges and Deductions
c. Special Purchase Plan............................. Charges and Deductions
d. Commissions....................................... Distribution of Contracts
e. Fund Expenses..................................... Charges and Deductions--Fund Expenses
f. Expenses--Registrant............................. Charges and Deductions--Administration Charges

7. General Description of Variable Annuity Contracts.... The Company, Variable Account and Funds

(i) Allocation of Purchase Payments............... Description of the Contract
a. Purchase Payments................................. Description of the Contract
(ii) Transfers..................................... Description of the Contract--Transfers; Purchase
Payments
b. Changes........................................... The Company, Variable Account and Funds; General
Matters
c. Inquiries......................................... Distribution of the Contracts

8. Annuity Options...................................... Annuitization

9. Death Benefit........................................ Death Benefit

10. Purchases and Contract Value......................... Description of the Contract

a. Purchases......................................... Description of the Contract--Purchase Payments
b. Valuation......................................... Description of the Contract--Variable Account Value
c. Daily Calculation................................. Description of the Contract--Variable Account Value
d. Underwriter....................................... Distribution of Contracts
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
11. Redemptions.......................................... Description of the Contract

a. --By Owners....................................... Description of the Contract--Surrenders and Partial
Surrenders; Purchase Payments
--By Annuitant....................................... Description of the Contract Annuitization Proceeds on
Annuity Commencement Date; Annuity Options
b. Delay in Payment.................................. Description of the Contract--Suspension or Delay in
Payments
c. Lapse............................................. N/A
d. Free Look Period.................................. Description of the Contract--Free Look Period

12. Taxes................................................ Federal Tax Matters

13. Legal Proceedings.................................... Legal Proceedings

APPENDIX

14. Table of Contents in the Statement of Additional Statements of Additional Information Table of
Information........................................ Contents

PART B

15. Cover Page........................................... Cover Page

16. Table of Contents.................................... Statement of Additional Information Table of Contents

17. General Information and History...................... See Prospectus--The Company, Variable Account and
Funds

18. Services

a. Fees and Expenses of Registrant................... N/A
b. Management Contract............................... See Prospectus--The Company, Variable Account and
Funds
c. Custodian and Independent Public Accountant....... Safekeeping of Account Assets; Experts
d. Assets of Registrants............................. Safekeeping of Accounts Assets
e. Affiliated Persons................................ N/A
f. Principal Underwriter............................. See Prospectus--Distribution of Contracts

19. Purchase of Securities Being Offered................. See Prospectus--Distribution of Contracts

20. Underwriter.......................................... See Prospectus--Distribution of Contracts

21. Calculation of Performance Data...................... Calculation of Yields and Total Returns

22. Annuity Options...................................... See Prospectus--Annuity Options

23. Financial Statements................................. Financial Statements
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE>

ELEMENTS-SM-
A FLEXIBLE PREMIUM DEFERRED
VARIABLE AND FIXED ANNUITY CONTRACT
issued by

Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone: 1-800-866-3555

This Prospectus describes interests in Elements, a group and individual
flexible premium deferred variable and fixed annuity contract (the "Contract")
offered by Protective Life Insurance Company ("Protective Life"). The Contract
is designed for investors who desire to accumulate capital on a tax deferred
basis for retirement or other long term investment purpose. It may be purchased
on a non-qualified basis. The Contract may also be sold for use with retirement
plans receiving special federal income tax treatment under the Internal Revenue
Code such as pension and profit sharing plans (including H.R. 10 Plans), tax
sheltered annuity plans, individual retirement accounts, and individual
retirement annuities.

Purchase Payments and associated Credits will be allocated, as designated by
the Owner(s), to one or more of the Sub-Accounts of the Protective Variable
Annuity Separate Account (the "Variable Account"), or the Guaranteed Account or
both. The assets of each Sub-Account will be invested solely in a corresponding
investment portfolio (each, a "Fund") of Protective Investment Company,
Oppenheimer Variable Account Funds, MFS-Registered Trademark- Variable Insurance
Trust, Calvert Variable Series, Inc., and Van Eck Worldwide Insurance Trust.

The Funds are:

<TABLE>
<S> <C> <C> <C>
Protective Investment Company Oppenheimer Variable Account MFS Variable Insurance Trust Calvert Variable Series, Inc.
INTERNATIONAL EQUITY FUND Funds NEW DISCOVERY SERIES SOCIAL SMALL CAP GROWTH
SMALL CAP VALUE FUND AGGRESSIVE GROWTH FUND EMERGING GROWTH SERIES PORTFOLIO
CAPITAL GROWTH FUND GLOBAL SECURITIES FUND RESEARCH SERIES SOCIAL BALANCED PORTFOLIO
CORE U.S. EQUITY FUND GROWTH FUND GROWTH WITH INCOME SERIES
GROWTH AND INCOME FUND GROWTH & INCOME FUND UTILITIES SERIES Van Eck Worldwide
GLOBAL INCOME FUND HIGH INCOME FUND TOTAL RETURN SERIES Insurance Trust
MONEY MARKET FUND STRATEGIC BOND FUND WORLDWIDE HARD ASSETS FUND
WORLDWIDE REAL ESTATE FUND
</TABLE>

The Contract Value, except for the Guaranteed Account Value, will vary
according to the investment performance of the Funds in which the selected
Sub-Accounts are invested. The Owner(s) bear the investment risk on amounts
allocated to the Variable Account.

This Prospectus sets forth basic information about the Contract and the
Variable Account that a prospective investor should know before investing.
Additional information about the Contract and the Variable Account is contained
in the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information is
dated the same date as this Prospectus and is incorporated herein by reference.
The Table of Contents for the Statement of Additional Information is on the last
page of this Prospectus. You may obtain a copy of the Statement of Additional
Information free of charge by writing or calling Protective Life at the address
or telephone number shown above.

PLEASE READ THIS PROSPECTUS CAREFULLY. INVESTORS SHOULD KEEP A COPY FOR
FUTURE REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS
FOR EACH OF THE FUNDS.

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 PURCHASE PAYMENTS
(PRINCIPAL).

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

THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1998

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DEFINITIONS................................................................................................ 3
EXPENSE TABLES............................................................................................. 4
Examples................................................................................................. 9
SUMMARY.................................................................................................... 12
The Contract............................................................................................. 12
Federal Tax Status....................................................................................... 13
CONDENSED FINANCIAL INFORMATION............................................................................ 14
THE COMPANY, VARIABLE ACCOUNT AND FUNDS.................................................................... 17
Protective Life Insurance Company........................................................................ 17
Protective Variable Annuity Separate Account............................................................. 17
Administration........................................................................................... 17
The Funds................................................................................................ 18
PIC Funds................................................................................................ 18
MFS Funds................................................................................................ 19
Oppenheimer Funds........................................................................................ 19
Calvert Funds............................................................................................ 19
Van Eck Funds............................................................................................ 20
Other Investors in the Funds............................................................................. 20
Addition, Deletion or Substitution of Investments........................................................ 21
DESCRIPTION OF THE CONTRACT................................................................................ 22
Parties to the Contract.................................................................................. 22
Issuance of a Contract................................................................................... 22
Purchase Payments........................................................................................ 23
Purchase Payment Credits................................................................................. 23
Credit Percentages....................................................................................... 24
Free Look Period......................................................................................... 24
Allocation of Purchase Payments.......................................................................... 24
Variable Account Value................................................................................... 24
Transfers................................................................................................ 26
Surrenders and Partial Surrenders........................................................................ 27
THE GUARANTEED ACCOUNT..................................................................................... 29
DEATH BENEFIT.............................................................................................. 30
Standard Death Benefit................................................................................... 30
Optional Benefit Packages................................................................................ 31
SUSPENSION OR DELAY IN PAYMENTS............................................................................ 32
CHARGES AND DEDUCTIONS..................................................................................... 32
Surrender Charge (Contingent Deferred Sales Charge)...................................................... 32
Mortality and Expense Risk Charge........................................................................ 34
Administration Charges................................................................................... 34
Transfer Fee............................................................................................. 34
Contract Maintenance Fee................................................................................. 34
Fund Expenses............................................................................................ 35
Premium Taxes............................................................................................ 35
Other Taxes.............................................................................................. 35
</TABLE>

1
<PAGE>

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ANNUITIZATION.............................................................................................. 35
Annuity Commencement Date................................................................................ 35
Fixed Income Payments.................................................................................... 35
Variable Income Payments................................................................................. 35
Annuity Options.......................................................................................... 37
Minimum Amounts.......................................................................................... 37
Death of Annuitant or Owner After Annuity Commencement Date.............................................. 37
YIELDS AND TOTAL RETURNS................................................................................... 37
FEDERAL TAX MATTERS........................................................................................ 40
Introduction............................................................................................. 40
The Company's Tax Status................................................................................. 40
TAXATION OF ANNUITIES IN GENERAL........................................................................... 40
Tax Deferral During Accumulation Period.................................................................. 40
Taxation of Partial and Full Surrenders.................................................................. 41
Taxation of Annuity Payments............................................................................. 42
Taxation of Death Benefit Proceeds....................................................................... 42
Assignments, Pledges, and Gratuitous Transfers........................................................... 43
Penalty Tax on Premature Distributions................................................................... 43
Aggregation of Contracts................................................................................. 43
Loss of Interest Deduction Where Contract Is Held By or For the Benefit of Certain Non-Natural Persons... 44
QUALIFIED RETIREMENT PLANS................................................................................. 44
In General............................................................................................... 44
Direct Rollovers......................................................................................... 47
FEDERAL INCOME TAX WITHHOLDING............................................................................. 48
GENERAL MATTERS............................................................................................ 48
The Contract............................................................................................. 48
Error in Age or Gender................................................................................... 48
Incontestability......................................................................................... 48
Non-Participation........................................................................................ 48
Assignment............................................................................................... 48
Notice................................................................................................... 49
Modification............................................................................................. 49
Reports.................................................................................................. 49
Settlement............................................................................................... 49
Receipt of Payment....................................................................................... 49
Protection of Proceeds................................................................................... 49
Minimum Values........................................................................................... 49
Application of Law....................................................................................... 49
No Default............................................................................................... 49
DISTRIBUTION OF THE CONTRACTS.............................................................................. 50
Inquiries................................................................................................ 50
PREPARATION FOR YEAR 2000.................................................................................. 50
LEGAL PROCEEDINGS.......................................................................................... 50
VOTING RIGHTS.............................................................................................. 51
FINANCIAL STATEMENTS....................................................................................... 51
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS...................................................... 52
</TABLE>

2
<PAGE>
DEFINITIONS

"We", "us", "our", "Protective Life", and "Company" refer to Protective Life
Insurance Company. "You" and "your" refer to the person(s) who has been issued a
Contract.

ACCUMULATION UNIT: A unit of measure used to calculate the value of a
Sub-Account prior to the Annuity Commencement Date.

ALLOCATION OPTION: Any account to which Purchase Payments may be allocated
or Contract Value transferred under this Contract.

ANNUITY COMMENCEMENT DATE: The date as of which the Contract Value, less
applicable premium tax, is applied to an Annuity Option.

ANNUITY OPTION: The payout option pursuant to which the Company makes
annuity income payments.

ANNUITY UNIT: A unit of measure used to calculate the amount of the
variable income payments.

ASSUMED INVESTMENT RETURN: The assumed annual rate of return used to
calculate the amount of the variable income payments.

CONTRACT ANNIVERSARY: The same month and day as the Effective Date in each
subsequent year of the Contract.

CONTRACT VALUE: Prior to the Annuity Commencement Date, the sum of the
Variable Account value and the Guaranteed Account value.

CONTRACT YEAR: Any period of 12 months commencing with the Effective Date
or any Contract Anniversary.

CREDIT: An amount added to the Contract Value at the time a Purchase
Payment is accepted by the Company.

DCA: Dollar cost averaging.

DCA FIXED ACCOUNTS: The DCA Fixed Accounts are part of the Company's
general account and are not part of or dependent upon the investment performance
of the Variable Account.

EFFECTIVE DATE: The date as of which the initial Purchase Payment is
credited to the Contract and the date the Contract takes effect.

FIXED ACCOUNT: The Fixed Account is part of the Company's general account
and is not part of or dependent upon the investment performance of the Variable
Account.

FUND: Any investment portfolio in which a corresponding Sub-Account
invests.

GUARANTEED ACCOUNT: The Fixed Account, DCA Fixed Accounts, and any other
Allocation Option we may offer with interest rate guarantees.

PURCHASE PAYMENT: The amount(s) paid by the Owner and accepted by the
Company as consideration for this Contract.

QUALIFIED CONTRACTS: Contracts issued in connection with retirement plans
that receive favorable tax treatment under Sections 401, 403, 408, 408A or 457
of the Internal Revenue Code.

SUB-ACCOUNT: A separate division of the Variable Account.

SURRENDER VALUE: The amount available for a full surrender. It is equal to
the Contract Value minus any applicable surrender charge, contract maintenance
fee and premium tax.

VALUATION DAY: Each day on which the New York Stock Exchange is open for
business.

VALUATION PERIOD: The period which begins at the close of regular trading
on the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the next Valuation Day.

VARIABLE ACCOUNT: The Protective Variable Annuity Separate Account, a
separate investment account of Protective Life.

WRITTEN NOTICE: A notice or request submitted in writing in a form
satisfactory to the Company that is received at the administrative office.

3
<PAGE>
EXPENSE TABLES

The following expense information assumes that the entire Contract Value is
Variable Account Value.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchase Payments......... None
Maximum Surrender Charge Imposed on Amount
Surrendered (contingent deferred sales
charge)......................................... 8.5%*
Transfer Processing Fee........................... None**
ANNUAL CONTRACT MAINTENANCE FEE................... $ 30***
</TABLE>

<TABLE>
<CAPTION>
WITH STANDARD WITH OPTIONAL
BENEFITS BENEFITS
------------- -------------
<S> <C> <C>
ANNUAL ACCOUNT EXPENSES
(as a percentage of net assets)
Mortality and Expense Risk Charge................................................... 1.25% 1.40%
Administration Charge............................................................... 0.15% 0.15%
Total Account Expenses.............................................................. 1.40% 1.55%
ANNUAL FUND EXPENSES................................................................
(as percentage of average net assets)

PIC FUNDS(1)
</TABLE>

<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 1.10%
Other Expenses After Reimbursement.............................................................. 0.00%
Total Annual Fund Expenses...................................................................... 1.10%
(after reimbursements)
</TABLE>

<TABLE>
<CAPTION>
SMALL CAP VALUE
FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.80%
Other Expenses After Reimbursement.............................................................. 0.00%
Total Annual Fund Expenses...................................................................... 0.80%
(after reimbursements)
</TABLE>

<TABLE>
<CAPTION>
CAPITAL GROWTH FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.80%
Other Expenses After Reimbursement.............................................................. 0.00%
Total Annual Fund Expenses...................................................................... 0.80%
(after reimbursements)
</TABLE>

<TABLE>
<CAPTION>
CORE U.S. EQUITY
FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.80%
Other Expenses After Reimbursement.............................................................. 0.00%
Total Annual Fund Expenses...................................................................... 0.80%
(after reimbursements)
</TABLE>

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

* The cumulative surrender charges assessed will never exceed 8.5% of the
total Purchase Payments accepted by us under this Contract. (See "Charges
and Deductions".)

** Protective Life reserves the right to charge a Transfer Fee in the future.
(See "Charges and Deductions".)

*** The contract maintenance fee may not apply. (See "Charges and Deductions".)

4
<PAGE>

<TABLE>
<CAPTION>
GROWTH & INCOME
FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.80%
Other Expenses After Reimbursement.............................................................. 0.00%
Total Annual Fund Expenses...................................................................... 0.80%
(after reimbursements)
</TABLE>

<TABLE>
<CAPTION>
GLOBAL INCOME FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 1.10%
Other Expenses After Reimbursement.............................................................. 0.00%
Total Annual Fund Expenses...................................................................... 1.10%
(after reimbursements)
</TABLE>

<TABLE>
<CAPTION>
MONEY MARKET FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.60%
Other Expenses After Reimbursement.............................................................. 0.00%
Total Annual Fund Expenses...................................................................... 0.60%
(after reimbursements)

MFS INVESTMENT MANAGEMENT-REGISTERED TRADEMARK- (MFS) FUNDS(2)
</TABLE>

<TABLE>
<CAPTION>
NEW DISCOVERY
SERIES
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.90%
Other Expenses After Reimbursement(3)........................................................... 0.25%
Total Annual Fund Expenses...................................................................... 1.15%
(after reimbursements)
</TABLE>

<TABLE>
<CAPTION>
EMERGING GROWTH
SERIES
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.75%
Other Expenses After Reimbursement(3)........................................................... 0.12%
Total Annual Fund Expenses...................................................................... 0.87%
(after reimbursements)
</TABLE>

<TABLE>
<CAPTION>
RESEARCH SERIES
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.75%
Other Expenses After Reimbursement(3)........................................................... 0.13%
Total Annual Fund Expenses...................................................................... 0.88%
(after reimbursements)
</TABLE>

<TABLE>
<CAPTION>
GROWTH WITH INCOME
SERIES
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.75%
Other Expenses After Reimbursement(3)........................................................... 0.25%
Total Annual Fund Expenses...................................................................... 1.00%
(after reimbursements)
</TABLE>

5
<PAGE>

<TABLE>
<CAPTION>
UTILITIES SERIES
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.75%
Other Expenses After Reimbursement(3)........................................................... 0.25%
Total Annual Fund Expenses...................................................................... 1.00%
(after reimbursements)
</TABLE>

<TABLE>
<CAPTION>
TOTAL RETURN SERIES
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.75%
Other Expenses After Reimbursement(3)........................................................... 0.25%
Total Annual Fund Expenses...................................................................... 1.00%
(after reimbursements)

OPPENHEIMERFUNDS
</TABLE>

<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.71%
Other Expenses.................................................................................. 0.02%
Total Annual Fund Expenses...................................................................... 0.73%
</TABLE>

<TABLE>
<CAPTION>
GLOBAL SECURITIES
FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.70%
Other Expenses.................................................................................. 0.06%
Total Annual Fund Expenses...................................................................... 0.76%
</TABLE>

<TABLE>
<CAPTION>
GROWTH FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.73%
Other Expenses.................................................................................. 0.02%
Total Annual Fund Expenses...................................................................... 0.75%
</TABLE>

<TABLE>
<CAPTION>
GROWTH & INCOME
FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.75%
Other Expenses.................................................................................. 0.08%
Total Annual Fund Expenses...................................................................... 0.83%
</TABLE>

<TABLE>
<CAPTION>
HIGH INCOME FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.75%
Other Expenses.................................................................................. 0.07%
Total Annual Fund Expenses...................................................................... 0.82%
</TABLE>

<TABLE>
<CAPTION>
STRATEGIC BOND FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.75%
Other Expenses.................................................................................. 0.08%
Total Annual Fund Expenses...................................................................... 0.83%
</TABLE>

6
<PAGE>
CALVERT FUNDS(4)

<TABLE>
<CAPTION>
SOCIAL SMALL CAP
GROWTH PORTFOLIO
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 1.00%
Other Expenses After Reimbursement.............................................................. 0.20%
Total Annual Fund Expenses...................................................................... 1.20%
(after reimbursements)
</TABLE>

<TABLE>
<CAPTION>
SOCIAL BALANCED
PORTFOLIO
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.69%
Other Expenses After Reimbursement.............................................................. 0.12%
Total Annual Fund Expenses...................................................................... 0.81%
(after reimbursements)

VAN ECK FUNDS(5)
</TABLE>

<TABLE>
<CAPTION>
WORLDWIDE HARD
ASSETS FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 1.00%
Other Expenses.................................................................................. 0.17%
Total Annual Fund Expenses...................................................................... 1.17%
</TABLE>

<TABLE>
<CAPTION>
WORLDWIDE REAL
ESTATE FUND
-------------------
<S> <C>
Management (Advisory) Fees...................................................................... 0.00%
Other Expenses.................................................................................. 0.00%
Total Annual Fund Expenses...................................................................... 0.00%
</TABLE>

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

(1) The annual expenses listed for all of the PIC Funds are net of certain
reimbursements by PIC's investment manager. (See "The Funds".) Absent the
reimbursements, total expenses for the period ended December 31, 1997 were:
Money Market Fund 1.42%, CORE U.S. Equity Fund 0.86%, Small Cap Value Fund
0.89%, International Equity Fund 1.37%, Growth and Income Fund 0.85%,
Capital Growth Fund 0.97%, and Global Income Fund 1.32%. PIC's investment
manager has voluntarily agreed to reimburse certain of each Fund's expenses
in excess of its management fees. Although this reimbursement may be ended
on 120 days notice to PIC, the investment manager has no present intention
of doing so.

(2) The annual expenses for the MFS funds are net of certain adjustments made to
reflect the effects of the 1.00% expense cap for the current and prior
periods. Absent the adjustments, the Fund expenses for the period ending
December 31, 1997 were: MFS Research Fund 0.88%, MFS Emerging Growth Fund
0.87%, MFS Growth with Income Fund 1.10%, and MFS Total Return Fund 1.02%.

(3) Each Series has an expense offset arrangement which reduces the Series'
custodian based fee based on the amount of cash maintained by the Series
with its custodian and dividend disbursing agent, and may enter into other
such arrangements and directed brokerage arrangements (which would also have
the effect of reducing the Series' expenses). Any such fee reductions are
not reflected under "Other Expenses."

(4) The figures have been restated to reflect an increase in transfer agency
expenses of 0.01% for each portfolio expected to be incurred in 1998.
Management Fees includes for Calvert Social Balanced a performance
adjustment, which depending on performance, could cause the fee to be as
high as

7
<PAGE>
0.85% or as low as 0.55%. The Calvert Social Small Cap Growth expenses have
been restated to reflect the lower advisory fee and administrative services
fee. "Other Expenses" reflect an indirect fee. Net fund operating expenses
after reductions for fees paid indirectly (again, restated) would be 0.78%
for Calvert Social Balanced, and 0.89% for Calvert Social Small Cap Growth.
Management Fees for Calvert Social Small Cap Growth include an
administrative service fee of 0.10% paid to the Advisor's affiliate.

(5) The annual expenses listed for both of the Van Eck Funds are net of certain
arrangements. The gross expense ratio for the Worldwide Hard Assets Fund for
the year ended December 31, 1997 was 1.18% which reflects an expense offset
arrangement that reduces the custodian based fee based on amounts left on
deposit with the custodian. The gross annualized expense ratio for the
Worldwide Real Estate Fund for the period June 23, 1997 (commencement of
operations) through December 31, 1997 was 4.92%. Van Eck Associates Corp.
(the "Adviser") agreed to assume all expenses, excluding brokerage
commissions, and foreign tax and interest expenses, for the fiscal year of
1997. The Adviser also agreed to assume all expenses for the period January
1, 1998 through February 28, 1998, excluding brokerage commissions, and
foreign tax and interest expenses. For the period March 1, 1998 through
December 31, 1998 the Adviser agreed to assume expenses exceeding 1% of
average daily net assets, excluding brokerage commissions, and foreign tax
and interest expenses.

The above tables are intended to assist the owner in understanding the costs
and expenses that he or she will bear directly or indirectly. The tables reflect
the expenses for the Account and reflect the investment management fees and
other expenses and total expenses for each Fund for the period January 1, 1997
to December 31, 1997. For a more complete description of the various costs and
expenses see "Charges and Deductions" and the prospectuses for each of the
Funds, which accompany this prospectus. In addition to the expenses listed
above, premium taxes currently varying from 0 to 3.5% may be applicable in
certain states.

8
<PAGE>
EXAMPLES

An Owner would pay the following expenses on a $1,000 investment, assuming
selection of the standard death benefit, a 5% annual return on assets and the
addition of a 3% Purchase Payment Credit added to the $1,000 investment for
purposes of determining asset-based expenses. These examples do not show the
offsetting effect of the Credit on the illustrated expenses. If the Credit was
included as an offset to the illustrated expenses, the illustrated expenses
would be lower and, in some cases, the Credit would exceed the amount of the
illustrated expenses. In this manner, higher Credit percentages would have the
effect of further lowering the illustrated expenses.

1. If the Contract is surrendered at the end of the applicable time period:

<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PIC International Equity........................................... $ 107 $ 166 $ 213 $ 300
PIC Small Cap Value................................................ 104 158 199 269
PIC Capital Growth................................................. 104 158 199 269
PIC CORE U. S. Equity.............................................. 104 158 199 269
PIC Growth & Income................................................ 104 158 199 269
PIC Global Income.................................................. 107 166 213 300
PIC Money Market................................................... 102 152 189 248
MFS New Discovery.................................................. 107 168 216 305
MFS Emerging Growth................................................ 105 161 204 280
MFS Research....................................................... 104 160 203 278
MFS Growth With Income............................................. 106 163 209 290
MFS Utilities...................................................... 106 163 209 290
MFS Total Return................................................... 106 163 209 290
OppenheimerFunds Aggressive Growth................................. 103 156 195 262
OppenheimerFunds Global Securities................................. 103 156 197 265
OppenheimerFunds Growth............................................ 103 156 196 264
OppenheimerFunds Growth & Income................................... 104 159 200 273
OppenheimerFunds High Income....................................... 104 158 200 271
OppenheimerFunds Strategic Bond.................................... 104 159 200 273
Calvert Social Small Cap Growth.................................... 108 169 218 310
Calvert Social Balanced............................................ 104 258 199 270
Van Eck Worldwide Hard Assets...................................... 107 168 217 307
Van Eck Worldwide Real Estate...................................... 96 134 159 182
</TABLE>

2. If the Contract is not surrendered at the end of the applicable time
period:

9
<PAGE>

An Owner would pay the following expenses on a $1,000 investment, assuming
selection of an optional benefit rider, a 5% annual return on assets and a 3%
Purchase Payment Credit added to the $1,000 investment for purposes of
determining asset-based expenses. These examples do not show the offsetting
effect of the Credit on the illustrated expenses. If the Credit was included as
an offset to the illustrated expenses, the illustrated expenses would be lower
and, in some cases, the Credit would exceed the amount of the illustrated
expenses. In this manner, higher Credit percentages would have the effect of
further lowering the illustrated expenses.

3. If the Contract is surrendered at the end of the applicable time period:

<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PIC International Equity........................................... $ 108 $ 171 $ 221 $ 315
PIC Small Cap Value................................................ 105 162 206 285
PIC Capital Growth................................................. 105 162 206 285
PIC CORE U. S. Equity.............................................. 105 162 206 285
PIC Growth & Income................................................ 105 162 206 285
PIC Global Income.................................................. 108 171 221 315
PIC Money Market................................................... 103 156 196 264
MFS New Discovery.................................................. 109 172 223 320
MFS Emerging Growth................................................ 106 165 211 295
MFS Research....................................................... 106 164 210 293
MFS Growth With Income............................................. 107 168 216 305
MFS Utilities...................................................... 107 168 216 305
MFS Total Return................................................... 107 168 216 305
OppenheimerFunds Aggressive Growth................................. 104 160 203 278
OppenheimerFunds Global Securities................................. 105 161 204 281
OppenheimerFunds Growth............................................ 105 161 204 280
OppenheimerFunds Growth & Income................................... 105 163 208 288
OppenheimerFunds High Income....................................... 105 163 207 287
OppenheimerFunds Strategic Bond.................................... 105 163 208 288
Calvert Social Small Cap Growth.................................... 109 173 225 325
Calvert Social Balanced............................................ 105 162 207 286
Van Eck Worldwide Hard Assets...................................... 109 173 224 322
Van Eck Worldwide Real Estate...................................... 97 139 167 199
</TABLE>

10
<PAGE>
4. If the Contract is not surrendered at the end of the applicable time
period:

<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PIC International Equity........................................... $ 28 $ 87 $ 149 $ 315
PIC Small Cap Value................................................ 25 78 133 285
PIC Capital Growth................................................. 25 78 133 285
PIC CORE U. S. Equity.............................................. 25 78 133 285
PIC Growth & Income................................................ 25 78 133 285
PIC Global Income.................................................. 28 87 149 315
PIC Money Market................................................... 23 72 123 264
MFS New Discovery.................................................. 29 89 151 320
MFS Emerging Growth................................................ 26 81 139 295
MFS Research....................................................... 26 80 138 293
MFS Growth With Income............................................. 27 84 144 305
MFS Utilities...................................................... 27 84 144 305
MFS Total Return................................................... 27 84 144 305
OppenheimerFunds Aggressive Growth................................. 25 76 130 278
OppenheimerFunds Global Securities................................. 25 77 131 281
OppenheimerFunds Growth............................................ 25 76 131 280
OppenheimerFunds Growth & Income................................... 26 79 135 288
OppenheimerFunds High Income....................................... 26 79 134 287
OppenheimerFunds Strategic Bond.................................... 26 79 135 288
Calvert Social Small Cap Growth.................................... 29 90 154 325
Calvert Social Balanced............................................ 25 78 134 286
Van Eck Worldwide Hard Assets...................................... 29 89 152 322
Van Eck Worldwide Real Estate...................................... 17 53 91 199
</TABLE>

The examples assume that no transfer fee or premium taxes have been
assessed. The examples assume that the contract maintenance fee is $30, and at
the anticipated Contract size of $40,000 is equivalent to 0.075%.

THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE 5%
ANNUAL RETURN ASSUMED IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED AMOUNT.

11
<PAGE>
SUMMARY

THE CONTRACT

HOW IS A CONTRACT ISSUED? The Contract is a flexible premium deferred
variable and fixed annuity contract that Protective Life issues upon acceptance
of completed application information and an initial Purchase Payment. (See
"Issuance of a Contract".) In certain states the Contract is offered as a group
contract to eligible persons who have established accounts with certain
broker-dealers that have entered into distribution agreements to offer interests
in the group contract, and members of other eligible groups. In all other
states, the Contract is offered as an individual contract. Participation in a
group contract will be separately accounted for by the issuance of a certificate
evidencing your interest in the group contract. Participation in an individual
contract is evidenced by the issuance of an individual contract.

WHAT ARE THE PURCHASE PAYMENTS? The minimum amount which Protective Life
will accept as an initial Purchase Payment is $10,000. Subsequent Purchase
Payments may be made at any time prior to the earlier of: (1) the oldest Owner's
80th birthday; or (2) the Annuitant's 80th birthday. No Purchase Payment will be
accepted within 10 years of the Annuity Commencement Date then in effect. In
certain states, more restrictive age conditions may apply. The minimum
subsequent Purchase Payment we will accept is $100. The maximum aggregate
Purchase Payment(s) we will accept without prior administrative office approval
is $1,000,000. We reserve the right not to accept any Purchase Payment. (See
"Purchase Payments".)

CAN I CANCEL THE CONTRACT? You have the right to return the Contract within
a certain number of days (which varies by state and is never less than ten days)
after you receive it. The returned Contract will be treated as if it were never
issued. Protective Life will refund the Contract Value, less Credits applied, in
states where permitted. This amount may be more or less than the Purchase
Payments. Where required, we will refund Purchase Payments. (See "Free Look
Period".)

CAN I TRANSFER AMOUNTS IN THE CONTRACT? Prior to the Annuity Commencement
Date, you may request transfers from one Allocation Option to another. No
transfers may be made into a DCA Fixed Account. At least $100 must be
transferred. Protective Life reserves the right to limit the maximum amount that
may be transferred from the Fixed Account to the greater of (a) $2,500; or (b)
25% of the value of the Fixed Account per Contract Year. The Company reserves
the right to charge a transfer fee of $25 for each transfer after the 12th
transfer during such Contract Year. (See "Transfers".)

CAN I SURRENDER THE CONTRACT? Upon Written Notice before the Annuity
Commencement Date, you may surrender the Contract and receive its surrender
value. (See "Surrenders and Partial Surrenders".)

IS THERE A DEATH BENEFIT? If any Owner dies prior to the Annuity
Commencement Date and while this Contract is in force, a death benefit, less any
applicable premium tax, will be payable to the Beneficiary. The death benefit is
determined as of the end of the Valuation Period during which we receive due
proof of death. The death benefit will equal the greater of: (1) the Contract
Value less any Credits added to the Contract during the 12 months prior to the
date of death; or (2) aggregate Purchase Payments less aggregate amounts
surrendered, including associated surrender charges. Only one death benefit is
payable under this Contract, even though the Contract may, in some
circumstances, continue beyond the time of an Owner's death. (See "Death
Benefit".)

The Owner may purchase an optional benefit package that may provide a death
benefit which is greater than the standard death benefit provided under the
contract. Currently, two optional benefit packages are available. (See "Optional
Benefit Packages".)

ARE THERE CHARGES AND DEDUCTIONS FROM MY CONTRACT? The following charges
and deductions are made in connection with the Contract:

SURRENDER CHARGES. Full or partial surrenders are subject to a surrender
charge. The surrender charge is equal to a specified percentage (maximum 8.5%)
of the amount surrendered. The cumulative surrender

12
<PAGE>
charges assessed will never exceed 8.5% of the total Purchase Payments accepted
by us under this Contract. (See "Surrender Charge".)

MORTALITY AND EXPENSE RISK CHARGE. We will deduct a mortality and expense
risk charge to compensate us for assuming certain mortality and expense risks.
For Contracts issued with the standard death benefit, the charge equals, on an
annual basis, 1.25% of the average daily net assets of the Variable Account
value supporting the Contracts. For Contracts issued with an optional benefit
package, the charge equals 1.40% of such assets prior to the Annuity
Commencement Date. (See "Optional Benefit Packages".) On and after the Annuity
Commencement Date, the charge equals 1.25% of such assets. (See "Mortality and
Expense Risk Charge".)

ADMINISTRATION CHARGE. We will deduct an administration charge equal, on an
annual basis, to .15% of the average daily net assets of the Variable Account
value supporting the Contracts. (See "Administration Charge".)

CONTRACT MAINTENANCE FEE. Prior to the Annuity Commencement Date a contract
maintenance fee of $30 is deducted from the Contract Value on each Contract
Anniversary, and on any day that the Contract is surrendered, if the surrender
occurs on any day other than the Contract Anniversary. Under certain
circumstances, this fee may be waived. (See "Contract Maintenance Fee".)

TAXES. Some states impose premium taxes at rates currently ranging up to
3.5%. If premium taxes apply to your Contract, we will deduct them from the
Purchase Payment(s) when accepted or from the Contract Value upon a full or
partial surrender, death or annuitization. The Company reserves the right to
impose a charge for other taxes attributable to the Variable Account. (See
"Charges and Deductions".)

INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES OF THE FUNDS. The net assets
of each Sub-Account of the Variable Account will reflect the investment
management fee incurred by the corresponding Fund as well as other operating
expenses of that Fund. For each Fund, the investment manager is paid a daily fee
for its investment management services. The management fees are based on the
average daily net assets of the Fund. (See "Fund Expenses" and the funds'
prospectuses.)

WHAT ANNUITY OPTIONS ARE AVAILABLE? Currently, we apply the Contract Value,
less any applicable premium tax, to an Annuity Option on the Annuity
Commencement Date, unless you choose to receive the surrender value in a lump
sum. Annuity Options include: payments for a certain period, and life income
with or without payments for a certain period. Some Annuity Options are
available on either a fixed or variable payment basis. (See "Annuitization".)

IS THE CONTRACT AVAILABLE FOR QUALIFIED RETIREMENT PLANS? The Contract may
be issued for use with retirement plans receiving special federal income tax
treatment under the Code such as pension and profit sharing plans (including
H.R. 10 plans), individual retirement accounts, and individual retirement
annuities. (See "Federal Tax Matters".)

FEDERAL TAX STATUS

Generally, a distribution from the Contract, which includes a full or
partial surrender or payment of a death benefit, will result in taxable income
if there has been an increase in the Contract Value. In certain circumstances, a
10% penalty tax may also apply. (See "Federal Tax Matters".)

13
<PAGE>
CONDENSED FINANCIAL INFORMATION

The date of inception of each of the sub-accounts is as follows:

<TABLE>
<CAPTION>
<S> <C>
March 14,
1994-- PIC International Equity
PIC Small Cap Value
PIC CORE U.S. Equity
PIC Growth & Income
PIC Global Income
PIC Money Market

June 13,
1995-- PIC Capital Growth

July 1, 1997-- MFS Emerging Growth
MFS Research
MFS Growth with Income
MFS Total Return
OppenheimerFunds Aggressive Growth
OppenheimerFunds Growth
OppenheimerFunds Growth & Income
OppenheimerFunds Strategic Bond
Calvert Social Small Cap Growth
Calvert Social Balanced

November 1,
1998-- MFS New Discovery
MFS Utilities
OppenheimerFunds Global Securities
OppenheimerFunds High Income
Van Eck Worldwide Hard Assets
Van Eck Worldwide Real Estate
</TABLE>

14
<PAGE>
At December 31, 1994, 1995, 1996 and 1997, net assets of the Variable
Account were represented by the following Accumulation Unit values and
Accumulation Units. The Accumulation Unit values shown below are for a Contract
issued with the standard death benefit, which has a total mortality and expense
risk charge and administration charge of 1.40%. For Contracts issued with an
optional benefit rider, the total mortality and expense risk charge and
administration charge is 1.55%, and the Accumulation Unit values would be lower
than those shown below. This information should be read in conjunction with the
Variable Account's financial statements and related notes included in the
Statement of Additional Information.

<TABLE>
<CAPTION>
(DECEMBER 31, (DECEMBER 31, (DECEMBER 31, (DECEMBER 31,
1994) 1995) 1996) 1997)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
PIC International Equity Sub-Account.................. 9.48 11.18 13.12 13.51
PIC Small Cap Value Sub-Account....................... 8.91 9.35 11.09 14.46
PIC Capital Growth Sub-Account........................ -- 10.36 12.48 16.56
PIC CORE U.S. Equity Sub-Account...................... 9.94 13.40 16.12 20.81
PIC Growth and Income Sub-Account..................... 9.71 12.66 15.83 20.27
PIC Global Income Sub-Account......................... 9.82 11.32 12.22 13.25
PIC Money Market Sub-Account.......................... 1.02 1.05 1.09 1.13
MFS New Discovery Sub-Account......................... -- -- -- --
MFS Emerging Growth Sub-Account....................... -- -- -- 11.36
MFS Research Sub-Account.............................. -- -- -- 10.89
MFS Growth With Income Sub-Account.................... -- -- -- 11.40
MFS Utilities Sub-Account............................. -- -- -- --
MFS Total Return Sub-Account.......................... -- -- -- 11.10
OppenheimerFunds Aggressive Growth Sub-Account........ -- -- -- 10.97
OppenheimerFunds Global Securities Sub-Account........ -- -- -- --
OppenheimerFunds Growth Sub-Account................... -- -- -- 11.22
OppenheimerFunds Growth & Income Sub-Account.......... -- -- -- 11.83
OppenheimerFunds High Income Sub-Account.............. -- -- -- --
OppenheimerFunds Strategic Bond Sub-Account........... -- -- -- 10.33
Calvert Social Small Cap Growth Sub-Account........... -- -- -- 11.04
Calvert Social Balanced Sub-Account................... -- -- -- 11.14
Van Eck Worldwide Hard Assets Sub-Account............. -- -- -- --
Van Eck Worldwide Real Estate Sub-Account............. -- -- -- --
</TABLE>

15
<PAGE>
The number of Accumulation Units shown below assume a Contract with the
standard benefit. No Accumulation Units were associated with Contracts with an
optional benefit rider on or before December 31, 1997.

<TABLE>
<CAPTION>
(DECEMBER 31, (DECEMBER 31, (DECEMBER 31, (DECEMBER 31,
1994) 1995) 1996) 1997)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PIC International Equity Sub-Account.................. 2,588,605 4,954,564 7,363,767 9,722,696
PIC Small Cap Value Sub-Account....................... 2,347,968 4,579,808 5,797,119 7,429,530
PIC Capital Growth Sub-Account........................ -- 930,249 2,419,601 4,493,710
PIC CORE U.S. Equity Sub-Account...................... 1,682,927 4,128,798 6,300,382 8,495,067
PIC Growth and Income Sub-Account..................... 4,260,743 10,012,351 13,291,398 17,539,696
PIC Global Income Sub-Account......................... 1,457,712 2,438,238 3,081,317 3,677,919
PIC Money Market Sub-Account.......................... 3,034,056 4,273,270 5,577,080 3,151,349
MFS New Discovery Sub-Account......................... -- -- -- --
MFS Emerging Growth Sub-Account....................... -- -- -- 292,318
MFS Research Sub-Account.............................. -- -- -- 577,212
MFS Growth With Income Sub-Account.................... -- -- -- 234,240
MFS Utilities Sub-Account............................. -- -- -- --
MFS Total Return Sub-Account.......................... -- -- -- 157,430
OppenheimerFunds Aggressive Growth Sub-Account........ -- -- -- 238,172
OppenheimerFunds Global Securities Sub-Account........ -- -- -- --
OppenheimerFunds Growth Sub-Account................... -- -- -- 321,669
OppenheimerFunds Growth & Income Sub-Account.......... -- -- -- 247,774
OppenheimerFunds High Income Sub-Account.............. -- -- -- --
OppenheimerFunds Strategic Bond Sub-Account........... -- -- -- 284,169
Calvert Social Small Cap Growth Sub-Account........... -- -- -- 12,376
Calvert Social Balanced Sub-Account................... -- -- -- 94,365
Van Eck Worldwide Hard Assets Sub-Account............. -- -- -- --
Van Eck Worldwide Real Estate Sub-Account............. -- -- -- --
</TABLE>

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

* Accumulation unit values are rounded to the nearest whole cent.

** Accumulation units are rounded to the nearest unit.

16
<PAGE>
THE COMPANY, VARIABLE ACCOUNT AND FUNDS

PROTECTIVE LIFE INSURANCE COMPANY

The Contracts are issued by Protective Life. Founded in 1907, Protective
Life provides individual life insurance, annuities, group dental insurance, and
guaranteed investment contracts. Protective Life is currently licensed to
transact life insurance business in 49 states and the District of Columbia. As
of December 31, 1997, Protective Life had total assets of approximately $10.1
billion. Protective Life is the principal operating subsidiary of Protective
Life Corporation ("PLC"), an insurance holding company whose stock is traded on
the New York Stock Exchange. PLC, a Delaware corporation, had total assets of
approximately $10.5 billion at December 31, 1997.

PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT

The Protective Variable Annuity Separate Account is a separate investment
account of Protective Life. The Variable Account was established under Tennessee
law by the Board of Directors of Protective Life on October 11, 1993. The
Variable Account is registered with the Securities and Exchange Commission (the
"SEC") as a unit investment trust under the Investment Company Act of 1940 (the
"1940 Act") and meets the definition of a separate account under federal
securities laws. This registration does not involve supervision by the SEC of
the management or investment policies or practices of the Variable Account.

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

Currently, twenty-three Sub-Accounts of the Variable Account are available
under this Contract: PIC International Equity; PIC Small Cap Value; PIC Capital
Growth; PIC CORE U.S. Equity; PIC Growth and Income; PIC Global Income; PIC
Money Market; MFS New Discovery; MFS Emerging Growth; MFS Research; MFS Growth
With Income; MFS Utilities; MFS Total Return; OppenheimerFunds Aggressive
Growth; OppenheimerFunds Global Securities; OppenheimerFunds Growth;
OppenheimerFunds Growth & Income; OppenheimerFunds High Income; OppenheimerFunds
Strategic Bond; Calvert Social Small Cap Growth; Calvert Social Balanced; Van
Eck Worldwide Hard Assets; and Van Eck Worldwide Real Estate. Each Sub-Account
invests in shares of a corresponding Fund. Therefore, the investment experience
of your Contract depends on the experience of the Sub-Accounts that you select.
Other contracts issued by Protective Life may offer some or all of the
Sub-Accounts of the Variable Account.

ADMINISTRATION

Protective Life Insurance Company performs the Contract administration at
its administrative office at 2801 Highway 280 South, Birmingham, Alabama 35223.
Contract administration includes processing applications for the Contracts and
subsequent Owner requests; processing Purchase Payments, transfers, surrenders
and death benefit claims as well as performing record maintenance and disbursing
annuity income payments.

17
<PAGE>
THE FUNDS

Each Sub-Account invests in a corresponding Fund. Each Fund is an investment
portfolio of one of the following investment companies: Protective Investment
Company ("PIC Funds") managed by Protective Investment Advisors, Inc. (formerly
Investment Distributors Advisory Services, Inc.), and subadvised by Goldman
Sachs Asset Management or Goldman Sachs Asset Management International;
Oppenheimer Variable Account Funds ("OppenheimerFunds") managed by
OppenheimerFunds, Inc.; MFS Variable Insurance Trust ("MFS Funds") managed by
MFS Investment Management; Calvert Variable Series, Inc. ("Calvert Funds")
managed by Calvert Asset Management Company, Inc.; or Van Eck Worldwide
Insurance Trust ("Van Eck Funds") managed by Van Eck Associates Corporation.
Shares of these Funds are offered only to: (1) the Variable Account, (2) other
separate accounts of Protective Life and its affiliates supporting variable
annuity contracts or variable life insurance policies, (3) separate accounts of
other life insurance companies supporting variable annuity contracts or variable
life insurance policies, and (4) certain qualified retirement plans. Such shares
are not offered directly to investors but are available only through the
purchase of such contracts or policies or through such plans. See the prospectus
for each Fund for details about that Fund.

There is no guarantee that any Fund will meet its investment objectives.
Please refer to the prospectus for each of the Funds you are considering for
more information.

PIC FUNDS

PIC INTERNATIONAL EQUITY FUND. This Fund seeks long-term capital
appreciation. This Fund will pursue its objective by investing, substantially
all, and at least 65% of total assets in equity and equity-related securities of
companies that are organized outside the United States or whose securities are
primarily traded outside the United States.

PIC SMALL CAP VALUE FUND. This Fund seeks long-term capital growth. This
Fund will pursue its objective by investing, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of investment.

PIC CAPITAL GROWTH FUND This Fund seeks long-term capital growth. The Fund
will pursue its objective by investing, under normal circumstances, at least 90%
of its total assets in a diversified portfolio of equity securities having
long-term capital appreciation potential.

PIC CORE U.S. EQUITY FUND. This Fund seeks a total return consisting of
capital appreciation plus dividend income. This Fund will pursue its objective
by investing, under normal circumstances, at least 90% of its total assets in
equity securities selected using both fundamental research and a variety of
quantitative techniques in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar to
the S&P 500 Index.

PIC GROWTH AND INCOME FUND. This Fund seeks long-term growth of capital and
growth of income. This Fund will pursue its objectives by investing, under
normal circumstances, at least 65% of its total assets in equity securities
having favorable prospects of capital appreciation and/or dividend paying
ability.

PIC GLOBAL INCOME FUND. This Fund seeks high total return, emphasizing
current income and, to a lesser extent, providing opportunities for capital
appreciation. This Fund will pursue its objectives by investing primarily in
high quality fixed-income securities of U.S. and foreign issuers and through
foreign currency transactions.

PIC MONEY MARKET FUND. This Fund seeks to maximize current income to the
extent consistent with the preservation of capital and maintenance of liquidity.
This Fund will pursue its objective by investing exclusively in high quality
money market instruments. AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER

18
<PAGE>
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THE FUND CANNOT ASSURE THAT IT
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.

MFS FUNDS

MFS NEW DISCOVERY SERIES. This Fund seeks to provide capital appreciation.

MFS EMERGING GROWTH SERIES. This Fund seeks to provide long-term growth of
capital.

MFS RESEARCH SERIES. This Fund seeks to provide long-term growth of capital
and future income.

MFS GROWTH WITH INCOME SERIES. This Fund seeks to provide reasonable
current income and long-term growth of capital and income.

MFS UTILITIES SERIES. This Fund seeks to provide capital growth and current
income.

MFS TOTAL RETURN SERIES. This Fund seeks primarily to provide above-average
income (compared to a portfolio invested entirely in equity securities)
consistent with the prudent employment of capital and secondarily to provide a
reasonable opportunity for growth of capital and income.

OPPENHEIMERFUNDS

AGGRESSIVE GROWTH FUND. This Fund seeks to achieve capital appreciation by
investing in "growth-type" companies.

GLOBAL SECURITIES FUND. This Fund seeks long-term capital appreciation by
investing in securities of foreign issuers, "growth-type" companies and cyclical
industries.

GROWTH FUND. This Fund seeks to achieve capital appreciation by investing
in securities of well-known established companies.

GROWTH & INCOME FUND. This Fund seeks a high total return (which includes
growth in the value of its shares as well as current income) from equity and
debt securities. From time to time this Fund may focus on small to medium
capitalization common stocks, bonds and convertible securities.

HIGH INCOME FUND. This Fund seeks a high level of current income from
investment in high yield fixed-income securities.

STRATEGIC BOND FUND. This Fund seeks a high level of current income
principally derived from interest on debt securities and seeks to enhance such
income by writing covered call options on debt securities.

CALVERT FUNDS

SOCIAL SMALL CAP GROWTH PORTFOLIO. This Fund seeks maximum long-term growth
through investments primarily in the equity securities of small capitalized
growth companies that have historically exhibited exceptional growth
characteristics, and that, in the Advisor's opinion, have strong earnings
potential relative to the U.S. market as a whole. The Fund is designed to
provide long-term growth of capital by investing in enterprises that make a
significant contribution to society through their products and services and
through the way they do business.

SOCIAL BALANCED PORTFOLIO. This Fund seeks to achieve a total return above
the rate of inflation through an actively managed, non-diversified portfolio of
common and preferred stocks, bonds, and money market instruments that offer
income and capital growth opportunity and that satisfy the social concern
criteria established for the Fund.

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<PAGE>

VAN ECK FUNDS

WORLDWIDE HARD ASSETS FUND. This Fund seeks long-term capital appreciation
by investing globally, primarily in "Hard Asset Securities". Hard Asset
Securities include equity securities of "Hard Asset Companies" and securities,
including structured notes, whose value is linked to the price of a Hard Asset
commodity or a commodity index. "Hard Asset Companies" includes companies that
are directly or indirectly (whether through supplier relationships, servicing
agreements or otherwise) engaged to a significant extent in the exploration,
development, production or distribution of one or more of the following
(together "Hard Assets"): (i) precious metals, (ii) ferrous and non-ferrous
metals, (iii) gas, petroleum, petrochemicals or other hydrocarbons, (iv) forest
products, (v) real estate and (vi) other basic non-agricultural commodities.

WORLDWIDE REAL ESTATE FUND. This Fund seeks to maximize total return by
investing primarily in equity securities of domestic and foreign companies which
are principally engaged in the real estate industry or which own significant
real estate assets.

THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES
OF ANY OF THE FUNDS WILL BE ACHIEVED.

MORE DETAILED INFORMATION CONCERNING THE INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS OF THE FUNDS, THE EXPENSES OF THE FUNDS, THE RISKS ATTENDANT TO
INVESTING IN THE FUNDS AND OTHER ASPECTS OF THEIR OPERATIONS CAN BE FOUND IN THE
CURRENT PROSPECTUSES FOR THE FUNDS, WHICH ACCOMPANY THIS PROSPECTUS, AND THE
CURRENT STATEMENT OF ADDITIONAL INFORMATION FOR EACH OF THE FUNDS. THE FUNDS'
PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING THE
ALLOCATION OF PURCHASE PAYMENTS OR TRANSFERS AMONG THE SUB-ACCOUNTS.

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

Protective Life has entered into agreements with the investment managers or
advisers of the Funds pursuant to which each such investment manager or adviser
pays Protective Life a servicing fee based upon an annual percentage of the
average daily net assets invested by the Variable Account (and other separate
accounts of Protective Life and its affiliates) in the Funds managed by that
manager or adviser. These fees are in consideration for administrative services
provided to the Funds by Protective Life and its affiliates. Payments of fees
under these agreements by managers or advisers do not increase the fees or
expenses paid by the Funds or their shareholders.

OTHER INVESTORS IN THE FUNDS

PIC currently sells shares of its Funds only to Protective Life as the
underlying investment for the Variable Account as well as for variable life
insurance contracts issued through Protective Life, and to American Foundation
Life Insurance Company, a Protective Life affiliate, as the underlying
investment for variable annuity contracts issued by American Foundation Life.
PIC may in the future sell shares of its Funds to other separate accounts of
Protective Life or its life insurance company affiliates supporting other
variable annuity contracts or variable life insurance contracts. In addition,
upon obtaining regulatory approval, PIC may sell shares to certain retirement
plans qualifying under Section 401 of the Internal Revenue Code of 1986.
Protective Life currently does not foresee any disadvantages to Owners that
would

20
<PAGE>
arise from the possible sale of shares to support its variable annuity and
variable life insurance contracts or those of its affiliates or from the
possible sale of shares to such retirement plans. However, the board of
directors of PIC will monitor events in order to identify any material
irreconcilable conflicts that might possibly arise if such shares were also
offered to support variable annuity contracts other than the Contracts or
variable life insurance contracts or to retirement plans. In event of such a
conflict, the board of directors would determine what action, if any, should be
taken in response to the conflict. In addition, if Protective Life believes that
PIC's response to any such conflicts insufficiently protects Owners, it will
take appropriate action on its own, including withdrawing the Account's
investment in the Fund. (See the PIC Prospectus for more detail.)

Shares of the OppenheimerFunds, MFS, Calvert and Van Eck Funds are sold to
separate accounts of insurance companies, which may or may not be affiliated
with Protective Life or each other, a practice known as "shared funding." They
may also be sold to separate accounts to serve as the underlying investment for
both variable annuity contracts and variable life insurance policies, a practice
known as "mixed funding." As a result, there is a possibility that a material
conflict may arise between the interests of Owners of Protective Life's
Contracts, whose Contract Values are allocated to the Variable Account, and of
owners of other contracts whose contract values are allocated to one or more
other separate accounts investing in any one of the Funds. Shares of some of
these Funds may also be sold to certain qualified pension and retirement plans.
As a result, there is a possibility that a material conflict may arise between
the interests of Contract Owners generally or certain classes of Contract
Owners, and such retirement plans or participants in such retirement plans. In
the event of any such material conflicts, Protective Life will consider what
action may be appropriate, including removing the Fund from the Variable Account
or replacing the Fund with another fund. As is the case with PIC, the boards of
directors (or trustees) of the OppenheimerFunds, MFS, Calvert and Van Eck Funds
monitor events related to their Funds to identify possible material
irreconcilable conflicts among and between the interests of the Fund's various
investors. There are certain risks associated with mixed and shared funding and
with the sale of shares to qualified pension and retirement plans, as disclosed
in each Fund's prospectus.

ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS

Protective Life reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Variable Account or that the Variable Account may purchase. If the shares of
a Fund are no longer available for investment or if in Protective Life's
judgment further investment in any Fund should become inappropriate in view of
the purposes of the Variable Account, Protective Life may redeem the shares, if
any, of that Fund and substitute shares of another registered open-end
management company or unit investment trust. Protective Life will not substitute
any shares attributable to a Contract's interest in the Variable Account without
notice and any necessary approval of the Securities and Exchange Commission and
state insurance authorities.

Protective Life also reserves the right to establish additional Sub-Accounts
of the Variable Account, each of which would invest in shares corresponding to a
new Fund. Subject to applicable law and any required SEC approval, Protective
Life may, in its sole discretion, establish new Sub-Accounts or eliminate one or
more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new Sub-Accounts may be made available to existing
Owner(s) on a basis to be determined by Protective Life.

If any of these substitutions or changes are made, Protective Life may by
appropriate endorsement change the Contract to reflect the substitution or other
change. If Protective Life deems it to be in the best interest of Owner(s) and
Annuitants, and subject to any approvals that may be required under applicable
law, the Variable Account may be operated as a management company under the 1940
Act, it may be de-registered under that Act if registration is no longer
required, or it may be combined with other Protective Life separate accounts.
Protective Life reserves the right to make any changes to the Variable Account
required by the 1940 Act or other applicable law or regulation.

21
<PAGE>

DESCRIPTION OF THE CONTRACT

PARTIES TO THE CONTRACT

OWNER. The Owner is the person or persons who own the Contract and are
entitled to exercise all rights and privileges provided in the Contract. In
those states where the Contract is issued as a group contract, the term "Owner"
refers to the holder of the certificate evidencing an interest in the group
contract. Two persons may own the Contract together; they are designated as the
Owner and the Joint Owner. Individuals as well as non-natural persons, such as
corporations or trusts, may be Owners. The Company will only issue a Contract
prior to each Owner's 80th birthday. In certain states, more restrictive age
conditions may apply.

The Owner of this Contract may be changed by Written Notice provided (1)
each new Owner's 80th birthday is after the Effective Date, and (2) each new
Owner's 90th birthday is on or after the Annuity Commencement Date. In certain
states, more restrictive age conditions may apply. For a period of 1 year after
any change of ownership involving a natural person, the death benefit will equal
the Contract Value less any Credits added during the 12 months prior to death.
The change of Owner may result in a tax liability. (See "Taxation of Annuities
in General: Assignments, Pledges, and Gratuitous Transfers.")

BENEFICIARY. The Beneficiary is the person or persons who may receive the
benefits of this Contract upon the death of any Owner.

PRIMARY--The Primary Beneficiary is the surviving Joint Owner, if any. If
there is no surviving Joint Owner, the Primary Beneficiary is the person or
persons designated by the Owner and named in our records.

CONTINGENT--The Contingent Beneficiary is the person or persons designated
by the Owner and named in our records to be Beneficiary if the Primary
Beneficiary is not living.

If no Beneficiary designation is in effect or if no Beneficiary is living at
the time of an Owner's death, the Beneficiary will be the estate of the deceased
Owner. If any Owner dies on or after the Annuity Commencement Date, the
Beneficiary will become the new Owner.

Unless designated irrevocably, the Owner may change the Beneficiary by
Written Notice prior to the death of any Owner. An irrevocable Beneficiary is
one whose written consent is needed before the Owner can change the Beneficiary
designation or exercise certain other rights.

ANNUITANT. The Annuitant is the person on whose life annuity income
payments may be based. The Owner is the Annuitant unless the Owner designates
another person as the Annuitant. The Contract must be issued prior to the
Annuitant's 80th birthday. If the Annuitant is not an Owner and dies prior to
the Annuity Commencement Date, the Owner will become the new Annuitant unless
the Owner designates otherwise.

The Owner may change the Annuitant by Written Notice prior to the Annuity
Commencement Date. However, if any Owner is not an individual the Annuitant may
not be changed. The new Annuitant's 90th birthday may not be earlier than the
Annuity Commencement Date in effect when the change of Annuitant is requested.

PAYEE. The Payee is the person or persons designated by the Owner to
receive the annuity income payments under the Contract. The Annuitant is the
Payee unless the Owner designates another party as the Payee. The Owner may
change the Payee at any time.

ISSUANCE OF A CONTRACT

To purchase a Contract, certain application information and an initial
Purchase Payment must be submitted to Protective Life through a licensed
representative of Protective Life, who is also a registered

22
<PAGE>
representative of a broker-dealer having a distribution agreement with
Investment Distributors, Inc. The minimum initial Purchase Payment is $10,000.
Protective Life reserves the right to accept or decline a request to issue a
Contract. Contracts may be sold to or in connection with retirement plans which
do not qualify for special tax treatment as well as retirement plans that
qualify for special tax treatment under the Code.

If the necessary application information for a Contract is accompanied by
the initial Purchase Payment, the initial Purchase Payment (less any applicable
premium tax) will be allocated to the Allocation Option as directed in the
application within two business days of receipt of such Purchase Payment at the
administrative office. If the necessary application information is not received,
Protective Life will retain the Purchase Payment for up to five business days
while it attempts to complete the information. If the necessary application
information is not complete after five days, Protective Life will inform the
applicant of the reason for the delay and the initial Purchase Payment will be
returned immediately unless the applicant specifically consents to Protective
Life retaining it until the information is complete. Once the information is
complete, the initial Purchase Payment will be allocated to the appropriate
Allocation Options within two business days.

Information necessary to complete an application may be transmitted to the
Company by telephone, facsimile, or electronic media.

PURCHASE PAYMENTS

The Company will only accept Purchase Payments prior to the earlier of the
oldest Owner's 80th birthday, or the Annuitant's 80th birthday. No Purchase
Payment will be accepted within 10 years of the Annuity Commencement Date then
in effect. The minimum subsequent Purchase Payment we will accept is $100. We
reserve the right not to accept any Purchase Payment.

Purchase Payments are payable at our administrative office. They may be made
by check payable to Protective Life Insurance Company or by any other method we
deem acceptable. Protective Life retains the right to limit the maximum
aggregate Purchase Payment that can be made without prior administrative office
approval. This amount is currently $1,000,000.

Under the current automatic purchase payment plan, you may select a monthly
or quarterly payment schedule pursuant to which Purchase Payments will be
automatically deducted from a bank account. Automatic Purchase Payments may be
accepted on the 1st through the 28th day of each month. Each automatic purchase
payment must be at least $100. Payments made through the automatic purchase
payment plan may not be allocated to any DCA Fixed Account. The automatic
purchase payment plan and the partial automatic withdrawal plan may not be
elected simultaneously. (See "Surrenders and Partial Surrenders".) Upon
notification of the death of any Owner the Company will terminate deductions
under the automatic purchase payment plan. (See "Allocation of Purchase
Payments".)

PURCHASE PAYMENT CREDITS

On the date we accept a Purchase Payment, we will add a Credit to your
Contract Value. The Credit is determined by multiplying the amount of the
Purchase Payment by the Credit percentage associated with the cumulative
Purchase Payments as shown below. During the first Contract Year, Purchase
Payments are aggregated to determine the applicable Credit percentage. Due to
this aggregation, it is possible that during the first Contract Year, part of
the Credit added to your Contract Value is based on prior Purchase Payments.

Credits are applied to the Allocation Options according to the allocation
percentages of the Purchase Payments with which they are associated. If you
return this Contract under the Right to Cancel provision, the amount we return
to you will not include any Credits applied. If and when Credits are deducted
from the Contract Value, they will be removed from the Allocation Options on a
pro-rata basis using the ratio of each Allocation Option value to the total
Contract Value.

23
<PAGE>
CREDIT PERCENTAGES

<TABLE>
<CAPTION>
CREDIT
CUMULATIVE PURCHASE PAYMENTS PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Less than $100,000................................................................ 3.00%
At least $100,000 but less than $250,000.......................................... 3.50%
At least $250,000 but less than $500,000.......................................... 4.00%
At least $500,000 but less than $1,000,000........................................ 4.50%
$1,000,000 or greater............................................................. 5.00%
</TABLE>

Refer to Appendix A for examples of how the Purchase Payment Credit is
applied.

FREE LOOK PERIOD

You have the right to return the Contract within a certain number of days
after you receive it by returning it to our administrative office or the sales
representative who sold it along with a written cancellation request. The number
of days, which is at least ten, is determined by state law in the state where
the Contract is delivered. Return of the Contract by mail is effective on being
post-marked, properly addressed and postage pre-paid. We will treat the returned
Contract as if it had never been issued. Where permitted, Protective Life will
refund the Contract Value plus any charges deducted from either Purchase
Payments or Contract Value, less Credits applied. This amount may be more or
less than the aggregate amount of your Purchase Payments up to that time. Where
required, we will refund the Purchase Payment.

ALLOCATION OF PURCHASE PAYMENTS

The allocation of your Purchase Payment and associated Credits among the
Allocation Options you have selected will be at the next price determined after
your Purchase Payment is accepted by us. Owners must indicate in the application
how their initial and subsequent Purchase Payments are to be allocated among the
Allocation Options. If such instructions are indicated by percentages, whole
percentages must be used. Subsequent Purchase Payments made through the
automatic purchase payment plan may not be allocated to any DCA Fixed Account.

For Individual Retirement Annuities and Contracts issued in states where,
upon cancellation during the free look period, we return at least your Purchase
Payments, we reserve the right to allocate your initial Purchase Payment and
associated Credits (and any subsequent Purchase Payment and associated Credits
made during the free look period) to the PIC Money Market Sub-Account until the
expiration of the number of days in the free look period starting from the date
the Contract is mailed from our administrative office. Thereafter, all Purchase
Payments and associated Credits will be allocated according to your allocation
instructions then in effect.

Owners may change allocation instructions by Written Notice at any time.
Owners may also change instructions by telephone, facsimile transmission or
automated telephone system. For non-written instructions regarding allocations,
we will require a form of personal identification prior to acting on
instructions and we will record any telephone voice instructions. If we follow
these procedures, we will not be liable for any losses due to unauthorized or
fraudulent instructions. The Company reserves the right to limit or eliminate
any of these non-written communication methods for any Contract or class of
Contracts at any time for any reason.

VARIABLE ACCOUNT VALUE

SUB-ACCOUNT VALUE. A Contract's Variable Account value at any time is the
sum of the Sub-Account values and therefore reflects the investment experience
of the Sub-Accounts to which it is allocated. There is no guaranteed minimum
Variable Account value. The Sub-Account value for any Sub-Account as of the
Effective Date is equal to the amount of the initial Purchase Payment and
associated Credits allocated to

24
<PAGE>
that Sub-Account. On subsequent Valuation Days prior to the Annuity Commencement
Date, the Sub-Account value is equal to that part of any Purchase Payment and
associated Credits allocated to the Sub-Account and any Contract Value
transferred to the Sub-Account, adjusted by interest income, dividends, net
capital gains or losses (realized or unrealized), decreased by partial
surrenders (including any applicable surrender charges and premium tax),
Contract Value transferred out of the Sub-Account and Credits and fees deducted
from the Sub-Account.

DETERMINATION OF ACCUMULATION UNITS. Purchase Payments and associated
Credits allocated to and Contract Value transferred to a Sub-Account are
converted into Accumulation Units. The number of Accumulation Units is
determined by dividing the dollar amount directed to the Sub-Account by the
value of the Accumulation Unit for that Sub-Account for the Valuation Day as of
which the allocation or transfer occurs. Purchase Payments and associated
Credits allocated to or amounts transferred to a Sub-Account under a Contract
increase the number of Accumulation Units of that Sub-Account credited to the
Contract. The Company executes such allocations and transfers as of the end of
the Valuation Period in which it receives a Purchase Payment or Written Notice
or other instruction requesting a transfer.

Certain events reduce the number of Accumulation Units of a Sub-Account
credited to a Contract. Partial surrenders or transfers from a Sub-Account
result in the cancellation of the appropriate number of Accumulation Units of
that Sub-Account as do payments resulting from the following events: a
surrender, a Death Benefit claim, application of the Contract Value to an
Annuity Option, deduction of Credits, and deduction of the annual contract
maintenance fee. Accumulation Units are canceled as of the end of the Valuation
Period in which the Company receives Written Notice of or other instructions
regarding the event.

DETERMINATION OF ACCUMULATION UNIT VALUE. The Accumulation Unit value for
each Sub-Account at the end of every Valuation Day is the Accumulation Unit
value at the end of the previous Valuation Day times the net investment factor.
The Sub-Account value for a Contract may be determined on any day by multiplying
the number of Accumulation Units attributable to the Contract in that
Sub-Account by the Accumulation Unit value for that Sub-Account on that day.

NET INVESTMENT FACTOR. The net investment factor measures the investment
performance of a Sub-Account from one Valuation Period to the next. For each
Sub-Account, the net investment factor reflects the investment performance of
the Fund in which the Sub-Account invests and the charges assessed against that
Sub-Account for a Valuation Period. Each Sub-Account has a net investment factor
for each Valuation Period which may be greater or less than one. Therefore, the
value of an Accumulation Unit may increase or decrease. The net investment
factor for any Sub-Account for any Valuation Period is determined by dividing
(1) by (2) and subtracting (3) from the result, where:

(1) is the result of:

a. the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the current Valuation Period; plus

b. the per share amount of any dividend or capital gain distributions
made by the Fund to the Sub-Account, if the "ex-dividend" date occurs
during the current Valuation Period; plus or minus

c. a per share charge or credit for any taxes reserved for, which is
determined by the Company to have resulted from the investment
operations of the Sub-Account.

(2) is the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the last prior Valuation Period.

(3) is a factor representing the Mortality and Expense Risk Charge and the
Administration Charge for the number of days in the Valuation Period.

25
<PAGE>
TRANSFERS

Prior to the Annuity Commencement Date, you may instruct us to transfer
Contract Value between and among the Allocation Options. When we receive your
transfer instructions, we will allocate the Contract Value you transfer at the
next price determined for the Allocation Options you indicate.

You must transfer at least $100, or if less, the entire amount in the
Allocation Option each time you make a transfer. If after the transfer, the
Contract Value remaining in any Allocation Option from which a transfer is made
would be less than $100, then we may transfer the entire Contract Value in that
Allocation Option instead of the requested amount. We reserve the right to limit
the number of transfers to no more than 12 per Contract Year. For each
additional transfer over 12 during each Contract Year, we reserve the right to
charge a Transfer Fee which will not exceed $25. The Transfer Fee, if any, will
be deducted from the amount being transferred. (See "Charges and
Deductions--Transfer Fee".)

Transfers involving a Guaranteed Account are subject to additional
restrictions. The maximum amount that may be transferred from the Fixed Account
during a Contract Year is the greater of: (1) $2,500, or (2) 25% of the Contract
Value in the Fixed Account value. Transfers into the DCA Fixed Account are not
permitted.

Owners may request transfers by Written Notice at any time. Owners also may
request transfers by telephone, facsimile transmission, or automated telephone
system. We will require a form of personal identification prior to acting on
non-written requests and we will record telephone requests. We will send you a
confirmation of all transfer requests communicated to us. If we follow these
procedures we will not be liable for any losses due to unauthorized or
fraudulent transfer requests.

RESERVATION OF RIGHTS. We reserve the right to limit amounts transferred
into any account within the Guaranteed Account. We reserve the right to modify,
limit, suspend or eliminate the transfer privileges (including acceptance of
non-written instructions) without prior notice for any Contract or class of
Contracts at any time for any reason. We also reserve the right to not honor
transfers requested by a third party holding a power of attorney from an Owner
where that third party requests transfers during a single Valuation Period on
behalf of the Owners of two or more Contracts.

After the Annuity Commencement Date, when Variable Income Payments are
selected, transfers are allowed between Sub-Accounts, but limited to one
transfer per month. Dollar cost averaging and portfolio rebalancing are not
allowed. No transfers are allowed within the Guaranteed Account or between the
Guaranteed Account and any Sub-Account.

DOLLAR COST AVERAGING. Prior to the Annuity Commencement Date, you may
instruct us by Written Notice to systematically and automatically transfer, on a
monthly or quarterly basis, specified dollar amounts from a DCA Fixed Account
(or any other Allocation Option) to any Allocation Option, except that no
transfers may be made into a DCA Fixed Account. This is known as the
"dollar-cost averaging" method of investment. By transferring equal amounts of
Contract Value on a regularly scheduled basis, as opposed to allocating a larger
amount at one particular time, an Owner may be less susceptible to the impact of
market fluctuations in the value of Sub-Account Accumulation Units. Protective
Life, however, makes no guarantee that the dollar cost averaging method will
result in a profit or protection against loss.

Dollar cost averaging transfers may be made on the 1st through the 28th day
of each month. If no day is selected, transfers will occur on the same day of
the month as your Contract Anniversary, or on the 28th day of the month if your
Contract Anniversary occurs on the 29th, 30th, or 31st day of the month. In
states where, upon cancellation during the free look period, we are required to
return your Purchase Payment, we reserve the right to delay commencement of
dollar cost averaging transfers until the expiration of the free look period.

The DCA Fixed Accounts are available only for Purchase Payments and
associated Credits designated for dollar cost averaging. Purchase Payments may
not be allocated into any DCA Fixed Account when that DCA Fixed Account value is
greater than $0, and all funds must be transferred from a DCA Fixed Account
prior to allocating a Purchase Payment to that DCA Fixed Account. Where we
agree, under current administrative procedures, to allocate a Purchase Payment
to any DCA Fixed Account in installments from

26
<PAGE>

more than one source, we will credit each installment with the rate applied to
the first installment we receive. Any Purchase Payment allocated to a DCA Fixed
Account must include instructions regarding the number and frequency of the
dollar cost averaging transfers, and the Allocation Option(s) into which the
transfers are to be made. If transfers from a DCA Fixed Account are terminated,
we will transfer any amount remaining in that DCA Fixed Account into the Fixed
Account unless you have otherwise instructed us how to allocate the remaining
amount.

Currently, the maximum period for dollar cost averaging from DCA Fixed
Account 1 is six months and from DCA Fixed Account 2 is twelve months. From time
to time, we may offer different maximum periods for dollar cost averaging
amounts from a DCA Fixed Account.

The periodic amount transferred from a DCA Fixed Account will be equal to
the Purchase Payment and associated Credit allocated to the DCA Fixed Account
divided by the number of dollar cost averaging transfers to be made. The minimum
amount per transfer is $100. Interest credited will be transferred from the DCA
Fixed Account after the last dollar cost averaging transfer. We will process
dollar cost averaging transfers until the earlier of the following: (1) the
designated number of transfers have been completed, or (2) the Owner instructs
us by Written Notice to cancel the automatic transfers. Any time dollar cost
averaging transfers end, all Contract Value remaining in a DCA Fixed Account
will be transferred to the Fixed Account. Upon the death of any Owner, dollar
cost averaging transfers will continue until canceled by the Beneficiary(s).

There is no charge for dollar cost averaging. Automatic transfers made to
facilitate dollar cost averaging will not count toward the 12 transfers
permitted each Contract Year if Protective Life elects to limit transfers, or
the designated number of free transfers in any Contract Year if the Company
elects to charge for transfers in excess of that number in any Contract Year. We
reserve the right to discontinue offering the automatic transfers upon 30 days'
written notice to the Owner.

PORTFOLIO REBALANCING. Prior to the Annuity Commencement Date, you may
instruct Protective Life by Written Notice to periodically transfer your
Variable Account value among specified Sub-Accounts to achieve a particular
percentage allocation of Variable Account value among such Sub-Accounts
("portfolio rebalancing"). The portfolio rebalancing percentages must be in
whole numbers and must allocate amounts only among the Sub-Accounts. No Contract
Value may be transferred to the Guaranteed Account as part of portfolio
rebalancing. Unless you instruct otherwise, portfolio rebalancing is based on
your Purchase Payment allocation instructions in effect at the time of each
rebalancing transfer. Portfolio rebalancing instructions from you that differ
from your current Purchase Payment allocation instructions are deemed to be a
request to change your Purchase Payment allocation.

Portfolio rebalancing may be elected to occur on the 1st through 28th day of
a month on either a quarterly, semi-annual or annual basis. You may change or
terminate portfolio rebalancing by Written Notice, or by other non-written
communication methods acceptable for transfer requests. Upon the death of any
Owner portfolio rebalancing will continue until canceled by the Beneficiary(s).

There is no charge for portfolio rebalancing. Automatic transfers made to
facilitate portfolio rebalancing will not count toward the 12 transfers
permitted each Contract Year if Protective Life elects to limit transfers, or
the designated number of free transfers in any Contract Year if the Company
elects to charge for transfers in excess of that number in any Contract Year. We
reserve the right to discontinue portfolio rebalancing upon 30 days' written
notice to the Owner.

SURRENDERS AND PARTIAL SURRENDERS

SURRENDER. At any time before the Annuity Commencement Date, the Owner may
request a surrender of the Contract for its surrender value. The surrender value
will be determined as of the end of the Valuation Day on which Written Notice
requesting surrender and the Contract are received at our administrative office.
(See "Surrender Charge".) The surrender value will be paid in a lump sum unless
the Owner requests payment under a payment option. A surrender may have federal
income tax consequences. (See "Taxation of Partial and Full Surrenders".) Under
certain Annuity Options, a surrender value may be available. (See
"Annuitization".)

27
<PAGE>

PARTIAL SURRENDERS. At any time before the Annuity Commencement Date, an
Owner may make a partial surrender of the Contract Value provided the Contract
Value remaining after the surrender is at least $10,000. The Company will
withdraw the amount requested from the Contract Value as of the Valuation Period
during which Written Notice requesting the partial surrender is received. Any
applicable surrender charge will be deducted from the amount requested. (See
"Surrender Charge".)

The Owner may specify the amount of the partial surrender to be made from
any Allocation Option. If the Owner does not so specify, or if the amount in the
designated account(s) is inadequate to comply with the request, the partial
surrender will be made from each Allocation Option based on the proportion that
the value of each Allocation Option bears to the total Contract Value.

A partial surrender may have federal income tax consequences. (See "Taxation
of Partial and Full Surrenders".)

CANCELLATION OF ACCUMULATION UNITS. Surrenders and partial surrenders,
including any surrender charges, will result in the cancellation of Accumulation
Units from each applicable Sub-Account(s) and/or in a reduction of the
Guaranteed Account Value.

SURRENDER AND PARTIAL SURRENDER RESTRICTIONS. The Owner's right to make
surrenders and partial surrenders is subject to any restrictions imposed by
applicable law or employee benefit plan.

RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS. There are
certain restrictions on surrenders and partial surrenders of Contracts used as
funding vehicles for Code Section 403(b) retirement plans. Section 403(b)(11) of
the Code restricts the distribution under Section 403(b) annuity contracts 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 after December 31, 1988 on amounts attributable to salary
reduction contributions held as of December 31, 1988. Distributions of those
amounts may only occur upon the death of the employee, attainment of age 59 1/2,
separation from service, disability, or hardship. In addition, income
attributable to salary reduction contributions may not be distributed in the
case of hardship.

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.

PARTIAL AUTOMATIC WITHDRAWALS. Currently, the company offers a partial
automatic withdrawal plan. This plan allows you to pre-authorize periodic
partial surrenders prior to the Annuity Commencement Date. You may elect to
participate in this plan at the time of application or at a later date by
properly completing an election form. In order to participate in the plan you
must have: (1) made an initial Purchase Payment of at least $20,000, or (2) a
Contract Value as of the previous Contract Anniversary equal to $20,000. The
partial automatic withdrawal plan and the automatic purchase payment plan may
not be elected simultaneously. (See "Purchase Payments".) There are federal
income tax consequences to partial automatic withdrawals from the Contract and
the Owner should, therefore, consult with his or her tax advisor before
participating in any withdrawal program. (See "Taxation of Partial and Full
Surrenders".)

When you elect the partial automatic withdrawal plan, you will instruct
Protective Life to withdraw a level dollar amount from the Contract on a monthly
or quarterly basis. Partial automatic withdrawals may be made on the 1st through
the 28th day of each month. The amount requested must be at least $100 per
withdrawal. Unless you instruct us, at the time you initiate the partial
automatic withdrawal plan or at some later time, to change the withdrawal amount
we will continue to process withdrawals for the designated amount. If, during
any Contract Year, the amount of the withdrawals exceeds the "free withdrawal
amount" described in the "Surrender Charge" section of this prospectus, we will
deduct a surrender charge when applicable. (See "Surrender Charge".) Partial
automatic withdrawals will be taken pro-rata from the Allocations Options in
proportion to the value each Allocation Option bears to the total

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Contract Value and will be made only by an electronic fund transfer. We will pay
you the amount requested each month or quarter as applicable and cancel the
applicable Accumulation Units.

If any partial automatic withdrawal transaction would result in a Contract
Value of less than $10,000 after the withdrawal, the transaction will not be
completed and the partial automatic withdrawal plan will terminate. The partial
automatic withdrawal plan will also terminate in the event that a non-automated
partial surrender is made from a Contract participating in the plan, except on a
partial surrender taken as a minimum required distribution from a Qualified
Plan. (See "Qualified Retirement Plans".). Upon notification of the death of any
Owner the Company will terminate the partial automatic withdrawal plan. The
partial automatic withdrawal plan may be discontinued by the Owner at any time
by Written Notice.

There is no charge for the partial automatic withdrawal plan, however a
surrender charge may apply to amounts withdrawn as described above. We reserve
the right to discontinue the partial automatic withdrawal plan upon written
notice to you.

THE GUARANTEED ACCOUNT

The Guaranteed Account has not been, and is not required to be, registered
with the SEC under the Securities Act of 1933, and neither these accounts nor
the Company's general account have been registered as an investment company
under the 1940 Act. Therefore, neither the Guaranteed Account, the Company's
general account, nor any interests therein are generally subject to regulation
under the 1933 Act or the 1940 Act. The disclosures relating to the Guaranteed
Account included in this prospectus are for the Owner's information and have not
been reviewed by the SEC. However, such disclosures may be subject to certain
generally applicable provisions of federal securities law relating to the
accuracy and completeness of statements made in prospectuses.

The Guaranteed Account currently includes the Fixed Account and two DCA
Fixed Accounts. The Fixed Account and the DCA Fixed Accounts are part of
Protective Life's general account. The assets of Protective Life's general
account support its insurance and annuity obligations and are subject to
Protective Life's general liabilities from business operations. Since the Fixed
Account and the DCA Fixed Accounts are part of the general account, Protective
Life assumes the risk of investment gain or loss on this amount.

Except for certain Contracts issued in certain states, you may allocate some
or all of your Purchase Payments and may transfer some or all of your Contract
Value to an account within the Guaranteed Account, except that transfers may not
be made into any DCA Fixed Account, and Purchase Payments may not be allocated
to any DCA Fixed Account when that DCA Fixed Account value is greater than $0.
All previously allocated funds must be transferred out of a DCA Fixed Account
prior to allocating a subsequent Purchase Payment to that DCA Fixed Account.
Amounts allocated or transferred to an account within the Guaranteed Account
earn interest from the date the funds are credited to the account.

The interest rate we apply to Purchase Payments and transfers into the Fixed
Account is guaranteed for one year from the date the Purchase Payment or
transfer is credited to the account. When an interest rate guarantee expires, we
will set a new interest rate, which may not be the same as the interest rate
then in effect for Purchase Payments or transfers allocated to the Fixed
Account. The new interest rate is also guaranteed for one year.

DCA Fixed Accounts are designed to systematically transfer amounts to other
Allocation Options over a designated period. The interest rate we apply to
Purchase Payments allocated to a DCA Fixed Account is guaranteed for the period
over which transfers are allowed from that DCA Fixed Account.

From time to time, we may offer Fixed Accounts or DCA Fixed Accounts with
different interest guaranteed periods. We, in our sole discretion, establish the
interest rates for each account in the Guaranteed Account. We will not declare a
rate that is less than an annual effective interest rate of 3.00%. Because these
rates vary from time to time, allocations made to the same account within the
Guaranteed Account at different times may earn interest at different rates.

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GUARANTEED ACCOUNT VALUE. Any time prior to the Annuity Commencement Date,
the Guaranteed Account value is equal to the sum of: (1) Purchase Payments and
associated Credits allocated to the Guaranteed Account; plus (2) amounts
transferred into the Guaranteed Account; plus (3) interest credited to the
Guaranteed Account; minus (4) amounts transferred out of the Guaranteed Account;
minus (5) the amount of any surrenders removed from the Guaranteed Account,
including any surrender charges and applicable premium tax; minus (6) Credits
and fees deducted from the Guaranteed Account. For the purposes of interest
crediting, amounts deducted, transferred or withdrawn from accounts within the
Guaranteed Account will be separately accounted for on a "first-in, first-out"
(FIFO) basis.

DEATH BENEFIT

If any Owner dies before the Annuity Commencement Date and while this
Contract is in force, the Company will pay a death benefit, less any applicable
premium tax, to the Beneficiary. The death benefit will be determined as of the
end of the Valuation Period during which we receive due proof of death. Only one
death benefit is payable under this Contract, even though the Contract may, in
some circumstances, continue beyond the time of an Owner's death. If any Owner
is not a natural person, the death of the Annuitant is treated as the death of
an Owner. In the case of certain Qualified Contracts, regulations promulgated by
the Treasury Department prescribe certain limitations on the designation of a
Beneficiary.

The death benefit may be taken in one sum immediately, in which event the
Contract will terminate. If the death benefit is not taken immediately as a lump
sum, then the entire interest in the Contract must be distributed under one of
the following options:

(1) the entire interest must be distributed over the life of the
Beneficiary, or over a period not extending beyond the life expectancy of
the Beneficiary, with distribution beginning within one year of the Owner's
death; or,

(2) the entire interest must be distributed within 5 years of the
Owner's death.

If the Beneficiary is the deceased Owner's spouse, the surviving spouse may
elect, in lieu of receiving a death benefit, to continue the Contract and become
the new Owner, provided the deceased Owner's spouse's 80th birthday is after the
Effective Date and the 90th birthday is after the Annuity Commencement Date then
in effect. In certain states, more restrictive age conditions may apply. The
surviving spouse may select a new Beneficiary. Upon this spouse's death, the
death benefit will become payable and must then be distributed to the new
Beneficiary in one sum immediately or according to either paragraph (1) or (2),
above.

If there is more than one Beneficiary, the foregoing provisions apply to
each Beneficiary individually.

For a period of one year after any change of ownership involving a natural
person, the death benefit will equal the Contract Value less any Credits added
during the 12 months prior to death regardless of whether the standard or
optional death benefit was selected. Whenever Credits are deducted from this
Contract, they are removed pro-rata from among the current Allocation Options.

The death benefit provisions of this Contract shall be interpreted to comply
with the requirements of Section 72(s) of the Internal Revenue Code. We reserve
the right to endorse this Contract, as necessary, to conform with regulatory
requirements. We will send you a copy of any endorsement containing such
Contract modifications.

STANDARD DEATH BENEFIT

The standard death benefit will equal the greater of: (1) the Contract Value
less any Credits added to the Contract during the 12 months prior to the date of
death; or (2) aggregate Purchase Payments less aggregate amounts surrendered,
including associated surrender charges.

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<PAGE>

OPTIONAL BENEFIT PACKAGES

At the time of application, the Owner may purchase an optional benefit
package that may provide a death benefit which is greater than the standard
death benefit provided under the Contract. A death benefit available under an
optional benefit rider must be distributed according to the rules in the "Death
Benefit" section above.

Currently, two optional benefit packages are available in most states. Both
optional benefit packages also contain, in states where permitted, a waiver of
surrender charge provision. (See "Waiver of Surrender Charges.") If the Owner
purchases one of these packages, the mortality and expense risk expense charge
will increase by 0.15% to 1.40%, for total mortality and expense risk and
administration charges of 1.55%. (See "Charges and Deductions".) Once an
optional benefit package is selected, the option may not be canceled or changed.
If any Owner is not a natural person, we will treat references to the Owner's
birthday as references to the Annuitant's birthday.

ANNUAL RESET DEATH BENEFIT PACKAGE. We will determine an annual reset
anniversary value on each Contract Anniversary occurring before the earlier of
the deceased Owner's 80th birthday or the deceased Owner's date of death. Each
annual reset anniversary value is equal to the sum of: the Contract Value on
that Contract Anniversary; plus all Purchase Payments and Credits since that
Contract Anniversary; minus all amounts surrendered including associated
surrender charges since that Contract Anniversary.

The death benefit will equal the greatest of: (1) the Contract Value less
any Credits added during the 12 months prior to death; or (2) aggregate Purchase
Payments less aggregate surrenders including associated surrender charges; or
(3) the greatest annual reset anniversary value attained less any Credits added
during the 12 months prior to death.

COMPOUND AND 3-YEAR RESET DEATH BENEFIT PACKAGE. We will determine a
compound anniversary value on the most recent Contract Anniversary before the
earlier of the deceased Owner's 80th birthday or the deceased Owner's date of
death.

The compound anniversary value is equal to the sum of:

(a) the accumulation to the Contract Anniversary of all Purchase
Payments and Credits prior to that Contract Anniversary, minus the
accumulation of amounts surrendered including associated surrender charges
prior to that Contract Anniversary; plus,

(b) any Purchase Payments and Credits on or since that Contract
Anniversary, minus any amounts surrendered including associated surrender
charges on or since that Contract Anniversary.

If the Effective Date is before the deceased Owner's 71st birthday, the
amounts in (a) will accumulate at an annual effective interest rate of 4.00%. If
the Effective Date is on or after the deceased Owner's 71st birthday, the
amounts in (a) will accumulate at an annual effective interest rate of 3.00%

We will determine a 3-year reset anniversary value every 3rd Contract
Anniversary occurring before the earlier of the deceased Owner's 80th birthday
or the deceased Owner's date of death. Each 3-year reset anniversary value is
equal the sum of: the Contract Value on that Contract Anniversary; plus all
Purchase Payments and Credits since that Contract Anniversary; minus all amounts
surrendered including associated surrender charges since that Contract
Anniversary.

The death benefit will equal the greatest of: (1) the Contract Value less
any Credits added during the 12 months prior to death; or (2) aggregate Purchase
Payments less aggregate surrenders including associated surrender charges; or
(3) the compound anniversary value less any Credits added during the 12 months
prior to death; or (4) the greatest 3-year reset anniversary value attained less
any Credits added during the 12 months prior to death.

Refer to Appendix B for an example of the calculation of each death benefit.

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SUSPENSION OR DELAY IN PAYMENTS

Payments of a partial or full surrender of the Variable Account Value or
death benefit are usually made within seven (7) calendar days. However, the
Company may delay such payment of a partial or full surrender of the Variable
Account Value or death benefit for any period in the following circumstances:

1) when the New York Stock Exchange is closed; or

2) when trading on the New York Stock Exchange is restricted; or

3) when an emergency exists (as determined by the SEC as a result of
which (a) the disposal of securities in the Variable Account is not
reasonably practical; or (b) it is not reasonably practical to determine
fairly the value of the net assets of the Variable Account); or

4) when the SEC, by order, so permits for the protection of security
holders.

The Company may delay payment of a partial or full surrender from the
Guaranteed Account for up to six months where permitted.

CHARGES AND DEDUCTIONS

SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)

GENERAL. No charge for sales expenses is deducted from Purchase Payments at
the time Purchase Payments are paid. However, within certain time limits
described below, a surrender charge (contingent deferred sales charge) is
deducted from the Contract Value if a full or partial surrender is made before
the Annuity Commencement Date. The surrender charge is not applied to the
payment of a death benefit.

In the event surrender charges are not sufficient to cover sales expenses,
the loss will be borne by Protective Life; conversely, if the amount of such
charges provides more than enough to cover such expenses, the excess will be
retained by Protective Life. Protective Life does not currently believe that the
surrender charges imposed will cover the expected costs of distributing the
Contracts. Any shortfall will be made up from Protective Life's general assets
which may include amounts derived from the mortality and expense risk charge.

CHARGE FOR FULL AND PARTIAL SURRENDERS. Each Contract Year you may withdraw
a specified amount, called the "free withdrawal amount", from your Contract
without incurring a surrender charge. During the first Contract Year the free
withdrawal amount is equal to 10% of your initial Purchase Payment(s) and is
available only through the partial automatic withdrawal plan. After the first
Contract Year the free withdrawal amount is equal to 10% of the Contract Value
on the prior Contract Anniversary and is available through either the partial
automatic withdrawal plan or through partial surrenders. No free withdrawal
amount is available upon a full surrender. Amounts surrendered during a Contract
Year in excess of the free withdrawal amount, and full surrenders, are subject
to the surrender charge.

We calculate the surrender charge by first allocating surrendered Contract
Value in excess of any free withdrawal amount to Purchase Payments not
previously assessed with a surrender charge on a "first-in, first-out" (FIFO)
basis. We then allocate any remaining surrendered Contract Value pro-rata to
these Purchase Payments. The surrender charge is the total of each of the
allocated amounts of surrendered Contract Value multiplied by its applicable
surrender charge percentage, as shown below. If the surrendered Contract Value
exceeds any free withdrawal amount and if no surrendered Contract Value was
allocated to Purchase Payments, the surrender charge on the surrendered Contract
Value is determined by applying the surrender charge percentage associated with
the most recent Purchase Payment we accepted.

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<TABLE>
<CAPTION>
SURRENDER CHARGE
NUMBER OF FULL YEARS ELAPSED BETWEEN AS PERCENTAGE
THE DATE PURCHASE PAYMENT WAS ACCEPTED OF AMOUNT
AND THE DATE OF SURRENDER SURRENDERED
- --------------------------------------------- ----------------
<S> <C>
0................................................................................ 8.5%
1................................................................................ 8.5%
2................................................................................ 8.5%
3................................................................................ 8.0%
4................................................................................ 7.0%
5................................................................................ 6.0%
6................................................................................ 5.0%
7................................................................................ 3.0%
8................................................................................ 1.0%
9+............................................................................... 0%
</TABLE>

The cumulative surrender charges assessed will never exceed 8.5% of the
total Purchase Payments accepted by us under this Contract. The amount we will
pay upon a full or partial surrender is equal to the Contract Value surrendered
minus any applicable surrender charge, any contract maintenance fee, and any
applicable premium tax.

Refer to Appendix C for an example of how the surrender charge is
calculated.

REDUCTION OR ELIMINATION OF SURRENDER CHARGE. Surrender charges may be
decreased or waived on Contracts issued to a trustee, employer or similar entity
pursuant to a retirement plan or when sales are made in a similar arrangement
where offering the Contracts to a group of individuals under such a program
results in saving of sales expenses. The entitlement to such a reduction in
surrender charge will be determined by the Company.

Surrender charges may also be waived on partial surrenders taken as a
minimum distribution required under federal or state tax laws. (See "Qualified
Retirement Plans".) During any Contract Year, the total amount of such partial
surrenders will reduce the free withdrawal amount available on any subsequent
partial surrender.

WAIVER OF SURRENDER CHARGES. If you select an optional benefit package, and
in states where permitted, we will waive any applicable surrender charge if, at
any time after the first Contract Year:

(1) you are first diagnosed as having a terminal illness by a physician that
is not related to you or the Annuitant; or,

(2) you enter, for a period of at least ninety (90) days, a facility which
is both

(a) licensed by the state; and,

(b) qualified as a skilled nursing home facility under Medicare or
Medicaid.

For Contracts purchased in the State of Texas, we will also waive surrender
charges on these conditions during the first Contract Year.

The term "terminal illness" means that you are diagnosed as having a
non-correctable medical condition that, with a reasonable degree of medical
certainty, will result in your death in less than 12 months. Written proof of a
terminal illness satisfactory to the Company must be submitted. The Company
reserves the right to require an examination by a physician of its choice.

Once the waiver of surrender charges has been granted, no surrender charges
will apply to the Contract in the future and no additional Purchase Payments
will be accepted by the Company. We will deduct the amount of any Credits added
to the Contract Value during the 12 months prior to the date we first waive
surrender charges. When Credits are deducted from this Contract, they are
removed pro-rata from among the current Allocation Options.

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If any Owner is not an individual, the Waiver of Surrender Charge provisions
will apply to the Annuitant.

SUSPENSION OF BENEFITS. For a period of one year after any change of
ownership involving a natural person, the surrender charges will not be waived
under the provision above.

MORTALITY AND EXPENSE RISK CHARGE

To compensate Protective Life for assuming mortality and expense risks, we
deduct a daily mortality and expense risk charge. Prior to the Annuity
Commencement Date, for Contracts issued with the standard death benefit the
charge is equal, on an annual basis, to 1.25% of the average daily net assets of
the Variable Account attributable to such Contracts. If you select one of the
optional benefit packages, the mortality and expense risk expense charge will
increase by 0.15% for a total mortality and expense risk charge of 1.40% of the
average annual daily net assets of the Variable Account attributable to your
Contract. (See "Optional Benefit Riders".) On, and after the Annuity
Commencement Date, the mortality and expense risk charge is equal to 1.25% of
the average annual daily net assets of the Variable Account attributable to a
Contract.

The mortality risk Protective Life assumes is that Annuitant(s) may live for
a longer period of time than estimated when the guarantees in the Contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk that Protective Life assumes also includes a guarantee to pay a death
benefit if the Owner dies before the Annuity Commencement Date. The expense risk
that Protective Life assumes is the risk that the administration charge,
contract maintenance fee and transfer fees may be insufficient to cover actual
future expenses. It is possible that the mortality and expense risk charge (or a
portion of it) could be treated as a distribution for tax purposes. (See
"Federal Tax Matters.")

ADMINISTRATION CHARGES

We will deduct an administration charge equal, on an annual basis, to 0.15%
of the daily net asset value of each Sub-Account in the Variable Account. This
deduction is made to reimburse Protective Life for expenses incurred in the
administration of the Contract and the Variable Account. The administration
charge is deducted only from the Variable Account value. The Variable Account is
not responsible for any other operating expenses.

TRANSFER FEE

Currently, there is no charge for transfers. Protective Life reserves the
right, however, to charge $25 for each transfer after the first 12 transfers in
any Contract Year. For the purpose of assessing the fee, each request would be
considered to be one transfer, regardless of the number of Allocation Options
affected by the transfer in one day. The fee would be deducted from the amount
being transferred.

CONTRACT MAINTENANCE FEE

Prior to the Annuity Commencement Date, the contract maintenance fee is $30
and is deducted from the Contract Value on each Contract Anniversary, and on any
day that the Contract is surrendered other than the Contract Anniversary. The
contract maintenance fee will be deducted from the Allocation Options in the
same proportion as their values are to the Contract Value. The contract
maintenance fee will be waived by the Company in the event the Contract Value or
the aggregate Purchase Payments reduced by surrenders and associated surrender
charges equals or exceeds $50,000 on the date the contract maintenance fee is to
be deducted.

In addition, the contract maintenance fee may be reduced or waived for
Contracts issued to employees and registered representatives of any member of
the selling group and their spouses and minor

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<PAGE>
children, or to officers, directors, trustees, or bona-fide full time employees
of Protective Life or the investment advisers of any of the Funds or their
affiliated companies (based upon the Owner's status at the time the Contract is
purchased). Such waiver or reduction will only be made to the extent that
Protective Life estimates that it will incur lower administrative expenses or
perform fewer administrative services.

FUND EXPENSES

The net assets of each Sub-Account of the Variable Account will reflect the
investment management fees and other operating expenses incurred by the Funds.
For each Fund, an investment manager is paid a daily fee for its services. (See
the prospectuses for the Funds, which accompany this Prospectus.)

PREMIUM TAXES

Some states impose premium taxes at rates currently ranging up to 3.5%. If
premium taxes apply to your Contract, we will deduct them from the Purchase
Payment(s) when accepted or from the Contract Value upon a full or partial
surrender, death or annuitization.

OTHER TAXES

Currently, no charge will be made against the Variable Account for federal,
state or local taxes other than premium taxes. We reserve the right, however, to
deduct a charge for taxes attributable to the operation of the Variable Account.

ANNUITIZATION

ANNUITY COMMENCEMENT DATE

On the Effective Date, the Annuity Commencement Date is the earlier of any
Owner's 90th birthday or the Annuitant's 90th birthday. The Owner may change the
Annuity Commencement Date by Written Notice. The proposed Annuity Commencement
Date must be at least 30 days after the date the written request is received by
the Company, and at least 10 years after the most recent Purchase Payment. The
new Annuity Commencement Date may not be later than the earlier of the oldest
Owner's 90th birthday or the Annuitant's 90th birthday. In certain states, more
restrictive age conditions may apply. Annuity Commencement Dates that represent
an advanced age for the Annuitant (E.G., past age 85), may in certain
circumstances have adverse income tax consequences. (See "Federal Income Tax
Matters".) Distributions from Qualified Contracts may be required before the
Annuity Commencement Date.

On the Annuity Commencement Date, we will apply your Contract Value, less
any applicable charges and premium tax, to the Annuity Option you have selected
to determine an annuity income payment. You may elect to receive a fixed income
payment, a variable income payment, or a combination of both using the same
Annuity Option and certain period.

FIXED INCOME PAYMENTS

Fixed income payments are periodic payments from the Company to the
designated Payee, the amount of which is fixed and guaranteed by the Company.
Fixed income payments are not in any way dependent upon the investment
experience of the Variable Account. Once fixed income payments have begun, they
may not be surrendered.

VARIABLE INCOME PAYMENTS

Variable income payments are periodic payments from the Company to the
designated Payee, the amount of which varies from one payment to the next as a
reflection of the net investment experience of the Sub-Account(s) you select to
support the payments.

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<PAGE>
ANNUITY UNITS. On the Annuity Commencement Date, we will apply the Contract
Value you have allocated to variable income payments (less applicable charges
and premium taxes) to the variable Annuity Option you have selected. Using an
interest assumption of 5%, we will determine the dollar amount that would equal
a variable income payment if a payment were made on that date. (No payment is
actually made on that date.) We will then allocate that dollar amount among the
Sub-Accounts you selected to support your variable income payments, and we will
determine the number of Annuity Units in each of those Sub-Accounts that is
credited to your Contract. We will make this determination based on the Annuity
Unit values established at the close of regular trading on the New York Stock
Exchange on the Annuity Commencement Date. If the Annuity Commencement Date is a
day on which the New York Stock Exchange is closed, we will determine the number
of Annuity Units on the next day on which the New York Stock Exchange is open.
The number of Annuity Units attributable to each Sub-Account under a Contract
remains constant unless there is an exchange of Annuity Units between
Sub-Accounts.

VARIABLE INCOME PAYMENTS. We will determine the amount of your variable
income payment no earlier than five Valuation Days before the date on which a
payment is due, using values established at the close of regular trading on the
New York Stock Exchange that day.

The dollar amount of each variable income payment attributable to each
Sub-Account is determined by multiplying the number of Annuity Units of that
Sub-Account credited to your Contract by the Annuity Unit value (described
below) for that Sub-Account on the Valuation Period during which the payment is
determined. The dollar value of each variable income payment is the sum of the
variable income payment attributable to each Sub-Account.

The Annuity Unit value of each Sub-Account for any Valuation Period is equal
to (a) multiplied by (b) divided by (c) where:

(a) is the Net Investment Factor for the Valuation Period for which the
Annuity Unit value is being calculated;

(b) is the Annuity Unit value for the preceding Valuation Period; and

The AIR is equal to 5%, and the AIR factor is equal to one plus the AIR, or
1.05. The annual factor can be translated into a daily factor of 1.00013368.

If the net investment return of the Sub-Account for a variable income
payment period is equal to the AIR during that period, the variable income
payment attributable to that Sub-Account for that period will equal the payment
for the prior period. To the extent that such net investment return exceeds the
AIR for that period, the payment for that period will be greater than the
payment for the prior period; to the extent that such net investment return
falls short of the AIR for that period, the payment for that period will be less
than the payment for the prior period.

Refer to Appendix D for an explanation of the variable annuitization
calculation.

EXCHANGE OF ANNUITY UNITS. After the Annuity Commencement Date, you may
exchange the dollar amount of a designated number of Annuity Units of a
particular Sub-Account for an equivalent dollar amount of Annuity Units of
another Sub-Account. On the date of the exchange, the dollar amount of a
variable income payment generated from the Annuity Units of either Sub-Account
would be the same. Only one exchange between Sub-Accounts is allowed in any
calendar month, and no exchanges are allowed between the Guaranteed Account and
the Variable Account.

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ANNUITY OPTIONS.

You may select an Annuity Option, or change your selection by Written Notice
received by the Company not later than 30 days before the Annuity Commencement
Date. If you have not selected an Annuity Option within 30 days of the Annuity
Commencement Date, we will apply your Contract Value to Option B--Life Income
with Payments for a 10 Year Certain Period, with the Variable Account value used
to purchase variable income payments and the Guaranteed Account value used to
purchase fixed income payments.

You may select from among the following Annuity Options:

OPTION A--PAYMENTS FOR A CERTAIN PERIOD: Payments will be made for the
period you select. No certain period may be longer than 30 years. Payments under
this Annuity Option do not depend on the life of an Annuitant. The Contract may
be surrendered for its commuted value while variable income payments under
Option A are being made.

OPTION B--LIFE INCOME WITH OR WITHOUT A CERTAIN PERIOD: Payments are based
on the life of an Annuitant. If you elect to include a certain period, payments
will be made for the lifetime of the Annuitant(s), with payments guaranteed for
the certain period you select. No certain period may be longer than 30 years.
Payments stop at the end of the selected certain period or when the Annuitant(s)
dies, whichever is later. We reserve the right to demand proof that the
Annuitant(s) is living prior to making any payment after completion of the
certain period. IF NO CERTAIN PERIOD IS SELECTED, PAYMENTS WILL STOP UPON THE
DEATH OF THE ANNUITANT(S), NO MATTER HOW FEW OR HOW MANY PAYMENTS HAVE BEEN
MADE. The Contract may not be surrendered while variable income payments under
Option B are being made.

ADDITIONAL OPTION: The Contract Value, less applicable premium tax, may be
used to purchase any annuity contract that we offer on the date this option is
elected.

MINIMUM AMOUNTS.

If your Contract Value is less than $5,000 on the Annuity Commencement Date,
we reserve the right to pay the Contract Value in one lump sum. If at any time
your annuity income payments are less than the minimum payment amount according
to the Company's rules then in effect, we reserve the right to change the
frequency to an interval that will result in a payment at least equal to the
minimum.

DEATH OF ANNUITANT OR OWNER AFTER ANNUITY COMMENCEMENT DATE

In the event of the death of any Owner on or after the Annuity Commencement
Date, the Beneficiary will become the new Owner. If any Owner or Annuitant dies
on or after the Annuity Commencement Date and before all benefits under the
Annuity Option selected have been paid, any remaining portion of such benefits
will be paid out at least as fast as under the Annuity Option being used when
the Owner or Annuitant died. After the death of the Annuitant, any remaining
payments shall be payable to the Beneficiary unless you specified otherwise
before the Annuitant's death.

YIELDS AND TOTAL RETURNS

From time to time, Protective Life may advertise or include in sales
literature yields, effective yields, and total returns for the Sub-Accounts.
THESE FIGURES ARE BASED ON HISTORIC RESULTS AND DO NOT INDICATE OR PROJECT
FUTURE PERFORMANCE. Certain Funds have been in existence prior to the
commencement of the offering of the Contract described in this prospectus, and
prior to the investment by the Sub-Accounts in such Funds. The Variable Account
may advertise the performance of the Sub-Accounts that invest in these Funds for
these prior periods. The performance information of any period prior to the
commencement of the offering of the Contract and the investments by the
Sub-Accounts is calculated as if the Contract had been offered during those
periods and the Sub-Account had invested in those Funds during those periods,
using current charges and expenses. Protective Life may, from time to time,
advertise or include in sales

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literature Sub-Account performance relative to certain performance rankings and
indices compiled by independent organizations. More detailed information as to
the calculation of performance information, as well as comparisons with
unmanaged market indices, appears in the Statement of Additional Information.

Yields, effective yields, and total returns for the Sub-Accounts are based
on the investment performance of the corresponding Funds. The Funds' performance
also reflects the Funds' expenses. Certain of the expenses of each Fund may be
reimbursed by the investment manager. (See the Prospectuses for the Funds.)

The yield of the PIC Money Market Sub-Account refers to the annualized
income generated by an investment in the Sub-Account over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven day period over a 52 week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but when annualized the income earned by an investment in the
Sub-Account is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.

The yield of a Sub-Account (except the PIC Money Market Sub-Account) refers
to the annualized income generated by an investment in the Sub-Account over a
specified 30 day or one-month period. The yield is calculated by assuming that
the income generated by the investment during that 30 day or one month period is
generated each period over a 12 month period and is shown as a percentage of the
investment.

The cumulative total return of a Sub-Account refers to return quotations
assuming an investment under a Contract has been held in the Sub-Account for
various periods of time including, but not limited to, a period measured from
the date the Sub-Account commenced operations. Average annual total return
refers to total return quotations that are annualized based on an average return
over various periods of time.

The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which the quotations are provided. Average annual
total return information shows the average percentage change in the value of an
investment in the Sub-Account from the beginning date of the measuring period to
the end of that period. This standardized version of average annual total return
reflects all historical investment results, less all charges and deductions
applied against the Sub-Account (including any Surrender Charge that would apply
if an Owner terminated the Contract at the end of each period indicated, but
excluding any deductions for premium taxes). When a Sub-Account other than the
PIC Money Market Sub-Account has been in operation for one, five and ten years,
respectively, the standard version average annual total return for these periods
will be provided.

In addition to the standard version of average annual total return described
above, total return performance information computed on non-standard bases may
be used in advertisements or sales literature. Average annual total return
information may be presented, computed on the same basis as the standard version
except deductions will include neither the surrender charge nor the contract
maintenance fee, and Credits associated with Purchase Payments may or may not be
reflected. In addition, Protective Life may from time to time disclose average
annual total return in other non-standard formats and cumulative total return
for Contracts funded by the Sub-Accounts.

Protective Life may, from time to time, also disclose yield, standard
average annual total returns, and non-standard total returns for the Funds.

Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.

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In advertising and sales literature, the performance of each Sub-Account may
be compared to the performance of other variable annuity issuers in general or
to the performance of particular types of variable annuities investing in mutual
funds, or investment portfolios of mutual funds with investment objectives
similar to each of the Sub-Accounts. Lipper Analytical Services, Inc.
("Lipper"), the Variable Annuity Research Data Service ("VARDS"), and
Morningstar Inc. ("Morningstar") are independent services which monitor and rank
the performance of variable annuity issuers in each of the major categories of
investment objectives on an industry-wide basis.

Lipper and Morningstar rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS rankings compare only variable annuity
issuers. The performance analyses prepared by Lipper, Morningstar and VARDS each
rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption fees, or certain
expense deductions at the separate account level into consideration. In
addition, VARDS prepares risk adjusted rankings, which consider the effects of
market risk on total return performance. This type of ranking provides data as
to which funds provide the highest total return within various categories of
funds defined by the degree of risk inherent in their investment objectives.

Advertising and sales literature may also compare the performance of each
Sub-Account to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as a source of performance comparison.

Protective Life may also report other information including the effect of
tax-deferred compounding on a Sub-Account's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts.

All income and capital gains derived from Sub-Account investments are
reinvested and can lead to substantial long-term accumulation of assets,
provided that the underlying Fund's investment experience is positive.

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FEDERAL TAX MATTERS

INTRODUCTION

The following discussion of the federal income tax treatment of the Contract
is not exhaustive, does not purport to cover all situations, and is not intended
as tax advice. The federal income tax treatment of the Contract 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 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 Contract. In addition, PROTECTIVE LIFE 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

Protective Life is taxed as a life insurance company under the Code. Since
the operations of the Variable Account are a part of, and are taxed with, the
operations of the Company, the Variable Account is not separately taxed as a
"regulated investment company" under the Code. Under existing federal income tax
laws, investment income and capital gains of the Variable Account are not taxed
to the extent they are applied under a Contract. Protective Life does not
anticipate that it will incur any federal income tax liability attributable to
such income and gains of the Variable Account, and therefore does not intend to
make provision for any such taxes. If Protective Life is taxed on investment
income or capital gains of the Variable Account, then Protective Life may impose
a charge against the Variable Account in order to make provision for such taxes.

TAXATION OF ANNUITIES IN GENERAL

TAX DEFERRAL DURING ACCUMULATION PERIOD

Under existing provisions of the Code, except as described below, any
increase in an Owner's Contract Value is generally not taxable to the Owner
until received, either in the form of annuity payments as contemplated by the
Contracts, or in some other form of distribution. However, this rule applies
only if (1) the investments of the Variable Account are "adequately diversified"
in accordance with Treasury Department regulations, (2) the Company, rather than
the Owner, is considered the owner of the assets of the Variable Account for
federal income tax purposes, and (3) the Owner is an individual (or an
individual is treated as the Owner for tax purposes).

DIVERSIFICATION REQUIREMENTS. The Code and Treasury Department regulations
prescribe the manner in which the investments of a segregated asset account,
such as the Variable Account, are to be "adequately diversified." If the
Variable Account fails to comply with these diversification standards, the
Contract will not be treated as an annuity contract for federal income tax
purposes and the Owner would generally be taxable currently on the excess of the
Contact Value over the premiums paid for the Contact. Protective Life expects
that the Variable Account, through the Funds, will comply with the
diversification requirements prescribed by the Code and Treasury Department
regulations.

OWNERSHIP TREATMENT. In certain circumstances, variable annuity contract
owners may be considered the owners, for federal income tax purposes, of the
assets of a segregated asset account, such as the Variable Account, used to
support their contracts. In those circumstances, income and gains from the
segregated asset account would be includable in the contract owners' gross
income. The Internal Revenue Service (the "IRS") has stated in published rulings
that a variable contract owner will be considered the owner of the assets of a
segregated asset account if the owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. In
addition, the Treasury

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Department announced, in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor, rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by way of regulations or
rulings on the "extent to which policyholders may direct their investments to
particular sub-accounts [of a segregated asset account] without being treated as
owners of the underlying assets." As of the date of this Prospectus, no such
guidance has been issued.

The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the Owner of this Contract has the choice of more
investment options to which to allocate purchase payments and Variable Account
values, and may be able to transfer among investment options more frequently
than in such rulings. These differences could result in the Owner being treated
as the owner of the assets of the Variable Account and thus subject to current
taxation on the income and gains from those assets. In addition, the Company
does not know what standards will be set forth in the regulations or rulings
which the Treasury Department has stated it expects to issue. Protective Life
therefore reserves the right to modify the Contract as necessary to attempt to
prevent Contract Owners from being considered the owners of the assets of the
Variable Account. However, there is no assurance such efforts would be
successful.

NON-NATURAL OWNER. 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 annuity contracts 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 Owner of the Contract during the
taxable year. There are several exceptions to this general rule for nonnatural
Owners. 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. However, this special 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 Owners will
apply with respect to (1) Contracts acquired by an estate of a decedent by
reason of the death of the decedent, (2) certain Qualified Contracts, (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 purchase payment 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.

DELAYED ANNUITY COMMENCEMENT DATES. If the Contract's Annuity Commencement
Date occurs (or is scheduled to occur) at a time when the Annuitant has reached
an advanced age (E.G., past age 85), it is possible that the Contract would not
be treated as an annuity for federal income tax purposes. In that event, the
income and gains under the Contract could be currently includable in the Owner's
income.

The remainder of this discussion assumes that the Contract will be treated
as an annuity contract for federal income tax purposes.

TAXATION OF PARTIAL AND FULL SURRENDERS

In the case of a partial surrender, amounts received generally are
includable in income to the extent the Owner's Contract Value before the
surrender exceeds his or her "investment in the contract." In the case of a full
surrender, amounts received are includable 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 total of the Purchase Payments made under the
Contract to that time (to the extent such payments were neither deductible when
made nor excludable from income as, for example, in the case of certain
contributions to Qualified Contracts) less any amounts previously received from
the Contract which were

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not included in income. Partial and full surrenders may be subject to a 10%
penalty tax. (See "Penalty Tax on Premature Distributions.") Partial and full
surrenders may also be subject to federal income tax withholding requirements.
(See "Federal Income Tax Withholding.") In addition, in the case of partial and
full surrenders from certain Qualified Plans, mandatory withholding requirements
may apply, unless a "direct rollover" of the amount surrendered is made. (See
"Direct Rollovers".)

Under the Waiver of Surrender Charges provision of the Contract, amounts
distributed may not be subject to Surrender Charges if the Owner has a terminal
illness or if the Owner enters, for a period of at least 90 days, certain
nursing home facilities. Such distributions will be treated as surrenders for
federal tax purposes.

The Contract provides a death benefit that in certain circumstances may
exceed the greater of the Purchase Payments and the Contract Value. As described
elsewhere in this Prospectus, the Company imposes certain charges with respect
to the death benefit. It is possible that these charges (or some portion
thereof) could be treated for federal tax purposes as a partial surrender of the
Contract.

TAXATION OF ANNUITY PAYMENTS

Normally, the portion of each annuity income payment taxable as ordinary
income is equal to the excess of the payment over the exclusion amount. In the
case of variable income payments, the exclusion amount is the "investment in the
contract" (defined above) allocated to the variable Annuity Option, adjusted for
any period certain or refund feature, when payments begin to be made divided by
the number of payments expected to be made (determined by Treasury Department
regulations which take into account the annuitant's life expectancy and the form
of annuity benefit selected). In the case of fixed income payments, the
exclusion amount is the amount determined by multiplying (1) the payment by (2)
the ratio of the investment in the contract allocated to the fixed Annuity
Option, adjusted for any period certain or refund feature, to the total expected
amount of annuity income payments for the term of the Contract (determined under
Treasury Department regulations). Annuity income payments may be subject to
federal income tax withholding requirements. (See "Federal Income Tax Income
Withholding".) In addition, in the case of annuity income payments from certain
Qualified Plans, mandatory withholding requirements may apply, unless a "direct
rollover" of such annuity payments is made. (See "Direct Rollovers".)

Once the total amount of the investment in the contract is excluded using
this ratio, annuity payments will be fully taxable. If annuity income 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.

There may be special income tax issues present in situations where the Owner
and the Annuitant are not the same person and are not married to one another. A
tax advisor should be consulted in those situations.

TAXATION OF DEATH BENEFIT PROCEEDS

Prior to the Annuity Commencement Date, amounts may be distributed from a
Contract because of the death of an Owner or, in certain circumstances, the
death of the Annuitant. Such death benefit proceeds are includable in income as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender, as described above, or (2) if distributed under an Annuity
Option, they are taxed in the same manner as annuity income payments, as
described above.

After the Annuity Commencement Date, where a guaranteed period exists under
an Annuity Option, and the Annuitant dies before the end of that period,
payments made to the Beneficiary for the remainder of that period are includable
in income as follows: (1) if received in a lump sum, they are included in income
to the extent that they exceed the unrecovered investment in the contract at
that time, or (2) if

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distributed in accordance with the existing Annuity Option selected, they are
fully excluded from income until the remaining investment in the contract is
deemed to be recovered, and all annuity income payments thereafter are fully
includable in income.

Proceeds payable on death may be subject to federal income tax withholding
requirements. (See "Federal Income Tax Withholding".) In addition, in the case
of such proceeds from certain Qualified Plans, mandatory withholding
requirements may apply, unless a "direct rollover" of such proceeds is made.
(See "Direct Rollovers".)

ASSIGNMENTS, PLEDGES, AND GRATUITOUS TRANSFERS

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 Contract Value
is treated for federal income tax purposes as a surrender of such amount or
portion. The investment in the contract is increased by the amount includable 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 an
Owner transfers a Contract without adequate consideration to a person other than
the Owner's spouse (or to a former spouse incident to divorce), the Owner will
be taxed on the difference between his or her Contract 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.

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 amount of any payment from the
Contract that is includable in income unless the payment is: (a) received on or
after the Owner reaches age 59 1/2; (b) attributable to the Owner's becoming
disabled (as defined in the tax law); (c) made on or after the death of the
Owner or, if the Owner is not an individual, on or after the death of the
primary annuitant (as defined in the tax law); (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 (as defined in the
tax law), or (e) made under a Contract purchased with a single Purchase Payment
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. (Similar rules, discussed below, apply
in the case of certain Contracts issued in connection with Qualified Plans.)

AGGREGATION OF CONTRACTS

In certain circumstances, the amount of an annuity income payment or a
surrender from a Contract that is includable in income may be determined by
combining some or all of the annuity contracts owned by an individual not issued
in connection with Qualified Plans. For example, if a person purchases a
Contract offered by this Prospectus and also purchases at approximately the same
time an immediate annuity issued by Protective Life, 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 surrenders prior to the Annuity Commencement Date) is includable in
income. The effects of such aggregation are not clear; however, it could affect
the amount of a withdrawal or an annuity payment that is taxable and the amount
which might be subject to the 10% penalty tax described above.

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LOSS OF INTEREST DEDUCTION WHERE CONTRACT IS HELD BY OR FOR THE BENEFIT OF
CERTAIN NON-NATURAL PERSONS

In the case of Contracts issued after June 8, 1997 to a non-natural taxpayer
(such as a corporation or a trust), or held for the benefit of such an entity,
recent changes in the tax law may result in otherwise deductible interest no
longer being deductible by the entity, regardless of whether the interest
relates to debt used to purchase or carry the Contract. However, this interest
deduction disallowance does not affect Contracts where the income on such
Contracts is treated as ordinary income that is received or accrued by the Owner
during the taxable year. Entities that are considering purchasing the Contract,
or entities that will be Beneficiaries under a Contract, should consult a tax
adviser.

QUALIFIED RETIREMENT PLANS

IN GENERAL

The Contracts are also designed for use in connection with certain types of
retirement plans which receive favorable treatment under the Code. Numerous
special tax rules apply to the participants in Qualified Plans and to Contracts
used in connection with Qualified Plans. Therefore, no attempt is made in this
Prospectus to provide more than general information about use of the Contract
with the various types of Qualified Plans.

The tax rules applicable to Qualified Plans vary according to the type of
plan and the terms and conditions of the plan itself. For example, both the
amount of the contribution that may be made, and the tax deduction or exclusion
that the Owner may claim for such contribution, are limited under Qualified
Plans and vary with the type of plan. Also, for full surrenders, partial
surrenders, and annuity income payments under Qualified Contracts, there may be
no "investment in the contract" and the total amount received may be taxable.
Similarly, loans from Qualified Contracts, where available, are subject to a
variety of limitations, including restrictions as to the amount that may be
borrowed, the duration of the loan, and the manner in which the loan must be
repaid. (Owners should always consult their tax advisors and retirement plan
fiduciaries prior to exercising any loan privileges that are available.) Both
the amount of the contribution that may be made, and the tax deduction or
exclusion that the Owner may claim for such contribution, are limited under
Qualified Plans. Those who are considering the purchase of a Contract in
connection with a Qualified Plan should consider, in evaluating the suitability
of the Contract, that the Contract requires a minimum initial Purchase Payment
of $10,000.

If this Contract is used in connection with a Qualified Plan, the Owner and
Annuitant must be the same individual. In addition, special rules apply to the
time at which distributions must commence and the form in which the
distributions must be paid. For example, the length of any guarantee period may
be limited in some circumstances to satisfy certain minimum distribution
requirements under the Code. Furthermore, failure to comply with minimum
distribution requirements applicable to Qualified Plans will result in the
imposition of an excise tax. This excise tax generally equals 50% of the amount
by which a minimum required distribution exceeds the actual distribution from
the Qualified Plan. In the case of Individual Retirement Accounts or Annuities
("IRAs"), distributions of minimum amounts (as specified in the tax law) must
generally commence by April 1 of the calendar year following the calendar year
in which the Owner attains age 70 1/2. In the case of certain other Qualified
Plans, distributions of such minimum amounts must generally commence by the
later of this date or April 1 of the calendar year following the calendar year
in which the employee retires.

There may be a 10% penalty tax on the taxable amount of payments from
certain Qualified Contracts. There are exceptions to this penalty tax which vary
depending on the type of Qualified Plan. In the case of an IRA, exceptions
provide that the penalty tax does not apply to a payment (a) received on or
after the Owner reaches age 59 1/2, (b) received on or after the Owner's death
or because of the Owner's disability (as defined in the tax law), or (c) made as
a series of substantially equal periodic payments (not less frequently than
annually) for the life (or life expectancy) of the Owner or for the joint lives
(or joint life expectancies)

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of the Owner and his designated beneficiary (as defined in the tax law). These
exceptions, as well as certain others not described herein, generally apply to
taxable distributions from other Qualified Plans (although, in the case of plans
qualified under sections 401 and 403, exception "c" above for substantially
equal periodic payments applies only if the Owner has separated from service).
In addition, the penalty tax does not apply to certain distributions from IRAs
taken after December 31, 1997 which are used for qualified first time home
purchases or for higher education expenses. Special conditions must be met for
these two exceptions to the penalty tax. Those wishing to take a distribution
from an IRA for these purposes should consult their tax advisor.

When issued in connection with a Qualified Plan, a Contract will be amended
as generally necessary to conform to the requirements of the plan. However,
Owners, 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 the Company may issue a Contract.

INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES. Section 408 of the Code
permits eligible individuals to contribute to an individual retirement program
known as IRAs. 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, subject to the direct rollover and mandatory withholding
requirements (discussed below), distributions from certain Qualified Plans may
be "rolled over" on a tax-deferred basis into an IRA.

The Contract may not, however, be used in connection with an "Education IRA"
under Section 530 of the Code, a "Simplified Employee Pension" under Section
408(k) of the Code, or a "Simple IRA" under Section 408(p) of the Code.

IRAs generally may not invest in life insurance contracts, but an annuity
that is purchased by, or used as, an IRA may provide a death benefit that equals
the greater of the premiums paid and the contract's cash value. The Contract
provides a death benefit that in certain circumstances may exceed the greater of
the Purchase Payments and the Contract Value. It is possible that the death
benefit could be viewed as violating the prohibition on investment in life
insurance contracts with the result that the Contract would not be viewed as
satisfying the requirements of an IRA.

ROTH IRAS. Recently enacted Section 408A of the Code permits eligible
individuals to contribute to a type of IRA known as a "Roth IRA. " Roth IRAs
differ from other IRAs in several respects. Among the differences is that,
although contributions to a Roth IRA are not deductible, "qualified
distributions" from a Roth IRA will be excludable from income. The eligibility
and mandatory distribution requirements for Roth IRAs also differ from non-Roth
IRAs. Furthermore, a rollover may be made to a Roth IRA only if it is a
"qualified rollover contribution." A "qualified rollover contribution" is a
rollover contribution to a Roth IRA from another Roth IRA or from a non-Roth
IRA, but only if such rollover contribution meets the rollover requirements for
IRAs under section 408(d)(3) of the Code. In the case of a qualified rollover
contribution or a transfer from a non-Roth IRA to a Roth IRA, any portion of the
amount rolled over which would be includable in gross income were it not part of
a qualified rollover contribution or a nontaxable transfer will be includible in
gross income. However, the 10 percent penalty tax on premature distributions
generally will not apply to such amounts.

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All or part of amounts in a non-Roth IRA may be converted into a Roth IRA.
Such a conversion can be made without taking an actual distribution from the
IRA. For example, an individual may make a conversion by notifying the IRA
issuer or trustee, whichever is applicable. The conversion of an IRA to a Roth
IRA is a special type of qualified rollover distribution. Hence, the IRA
participant must be eligible to make a qualified rollover distribution in order
to convert an IRA to a Roth IRA. A conversion typically will result in the
inclusion of some or all of the IRA value in gross income, as described above.
Persons with adjusted gross incomes in excess of $100,000 or who are married and
file a separate return are not eligible to make a qualified rollover
contribution or a transfer in a taxable year from a non-Roth IRA to a Roth IRA.

Any "qualified distribution" from a Roth IRA is excludable from gross
income. A "qualified distribution" is a payment or distribution which satisfies
two requirements. First, the payment or distribution must be (a) made after the
Owner attains age 59 1/2, (b) made after the Owner's death, (c) attributable to
the Owner being disabled, or (d) a qualified first-time home buyer distribution
within the meaning of section 72(t)(2)(F) of the Code. Second, the payment or
distribution must be made in a taxable year that is at least five years after
(a) the first taxable year for which a contribution was made to any Roth IRA
established for the Owner, or (b) in the case of a payment or distribution
properly allocable to a qualified rollover contribution from a non-Roth IRA (or
income allocable thereto), the taxable year in which the rollover contribution
was made. A distribution from a Roth IRA which is not a qualified distribution
is generally taxed in the same manner as a distribution from non-Roth IRAs.
Distributions from a Roth IRA need not commence at age 70 1/2.

As described above (see "Individual Retirement Annuities"), there is some
uncertainty regarding the proper characterization of the Contract's death
benefit for purposes of the tax rules governing IRAs (which include Roth IRAs).
Persons intending to use the Contract in connection with a Roth IRA should seek
competent advice.

CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND
PROFIT-SHARING PLANS. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
Contract in order to provide benefits under the plans. The Contract provides a
death benefit that in certain circumstances may exceed the greater of the
Purchase Payments and the Contract Value. It is possible that such death benefit
could be characterized as an incidental death benefit. There are limitations on
the amount of incidental benefits that may be provided under pension and profit
sharing plans. In addition, the provision of such benefits may result in
currently taxable income to participants. In addition, corporate and
self-employed pension and profit sharing plans are subject to nondiscrimination
rules. The nondiscrimination rules generally require that benefits, rights or
features of the plan not discriminate in favor of highly compensated employees.
In evaluating whether the Contract is suitable for purchase in connection with
such a plan, the effect of the Credit on the plan's compliance with applicable
nondiscrimination requirements should be considered. Violation of these rules
can cause loss of the plan's tax favored status under the Code. Employers
intending to use the Contract in connection with such plans should seek
competent advice.

SECTION 403(B) POLICIES. 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. Purchasers of the Contracts for use as a "Section 403(b) Policy"
should seek competent advice as to eligibility, limitations on permissible
amounts of purchase payments and other tax consequences associated with such
Contracts. In particular, purchasers and their advisers should consider that the
Contract provides a death benefit that in certain circumstances may exceed the
greater of the Purchase Payments and the Contract Value. It is

46
<PAGE>
possible that such death benefit could be characterized as an incidental death
benefit. If the death benefit were so characterized, this could result in
currently taxable income to purchasers. In addition, there are limitations on
the amount of incidental death benefits that may be provided under a Section
403(b) Policy. Even if the death benefit under the Contract were characterized
as an incidental death benefit, it is unlikely to violate those limits unless
the purchaser also purchases a life insurance contract as part of his or her
Section 403(b) Policy.

Section 403(b) plans are subject to nondiscrimination rules. The
nondiscrimination rules generally require that benefits, rights or features of
the plan not discriminate in favor of highly compensated employees. In
evaluating whether the Contract is suitable for purchase in connection with a
Section 403(b) plan, the effect of the Credit on the plan's compliance with
applicable nondiscrimination requirements should be considered. Violation of
these nondiscrimination rules can cause loss of the plan's tax favored status
under the Code. Employers intending to use the Contract in connection with such
plans should seek competent advice.

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 after December 31, 1988 on amounts attributable to salary reduction
contributions held as of December 31, 1988. 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 are limited to actual contributions; earnings thereon can 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
Contract Value to the issuer of another Section 403(b) Policy or into a Section
403(b)(7) custodial account.)

DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS 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. 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 ROLLOVERS

If your Contract is used in connection with a pension, profit-sharing, or
annuity plan qualified under sections 401(a) or 403(a) of the Code, or is a
Section 403(b) Policy, 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) 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, federal income tax equal to 20% of the eligible
rollover distribution will be withheld from the amount of the distribution.
Unlike withholding on certain other amounts distributed from the Contract,
discussed below, you cannot elect out of withholding with respect to an eligible
rollover distribution. However, this 20% withholding will not apply if, instead
of receiving the eligible rollover distribution, you elect to have it directly
transferred to certain Qualified Plans. Prior to receiving an eligible rollover
distribution, you will receive a notice (from the plan administrator or the
Company) explaining generally the direct rollover and mandatory withholding
requirements and how to avoid the 20% withholding by electing a direct transfer.

47
<PAGE>
FEDERAL INCOME TAX WITHHOLDING

Protective Life will withhold and remit to the federal government a part of
the taxable portion of each distribution made under a Contract unless the
distributee notifies Protective Life at or before the time of the distribution
that he or she elects not to have any amounts withheld. In certain
circumstances, Protective Life may be required to withhold tax. The withholding
rates applicable to the taxable portion of periodic annuity payments (other than
eligible rollover distributions) are the same as the withholding rates generally
applicable to payments of wages. In addition, the withholding rate applicable to
the taxable portion of non-periodic payments (including surrenders prior to the
Annuity Commencement Date) and conversions of, or rollovers from, non-Roth IRAs
to Roth IRAs is 10%. Regardless of whether you elect not to have federal income
tax withheld, you are still liable for payment of federal income tax on the
taxable portion of the payment. As discussed above, the withholding rate
applicable to eligible rollover distributions is 20%.

GENERAL MATTERS

THE CONTRACT

The Contract and its attachments, including the copy of your application and
any endorsements, riders and amendments, constitute the entire agreement between
you and us. All statements in the application shall be considered
representations and not warranties. The terms and provisions of this Contract
are to be interpreted in accordance with the Internal Revenue Code of 1986, as
amended (the "Code") and applicable regulations.

ERROR IN AGE OR GENDER

When a benefit of the Contract is contingent upon any person's age or
gender, we may require proof of such. We may suspend payments until proof is
provided. When we receive satisfactory proof, we will make the payments which
were due during the period of suspension. Where the use of unisex mortality
rates is required, we will not determine or adjust benefits based upon gender.

If after proof of age and gender (where applicable) is provided, it is
determined that the information you furnished was not correct, we will adjust
any benefit under this Contract to that which would be payable based upon the
correct information. If we have underpaid a benefit because of the error, we
will make up the underpayment in a lump sum. If the error resulted in an
overpayment, we will deduct the amount of the overpayment from any current or
future payment due under the Contract. We will deduct up to the full amount of
any current or future payment until the overpayment has been fully repaid.
Underpayments and overpayments will bear interest at an annual effective
interest rate of 3%.

INCONTESTABILITY

We will not contest the Contract.

NON-PARTICIPATION

The Contract is not eligible for dividends and will not participate in
Protective Life's surplus or profits.

ASSIGNMENT

You have the right to assign the Contract if it is a Non-Qualified Contract.
We do not assume responsibility for the assignment. Any claim made under an
assignment is subject to proof of the nature and extent of the assignee's
interest prior to payment by us. Assignments have federal income tax
consequences. (See "Assignments, Pledges and Gratuitous Transfers" in the
prospectus.)

48
<PAGE>
NOTICE

All instructions and requests to change or assign the Contract must be in
writing in a form acceptable to us, and signed by the Owner(s). The instruction,
change or assignment will relate back to and take effect on the date it was
signed, except we will not be responsible for following any instruction or
making any change or assignment before we receive it.

MODIFICATION

No one is authorized to modify or waive any term or provision of this
Contract unless we agree to the modification or waiver in writing and it is
signed by our President, Vice-President or Secretary. We reserve the right to
change or modify the provisions of this Contract to conform to any applicable
laws, rules or regulations issued by a government agency, or to assure continued
qualification of the Contract as an annuity contract under the Internal Revenue
Code. We will send you a copy of the endorsement that modifies the Contract, and
where required we will obtain all necessary approvals, including that of the
Owner(s).

REPORTS

At least annually prior to the Annuity Commencement Date, we will send to
you at the address contained in our records a report showing the current
Contract Value and any other information required by law.

SETTLEMENT

Benefits due under this Contract are payable from our administrative office.
The Owner may apply the settlement proceeds to any payout option we offer for
such payments at the time the election is made. Unless directed otherwise in
writing, we will make payments according to the Owner's instructions as
contained in our records at the time the payment is made. We shall be discharged
from all liability for payment to the extent of any payments we make.

RECEIPT OF PAYMENT

If any Owner, Annuitant, Beneficiary or Payee is incapable of giving a valid
receipt for any payment, we may make such payment to whomever has legally
assumed his or her care and principal support. Any such payment shall fully
discharge us to the extent of that payment.

PROTECTION OF PROCEEDS

To the extent permitted by law and except as provided by an assignment, no
benefits payable under this Contract will be subject to the claims of creditors.

MINIMUM VALUES

The values available under the Contract are at least equal to the minimum
values required in the state where the Contract is delivered.

APPLICATION OF LAW

The provisions of the Contract are to be interpreted in accordance with the
laws of the state where the Contract is delivered, with the Internal Revenue
Code and with applicable regulations.

NO DEFAULT

The Contract will not be in default if subsequent Purchase Payments are not
made.

49
<PAGE>
DISTRIBUTION OF THE CONTRACTS

The Contracts will be offered on a continuous basis and Protective Life does
not anticipate discontinuing the offering of the Contracts. Nevertheless,
Protective Life reserves the right to discontinue the offering at any time.
Investment Distributors, Inc. serves as principal underwriter (as defined in the
1940 Act) for the Contracts. Investment Distributors, Inc. has agreed to use its
best efforts to sell the Contracts. Investment Distributors, Inc. is a
wholly-owned subsidiary of PLC and has the same address as Protective Life.
Applications for Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell Protective Life's Contracts and
who are also registered representatives of broker/dealers having a distribution
agreement with Investment Distributors, Inc. or broker/dealers having a
distribution agreement with such broker/dealer. Investment Distributors, Inc. is
an affiliate of Protective Life Insurance Company and is registered with the SEC
under the Securities Exchange Act of 1934 as a broker/dealer. Investment
Distributors, Inc. is a member of the National Association of Securities
Dealers, Inc. The maximum commission Protective Life will pay is 6% of the
Purchase Payments for the sale of a Contract, not including subsequent
asset-based commissions.

INQUIRIES

Inquiries regarding a Contract may be made by writing to Protective Life at
its administrative office.

PREPARATION FOR YEAR 2000

Older computer hardware and software often denote the year using two digits
rather than four; for example, the year 1997 often is denoted by such hardware
and software as "97." It is probable that such hardware and software will
malfunction when calculations involving the year 2000 are attempted because the
hardware and/or software will interpret "00" as representing the year 1900
rather than the year 2000. This "Year 2000" issue potentially affects all
individuals and companies (including Protective, its customers, business
partners, suppliers, banks, custodians and administrators) who rely on computers
or devices containing computer chips.

Protective Life has developed and is implementing a Year 2000 transition
plan intended to identify and modify or replace primary hardware and/or software
systems on which it relies that have a Year 2000 issue. Protective Life is also
developing and implementing a plan to identify and modify or replace secondary
hardware and/or software systems on which it relies that have a Year 2000 issue.
Substantial resources are being devoted to this effort; however the costs to
develop and implement these plans are not expected to be material. Protective
Life is also confirming that its service providers are implementing plans to
identify and modify or replace their systems that have a Year 2000 issue.

Protective Life currently anticipates that its systems will be able to
process transactions dated beyond 1999 on or before December 31, 1999. There can
be no assurance, however, that Protective Life's efforts will be successful,
that interaction with other service providers with Year 2000 issues will not
impair Protective Life's operations, or that the Year 2000 issue will not
otherwise adversely affect Protective Life or contract owners.

LEGAL PROCEEDINGS

There are at present no legal proceedings to which the Variable Account is a
party or the assets of the Variable Account are subject. Protective Life is
involved in pending and threatened proceedings in which claims for monetary
damages or penalties may be asserted. Management, after consultation with legal
counsel, does not believe that such proceedings are material, nor does it
anticipate the ultimate liability arising from any such proceeding would be
material, to Protective Life in relation to its total assets. Such proceedings
are not related to the Variable Account.

50
<PAGE>
VOTING RIGHTS

In accordance with its view of applicable law, Protective Life will vote the
Fund shares held in the Variable Account at special shareholder meetings of the
Funds in accordance with instructions received from persons having voting
interests in the corresponding Sub-Accounts. If, however, the 1940 Act or any
regulation thereunder should be amended, or if the present interpretation
thereof should change, or Protective Life determines that it is allowed to vote
such shares in its own right, it may elect to do so.

The number of votes available to an Owner will be calculated separately for
each Sub-Account of the Variable Account, and may include fractional votes. The
number of votes attributable to a Sub-Account will be determined by applying an
Owner's percentage interest, if any, in a particular Sub-Account to the total
number of votes attributable to that Sub-Account. An Owner holds a voting
interest in each Sub-Account to which that Owner has allocated Accumulation
Units or Annuity Units. Before the Annuity Commencement Date, the Owner's
percentage interest, if any, will be percentage of the dollar value of
Accumulation Units allocated for his or her Contract to the total dollar value
of that Sub-Account. On or after the Annuity Commencement Date, the Owner's
percentage interest, if any, will be percentage of the dollar value of the
liability for future variable income payments to be paid from the Sub-Account to
the total dollar value of that Sub-Account. The liability for future payments is
calculated on the basis of the mortality assumptions, (if any), the Assumed
Investment Return and the Annuity Unit Value of that Sub-Account. Generally, as
variable income payments are made to the payee, the liability for future
payments decreases as does the number of votes.

The number of votes which are available to the Owner will be determined as
of the date coincident with the date established by the Fund for determining
shareholders eligible to vote at the relevant meeting of that Fund. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the Fund.

Shares as to which no timely instructions are received and shares held by
Protective Life in a Sub-Account as to which no Owner has a beneficial interest
will be voted in proportion to the voting instructions which are received with
respect to all Contracts participating in that Sub-Account. Voting instructions
to abstain on any item to be voted upon will be applied to reduce the votes
eligible to be cast on that item.

Each person having a voting interest in a Sub-Account will receive proxy
materials, reports, and other material relating to the appropriate Fund.

FINANCIAL STATEMENTS

The audited statement of assets and liabilities of The Protective Variable
Annuity Separate Account (comprised of seventeen sub-accounts as of December 31,
1997) as of December 31, 1997 and 1996 and the related statements of operations
and changes in net assets for the years ended December 31, 1997 and 1996 as well
as the Report of Independent Accountants are contained in the Statement of
Additional Information.

The audited consolidated balance sheets for Protective Life as of December
31, 1997 and 1996 and the related consolidated statements of income,
stockholder's equity, and cash flows for the three years in the period ended
December 31, 1997 and the related financial statement schedules as well as the
Report of Independent Accountants are contained in the Statement of Additional
Information.

51
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CALCULATION OF YIELDS AND TOTAL RETURNS................................................................... 3
PIC Money Market Sub-Account Yield...................................................................... 3
Other Sub-Account Yields................................................................................ 4
Total Returns........................................................................................... 5
Effect of the Contract Maintenance Fee on Performance Data.............................................. 6
SAFEKEEPING OF ACCOUNT ASSETS............................................................................. 6
STATE REGULATION.......................................................................................... 6
RECORDS AND REPORTS....................................................................................... 6
LEGAL MATTERS............................................................................................. 7
EXPERTS................................................................................................... 7
OTHER INFORMATION......................................................................................... 7
FINANCIAL STATEMENTS...................................................................................... 7
</TABLE>

52
<PAGE>
APPENDIX A

EXAMPLE OF CREDIT CALCULATION

Credits are added to the Contract Value with each Purchase Payment. Credit
percentages are based on cumulative Purchase Payments, as shown in the table
below. During the first Contract Year, Purchase Payments are aggregated to
determine the Credit percentage.

<TABLE>
<CAPTION>
CUMULATIVE PURCHASE PAYMENTS CREDIT PERCENTAGE
- ---------------------------------------------------------------------------- -------------------
<S> <C>
Less than $100,000.......................................................... 3.00%
At least $100,000 but less than $250,000.................................... 3.50%
At least $250,000 but less than $500,000.................................... 4.00%
At least $500,000 but less than $1,000,000.................................. 4.50%
$1,000,000 or greater....................................................... 5.00%
</TABLE>

Assume an initial Purchase Payment of $50,000 is made on the Effective Date,
followed 6 months later by an additional Purchase Payment of $100,000. Then,
assume an additional Purchase Payment of $200,000 is made 2 years after the
Effective Date.

On the Effective Date, the $50,000 Purchase Payment will be multiplied by a
Credit percentage of 3.00%, and a Credit of $1,500 will be added to the Contract
Value.

When the additional $100,000 Purchase Payment is made, aggregate first
Contract Year Credits are determined by multiplying aggregate first Contract
Year Purchase Payments of $150,000 by the applicable Credit percentage of 3.50%,
then subtracting Credits previously added to Contract Value. So, $150,000 times
3.50% less $1,500 equals $3,750 is added to Contract Value.

After the first Contract Year, Purchase Payments are no longer aggregated
for purposes of determining the Credits, but are still viewed cumulatively in
order to determine the applicable Credit percentage. When the $200,000 Purchase
Payment is made, cumulative Purchase Payments are $350,000, and the applicable
Credit percentage is 4.00%. The current Credit equals $200,000 times 4.00%, and
$8,000 is added to Contract Value.

A-1
<PAGE>
APPENDIX B

EXAMPLE OF DEATH BENEFIT CALCULATIONS

Assume an Owner is 55 on the Effective Date, 1/1/yy. The following
transactions occur prior to the Owner's death on 7/1/(yy+5) when the Contract
Value is $185,000. For purposes of this example, also assume that proof of death
was provided immediately, and no premium tax is applicable.

<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
- ------------- -------------------- ----------
<S> <C> <C>
1/1/yy Purchase Payment $ 100,000
1/1/yy Credit $ 3,500
4/1/(yy+2) Partial Surrender $ 25,000
10/1/(yy+4) Purchase Payment $ 80,000
10/1/(yy+4) Credit $ 2,800
</TABLE>

The Contract Values on each Contract Anniversary are shown below.

<TABLE>
<CAPTION>
ANNIVERSARY DATE CONTRACT VALUE
- ---------------- --------------
<S> <C>
1/1/(yy+1) $ 120,000
1/1/(yy+2) $ 130,000
1/1/(yy+3) $ 105,000
1/1/(yy+4) $ 110,000
1/1/(yy+5) $ 180,000
</TABLE>

STANDARD DEATH BENEFIT

Under the Standard Death Benefit, the death benefit payable is the greater
of:

(1) Contract Value less any Credits added during the 12 months prior to
death, or $185,000 less $2,800 equals $182,200; and

(2) aggregate Purchase Payments less aggregate surrenders, or $180,000 less
$25,000 equals $155,000.

The death benefit payable is then $182,200.

ANNUAL RESET DEATH BENEFIT OPTION

The Annual Reset Death Benefit is equal to the greatest annual reset
anniversary value attained, where an annual reset anniversary value equals the
Contract Value on the Contract Anniversary plus all subsequent Purchase Payments
and Credits minus all subsequent amounts surrendered, as shown below.

ANNIVERSARY

<TABLE>
<CAPTION>
ANNIVERSARY
DATE ANNIVERSARY VALUE
- ------------ --------------------------------------------------------------------------------
<S> <C>
1/1/(yy+1) $120,000 minus $25,000 plus $80,000 plus $2,800 equals $177,800
1/1/(yy+2) $130,000 minus $25,000 plus $80,000 plus $2,800 equals $187,800
1/1/(yy+3) $105,000 plus $80,000 plus $2,800 equals $187,800
1/1/(yy+4) $110,000 plus $80,000 plus $2,800 equals $192,800
1/1/(yy+5) $180,000
</TABLE>

The Annual Reset Death Benefit is the greatest annual reset anniversary
value attained, or $192,800.

B-1
<PAGE>
Under the Annual Reset Death Benefit option, the death benefit payable is
the greater of:

(1) the Standard Death Benefit of $182,200; and

(2) the Annual Reset Death Benefit, less any Credits added during the 12
months prior to death, or $192,800 less $2,800 equals $190,000.

The death benefit payable is then $190,000.

COMPOUND AND 3-YEAR RESET DEATH BENEFIT OPTION

The Compound Death Benefit is equal to the accumulation to the most recent
Contract Anniversary of all prior Purchase Payments and Credits less all prior
amounts surrendered, using an annual effective interest rate of 4%, plus all
Purchase Payments and Credits on or since that Contract Anniversary less all
amounts surrendered since that Contract Anniversary.

An accumulation interest rate of 3% would have been applicable if the
Effective Date of the Contract had been on or after the deceased Owner's 71st
birthday.

For ease of understanding, this example assumes an equal number of days in
each quarterly period. In practice, the actual number of days in each period
will be taken into account.

The Compound Death Benefit is:

Purchase Payment of $100,000 times (1.04(5)) equals $121,665.29; plus

Credit of $3,500 times (1.04(5)) equals $4,258.29; minus

Surrender of $25,000 times (1.04(2.75)) equals $27,847.21; plus

Purchase Payment of $80,000 times (1.04(0.25)) equals $80,788.27; plus

Credit of $2,800 times (1.04(0.25)) equals $2,827.59;

equals $181,692.23.

The 3-Year Reset Death Benefit is equal to the greatest 3-year reset
anniversary value attained, where a 3-year reset anniversary value equals the
Contract Value on that Contract Anniversary plus all subsequent Purchase
Payments and Credits minus all subsequent amounts surrendered, as shown below.

The only 3-year reset anniversary was on 1/1/(yy+3), where the anniversary
value was $105,000 plus $80,000 plus $2,800 equals $187,800.

The 3-Year Reset Death Benefit is the greatest 3-year reset anniversary
value attained, or $187,800.

Under the Compound and 3-Year Reset Death Benefit option, the death benefit
payable is the greatest of:

(1) the standard Death Benefit of $182,200; and

(2) the Compound Death Benefit, less any Credits added during the 12 months
prior to death, or $181,692.23 less $2,800 equals $178,892.20; and

(3) the 3-Year Reset Death Benefit, less any Credits added during the 12
months prior to death, or $187,800 less $2,800 equals $185,000.

The death benefit payable is then $185,000.

B-2
<PAGE>
APPENDIX C

EXAMPLE OF SURRENDER CHARGE CALCULATION

Surrender charges are applied to Contract Value surrendered according to the
table below:

<TABLE>
<CAPTION>
NUMBER OF FULL YEARS ELAPSED BETWEEN SURRENDER
THE DATE PURCHASE PAYMENT WAS ACCEPTED CHARGE
AND THE DATE OF SURRENDER PERCENTAGE
- --------------------------------------------- --------------
<S> <C>
0................................................................................. 8.5%
1................................................................................. 8.5%
2................................................................................. 8.5%
3................................................................................. 8.0%
4................................................................................. 7.0%
5................................................................................. 6.0%
6................................................................................. 5.0%
7................................................................................. 3.0%
8................................................................................. 1.0%
9+................................................................................ 0.0%
</TABLE>

Assume an initial Purchase Payment of $100,000 is made on the Effective
Date, followed 5 years later by a subsequent Purchase Payment of $50,000. On the
sixth Contract Anniversary, assume the Contract Value is $300,000.

During the seventh Contract Year, when the Contract Value has increased to
$325,000, a partial surrender of $50,000 is requested. During the eighth
Contract Year, when the Contract Value is $290,000, a full surrender is
requested.

When the partial surrender is requested, 10% of $300,000 equals $30,000 is
available free of surrender charges. The remaining surrendered amount of $50,000
less $30,000 equals $20,000 is allocated to the initial Purchase Payment of
$100,000. Since 6 full years have elapsed since the initial Purchase Payment, a
5.0% surrender charge percentage will apply and the surrender charge is $20,000
times 5.0% equals $1,000.

When any full surrender is requested, no Contract Value is available free of
surrender charges. From the $290,000 surrendered, $80,000 is allocated to the
initial Purchase Payment ($20,000 has previously been allocated) and $50,000 is
allocated to the additional Purchase payment of $50,000. The remaining $290,000
less $130,000 equals $160,000 is pro-rated to surrendered Purchase payments as
follows:

The amount allocated to the surrendered initial Purchase Payment equals
$160,000 times $80,000 divided by $130,000 equals $98,461.54.

The amount allocated to the surrendered subsequent Purchase Payment equals
$160,000 times $50,000 divided by $130,000 equals $61,538.46.

Since 7 full years have elapsed since the initial Purchase Payment, a 3.0%
surrender charge percentage will apply to $80,000 plus $98,461.54 of surrendered
Contract Value, for a surrender charge of $5,353.85.

Since 2 full years have elapsed since the subsequent Purchase Payment, a
8.5% surrender charge percentage will apply to $50,000 plus $61,538.46 of
surrendered Contract Value, for a surrender charge of $9,480.77.

The total surrender charge upon the full surrender is $5,353.85 plus
$9,480.77 equals $14,834.62. However, as cumulative surrender charges as a
percent of cumulative Purchase Payments is $15,834.62 divided by $150,000
exceeds 8.5%, the current surrender charge is reduced so as not to exceed 8.5%.
The current surrender charge will equal cumulative Purchase Payments times 8.5%
less previously assessed surrender charges equals $150,000 times 8.5% less
$1,000 equals $11,750.

C-1
<PAGE>

APPENDIX D

EXPLANATION OF THE VARIABLE ANNUITIZATION CALCULATION

Assuming a Contract Value (less applicable charges and premium taxes) of
$100,000 on the Annuity Commencement Date and annual variable income payments
selected under Option A with a 5 year certain period, the dollar amount of the
payment determined, but not paid, on the Annuity Commencement Date is calculated
using an interest assumption of 5%, as shown below.

There are 5 annual payments scheduled. Assuming an interest rate of 5%, the
applied Contract Value is then assumed to have a balance of $0 after the last
payment is made at the end of the 5th year. The amount of the payment determined
on the Annuity Commencement Date is the amount necessary to force this balance
to $0.

<TABLE>
<CAPTION>
INTEREST CONTRACT CONTRACT
EARNED VALUE VALUE
DURING YEAR BEFORE PAYMENT AFTER
DATE AT 5% PAYMENT MADE PAYMENT
- ---------------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Annuity Commencement Date..................... $ 100,000.00 $ 0.00 $ 100,000.00
End of 1st year........................ $5,000.00 $ 105,000.00 $ 23,097.48 $ 81,902.52
End of 2nd year........................ $4,095.13 $ 85,997.65 $ 23,097.48 $ 62,900.17
End of 3rd year........................ $3,145.01 $ 66,045.17 $ 23,097.48 $ 42,947.69
End of 4th year........................ $2,147.38 $ 45,095.08 $ 23,097.48 $ 21,997.60
End of 5th year........................ $1,099.88 $ 23,097.48 $ 23,097.48 $ 0.00
</TABLE>

Assuming an interest rate of 5%, a payment of $23,097.48 is determined, but
not paid, on the Annuity Commencement Date.

The actual variable income payment made at the end of the 1st year will
equal $23,097.48 only if the net investment return during the 1st year equals
5%. If the net investment return exceeds 5%, then the 1st payment will exceed
$23,097.48. If the net investment return is less than 5%, then the 1st payment
will be less than $23,097.48.

Subsequent variable payments will vary based on the net investment return
during the year in which the payment is scheduled to be made. A payment will
equal the payment made at the end of the prior year only if the net investment
return equals 5%. If the net investment return exceeds 5%, then the payment will
exceed the prior payment. If the net investment return is less than 5%, then the
payment will be less than the prior payment.

D-1
<PAGE>

PLEASE TEAR OFF, COMPLETE AND RETURN THIS FORM TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. ADDRESS
THE FORM TO PROTECTIVE LIFE'S INVESTMENT PRODUCTS DIVISION, CUSTOMER SERVICE
CENTER AT THE ADDRESS SHOWN ON THE COVER.

PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
THE ELEMENTS VARIABLE ANNUITY.

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

Name Social Security No.

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

Address

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

City, State, Zip

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

Daytime Telephone Number

<PAGE>
PART B

INFORMATION REQUIRED TO BE IN THE

STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone: 1-800-866-3555

STATEMENT OF ADDITIONAL INFORMATION
PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
ELEMENTS-SM- VARIABLE ANNUITY
A FLEXIBLE PREMIUM
DEFERRED VARIABLE AND FIXED ANNUITY CONTRACT

This Statement of Additional Information contains information in addition to
the information described in the Prospectus for the Elements Variable Annuity, a
group and individual flexible premium deferred variable and fixed annuity
contract (the "Contract") offered by Protective Life Insurance Company. This
Statement of Additional Information is not a Prospectus. It should be read only
in conjunction with the Prospectuses for the Contract and the Funds. The
Prospectus is dated the same as this Statement of Additional Information. You
may obtain a copy of the Prospectus by writing or calling us at our address or
phone number shown above.

THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS NOVEMBER 1, 1998.

1
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS

2
<PAGE>
CALCULATION OF YIELDS AND TOTAL RETURNS

From time to time, Protective Life may disclose yields, total returns, and
other performance data pertaining to the Contracts for a Sub-Account. Such
performance data will be computed or accompanied by performance data computed,
in accordance with the standards defined by the Securities and Exchange
Commission ("SEC").

Because of the charges and deductions imposed under a Contract, yields for
the Sub-Accounts will be lower than the yields for their respective Funds. The
calculations of yields, total returns, and other performance data do not reflect
the effect of premium tax that may be applicable to a particular Contract.
Premium taxes currently range from 0% to 3.50% of premium based on the state in
which the Contract is sold.

PIC MONEY MARKET SUB-ACCOUNT YIELD

From time to time, advertisements and sales literature may quote the current
annualized yield of the PIC Money Market Sub-Account for a seven-day period in a
manner which does not take into consideration any realized or unrealized gain,
or losses on shares of the PIC Money Market Fund or on its portfolio securities.

This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the seven day period in value of a
hypothetical account under a Contract having a balance of 1 Accumulation Unit of
the PIC Money Market Sub-Account at the beginning of the period, dividing such
net change in account value by the value of the hypothetical account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis. The net change in account value reflects: 1)
net income from the PIC Money Market Fund attributable to the hypothetical
account; and 2) charges and deductions imposed under the Contract attributable
to the hypothetical account. The charges and deductions reflect the per unit
charges for the hypothetical account for: 1) the Annual Contract Maintenance
Fee; 2) Administration Charge; and 3) the Mortality and Expense Risk Charge. For
purposes of calculating current yields for a Contract, an average per unit
Contract Maintenance Fee is used based on the $30 Contract Maintenance Fee
deducted at the end of each Contract Year. Current Yield will be calculated
according to the following formula:

Current Yield = ((NCS-ES)/UV) X (365/7)

Where:

<TABLE>
<S> <C>
NCS the net change in the value of the Fund (exclusive of unrealized gains or losses on
the sale of securities and unrealized appreciation and depreciation) for the
seven-day period attributable to a hypothetical Account having a balance of 1
Sub-Account Accumulation Unit.
ES per unit expenses attributable to the hypothetical account for the seven-day period.
UV The Accumulation Unit value as of the end of the last day of the prior seven-day
period.
</TABLE>

The effective yield of the PIC Money Market Sub-Account determined on a
compounded basis for the same seven-day period may also be quoted.

The effective yield is calculated by compounding the unannualized base
period return according to the following formula:

Effective Yield = (1 + ((NCS-ES)/UV))('365/7') - 1

3
<PAGE>
Where:

<TABLE>
<S> <C>
NCS the net change in the value of the portfolio (exclusive of realized gains and losses
on the sale of securities and unrealized appreciation and depreciation) for the
seven-day period attributable to a hypothetical account having a balance of 1
Sub-Account Accumulation Unit.
ES per Accumulation Unit expenses attributable to the hypothetical account for the
seven-day period.
UV the Accumulation Unit value as of the end of the last day of the prior seven-day
period.
</TABLE>

Because of the charges and deductions imposed under the Contract, the
current and effective yields for the PIC Money Market Sub-Account will be lower
than such yields for the PIC Money Market Fund.

The current and effective yields on amounts held in the PIC Money Market
Sub-Account normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The PIC Money Market Sub-Account's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the PIC Money Market Fund, the types of quality of
portfolio securities held by the PIC Money Market Fund and the PIC Money Market
Fund's operating expenses. Yields on amounts held in the PIC Money Market Sub-
Account may also be presented for periods other than a seven day period.

OTHER SUB-ACCOUNT YIELDS

From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Sub-Accounts (except the PIC Money Market
Sub-Account) for a Contract for 30-day or one-month periods. The annualized
yield of a Sub-Account refers to income generated by the Sub-Account over a
specific 30 day or one month period. Because the yield is annualized, the yield
generated by a Sub-Account during a 30-day or one-month period is assumed to be
generated each period over a 12-month period.

The yield is computed by: 1) dividing the net investment income of the Fund
attributable to the Sub-Account Accumulation Units less Sub-Account expenses for
the period; by 2) the maximum offering price per Accumulation Unit on the last
day of the period times the daily average number of units outstanding for the
period; by 3) compounding that yield for a six-month period; and by 4)
multiplying that result by 2. Expenses attributable to the Sub-Account include
the Annual Contract Maintenance Fee, the Administration Charge and the Mortality
and Expense Risk Charge. The yield calculation assumes an Contract Maintenance
Fee of $30 per year per Contract deducted at the end of each Contract Year. For
purposes of calculating the 31-day or one-month yield, an average administration
fee per dollar of Contract value in the Variable Account is used to determine
the amount of the charge attributable to the Sub-Account for the 30-day or
one-month period. The 30 day or one month yield is calculated according to the
following formula:

Yield = 2 X [(((N1-ES)/ (U X UV)) + 1)(6) - 1]

Where:

<TABLE>
<S> <C>
N1 net income of the Fund for the 30 day or one month period attributable to the
Sub-Account Accumulation Units.
ES expenses of the Sub-Account for the 30 day or one month period.
U the average number of Accumulation Units outstanding.
UV the Accumulation Unit value as of the end of the last day in the 30 day or one month
period.
</TABLE>

Because of the charges and deductions imposed under the Contracts, the yield
for the Sub-Account will be lower than the yield for the corresponding Fund.

The yield on the amounts held in the Sub-Accounts normally will fluctuate
over time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
Sub-Account's actual yield is affected by the types and quality of portfolio
securities held by the corresponding Fund and its operating expenses.

4
<PAGE>
Yield calculations do not take into Account the Surrender Charge under the
Contract equal to 1% to 8.5% of premiums paid during the nine years prior to the
surrender (including the year in which the surrender is made) on amounts
surrendered under the Contract nor the Credits associated with Purchase
Payments.

TOTAL RETURNS

From time to time, sales literature or advertisements may also quote total
returns for one or more of the Sub-Accounts for various periods of time.

Until a Sub-Account has been in operation for 10 years, Protective Life will
always include quotes of standard average annual total return for the period
measured from the date that Sub-Account began operations. When a Sub-Account has
been in operation for 1, 5, and 10 years, respectively, the standard average
annual total return for these periods will be provided. Average annual total
returns for other periods of time may, from time to time, also be disclosed.

Average annual total returns represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Contract to
the redemption value of that investment as of the last day of each of the
periods. The ending date of each period for which total return quotations are
provided will generally be for the most recent month-end practicable considering
the type and media of the communication and will be stated in the communication.

All average annual total returns will be calculated using Sub-Account unit
values computed on each Valuation Day based on the performance of the
Sub-Account's underlying Fund, the deductions for the mortality and expense risk
charge and the administration charge.

The standard average annual total return calculation assumes that the
contract maintenance fee is $30 per year per contract, expressed as a percentage
of the average Contract Value. For any period less than ten years, the standard
average annual total return will also reflect the deduction of a Surrender
Charge. The standard average annual total return will be calculated according to
the following formula:

TR = (ERV/P)(1/N) - 1

Where:

<TABLE>
<S> <C>
TR = the average annual total return net of Sub-Account recurring charges.
ERV = the ending redeemable value (net of any applicable charges) of the
hypothetical account at the end of the period.
P = a hypothetical single Purchase Payment of $1,000.
N = the number of years in the period.
</TABLE>

In addition to standard average annual total returns, sales literature or
advertisements may from time to time also quote nonstandard average annual total
returns that do not reflect the surrender charge or the Contract maintenance
fee. In certain cases, the Credits associated with Purchase Payments may be
included using any or all of the Credit percentages described in the prospectus.
These nonstandard average annual total returns are calculated in exactly the
same way as standard average annual total returns described above, except that
the ending redeemable value of the hypothetical account for the period is
replaced with an ending value for the period that does not take into account the
surrender charge or the Contract maintenance fee, and in certain cases may
include Credits associated with Purchase Payments.

5
<PAGE>

Protective Life may also disclose cumulative total returns in conjunction
with the formats described above. The cumulative total returns will be
calculated using the following formula:

CTR = (EV/P) - 1

Where:

<TABLE>
<S> <C>
CTR = The cumulative total return net of Sub-Account recurring charges for
the period.
EV = The ending value of the hypothetical investment at the end of the
period that does not take into account the surrender charge or the
Contract maintenance fee, and in certain cases may include Credits
associated with Purchase Payments.
P = A hypothetical single Purchase Payment of $1,000.
</TABLE>

EFFECT OF THE CONTRACT MAINTENANCE FEE ON PERFORMANCE DATA

The Contract provides for a $30 annual contract maintenance Fee to be
deducted at the end of each Contract Year from the Allocation Options based on
the proportion that the value of each Allocation Options bears to the total
Contract Value. For purposes of reflecting the contract maintenance fee in yield
and total return quotations, the annual charge is converted into a per-dollar
per-day charge based on the average Contract Value of all Contracts on the last
day of the period for which quotations are provided. The per-dollar per-day
average charge is then adjusted to reflect the basis upon which the particular
quotation is calculated.

SAFEKEEPING OF ACCOUNT ASSETS

Title to the assets of the Variable Account are held by Protective Life. The
assets are kept physically segregated and held separate and apart from the
Company's General Account assets and from the assets in any other separate
account.

Records are maintained of all purchases and redemptions of Fund shares held
by each of the Sub-Accounts.

The officers and employees of Protective Life are covered by an insurance
company blanket bond issued in the amount of $20 million dollars. The bond
insures against dishonest and fraudulent acts of officers and employees.

STATE REGULATION

Protective Life is subject to regulation and supervision by the Department
of Insurance of the State of Tennessee which periodically examines its affairs.
It is also subject to the insurance laws and regulations of all jurisdictions
where it is authorized to do business. A copy of the Contract form has been
filed with, and where required approved by, insurance officials in each
jurisdiction where the Contracts are sold. Protective Life is required to submit
annual statements of its operations, including financial statements, to the
insurance departments of the various jurisdictions in which it does business for
the purposes of determining solvency and compliance with local insurance laws
and regulations.

RECORDS AND REPORTS

Protective Life will maintain all records and accounts relating to the
Variable Account. As presently required by the 1940 Act and regulations
promulgated thereunder, reports containing such information as may be required
under the Act or by any other applicable law or regulation will be sent to
Owner(s) periodically at the last known address.

6
<PAGE>
LEGAL MATTERS

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

EXPERTS

The statement of assets and liabilities of The Protective Variable Annuity
Separate Account (comprised of seventeen sub-accounts as of December 31, 1997)
as of December 31, 1997 and 1996 and the related statements of operations and
changes in net assets for the years ended December 31, 1997 and 1996 and the
consolidated balance sheets of Protective Life as of December 31, 1997 and 1996
and the related consolidated statements of income, stockholder's equity and cash
flows for each of the three years in the period ended December 31, 1997 and the
related financial statement schedules included in this Statement of Additional
Information and in the registration statement have been included herein in
reliance on the report of PricewaterhouseCoopers LLP (formerly Coopers & Lybrand
LLP) of Birmingham, AL, independent accountants, given on the authority of that
firm as experts in accounting and auditing.

OTHER INFORMATION

A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this Statement
of Additional Information concerning the content of the Contracts and other
legal instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed with
the SEC at 450 Fifth Street, N. W. , Washington, DC 20549.

FINANCIAL STATEMENTS

The audited consolidated balance sheets for Protective Life as of December
31, 1997 and 1996 and the related consolidated statements of income,
stockholder's equity, and cash flows for the years ended December 31, 1997, 1996
and 1995 as well as the Report of Independent Accountants are contained herein.

Financial Statements follow this page.

7
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT

Report of Independent Accountants.................................................... F-2

Statement of Assets and Liabilities as of December 31, 1997.......................... F-3

Statement of Assets and Liabilities as of December 31, 1996.......................... F-5

Statement of Operations for the period ended December 31, 1997....................... F-6

Statement of Operations for the period ended December 31, 1996....................... F-8

Statement of Changes in Net Assets for the period ended December 31, 1997............ F-9

Statement of Changes in Net Assets for the period ended December 31, 1996............ F-11

Notes to Financial Statements........................................................ F-12

PROTECTIVE LIFE INSURANCE COMPANY

Report of Independent Accountants.................................................... F-18

Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995.................................................... F-19

Consolidated Balance Sheets as of December 31, 1997 and 1996......................... F-20

Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1997, 1996 and 1995.................................................... F-21

Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.................................................... F-22

Notes to Consolidated Financial Statements........................................... F-23

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 Contractowners and Board of Directors
of Protective Life Insurance Company

We have audited the financial statements of The Protective Variable Annuity
Separate Account (comprised of seventeen subaccounts) included on pages F-3
through F-16 of this registration statement on Form N-4. These financial
statements are the responsibility of the management of The Protective Variable
Annuity Separate Account. Our responsibility is to express an opinion on these
financial statements 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. Our procedures included
confirmation of shares owned as of December 31, 1997 and 1996, by correspondence
with the transfer agents. 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 financial position of The Protective Variable
Annuity Separate Account as of December 31, 1997 and 1996, the results of its
operations, and the changes in its net assets for the years then ended, in
conformity with generally accepted accounting principles.

Birmingham, Alabama
March 5, 1998

F-2
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC
PIC GROWTH & INTERNAT'L PIC SMALL CAP PIC
MONEY MARKET INCOME EQUITY GLOBAL INCOME EQUITY CORE US EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------ -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at
market value................... $ 3,571,053 $355,505,039 $131,344,810 $ 48,720,463 $107,421,163 $176,791,623
Receivable from Protective Life
Insurance Company.............. 17,327 49,074 479 6,003
------------- ------------ -------------- -------------- ------------ --------------
Total Assets................ 3,588,380 355,554,113 131,345,289 48,720,463 107,427,166 176,791,623
------------- ------------ -------------- -------------- ------------ --------------
LIABILITIES
Payable to Protective Life
Insurance Company.............. 14 2,581
------------- ------------ -------------- -------------- ------------ --------------
NET ASSETS...................... $ 3,588,380 $355,554,113 $131,345,289 $ 48,720,449 $107,427,166 $176,789,042
------------- ------------ -------------- -------------- ------------ --------------
------------- ------------ -------------- -------------- ------------ --------------

<CAPTION>
ACACIA CAPITAL ACACIA CAPITAL
CORPORATION CORPORATION
PIC CRI SMALL CAP CRI
CAPITAL GROWTH GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investment in sub-accounts at
market value................... $ 74,411,193 $ 136,679 $ 1,050,736
Receivable from Protective Life
Insurance Company.............. 155
-------------- -------------- --------------
Total Assets................ 74,411,193 136,679 1,050,891
-------------- -------------- --------------
LIABILITIES
Payable to Protective Life
Insurance Company.............. 12
-------------- -------------- --------------
NET ASSETS...................... $ 74,411,181 $ 136,679 $ 1,050,891
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

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

F-3
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS MFS OPPENHEIMER OPPENHEIMER
EMERGING MFS GROWTH TOTAL CAP OPPENHEIMER GROWTH &
GROWTH RESEARCH W/INCOME RETURN APPRECIATION GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at
market value................... $3,320,856 $ 6,285,782 $ 2,671,278 $1,747,276 $2,613,453 $3,609,636 $2,931,384
Receivable from Protective Life
Insurance Company.............. 728
----------- ------------ ------------- ----------- ----------- ----------- -----------
Total Assets................ 3,320,856 6,285,782 2,671,278 1,747,276 2,613,453 3,609,636 2,932,112
----------- ------------ ------------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Protective Life
Insurance Company.............. 1 1,092
----------- ------------ ------------- ----------- ----------- ----------- -----------
NET ASSETS...................... $3,320,856 $ 6,285,782 $ 2,671,277 $1,747,276 $2,613,453 $3,608,544 $2,932,112
----------- ------------ ------------- ----------- ----------- ----------- -----------
----------- ------------ ------------- ----------- ----------- ----------- -----------

<CAPTION>
OPPENHEIMER
STRATEGIC
BOND
SUB-ACCOUNT
-----------
<S> <C>
ASSETS
Investment in sub-accounts at
market value................... $2,935,255
Receivable from Protective Life
Insurance Company..............
-----------
Total Assets................ 2,935,255
-----------
LIABILITIES
Payable to Protective Life
Insurance Company.............. 14,633
-----------
NET ASSETS...................... $2,920,622
-----------
-----------
</TABLE>

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

F-4
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROWTH AND INTERNATIONAL SMALL CAP SELECT
MONEY MARKET INCOME EQUITY GLOBAL INCOME EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in Protective
Investment Company at market
value.......................... $6,106,516 $210,437,396 $96,613,499 $37,653,564 $64,304,118 $101,547,462
Receivable from Protective Life
Insurance Company.............. 67 32 1 17
------------ ------------ ------------- ------------- ------------ -------------
Total Assets................ 6,106,516 210,437,463 96,613,531 37,653,565 64,304,118 101,547,479
------------ ------------ ------------- ------------- ------------ -------------
LIABILITIES
Payable to Protective Life
Insurance Company.............. 2 1,837
------------ ------------ ------------- ------------- ------------ -------------
NET ASSETS...................... $6,106,514 $210,437,463 $96,613,531 $37,653,565 $64,302,281 $101,547,479
------------ ------------ ------------- ------------- ------------ -------------
------------ ------------ ------------- ------------- ------------ -------------

<CAPTION>
CAPITAL
GROWTH
SUB-ACCOUNT
-------------
<S> <C>
ASSETS
Investment in Protective
Investment Company at market
value.......................... $30,194,123
Receivable from Protective Life
Insurance Company.............. 2
-------------
Total Assets................ 30,194,125
-------------
LIABILITIES
Payable to Protective Life
Insurance Company..............
-------------
NET ASSETS...................... $30,194,125
-------------
-------------
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC
PIC GROWTH & INTERNAT'L PIC SMALL CAP PIC
MONEY MARKET INCOME EQUITY GLOBAL INCOME EQUITY CORE US EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................... $ 216,131 $2,530,403 $2,328,793 $3,987,063 $ 311,079 $1,442,006
EXPENSE
Mortality and expense risk and
administrative charges........ 62,875 4,093,470 1,668,076 601,492 1,213,746 1,983,808
------------ ------------ -------------- -------------- ------------ --------------
Net investment income (loss).... 153,256 (1,563,067) 660,717 3,385,571 (902,667) (541,802)
------------ ------------ -------------- -------------- ------------ --------------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gain from redemption
of investment shares............. 0 3,109 5,500 1,401 17,568 553
Capital gain distribution......... 0 47,260,910 7,212,859 603,653 11,826,478 13,990,186
------------ ------------ -------------- -------------- ------------ --------------
Net realized gain on
investments...................... 0 47,264,019 7,218,359 605,054 11,844,046 13,990,739
Net unrealized appreciation on
investments during the period.... 1 19,421,926 (5,637,373) (450,116) 10,752,598 20,604,003
------------ ------------ -------------- -------------- ------------ --------------
Net realized and unrealized gain
on investments................... 1 66,685,945 1,580,986 154,938 22,596,644 34,594,742
------------ ------------ -------------- -------------- ------------ --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ $ 153,257 $65,122,878 $2,241,703 $3,540,509 $21,693,977 $34,052,940
------------ ------------ -------------- -------------- ------------ --------------
------------ ------------ -------------- -------------- ------------ --------------

<CAPTION>
ACACIA
CAPITAL ACACIA
CORPORATION CAPITAL
PIC CRI CORPORATION
CAPITAL SMALL CAP CRI
GROWTH GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends....................... $ 451,531 $ 0 $ 23,016
EXPENSE
Mortality and expense risk and
administrative charges........ 711,311 408 2,454
------------ ------------ ------------
Net investment income (loss).... (259,780) (408) 20,562
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gain from redemption
of investment shares............. (554) (12) 76
Capital gain distribution......... 4,665,040 12,282 49,926
------------ ------------ ------------
Net realized gain on
investments...................... 4,664,486 12,270 50,002
Net unrealized appreciation on
investments during the period.... 8,959,175 (12,845) (53,486)
------------ ------------ ------------
Net realized and unrealized gain
on investments................... 13,623,661 (575) (3,484)
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ $13,363,881 $ (983) $ 17,078
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

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

F-6
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS OPPENHEIMER
EMERGING MFS GROWTH MFS CAP OPPENHEIMER
GROWTH RESEARCH W/INCOME TOTAL RETURN APPRECIATION GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 0 $ 0 $ 10,479 $ 0 $ 0 $ 0
EXPENSE
Mortality and expense risk and
administrative charges...... 11,765 19,515 7,836 4,785 7,974 11,176
----------- ------------- ------------- ------------ ------------ ------------
Net investment income
(loss)...................... (11,765) (19,515) 2,643 (4,785) (7,974) (11,176)
----------- ------------- ------------- ------------ ------------ ------------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS
Net realized gain from
redemption of investment
shares......................... 2,267 7 92 202 11 19
Capital gain distribution....... 0 0 49,017 0 0 0
----------- ------------- ------------- ------------ ------------ ------------
Net realized gain on
investments.................... 2,267 7 49,109 202 11 19
Net unrealized appreciation on
investments during the
period......................... 2,208 13,033 41,478 48,443 (56,978) (9,267)
----------- ------------- ------------- ------------ ------------ ------------
Net realized and unrealized gain
on investments................. 4,475 13,040 90,587 48,645 (56,967) (9,248)
----------- ------------- ------------- ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...... $ (7,290) $ (6,475) $ 93,230 $ 43,860 $ (64,941) $ (20,424)
----------- ------------- ------------- ------------ ------------ ------------
----------- ------------- ------------- ------------ ------------ ------------

<CAPTION>
OPPENHEIMER OPPENHEIMER
GROWTH & STRATEGIC
INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT
------------ ------------
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 8,008 $ 73,276
EXPENSE
Mortality and expense risk and
administrative charges...... 8,503 9,293
------------ ------------
Net investment income
(loss)...................... (495) 63,983
------------ ------------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS
Net realized gain from
redemption of investment
shares......................... 118 21
Capital gain distribution....... 0 0
------------ ------------
Net realized gain on
investments.................... 118 21
Net unrealized appreciation on
investments during the
period......................... 109,900 (22,462)
------------ ------------
Net realized and unrealized gain
on investments................. 110,018 (22,441)
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...... $ 109,523 $ 41,542
------------ ------------
------------ ------------
</TABLE>

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

F-7
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY GROWTH AND INTERNATIONAL SMALL CAP
MARKET INCOME EQUITY GLOBAL INCOME EQUITY SELECT EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------- --------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................... $248,305 $ 3,507,449 $ 38,511 $2,275,316 $ 169,888 $ 1,160,405
EXPENSE
Mortality and expense risk and
administrative charges........ 71,685 2,340,504 1,098,610 461,193 785,356 1,112,352
----------- ------------- --------------- -------------- ----------- ---------------
Net investment income (loss).... 176,620 1,166,945 (1,060,099) 1,814,123 (615,468) 48,053
----------- ------------- --------------- -------------- ----------- ---------------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gain from redemption
of investment shares............. 281,848 708,750 87,277 88,867 395,474
Capital gain distribution......... 13,670,980 1,981,161 594,633 6,634,413 2,376,286
----------- ------------- --------------- -------------- ----------- ---------------
Net realized gain on investments.. 13,952,828 2,689,911 681,910 6,723,280 2,771,760
Net unrealized appreciation on
investments during the period.... 24,330,426 10,642,866 244,006 2,301,054 11,947,834
----------- ------------- --------------- -------------- ----------- ---------------
Net realized and unrealized gain
on investments................... 38,283,254 13,332,777 925,916 9,024,334 14,719,594
----------- ------------- --------------- -------------- ----------- ---------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ $176,620 $39,450,199 $12,272,678 $2,740,039 $8,408,866 $14,767,647
----------- ------------- --------------- -------------- ----------- ---------------
----------- ------------- --------------- -------------- ----------- ---------------

<CAPTION>
CAPITAL
GROWTH
SUB-ACCOUNT
-----------
<S> <C>
INVESTMENT INCOME
Dividends....................... $ 315,147
EXPENSE
Mortality and expense risk and
administrative charges........ 280,793
-----------
Net investment income (loss).... 34,354
-----------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gain from redemption
of investment shares............. 143,094
Capital gain distribution......... 399,865
-----------
Net realized gain on investments.. 542,959
Net unrealized appreciation on
investments during the period.... 3,490,010
-----------
Net realized and unrealized gain
on investments................... 4,032,969
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ $4,067,323
-----------
-----------
</TABLE>

See accompanying notes to financial statements.

F-8
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PIC PIC PIC
PIC GROWTH & INTERNAT'L PIC SMALL CAP PIC
MONEY MARKET INCOME EQUITY GLOBAL INCOME EQUITY CORE US EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).... $ 153,256 $ (1,563,067) $ 660,717 $ 3,385,571 $ (902,667) $ (541,802)
Net realized gain on
investments.................... 47,264,019 7,218,359 605,054 11,844,046 13,990,739
Net unrealized appreciation of
investments during the period.. 1 19,421,926 (5,637,373) (450,116) 10,752,598 20,604,003
------------- ------------- -------------- ------------- ------------- --------------
Net increase in net assets
resulting from operations...... 153,257 65,122,878 2,241,703 3,540,509 21,693,977 34,052,940
------------- ------------- -------------- ------------- ------------- --------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractowners' net payments.... 4,550,506 70,285,404 27,497,729 8,832,118 17,115,594 33,348,489
Contract maintenance fees....... (1,861) (119,996) (53,643) (15,577) (40,747) (57,679)
Surrenders...................... (2,124,233) (10,448,724) (4,248,152) (1,859,370) (3,563,235) (5,804,052)
Death benefits.................. (90,244) (2,020,758) (806,371) (432,617) (383,402) (952,669)
Transfer (to) from other
portfolios..................... (5,005,559) 22,297,846 10,100,492 1,001,821 8,302,698 14,654,534
------------- ------------- -------------- ------------- ------------- --------------
Net increase in net assets
resulting from variable annuity
contract transactions.......... (2,671,391) 79,993,772 32,490,055 7,526,375 21,430,908 41,188,623
------------- ------------- -------------- ------------- ------------- --------------
Total increase in net assets.... (2,518,134) 145,116,650 34,731,758 11,066,884 43,124,885 75,241,563
NET ASSETS
Beginning of Year............... 6,106,514 210,437,463 96,613,531 37,653,565 64,302,281 101,547,479
------------- ------------- -------------- ------------- ------------- --------------
End of Year..................... $ 3,588,380 $355,554,113 $131,345,289 $48,720,449 $107,427,166 $176,789,042
------------- ------------- -------------- ------------- ------------- --------------
------------- ------------- -------------- ------------- ------------- --------------

<CAPTION>
ACACIA
CAPITAL ACACIA
CORPORATION CAPITAL
PIC CRI CORPORATION
CAPITAL SMALL CAP CRI
GROWTH GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ---------- ------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).... $ (259,780) $ (408) $ 20,562
Net realized gain on
investments.................... 4,664,486 12,270 50,002
Net unrealized appreciation of
investments during the period.. 8,959,175 (12,845) (53,486)
------------- ---------- ------------
Net increase in net assets
resulting from operations...... 13,363,881 (983) 17,078
------------- ---------- ------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractowners' net payments.... 23,501,411 107,775 954,698
Contract maintenance fees....... (19,980) 7 (21)
Surrenders...................... (1,542,873) (544) (9,883)
Death benefits.................. (290,376)
Transfer (to) from other
portfolios..................... 9,204,993 30,424 89,019
------------- ---------- ------------
Net increase in net assets
resulting from variable annuity
contract transactions.......... 30,853,175 137,662 1,033,813
------------- ---------- ------------
Total increase in net assets.... 44,217,056 136,679 1,050,891
NET ASSETS
Beginning of Year............... 30,194,125
------------- ---------- ------------
End of Year..................... $74,411,181 $136,679 $1,050,891
------------- ---------- ------------
------------- ---------- ------------
</TABLE>

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

F-9
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS MFS MFS OPPENHEIMER OPPENHEIMER
EMERGING MFS GROWTH TOTAL CAP OPPENHEIMER GROWTH &
GROWTH RESEARCH W/INCOME RETURN APPRECIATION GROWTH INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).... $ (11,765) $ (19,515) $ 2,643 $ (4,785) $ (7,974) $ (11,176) $ (495)
Net realized gain on
investments.................... 2,267 7 49,109 202 11 19 118
Net unrealized appreciation of
investments during the
period......................... 2,208 13,033 41,478 48,443 (56,978) (9,267) 109,900
----------- ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations...... (7,290) (6,475) 93,230 43,860 (64,941) (20,424) 109,523
----------- ----------- ------------ ----------- ----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractowners' net payments.... 2,503,454 4,920,127 2,051,786 1,145,999 2,107,943 2,994,586 2,158,105
Contract maintenance fees....... 307 (56) 40 (55) (370) (22) (21)
Surrenders...................... (8,914) (32,833) (7,709) (3,032) (19,335) (7,756) (13,263)
Death benefits.................. (4,375) (4,472)
Transfer (to) from other
portfolios..................... 833,299 1,405,019 538,305 560,504 590,156 646,632 677,768
----------- ----------- ------------ ----------- ----------- ----------- -----------
Net increase in net assets
resulting from variable annuity
contract transactions.......... 3,328,146 6,292,257 2,578,047 1,703,416 2,678,394 3,628,968 2,822,589
----------- ----------- ------------ ----------- ----------- ----------- -----------
Total increase in net assets.... 3,320,856 6,285,782 2,671,277 1,747,276 2,613,453 3,608,544 2,932,112
NET ASSETS
Beginning of Year...............
----------- ----------- ------------ ----------- ----------- ----------- -----------
End of Year..................... $3,320,856 $6,285,782 $2,671,277 $1,747,276 $2,613,453 $3,608,544 $2,932,112
----------- ----------- ------------ ----------- ----------- ----------- -----------
----------- ----------- ------------ ----------- ----------- ----------- -----------

<CAPTION>
OPPENHEIMER
STRATEGIC
BOND
SUB-ACCOUNT
-----------
<S> <C>
FROM OPERATIONS
Net investment income (loss).... $ 63,983
Net realized gain on
investments.................... 21
Net unrealized appreciation of
investments during the
period......................... (22,462)
-----------
Net increase in net assets
resulting from operations...... 41,542
-----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractowners' net payments.... 1,948,790
Contract maintenance fees....... 429
Surrenders...................... (13,822)
Death benefits..................
Transfer (to) from other
portfolios..................... 943,683
-----------
Net increase in net assets
resulting from variable annuity
contract transactions.......... 2,879,080
-----------
Total increase in net assets.... 2,920,622
NET ASSETS
Beginning of Year...............
-----------
End of Year..................... $2,920,622
-----------
-----------
</TABLE>

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

F-10
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROWTH AND INTERNATIONAL SMALL CAP SELECT
MONEY MARKET INCOME EQUITY GLOBAL INCOME EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------- ------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss)....................... $ 176,620 $ 1,166,945 $ (1,060,099) $ 1,814,123 $ (615,468) $ 48,053
Net realized gain on
investments.................. 13,952,828 2,689,911 681,910 6,723,280 2,771,760
Net unrealized appreciation of
investments during the
period....................... 24,330,426 10,642,866 244,006 2,301,054 11,947,834
---------------- ------------- -------------- -------------- ------------- --------------
Net increase in net assets
resulting from operations.... 176,620 39,450,199 12,272,678 2,740,039 8,408,866 14,767,647
---------------- ------------- -------------- -------------- ------------- --------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractowners' net
payments..................... 3,253,963 32,897,893 21,531,594 7,193,776 11,302,973 22,772,322
Contract maintenance fees..... (1,848) (97,514) (44,293) (14,330) (35,324) (41,846)
Surrenders.................... (1,685,935) (4,734,273) (2,001,419) (1,335,682) (1,991,392) (2,341,900)
Death benefits................ (23,760) (1,013,995) (524,985) (297,967) (446,636) (382,788)
Transfer (to) from other
portfolios................... (130,107) 17,202,066 10,331,059 1,886,745 4,344,711 11,517,266
---------------- ------------- -------------- -------------- ------------- --------------
Net increase in net assets
resulting from variable
annuity contract
transactions................. 1,412,313 44,254,177 29,291,956 7,432,542 13,174,332 31,523,054
---------------- ------------- -------------- -------------- ------------- --------------
Capital withdrawal by
Protective Life Insurance
Company...................... (552,800) (1,356,579) (3,832,052) (3,604,323) (1,098,162) (1,471,036)
---------------- ------------- -------------- -------------- ------------- --------------
Total increase in net
assets....................... 1,036,133 82,347,797 37,732,582 6,568,258 20,485,036 44,819,665
NET ASSETS
Beginning of Year............. 5,070,381 128,089,666 58,880,949 31,085,307 43,817,245 56,727,814
---------------- ------------- -------------- -------------- ------------- --------------
End of Year................... $ 6,106,514 $ 210,437,463 $ 96,613,531 $ 37,653,565 $ 64,302,281 $ 101,547,479
---------------- ------------- -------------- -------------- ------------- --------------
---------------- ------------- -------------- -------------- ------------- --------------

CAPITAL GROWTH
SUB-ACCOUNT
--------------
<S> <C>
FROM OPERATIONS
Net investment income
(loss)....................... $ 34,354
Net realized gain on
investments.................. 542,959
Net unrealized appreciation of
investments during the
period....................... 3,490,010
--------------
Net increase in net assets
resulting from operations.... 4,067,323
--------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractowners' net
payments..................... 11,385,928
Contract maintenance fees..... (9,250)
Surrenders.................... (581,887)
Death benefits................ (91,171)
Transfer (to) from other
portfolios................... 5,858,727
--------------
Net increase in net assets
resulting from variable
annuity contract
transactions................. 16,562,347
--------------
Capital withdrawal by
Protective Life Insurance
Company...................... (1,151,508)
--------------
Total increase in net
assets....................... 19,478,162
NET ASSETS
Beginning of Year............. 10,715,963
--------------
End of Year................... $ 30,194,125
--------------
--------------
</TABLE>

See accompanying notes to financial statements.

F-11
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS

1. ORGANIZATION

The Protective Variable Annuity Separate Account (Separate Account) was
established by Protective Life Insurance Company (Protective Life) under the
provisions of Tennessee law and commenced operations on March 14, 1994. The
Separate Account is an investment account to which net proceeds from individual
flexible premium deferred variable annuity contracts (the Contracts) are
allocated until maturity or termination of the Contracts.

Protective Life has structured the Separate Account into a unit investment
trust form registered with the U.S. Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
seven proprietary sub-accounts and ten independent sub-accounts. The seven
proprietary sub-accounts are the Money Market, Growth and Income, International
Equity, Global Income, Small Cap Equity, CORE US Equity, and Capital Growth
sub-accounts. The Capital Growth sub-account was added June 13, 1995, with sales
beginning July 3, 1995. Funds are transferred to Protective Investment Company
(the Fund) in exchange for shares of the corresponding portfolio of the Fund.

The ten independent sub-accounts are the Acacia Capital Corporation CRI
Small Cap Growth, Acacia Capital Corporation CRI Balanced, MFS Emerging Growth,
MFS Research, MFS Growth with Income, MFS Total Return, Oppenheimer Capital
Appreciation, Oppenheimer Growth, Oppenheimer Growth & Income, and Oppenheimer
Strategic Bond sub-accounts. The Acacia Capital Corporation CRI Small Cap Growth
and Acacia Capital Corporation CRI Balanced subaccounts were added July 1, 1997,
with sales beginning July 1, 1997. On January 1, 1998, the Acacia Capital
Corporation CRI Small Cap Growth and Acacia Capital Corporation CRI Balanced
funds were renamed the Calvert Social Small Cap Growth and Calvert Social
Balanced Funds. The MFS Emerging Growth, Research, Growth with Income, and Total
Return subaccounts were added July 1, 1997, with sales beginning July 1, 1997.
The Oppenheimer Capital Appreciation, Growth, Growth & Income, and Strategic
Bond subaccounts were added July 1, 1997, with sales beginning July 1, 1997. The
Fund invests contractholder's funds in exchange for shares in the independent
funds. The Fund then holds the shares for the contractowners.

Gross premiums from the Contracts are allocated to the sub-accounts in
accordance with contractowner instructions and are recorded as variable annuity
contract transactions in the statement of changes in net assets. Such amounts
are used to provide money to pay contract values under the Contracts (Note 4).
The Separate Account's assets are the property of Protective Life.

Contractowners may allocate some or all of gross premiums or transfer some
or all of the contract value to the fixed account, which is part of Protective
Life's general account. The assets of Protective Life's general account support
its insurance and annuity obligations and are subject to Protective Life's
general liabilities from business operations.

Transfers to/from other portfolios, included in the statement of changes in
net assets, are transfers between the individual sub-accounts and the
sub-accounts and the fixed account.

2. SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATION: Investments are made in shares and are valued at the
net asset values of the respective portfolios. Transactions with the Funds are
recorded on the trade date. Dividend income is recorded on the ex-dividend date.

REALIZED GAINS AND LOSSES: Realized gains and losses on investments include
gains and losses on redemptions of the Fund's shares (determined on the
last-in-first-out (LIFO) basis) and capital gain distributions from the Fund.

F-12
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS: Dividend income and capital
gain distributions are recorded on the ex-dividend date. Distributions are from
net investment income and net realized gains recorded in the Investment Company
financials.

USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
various estimates that affect the reported amounts of assets and liabilities, at
the date of the financial statements, as well as the reported amounts of income
and expenses, during the reporting period. Actual results could differ from
those estimates.

FEDERAL INCOME TAXES: The operation of the Separate Account is included in
the Federal income tax return of Protective Life. Under the provisions of the
Contracts, Protective Life has the right to charge the Separate Account for
Federal income tax attributable to the Separate Account. No charge is currently
being made against the Separate Account for such tax.

RECLASSIFICATIONS: Certain reclassifications have been made in previously
reported financial statements and accompanying notes to make the prior year
amounts comparable to those of the current year. Such reclassifications had no
effect on previously reported net assets.

3. INVESTMENTS

At December 31, 1997, the investments by the respective sub-accounts were as
follows:

<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
------------ -------------- --------------
<S> <C> <C> <C>
Money Market............................................. 3,571,053 $ 3,571,053 $ 3,571,053
Growth and Income........................................ 22,555,045 $ 297,181,881 $ 355,531,568
International Equity..................................... 10,548,201 $ 120,773,576 $ 131,344,833
Global Income............................................ 4,807,861 $ 48,410,709 $ 48,720,458
Small Cap Equity......................................... 9,161,219 $ 94,914,942 $ 107,422,261
CORE US Equity........................................... 9,603,792 $ 135,912,917 $ 176,791,590
Capital Growth........................................... 4,703,701 $ 61,781,865 $ 74,411,188
Acacia Capital Corporation CRI Small Cap Equity.......... 11,390 $ 149,525 $ 136,679
Acacia Capital Corporation CRI Balanced.................. 530,139 $ 1,104,222 $ 1,050,736
MFS Emerging Growth...................................... 205,753 $ 3,318,647 $ 3,320,856
MFS Research............................................. 398,086 $ 6,272,749 $ 6,285,782
MFS Growth With Income................................... 162,486 $ 2,629,799 $ 2,671,278
MFS Total Return......................................... 105,068 $ 1,698,832 $ 1,747,276
Oppenheimer Capital Appreciation......................... 63,805 $ 2,670,431 $ 2,613,453
Oppenheimer Growth....................................... 111,271 $ 3,618,902 $ 3,609,636
Oppenheimer Growth & Income.............................. 142,438 $ 2,821,485 $ 2,931,384
Oppenheimer Strategic Bond............................... 573,292 $ 2,957,717 $ 2,935,255
</TABLE>

At December 31, 1996, the investments by the respective sub-accounts were as
follows:

<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
------------ -------------- --------------
<S> <C> <C> <C>
Money Market............................................. 6,106,516 $ 6,106,516 $ 6,106,516
Growth and Income........................................ 14,837,344 $ 171,509,698 $ 210,437,396
International Equity..................................... 7,509,791 $ 80,404,907 $ 96,613,499
Global Income............................................ 3,699,891 $ 36,893,699 $ 37,653,564
Small Cap Equity......................................... 6,416,426 $ 62,547,565 $ 64,304,118
Select Equity............................................ 6,578,183 $ 81,272,809 $ 101,547,462
Capital Growth........................................... 2,387,531 $ 26,523,976 $ 30,194,123
</TABLE>

F-13
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS (CONTINUED)
During the year ended December 31, 1997, transactions in shares were as
follows:

<TABLE>
<CAPTION>
MONEY GROWTH & INTERNATIONAL GLOBAL SMALL CORE US CAPITAL
MARKET INCOME EQUITY INCOME CAPITAL EQUITY GROWTH*
----------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased................... 7,384,222 4,568,466 2,382,529 880,418 1,889,641 2,256,497 1,994,733
Shares received from reinvestment
of dividends...................... 216,131 3,243,711 771,149 452,653 1,052,027 856,997 330,376
----------- ---------- ------------ ---------- ---------- ---------- ----------
Total shares acquired.............. 7,600,353 7,812,177 3,153,678 1,333,071 2,941,668 3,113,494 2,325,109
Shares redeemed.................... (10,135,816) (94,476) (115,268) (225,101) (196,875) (87,885) (8,939)
----------- ---------- ------------ ---------- ---------- ---------- ----------
Net increase in shares owned....... (2,535,463) 7,717,701 3,038,410 1,107,970 2,744,793 3,025,609 2,316,170
Shares owned, beginning of the
period............................ 6,106,516 14,837,344 7,509,791 3,699,891 6,416,426 6,578,183 2,387,531
----------- ---------- ------------ ---------- ---------- ---------- ----------
Shares owned, end of the period.... 3,571,053 22,555,045 10,548,201 4,807,861 9,161,219 9,603,792 4,703,701
----------- ---------- ------------ ---------- ---------- ---------- ----------
----------- ---------- ------------ ---------- ---------- ---------- ----------
Cost of shares acquired............ $ 7,600,353 $127,303,311 $41,961,893 $13,885,758 $34,688,924 $56,301,000 $35,386,576
----------- ---------- ------------ ---------- ---------- ---------- ----------
----------- ---------- ------------ ---------- ---------- ---------- ----------
Cost of shares redeemed............ $(10,135,816) $(1,631,128) $(1,593,224) $(2,368,748) $(2,321,547) $(1,660,892) $ (128,687)
----------- ---------- ------------ ---------- ---------- ---------- ----------
----------- ---------- ------------ ---------- ---------- ---------- ----------
</TABLE>

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

* date of inception, June 13, 1995

<TABLE>
<CAPTION>
ACACIA CAPITAL ACACIA CAPITAL MFS OPPENHEIMER
CORPORATION CRI CORPORATION CRI EMERGING MFS MFS GROWTH MFS TOTAL CAPITAL
SMALL CAP* BALANCED* GROWTH* RESEARCH* W/ INCOME* RETURN* APPREC*
--------------- --------------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased.......... 10,417 496,705 212,328 398,087 160,174 107,942 63,852
Shares received from
reinvestment of
dividends................ 1,023 36,802 0 0 3,695 0 0
--------------- --------------- ---------- ----------- ---------- ---------- ------------
Total shares acquired..... 11,440 533,507 212,328 398,087 163,869 107,942 63,852
Shares redeemed........... (60) (3,368) (6,575) (1) (1,383) (2,874) (47)
--------------- --------------- ---------- ----------- ---------- ---------- ------------
Net increase in shares
owned.................... 11,380 530,139 205,753 398,086 162,486 105,068 63,805
Shares owned, beginning of
the period............... 0 0 0 0 0 0 0
--------------- --------------- ---------- ----------- ---------- ---------- ------------
Shares owned, end of the
period................... 11,380 530,139 205,753 398,086 162,486 105,068 63,805
--------------- --------------- ---------- ----------- ---------- ---------- ------------
--------------- --------------- ---------- ----------- ---------- ---------- ------------
Cost of shares acquired... $ 150,314 $ 1,111,207 $3,422,009 $6,272,771 $2,652,475 $1,745,363 $2,672,447
--------------- --------------- ---------- ----------- ---------- ---------- ------------
--------------- --------------- ---------- ----------- ---------- ---------- ------------
Cost of shares redeemed... $ (790) $ (6,985) $ (103,362) $ (22) $ (22,676) $ (46,531) $ (2,016)
--------------- --------------- ---------- ----------- ---------- ---------- ------------
--------------- --------------- ---------- ----------- ---------- ---------- ------------
</TABLE>

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

* date of inception, July 1, 1997

<TABLE>
<CAPTION>
OPPENHEIMER OPPENHEIMER
OPPENHEIMER GROWTH & STRATEGIC
GROWTH* INCOME* BOND*
------------ -------------- --------------
<S> <C> <C> <C>
Shares purchased.......................................... 111,304 142,438 599,683
Shares received from reinvestment of dividends............ 0 405 14,325
------------ -------------- --------------
Total shares acquired..................................... 111,304 143,401 614,008
Shares redeemed........................................... (33) (963) (40,716)
------------ -------------- --------------
Net increase in shares owned.............................. 111,271 142,438 573,292
Shares owned, beginning of the period..................... 0 0 0
------------ -------------- --------------
Shares owned, end of the period........................... 111,271 142,438 573,292
------------ -------------- --------------
------------ -------------- --------------
Cost of shares acquired................................... $3,619,878 $ 2,840,522 $ 3,167,524
------------ -------------- --------------
------------ -------------- --------------
Cost of shares redeemed................................... $ (976) $ (19,037) $ (209,807)
------------ -------------- --------------
------------ -------------- --------------
</TABLE>

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

* date of inception, July 1, 1997

F-14
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS (CONTINUED)
During the year ended December 31, 1996, transactions in shares were as
follows:
<TABLE>
<CAPTION>
GROWTH & INTERNATIONAL GLOBAL SMALL CAP SELECT
MONEY MARKET INCOME EQUITY INCOME EQUITY EQUITY
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................... 10,013,890 3,458,329 2,374,625 866,789 1,384,189 2,173,261
Shares received from reinvestment of
dividends.......................... 247,679 1,220,863 159,071 282,658 689,037 225,031
------------ ------------ ------------ ------------ ------------ ------------
Total shares acquired............... 10,261,569 4,679,192 2,533,696 1,149,447 2,073,226 2,398,292
Shares redeemed..................... (9,224,778) (342,748) (351,227) (535,106) (346,753) (147,137)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in shares owned........ 1,036,791 4,336,444 2,182,469 614,341 1,726,473 2,251,155
Shares owned, beginning of the
period............................. 5,069,725 10,500,900 5,327,322 3,085,550 4,689,953 4,327,028
------------ ------------ ------------ ------------ ------------ ------------
Shares owned, end of the period..... 6,106,516 14,837,344 7,509,791 3,699,891 6,416,426 6,578,183
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Cost of shares acquired............. $ 10,260,885 $ 62,406,535 $30,711,029 $ 11,715,743 $ 21,754,619 $ 34,540,135
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Cost of shares redeemed............. $ (9,224,094) $ (4,375,417) $(3,583,069) $ (5,391,516) $ (3,583,202) $ (1,664,451)
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------

<CAPTION>
CAPITAL
GROWTH*
------------
<S> <C>
Shares purchased.................... 1,447,658
Shares received from reinvestment of
dividends.......................... 56,182
------------
Total shares acquired............... 1,503,840
Shares redeemed..................... (126,023)
------------
Net increase in shares owned........ 1,377,817
Shares owned, beginning of the
period............................. 1,009,714
------------
Shares owned, end of the period..... 2,387,531
------------
------------
Cost of shares acquired............. $ 17,294,534
------------
------------
Cost of shares redeemed............. $ (1,306,385)
------------
------------
</TABLE>

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

* date of inception, June 13, 1995

4. RELATED PARTY TRANSACTIONS

Contractowners' net payments represent premiums received from policyholders
less certain deductions made by Protective Life. These deductions may include
(1) premium tax charges, (2) surrender charges, and (3) transfer fees.

There are no sales expenses deducted from premiums at the time the premiums
are paid.

Premium taxes, when applicable, will be deducted, as provided under
applicable law, either from premiums when received, upon full or partial
surrenders of the contract or from the amount applied to effect an annuity at
the time annuity payments commence.

If a Contract has not been in force for six years, upon surrender or for
certain withdrawals, a surrender charge is deducted from the proceeds. Surrender
charges may be decreased or waived on Contracts meeting certain restrictions as
determined by Protective Life. Surrender charges of $600,919 and $355,926 were
assessed on surrenders of $30,524,253 and $14,672,488 during 1997 and 1996,
respectively.

Protective Life has the right to charge $25 for each transfer after the
first twelve transfers in any contract year. No transfer fees were assessed in
1997 or 1996, as no customer has requested more than twelve transfers in a
contract year.

An administrative charge is assessed on an annual basis equal to .15% of the
daily net asset value of each sub-account in the Separate Account.

The Separate Account is charged a daily mortality and expense risk charge at
an annual rate of 1.25% of the net asset value of each Sub-Account. Protective
Life assumes mortality risk in that annuitants may live for a longer period of
time than estimated when the guarantees in the Contract were established. The
expense risk that Protective Life assumes is the risk that administrative
charges, contract maintenance fees, and transfer fees may be insufficient to
cover actual future expenses. The mortality risk that Protective Life assumes
also includes a guarantee to pay a death benefit if the contractowner dies
before the annuity commencement date. The death benefit payable to the
designated beneficiary depends on the age of the deceased owner on the date of
death and the provision for death benefits at the purchase date of the annuity.
If the policy was purchased before May 1, 1996, the guaranteed death benefit is
equal to the sum of : (1) the Fixed Account Value (payable directly form
Protective Life); plus (2) the greater of: (a) the Separate Account value; or
(b) the total net premiums allocated to the Separate Account less previous

F-15
<PAGE>
THE PROTECTIVE VARIABLE ANNUITY SEPARATE ACCOUNT
OF PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

4. RELATED PARTY TRANSACTIONS (CONTINUED)
transfers from the Separate Account, partial surrenders, and any applicable
surrender charges and contract maintenance fees, increased by amounts
transferred to the Separate Account and interest at a compounded annual
effective interest rate of 5% credited as of each contract anniversary up to any
contractowner's 80th birthday. If the policy was purchased after May 1, 1996,
and the owners death is prior to the Owner's 90th birthday, the Death Benefit is
the greater of: (1) the Contract Value; or (2) total Purchase Payments made
under the Contract reduced by any partial surrenders, withdrawals and associated
Surrender Charges ; or (3) the Maximum Anniversary Value. If the Owner's death
occurs after the deceased Owner's 90th birthday, the Death Benefit is the
Contract Value.

A contract maintenance fee of $35 is deducted on each contract anniversary
date, and on any day that the contract is surrendered, if such surrender occurs
on any day other than the contract anniversary date. The contract fee may be
waived under certain circumstances. Contract maintenance fees assessed were
$309,245 and $244,405 during 1997 and 1996, respectively.

The net assets of each sub-account of the Separate Account reflect the
investment management fees and other operating expenses incurred by the Funds.

Protective Life offers a loan privilege to contractowners of section 403(b)
policies that are not subject to Title I of ERISA. Such contractowners may
obtain loans using the Contract as the only security for the loan. Loans are
subject to provisions of The Internal Revenue Code of 1986, as amended, and to
applicable retirement program rules. Loans outstanding approximated $395,000 and
$289,000 at December 31, 1997 and 1996, respectively.

F-16
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-18

Consolidated Statements of Income for the years ended December 31, 1997, 1996, and
1995............................................................................... F-19

Consolidated Balance Sheets as of December 31, 1997 and 1996......................... F-20

Consolidated Statements of Stockholder's Equity for the years ended December 31,
1997, 1996, and 1995............................................................... F-21

Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996,
and 1995........................................................................... F-22

Notes to Consolidated Financial Statements........................................... F-23

Financial Statement Schedules:

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

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

F-17
<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-17 of this Form N-4. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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, 1998
Birmingham, Alabama

F-18
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded:
1997-$334,899; 1996-$308,174; 1995-$333,173)............ $ 480,206 $ 462,050 $ 411,682
Net investment income..................................... 557,488 498,781 458,433
Realized investment gains................................. 1,824 5,510 1,951
Other income.............................................. 6,149 5,010 1,355
--------- --------- ---------
1,045,667 971,351 873,421
--------- --------- ---------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance
ceded: 1997-$180,605; 1996-$215,424; 1995-$247,224)..... 658,872 626,893 553,100
Amortization of deferred policy acquisition costs......... 107,175 91,001 82,700
Other operating expenses (net of reinsurance ceded:
1997-$90,045; 1996-$81,839; 1995-$84,855)............... 129,870 128,148 119,888
--------- --------- ---------
895,917 846,042 755,688
--------- --------- ---------
INCOME BEFORE INCOME TAX.................................... 149,750 125,309 117,733
INCOME TAX EXPENSE (BENEFIT)
Current................................................... 66,283 44,908 47,009
Deferred.................................................. (13,981) (2,142) (6,972)
--------- --------- ---------
52,302 42,766 40,037
--------- --------- ---------
NET INCOME.................................................. $ 97,448 $ 82,543 $ 77,696
--------- --------- ---------
--------- --------- ---------
</TABLE>

See notes to consolidated financial statements.

F-19
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1997-$6,221,871; 1996-$4,648,525)......... $ 6,348,252 $ 4,662,997
Equity securities, at market (cost: 1997-$24,983; 1996-$31,669)........................ 15,006 35,250
Mortgage loans on real estate.......................................................... 1,313,478 1,503,781
Investment real estate, net of accumulated depreciation (1997-$671; 1996-$911)......... 13,469 14,172
Policy loans........................................................................... 194,109 166,704
Other long-term investments............................................................ 54,704 29,193
Short-term investments................................................................. 54,337 101,215
------------ -----------
Total investments.................................................................... 7,993,355 6,513,312
Cash..................................................................................... 39,197 114,384
Accrued investment income................................................................ 94,095 70,541
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1997-$5,292; 1996-$2,525)............................................................. 42,255 43,469
Reinsurance receivables.................................................................. 591,457 332,614
Deferred policy acquisition costs........................................................ 632,605 488,201
Property and equipment, net.............................................................. 36,407 35,489
Other assets............................................................................. 14,445 14,636
Assets related to separate accounts...................................................... 931,465 550,697
------------ -----------
$ 10,375,281 $ 8,163,343
------------ -----------
------------ -----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims...................................................... $ 3,324,294 $ 2,448,449
Unearned premiums...................................................................... 396,696 257,553
------------ -----------
3,720,990 2,706,002
Guaranteed investment contract deposits.................................................. 2,684,676 2,474,728
Annuity deposits......................................................................... 1,511,553 1,331,067
Other policyholders' funds............................................................... 183,324 142,221
Other liabilities........................................................................ 246,081 117,847
Accrued income taxes..................................................................... 941 1,854
Deferred income taxes.................................................................... 49,417 37,722
Indebtedness to related parties.......................................................... 28,055 25,014
Liabilities related to separate accounts................................................. 931,465 550,697
------------ -----------
Total liabilities.................................................................... 9,356,502 7,387,152
------------ -----------
COMMITMENTS AND CONTINGENT LIABILITIES--NOTE G
STOCKHOLDER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation
preference $2,000...................................................................... 2 2
Common Stock, $1.00 par value............................................................ 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital............................................................... 327,992 237,992
Note receivable from PLC Employee Stock Ownership Plan................................... (5,378) (5,579)
Retained earnings........................................................................ 629,436 532,088
Accumulated other comprehensive income
Net unrealized gains on investments (net of income tax: 1997-$33,238; 1996-$3,601)..... 61,727 6,688
------------ -----------
Total stockholder's equity........................................................... 1,018,779 776,191
------------ -----------
$ 10,375,281 $ 8,163,343
------------ -----------
------------ -----------
</TABLE>

See notes to consolidated financial statements.

F-20
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NOTE
ADDITIONAL RECEIVABLE NET UNREALIZED TOTAL
PREFERRED COMMON PAID-IN FROM PLC RETAINED GAINS (LOSSES) STOCKHOLDER'S
STOCK STOCK CAPITAL ESOP EARNINGS ON INVESTMENTS EQUITY
--------- ------ ---------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994................... $5,000 $126,494 $(5,936) $377,049 $(107,532) $ 395,075
-------------
Net income for 1995........................ 77,696 77,696
Increase in net unrealized gains on
investments (net of income tax:
$89,742)................................. 166,663 166,663
Reclassification adjustment for amounts
included in net income (net of income
tax: $(683))............................. (1,268) (1,268)
-------------
Comprehensive income for 1995.............. 243,091
-------------
Common dividends ($1.00 per share)......... (5,000) (5,000)
Preferred dividends ($50 per share)........ (100) (100)
Capital contribution from PLC.............. 18,000 18,000
Decrease in note receivable form PLC
ESOP..................................... 171 171
--
------ ---------- ---------- --------- -------------- -------------
Balance, December 31, 1995................... 5,000 144,494 (5,765) 449,645 57,863 651,237
-------------
Net income for 1996........................ 82,543 82,543
Decrease in net unrealized gains on
investments (net of income tax:
$(25,627)................................ (47,593) (47,593)
Reclassification adjustment for amounts
included in net income (net of income
tax: $(1,928))........................... (3,582) (3,582)
-------------
Comprehensive income for 1996.............. 31,368
-------------
Redemption feature of preferred stock
removed-Note I........................... $2 1,998 2,000
Preferred dividends ($50 per share)........ (100) (100)
Capital contribution from PLC.............. 91,500 91,500
Decrease in note receivable from PLC
ESOP..................................... 186 186
--
------ ---------- ---------- --------- -------------- -------------
Balance, December 31, 1996................... 2 5,000 237,992 (5,579) 532,088 6,688 776,191
-------------
Net income for 1997........................ 97,448 97,448
Increase in net unrealized gains on
investments (net of income tax-
$30,275)................................. 56,225 56,225
Reclassification adjustment for amounts
included in net income (net of income
tax: $(638))............................. (1,186) (1,186)
-------------
Comprehensive income for 1997.............. 152,487
-------------
Preferred dividends ($50 per share)........ (100) (100)
Capital contribution from PLC.............. 90,000 90,000
Decrease in note receivable from PLC
ESOP..................................... 201 201
--
------ ---------- ---------- --------- -------------- -------------
Balance, December 31, 1997................... $2 $5,000 $327,992 $(5,378) $629,436 $ 61,727 $1,018,779
--
--
------ ---------- ---------- --------- -------------- -------------
------ ---------- ---------- --------- -------------- -------------
</TABLE>

See notes to consolidated financial statements.

F-21
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 97,448 $ 82,543 $ 77,696
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs................ 107,175 91,001 84,501
Capitalization of deferred policy acquisition costs.............. (135,211) (77,078) (89,266)
Depreciation expense............................................. 5,124 5,333 4,317
Deferred income taxes............................................ (17,918) (2,442) (6,971)
Accrued income taxes............................................. (5,558) 893 5,537
Interest credited to universal life and investment products...... 299,004 280,377 286,710
Policy fees assessed on universal life and investment products... (131,582) (116,401) (100,840)
Change in accrued investment income and other receivables........ (158,798) (70,987) (161,924)
Change in policy liabilities and other policyholder funds of
traditional life and health products........................... 279,522 133,621 201,353
Change in other liabilities...................................... 65,393 7,209 (3,270)
Other (net)...................................................... (1,133) (4,281) (6,634)
---------- ---------- ----------
Net cash provided by operating activities............................ 403,466 329,788 291,209
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale................................... 6,462,663 1,327,323 2,014,060
Other............................................................ 324,242 168,898 78,568
Sale of investments:
Investment available for sale.................................... 1,108,058 1,569,119 1,523,454
Other............................................................ 695,270 568,218 141,184
Cost of investments acquired:
Investments available for sale................................... (8,428,804) (3,798,631) (3,626,877)
Other............................................................ (718,335) (400,322) (540,648)
Acquisitions and bulk reinsurance assumptions...................... (169,124) 264,126
Purchase of property and equipment................................. (6,087) (6,899) (5,629)
Sale of property and equipment..................................... 2,681 288 286
---------- ---------- ----------
Net cash used in investing activities................................ (729,436) (307,880) (415,602)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt.... 1,159,538 941,438 1,162,700
Capital contribution from PLC...................................... 90,000 91,500 18,000
Principal payments on line of credit arrangements and long-term
debt............................................................. (1,159,538) (941,438) (1,162,700)
Principal payment on surplus note to PLC........................... (4,693) (10,000) (4,750)
Dividends to stockholder........................................... (100) (100) (5,100)
Investment product deposits and change in universal life
deposits......................................................... 910,659 949,122 908,063
Investment product withdrawals..................................... (745,083) (944,244) (785,622)
---------- ---------- ----------
Net cash provided by financing activities............................ 250,783 86,278 130,591
---------- ---------- ----------
INCREASE (DECREASE) IN CASH.......................................... (75,187) 108,186 6,198
CASH AT BEGINNING OF YEAR............................................ 114,384 6,198 0
---------- ---------- ----------
CASH AT END OF YEAR.................................................. $ 39,197 $ 114,384 $ 6,198
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt................................................. $ 4,343 $ 4,633 $ 6,029
Income taxes..................................................... $ 57,215 $ 43,478 $ 41,397
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP........................... $ 201 $ 186 $ 171
Acquisitions and bulk reinsurance assumptions
Assets acquired.................................................. $1,114,832 $ 296,935 $ 613
Liabilities assumed.............................................. (902,267) (364,862) (21,800)
---------- ---------- ----------
Net.............................................................. $ 212,565 $ (67,927) $ (21,187)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See notes to consolidated financial statements.

F-22
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A--SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

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

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

ENTITIES INCLUDED

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

NATURE OF OPERATIONS

Protective produces, distributes, and services a diverse array of life
insurance, specialty insurance and retirement savings and investment products.
Protective markets individual life insurance, dental insurance and managed care
services, credit life and disability insurance, guaranteed investment contracts,
guaranteed funding agreements, and fixed and variable annuities throughout the
United States. Protective also maintains a separate division devoted exclusively
to the acquisition of insurance policies from other companies.

The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors.

RECENTLY ISSUED ACCOUNTING STANDARDS

In 1996 Protective adopted Statement of Financial Accounting Standards
("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." In 1997 Protective adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities;"
SFAS No. 130, "Reporting Comprehensive Income;" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information."

SFAS No. 130 requires the presentation of comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Protective has reconfigured the Consolidated
Statements of Stockholder's Equity presented herein in accordance with this
Statement. SFAS No. 131 requires additional disclosures with respect to
Protective's operating segments.

The adoption of these accounting standards did not have a material effect on
Protective's financial statements but has resulted in changed disclosure and
financial statement presentation.

F-23
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS

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 $3.1 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 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.

F-24
<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)
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>
1997 1996
------------- ------------
<S> <C> <C>
Total investments................................................ $ 7,876,952 $ 6,495,259
Deferred policy acquisition costs................................ 654,043 495,965
All other assets................................................. 1,749,321 1,161,830
------------- ------------
$ 10,280,316 $ 8,153,054
------------- ------------
------------- ------------
Deferred income taxes............................................ $ 16,179 $ 34,121
All other liabilities............................................ 9,307,085 7,349,430
------------- ------------
9,323,264 7,383,551
Stockholder's equity............................................. 957,052 769,503
------------- ------------
$ 10,280,316 $ 8,153,054
------------- ------------
------------- ------------
</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 gains of $1.5 million and net realized losses of
$0.2 million were deferred in 1997 and 1996 respectively. At December 31, 1997
and 1996, options and open futures contracts with notional amounts of $925.0
million and $805.0 million, respectively, had net unrealized losses of $0.4
million and $1.9 million respectively.

Protective uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1997, related open
interest rate swap contracts with a notional amount of $95.3 million were in a
$0.1 million net unrealized loss position. 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.

In connection with a commercial mortgage loan securitization, Protective
entered into interest rate swap contracts converting a fixed rate of interest to
a floating rate of interest and converting a floating rate of interest to a
fixed rate of interest with notional amounts at December 31, 1997, of $332.4
million and $200.0 million, respectively. In the aggregate, there were no net
unrealized gains or losses associated with these swap contracts at December 31,
1997.

CASH

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

F-25
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT

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

Property and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Home office building.................................................... $ 37,459 $ 36,586
Other, principally furniture and equipment.............................. 46,937 35,401
--------- ---------
84,396 71,987
Accumulated depreciation................................................ 47,989 36,498
--------- ---------
$ 36,407 $ 35,489
--------- ---------
--------- ---------
</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.

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.

F-26
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Activity in the liability for unpaid claims is summarized as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance beginning of year................................ $ 108,159 $ 73,642 $ 79,462
Less reinsurance....................................... 6,423 3,330 5,024
---------- ---------- ----------
Net balance beginning of year............................ 101,736 70,312 74,438
---------- ---------- ----------
Incurred related to:
Current year............................................. 258,322 275,524 216,839
Prior year............................................... (14,540) (2,417) (4,038)
---------- ---------- ----------
Total incurred......................................... 243,782 273,107 212,801
---------- ---------- ----------
Paid related to:
Current year............................................. 203,381 197,163 164,321
Prior year............................................... 58,104 57,812 48,834
---------- ---------- ----------
Total paid............................................. 261,485 254,975 213,155
---------- ---------- ----------
Other changes:
Acquisitions and reserve transfers..................... 3,415 13,292 (3,772)
---------- ---------- ----------
Net balance end of year.................................. 87,448 101,736 70,312
Plus reinsurance....................................... 18,673 6,423 3,330
---------- ---------- ----------
Balance end of year...................................... $ 106,121 $ 108,159 $ 73,642
---------- ---------- ----------
---------- ---------- ----------
</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 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 1997.

At December 31, 1997, Protective estimates the fair value of its
guaranteed investment contracts to be $2,687.3 million using discounted
cash flows. The surrender value of Protective's annuities which
approximates fair value was $1,494.6 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

F-27
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE A--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $261.9 million and $149.9 million at December 31,
1997 and 1996, respectively. During 1996 $69.2 million of present value of
future profits on acquisitions made during the year was capitalized and $21.8
million was amortized. During 1997 $136.2 million of present value of future
profits on acquisitions made during the year was capitalized, and $24.2 million
was amortized. The unamortized present value of future profits for all
acquisitions was $274.9 million at December 31, 1997 and $167.6 million at
December 31, 1996.

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 $4.6 million in 1997, $4.1 million in 1996, and
$2.6 million in 1995.

INCOME TAXES

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

RECLASSIFICATIONS

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

F-28
<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

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

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
------------------------------- -------------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory
reporting practices: (1).......... $ 134,417 $ 102,337 $ 115,259 $ 579,111 $ 456,320 $ 324,416
Additions (deductions) by
adjustment:
Deferred policy acquisition costs,
net of amortization............. 10,310 (2,830) (765) 632,605 488,201 410,183
Deferred income tax............... 13,981 2,142 6,972 (49,417) (37,722) (67,420)
Asset Valuation Reserve........... 67,369 64,233 105,769
Interest Maintenance Reserve...... (1,434) (2,142) (1,235) 9,809 17,682 14,412
Nonadmitted items................. 30,500 21,610 20,603
Other timing and valuation
adjustments..................... (54,494) (11,210) (45,028) (215,448) (197,227) (108,495)
Noninsurance affiliates........... 17,530 11,104 (22) (4) 4 (9)
Consolidation elimination......... (22,862) (16,858) 2,515 (35,746) (36,910) (46,222)
--------- --------- --------- --------- --------- ---------
In conformity with generally
accepted accounting principles.... $ 97,448 $ 82,543 $ 77,696 $1,018,779 $ 776,191 $ 653,237
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

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

(1) Consolidated

F-29
<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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities......................................... $ 396,255 $ 310,353 $ 272,942
Equity securities........................................ 1,186 2,124 1,338
Mortgage loans on real estate............................ 161,604 153,463 162,135
Investment real estate................................... 2,004 1,875 1,855
Policy loans............................................. 11,370 10,378 8,958
Other, principally short-term investments................ 21,876 51,637 40,348
---------- ---------- ----------
594,295 529,830 487,576
Investment expenses...................................... 36,807 31,049 29,143
---------- ---------- ----------
$ 557,488 $ 498,781 $ 458,433
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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

<TABLE>
<S> <C> <C> <C>
Fixed maturities.............................. $ (8,355) $ (7,101) $ 6,118
Equity securities............................. 5,975 1,733 44
Mortgage loans and other investments.......... 4,204 10,878 (4,211)
--------- --------- ---------
$ 1,824 $ 5,510 $ 1,951
--------- --------- ---------
--------- --------- ---------
</TABLE>

Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $23.0 million at December 31, 1997 and $30.9
million at December 31, 1996. Additions and reductions to the allowance are
included in realized investment gains (losses). Without such additions/
reductions, Protective had net realized investment losses of $6.1 million in
1997, net realized investment gains of $3.7 million in 1996, and net realized
investment losses of $0.5 million in 1995.

In 1997, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $21.3 million and
gross losses were $23.5 million. In 1996, gross gains were $6.9 million and
gross losses were $11.8 million. In 1995, gross gains were $18.0 million and
gross losses were $11.8 million.

F-30
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE C--INVESTMENT OPERATIONS (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
1997 COST GAINS LOSSES VALUES
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed.......................................... $ 2,982,266 $ 54,103 $ 16,577 $ 3,019,792
United States Government and authorities................. 160,484 1,366 0 161,850
States, municipalities, and political subdivisions....... 31,621 532 0 32,153
Public utilities......................................... 481,679 7,241 0 488,920
Convertibles and bonds with warrants..................... 694 0 168 526
All other corporate bonds................................ 2,559,186 80,903 1,019 2,639,070
Redeemable preferred stocks................................ 5,941 0 0 5,941
------------ ----------- ----------- ------------
6,221,871 144,145 17,764 6,348,252
Equity securities............................................ 24,983 300 10,277 15,006
Short-term investments....................................... 54,337 0 0 54,337
------------ ----------- ----------- ------------
$ 6,301,190 $ 144,445 $ 28,041 $ 6,417,595
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>

<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>

F-31
<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
1997 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 456,248 $ 460,994
Due after one year through five years............................. 2,774,769 2,815,553
Due after five years through ten years............................ 2,377,989 2,440,193
Due after ten years............................................... 612,865 631,512
------------ ------------
$ 6,221,871 $ 6,348,252
------------ ------------
------------ ------------
</TABLE>

<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>

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

<TABLE>
<CAPTION>
RATING 1997 1996
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
AAA........................................................................ 41.1% 48.3%
AA......................................................................... 4.8 4.4
A.......................................................................... 29.1 22.6
BBB
Bonds.................................................................... 21.9 21.1
Bank loan participations................................................. 0.1
BB or Less
Bonds.................................................................... 3.0 2.5
Bank loan participations................................................. 0.9
Redeemable preferred stocks................................................ 0.1 0.1
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>

At December 31, 1997 and 1996, Protective had bonds which were rated less than
investment grade of $195.2 million and $117.5 million, respectively, having an
amortized cost of $193.6 million and $137.0 million, respectively. At December
31, 1997, approximately $89.6 million of the bonds rates less than investment
grade were securities issued in company-sponsored commercial mortgage loan
securitizations. Additionally, Protective had bank loan participations at
December 31, 1996 which were rated less than investment grade of $43.6 million
having an amortized cost of $43.6 million.

F-32
<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 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>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Fixed maturities......................................... $ 72,741 $ (56,898) $ 199,024
Equity securities........................................ $ (8,813) $ 207 $ 2,740
</TABLE>

At December 31, 1997, all of Protective's mortgage loans were commercial
loans of which 75% were retail, 9% were apartments, 7% 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 5% of mortgage loans. Approximately 84% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: Florida, Georgia, Texas, North Carolina,
Alabama, Virginia, South Carolina, Tennessee, Kentucky, California, Maryland,
Mississippi, Ohio, Michigan, and Indiana.

Many of the mortgage loans have call provisions after five to seven years.
Assuming the loans are called at their next call dates, approximately $76.7
million would become due in 1998, $434.4 million in 1999 to 2002, and $129.7
million in 2003 to 2007.

At December 31, 1997, the average mortgage loan was $1.6 million, and the
weighted average interest rate was 8.8%. The largest single mortgage loan was
$12.8 million. While Protective's mortgage loans do not have quoted market
values, at December 31, 1997 and 1996, Protective estimates the market value of
its mortgage loans to be $1,405.5 million and $1,581.7 million, respectively,
using discounted cash flows from the next call date.

At December 31, 1997 and 1996, Protective's problem mortgage loans and
foreclosed properties totaled $17.7 million and $23.7 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 $6.7
million were nonincome producing for the twelve months ended December 31, 1997.

Protective believes it is not practicable to determine the fair value of its
policy loans since there is no stated maturity, and policy loans are often
repaid by reductions to policy benefits. Policy loan interest rates generally
range from 4.5% to 8.0%. The fair values of Protective's other long-term
investments approximate cost.

F-33
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE D--FEDERAL INCOME TAXES

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

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<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............................... (0.2) (0.4) (0.5)
Low-income housing credit.......................................................... (0.6) (0.6) (0.7)
Tax benefits arising from prior acquisitions and other adjustments................. 0.7 0.1 0.2
--- --- ---
Effective income tax rate.......................................................... 34.9% 34.1% 34.0%
--- --- ---
--- --- ---
</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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs............................................. $ 7,054 $ 15,542 $ (11,606)
Benefit and other policy liability changes.................................... (23,564) (16,321) 52,496
Temporary differences of investment income.................................... 2,516 (1,163) (34,175)
Other items................................................................... 13 (200) (13,687)
---------- ---------- ----------
$ (13,981) $ (2,142) $ (6,972)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves.............................................. $ 138,701 $ 80,151
Other................................................................................... 1,029 2,503
---------- ----------
139,730 82,654
---------- ----------
---------- ----------
Deferred income tax liabilities:
Deferred policy acquisition costs....................................................... 150,895 117,696
Unrealized gain on investments.......................................................... 38,252 2,680
---------- ----------
189,147 120,376
---------- ----------
Net deferred income tax liability....................................................... $ 49,417 $ 37,722
---------- ----------
---------- ----------
</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, 1997 was approximately $73 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
$727 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.

F-34
<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)
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, 1997, PLC had no borrowings outstanding 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, 1997 and 1996.

Included in indebtedness to related parties is a surplus debenture issued by
Protective to PLC. At December 31, 1997, the balance of the surplus debenture
was $20.0 million. The debenture matures in 2003.

Indebtedness to related parties also consists of payables to affiliates
under control of PLC in the amount of $8.1 million at December 31, 1997.
Protective routinely receives from or pays to affiliates under the control of
PLC reimbursements for expenses incurred on one another's behalf. Receivables
and payables among affiliates are generally settled monthly.

Interest expense on borrowed money totaled $4.3 million, $4.6 million, and
$6.0 million, in 1997, 1996, and 1995, respectively.

NOTE F--RECENT ACQUISITIONS

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.

In June 1997, Protective acquired West Coast Life Insurance Company ("West
Coast"). In September 1997, Protective acquired the Western Diversified Group.
In October 1997, Protective coinsured a block of credit policies.

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.

Summarized below are the consolidated results of operations of 1997 and
1996, on an unaudited pro forma basis, as if the West Coast and Western
Diversified Group acquisitions had occurred as of January 1, 1996. The pro forma
information is based on Protective's consolidated results of operations for 1997
and 1996 and on data provided by the respective companies, after giving effect
to certain pro forma adjustments. The pro forma financial information does not
purport to be indicative of results of operations that

F-35
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE F--RECENT ACQUISITIONS (CONTINUED)
would have occurred had the transaction occurred on the basis assumed above nor
are they indicative of results of the future operations of the combined
enterprises.

<TABLE>
<S> <C> <C>
1997 1996
------------ ------------
Total revenues...................................................................... $ 1,133,962 $ 1,126,096
Net income.......................................................................... $ 100,621 $ 88,774
</TABLE>

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 addition, in some class action and other lawsuits involving
insurers' sales practices, insurers have made material settlement payments. In
some states (including Alabama), juries have substantial discretion in awarding
punitive damages which creates the potential for unpredictable material adverse
judgments in any given punitive damage suit. Protective and its subsidiaries,
like other life and health insurers, in the ordinary course of business, are
involved in such litigation. 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.

NOTE H--STOCKHOLDER'S EQUITY AND RESTRICTIONS

At December 31, 1997, approximately $483 million of consolidated
stockholder's equity excluding net unrealized gains and losses represented net
assets of Protective that cannot be transferred in the form of dividends, loans,
or advances to PLC. In general, dividends up to specified levels are considered
ordinary and may be paid thirty days after written notice to the insurance
commissioner of the state of domicile unless such commissioner objects to the
dividend prior to the expiration of such period. Dividends in larger amounts are
considered extraordinary and are subject to affirmative prior approval by such
commissioner. The maximum amount that would qualify as ordinary dividends to PLC
by Protective in 1998 is estimated to be $154 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. The stock pays, when and if declared,
annual minimum cumulative dividends of $50 per share, and noncumulative
participating

F-36
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE I--PREFERRED STOCK (CONTINUED)
dividends to the extent American Foundation's statutory earnings for the
immediately preceding fiscal year exceed $1 million. Dividends of $0.1 million
were paid to PLC in 1997, 1996, and 1995.

NOTE J--RELATED PARTY MATTERS

On August 6, 1990, PLC announced that its Board of Directors approved the
formation of an Employee Stock Ownership Plan ("ESOP"). On December 1, 1990,
Protective transferred to the ESOP 520,000 shares of PLC's common stock held by
it in exchange for a note. The outstanding balance of the note, $5.4 million at
December 31, 1997, is accounted for as a reduction to stockholder's equity. The
stock will be used to match employee contributions to PLC's existing 401(k)
Plan. The ESOP shares are dividend paying. Dividends on the shares are used to
pay the ESOP's note to Protective.

Protective leases furnished office space and computers to affiliates. Lease
revenues were $3.1 million in 1997, $3.7 million in 1996, and $3.1 million in
1995. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $51.6 million, $50.4
million, and $38.1 million, in 1997, 1996, and 1995, respectively. Commissions
paid to affiliated marketing organizations of $5.2 million, $7.4 million, and
$10.9 million, in 1997, 1996, and 1995, 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 $21.4 million, $31.2 million, and $21.2
million, in 1997, 1996, and 1995, respectively. Protective and/or PLC paid
commissions, interest, and service fees to these same corporations totaling $5.4
million, $5.0 million, and $5.3 million, in 1997, 1996, and 1995, respectively.

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

NOTE K--OPERATING SEGMENTS

Protective operates seven divisions whose principal strategic focuses can be
grouped into three general categories: Life Insurance, Specialty Insurance
Products, and Retirement Savings and Investment Products. Each division has a
senior officer of Protective responsible for its operations. A division is
generally distinguished by products and/or channels of distribution. A brief
description of each division follows.

LIFE INSURANCE

ACQUISITIONS DIVISION. The Acquisitions Division focuses solely on
acquiring, converting, and servicing business acquired from other companies.
These acquisitions may be accomplished through acquisitions of companies or
through the assumption or reinsurance of life insurance and related policies.

INDIVIDUAL LIFE DIVISION. The Individual Life Division markets universal
life and other life insurance products on a national basis through a network of
independent insurance agents. The Division primarily utilizes a distribution
system based on experienced independent producing general agents who are
recruited by regional sales managers. In addition, the Division distributes
insurance products in the life insurance brokerage market.

WEST COAST DIVISION. The West Coast Division sells universal and
traditional ordinary life products in the life insurance brokerage market and in
the "bank owned life insurance" market. The Division primarily

F-37
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE K--OPERATING SEGMENTS (CONTINUED)
utilizes a distribution system comprised of brokerage general agencies with a
network of independent life agents.

SPECIALTY INSURANCE PRODUCTS

DENTAL AND CONSUMER BENEFITS DIVISION. The Division (formerly known as the
Group Division) recently exited from the traditional group major medical
business, fulfilling the Division's strategy to focus primarily on dental and
related products. Accordingly, the Division was renamed the Dental and Consumer
Benefits Division. The Division's primary focus is on indemnity dental products.
The Division also markets group life and disability coverages, and administers
an essentially closed block of individual cancer insurance policies.

FINANCIAL INSTITUTIONS DIVISION. The Financial Institutions Division
specializes in marketing credit life and disability insurance products through
banks, consumer finance companies and automobile dealers. The Division markets
through employee field representatives, independent brokers, and an affiliate.
The Division also includes a small property casualty insurer that sells
automobile extended warranty coverages.

RETIREMENT SAVINGS AND INVESTMENT PRODUCTS

GUARANTEED INVESTMENT CONTRACTS DIVISION. The Guaranteed Investment
Contracts ("GIC") Division markets GICs to 401(k) and other qualified retirement
savings plans. The Division also offers related products, including guaranteed
funding agreements offered to the trustees of municipal bond proceeds, floating
rate contracts offered to trust departments, and long-term annuity contracts
offered to fund certain state obligations.

INVESTMENT PRODUCTS DIVISION. The Investment Products Division
manufactures, sells, and supports fixed and variable annuity products. These
products are primarily sold through stockbrokers, but are also sold through
financial institutions and the Individual Life Division's agency sales force.

CORPORATE AND OTHER

Protective has an additional business segment herein referred to as
Corporate and Other. The Corporate and Other segment primarily consists of net
investment income and expenses not attributable to the Divisions above
(including net investment income on capital and interest on substantially all
debt).

Protective uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated net
income and assets. Operating segment income is generally income before income
tax. Premiums and policy fees, other income, benefits and settlement expenses,
and amortization of deferred policy acquisition costs are attributed directly to
each operating segment. Net investment income is allocated based on directly
related assets required for transacting the business of that segment. Realized
investment gains (losses) and other operating expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.

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

There are no significant intersegment transactions.

Operating segment income and assets for the years ended December 31 are as
follows:

F-38
<PAGE>
(This page has been left blank intentionally.)

F-39
<PAGE>
PROTECTIVE LIFE INSUARNCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

<TABLE>
<CAPTION>
LIFE INSURANCE
-----------------------------------------
INDIVIDUAL
OPERATING SEGMENT INCOME ACQUISITIONS LIFE WEST COAST
- ------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
1997
Premiums and policy
fees................... $ 102,635 $ 127,480 $ 14,122
Net investment income.... 110,155 54,593 30,194
Realized investment gains
(losses)...............
Other income............. 10 617
------------- ----------- -----------
Total revenues....... 212,800 182,690 44,316
------------- ----------- -----------
Benefits and settlement
expenses............... 116,506 114,678 28,304
Amortization of deferred
policy acquisition
costs.................. 16,606 27,354 961
Other operating
expenses............... 23,016 18,178 6,849
------------- ----------- -----------
Total benefits and
expenses............ 156,128 160,210 36,114
------------- ----------- -----------
Income before income
tax.................... 56,672 22,480 8,202
Income tax expense.......
------------- ----------- -----------
Net income...............
------------- ----------- -----------
1996
Premiums and policy
fees................... $ 106,543 $ 116,710
Net investment income.... 106,015 48,442
Realized investment gains
(losses)............... 3,098
Other income............. 641 1,056
------------- ----------- -----------
Total revenues....... 213,199 169,306
------------- ----------- -----------
Benefits and settlement
expenses............... 118,181 96,404
Amortization of deferred
policy acquisition
costs.................. 17,162 28,393
Other operating
expenses............... 24,292 28,611
------------- ----------- -----------
Total benefits and
expenses............ 159,635 153,408
------------- ----------- -----------
Income before income
tax.................... 53,564 15,898
Income tax expense.......
------------- ----------- -----------
Net income...............
------------- ----------- -----------
1995
Premiums and policy
fees................... $ 98,501 $ 99,018
Net investment income.... 95,018 40,237
Realized investment gains
(losses)...............
Other income............. 25 169
------------- ----------- -----------
Total revenues....... 193,544 139,424
------------- ----------- -----------
Benefits and settlement
expenses............... 100,016 80,067
Amortization of deferred
policy acquisition
costs.................. 20,601 20,403
Other operating
expenses............... 22,551 22,748
------------- ----------- -----------
Total benefits and
expenses............ 143,168 123,218
------------- ----------- -----------
Income before income
tax.................... 50,376 16,206
Income tax expense.......
------------- ----------- -----------
Net income...............
------------- ----------- -----------
OPERATING SEGMENT ASSETS
- -------------------------
1997
Investments and other
assets................. $1,401,294 $ 960,316 $ 910,030
Deferred policy
acquisition costs...... 138,052 252,321 108,126
------------- ----------- -----------
Total assets............. $1,539,346 $ 1,212,637 $1,018,156
------------- ----------- -----------
1996
Investments and other
assets................. $1,423,081 $ 814,728
Deferred policy
acquisition costs...... 156,172 220,232
------------- ----------- -----------
Total assets............. $1,579,253 $ 1,034,960
------------- ----------- -----------
1995
Investments and other
assets................. $1,131,653 $ 701,431
Deferred policy
acquisition costs...... 123,889 186,496
------------- ----------- -----------
Total assets............. $1,255,542 $ 887,927
------------- ----------- -----------
</TABLE>

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

(1) Adjustments represent the inclusion of unallocated realized investment
gains (losses) and the recognition of income tax expense. There are no
asset adjustments.

F-40
<PAGE>
PROTECTIVE LIFE INSUARNCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

<TABLE>
<CAPTION>
SPECIALTY INSURANCE RETIREMENT SAVINGS AND
PRODUCTS INVESTMENT PRODUCTS
--------------------------- ---------------------------
DENTAL AND GUARANTEED CORPORATE
CONSUMER FINANCIAL INVESTMENT INVESTMENT AND TOTAL
BENEFITS INSTITUTIONS CONTRACTS PRODUCTS OTHER ADJUSTMENTS(1) CONSOLIDATED
----------- ------------- ------------ ------------ ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Premiums and policy
fees................... $151,110 $ 72,263 $ 12,367 $ 229 $ 480,206
Net investment income.... 23,810 16,341 $ 211,915 105,196 5,284 557,488
Realized investment gains
(losses)............... (3,180) 589 $4,415 1,824
Other income............. 1,278 3,033 (192) 1,403 6,149
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 176,198 91,637 208,735 117,960 6,916 1,045,667
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 110,148 27,643 179,235 82,019 339 658,872
Amortization of deferred
policy acquisition
costs.................. 15,711 30,812 618 15,110 3 107,175
Other operating
expenses............... 38,572 20,165 3,945 12,312 6,833 129,870
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 164,431 78,620 183,798 109,441 7,175 895,917
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 11,767 13,017 24,937 8,519 (259) 149,750
Income tax expense....... 52,302 52,302
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 97,448
----------- ------------- ------------ ------------ ---------- ------ -------------
1996
Premiums and policy
fees................... $156,530 $ 73,422 $ 8,189 $ 656 $ 462,050
Net investment income.... 16,249 13,898 $ 214,369 98,719 1,089 498,781
Realized investment gains
(losses)............... (7,963) 3,858 $6,517 5,510
Other income............. 2,193 56 1,064 5,010
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 174,972 87,320 206,406 110,822 2,809 971,351
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 125,797 42,781 169,927 73,093 710 626,893
Amortization of deferred
policy acquisition
costs.................. 5,326 24,900 509 14,710 1 91,001
Other operating
expenses............... 43,028 10,673 3,840 13,196 4,508 128,148
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 174,151 78,354 174,276 100,999 5,219 846,042
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 821 8,966 32,130 9,823 (2,410) 125,309
Income tax expense....... 42,766 42,766
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 82,543
----------- ------------- ------------ ------------ ---------- ------ -------------
1995
Premiums and policy
fees................... $142,483 $ 65,669 $ 4,566 $ 1,445 $ 411,682
Net investment income.... 14,329 9,276 $ 203,376 95,661 536 458,433
Realized investment gains
(losses)............... (3,908) 4,938 $ 921 1,951
Other income............. 2,451 (2,187) (181) 1,078 1,355
----------- ------------- ------------ ------------ ---------- ------ -------------
Total revenues....... 159,263 72,758 199,468 104,984 3,059 873,421
----------- ------------- ------------ ------------ ---------- ------ -------------
Benefits and settlement
expenses............... 109,447 24,020 165,963 72,111 1,476 553,100
Amortization of deferred
policy acquisition
costs.................. 3,052 26,809 386 11,446 3 82,700
Other operating
expenses............... 37,657 14,228 4,140 10,494 8,070 119,888
----------- ------------- ------------ ------------ ---------- ------ -------------
Total benefits and
expenses............ 150,156 65,057 170,489 94,051 9,549 755,688
----------- ------------- ------------ ------------ ---------- ------ -------------
Income before income
tax.................... 9,107 7,701 28,979 10,933 (6,490) 117,733
Income tax expense....... 40,037 40,037
----------- ------------- ------------ ------------ ---------- ------ -------------
Net income............... $ 77,696
----------- ------------- ------------ ------------ ---------- ------ -------------
OPERATING SEGMENT ASSETS
- -------------------------
1997
Investments and other
assets................. $208,071 $536,058 $2,887,732 $2,313,279 $525,896 $ 9,742,676
Deferred policy
acquisition costs...... 22,459 52,836 1,785 56,074 952 632,605
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $230,530 $588,894 $2,889,517 $2,369,353 $526,848 $10,375,281
----------- ------------- ------------ ------------ ---------- ------ -------------
1996
Investments and other
assets................. $205,696 $312,826 $2,606,873 $1,821,250 $490,688 $ 7,675,142
Deferred policy
acquisition costs...... 27,944 32,040 1,164 50,637 12 488,201
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $233,640 $344,866 $2,608,037 $1,871,887 $490,700 $ 8,163,343
----------- ------------- ------------ ------------ ---------- ------ -------------
1995
Investments and other
assets................. $215,248 $228,849 $2,535,946 $1,541,255 $414,128 $ 6,768,510
Deferred policy
acquisition costs...... 24,974 36,283 993 37,534 14 410,183
----------- ------------- ------------ ------------ ---------- ------ -------------
Total assets............. $240,222 $265,132 $2,536,939 $1,578,789 $414,142 $ 7,178,693
----------- ------------- ------------ ------------ ---------- ------ -------------
</TABLE>

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

F-41
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

NOTE L--EMPLOYEE BENEFIT PLANS

PLC has a defined benefit pension plan covering substantially all of its
employees. The plan is not separable by affiliates participating in the plan.
However, approximately 81% of the participants in the plan are employees of
Protective. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. PLC's funding policy is
to contribute amounts to the plan sufficient to meet the minimum finding
requirements of ERISA plus such additional amounts as PLC may determine to be
appropriate from time to time. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future.

The actuarial present value of benefit obligations and the funded status of
the plan taken as a whole at December 31 are as follows:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $18,216 in 1997 and $14,720 in
1996...................................................................................... $ 19,351 $ 15,475
--------- ---------
Projected benefit obligation for service rendered to date................................... $ 30,612 $ 25,196
Plan assets at fair value (group annuity contract with Protective).......................... 21,763 19,779
--------- ---------
Plan assets less than the projected benefit obligation...................................... (8,849) (5,417)
Unrecognized net loss from past experience different from that assumed...................... 6,997 3,559
Unrecognized prior service cost............................................................. 605 705
Unrecognized net transition asset........................................................... (51) (67)
--------- ---------
Net pension liability recognized in balance sheet........................................... $ (1,298) $ (1,220)
--------- ---------
--------- ---------
</TABLE>

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

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the year..................................... $ 2,112 $ 1,908 $ 1,540
Interest cost on projected benefit obligation..................................... 2,036 1,793 1,636
Actual return on plan assets...................................................... (1,624) (1,674) (1,358)
Net amortization and deferral..................................................... 66 374 114
--------- --------- ---------
Net pension cost.................................................................. $ 2,590 $ 2,401 $ 1,932
--------- --------- ---------
--------- --------- ---------
</TABLE>

Protective's share of the net pension cost was $1.8 million, $1.5 million,
and $1.2 million, in 1997, 1996, and 1995, respectively.

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

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate........................................................ 7.25% 7.75% 7.25%
Rates of increase in compensation level............................................... 5.25% 5.75% 5.25%
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

F-42
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

Protective in the retiree's name. Therefore, amounts presented above as plan
assets exclude assets relating to retirees.

PLC also sponsors an unfunded Excess Benefits Plan, which is a nonqualified
plan that provides defined pension benefits in excess of limits imposed by
federal income tax law. At December 31, 1997 and 1996, the projected benefit
obligation of this plan totaled $10.0 million and $7.2 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, 1997 and 1996, the liability for such
benefits totaled $1.3 million and $1.4 million, respectively. The expense
recorded by PLC was $0.1 million in 1997 and 1996 and $0.2 million in 1995.
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, 1997, PLC had committed 47,523 shares to be
released to fund employee benefits. The expense recorded by PLC for these
employee benefits was less than $0.1 million, $1.0 million, and $0.7 million, in
1997, 1996, and 1995, 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
3,200,000 shares may be issued in payment of awards. The number of shares
granted in 1997, 1996, and 1995 were 49,390, 52,290, and 72,610 shares,
respectively, having an approximate market value on the grant date of $2.0
million, $1.8 million, and $1.6 million, respectively. At December 31, 1997,
outstanding awards measured at target and maximum payouts were 261,318 and
353,385 shares, respectively. The expense recorded by PLC for the Performance
Share Plan was $2.7 million, $3.0 million, and $2.9 million in 1997, 1996, and
1995, respectively.

During 1996, stock appreciation rights (SARs) were granted to certain
executives of PLC to provide long-term incentive compensation based on the
performance of PLC's Common Stock. Under this arrangement PLC will pay (in
shares of PLC Common Stock) an amount equal to the difference between the
specified base price of PLC's Common Stock and the market value at the exercise
date. The SARs are

F-43
<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)
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, 1997 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 $0.6 million in 1997 and
$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. In many cases, the retention is less.

Protective has reinsured approximately $34.1 billion, $18.8 billion, and
$17.5 billion in face amount of life insurance risks with other insurers
representing $147.2 million, $113.5 million, and $116.1 million of premium
income for 1997, 1996, and 1995, respectively. Protective has also reinsured
accident and health risks representing $187.7 million, $194.7 million, and
$217.1 million of premium income for 1997, 1996, and 1995, respectively. In 1997
and 1996, policy and claim reserves relating to insurance ceded of $485.8
million and $325.9 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, 1997 and 1996, Protective had paid $25.6 million and $6.7 million,
respectively, of ceded benefits which are recoverable from reinsurers. In
addition, at December 31, 1997, Protective had receivables of $80.3 million
related to insurance assumed.

A substantial portion of Protective's new credit insurance sales are being
reinsured. Included in the preceding paragraph are credit life and credit
accident and health insurance premiums of $96.7 million, $103.0 million, and
$125.8 million for 1997, 1996 and 1995, respectively, and reserves which were
ceded of $238.8 million and $135.8 million during 1997 and 1996, respectively.

F-44
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)

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>
1997 1996
----------------------------- -----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT MARKET VALUES AMOUNT MARKET VALUES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities...................... $ 6,348,252 $ 6,348,252 $ 4,662,997 $ 4,662,997
Equity securities..................... 15,006 15,006 35,250 35,250
Mortgage loans on real estate......... 1,313,478 1,405,474 1,503,781 1,581,694
Short-term investments................ 54,337 54,337 101,215 101,215
Cash.................................... 39,197 39,197 114,384 114,384
Liabilities (see Notes A and E):
Guaranteed investment contract
deposits............................ 2,684,676 2,687,331 2,474,728 2,462,036
Annuity deposits...................... 1,511,553 1,494,600 1,331,067 1,322,304
Other (see Note A):
Futures contracts..................... (1,708)
Interest rate swaps................... (145) (679)
Options............................... 234
</TABLE>

F-45
<PAGE>
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------
GIC AND
ANNUITY
DEFERRED FUTURE DEPOSITS PREMIUMS
POLICY POLICY AND OTHER AND
ACQUISITION BENEFITS UNEARNED POLICYHOLDERS' POLICY
SEGMENT COSTS AND COSTS PREMIUMS FUNDS FEES
- --------------------------------------------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Life Insurance
Acquisitions............................... $138,052 $ 1,025,340 $ 1,437 $ 311,150 $102,635
Individual Life............................ 252,321 920,924 356 16,334 127,480
West Coast................................. 108,126 739,463 0 95,495 14,122
Specialty Insurance Products
Dental and Consumer Benefits............... 22,459 120,925 2,536 80,654 151,110
Financial Institutions..................... 52,836 159,422 391,085 6,791 72,263
Retirement Savings and Investment Products
Guaranteed Investment Contracts............ 1,785 180,690 0 2,684,676 0
Investment Products........................ 56,074 177,150 0 1,184,268 12,367
Corporate and Other.......................... 952 380 1,282 185 229
Unallocated Realized Investment Gains
(Losses)................................... 0 0 0 0 0
--------- ----------- --------- ----------- ---------
TOTAL.................................... $632,605 $ 3,324,294 $396,696 $4,379,553 $480,206
--------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- ---------
Year Ended December 31, 1996:
Life Insurance
Acquisitions............................... $156,172 $ 1,117,159 $ 1,087 $ 251,450 $106,543
Individual Life............................ 220,232 793,370 685 15,577 116,710
Specialty Insurance Products
Dental and Consumer Benefits............... 27,944 119,010 2,572 83,632 156,530
Financial Institutions..................... 32,040 119,242 253,154 1,880 73,422
Retirement Savings and Investment Products
Guaranteed Investment Contracts............ 1,164 149,755 0 2,474,728 0
Investment Products........................ 50,637 149,743 0 1,120,557 8,189
Corporate and Other.......................... 12 170 55 192 656
Unallocated Realized Investment Gains
(Losses)................................... 0 0 0 0 0
--------- ----------- --------- ----------- ---------
TOTAL.................................... $488,201 $ 2,448,449 $257,553 $3,948,016 $462,050
--------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- ---------
Year Ended December 31, 1995:
Life Insurance
Acquisitions............................... $123,889 $ 851,994 $ 590 $ 250,550 $ 98,501
Individual Life............................ 186,496 672,569 336 14,709 99,018
Specialty Insurance Products
Dental and Consumer Benefits............... 24,974 123,279 2,806 85,925 142,483
Financial Institutions..................... 36,283 84,162 189,973 1,495 65,669
Retirement Savings and Investment Products
Guaranteed Investment Contracts............ 993 68,704 0 2,451,693 0
Investment Products........................ 37,534 127,104 0 1,061,507 4,566
Corporate and Other.......................... 14 342 62 263 1,445
Unallocated Realized Investment Gains
(Losses)................................... 0 0 0 0 0
--------- ----------- --------- ----------- ---------
TOTAL.................................... $410,183 $ 1,928,154 $193,767 $3,866,142 $411,682
--------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- ---------

<CAPTION>
- ---------------------------------------------
COL. A COL. G COL. H COL. I COL. J
- ---------------------------------------------
AMORTIZATION
OF
NET REALIZED BENEFITS DEFERRED OTHER
INVESTMENT INVESTMENT AND POLICY OPERATING
INCOME GAINS SETTLEMENT ACQUISITION EXPENSES
SEGMENT (1) (LOSSES) EXPENSES COSTS (1)
- --------------------------------------------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Life Insurance
Acquisitions............................... $110,155 $ 0 $116,506 $ 16,606 $ 23,016
Individual Life............................ 54,593 0 114,678 27,354 18,178
West Coast................................. 30,194 0 28,304 961 6,849
Specialty Insurance Products
Dental and Consumer Benefits............... 23,810 0 110,148 15,711 38,572
Financial Institutions..................... 16,341 0 27,643 30,812 20,165
Retirement Savings and Investment Products
Guaranteed Investment Contracts............ 211,915 (3,180) 179,235 618 3,945
Investment Products........................ 105,196 589 82,019 15,110 12,312
Corporate and Other.......................... 5,284 0 339 3 6,833
Unallocated Realized Investment Gains
(Losses)................................... 0 4,415 0 0 0
--------- -------- --------- --------- ---------
TOTAL.................................... $557,488 $ 1,824 $658,872 $107,175 $129,870
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
Year Ended December 31, 1996:
Life Insurance
Acquisitions............................... $106,015 $ 0 $118,181 $ 17,162 $ 24,292
Individual Life............................ 48,442 3,098 96,404 28,393 28,611
Specialty Insurance Products
Dental and Consumer Benefits............... 16,249 0 125,797 5,326 43,027
Financial Institutions..................... 13,898 0 42,781 24,900 10,673
Retirement Savings and Investment Products
Guaranteed Investment Contracts............ 214,369 (7,963) 169,927 509 3,840
Investment Products........................ 98,719 3,858 73,093 14,710 13,197
Corporate and Other.......................... 1,089 0 710 1 4,508
Unallocated Realized Investment Gains
(Losses)................................... 0 6,517 0 0 0
--------- -------- --------- --------- ---------
TOTAL.................................... $498,781 $ 5,510 $626,893 $ 91,001 $128,148
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
Year Ended December 31, 1995:
Life Insurance
Acquisitions............................... $ 95,018 $ 0 $100,016 $ 20,601 $ 22,551
Individual Life............................ 40,237 0 80,067 20,403 22,748
Specialty Insurance Products
Dental and Consumer Benefits............... 14,329 0 109,447 3,052 37,657
Financial Institutions..................... 9,276 0 24,020 26,809 14,229
Retirement Savings and Investment Products
Guaranteed Investment Contracts............ 203,376 (3,908) 165,963 386 4,140
Investment Products........................ 95,661 4,938 72,111 11,446 10,494
Corporate and Other.......................... 536 0 1,476 3 8,069
Unallocated Realized Investment Gains
(Losses)................................... 0 921 0 0 0
--------- -------- --------- --------- ---------
TOTAL.................................... $458,433 $ 1,951 $553,100 $ 82,700 $119,888
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
</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, 1997:
Life insurance in force.................... $ 78,240,282 $ 34,139,554 $ 11,013,202 $ 55,113,930 20.0%
------------- ------------- ------------- ------------- ---
------------- ------------- ------------- ------------- ---
Premiums and policy fees:
Life insurance............................. $ 387,108 $ 147,184 $ 74,738 $ 314,662 23.8%
Accident and health insurance.............. 336,575 187,715 10,686 159,546 6.7%
Property and liability insurance........... 6,139 176 35 5,998 0.6%
------------- ------------- ------------- -------------
TOTAL...................................... $ 729,822 $ 335,075 $ 85,459 $ 480,206
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Year Ended December 31, 1996:
Life insurance in force.................... $ 53,052,020 $ 18,840,221 $ 16,275,386 $ 50,487,185 32.2%
------------- ------------- ------------- ------------- ---
------------- ------------- ------------- ------------- ---
Premiums and policy fees:
Life insurance............................. $ 272,331 $ 113,487 $ 129,717 $ 288,561 45.0%
Accident and health insurance.............. 338,709 194,687 29,467 173,489 17.0%
------------- ------------- ------------- -------------
TOTAL...................................... $ 611,040 $ 308,174 $ 159,184 $ 462,050
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
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 and health insurance.............. 356,285 217,082 13,583 152,786 8.9%
------------- ------------- ------------- -------------
TOTAL...................................... $ 664,707 $ 333,173 $ 80,148 $ 411,682
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>

S-2
<PAGE>
PART C
OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements:

All required financial statements are included in Part A and Part B of this
Registration Statement.

(b) Exhibits:

<TABLE>
<C> <S> <C>
1. Resolution of the Board of Directors of Protective Life Insurance
Company authorizing establishment of the Protective Life Variable
Annuity Separate Account**
2. Not applicable
3. (a) Form of Underwriting Agreement among Protective Life
Insurance Company, Investment Distributors, Inc. and the
Protective Life Variable Annuity Separate Account
(b) Form of Distribution Agreement between Investment
Distributors, Inc. and broker/ dealers
4. (a) Form of Individual Flexible Premium Deferred Variable and
Fixed Annuity Contract****
(b) Annual Reset Death Benefit Rider****
(c) Compound Death Benefit Rider****
5. Form of Contract Applications
6. (a) Charter of Protective Life Insurance Company.*
(b) By-Laws of Protective Life Insurance Company.*
7. Not applicable
8. (a) Participation/Distribution Agreement (Protective Investment
Company)**
(b) Participation Agreement (Oppenheimer Variable Account
Funds)***
(c) Participation Agreement (MFS Variable Insurance Trust)***
(d) Participation Agreement (Acacia Capital Corporation)***
(e) Participation Agreement (Van Eck Worldwide Insurance Trust)
9. Opinion and Consent of Steve M. Callaway, Esq.
10. (a) Consent of Sutherland, Asbill & Brennan, L.L.P.
(b) Consent of PricewaterhouseCoopers LLP
11. No financial statements will be omitted from Item 23
12. Not applicable
13. Not applicable
14. Powers of Attorney
</TABLE>

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

* Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement, (File No. 33-70984) filed with the Commission on
October 28, 1993.

** Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement, (File No. 33-70984) filed with the
Commission on February 23, 1994.

*** Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form N-4 Registration Statement, (File No. 33-70984) filed with the
Commission on April 30, 1997.

**** Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 333-60149) filed with the Commission on
July 1, 1998.

C-1
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF DEPOSITOR.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH DEPOSITOR
- ----------------------------------------------- -----------------------------------------------------------------
<S> <C>
Drayton Nabers, Jr. Chairman of the Board
John D. Johns President, and Director
R. Stephen Briggs Executive Vice President, Director
Carolyn King Senior Vice President, Investment Products, and Director
Deborah J. Long Senior Vice President, General Counsel, Secretary, and Director
Jim E. Massengale Executive Vice President, Acquisitions, and Director
Steven A. Schultz Senior Vice President, Financial Institutions, and Director
Wayne E. Stuenkel Senior Vice President and Chief Actuary, and Director
A.S. Williams, III Executive Vice President, Investments, Treasurer, and Director
Judy Wilson Senior Vice President, Guaranteed Investment Contracts
J. Russell Bailey, Jr. Vice President, Dental and Consumer Benefits
Michael B. Ballard Vice President, Individual Life Marketing
Harvey S. Benjamin Vice President, Investment Products Operations
Danny L. Bentley Senior Vice President, Dental and Consumer Benefits, and Director
Richard J. Bielen Senior Vice President, Investments, and Director
Marcus N. Bowen Vice President, PPGA Sales
Linda C. Cleveland Vice President, Acquisition Administration
Chris T. Calos Vice President, Marketing, Dental and Consumer Benefits
Tim W. Carney Vice President, MGMD Dental Sales
Jerry W. DeFoor Vice President and Controller and Chief Accounting Officer
John B. Deremo Vice President, Individual Life Sales
Brent E. Fritz Vice President, Individual Life Product Development
Bruce W. Gordon Vice President, Marketing, Individual Life
James T. Helton III Vice President and Actuary, Dental and Consumer Benefits
Charles (T.O.) McDowell Vice President, PPGA Sales
William L. McMullen, Jr. Vice President, Customer Service, Financial Institutions
Lawrence G. Merrill Vice President, Investment Products Marketing
Charles Misasi Vice President, Network Plans
John O'Sullivan Vice President and Actuary, Investment Products
Edmund P. Perry Vice President, Individual Life Sales
Carl E. Price Vice President, Direct Marketing, Dental and Consumer Benefits
Charles M. Prior Vice President, Investments
T. Michael Presley Vice President and Actuary, Financial Institutions
John Sawyer Vice President, Equity Marketing, Individual Life
David C. Stevens Vice President, Operations, Dental and Consumer Benefits
James M. Styne Vice President, Financial Institutions
Carl S. Thigpen Vice President, Investments and Assistant Secretary
Alan E. Watson Vice President, Individual Life Sales
Thomas W. Willingham Vice President, Individual Life Operations and Assistant
Secretary
Banks M. Wood Vice President, Sales and Marketing, Financial Institutions
</TABLE>

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

* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama 35223.

C-2
<PAGE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR AND
REGISTRANT

The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. All of the Company's outstanding voting
common stock is owned by Protective Life Corporation. Protective Life
Corporation is described more fully in the prospectus included in this
registration statement. Various companies and other entities controlled by
Protective Life Corporation may therefore be considered to be under common
control with the registrant or the Company. Such other companies and entities,
together with the identity of their controlling persons (where applicable), are
set forth in Exhibit 21 to Form 10-K of Protective Life Corporation for the
fiscal year ended December 31, 1997 (File No. 1-2332) filed with the Commission
on March 27, 1998.

Item 27. NUMBER OF CONTRACTOWNERS.

As of the date of this filing, there were 0 contract owners of individual
flexible premium deferred variable and fixed annuity contracts offered by
Registrant.

Item 28. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article XI of the By-laws of Protective Life provides, in substance, that
any of Protective Life's directors and officers, who is a party or is threatened
to be made a party to any action, suit or proceeding, other than an action by or
in the right of Protective Life, by reason of the fact that he is or was an
officer or director, shall be indemnified by Protective Life against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such claim,
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Protective
Life and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. If the claim, action or suit is or
was by or in the right of Protective Life to procure a judgment in its favor,
such person shall be indemnified by Protective Life against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Protective Life, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to Protective
Life unless and only to the extent that the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper. To the extent that a director or officer has been successful on the
merits or otherwise in defense of any such action, suit or proceeding, or in
defense of any claim, issue or matter therein, he shall be indemnified by
Protective Life against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, not withstanding that he has
not been successful on any other claim issue or matter in any such action, suit
or proceeding. Unless ordered by a court, indemnification shall be made by
Protective Life only as authorized in the specific case upon a determination
that indemnification of the officer or director is proper in the circumstances
because he has met the applicable standard of conduct. Such determination shall
be made (a) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to, or who have been successful on the merits
or otherwise with respect to, such claim action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion or (c) by the shareholders.

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

C-3
<PAGE>
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification 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, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

Item 29. PRINCIPAL UNDERWRITER.

(a)Investment Distributors, Inc. ("IDI") is the principal underwriter of the
Contracts as defined in the Investment Company Act of 1940. IDI is also
principal underwriter for the Fund and for the Protective Life Variable
Separate Account.

(b)The following information is furnished with respect to the officers and
directors of Investment Distributors, Inc.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* POSITION AND OFFICES WITH REGISTRANT
- ------------------------------ ---------------------- -------------------------------------
<S> <C> <C>
Briggs, Robert Stephen President, Chief Executive Vice President, Director
Executive Officer and
Director
Ballard, Michael B. Director Vice President, Individual Life
Marketing
Merrill, Lawrence G. Director Vice President, Investment Products
Marketing
King, Carolyn Secretary, Chief Senior Vice President, Investment
Compliance Officer Products
O'Sullivan, John Financial Operations Vice President and Actuary,
Principal, Treasurer Investment Products
and Director
Callaway, Steve M. Director None
Janet Summey Assistant Secretary Assistant Vice President, Investment
Products
Bonnie Miller Assistant Secretary Assistant Vice President, Investment
Products
</TABLE>

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

* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama, 35223.

Item 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts and records required to be maintained by Section 31(c) of the
Investment Company Act of 1940 and the rules thereunder are maintained by
Protective Life Insurance Company at 2801 Highway 280 South, Birmingham, Alabama
35223.

Item 31. MANAGEMENT SERVICES.

All management contracts are discussed in Part A or Part B.

Item 32. UNDERTAKINGS.

C-4
<PAGE>
(a)Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more
than sixteen (16) months old for so long as payments under the variable
annuity contracts may be accepted.

(b)Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a postcard or similar written communication affixed
to or included in the Prospectus that the applicant can remove to send
for a Statement of Additional Information; and

(c)Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available
under this Form promptly upon written or oral request.

(d)The Company represents that in connection with its offering of the
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986, it
is relying on a no-action letter dated November 28, 1988, to the American
Council of Life Insurance (Ref. No. IP-6-88) regarding Sections 22(e),
27(c)(1), and 27(d) of the Investment Company Act of 1940, and that
paragraphs numbered (1) through (4) of that letter will be complied with.

(e)Protective Life hereby represents that the fees and charges deducted
under the Contract, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed by Protective Life.

C-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant of this Registration Statement
has duly caused the amendment to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Birmingham,
State of Alabama on October 26, 1998.

PROTECTIVE VARIABLE ANNUITY
SEPARATE ACCOUNT

By: /s/ JOHN D. JOHNS

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

John D. Johns, President
Protective Life Insurance Company

PROTECTIVE LIFE INSURANCE COMPANY

By: /s/ JOHN D. JOHNS

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

John D. Johns, President
Protective Life Insurance Company

As required by the Securities Act of 1933, the amendment to this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

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

*
--------------------------------- Chairman of the Board October 26, 1998
Drayton Nabers, Jr. (Principal Executive Officer)

/s/ JOHN D. JOHNS
--------------------------------- President October 26, 1998
John D. Johns (Principal Financial Officer)

/s/ JERRY W. DEFOOR Vice President, Controller, and
--------------------------------- Chief Accounting Officer October 26, 1998
Jerry W. DeFoor (Principal Accounting Officer)

*
--------------------------------- Director October 26, 1998
Drayton Nabers, Jr.

/s/ JOHN D. JOHNS
--------------------------------- Director October 26, 1998
John D. Johns

*
--------------------------------- Director October 26, 1998
R. Stephen Briggs

*
--------------------------------- Director October 26, 1998
Jim E. Massengale

*
--------------------------------- Director October 26, 1998
Wayne E. Stuenkel
</TABLE>

<PAGE>

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

<S> <C> <C> <C>
*
--------------------------------- Director October 26, 1998
A. S. Williams III

*
--------------------------------- Director October 26, 1998
Steven A. Schultz

*
--------------------------------- Director October 26, 1998
Deborah J. Long

*
--------------------------------- Director October 26, 1998
Carolyn King

*
--------------------------------- Director October 26, 1998
Richard J. Bielen

*
--------------------------------- Director October 26, 1998
Danny L. Bentley

*By: /s/ STEVE CALLAWAY
---------------------------------
Steve Callaway
ATTORNEY IN FACT
</TABLE>

<PAGE>

UNDERWRITING AGREEMENT
----------------------

THIS UNDERWRITING AGREEMENT ("Agreement") is hereby entered into on this
_____ day of September, 1998, between PROTECTIVE LIFE INSURANCE COMPANY
("PROTECTIVE"), a life insurance company organized and existing under the laws
of the State of Tennessee, for itself or on behalf of Protective Variable
Annuity Account, a separate account established by Protective in accordance with
the laws of the State of Tennessee, and INVESTMENT DISTRIBUTORS, INC. ("IDI"), a
broker-dealer organized and existing under the laws of the State of Tennessee.

WITNESSETH:

WHEREAS, the Board of Directors of PROTECTIVE has registered interests in
certain variable annuity contracts as set forth in Schedule A, ("Contracts")
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and the Investment
Company Act of 1940, as amended;

WHEREAS, IDI is a broker-dealer registered as such under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. ("NASD");

WHEREAS, IDI has agreed to act as principal underwriter in connection with
offers and sales of the Contracts under the terms and conditions set forth in
this Agreement.

NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and conditions set forth herein, PROTECTIVE and IDI agree as follows:

I.
IDI DUTIES

1. PROTECTIVE hereby appoints IDI as its principal underwriter of the
Contracts. PROTECTIVE reserves the right to appoint additional underwriters.

2. IDI hereby accepts such appointment as principal underwriter. IDI
shall offer the Contracts only on the terms set forth in PROTECTIVE'S currently
effective registration statements.

<PAGE>

3. IDI as principal underwriter for the Contracts will use its best
efforts to effect offers and sales of the Contracts through broker-dealers that
are members of the National Association of Securities Dealers, Inc. and whose
registered representatives are duly licensed as insurance agents of PROTECTIVE.
IDI is responsible for compliance with all applicable requirements of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder, and all other applicable laws, rules and regulations
relating to the sales and distribution of the Contracts, the need for which
arises out of its duties as principal underwriter of said Contracts.

4. IDI agrees that it will not use any prospectus, sales literature, or
any other printed matter or material or offer for sale or sell the Contracts if
any of the foregoing in any way represent the duties, obligations, or
liabilities of PROTECTIVE as being greater than, or different from, such duties,
obligations and liabilities as are set forth in this Agreement, and in the
Contracts, as it or they may be amended from time to time.

5. IDI agrees that it will only utilize the then currently effective
prospectus relating to the Contracts in connection with its selling efforts.

As to the other types of sales materials, IDI agrees that it will use only
sales materials which conform to the requirements of federal and state
securities and insurance laws and regulations and which have been filed, where
necessary, with the appropriate regulatory authorities.

6. IDI agrees that it or its duly designated agent shall maintain records
as required by the Securities Exchange Act of 1934, as amended, the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended.

7. IDI's services pursuant to this Agreement shall not be deemed to be
exclusive, and it is understood by the parties hereto that IDI may also render
similar services and act as underwriter, distributor, or dealer for other
companies in the offering of their securities.

8. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of its obligations and duties under the terms of this
Agreement, IDI shall not be subject to liability to any contract owner or party
in interest under the Contracts for any acts or omissions to act in the course
of, or connected with, rendering services hereunder.

9. IDI shall remain fully responsible for its own conduct and that of its
agents, representatives and employees under applicable law.

10. IDI shall at all times, conform with the requirements of any federal
and state laws and regulations and the rules of the NASD, relating to the sales
of the Contracts.

<PAGE>

II.
PROTECTIVE'S DUTIES

1. PROTECTIVE reserves the right at any time to suspend or limit the
offering of the Contracts upon thirty days written notice to IDI, except where
the notice period may be shortened because of legal action taken by any
regulatory agent.

2. PROTECTIVE agrees to advise IDI immediately:

(a) Of any request by the Securities and Exchange Commission for amendment
of its registration statements for additional information;

(b) Of the issuance by the Securities and Exchange Commission of any stop
order suspending the effectiveness of the registration statements relating to
the Contracts or of the initiation of any proceedings for that purpose;

(c) Of the happening of any material event, if known, which makes untrue
any statement in said registration statements or which requires change therein
in order to make any statement therein not misleading.

3. PROTECTIVE will furnish to IDI such information with respect to the
Contracts in such form and signed by such of its officers and directors as IDI
may reasonably request and will warrant that the statements therein contained
when so signed will be true and correct. PROTECTIVE will also furnish, from
time to time, such additional information regarding PROTECTIVE'S financial
condition as IDI may reasonably request.

III.
COMPENSATION

For providing the principal underwriting functions on behalf of PROTECTIVE,
IDI shall be entitled to receive compensation as agreed upon from time to time
in writing by PROTECTIVE and IDI.

IV.
RESIGNATION AND REMOVAL OF
PRINCIPAL UNDERWRITER

IDI may resign as Principal Underwriter upon 120 days prior written notice
to PROTECTIVE. However, such resignation shall not become effective until a
successor Principal Underwriter has been designated and has accepted its duties.
PROTECTIVE may remove IDI as Principal Underwriter at any time by written
notice.

<PAGE>

V.
MISCELLANEOUS

1. This Agreement may not be assigned by either of the parties hereto
without the written consent of the other party.

2. All notices and other communications provided for hereunder shall be
in writing and shall be delivered by hand or mailed first class, postage
prepaid, addressed as follows:

(a) If to PROTECTIVE - Protective Life Insurance Company
P. O. Box 2606
Birmingham, Alabama 35202
Attention: Carolyn King
Senior Vice President,
Investments

(b) If to IDI - Investment Distributors, Inc.
2801 Highway 280 South
Birmingham, Alabama 35223
Attention: Steve Callaway
Counsel

or to such other address as IDI or PROTECTIVE shall designate by written notice
to the other.

3. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which shall be deemed one
instrument, and an executed copy of this Agreement and all amendments hereto
shall be kept on file by PROTECTIVE and shall be open to inspection at any time
during the business hours of PROTECTIVE.

4. This Agreement shall inure to the benefit of and be binding upon the
successor of the parties hereto.

5. This Agreement shall be construed and governed by and according to the
laws of the State of Alabama.

6. This Agreement may be amended from time to time by the mutual
agreement and consent of the parties hereto.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed this_______day of September, 1998.

PROTECTIVE LIFE INSURANCE COMPANY

By:
-------------------------------------
Title:
----------------------------------

ATTEST:

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

INVESTMENT DISTRIBUTORS, INC.

By:
-------------------------------------
Title:
----------------------------------

ATTEST:

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

<PAGE>

DISTRIBUTION AGREEMENT
For Sales of
Protective Life Insurance Company
Registered Annuity Contracts

THIS DISTRIBUTION AGREEMENT ("Agreement") is hereby entered into on this
____ day of ________________, 19__, between INVESTMENT DISTRIBUTORS, INC.
("IDI"), a Broker-Dealer organized and existing under the laws of the State of
Tennessee and _______________________________ ("Broker-Dealer"), organized and
existing under the laws of the State of _____________________.

WITNESSETH:

WHEREAS, IDI is registered as a broker-dealer under the Securities Exchange
Act of 1934, as amended, and is a member of the National Association of
Securities Dealers, Inc. ("NASD").

WHEREAS, PROTECTIVE LIFE INSURANCE COMPANY ("PROTECTIVE") has appointed IDI
as the principal underwriter of certain annuity contracts to be issued by
PROTECTIVE.

WHEREAS, the parties hereto desire that Broker-Dealer and its registered
representatives who are duly licensed and qualified under applicable securities
and insurance laws, rules and regulations be authorized to offer and sell the
Contracts to the general public subject to the terms and conditions contained in
this Agreement.

NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants, conditions and terms set forth in this Agreement, the parties hereby
agree as follows:

ARTICLE I
APPOINTMENT

1. IDI, as principal underwriter, hereby appoints Broker-Dealer to
distribute certain annuity contracts (the "Contracts") set forth on the Product
Schedule, Schedule 2 to this Agreement. IDI and/or PROTECTIVE may amend or
modify the Product Schedule at any time, effective upon mailing written notice
to Broker-Dealer.

2. Broker-Dealer is an independent contractor and nothing in this or any
other agreement between the parties shall be construed to create the
relationship of employee and employer between Broker-Dealer, IDI and PROTECTIVE.
As an independent contractor it is contemplated that Broker-Dealer may represent
other insurance companies.

ARTICLE II
LICENSING

1. Broker-Dealer will at all times be duly registered as a Broker-Dealer
under the Securities Exchange Act of 1934 and in each state or other
jurisdiction in which Broker-Dealer acts hereunder in connection with sales of
the Contracts or the supervision of registered representatives who perform such
activities on behalf of Broker-Dealer.

Page 1 of 6

<PAGE>

2. Broker-Dealer will be solely responsible for ensuring that none of its
registered representatives shall offer or sell the Contracts until such
individuals are associated, licensed, and duly registered with the NASD and any
applicable state securities and insurance authorities.

3. Broker-Dealer will assist IDI and PROTECTIVE in the appointment of
registered representatives under the applicable insurance laws to sell the
Contracts. IDI and PROTECTIVE in its or their sole discretion, may refuse to
appoint and may terminate the appointment of any registered representative.

ARTICLE III
COMPLIANCE

1. Broker-Dealer shall fully comply with the requirements of the NASD,
the Securities Exchange Act of 1934, the Securities Act of 1933, and the
Investment Company Act of 1940 and all other applicable federal or state laws
governing the activities of Broker-Dealer regarding the Contracts.

2. Broker-Dealer will establish such rules and procedures as required to
ensure diligent supervision of the securities activities of registered
representatives in regards to the Contracts.

3. In the event a registered representative of Broker-Dealer fails to
observe the standards and rules imposed by Broker-Dealer and IDI regarding the
sales of the Contracts, Broker-Dealer shall notify IDI immediately that such
registered representative is no longer authorized to sell the Contracts.
Broker-Dealer shall take whatever action is necessary to terminate the sales
activities of registered representative regarding the Contracts.

4. Broker-Dealer shall have sole responsibility for the training and
supervision of all registered representatives associated with Broker-Dealer who
are engaged directly or indirectly in the offer or sale of the Contracts.
Broker-Dealer shall supervise all registered representatives' compliance with
applicable federal and state securities laws, applicable state insurance laws
and regulations, and NASD requirements in connection with such solicitation
activities. All such registered representatives shall be subject to the control
of Broker-Dealer with respect to such registered representatives'
securities-regulated activities in connection with the Contracts.

5. Broker-Dealer will cause its registered representatives to be trained
in the sale of the Contracts and will cause such representatives to limit
solicitation of applications for the Contracts to jurisdictions where IDI has
authorized such solicitation.

ARTICLE IV
APPLICATIONS; ANNUITY DEPOSITS

1. All applications for the Contracts shall be made on such forms as
authorized by IDI or PROTECTIVE.

2. Broker-Dealer shall be responsible for reviewing each application for
completeness and suitability. All applications are subject to rejection or
acceptance by PROTECTIVE, in its sole discretion.

3. All checks and/or payments for Annuity Deposits for the Contracts
shall be made payable to PROTECTIVE LIFE INSURANCE COMPANY.

Page 2 of 6

<PAGE>

4. Broker-Dealer agrees that it and its registered representatives:

i) shall not solicit applications for the Contracts without
delivering to the applicant solicited a current prospectus;

ii) shall recommend the purchase of a Contract only if reasonable
grounds exist that the Contract is suitable for the applicant
in accordance with, applicable federal and state laws,
regulations and the rules of the NASD. While not limited to
the following; a determination of suitability shall be based on
a reasonable inquiry concerning the applicant's insurance and
investment objectives and financial situation and needs and
shall entail a review by Broker-Dealer of all applications for
suitability and completeness and correctness as to form;

iii) shall only accept Annuity Deposits for the Contracts in the
form of a check or money order made payable to Protective Life
Insurance Company and signed by the applicant;

iv) shall have no authority to endorse checks or money orders made
payable to Protective Life Insurance Company;

v) shall have no authority to alter, modify, waive or change any
of the terms, rates, charges or conditions of the Contracts;
and

vi) shall deliver Contracts only in accordance with PROTECTIVE'S
instructions.

ARTICLE V
SALES MATERIALS

IDI shall provide Broker-Dealer, without any expense to Broker-Dealer,
prospectuses and consumer brochures for use with the Contracts. No sales or
promotional materials, advertisements, circulars or documents regarding the
Contracts can be utilized by Broker-Dealer and/or its registered representatives
unless approved in writing by IDI and/or PROTECTIVE.

ARTICLE VI
COMPENSATION

1. During the term of this Agreement, IDI agrees to pay compensation to
Broker-Dealer as set forth on the Compensation Schedule(s), Schedule 1 to this
Agreement. IDI and/or PROTECTIVE may amend or modify the Compensation Schedule
at any time, effective upon mailing written notice to Broker-Dealer.

2. Broker-Dealer shall be solely responsible for the payment of any
commission or consideration of any kind to its registered representatives with
respect to sales of the Contracts.

Page 3 of 6

<PAGE>

ARTICLE VII
TERMINATION

1. This Agreement may be terminated by IDI or by Broker-Dealer, without
cause, upon thirty days written notice by either party to the other party to the
last known address of such other party.

2. This Agreement may be terminated for cause by IDI immediately upon the
mailing of written notice of termination for cause. IDI's determination of what
constitutes termination for cause shall be conclusive between the parties
hereto.

3. Termination of this Agreement shall automatically terminate any
schedules, supplements, addenda or amendments made a part of this Agreement.

4. Upon termination of this Agreement, Broker-Dealer agrees to return to
IDI all equipment and supplies regarding the Contracts in Broker-Dealers
possession which are the property of IDI.

ARTICLE VIII
GENERAL PROVISIONS

1. NOTICES. All notices or communications shall be sent to the parties
at the addresses shown in this Agreement. Any changes to these addresses must
be made in writing and sent to the other party in accordance with this
paragraph.

2. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Alabama.

3. BINDING EFFECT. This Agreement shall be binding on and shall inure to
the benefit of the parties to it and their respective successors and assigns.

4. SEVERABILITY. If any provision of this Agreement is held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.

5. CONFIDENTIALITY. Each party to this Agreement shall maintain the
confidentiality of any proprietary information that it may acquire in the
performance of this Agreement and shall not use such proprietary information
without the prior written consent of the other party and PROTECTIVE.

6. COMPLAINTS AND INVESTIGATIONS.

(i) Broker-Dealer and its registered representatives each
shall cooperate fully in any securities or insurance
regulatory investigation or proceeding or judicial
proceeding arising in connection with the Contracts
marketed under this Agreement. Broker-Dealer will be
notified promptly of any customer complaint or notice of
any regulatory investigation or proceeding or judicial
proceeding received by IDI or PROTECTIVE with respect to
Broker-Dealer, or any of its individual registered
representatives; and Broker-Dealer will promptly notify
IDI and PROTECTIVE of any written customer complaint or
notice of any regulatory investigation or proceeding or
judicial proceeding received by Broker-Dealer or any of
its individual registered representatives with respect
to themselves in connection with this Agreement or any
Contract.

Page 4 of 6

<PAGE>

(ii) In the case of a customer complaint, IDI, PROTECTIVE and
Broker-Dealer will cooperate in investigating such
complaint and any response by Broker-Dealer or any of
its registered representatives to such complaint will be
sent to IDI and PROTECTIVE for approval not less than
five business days prior to its being sent to the
customer or regulatory authority, except that if a more
prompt response is required, the proposed response shall
be communicated by telephone or facsimile.

7. AMENDMENT, MODIFICATION AND ASSIGNMENT. This Agreement supersedes all
prior agreements, either oral or written, between the parties relating to the
Contracts. Except as provided in Articles I, VI, and VIII.1, this Agreement may
be amended, modified or assigned only by written agreement signed by all of the
parties. Failure of PROTECTIVE to insist on strict compliance with any
provision of this Agreement or rule of PROTECTIVE shall not constitute a waiver
of the provision or rule.

8. INDEMNIFICATION BY BROKER-DEALER. Broker-Dealer agrees to indemnify
and hold IDI and PROTECTIVE harmless from any and all losses, claims, damages or
liabilities, joint or several (including but not limited to any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon:

(i) violation(s) by Broker-Dealer, its registered representatives,
of federal or state securities law or regulation(s), insurance
law or regulation(s), or any rule or requirement of the NASD in
regards to the Contracts;

(ii) any unauthorized use of promotional, sales or advertising
material, any oral or written misrepresentations, or any
unlawful sales practices concerning the Contracts by
Broker-Dealer or its registered representatives;

(iii) claims by registered representatives of Broker-Dealer for
commissions or other compensation or remuneration of any type;

(iv) any failure on the part of Broker-Dealer, or its registered
representatives, to submit Annuity Deposits or applications to
PROTECTIVE or to submit the correct amount of an Annuity
Deposit, on a timely basis and in accordance with this
Agreement and PROTECTIVE'S procedures, subject to applicable
law;

(v) any failure on the part of Broker-Dealer, or its registered
representatives, to deliver Contracts to purchasers thereof on
a timely basis and in accordance with PROTECTIVE'S procedures;

(vi) any breach by Broker-Dealer or its registered representatives
of any provision of this Agreement; or

(vii) Broker-Dealer's and/or its registered representatives,
unauthorized acts or transactions.

This indemnification will be in addition to any liability that
Broker-Dealer and its registered representatives may otherwise have.

Page 5 of 6

<PAGE>

9. ARBITRATION. All disputes, controversies or differences that arise under
or are related to this Agreement shall be determined by arbitration in
accordance with the Code of Arbitration Procedure of the National Association of
Securities Dealers. The cost of arbitration, including the fees of the
arbitrators and attorneys' fees, shall be borne by the losing party unless the
arbitrators decide otherwise.

INVESTMENT DISTRIBUTORS, INC.
2801 Highway 280 South
Birmingham, AL 35223

By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------

----------------------------------------
(Broker-Dealer)

----------------------------------------
(Address)

----------------------------------------
(City, State, Zip Code)

By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------

Page 6 of 6

<PAGE>

[MARKETING NAME] PLEASE MAKE CHECK PAYABLE TO:
PROTECTIVE LIFE INSURANCE COMPANY
VARIABLE ANNUITY SERVICES 3-7IPS
P.O. BOX 10648
BIRMINGHAM, AL 35202-0648
Annuity Application
- ------------------------------------------------------------------------------------------------------------------------------------
OWNER NAME, STREET, CITY, STATE, ZIP CODE

/ / Male Birthdate (MO./DAY/YR.) / /

/ / Female Tax ID/Social Security No. ___ ___

- ------------------------------------------------------------------------------------------------------------------------------------
JOINT OWNER (IF ANY) NAME, STREET, CITY, STATE, ZIP CODE

/ / Male Birthdate (MO./DAY/YR.) / /

/ / Female Tax ID/Social Security No. ___ ___

- ------------------------------------------------------------------------------------------------------------------------------------
ANNUITANT (IF OTHER THAN OWNER) NAME, STREET, CITY, STATE, ZIP CODE

/ / Male Birthdate (MO./DAY/YR.) / /

/ / Female Tax ID/Social Security No. ___ ___

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

- ------------------------------------------------------------------------------------------------------------------------------------
BENEFICIARY NAME, ADDRESS, RELATIONSHIP TO OWNER, SS# & PERCENTAGE (USE 'SPECIAL REMARKS' IF ADDITIONAL SPACE IS NEEDED.)
Primary(s) -

Contingent(s) -

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

- ------------------------------------------------------------------------------------------------------------------------------------
PLAN TYPE - Check all that apply.
/ / Non-Qualified / / Roth IRA* If an IRA purchase payment includes new
/ / CD Transfer * PLEASE COMPLETE APPROPRIATE SERVICE FORM. contributions, please complete below:
/ / Sec. 1035 Exchange / / IRA Transfer Allocate IRA Contribution to Tax Year
/ / TSA Direct Rollover / / IRA Rollover $ __________ (AMOUNT) _______ (PREVIOUS TAX YEAR)
/ / ________________ / / IRA Direct Rollover $ __________ (AMOUNT) _______ (CURRENT TAX YEAR)
(OTHER)
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
BENEFIT PACKAGE - Check only one. (SEE PROSPECTUS FOR DETAILS.)

/ / STANDARD (MORTALITY AND EXPENSE RISK CHARGE = 1.25%; ADMINISTRATIVE CHARGE = 0.15%.)
Death Benefit - Return of Purchase Payments
Surrender Charge Waivers - None

/ / ANNUAL RESET DEATH BENEFIT (MORTALITY AND EXPENSE RISK CHARGE = 1.40%; ADMINISTRATIVE CHARGE = 0.15%.)
Death Benefit - Return of Purchase Payments, Annual Reset
Surrender Charge Waivers - Nursing Home and Terminal Illness

/ / COMPOUND AND 3-YEAR RESET DEATH BENEFIT (MORTALITY AND EXPENSE RISK CHARGE = 1.40%; ADMINISTRATIVE CHARGE = 0.15%.)
Death Benefit - Return of Purchase Payments, Compound, 3-Year Reset
Surrender Charge Waivers - Nursing Home and Terminal Illness
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 1

<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------
/ / DOLLAR COST AVERAGING
Please transfer my initial allocation on the _____ day of the month ( 1ST - 28TH) from the account(s) below into the Allocation
Options indicated on the next page in the column headed 'DCA DESTINATION ALLOCATION'.

/ / DCA Fixed Account 1 for _____ months (1 - 6 MONTHS) or for _____ quarters (1 - 2 QUARTERS).

/ / DCA Fixed Account 2 for _____ months (7 - 12 MONTHS) or for _____ quarters (3 - 4 QUARTERS).

/ / ___________________________________ for _____ months (NO LIMIT) or for _____ quarters (NO LIMIT).
(OTHER ALLOCATION OPTION)

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

- ------------------------------------------------------------------------------------------------------------------------------------
/ / AUTOMATIC PURCHASE PAYMENT PLAN
A minimum $10,000 initial Purchase Payment is required, after which Automatic Purchase Payments may begin. Use the column headed
'SUBSEQUENT PURCHASE PAYMENT ALLOCATION' to allocate Automatic Purchase Payments. If Automatic Purchase Payments are made, Partial
Automatic Withdrawals cannot be selected. PLEASE ATTACH A VOIDED CHECK OR WITHDRAWAL TICKET.

I authorize Protective Life to collect $ ___________ (MINIMUM $100) / / monthly / / quarterly on the _____ day of the month
(1ST- 28TH ) by initiating automatic deductions from my account.

- ------------------------------------------------------------------------------------------------------------------------------------
/ / PARTIAL AUTOMATIC WITHDRAWAL PLAN
A minimum Purchase Payment of $20,000 is required to begin surrenders through Partial Automatic Withdrawals. If Partial Automatic
Withdrawals are made, Automatic Purchase Payments will not be accepted by the Company. Up to 10% of your initial Purchase Payment
may be surrendered during the first Contract Year without imposition of a surrender charge. The minimum surrender as a Partial
Automatic Withdrawal is $100. Partial Automatic Withdrawals will be taken pro-rata from the Allocations Options and will be made
only by an electronic fund transfer. PLEASE ATTACH A VOIDED CHECK OR WITHDRAWAL TICKET.

Please withdraw $________ / / monthly / / quarterly on the _____ day of the month (1ST - 28TH). On future Contract
Anniversaries, / / change the total withdrawal amount to _____ % ( UP TO 10% ) of the Contract Value so that no surrender charges
will apply / / keep the withdrawal amount fixed but if surrender charges would apply, then adjust to the maximum amount available
so that no surrender charges will apply / / keep the withdrawal amount fixed even if surrender charges apply. (YOU MAY CHANGE YOUR
ELECTION AT ANY TIME.)

NOTICE OF WITHHOLDING ON DISTRIBUTIONS OR WITHDRAWALS
(FORM W-4P 10MB No. 1545.0145)

The distributions you receive from the above policy are subject to Federal Income Tax withholding unless you elect not to have
withholding apply. You may elect not to have withholding apply to your distribution payments by checking the appropriate box below.
IF YOU DO NOT RESPOND BY THE DATE YOUR DISTRIBUTION IS SCHEDULED TO BE MADE, FEDERAL INCOME TAX WILL BE WITHHELD FROM THE TAXABLE
PORTION OF YOUR DISTRIBUTION. If you elect not to have withholding apply to your distribution payments, you may be responsible for
payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.

WITHHOLDING ELECTION
/ / I have read the above information and I DO NOT want to have Federal Income Tax, where applicable, withheld from my distribution.
/ / I have read the above information and I DO want to have Federal Income Tax withheld from my distribution.

- ------------------------------------------------------------------------------------------------------------------------------------
/ / PORTFOLIO REBALANCING
Please rebalance my Variable Account / / quarterly / / semi-annually / / annually on the _____ day of the month ( 1ST - 28TH )
according to my current Variable Account Purchase Payment allocation.
- ------------------------------------------------------------------------------------------------------------------------------------

Page 2
<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PURCHASE PAYMENT: $ ________________ (MINIMUM $10,000) Unless you give us instructions for allocating subsequent Purchase
Payments either now, by completing column 2, or at the time the subsequent Purchase Payment is made, we will use the allocation
specified in column 3 if completed, and if not, the allocation in column 1. (PLEASE ALLOCATE USING WHOLE PERCENTAGES.)

1. 2. 3.
INITIAL PURCHASE SUBSEQUENT PURCHASE DCA DESTINATION
PAYMENT ALLOCATION PAYMENT ALLOCATIOn ALLOCATION
- ------------------ ------------------- ---------------
(PROTECTIVE LIFE GUARANTEED ACCOUNT*)
_________% ( Fixed Account ) _________% _________%
_________% ( DCA Fixed Account 1 ) N/A N/A
_________% ( DCA Fixed Account 2 ) N/A N/A

(GOLDMAN SACHS / PIC
_________% ( International Equity ) _________% _________%
_________% ( Small Cap Value ) _________% _________%
_________% ( Capital Growth ) _________% _________%
_________% ( CORE U.S. Equity ) _________% _________%
_________% ( Growth & Income ) _________% _________%
_________% ( Global Income ) _________% _________%
_________% ( Money Market ) _________% _________%

(MASSACHUSETTS FINANCIAL SERVICES (MFS))
_________% ( New Discovery ) _________% _________%
_________% ( Emerging Growth ) _________% _________%
_________% ( Research ) _________% _________%
_________% ( Growth with Income ) _________% _________%
_________% ( Utilities ) _________% _________%
_________% ( Total Return ) _________% _________%

(OPPENHEIMERFUNDS
_________% ( Aggressive Growth ) _________% _________%
_________% ( Global Securities ) _________% _________%
_________% ( Growth ) _________% _________%
_________% ( Growth & Income ) _________% _________%
_________% ( High Income ) _________% _________%
_________% ( Strategic Bond ) _________% _________%

(CALVERT)
_________% ( Social Small Cap Growth ) _________% _________%
_________% ( Social Balanced ) _________% _________%

(VAN ECK )
_________% ( Worldwide Hard Assets ) _________% _________%
_________% ( Worldwide Real Estate ) _________% _________%

(MODEL PORTFOLIOS)
_________% ( Growth ) _________% _________%
_________% ( Balanced ) _________% _________%
_________% ( Capital Appreciation ) _________% _________%

100% TOTAL 100% 100%

*60 day Rate Lock elected for all accounts in the Guaranteed Account / / Yes / / No

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

Page 3
<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------
SPECIAL REMARKS

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

- ------------------------------------------------------------------------------------------------------------------------------------
AUTHORIZATION AND ACKNOWLEDGEMENT EACH OWNER AND ANNUITANT ACKNOWLEDGES THE FOLLOWING:

I have received a current prospectus. Yes / / No / /
The information contained in this application is true and correct. Yes / / No / /
My telephone and other non-written instructions should be honored, subject to the terms of the prospectus. Yes / / No / /
The Agent who signs this application is authorized to make transfers on my behalf. Yes / / No / /
I have purchased other annuities from Protective Life this calendar year. Yes / / No / /

Does this annuity change or replace any existing annuity contract or life insurance policy? Yes / / No / /
If 'Yes' please complete below: (USE 'SPECIAL REMARKS' IF ADDITIONAL SPACE IS NEEDED.)

Company Name(s): _____________________________________ Policy Number(s): _______________________
_____________________________________ _______________________

THIS APPLICATION SHALL BECOME PART OF THE ANNUITY CONTRACT ISSUED BY PROTECTIVE LIFE.

THE CONTRACT VALUE AND ANNUITY INCOME PAYMENTS, WHEN BASED UPON THE INVESTMENT EXPERIENCE OF A SEPARATE
ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO A FIXED DOLLAR AMOUNT.

Application signed at: ____________________________________________ on __________________________.
(CITY, STATE) (DATE)

Owner: ________________________________________ Joint Owner: _______________________________
(IF ANY)

Annuitant: ______________________________________ Witness: __________________________________
(IF DIFFERENT THAN OWNER)

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

- ------------------------------------------------------------------------------------------------------------------------------------
AGENT REPORT - The agent acknowledges that to the best of his or her knowledge and belief this annuity o does o does not change
or replace any existing life insurance or annuity policy.

Agent's signature: ________________________________ Print agent's name: ______________________________

Agent number: ______________________________________ Broker/Dealer name: _____________________________

Branch: ____________________________________________ Agent phone number: _____________________________

Client account number: ___________________________

- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 4

<PAGE>

PARTICIPATION AGREEMENT

Among

VAN ECK WORLDWIDE INSURANCE TRUST

VAN ECK SECURITIES CORPORATION

VAN ECK ASSOCIATES CORPORATION

and

PROTECTIVE LIFE INSURANCE COMPANY

THIS AGREEMENT, made and entered into to be effective on SEPTEMBER 30,
1998, by and among Protective Life Insurance Company, (hereinafter the
"Company"), a TENNESSEE corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto and
incorporated herein by this reference, as such Schedule A may from time to time
be amended by mutual written agreement of the parties hereto (each such account
hereinafter referred to as the "Account"), and VAN ECK WORLDWIDE INSURANCE
TRUST, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter the "Fund"), VAN ECK SECURITIES
CORPORATION (hereinafter the "Underwriter"), a Delaware corporation and VAN ECK
ASSOCIATES CORPORATION (hereinafter the "Adviser"), a Delaware corporation.

WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(hereafter referred to collectively as the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter the "Participating Insurance
Companies"); and

WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets (each such series hereinafter referred to as a
"Portfolio"); and

WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC") (File No. 811-5083), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Order");
and

Page 1
<PAGE>

WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and

WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts (the "Contracts") under the 1933 Act,
unless such contracts are exempt from registration thereunder; and

WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable life insurance and
variable annuity contracts; and

WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act, unless such Account is exempt from
registration thereunder; and

WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter the "NASD"); and

WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law; and

WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;

NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Underwriter and the Adviser agree as follows:

ARTICLE I
SALE OF FUND SHARES

1.1. The Underwriter agrees to sell to the Company those shares of the
Portfolios (which are listed on Schedule B attached hereto and incorporated
herein by this reference, as such Schedule B may from time to time be amended by
mutual written agreement of the parties hereto) which each Account orders,
executing such orders on a daily basis at the net asset value per share next
computed after receipt by the Fund or its designee of the order for the shares
of the Portfolios subject to the terms and conditions of this Agreement. For
purposes of this Section 1.1, the Company shall be the designee of the Fund for
receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m., Eastern time, on the next following Business Day; however,

Page 2
<PAGE>

the company undertakes to use its best efforts to provide such notice to the
Fund by no later than 9:30 a.m., Eastern time. "Business Day" shall mean any day
on which the New York Stock Exchange is open for business and on which the Fund
calculates the Portfolios' net asset values pursuant to the rules of the SEC.

1.2. The Fund agrees to make Portfolio shares available for purchase at
the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates net asset values pursuant to the rules
of the SEC and the Fund shall use reasonable efforts to calculate such net asset
values on each day on which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter
the "Board") may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction, or if it is,
in the sole discretion of the Board, acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, in the best
interests of the shareholders of such Portfolio.

1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts or
other accounts (e.g., qualified retirement plans) as may be permitted so that
the Variable Insurance Products continue to qualify as a "life insurance,
annuity or variable contract" under Section 817(h) of the Internal Revenue Code
of 1986, as amended (hereinafter the "Code"). No shares of any Portfolio will
be sold to the general public.

1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company, separate account or other account unless an agreement
containing provisions substantially the same as Article I, Section 2.5 of
Article II, Sections 3.4 and 3.5 of Article III, Article V and Article VII of
this Agreement is in effect to govern such sales.

1.5. Subject to its rights under Section 18(f) of the 1940 Act, the Fund
agrees to redeem for cash, on the Company's request, any full or fractional
shares of a Portfolio held by the Company, executing such requests on a daily
basis at the net asset value per share next computed after receipt by the Fund
or its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption by 10:00 a.m., Eastern Time, on the next following Business Day;
however, the Company undertakes to use its best efforts to provide such notice
to the Fund by no later than 9:30 a.m., Eastern time. Payment of redemption
proceeds for any whole or fractional shares shall be made within seven days of
actual receipt of the redemption request by the Fund, or within such greater or
lesser period as may be permitted by law or rule, regulation, interpretive
position or order of the SEC; provided that if the Fund does not pay for the
Fund shares that are redeemed on the next Business Day after a request to redeem
shares is made, then the Fund shall apply any such delay in redemptions
uniformly to all holders of shares of that Portfolio. Payment shall be in
federal funds transmitted by wire pursuant to the instructions of the Company or
by a credit toward any shares purchased on the Business Day on which the
redemption payment is made.

Page 3
<PAGE>

1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then-current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available in the Accounts which are listed in Schedule A attached
hereto and incorporated herein by this reference, as such Schedule A may from
time to time be amended by mutual written agreement of the parties hereto, shall
be invested in the Portfolios and in such other funds advised by the Adviser as
are listed in Schedule B, or in the Company's general account; provided that
such amounts may also be invested in an investment company other than the Fund
if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of the Portfolios of the Fund listed on Schedule B to
this Agreement; or (b) the Company gives the Fund and the Underwriter 45 days'
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and the Company so informs the Fund and Underwriter prior to their
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents in writing to the use of
such other investment company.

1.7. The Company shall pay for Portfolio shares on the next Business Day
after an order to purchase such shares is made in accordance with the provisions
of this Article I. Payment shall be in federal funds transmitted by wire or by a
credit for any shares redeemed. For purposes of Sections 2.10 and 2.11, upon
receipt by the Fund of the federal funds so wired, such funds shall cease to be
the responsibility of the Company and shall become the responsibility of the
Fund.

1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.

1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the Portfolios' shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.

1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated, and shall use its
best efforts to make such net asset value per share available by 6:30 p.m.,
Eastern Time. If the Fund provides materially incorrect share net asset value
information, the Fund shall make an adjustment to the number of shares purchased
or redeemed for the Accounts to reflect the correct net asset value per share.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gains information shall be reported promptly upon discovery
to the Company.

Page 4
<PAGE>

ARTICLE II
REPRESENTATIONS AND WARRANTIES

2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act or exempt therefrom; that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under the Insurance Code and Regulations of the State of
TENNESSEE, and has registered or, prior to any issuance or sale of the
Contracts, will, unless exempt from registration, register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.

2.2. Subject to Article IV hereof, the Company represents that it
believes that the Contracts are currently and at the time of issuance will be
eligible for treatment as life insurance or annuity contracts under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Underwriter promptly upon
having a reasonable basis for believing that the Contracts may have ceased to be
so treated or that they might not be so treated in the future.

2.3. The Company represents and warrants that all of its
directors/trustees, employees, investment advisers and other
individuals/entities dealing with money and/or securities of the Fund are and
shall continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund, in an amount not less than $5 million. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. The Company shall notify the Fund, the
Underwriter and the Adviser in the event that such coverage no longer applies.

2.4. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement are registered under the 1933 Act, duly authorized for issuance
and sale in compliance in all material respects with the terms of this Agreement
and all applicable federal and state securities laws, and that, while shares of
the Portfolios are being offered for sale, the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend its Registration Statement
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of Portfolio shares. The Fund shall register or
otherwise qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.

2.5. The Fund represents that each Portfolio is qualified as a Regulated
Investment Company under Subchapter M of the Code and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Company promptly upon having
determined that any Portfolio may have ceased to so qualify or that it might not
so qualify in the future.

Page 5
<PAGE>

2.6. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have a board of trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.

2.7. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees, expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund has disclosed or made available,
in writing, all information requested by Company and represents and warrants
that such written information is true and accurate in all material respects as
of the effective date of this Agreement. Without prior written notice to the
Company, the Fund will not make any changes in fundamental investment policies
or advisory fees, and shall at all times remain in compliance with federal
securities law as it applies to insurance products. The Company will use its
best efforts to provide the Fund with copies of amendments to provisions of
state insurance laws and regulations related to separate accounts and variable
products, which may affect Fund operations.

2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.

2.9. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute Portfolio shares
to the Company in accordance with all applicable state and federal securities
laws, including, without limitation, the 1933 Act, the 1934 Act and the 1940
Act.

2.10. The Adviser represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal and state
securities laws and that it shall perform its obligations for the Fund in
compliance in all material respects with any applicable state and federal
securities laws.

2.11. The Fund, the Underwriter and the Adviser represent and warrant
that all of their directors/trustees, officers, employees, investment advisers
and other individuals/entities dealing with money and/or securities of the Fund
are and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund, in an amount not less than the
minimum coverage as required by Rule 17g-1 of the 1940 Act or related provisions
as may from time to time be promulgated. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company. The Fund shall notify the Company in the event such coverage no longer
applies.

Page 6
<PAGE>

ARTICLE III
PROSPECTUSES AND PROXY STATEMENTS; VOTING

3.1. The Underwriter shall provide the Company (at the Underwriter's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus (or private offering memorandum,
if a Contract and its associated Account are exempt from registration) for the
Contracts and the Fund's prospectus printed together in one document (such
printing to be at the Company's expense unless otherwise agreed upon in writing
by the Company and the Underwriter or the Company and the Adviser).

3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, from the Fund), and the Underwriter (or the Fund), at its expense,
shall provide such Statement of Additional Information free of charge to the
Company and to any owner of a Contract or prospective owner who requests such
Statement.

3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.

3.4. If and to the extent required by law, the Company shall:

(i) solicit voting instructions from Contract owners;

(ii) vote Portfolio shares in accordance with instructions
received from Contract owners; and

(iii) vote Portfolio shares for which no instructions have
been received in the same proportion as shares of such
Portfolio for which instructions have been received,

so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The Company
reserves the right to vote Fund shares held in any account in its own right, to
the extent permitted by law. The Company shall be responsible for assuring that
each of its separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth in the Shared
Funding Order and rules and regulations of the SEC, which standards will also be
provided to other Participating Insurance Companies.

Page 7
<PAGE>

3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the SEC
may promulgate with respect thereto.

ARTICLE IV
SALES MATERIAL AND INFORMATION

4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund, the Underwriter or the Adviser is named, at least
fifteen Business Days prior to its use. No such material shall be used if the
Fund or its designee reasonably objects in writing to such use within fifteen
business days after receipt of such material.

4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund, as such registration statement and prospectus may from time to time be
amended or supplemented, or in reports or proxy statements for the Fund, or in
sales literature or other promotional material provided to the Company by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or its designee. The Fund agrees to respond to any request for approval on
a prompt and timely basis.

4.3. The Fund, the Underwriter or their designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company reasonably objects in writing to
such use within fifteen business days after receipt of such material.

4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may from time to time be amended or
supplemented, or in published reports which are in the public domain or approved
by the Company for distribution to Contract owners, or in sales literature or
other promotional material approved by the Company or its designee, except with
the permission of the Company.

4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to any of the Portfolios

Page 8
<PAGE>

or their shares, promptly following the filing of such document with the SEC or
other regulatory authorities.

4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, promptly following the filing of such document with the SEC or
other regulatory authorities; and, if a Contract and its associated Account are
exempt from registration, the equivalents to the above.

4.7. For purposes of this Agreement, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published or designed for use in a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape or
electronic display, signs or billboards, motion pictures, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees.

ARTICLE V
FEES AND EXPENSES

5.1. The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except as provided herein or in any other
written agreement.

5.2. Except as otherwise expressly provided in the Agreement, all
expenses incident to performance by the Fund under this Agreement shall be paid
by the Fund. The Fund shall see to it that all Portfolio shares are registered
and authorized for issuance in accordance with applicable federal law and, if
and to the extent deemed advisable by the Fund, in accordance with applicable
state laws prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Portfolios' shares, preparation and filing
of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law and all taxes on the issuance
or transfer of the Portfolios' shares.

5.3. The Company shall bear the expenses of distributing the Fund's
prospectus to owners of Contracts issued by the Company and of distributing the
Fund's proxy materials and reports to such Contract owners.

Page 9
<PAGE>

ARTICLE VI
DIVERSIFICATION

6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment or life insurance contracts and any
amendments or other modifications to such Section or Regulation. In the event of
a breach of this Article VI by the Fund, it will take all reasonable steps (a)
to notify Company of such breach and (b) to adequately diversify the Fund so as
to achieve compliance with the grace period afforded by Regulation 1.817-5.

ARTICLE VII
POTENTIAL CONFLICTS

7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. A material irreconcilable conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance, tax
or securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretive letter or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of a Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
contract owners. The Board shall promptly inform the Company if it determines
that a material irreconcilable conflict exists and the implications thereof.

7.2. The Company will report any potential or existing conflicts to the
Board. The Company will assist the Board in carrying out its responsibilities
under the Shared Funding Order, by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
any of the events in Section 7.1, as they pertain to the Company, occur (e.g., a
decision to disregard contract owner voting instructions).

7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be

Page 10
<PAGE>

implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contract owners the option of making such a change, and
(2) establishing a new registered management investment company or managed
separate account.

7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested trustees of the Board. Any such
withdrawal and termination must take place within six months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Fund and the Underwriter shall continue to accept
and implement orders by the Company for the purchase (and redemption) of shares
of the Fund.

7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
that of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created a material irreconcilable
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested trustees of the Board. Until
the end of that six month period, the Fund and the Underwriter shall continue to
accept and implement orders by the Company for the purchase (and redemption) of
shares of the Fund.

7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested trustees of the Board shall determine whether any
proposed action adequately remedies a material irreconcilable conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy a material irreconcilable conflict,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement within six months after the Board informs the Company
in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested trustees of the Board.

7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Order) on

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<PAGE>

terms and conditions materially different from those contained in the Shared
Funding Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3 as adopted, to the extent such rules
are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4 and 7.5 of this
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.

ARTICLE VIII
INDEMNIFICATION

8.1. INDEMNIFICATION BY THE COMPANY

8.1(a). The Company agrees to indemnify and hold harmless the Fund, the
Underwriter and the Adviser and each trustee/director and officer thereof and
each person, if any, who controls the Fund, the Underwriter, or the Adviser
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company), expenses or litigation (including legal and other
expenses) (hereinafter referred to collectively as a "Loss"), to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as a Loss is related to the sale or acquisition
of the Fund's shares or the Contracts and:

(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement, prospectus or private
offering memorandum for the Contracts or contained in
the Contracts or sales literature or other promotional
materials for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statement therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with written information furnished to the Company by or
on behalf of the Indemnified Party for use in the
registration statement or prospectus for the Contracts
or in the Contracts or in sales literature or any other
promotional materials or activities (or any amendment
or supplement to any of the foregoing); or

(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature or other
promotional materials of the Fund not supplied by the
Company, or persons under its control) or wrongful
conduct of the Company or persons under its control,
with respect to the sale or distribution of the
Contracts or Fund shares; or

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<PAGE>

(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus or sales literature
or other promotional materials of the Fund (or any
amendment or supplement to any of the foregoing) or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such statement or
omission was made in reliance upon or in conformity
with written information furnished to the Fund, the
Underwriter or the Adviser by or on behalf of the
Company; or

(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement; or

(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company, as
limited by and in accordance with the provisions of
Sections 8.1 (b) and 8.1(c) hereof.

8.1(b). The Company shall not be liable under this indemnification
provision with respect to any Loss incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith or gross negligence in the performance of such Indemnified Party's duties,
or by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Fund, the Underwriter or the Adviser,
whichever is applicable.

8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense thereof. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the Indemnified
Party named in the action. After notice from the Company to such Indemnified
Party of the Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Company will not be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof other
than reasonable costs of investigation.

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<PAGE>

8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
this Agreement, the issuance or sale of Portfolio shares or the Contracts or the
operation of the Fund.

8.2. INDEMNIFICATION BY THE FUND

8.2(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors/trustees and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any Loss to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as a Loss is related
to the sale or acquisition of the Fund's shares or the Contracts and:

(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus, statement of
additional information, sales literature or other
promotional materials of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with written information furnished to the
Fund, the Underwriter or the Adviser by or on behalf of the
Indemnified Party for use in the registration statement,
prospectus, statement of additional information, sales
literature or other promotional materials or activities for
the Fund or the Contracts (or any amendment or supplement to
any of the foregoing); or

(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information, sales literature or other promotional materials
for the Contracts not supplied by the Fund, the Underwriter,
the Adviser, or persons under their control) or wrongful
conduct of the Fund, the Underwriter, the Adviser, or
persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or

(iii) arise out of the untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information
or private offering memorandum for the Contracts, or
contained in the Contracts or sales literature or other
promotional materials for the Contracts (or any amendment or
supplement to any of the foregoing) or arise out of or are
based upon the omission or alleged omission to state therein
a material fact required to be stated therein or

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<PAGE>

necessary to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon or in conformity with written information
furnished to the Company by or on behalf of the Fund, the
Underwriter or the Adviser, or persons under their control;
or

(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement);or

(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund, as limited by and in
accordance with the provisions of Sections 8.2(b) and 8.2(c)
hereof; or

(vi) arise out of or result from the material incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate.

8.2(b). The Fund shall not be liable under this indemnification provision
with respect to any Loss incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith or
gross negligence in the performance of such Indemnified Party's duties, or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, an Account, the Fund, the Underwriter or
the Adviser, whichever is applicable.

8.2(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund shall be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof other than reasonable costs of investigation.

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<PAGE>

8.2(d). The Company will promptly notify the Fund of the commencement of
any litigation or proceedings against the Indemnified Parties in connection with
this Agreement, the issuance or sale of Portfolio shares or the Contracts, the
operation of each Account or the acquisition of shares of the Fund.

8.3. INDEMNIFICATION BY THE UNDERWRITER

8.3(a) The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors/trustees and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any Loss to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as a Loss is related
to the sale or acquisition of the Fund's shares or the Contracts and:

(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement, prospectus, statement of
additional information, sales literature or other
promotional materials of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with written information furnished to the Fund, the
Underwriter or the Adviser by or on behalf of the
Indemnified Party for use in the registration
statement, prospectus, statement of additional
information, sales literature or other promotional
materials or activities for the Fund or the Contracts
(or any amendment or supplement to any of the
foregoing); or

(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus, statement of additional
information, sales literature or other promotional
materials for the Contracts not supplied by the Fund,
the Underwriter, the Adviser, or persons under their
control) or wrongful conduct of the Fund, the
Underwriter, the Adviser, or persons under their
control, with respect to the sale or distribution of
the Contracts or Fund shares; or

(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, statement of
additional information or private offering memorandum
for the Contracts, or contained in the Contracts or
sales literature or other promotional materials for the
Contracts (or any amendment or supplement to any of the
foregoing) or arise out of or are based upon the
omission or alleged

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<PAGE>

omission to state therein a material fact required to be
stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon or in conformity with
written information furnished to the Company by or on behalf
of the Fund, the Underwriter, the Adviser, or persons under
their control; or

(iv) arise as a result of any failure by the Underwriter to
provide the services and furnish the materials under
the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified
in Article VI of this Agreement);

(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any
other material breach of this Agreement by the
Underwriter, as limited by and in accordance with the
provisions of Sections 8.3(b) and 8.3(c) hereof; or

(vi) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net
asset value per share or dividend or capital gain
distribution rate.

8.3(b). The Underwriter shall not be liable under this indemnification
provision with respect to any Loss incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith or gross negligence in the performance of such Indemnified Party's duties,
or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company or an Account, whichever is
applicable.

8.3(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter shall be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the Indemnified Party named in the action. After notice from the Underwriter to
such Party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such Party under this
Agreement for any legal or other expenses subsequently incurred by such Party
independently in connection with the defense thereof other than reasonable costs
of investigation.

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<PAGE>

8.3(d). The Company will promptly notify the Underwriter of the
commencement of any litigation or proceedings against the Indemnified Parties in
connection with this Agreement, the issuance or sale of Portfolio shares or the
Contracts or the operation of each Account.

8.4. INDEMNIFICATION BY THE ADVISER

8.4(a) The Adviser agrees to indemnify and hold harmless the Company and
each of its directors/trustees and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.4)
against any Loss to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as a Loss is related
to the sale or acquisition of the Fund's shares or the Contracts and:

(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information, sales literature or other promotional materials
for the Contracts not supplied by the Fund, the Underwriter,
the Adviser, or persons under their control) or wrongful
conduct of the Fund, the Underwriter, the Adviser or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or

(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information
or private offering memorandum for the Contracts, or
contained in the Contracts, or sales literature or other
promotional materials for the Contracts (or any amendment or
supplement to any of the foregoing) or arise out of or are
based upon the omission or alleged omission to state therein
a material fact required to be stated therein or

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<PAGE>

(iv) arise as a result of any failure by the Adviser to provide
the services and furnish the materials under the terms of
this Agreement (including a failure by the Fund, whether
unintentional or in good faith or otherwise, to comply with
the diversification requirements specified in Article VI of
this Agreement); or

(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser, as limited by and
in accordance with the provisions of Sections 8.4(b) and
8.4(c) hereof; or

(vi) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate.

8.4(b). The Adviser shall not be liable under this indemnification
provision with respect to any Loss incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith or gross negligence in the performance of such Indemnified Party's duties,
or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company or an Account, whichever is
applicable.

8.4(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser shall be entitled to participate,
at its own expense, in the defense thereof. The Adviser also shall be entitled
to assume the defense thereof, with counsel satisfactory to the Indemnified
Party named in the action. After notice from the Adviser to such party of the
Adviser's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Adviser will not be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than reasonable costs
of investigation.

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<PAGE>

8.4(d). The Company will promptly notify the Adviser of the commencement
of any litigation or proceedings against the Indemnified Parties in connection
with this Agreement, the issuance or sale of Portfolio shares or the Contracts
or the operation of each Account.

8.5. Except as otherwise expressly provided in the Agreement, no party
shall be liable to any other party for special, consequential, punitive or
exemplary damages, or damages of a like kind or nature.

ARTICLE IX
APPLICABLE LAW

9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.

9.2. This Agreement shall be subject to the provisions of the 1933 Act,
the 1934 Act and the 1940 Act and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and regulations
as the SEC may grant (including, but not limited to, the Shared Funding Order)
and the terms of this Agreement shall be interpreted and construed in accordance
therewith.

ARTICLE X
TERMINATION

10.1. This Agreement shall continue in full force and effect until the
first to occur of:

(a) termination by any party for any reason by six (6)
months' advance written notice delivered to the other
parties; or

(b) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio
based upon the Company's determination that shares of
such Portfolio are not reasonably available to meet the
requirements of the Contracts; or

(c) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio
in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with
applicable state and/or federal law or such law
precludes the use of such shares as the underlying
investment media of the Contracts issued or to be
issued by the Company; or

(d) termination by the Company by written notice to the
Fund, the Underwriter and the Adviser with respect to
any Portfolio in the event that such Portfolio ceases
to qualify as a "regulated investment company" under
Subchapter M of the Code or under any successor or
similar provision, or if the Company reasonably
believes that the Fund will fail to so qualify; or

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<PAGE>

(e) termination by the Company by written notice to the
Fund, the Underwriter and the Adviser with respect to
any Portfolio in the event that such Portfolio fails to
meet the diversification requirements specified in
Article VI hereof; or

(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of
the Fund or the Underwriter shall determine, in their
sole judgment exercised in good faith, that the Company
and/or its affiliated companies has suffered a material
adverse change in its business, operations, financial
condition or prospects since the date of this Agreement
or is the subject of material adverse publicity which
is likely to have a material adverse impact upon the
business and operations of the Company; or

(g) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good
faith, that the Fund, the Adviser or the Underwriter
has suffered a material adverse change in its business,
operations, financial condition or prospects since the
date of this Agreement or is the subject of material
adverse publicity which is likely to have a material
adverse impact upon the business and operations of the
Fund, the Adviser, or the Underwriter; or

(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund
and the Underwriter the written notice specified in
Section 1.6(b) hereof and at the time such notice was
given there was no notice of termination outstanding
under any other provision of this Agreement and the
investment company that is the subject of Section
1.6(b) notice has investment objectives or policies
that are not substantially different from the
investment objectives and policies of the Portfolios of
the Fund listed on Schedule B to this Agreement;
provided, however, that any termination under this
Section 10.1(h) shall be effective ninety days after
the notice specified in Section 1.6(b) was given; or

(i) termination by the Company by written notice to the
Fund and the Underwriter or by the Fund or the
Underwriter by written notice to the Company, in the
event that an irreconcilable material conflict exists
among the interests of (1) all Contract owners of
variable insurance products or all separate accounts or
(2) the interest of the Participating Insurance
Companies investing in the Fund as delineated in
Article VII of this Agreement; or

(j) termination by the Company by written notice to the
Fund and the Underwriter or by the Fund or the
Underwriter by written notice to the Company, in the
event of the non-terminating party's material breach of
any provision of this Agreement; or

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<PAGE>

(k) termination by the Company by written notice to the
Fund and the Underwriter, or by the Fund or the
Underwriter by written notice to the Company, upon
receipt of any necessary regulatory approvals or the
vote of the Contract owners having an interest in the
Account (or any subaccount) to substitute the shares of
another investment company for the corresponding
Portfolio shares of the Fund in accordance with the
terms of the Contracts for which those Portfolio shares
had been selected to serve as the underlying investment
media. The Company will give forty-five (45) days
prior written notice to the Fund and the Underwriter of
the date of any proposed vote or other action taken to
replace the Fund's shares.

10.2. EFFECT OF TERMINATION. Notwithstanding termination of this
Agreement, the Fund and the Underwriter shall continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
retain investments in the Fund, reinvest dividends and redeem investments in the
Fund. If shares of the Fund continue to be made available after termination of
this Agreement pursuant to this Section 10.2, the provisions of this Agreement
shall remain in effect except for Section 10.1 and thereafter the Fund, the
Underwriter or the Company may terminate the Agreement, as so continued pursuant
to this Section 10.2, upon written notice to the other party, such notice to be
for a period that is reasonable under the circumstances but need not be for more
than ninety days (90). The parties agree that this Section 10.2 shall not apply
to any terminations under Section 1.2 of Article I or under Article VII, and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.

10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions; or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"); or (iii) as a
result of action by the Fund's Board, acting in good faith, upon ninety (90)
days' advance written notice to the Company and Contract Owners; or upon ninety
(90) days' advance written notice to the Fund of the Company's intention to do
so. Upon request, the Company will promptly furnish to the Fund and the
Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption, or is
as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
In the event that the Company is to redeem shares pursuant to clause (iii)
above, the Fund will promptly furnish to the Company the opinion of counsel for
the Fund (which counsel shall be reasonably satisfactory to the Company) to the
effect that any such redemption is not in violation of the 1940 Act or any rule
or regulation thereunder, or is as permitted by an order of the SEC.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter ninety (90) days' advance written notice of its
intention to do so.

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<PAGE>

ARTICLE XI
NOTICES

Any notice shall be sufficiently given when sent by registered or certified
mail or next-day delivery to the other parties at the address of such parties
set forth below or at such other address as any party may from time to time
specify in writing to the other parties.

If to the Company:
2801 Highway 280 South
Birmingham, Alabama 35223
Attention: Steve M. Callaway, Senior Associate Counsel,
with a copy to Carolyn King, Senior Vice President

If to the Fund:
99 Park Avenue
New York, New York 10016
Attention: President, with a copy to the General Counsel

If to the Underwriter:
99 Park Avenue
New York, New York 10016
Attention: President, with a copy to the General Counsel

If to the Adviser:
99 Park Avenue
New York, New York 10016
Attention: President, with a copy to the General Counsel

ARTICLE XII
MISCELLANEOUS

12.1. The Company, the Adviser and the Underwriter each understand and
agree that the obligations of the Fund under this Agreement are not binding
upon the Board, any shareholder, officer or agent personally, but bind only
the Fund and the Fund's property.

12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement, shall not disclose, disseminate or utilize
such names and addresses and other confidential information without the
express written consent of the affected party, until such time as it may come
into the public domain.

Page 23
<PAGE>

12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.

12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.

12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.

12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.

12.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.

12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereunder; provided, however, that the Underwriter may assign this Agreement
or any rights or obligations hereunder to any affiliate of or company under
common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.

12.9. Upon request, the Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, copies of the following reports:

(a) the Company's most recent annual statement (prepared under
statutory accounting principles) and annual report (prepared
under generally accepted accounting principles ("GAAP"), if
any;

(b) the Company's most recent quarterly statements (statutory)
(and GAAP, if any);

(d) any registration statement (without exhibits) and financial
reports of the Company filed with the SEC or any state
insurance regulator.

Page 24
<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.

PROTECTIVE LIFE INSURANCE COMPANY Attest:

By: By:
-------------------------------- --------------------------------

Name: Carolyn King Name: Steve M. Callaway
------------------------------ ------------------------------

Title: Senior Vice President Title: Senior Associate Counsel
----------------------------- -----------------------------

VAN ECK WORLDWIDE INSURANCE TRUST Attest:

By: By:
-------------------------------- --------------------------------

Name: Name:
------------------------------ ------------------------------

Title: Title:
----------------------------- -----------------------------

VAN ECK SECURITIES CORPORATION Attest:

By: By:
-------------------------------- --------------------------------

Name: Name:
------------------------------ ------------------------------

Title: Title:
----------------------------- -----------------------------

VAN ECK ASSOCIATES CORPORATION Attest:

By: By:
-------------------------------- --------------------------------

Name: Name:
------------------------------ ------------------------------

Title: Title:
----------------------------- -----------------------------

Page 25
<PAGE>

SCHEDULE A
ACCOUNTS

Date Established by the Company's
Name of Account Board of Directors
--------------- ---------------------------------

Protective Variable Annuity Separate Account 12/23/93

Protective Variable Life Separate Account 2/22/95

Page 26
<PAGE>

SCHEDULE B
PORTFOLIOS AND OTHER FUNDS
ADVISED BY ADVISER

I. Portfolios

Worldwide Hard Assets Fund

Worldwide Real Estate Fund

II. OTHER FUNDS ADVISED BY THE ADVISER

Page 27
<PAGE>

SCHEDULE C
OTHER INVESTMENT COMPANIES AVAILABLE
AS FUNDING VEHICLE FOR THE CONTRACTS

Protective Investment Company

Oppenheimer Variable Account Funds

MFS-Registered Trademark-Variable Insurance Trust

Calvert Variable Series, Inc.

<PAGE>

- -------------------------------------
STEVE M. CALLAWAY
Senior Associate Counsel

Writer's Direct Number: (205)868-3804
Facsimile Number: (205)868-3597
Toll-Free Number: (800)627-0220

September 23, 1998

Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223

Gentlemen:

With respect to the Pre-Effective Amendment No. 1 to the Form N-4
Registration Statement to be filed by Protective Life Insurance Company (the
"Company") and Protective Variable Annuity Separate Account (the "Account") with
the Securities and Exchange Commission for the purpose of registering under the
Securities Act of 1933, as amended, individual flexible premium deferred
variable and fixed annuity contracts marketed under the name "Elements" (the
"Contracts"), I have examined such documents and such law as I considered
necessary and appropriate, and on the basis of such examination, it is my
opinion that:

1. The Company is a corporation duly organized and validly existing as a
stock life insurance company under the laws of the State of Tennessee
and is duly authorized by the Department of Commerce and Insurance of
the State of Tennessee to issue the Contracts.

2. The Account is a duly authorized and existing separate account
established pursuant to the provisions of Section 53-3-501 of the
Tennessee Code.

3. To the extent so provided under the Contracts, that portion of the
assets of the account equal to the reserves and other contract
liabilities with respect to the Account will not be chargeable with
liabilities arising out of any other business that the Company may
conduct.

4. The Contracts, when issued as contemplated by the Form N-4
registration statement, will constitute legal, validly issued and
binding obligations of the Company.

I hereby consent to the filing of this opinion as an exhibit to the Form
N-4 registration statement for the Contracts and the Account.

Very truly yours,

Steve M. Callaway
Senior Associate Counsel

PROTECTIVE LIFE INSURANCE COMPANY/AMERICAN FOUNDATION LIFE INSURANCE COMPANY
EMPIRE GENERAL LIFE ASSURANCE CORPORATION/
WISCONSIN NATIONAL LIFE INSURANCE COMPANY

<PAGE>

[LETTERHEAD]

September 22, 1998

Board of Directors
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223

Directors:

We hereby consent to the reference to our name under the caption "Legal
Matters" in the statement of additional information filed as part of
pre-effective amendment number 1 to the Registration Statement on Form N-4
(File No. 333-60149) filed by Protective Life Insurance Company and
Protective Variable Annuity Separate Account with the Securities and Exchange
Commission. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933.

Very truly yours,

SUTHERLAND, ASBILL & BRENNAN LLP

By: /s/ Stephen E. Roth
-------------------------------------
Stephen E. Roth

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion, in this Pre-Effective Amendment No. 1 (File No.
333-60149) to the Registration Statement under the Investment Company Act of
1940 filed on Form N-4, of our report dated February 11, 1998, on our audits
of the financial statements and financial statement schedules of Protective
Life Insurance Company and Subsidiaries. We also consent to the inclusion of
our report dated March 5, 1998 on our audit of the financial statements of
the Protective Variable Annuity Separate Account. We also consent to the
reference to our Firm under the caption "Experts."

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers
(formerly Coopers & Lybrand LLP)

Birmingham, Alabama
October 26, 1998

<PAGE>

DIRECTORS'
POWER OF ATTORNEY
-----------------

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors
of Protective Life Insurance Company, a Tennessee corporation, ("Company") by
his execution hereof or upon an identical counterpart hereof, does hereby
constitute and appoint John D. Johns, 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 the Registration
Statement on Form N-4 to be filed by the Company with respect to variable
annuity products with the Securities and Exchange Commission, pursuant to the
provisions of the Securities Exchange Act of 1933 and the Investment Company
Act of 1940 and, further, to execute and sign any and all pre-effective and
post-effective amendments to such Registration Statement, and to file same,
with all exhibits and schedules thereto and all other documents in connection
therewith, with the Securities and Exchange Commission and with such state
securities authorities as may be appropriate, granting unto said
attorney-in-fact and agent, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes of the
undersigned might or could do in person, hereby ratifying and confirming all
the acts of said attorney-in-fact and agent or any of them which they may
lawfully do in the premises or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand
and seal this 18th day of September, 1998.

WITNESS TO ALL SIGNATURES:

/s/ Deborah J. Long
- -----------------------------------
Deborah J. Long

/s/ Drayton Nabers, Jr. /s/ Danny L. Bentley
- ----------------------------------- -----------------------------------
Drayton Nabers, Jr. Danny L. Bentley

/s/ John D. Johns /s/ Richard J. Bielen
- ----------------------------------- -----------------------------------
John D. Johns Richard J. Bielen

/s/ R. Stephen Briggs /s/ Carolyn King
- ----------------------------------- -----------------------------------
R. Stephen Briggs Carolyn King

/s/ Deborah J. Long /s/ Jim E. Massengale
- ----------------------------------- -----------------------------------
Deborah J. Long Jim E. Massengale

/s/ Steven A. Schultz /s/ A.S. Williams III
- ----------------------------------- -----------------------------------
Steven A. Schultz A.S. Williams III

/s/ Wayne E. Stuenkel
- -----------------------------------
Wayne E. Stuenkel