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PROTECTIVE INVESTMENT COMPANY
SEMI-ANNUAL REPORT
JUNE 30, 1996
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PROTECTIVE INVESTMENT COMPANY
LETTER TO INVESTORS
August 1, 1996
DEAR INVESTORS:
We are pleased to have this opportunity to review the performance and the
investment activity of the portfolios offered by the Protective Investment
Company for the six-month period ended June 30, 1996. Our investment advisers,
Goldman Sachs Asset Management (GSAM) and Goldman Sachs Asset Management
International (GSAMI), will also provide a brief overview of the investment
environment.
THE U.S. STOCK MARKET RALLY CONTINUED BUT VOLATILITY INCREASED...
The U.S. stock market continued to climb during the first half of 1996, although
less dramatically than last year. Despite generally good performance, the
market was characterized by a greater degree of volatility than during recent
quarters. For the six-month period, large-cap stocks (as measured by the
Standard & Poor's 500 stock index) and small-cap stocks (as measured by the
Russell 2000 index) both delivered total returns of just over 10%. The
similarity of these gains disguised significant differences in timing for the
two sectors. Most of the upward movement in large-cap stocks was concentrated
in January and May, with equity prices trapped in a choppy trading range during
the rest of the period due to inflation worries and a dramatic rise in long-term
bond yields. During the first half of the year, retailing stocks rebounded
strongly after their disappointing performance last year. Small-cap stocks
recorded steady gains from February through May, consistently outperforming
large-cap stocks, then gave back part of their gains in June as technology-
related stocks led a sharp decline in the sector.
...AS ECONOMIC GROWTH ACCELERATED
The period under review began with the economy weak, due to sluggish consumer
spending and corporate inventory adjustments, which were exacerbated by poor
weather and fiscal restraint. During January and February, the government
shutdowns and delays in releasing economic data and the distorting effects of
the harsh winter storms made it difficult to get an accurate reading on the
economy's health. However, when key indicators were finally reported, it became
clear that the economy had gained momentum faster than expected. First-quarter
real GDP was 2.0% (annualized), reflecting improved demand from consumers and
businesses. A wide range of indicators pointed to accelerating growth in the
second quarter, including trade, factory orders, automobile sales and industrial
production. The unemployment rate for June fell to 5.3%, a six-year low.
Despite investor fears of potential economic overheating, June's Consumer Price
Index (CPI) rose only 0.1%, the slowest pace in seven months, indicating that
there was little evidence of a broad-based acceleration in inflation. Second-
quarter real GDP was recently reported at 4.2% (annualized).
THE FED EASED IN THE BEGINNING OF THE PERIOD, THEN REMAINED NEUTRAL
The U.S. Federal Reserve cut the Federal funds rate (the rate banks charge one
another for overnight borrowing) 25 basis points to 5.25% in January 1996.
Though the economy continued to show signs of strengthening, the Fed remained
neutral through the end of June.
OUTLOOK IN THE U.S.: MODERATE GROWTH AND LOW INFLATION
Despite the steady stream of better than expected economic data, some economists
now believe growth is likely to slow during the second half of 1996. Possible
sources of economic slowing include higher long-term interest rates and
declining durable goods consumption. Though there are currently few signs of
significant inflationary pressures on the horizon, with unemployment down and
wages up, inflation may drift slightly higher in coming months. Lower than
expected second quarter corporate earnings announcements in selected companies
triggered a sharp stock market correction in early July. Technology stocks,
which had performed so strongly during the second quarter, were hit hardest.
This decline could set the stage for a more prolonged period of choppy trading,
which is likely to persist until investors become more confident about the 1997
corporate profit outlook.
THE DOLLAR CONTINUED TO RALLY AGAINST THE YEN AND THE MARK UNTIL JULY
Along with the economy, the U.S. dollar strengthened against the Deutsche mark
and Japanese yen during the period under review. During the second half of the
period, the dollar reached a 14-month high against the mark. Germany's economic
weakness caused the Bundesbank to cut rates, making U.S. currency relatively
more attractive. By the end of June, the dollar reached its highest level
against the yen in nearly 29 months, partly due to reduced expectations of
Japanese interest
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rate increases and official Japanese comments concerning the fragile economic
rebound in that country. After the period ended, the U.S. stock market's sell-
off in July drove the dollar sharply lower against both the yen and the mark.
THE INTERNATIONAL MARKET ENVIRONMENT: STOCKS PERFORMED WELL WORLDWIDE
The international economic environment has been somewhat mixed, with the pace of
economic growth increasing in Asia while European economies remained sluggish.
Against this backdrop, returns for European and Asian equities were generally
strong during the first half of 1996. Though Japan's economy has continued to
be weak, signs of a gradual pickup in growth helped stock market performance.
- - EUROPE. The long-awaited European economic recovery did not materialize
during the period, with continuing weak growth in "core" markets, such as
Germany. However, growth in some of the peripheral markets (e.g., Sweden and
Spain) was somewhat stronger, and business conditions in Germany showed some
signs of improvement by the end of June. Amid this generally sluggish economic
picture, inflation remained contained and bond markets performed relatively
well. This has translated into strong performance in most European stock
markets, with the FT-Actuaries Europe Index (designated in local currencies) up
10.43% during the period. Small-capitalization stocks outperformed larger
stocks. The slow growth environment and, in many cases, strengthening
currencies created the impetus for corporate restructuring (particularly in
Germany and Switzerland) as companies sought higher returns on assets. Within
Europe, the Spanish, French and Swedish markets were among the best performers
during the period, while the U.K. lagged due to a perceived increase in
political risks associated with the forthcoming elections and a scaling back in
growth estimates.
- - JAPAN. Japanese stocks (as measured by the TOPIX index in yen) rose 8.54%,
due in part to foreign investments from Europe and the United States as well as
heavy buying from Japanese public pension funds. While long-term interest rates
remained very low during the period, rising Japanese exports helped stimulate
growth as the yen weakened against the dollar. To a degree, the government's
fiscal stimulus package last year appears to be working, although sustainable
corporate earnings growth has not yet been demonstrated. The Japanese stock
market experienced a correction in May, but rebounded in June to reach a four-
year high. Japanese equities were helped by increasing investor confidence that
short-term rates would not be raised soon and the continued strengthening of the
dollar against the yen. In contrast, the Japanese bond market came under
pressure during the period as economic growth showed signs of reviving.
- - ASIA. Asian stock markets generally performed well during the period, rising
9.77% as measured by the MSCI All Country Asia (ex Japan) Index. Most of the
gains occurred during the first quarter as strong inflows from foreign investors
early in 1996 fueled the rally, but momentum waned during the latter half of the
period. Investor interest in the region was dampened partly due to saber
rattling by China preceding the Taiwan election as well as political uncertainty
in other Asian countries. Towards the end of the period, the larger Asian
markets (Hong Kong and Singapore) felt the impact of concerns over higher U.S.
interest rates and increased volatility.
PERFORMANCE AND PORTFOLIO REVIEW BY FUND
PROTECTIVE SELECT EQUITY FUND
OBJECTIVE AND STRATEGIES: The Protective Select Equity Fund seeks to provide
total return consisting of capital appreciation plus dividend income. The Fund
invests in a widely diversified portfolio of large-cap and blue-chip stocks,
while typically maintaining sector weightings, average capitalizations and risk
characteristics similar to the S&P 500 stock index. In selecting investments,
the Fund utilizes a disciplined approach that combines fundamental investment
research provided by the Goldman Sachs Investment Research Department with
quantitative analysis generated by a proprietary model developed by Goldman
Sachs Asset Management (GSAM), the Fund's investment adviser. Those stocks
ranked highly both by the Goldman Sachs Investment Research Department and by
GSAM's quantitative analysis are selected for the Fund's portfolio.
PERFORMANCE REVIEW AND HOLDINGS: For the six-month period ended June 30, 1996,
the Protective Select Equity Fund had a total return of 10.04%1 based on net
asset value compared with 10.09% for the S&P 500 stock index, the Fund's
benchmark. During the first quarter of 1996, the Fund outperformed the
benchmark primarily due to successful stock selection. However, in the second
quarter, stocks with positive momentum and attractive earnings multiples, which
were heavily weighted in the Fund, underperformed. In contrast, the Fund's
underweighting in the telephone/telegraph sector worked in its favor as that
sector lagged. For the period as a whole, the Fund's positive performance
generally can be equally attributed to its quantitative model and fundamental
investment research. Goldman Sachs' fundamental research was particularly
helpful in enabling the Fund to avoid a number of stocks that lagged the market
during the period.
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The Fund's best performing stocks during the period came from a variety of
sectors, including technology (MICROSOFT CORP., INTEL CORP., CISCO SYSTEMS,
INC.), consumer goods (PEPSICO INC., PHILIP MORRIS COMPANIES, INC.) and banks
(NATIONSBANK CORP., BANKAMERICA CORP.). Stocks that hindered performance
included UNICOM CORP. (electricity producer and distributor) and CYPRUS AMAX
MINERALS CO. (mining).
At the beginning of the year, GSAM's quantitative model emphasized both
value-oriented factors (such as low price/earnings ratios) and
growth-and-momentum factors (such as estimated earnings revisions and price
momentum). However, during the second half of the period, GSAM's model
favored more defensive issues and was approximately equally weighted among
value, momentum and low-risk factors, due to three primary drivers. First,
the tight yield spreads between higher and lower quality bonds typically
occurs at the peak of a business cycle. Second, the stock market was no
longer being supported by falling interest rates. Finally, the market's
record low dividend yield suggested that the equity market was trading at
expensive valuation levels.
PORTFOLIO COMPOSITION: As of June 30, the Fund was well diversified with 114
stocks. In general, its sector exposures approximated those of the S&P 500
stock index, although the Fund was slightly overweighted in the financial sector
(17.7% for the Fund versus 15.1% for the S&P 500) and electric/gas (6.6% versus
4.0%) and underweighted in consumer nondurables (9.3% versus 13.4%). These
differences were the result of the Fund's bottom-up stock selection process, not
the result of an explicit decision to overweight or underweight any specific
sector.
As of June 30, 1996, several of the Fund's valuation characteristics continued
to be more favorable than the benchmark. For example, the Fund had a lower
price/earnings ratio based on 1996 estimated earnings than the S&P 500 (13.9x
versus 15.7x) and a lower price/book ratio (2.6x versus 3.0x). The Fund
achieved these valuation levels without sacrificing potential growth or taking
additional risk, as the Fund's growth and risk characteristics were both quite
similar to the S&P 500.
OUTLOOK: Recent stock price declines have not altered the investment adviser's
favorable view of the market. GSAM expects that recent fears of rapidly rising
inflation and profit weakness will soon dissipate. Meanwhile, equity prices
will probably remain in a choppy trading range until investors' confidence is
restored. The Fund's quantitative model favors stocks with low price/earnings
multiples, high returns on total capital, positive earnings estimate revisions
and stable earnings growth. The investment adviser believes that its current
focus on value-oriented, defensive issues continues to be appropriate and
intends to continue its strategy of broad diversification and risk control.
PROTECTIVE GROWTH AND INCOME FUND
OBJECTIVE AND STRATEGIES: The Protective Growth and Income Fund seeks long-term
capital appreciation and growth of income primarily through investments in a
diversified portfolio of common stocks and other equity securities. The Fund is
managed with a value style, which means that GSAM focuses on companies whose
stocks are inexpensive relative to their expected long-term earnings power and
their ability to pay dividends. Investments may include well-known companies
that are temporarily out of favor due to cyclical economic conditions or that
are experiencing near-term difficulties the portfolio managers judge to be
temporary in nature. In-depth fundamental research of a company's financial
structure, its competitive position in the market and its management's
commitment to increasing shareholder value are all critical parts of the Fund's
investment evaluation approach.
PERFORMANCE REVIEW AND HOLDINGS: For the six months ended June 30, 1996, the
Protective Growth and Income Fund had a total return of 7.57%1 based on net
asset value compared with 10.09% for the S&P 500 stock index, the Fund's
benchmark.
As a result of its stock selection, the Fund's weightings in the technology,
financial and transportation sectors were increased during the period, while its
positions in media and communications companies were reduced.
The Fund's best performers during the period came from a broad range of
industries, including financial, retail and automotive holdings. In the
financial sector, BANKAMERICA CORP. appreciated due to a combination of stronger
than expected earnings, share repurchases and a dividend increase, and
NATIONSBANK CORP. rose due to its dramatically successful cost-reduction
efforts, which fueled higher earnings growth. Several of the Fund's retail
holdings rebounded, including SEARS, ROEBUCK & CO. and J.C. PENNEY INC., as the
retail sector benefited from the modest increase in consumer spending during the
period and produced stronger than expected financial results. In the automotive
market, FORD MOTOR CO. appreciated along with other auto-related stocks. The
company attracted additional investor interest with news of its spin-off of
Associates First Capital Corp., its previously wholly-owned consumer finance
company, which caused investors
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to realize the potential value of its non-car businesses. In a continuation of
its successful strategy, LEAR SEATING CORP., a manufacturer of seating and other
components for the automotive industry, recently announced the acquisition of
carpet manufacturer Masland Corp., which will expand its product line to cover
approximately 90% of a vehicle's interior. GOODYEAR TIRE & RUBBER CO., one of
the three largest tire manufacturers in the world, did well as investors
anticipated the positive impact of lower rubber prices later in the year.
Two of the Fund's positions in the oil refinery industry, ASHLAND INC. and TOSCO
CORP., also significantly contributed to performance during the period. ASHLAND
rose due to improving industry fundamentals, as gasoline supply remained static
while demand has grown, along with the increasing popularity of higher gas-
consuming four-wheel drive vehicles and light trucks. In addition, the
company's successful cost cutting and strong results from its other businesses
such as Valvoline (motor oil), SuperAmerica (Midwest gasoline retail chain), and
APAC, the largest road construction company in the United States, also helped
results. TOSCO successfully completed its acquisition of Circle K Corp., making
it the country's largest operator of convenience stores, many of which sell
gasoline. Finally, PHILIP MORRIS COMPANIES, INC., the Fund's largest holding,
continued to post outstanding financial results and benefited when a pending
class-action lawsuit against tobacco companies was dismissed in a U.S. federal
court.
Investments that did not meet the investment adviser's expectations included
marine and boating manufacturers BRUNSWICK CORP. and OUTBOARD MARINE CORP.,
whose highly seasonal sales were hurt by the wet spring weather. FLEMING COS.
INC., a distributor of food products to independent retail chains, came under
pressure due to an unforeseen lawsuit from one of its customers. Though the
original court ruling created financial stress for the company, the judgment was
rejected by a higher court and a new trial has been scheduled. The Fund
continues to hold all three investments.
During the period, several new technology-related investments were added. These
included the newly spun-off LUCENT TECHNOLOGIES, INC., formerly AT&T's
telecommunications equipment division, which is expected to be in a better
position to gain market share now that its customer base is no longer likely to
view it as part of a competitor; AVNET, INC., a distributor of electronic
components and computer products, which has stable earnings relative to other
technology companies as well as strong cash flows; and INTEL CORP., the dominant
microprocessor manufacturer, when it appeared that the market had overreacted to
an anticipated decline in first-quarter earnings. INTEL later rebounded when
the earnings decline turned out to be smaller than expected.
The Fund also initiated a number of positions in other sectors. These included
CANADIAN PACIFIC LTD., an energy producer and railroad operator, where new
management and a more favorable regulatory environment should result in improved
operating margins. Another new investment was CONTINENTAL AIRLINES, INC., whose
new management team dramatically enhanced customer service, which resulted in
their moving from last place to first place in J.D. Power and Associates's
customer satisfaction survey of the nine major U.S. carriers. In addition, the
company introduced a marketing program that has significantly increased its
share of business travel.
Stocks sold during the period included GENERAL MOTORS CORP., after its price
rose and the investment adviser identified better value in Ford Motor Co.;
ENTERGY CORP., which hit its price target; LORAL CORP., which significantly
appreciated following the announcement of its acquisition by Lockheed Martin;
and TELE-COMMUNICATIONS, INC., which the investment adviser determined would
require higher than expected capital expenditures to compete in local telephone
markets.
OUTLOOK: After its recent correction, the market is likely to remain volatile
in the months to come. The strength of corporate earnings, the pace of economic
growth and the possibility that the Federal Reserve may raise rates in August
will all have an impact on the market. Though it will be difficult to match the
gains of the first half of the year, GSAM will remain focused on firsthand,
fundamental research to identify undervalued stocks with long-term potential.
PROTECTIVE CAPITAL GROWTH FUND
OBJECTIVE AND STRATEGIES: The Protective Capital Growth Fund seeks long-term
growth primarily through investments in stocks considered to have long-term
capital appreciation potential. Stocks are selected primarily by using a value-
oriented investment style, emphasizing extensive fundamental research to
identify companies that are believed to be underpriced in the market compared
with their long-term growth potential. The average weighted market
capitalization of the Fund was approximately $18.8 billion as of June 30, 1996,
compared with $34.3 billion for the S&P 500.
PERFORMANCE REVIEW AND HOLDINGS: For the six months ended June 30, 1996, the
Protective Capital Growth Fund had a total return of 7.60%1 based on net asset
value compared with 10.09% for the S&P 500 stock index, the Fund's benchmark,
during the same period.
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The main changes in the Fund's holdings during the period were significant
increases in its weightings in the technology, financial and health sectors and
reductions in its positions in capital goods companies. These differences were
the result of the investment adviser's bottom-up stock selection process, not
specific sector preference decisions.
During the period under review, the portfolio's best performers included stocks
from a wide variety of industries. After being depressed early in the period,
tobacco stocks rebounded when a major class-action lawsuit against tobacco
companies was dismissed by a federal appeals court. The improved outlook for
the tobacco industry benefited PHILIP MORRIS COMPANIES, INC., the Fund's largest
position, which also rose when it reported outstanding financial results. In
the retail sector, consumer spending experienced a modest rebound, which
produced stronger than expected financial results for many retailers,
particularly those in apparel. Fund holdings that benefited included DILLARD
DEPARTMENT STORES, INC., which continued to expand and experienced a significant
rebound in same-store sales. Health care equipment manufacturer PERKIN-ELMER
CORP. was another notable performer, appreciating when its new CEO aggressively
restructured the company's operations.
The sell-off in technology stocks early in the year provided the Fund with the
opportunity to increase its positions in several leading technology companies at
attractive valuations. These included two stocks now among the Fund's top ten
holdings: INTEL CORP., the dominant microprocessor manufacturer, which was one
of the best performers during the period, and COMPAQ COMPUTER CORP., the world's
largest manufacturer of personal computers. The Fund's additional investments
in the sector dramatically raised its technology holdings to 15% of the
portfolio (up from 5% six months ago).
As noted, the Fund increased its investments in the financial sector,
particularly in banks and credit card companies. The Fund added to several
existing positions, including FIRST USA INC., which spun off its minority
interest in Paymentech, a credit card transaction processor, and drew investor
attention to the success of the company's existing operations, and NATIONSBANK
CORP., where dramatically successful cost-reduction efforts fueled higher
earnings growth. The Fund also initiated a position in MBNA CORP., the industry
leader in affinity credit cards in the United States. Some financial positions
were sold during the period, either because they reached GSAM's target prices,
as was the case for CITICORP and PENNCORP FINANCIAL GROUP INC., or failed to
meet expectations, such as SALOMON, INC.
The Fund's investment adviser identified attractive investments in the health
sector, adding BAXTER INTERNATIONAL INC., where aggressive management is seeking
to enhance shareholder value by spinning off Allegiance, its low-growth hospital
supply business, in order to focus on its high-growth medical technology
division, and TENET HEALTHCARE CORP., the owner and operator of more than 75
acute care hospitals, which reported a significant increase in net income and
revenues.
During the period, the Fund sold a number of its long-held positions in
specialty retailers, including SERVICE MERCHANDISE INC. and MUSICLAND STORES
CORP., which GSAM determined had experienced deteriorating fundamentals. In
contrast, the Fund sold TJX COMPANIES INC. (a retailer of off-price women's
apparel and accessories) after it appreciated and reached the investment
adviser's target price. One of the non-retail positions sold during the period
was TELE-COMMUNICATIONS INC., based on GSAM's analysis that the capital spending
required to upgrade the company's cable system to compete against local
telephone service providers would be higher than originally anticipated.
Fund holdings that came under pressure during the period included SILICON VALLEY
GROUP, INC., a leading semiconductor equipment manufacturer, which was hurt
because the precipitous decline in DRAM (dynamic random access memory for
personal computers) prices is expected to result in fewer orders for equipment.
However, with DRAM suppliers accounting for less than 5% of the company's sales,
the Fund's investment adviser believes the market overreacted. In addition,
CONSOLIDATED FREIGHTWAYS INC. encountered higher fuel prices and a short-term
price war in the trucking industry that is exerting downward pressure on rates.
As of the end of the period, the Fund continued to hold both positions based on
confidence in their growth potential.
OUTLOOK: The Fund intends to continue to invest in companies exhibiting
attractive valuation characteristics with favorable long-term growth prospects.
The uncertainty surrounding corporate earnings and the Fed's potential monetary
tightening may continue to buffet the market in the coming months, as the July
correction dramatically demonstrated. The recent market volatility highlights
the benefits of the Fund's diversified approach and the importance of
maintaining a long-term investment perspective.
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PROTECTIVE SMALL CAP EQUITY FUND
OBJECTIVE AND STRATEGIES: The Protective Small Cap Equity Fund's objective is
long-term capital appreciation, primarily through investments in equity
securities of U.S. companies with market capitalizations of $1 billion or less.
The Fund is managed using a "business value" approach to investing, which means
that GSAM, the Fund's investment adviser, looks for attractive companies with
high or improving returns on capital that it believes can achieve solid,
sustainable growth as well as generate free cash flow after investing for future
growth. This approach differs markedly from many pure growth small-cap funds
that invest in companies with high multiples solely on the basis of rapid, but
frequently unsustainable, growth rates. Using its own rigorous fundamental
research, which includes meeting with a company's management and considering a
company's competitors, customers and suppliers, GSAM builds the Fund's portfolio
one stock at a time.
PERFORMANCE REVIEW AND HOLDINGS: The Protective Small Cap Equity Fund
significantly outperformed its benchmark during the period under review,
achieving a total return of 22.62%1 based on net asset value, more than double
the 10.40% return for the Russell 2000, an index that tracks the stock price
performance of small cap companies. The Fund's performance versus the benchmark
came from successful stock selection in a variety of industries.
- - A number of stocks that had declined in 1995 and that the Fund's investment
adviser determined were significantly undervalued rebounded strongly in
early 1996. These included several of the Fund's long-term retailing
holdings such as BROOKSTONE, INC. (specialty retailer), J. BAKER, INC.
(specialty apparel and discount shoes), LEVITZ FURNITURE, INC. (furniture
retailer) as well as AMERICAN SAFETY RAZOR CO. (shaving blades) and
MORNINGSTAR GROUP INC. (specialty foods).
- - Several stocks that were purchased because they offered growth potential at
a "reasonable" price appreciated significantly during the period as the
market recognized their strong fundamentals. These holdings included the
Fund's largest position, BLACK BOX CORP. (catalog marketer of
communications and networking products), and INSIGNIA FINANCIAL GROUP, INC.
(real estate management).
- - Some holdings benefited when underlying investor concerns were resolved.
These included TRUMP HOTELS AND CASINO RESORTS and FIGGIE INTERNATIONAL,
INC. (industrial conglomerate), which benefited from its continuing
turnaround.
During the period, the Fund's portfolio managers continued to widen their search
for investments across various industry sectors, including those that the Fund
has traditionally de-emphasized. This more balanced search has led to
additional investments in the health care, technology and finance sectors and a
reduction in its exposure to the retail sector.
In the health care sector, new investments included THERATX INC., which provides
rehabilitation, pharmacy and related services primarily to third-party nursing
care facilities; SUN HEALTHCARE GROUP, INC., whose business is primarily
facilities-based as an owner/operator of nursing homes; and MARINER HEALTH GROUP
INC., a premier provider of both nursing care facilities and services. Each of
these stocks had declined dramatically due to both industry-related concerns and
company-specific issues, but the Fund's investment adviser believes they offer
long-term growth potential. The Fund added several technology-related
investments, each of which should be participants in the expected long-term
growth in technology while not being dependent on any single product or type of
service. New stocks consistent with this approach were DECISIONONE CORP., the
leading independent provider of computer hardware, software and maintenance
support services to U.S. companies, and MULTIPLE ZONES INTERNATIONAL, a catalog
marketer of brand-name microcomputer hardware, software, peripherals and
accessories. The Fund's exposure to financial services companies also
increased, with the addition of specialty insurers such as IPC HOLDINGS LTD. and
TERRA NOVA BERMUDA HOLDINGS, both in the catastrophe reinsurance business.
Some positions were sold at substantial gains after they reached the portfolio
managers' target prices, such as DIMAC CORP., (which was acquired), BERG
ELECTRONICS CORP., BUCKEYE CELLULOSE CORP. and INTERNATIONAL FAMILY
ENTERTAINMENT. Other holdings were liquidated due to a loss of confidence in
their long-term business prospects, including BROTHERS GOURMET COFFEES, INC.,
HAGGAR CORP. and SERVICE MERCHANDISE INC.
One of the Fund's disappointments during the period was MUSICLAND STORES CORP.,
which continued to suffer due to a very competitive environment and to
management's inability to implement an expansion strategy.
OUTLOOK: The Fund's investment adviser believes that the correction in small-
cap stocks in June and July resulted in a number of attractive long-term
investment opportunities. The increased volatility in the stock market
indicates that stock picking will be increasingly important in the months ahead,
which fits in well with GSAM's investment approach. The investment adviser is
optimistic that the long-term earnings growth and cash flow potential of the
Fund's investments will in time be reflected in the market.
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PROTECTIVE INTERNATIONAL EQUITY FUND
OBJECTIVE AND STRATEGIES: The Protective International Equity Fund seeks long-
term capital appreciation by investing in equity securities of foreign issuers
that the Fund's portfolio management team believes have the potential to
appreciate over the long term. The Fund focuses on selecting attractively
valued companies with strong, competitive positions in industries expected to
grow. The Fund's portfolio managers are based in Europe, Japan and Asia, and
their knowledge of local markets plays an important role in uncovering
investment opportunities. While the Fund does not allocate assets across
specific countries based on top-down economic or market forecasts, the portfolio
managers strive to manage risk by remaining diversified by country and industry
sector and by closely monitoring economic and political events in countries in
which the Fund does invest. Currency risk, inherent in any international
investment, is managed by a separate team of currency specialists based in
London.
PERFORMANCE REVIEW AND HOLDINGS: The Fund significantly outperformed its
benchmark during the period under review. For the six months ended June 30,
1996, the Protective International Equity Fund had a total return of 14.08%1
based on net asset value compared with a return of 4.86% for the Fund's
benchmark, the Financial Times/S&P Actuaries Europe & Pacific Index ("Europac")
unhedged. Europac is a capitalization-weighted composite of approximately 1,450
stocks from 21 countries in Europe and the Asia-Pacific region and is calculated
on a monthly basis. The Fund's strong returns placed it ahead of the majority
of its peers. For the 12-month period ended June 30, 1996, the Fund ranked
eighth out of 292 variable annuity international equity funds tracked by Lipper
Analytical Services, Inc. based on total return. (Please note that Lipper
rankings do not take sales charges into account and that past performance is not
a guarantee of future results.)
The Fund's positive performance was primarily due to successful stock selection
across regions, and most notably in Europe, where the Fund benefited from its
emphasis on high-quality companies in growing industries. As of June 30, 1996,
the Fund held positions in 55 companies based in 17 countries. In terms of
total assets, the five largest country exposures were Japan (33.8%), the U.K.
(11.4%), Sweden (7.8%), Germany (5.5%) and France (5.4%).
JAPAN. At the end of June, the Fund's substantial allocation in Japan (33.9%)
was nevertheless underweighted compared with the benchmark (42.7%) as stock
valuations were relatively high during the period. Japanese positions that
performed well included MIRAI INDUSTRY, which has captured a leading market
share in electric cable, pipes, wiring boxes and other electric wiring, and has
continued to achieve better than expected earnings through new products and cost
reduction. Two Japanese stocks added during the period were KOKUYO, the largest
supplier of office supplies and stationery in Japan, and SMC, which manufactures
pneumatic control equipment and has an over 50% share in its domestic market.
The company has recently expanded its direct distribution channels in North
America, Europe and Asia.
EUROPE. As of June 30, 1996, approximately 48% of the portfolio was invested in
European stocks, nearly in line with the Europac Index allocation of 46%.
Outstanding performers included FRESENIUS AG (Germany), a major producer of
kidney dialysis and other medical equipment, which more than doubled during the
period based on news of its proposed merger with W.R. Grace's medical equipment
division in the United States. Other strong performers were RANDSTAD HOLDINGS
(Netherlands), the leading temporary help organization in its market, which
benefited from significant growth, and SECURITAS (Sweden), the largest security
services company in Europe, which consolidated its position through some
important acquisitions. ADIDAS (Germany), a sports clothing manufacturer, also
did well primarily due to a broadening of its franchise beyond shoes to
sportswear and savings realized by moving production from Germany to less
expensive Asian markets. New investments included ECCO (France), expected to
become the largest temporary employment agency worldwide after its proposed
merger with Adia is complete; SANDOZ (Switzerland), a major pharmaceutical
company that recently announced its proposed merger with Ciba Geigy; and PREMIER
FARNELL (U.K.), a catalog distributor of electronic equipment.
ASIA-PACIFIC. Approximately 16% of the Fund was invested in Asia (outside
Japan), compared with 10% for the benchmark, with the Fund's largest country
allocation in Hong Kong (4.3%). During the period, a number of the Fund's
property companies did well including SUN HUNG KAI PROPERTIES (Hong Kong) and
SINGAPORE LAND LTD., one of the largest landlords of prime office space in the
central business district of Singapore. The Fund also held WOODSIDE PETROLEUM,
an Australian-based oil and gas explorer and producer, which has already
identified growth in cash flow from its Northwest shelf development and its
existing exploration program, and BORAL LTD., an Australian building materials
company. There were a number of new investments in the region, including LEADER
UNIVERSAL HOLDINGS, the leading manufacturer of power and telecom cable in
Malaysia, which successfully expanded its client base outside Malaysia and
recently built a new factory to increase its capacity.
7
<PAGE>
OUTLOOK: For the second half of the year, GSAMI, the Fund's investment adviser,
believes the performance of international markets will generally remain
positive, though large gains are likely to be more difficult to achieve. In the
absence of any compelling macroeconomic or industry themes in Europe's slow-
growth environment, GSAMI will continue to focus on individual companies with
the potential to grow regardless of the economic environment. Although the
Fund's investment adviser still has a generally positive view of the Japanese
market, it expects to remain cautious until it sees compelling evidence that the
pickup in the Japanese economy has been reflected in earnings growth. In recent
months, GSAMI has trimmed the Fund's exposure in Hong Kong after its holdings
appreciated significantly in favor of investments in other markets, such as
Malaysia, that appear to offer greater potential. In general, valuations in
Asia are attractive as is GSAMI's outlook for earnings growth in Asia.
PROTECTIVE GLOBAL INCOME FUND
OBJECTIVE AND STRATEGIES: The investment objective of the Protective Global
Income Fund is to generate a high total return, composed of both current income
and, to a lesser extent, capital appreciation. The Fund will invest primarily
in government and other high-quality fixed income securities issued in the U.S.
and in foreign markets. The Fund also engages in currency transactions to hedge
exchange rate risk and enhance return when possible.
PERFORMANCE REVIEW AND HOLDINGS: For the six-month period ended June 30, 1996,
the total return of the Protective Global Income Fund was 2.35%1 compared with a
return of 1.64% for its benchmark, the J.P. Morgan Global Government Bond Index
(hedged into U.S. dollars) (the "Index"). The Fund's overweighting in Europe
and its underweighting in Japan and the United States benefited its performance
during most of the period.
The performance of the global bond markets during the six months ended June 30,
1996 was positive, but returns were lackluster compared with last year's robust
gains. When the period under review began, moderate economic growth in the
United States and interest rate cuts in Europe helped stimulate global bonds,
but most major bond markets lost momentum during the period. U.S. economic
growth accelerated during the latter half of the period, which increased the
likelihood that the Federal Reserve would begin to tighten. Japanese bonds were
among the poorest performers during the period, as indications of economic
strengthening were reported.
The following is an overview of the fund's key positions as of June 30, 1996.
- - U.S. Although U.S. Treasuries remain the portfolio's largest country
position at 24.1%, they were significantly underweighted relative to the
Index (37.3%), a strategy that worked in the Fund's favor when Treasuries
were hurt by rising rates during the period.
- - OTHER DOLLAR BLOC COUNTRIES. The Fund re-established a 4.5% position in
Australia, which was overweighted compared with the Index's 1.3%
allocation, because of that country's tighter fiscal policy and improved
inflation outlook. The Fund sold its position in Canada, whose bond market
may be vulnerable due to the weakness in U.S. Treasuries.
- - EUROPE. European bonds were among the best performers during the period,
with the portfolio's 52.9% European position generally contributing to the
Fund's positive performance.
-- U.K. The Fund began the period underweighted in the U.K. due to that
country's political uncertainty and strengthening economy. However, by the
end of June the Fund had rebuilt its position in anticipation of a slowdown
in the U.K.'s economic recovery, which would help valuations of U.K. bonds
relative to other European bonds. As of June 30, the portfolio was
overweighted in the U.K. relative to the Index (13.3% versus 6.1%).
-- GERMANY. Germany aggressively eased its monetary policy during the
period to stimulate its faltering economy, which resulted in a favorable
bond market environment. The Fund increased its position in German bonds
to 10.4%, nearly in line with the Index's 10.0%.
-- SWEDEN, ITALY AND SPAIN. During the period, the Fund's overall
weighting in higher yielding European bonds was increased by establishing a
position in Italy (5.6% as of June 30) and significantly overweighting
Sweden relative to the Index (9.1% versus 2.0%) due to its accommodative
monetary policy and unexpectedly low rate of inflation. In addition, the
Fund's allocation in Spain, another higher yielding bond market, was
increased to 7.0% from 4.4% six months ago. As of the end of June, these
three higher yielding markets were enjoying bond rallies.
-- IRELAND. The Fund added a small portfolio position in Ireland (2.4% as
of June 30) to participate in its promising bond market, which contributed
to the Fund's performance.
-- DENMARK. The Fund held a 2.2% position in Denmark, which had a
favorable bond market environment characterized by moderate economic
growth, low inflation and monetary policy easing.
-- BELGIUM. GSAMI, the Fund's investment adviser, believes Belgium bonds
should benefit when the European monetary union is formed and therefore
held a 1.9% portfolio position in that country.
8
<PAGE>
-- FRANCE. The Fund's position in France was dramatically cut to 1.0% from
12.7% six months ago because GSAMI's analysis indicated that French bonds
did not offer investors a sufficient risk premium.
- - JAPAN. GSAMI continued to have an unfavorable view of Japanese bonds
during the period and consequently significantly underweighted the
portfolio's position in Japanese Government Bonds at 3.2% compared with the
Index's 14.9%.
- - CASH EQUIVALENTS. The portfolio's cash equivalent position was 13.6%, up
from 6.9% six months ago. The portfolio managers expect to reduce this
position as attractive investment opportunities arise.
OUTLOOK: In general, GSAMI has a moderately positive view of European bonds,
tempered by the fact that economic growth is expected to gradually improve in
the "core" European markets, which could put pressure on interest rates and have
an impact on bond prices. In the higher yielding European markets (e.g., Italy,
Spain and Sweden), the Fund intends to take advantage of attractive investment
opportunities while remaining vigilant in monitoring political and economic
risks. In addition, GSAMI believes that the U.K. and Ireland have the potential
to outperform in the medium term. Longer term, European bond performance may be
significantly affected by European monetary union, which the Fund's investment
adviser anticipates will go forward on schedule and potentially benefit the bond
markets of those countries that are admitted. Within the dollar bloc, the
investment adviser is marginally negative on the outlook for bonds, with a
moderately positive bias towards Australian bonds. Finally, Japanese bond
yields are expected to move higher in the near term as the strength of the
economy is likely to compel authorities to tighten monetary policy, and the Fund
therefore remains underweighted in Japanese bonds.
PROTECTIVE MONEY MARKET FUND
OBJECTIVE: The Protective Money Market Fund is designed to preserve capital,
maximize current income and maintain liquidity. The Fund invests in high-
quality short-term securities, including certificates of deposit and banker's
acceptances; high-quality commercial paper and other short-term obligations of
U.S. corporations, state and municipal governments, and other issuers; and
repurchase agreements relating to these securities. The Fund may also invest in
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. However, please note that the Fund's shares are not
guaranteed or insured by the U.S. government and the Protective Investment
Company cannot assure that it will maintain a stable net asset value of $1.00
per share.
PERFORMANCE REVIEW AND COMPOSITION: As of June 30, 1996, the Protective Money
Market Fund's 7-day current yield was 4.70% and its average maturity was 21
days.
OUTLOOK: Although the Federal Reserve left monetary policy unchanged when it
met in early July, the market is anticipating that the Fed will raise rates by
25 basis points in August. In order to meet the objectives of the Fund, the
investment adviser expects to continue to purchase high-quality, liquid
securities, and intends to maintain a weighted average maturity in a range of 20
to 40 days. The Fund anticipates operating near the low end of its range as the
timing of the Fed's tightening becomes clearer.
As always, we value your support. The Funds' investment adviser intends to
continue to pursue each Fund's investment objectives and do its best to
carefully manage risk by using a disciplined investment approach.
Sincerely,
Carolyn King
Chairman and President
Protective Investment Company
(1) Total return is calculated assuming a purchase of shares at net asset value
per share on the first day of the fiscal period and a sale at net asset value
per share on the last day of each period reported. Distributions are assumed,
for purposes of this calculation, to be reinvested at the net asset value per
share on the respective payment dates of each Fund. Results represent past
performance and do not indicate future results. The value of an investment and
the return on an investment will fluctuate and redemption proceeds may be higher
or lower than an investor's original cost.
Further, all performance data is historical and includes changes in share price
and reinvestment of dividends and capital gains. Performance numbers are net of
all Fund operating expenses but do not include any insurance charges imposed in
connection with your variable annuity contract. If the performance information
included the effect of the insurance charges, performance numbers would be
lower.
9
<PAGE>
PROTECTIVE GLOBAL INCOME FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (000) U.S. $ VALUE
-------------------- ---- -------------
GOVERNMENT AND AGENCY SECURITIES--84.7%
AUSTRALIA--4.5%
Commonwealth of Australia
10.000%, 02/15/2006 . . AUD 1,850 $1,556,760
-------------
BELGIUM--1.9%
Kingdom of Belgium
6.500%, 03/31/2005. . . BEL 21,000 665,057
-------------
DENMARK--2.2%
Kingdom of Denmark
9.000%, 11/15/2000. . . DKK 4,000 756,102
-------------
FRANCE--1.0%
Government of France
8.500%, 11/25/2002. . . FRF 1,500 330,090
-------------
GERMANY--10.4%
Federal Republic of Germany
7.125%, 12/20/2002. . . DEM 1,000 692,702
6.750%, 07/15/2004. . . 3,000 2,014,793
6.250%, 04/26/2006. . . 1,400 900,013
-------------
3,607,508
-------------
IRELAND--2.4%
Federal Republic of Ireland
8.000%, 10/18/2000. . . IEP 500 833,866
-------------
ITALY--5.6%
Federal Republic of Italy
10.500%, 11/01/2000 . . ITL 2,800,000 1,944,965
-------------
JAPAN--3.2%
International Bank Reconstruction &
Development
6.750%, 06/18/2001. . . JPY 70,000 766,779
Japan Development Bank
6.500%, 09/20/2001. . . 30,000 327,763
-------------
1,094,542
-------------
SPAIN--7.0%
Government of Spain
10.300%, 06/15/2002 . . ESP 160,000 1,356,459
10.000%, 02/28/2005 . . 130,000 1,081,609
-------------
2,438,068
-------------
SWEDEN--9.1%
Kingdom of Sweden
13.000%, 06/15/2001 . . SEK 6,000 $1,107,931
10.250%, 05/05/2003 . . 12,000 2,030,838
-------------
3,138,769
-------------
UNITED KINGDOM--13.3%
U.K. Treasuries
9.000%, 03/03/2000. . . GBP 2,200 3,626,008
8.500%, 12/07/2005. . . 600 972,017
-------------
4,598,025
-------------
UNITED STATES--24.1%
United States Treasury Notes
6.875%, 07/31/1999. . . USD 1,250 1,267,775
5.250%, 01/31/2001. . . 2,100 2,004,513
6.375%, 03/31/2001. . . 900 896,058
7.875%, 11/15/2004. . . 2,000 2,149,680
6.500%, 08/15/2005. . . 2,050 2,020,521
-------------
8,338,547
-------------
TOTAL GOVERNMENT AND AGENCY
SECURITIES--(Cost $29,256,914) 29,302,299
-------------
TIME DEPOSIT- 13.6%
UNITED STATES--13.6%
State Street Bank and Trust Co.
Eurodollar Time Deposit
5.250%, 07/01/1996. . . USD 4,681 4,681,000
-------------
TOTAL TIME DEPOSIT--(Cost $4,681,000) 4,681,000
-------------
TOTAL INVESTMENTS--
(Cost $33,937,914)--98.3% 33,983,299
OTHER ASSETS LESS LIABILITIES -- 1.7% 603,201
-------------
NET ASSETS -- 100.0%. . . . $34,586,500
-------------
-------------
See Glossary of Terms on page 40
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
<PAGE>
PROTECTIVE INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES U.S. $ VALUE
-------------------- ------ -------------
COMMON STOCK--95.0%
AUSTRALIA--2.8%
Boral Ltd.. . . . . . . . 350,000 $907,805
Woodside Petroleum . . . . 229,600 1,378,719
-------------
2,286,524
-------------
AUSTRIA--2.7%
Oester Elektrizita . . . . 29,075 2,220,658
-------------
BELGIUM--0.7%
Colruyt SA. . . . . . . . 1,825 612,191
-------------
FRANCE--5.4%
Comptoirs Modernes . . . . 4,106 1,853,591
Ecco Ste . . . . . . . . 5,610 1,412,425
Seita. . . . . . . . . . 24,806 1,138,156
-------------
4,404,172
-------------
GERMANY--2.8%
Adidas AG . . . . . . . 27,600 2,320,868
-------------
HONG KONG--4.3%
HSBC Holdings . . . . . . 117,000 1,768,422
Sun Hung Kai Properties . . 175,000 1,769,035
-------------
3,537,457
-------------
IRELAND--1.6%
Bank of Ireland. . . . . . 187,992 1,281,557
-------------
ITALY--1.9%
Telecom Italia (savings shares) 690,000 941,472
Telecom Italia . . . . . . 296,000 661,858
-------------
1,603,330
-------------
JAPAN--33.8%
Canon Inc.. . . . . . . . 68,000 1,416,731
Circle K Japan Co. . . . . 200 10,381
Hoya Corp.. . . . . . . . 47,000 1,520,355
Inaba Denkisangyo. . . . . 45,100 1,133,321
Kokuyo Co.. . . . . . . . 57,000 1,578,197
Kyocera Corp. . . . . . . 8,000 566,546
Max Co.. . . . . . . . . 69,000 1,450,176
Mirai Industry Co. . . . . 37,400 1,100,452
Mitsubishi Electric Corp.. . 162,000 1,130,973
Mitsubishi Heavy Industries. 240,000 2,090,008
Mitsui Marine & Fire. . . . 235,000 1,870,380
Santen Pharmaceutical Co.. . 66,000 1,537,899
Sanyo Shinpan Finance Co. Ltd 9,000 576,507
Shimachu Co.. . . . . . . 40,000 1,187,920
SMC Corp. . . . . . . . . 21,000 1,627,267
Sumitomo Electric Industries 122,000 1,750,263
JAPAN (continued)
Taikisha . . . . . . . . 77,000 $1,625,348
TDK Corp . . . . . . . . 24,000 1,434,276
Terumo Corp.. . . . . . . 98,000 1,244,757
Tostem Corp.. . . . . . . 50,000 1,475,762
York Benimaru Co.. . . . . 35,400 1,410,371
-------------
27,737,890
-------------
MALAYSIA--3.7%
Commerce Asset Holdings . . 210,000 1,279,615
Leader University Holdings . 638,000 1,803,127
-------------
3,082,742
-------------
NETHERLANDS--4.3%
Randstad Holdings N.V.. . . 27,200 2,009,498
Wolters Kluwer N.V. . . . . 13,580 1,543,924
-------------
3,553,422
-------------
SINGAPORE--2.1%
Singapore Land . . . . . . 261,000 1,766,513
-------------
SPAIN--3.7%
Banco Popular Espana. . . . 9,060 1,616,581
Repsol SA . . . . . . . . 39,815 1,385,694
-------------
3,002,275
-------------
SWEDEN--7.8%
Ericsson LM Telephone . . . 69,700 1,505,195
Hoganas AB, class B . . . . 53,400 1,870,911
Securitas AB. . . . . . . 80,100 1,681,401
Swedish Match *. . . . . . 425,000 1,322,148
-------------
6,379,655
-------------
SWITZERLAND--3.4%
Cie Financier Richemont AG . 700 1,108,623
Sandoz AG . . . . . . . . 1,440 1,648,248
-------------
2,756,871
-------------
THAILAND--2.6%
Bangkok Bank. . . . . . . 98,200 1,330,581
Electricity Generating. . . 235,900 822,324
-------------
2,152,905
-------------
UNITED KINGDOM--11.4%
British Airport Authority PLC 227,595 1,649,418
Electrocomponents. . . . . 309,922 1,836,807
Farnell Electronic PLC. . . 127,342 1,339,297
Misys PLC . . . . . . . . 109,500 1,321,757
Rentokil Group PLC . . . . 259,000 1,643,646
Siebe. . . . . . . . . . 108,905 1,548,052
-------------
9,338,977
-------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<PAGE>
PROTECTIVE INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES U.S. $ VALUE
-------------------- ------ -------------
COMMON STOCK (continued)
TOTAL COMMON STOCK--
(Cost $66,382,176). . . $78,038,007
-------------
PREFERRED STOCK--2.7%
GERMANY--2.7%
Fresenius AG. . . . . . . 12,260 2,218,649
-------------
TOTAL PREFERRED STOCK--
(Cost $655,977) . . . . 2,218,649
-------------
PRINCIPAL
AMOUNT
(000)
-----
TIME DEPOSIT- 1.6%
UNITED STATES--1.6%
State Street Bank and Trust Co.
Eurodollar Time Deposit
5.250%, 07/01/1996. . . USD 1,316 1,316,000
-------------
TOTAL TIME DEPOSIT--
(Cost $1,316,000) . . . 1,316,000
-------------
TOTAL INVESTMENTS--
(Cost $68,354,153)--99.3% 81,572,656
OTHER ASSETS LESS LIABILITIES -- 0.7% 591,516
-------------
NET ASSETS -- 100.0%. . . . $82,164,172
-------------
-------------
* Denotes non-income producing security.
See Glossary of Terms on page 40.
ANALYSIS OF INDUSTRY CLASSIFICATIONS
INDUSTRY % OF NET ASSETS U.S. $ VALUE
--------- --------------- -------------
Business Services 11.5% $9,485,458
Commercial Banks 8.9 7,276,756
Computer / Office Equipment 3.8 3,083,392
Construction 2.9 2,383,567
Consumer Goods 3.1 2,542,899
Electrical Equipment 5.2 4,300,891
Electronics 11.0 9,075,351
Engineering 2.5 2,090,008
Financial Services 0.7 576,507
Health Care 8.1 6,649,553
Insurance 2.3 1,870,380
Machinery 4.0 3,252,615
Media 1.9 1,543,924
Metal Products 4.5 3,674,038
Oil 3.4 2,764,413
Real Estate 4.3 3,535,548
Retail Trade 6.2 5,074,454
Textile 2.8 2,320,868
Time Deposit 1.6 1,316,000
Transportation 2.0 1,649,418
Tobacco 3.0 2,460,304
Utility 5.6 4,646,312
------- -------------
TOTALS 99.3% $81,572,656
------- -------------
------- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<PAGE>
PROTECTIVE CAPITAL GROWTH FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ ------
COMMON STOCK--89.1%
AEROSPACE/DEFENSE--3.6%
McDonnell Douglas Corp. . . 5,800 $281,300
Northrop Grumman Corp.. . . 6,400 436,000
-------------
717,300
-------------
AIRLINES--1.7%
AMR Corp. * . . . . . . . 3,700 336,700
-------------
AUTO PARTS--1.4%
Lear Seating Corp. *. . . . 8,000 282,000
-------------
AUTOMOBILE--2.4%
Ford Motor Co. . . . . . . 14,700 475,912
-------------
CHEMICALS--1.7%
Geon Co. . . . . . . . . 15,100 339,750
-------------
COMMUNICATION SERVICES--1.8%
AT&T Corp.. . . . . . . . 5,900 365,800
-------------
COMPUTER SOFTWARE & SERVICES--2.9%
Compaq Computer Corp. * . . 11,600 571,300
-------------
CONTAINERS--1.1%
Owens Illinois Inc. * . . . 13,900 222,400
-------------
DRUGS & HEALTH CARE--7.5%
Baxter International Inc.. . 10,200 481,950
Beverly Enterprises Inc. * . 7,900 94,800
FHP International Corp. *. . 1,600 43,800
Health Systems International Inc. * 8,800 238,700
Tenet Healthcare Corp. * . . 21,400 457,425
U.S. Healthcare Inc.. . . . 3,000 165,000
-------------
1,481,675
-------------
ELECTRIC UTILITIES--1.2%
Long Island Lighting Co. . . 14,100 236,175
-------------
ELECTRICAL EQUIPMENT--1.9%
Fisher Scientific International Inc. 10,300 386,250
-------------
ELECTRONICS--5.8%
Avnet Inc.. . . . . . . . 5,000 210,625
Intel Corp. . . . . . . . 7,900 580,156
Perkin Elmer Corp. . . . . 5,600 270,200
Xilinx Inc. * . . . . . . 3,000 95,250
-------------
1,156,231
-------------
FINANCIAL SERVICES--4.5%
Federal National Mortgage Assn. 6,800 $227,800
First USA Inc. . . . . . . 10,200 561,000
Fleet Financial Group Inc. . 2,498 108,663
-------------
897,463
-------------
FOODS--0.7%
Chiquita Brands International Inc. 11,000 143,000
-------------
HOSPITAL MANAGEMENT--1.8%
Columbia/HCA Healthcare Corp. 6,700 357,612
-------------
HOUSEHOLD PRODUCTS--0.2%
Snap On Inc.. . . . . . . 800 37,900
-------------
INDUSTRIAL MACHINERY--4.3%
Applied Materials Inc. * . . 5,600 173,522
Pall Corp.. . . . . . . . 16,200 390,825
Silicon Valley Group Inc. *. 15,900 298,125
-------------
862,472
-------------
INSURANCE--4.6%
Integon Corp. . . . . . . 11,400 229,425
Lincoln National Corp.. . . 4,900 226,625
Partner Re Holdings . . . . 15,400 460,075
-------------
916,125
-------------
INVESTMENT COMPANIES--1.5%
Lehman Brothers Holdings Inc. 11,600 287,100
-------------
MAJOR REGIONAL BANKS--7.8%
BankAmerica Corp.. . . . . 5,800 439,350
J P Morgan & Co. Inc. . . . 2,700 228,488
MBNA Corp.. . . . . . . . 10,200 290,700
NationsBank Corp.. . . . . 7,100 586,637
-------------
1,545,175
-------------
MANUFACTURING--1.5%
Millipore Corp.. . . . . . 7,100 297,313
-------------
OIL--6.4%
Amoco Corp. . . . . . . . 1,600 115,800
Atlantic Richfield Co.. . . 1,200 142,200
Chevron Corp. . . . . . . 1,600 94,400
Exxon Corp. . . . . . . . 700 60,813
Mobil Corp. . . . . . . . 1,800 201,825
Royal Dutch Petroleum Co.. . 800 123,000
Texaco Inc. . . . . . . . 6,300 528,412
-------------
1,266,450
-------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
<PAGE>
PROTECTIVE CAPITAL GROWTH FUND
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ ------
COMMON STOCK (continued)
PAPER AND FOREST PRODUCTS--2.5%
Georgia Pacific Corp. . . . 6,000 $426,000
Stone Container Corp. . . . 5,200 71,500
-------------
497,500
-------------
PUBLISHING--2.5%
Knight Ridder Inc. . . . . 1,700 123,250
Valassis Communications Inc. * 20,000 370,000
-------------
493,250
-------------
RAILROADS & EQUIPMENT--0.1%
Trinity Industries Inc. . . 300 10,200
-------------
RETAIL--7.2%
Dillard Dept. Stores Inc.. . 14,600 532,900
Fleming Cos. Inc.. . . . . 5,700 81,937
J C Penney Inc.. . . . . . 4,200 220,500
Sears Roebuck & Co. . . . . 600 29,175
Wal-Mart Stores, Inc. . . . 22,000 558,250
-------------
1,422,762
-------------
TELECOMMUNICATIONS--1.2%
Lucent Technologies Inc. . . 6,500 246,188
-------------
TIRES & RUBBER--3.0%
Cooper Tire & Rubber Co. . . 9,700 215,825
Goodyear Tire & Rubber Co. . 7,900 381,175
-------------
597,000
-------------
TOBACCO--4.0%
Philip Morris Cos. Inc. . . 7,700 800,800
-------------
TRANSPORTATION--2.3%
Canadian Pacific Ltd. . . . 7,100 $156,200
Consolidated Freightways Inc. 12,700 268,288
Kirby Corp. * . . . . . . 2,000 33,750
-------------
458,238
-------------
TOTAL COMMON STOCK--
(Cost $16,736,259). . . 17,708,041
-------------
Principal
Amount
(000)
-----
SHORT TERM INVESTMENT--12.3%
REPURCHASE AGREEMENT--12.3%
State Street Bank and Trust Co.
5.200%, 07/01/1996, maturity value
of $2,440,057, dated 06/28/1996
(Collateralized by $2,475,000
United States Treasury Note,
6.125%, 05/15/1998, with a
value of $2,489,645) . . $2,439 2,439,000
-------------
TOTAL SHORT TERM INVESTMENT--
(Cost $2,439,000) . . . 2,439,000
-------------
TOTAL INVESTMENTS--
(Cost $19,175,259)--101.4% 20,147,041
OTHER ASSETS LESS LIABILITIES--(1.4)% (271,390)
-------------
NET ASSETS--100.0% . . . . $19,875,651
-------------
-------------
* Denotes non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
<PAGE>
PROTECTIVE GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ ------
COMMON STOCK--91.7%
AEROSPACE/DEFENSE--5.0%
Lockheed Corp. . . . . . . 19,820 $1,664,880
McDonnell Douglas Corp. . . 84,200 4,083,700
Northrop Grumman Corp.. . . 35,100 2,391,187
-------------
8,139,767
-------------
AIRLINES--2.8%
AMR Corp. * . . . . . . . 23,700 2,156,700
Continental Airlines Inc. *. 38,800 2,395,900
-------------
4,552,600
-------------
AUTO PARTS--1.2%
Lear Seating Corp. *. . . . 54,300 1,914,075
-------------
AUTOMOBILE--2.6%
Ford Motor Co. . . . . . . 129,900 4,205,513
-------------
CHEMICALS--1.0%
Geon Co. . . . . . . . . 75,800 1,705,500
-------------
COMPUTER SOFTWARE & SERVICES--4.3%
Autodesk Inc. . . . . . . 55,400 1,655,075
Compaq Computer Corp. * . . 82,400 4,058,200
Storage Technology Corp. * . 34,700 1,327,275
-------------
7,040,550
-------------
CONTAINERS--3.9%
Owens Illinois Inc. * . . . 237,000 3,792,000
Stone Container Corp. . . . 189,800 2,609,750
-------------
6,401,750
-------------
DRUGS & HEALTH CARE--3.5%
Baxter International Inc.. . 68,000 3,213,000
Tenet Healthcare Corp. * . . 121,200 2,590,650
-------------
5,803,650
-------------
ELECTRIC UTILITIES--2.7%
CMS Energy Corp. . . . . . 37,900 1,170,163
Long Island Lighting Co. . . 198,400 3,323,200
-------------
4,493,363
-------------
ELECTRONICS--3.4%
Avnet Inc.. . . . . . . . 60,300 2,540,137
Intel Corp. . . . . . . . 40,900 3,003,594
-------------
5,543,731
-------------
FINANCIAL SERVICES--4.0%
Dean Witter Discover & Co. . 41,400 $2,370,150
Greenpoint Financial Corp. . 70,700 1,997,275
Republic New York Corp. . . 26,000 1,618,500
Standard Federal Bancorp.. . 15,400 592,900
-------------
6,578,825
-------------
FOODS--1.6%
Chiquita Brands International Inc. 201,600 2,620,800
-------------
HOMEBUILDING--2.8%
Centex Corp.. . . . . . . 48,900 1,522,012
Lennar Corp.. . . . . . . 122,200 3,055,000
-------------
4,577,012
HOSPITAL MANAGEMENT--1.3%
Columbia/HCA Healthcare Corp. 41,300 2,204,388
-------------
HOUSEWARES--0.8%
Sunbeam Corp. . . . . . . 86,900 1,281,775
-------------
INSURANCE--7.3%
Allstate Corp. . . . . . . 29,700 1,355,062
Cigna Corp. . . . . . . . 35,000 4,125,625
Lincoln National Corp.. . . 58,800 2,719,500
Travelers Inc. . . . . . . 31,950 1,457,719
Partner Re Holdings . . . . 74,400 2,222,700
-------------
11,880,606
-------------
INVESTMENT COMPANIES--0.9%
Lehman Brothers Holdings Inc. 60,500 1,497,375
-------------
LEISURE TIME--2.3%
Brunswick Corp.. . . . . . 95,200 1,904,000
Outboard Marine Corp. . . . 104,900 1,901,312
-------------
3,805,312
-------------
LIQUOR--0.5%
Anheuser Busch Cos. Inc. . . 11,800 885,000
-------------
MAJOR REGIONAL BANKS--5.0%
BankAmerica Corp.. . . . . 49,900 3,779,925
J P Morgan & Co. Inc. . . . 4,500 380,812
NationsBank Corp.. . . . . 49,400 4,081,675
-------------
8,242,412
-------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
<PAGE>
PROTECTIVE GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ ------
COMMON STOCK (continued)
OIL--7.7%
Ashland Inc.. . . . . . . 60,200 $2,385,425
Atlantic Richfield Co.. . . 39,800 4,716,300
Mobil Corp. . . . . . . . 15,300 1,715,513
Texaco Inc. . . . . . . . 45,500 3,816,312
-------------
12,633,550
-------------
PAPER AND FOREST PRODUCTS--2.8%
Champion International Corp. 21,600 901,800
Georgia Pacific Corp. . . . 52,700 3,741,700
-------------
4,643,500
-------------
PETROLEUM SERVICES--2.0%
Tosco Corp. . . . . . . . 64,500 3,241,125
-------------
RETAIL--6.4%
Fleming Cos. Inc.. . . . . 77,300 1,111,187
J C Penney Inc.. . . . . . 76,100 3,995,250
Sears Roebuck & Co. . . . . 65,000 3,160,625
Supervalu Inc. . . . . . . 72,800 2,293,200
-------------
10,560,262
-------------
STEEL--0.8%
Alaska Steel Holding Corp. . 34,600 1,353,725
-------------
TELECOMMUNICATIONS--2.0%
Lucent Technologies Inc. . . 88,300 3,344,363
-------------
TEXTILE--1.6%
Fruit of the Loom Inc. * . . 103,400 2,636,700
-------------
TIRES & RUBBER--2.8%
Goodyear Tire & Rubber Co. . 95,200 4,593,400
-------------
TOBACCO--5.8%
Philip Morris Cos. Inc. . . 56,300 5,855,200
RJR Nabisco Holdings Corp. . 73,880 2,290,280
Universal Corp. Virginia . . 54,600 1,446,900
-------------
9,592,380
TRANSPORTATION--2.9%
Canadian Pacific Ltd. . . . 112,200 $2,468,400
Consolidated Freightways Inc. 111,500 2,355,438
-------------
4,823,838
TOTAL COMMON STOCK--
(Cost $133,016,930) . . 150,796,847
-------------
PREFERRED STOCK--0.4%
FOODS--0.2%
Chiquita Brands International Inc. 5,800 261,000
-------------
TOBACCO--0.2%
RJR Nabisco Holdings Corp. . 50,900 330,850
-------------
TOTAL PREFERRED STOCK--
(Cost $591,287) . . . . 591,850
-------------
PRINCIPAL
AMOUNT
(000)
-----
SHORT TERM INVESTMENT--8.0%
REPURCHASE AGREEMENT--8.0%
State Street Bank and Trust Co.
5.200%, 07/01/1996, maturity value
of $13,097,673, dated 06/28/1996
(Collateralized by $13,280,000
United States Treasury Note,
6.125%, 05/15/1998, with a
value of $13,358,578). . $13,092 13,092,000
-------------
TOTAL SHORT TERM INVESTMENT--
(Cost $13,092,000). . . 13,092,000
-------------
TOTAL INVESTMENTS--
(Cost $146,700,217)--100.1% 164,480,697
OTHER ASSETS LESS LIABILITIES--(0.1)% (99,394)
-------------
NET ASSETS--100.0% . . . . $164,381,303
-------------
-------------
* Denotes non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
<PAGE>
PROTECTIVE SELECT EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ ------
COMMON STOCK--94.3%
AEROSPACE/DEFENSE--3.4%
Allied Signal Inc. . . . . 7,400 $422,725
Boeing Co.. . . . . . . . 3,900 339,787
McDonnell Douglas Corp. . . 8,200 397,700
Rockwell International Corp. 10,800 618,300
United Technologies Corp.. . 8,100 931,500
-------------
2,710,012
-------------
AIRLINES--1.5%
AMR Corp. * . . . . . . . 6,400 582,400
Delta Air Lines Inc.. . . . 7,500 622,500
-------------
1,204,900
-------------
AUTOMOBILE--2.6%
Chrysler Corp. . . . . . . 7,100 440,200
Ford Motor Co. . . . . . . 18,100 585,988
General Motors Corp.. . . . 19,300 1,010,837
-------------
2,037,025
-------------
BEVERAGES--2.4%
PepsiCo Inc.. . . . . . . 54,800 1,938,550
-------------
BUSINESS SERVICES--0.5%
First Data Corp. . . . . . 4,600 366,275
-------------
CHEMICALS--3.4%
B F Goodrich Co. . . . . . 8,200 306,475
Dow Chemical Co. . . . . . 16,000 1,216,000
E I Du Pont De Nemours & Co. 5,800 458,925
Monsanto Co.. . . . . . . 23,500 763,750
-------------
2,745,150
-------------
COMPUTER SOFTWARE & SERVICES--5.6%
Cisco Systems Inc. *. . . . 14,000 792,750
Compaq Computer Corp. * . . 8,300 408,775
Computer Associates International Inc. 7,600 541,500
International Business Machines Inc. 11,200 1,108,800
Microsoft Corp. *. . . . . 10,400 1,249,300
Oracle System Corp. * . . . 9,150 360,853
-------------
4,461,978
-------------
CONGLOMERATES--0.6%
Textron Inc.. . . . . . . 5,600 447,300
-------------
CONSTRUCTION MATERIALS--0.6%
Fluor Corp. . . . . . . . 7,800 509,925
-------------
DRUGS & HEALTH CARE--0.6%
Abbott Laboratories . . . . 11,700 508,950
-------------
ELECTRIC UTILITIES--4.6%
Duke Power Co. of New Mexico 11,100 $568,875
Edison International. . . . 43,000 757,875
Public Service Co. of New Mexico 16,000 328,000
Texas Utilities Co. . . . . 13,300 568,575
Unicom Corp.. . . . . . . 51,400 1,432,775
-------------
3,656,100
-------------
ELECTRICAL EQUIPMENT--1.3%
Applied Materials Inc. * . . 8,100 247,050
Emerson Electric Co.. . . . 3,700 334,388
Harris Corp. Delaware . . . 7,600 463,600
-------------
1,045,038
-------------
ELECTRONICS--5.8%
General Electric Co.. . . . 23,400 2,024,100
Hewlett Packard Co. . . . . 12,100 1,205,462
Intel Corp. . . . . . . . 10,500 771,094
Motorola Inc. . . . . . . 10,300 647,613
-------------
4,648,269
-------------
ENTERTAINMENT--1.6%
King World Productions Inc. * 7,600 276,450
Walt Disney Co.. . . . . . 15,681 985,943
-------------
1,262,393
-------------
ENVIRONMENTAL CONTROL--0.4%
WMX Technologies Inc. . . . 10,100 330,775
-------------
FINANCIAL SERVICES--6.1%
American General Corp.. . . 12,300 447,413
AT&T Capital Corp. . . . . 9,400 411,250
Banc One Corp. . . . . . . 15,290 519,860
Bank of New York Co. Inc.. . 6,600 338,250
Dean Witter Discover & Co. . 7,900 452,275
Federal National Mortgage Assn. 26,700 894,450
First Bank Systems Inc. . . 11,600 672,800
Merrill Lynch & Co. Inc. . . 9,800 638,225
Morgan Stanley Group Inc.. . 10,500 515,812
-------------
4,890,335
-------------
FOODS--2.1%
ConAgra Inc.. . . . . . . 10,400 471,900
CPC International Inc.. . . 9,500 684,000
Sara Lee Corp. . . . . . . 15,800 511,525
-------------
1,667,425
-------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
<PAGE>
PROTECTIVE SELECT EQUITY FUND
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ ------
COMMON STOCK (continued)
GAS & PIPELINE UTILITIES--0.6%
Williams Cos. Inc. . . . . 9,500 $470,250
-------------
GAS EXPLORATION--0.6%
Kerr McGee Corp. . . . . . 8,300 505,263
-------------
HEALTH CARE--1.2%
American Home Products Corp. 5,600 336,700
Columbia/HCA Healthcare Corp 11,200 597,800
-------------
934,500
-------------
HOUSEHOLD PRODUCTS--2.1%
Corning Inc.. . . . . . . 11,300 433,638
Procter & Gamble Co.. . . . 13,400 1,214,375
-------------
1,648,013
-------------
INDUSTRIAL MACHINERY--0.5%
Tecumseh Products Co. . . . 7,600 408,500
-------------
INSURANCE--5.5%
Allstate Corp. . . . . . . 12,705 579,665
American International Group Inc. 11,300 1,114,462
Exel LTD. . . . . . . . . 4,800 338,400
Loews Corp. . . . . . . . 4,400 347,050
Safeco Corp.. . . . . . . 20,800 735,800
Transamerica Corp. . . . . 9,400 761,400
Travelers Inc. . . . . . . 9,750 444,844
-------------
4,321,621
-------------
MACHINERY--0.5%
Caterpillar Inc. . . . . . 6,100 413,275
-------------
MAJOR REGIONAL BANKS--5.0%
BankAmerica Corp.. . . . . 16,400 1,242,300
Citicorp . . . . . . . . 9,100 751,887
Corestates Financial Corp. . 7,800 300,300
NationsBank Corp.. . . . . 15,400 1,272,425
Wells Fargo & Co.. . . . . 1,800 429,975
-------------
3,996,887
-------------
MANUFACTURING--0.6%
Dover Corp. . . . . . . . 10,700 493,538
-------------
MEDICAL PRODUCTS & SUPPLIES--0.5%
Medtronic Inc. . . . . . . 7,000 392,000
-------------
METALS--0.8%
Asarco Inc. . . . . . . . 10,700 $295,588
Cyprus Amax Minerals Co. . . 14,900 337,112
-------------
632,700
-------------
OIL--8.7%
Amoco Corp. . . . . . . . 12,900 933,637
Columbia Gas Systems Inc.. . 12,300 641,138
Exxon Corp. . . . . . . . 20,000 1,737,500
Mobil Corp. . . . . . . . 7,900 885,787
Phillips Petroleum Co.. . . 6,900 288,938
Royal Dutch Petroleum Co.. . 10,600 1,629,750
Texaco Inc. . . . . . . . 9,700 813,587
-------------
6,930,337
-------------
PACKAGING & CONTAINER--1.2%
Aptargroup Inc.. . . . . . 10,700 323,675
Avery Dennison Corp.. . . . 11,300 620,088
-------------
943,763
-------------
PAPER AND FOREST PRODUCTS--0.4%
Alco Standard Corp. . . . . 8,000 362,000
-------------
PHARMACEUTICALS--6.4%
Bristol Myers Squibb Co. . . 10,500 945,000
Eli Lilly & Co.. . . . . . 10,600 689,000
Johnson & Johnson Co. . . . 23,400 1,158,300
Merck & Co. Inc. . . . . . 13,800 891,825
Pfizer Inc. . . . . . . . 8,800 628,100
Schering Plough Corp. . . . 13,200 828,300
-------------
5,140,525
-------------
PHOTOGRAPHY--0.7%
Eastman Kodak Co.. . . . . 7,000 544,250
-------------
PUBLISHING--0.5%
Meredith Corp. . . . . . . 9,000 375,750
-------------
RESTAURANTS--1.1%
Darden Restaurants Inc. . . 25,400 273,050
McDonald's Corp. . . . . . 12,200 570,350
-------------
843,400
-------------
RETAIL--4.7%
Dillard Dept. Stores Inc.. . 13,100 478,150
Gap Inc. . . . . . . . . 14,600 469,025
Kroger Co. *. . . . . . . 7,800 308,100
Mercantile Stores Inc.. . . 7,400 433,825
Safeway Inc. * . . . . . . 18,900 623,700
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
<PAGE>
PROTECTIVE SELECT EQUITY FUND
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ ------
COMMON STOCK (continued)
RETAIL (continued)
Sears Roebuck & Co. . . . . 15,500 $753,687
Wal-Mart Stores, Inc. . . . 26,800 680,050
-------------
3,746,537
-------------
TELECOMMUNICATIONS--3.8%
American Telephone & Telegraph Corp. 27,300 1,692,600
GTE Corp. . . . . . . . . 8,000 358,000
Sprint Corp.. . . . . . . 22,500 945,000
-------------
2,995,600
-------------
TELEPHONE--1.9%
Airtouch Communications Inc. * 20,400 576,300
Ameritech Corp.. . . . . . 15,400 914,375
-------------
1,490,675
-------------
TEXTILE--0.6%
Liz Claiborne . . . . . . 13,500 467,438
-------------
TIRES & RUBBER--0.6%
Goodyear Tire & Rubber Co. . 9,600 463,200
-------------
TOBACCO--1.9%
Philip Morris Cos. Inc. . . 14,400 1,497,600
-------------
TRANSPORTATION--0.8%
Ryder Systems Inc. . . . . 23,800 669,375
-------------
TOTAL COMMON STOCK--
(Cost $63,251,950). . . 75,117,397
-------------
DEPOSITORY RECEIPTS--2.3%
ELECTRIC COMPANIES--1.0%
Empresa Nacional De Electric 12,300 $770,287
-------------
PETROLEUM SERVICES--1.3%
Norsk Hydro AS . . . . . . 20,800 1,016,600
-------------
TOTAL DEPOSITORY RECEIPTS--
(Cost $1,388,884) . . . 1,786,887
-------------
PRINCIPAL
AMOUNT
(000)
-----
SHORT TERM INVESTMENT--3.0%
REPURCHASE AGREEMENT--3.0%
State Street Bank and Trust Co.
5.200%, 07/01/1996, maturity value
of $2,419,048, dated 06/28/1996
(Collateralized by $2,455,000
United States Treasury Note,
6.125%, 05/15/1998, with a
value of $2,469,526) . . $ 2,418 2,418,000
-------------
TOTAL SHORT TERM INVESTMENT--
(Cost $2,418,000) . . . 2,418,000
-------------
TOTAL INVESTMENTS--
(Cost $67,058,834)--99.6% 79,322,284
OTHER ASSETS LESS LIABILITIES--0.4% 336,021
-------------
NET ASSETS--100.0% . . . . $79,658,305
-------------
-------------
* Denotes non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
19
<PAGE>
PROTECTIVE SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ ------
COMMON STOCK--87.4%
AUTO PARTS--1.9%
APS Holding Corp. * . . . . 50,500 $1,111,000
-------------
BUILDING MATERIALS--1.6%
Congoleum Corp. *. . . . . 81,000 931,500
-------------
CHEMICALS--2.1%
Carbide/Graphite Group Inc. * 66,300 1,243,125
-------------
COMMERCIAL SERVICES--1.5%
Healthcare Services Group Inc. * 87,100 783,900
International Post Ltd. *. . 30,700 118,963
-------------
902,863
-------------
COMMUNICATION SERVICES--6.3%
Black Box Corp. *. . . . . 155,900 3,702,625
-------------
COMPUTER SOFTWARE & SERVICES--2.9%
Decisionone Corp. * . . . . 69,700 1,655,375
Opinion Research Corp. * . . 8,600 60,200
-------------
1,715,575
-------------
ELECTRIC UTILITIES--1.2%
Central Maine Power Co. . . 49,500 717,750
-------------
ELECTRICAL EQUIPMENT--3.2%
Amphenol Corp. * . . . . . 82,100 1,888,300
-------------
ELECTRONICS--1.9%
Dupont Photomasks Inc. * . . 43,800 897,900
Jaco Electronics Inc. * . . 22,000 222,750
-------------
1,120,650
-------------
ENTERTAINMENT--0.9%
Platinum Entertainment Inc. * 34,700 537,850
-------------
FINANCE & BANKING--2.3%
Dime Bancorp Inc. * . . . . 59,500 773,500
Greenpoint Financial Corp. . 16,900 477,425
Peoples Bank Bridgeport Connecticut 1,100 24,475
Standard Federal Bancorp.. . 2,100 80,850
-------------
1,356,250
-------------
FOODS--3.7%
Alpine Lace Brands Inc. *. . 87,400 447,925
Chiquita Brands International Inc. 53,200 691,600
Morningstar Group Inc. * . . 93,800 1,043,525
-------------
2,183,050
-------------
HOSPITAL MANAGEMENT--10.2%
Health Systems International Inc. * 64,200 $1,741,425
Mariner Health Group Inc. *. 27,500 505,312
Sun Healthcare Group Inc. *. 132,300 1,885,275
Theratx Inc. * . . . . . . 97,600 1,854,400
-------------
5,986,412
-------------
HOUSEHOLD PRODUCTS--2.8%
American Safety Razor Co. *. 161,000 1,630,125
-------------
HOUSEWARES--1.2%
Levitz Furniture Inc. * . . 155,500 719,188
-------------
INSURANCE--10.2%
Horace Mann Educators Corp.. 42,700 1,355,725
IPC Holdings Ltd.. . . . . 59,300 1,193,412
John Alden Financial Corp. . 41,200 911,550
Old Republic International Corp. 7,200 154,800
Risk Capital Holding Inc. *. 58,800 1,153,950
Security Connecticut Corp. . 1,900 51,775
Terra Nova (Bermuda) Holdings Ltd. 74,400 1,190,400
-------------
6,011,612
-------------
LEISURE TIME--2.3%
Trump Hotels & Casino Resorts * 46,500 1,325,250
-------------
MANUFACTURING--2.6%
Figgie International
Holdings Inc. Class A *. 54,100 818,262
Figgie International
Holdings Inc. Class B *. 51,700 736,725
-------------
1,554,987
-------------
OIL--0.6%
Total Petroleum North America Ltd. 38,700 377,325
-------------
PACKAGING & CONTAINER--2.1%
Shorewood Packaging Corp. *. 82,000 1,260,750
-------------
PUBLISHING--0.4%
Devon Group Inc. New * . . 6,600 214,500
-------------
PUBLISHING--NEWSPAPERS--2.1%
Hollinger International Inc. 109,100 1,241,013
-------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
20
<PAGE>
PROTECTIVE SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 1996 (UNAUDITED)
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ ------
COMMON STOCK (continued)
REAL ESTATE--1.0%
Insignia Financial Group Inc. * 22,200 $602,175
-------------
RESTAURANTS--6.0%
IHOP Corp. *. . . . . . . 50,300 1,358,100
Mortons Restaurant Group Inc. * 78,700 1,377,250
Sonic Corp. * . . . . . . 33,750 818,437
-------------
3,553,787
-------------
RETAIL--13.7%
Brookstone Inc. *. . . . . 31,800 357,750
Finlay Enterprises Inc. *. . 64,800 891,000
Friedman's Inc. *. . . . . 24,500 624,750
General Nutrition Cos. Inc. * 45,100 789,250
J. Baker Inc. . . . . . . 188,700 1,415,250
Movado Group Inc.. . . . . 29,600 606,800
Multiple Zones International Inc. * 95,400 1,264,050
Musicland Stores Inc. * . . 209,400 680,550
Supercuts Inc. * . . . . . 168,000 1,428,000
-------------
8,057,400
-------------
TOOLS--1.2%
Cincinnati Milacron Inc. . . 29,300 703,200
-------------
TRANSPORTATION--1.5%
Landstar Systems Inc. * . . 31,000 899,000
-------------
TOTAL COMMON STOCK--
(Cost $46,437,301). . . 51,547,262
-------------
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (000) VALUE
-------------------- ------ ------
SHORT TERM INVESTMENT--14.8%
REPURCHASE AGREEMENT--14.8%
State Street Bank and Trust Co.
5.200%, 07/01/1996, maturity value
of $8,769,799, dated 06/28/1996
(Collateralized by $8,890,000
United States Treasury Note,
6.125%, 05/15/1998, with a
value of $8,942,602) . . $ 8,766 $8,766,000
-------------
TOTAL SHORT TERM INVESTMENT--
(Cost $8,766,000) . . . 8,766,000
-------------
TOTAL INVESTMENTS--
(Cost $55,203,301)--102.2% 60,313,262
OTHER ASSETS LESS LIABILITIES--(2.2)% (1,307,761)
-------------
NET ASSETS--100.0% . . . . $59,005,501
-------------
-------------
* Denotes non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
21
<PAGE>
PROTECTIVE MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (000) VALUE
-------------------- ------ ------
GOVERNMENT AND AGENCY SECURITIES--97.4%
FEDERAL AGENCIES--97.4%
Federal Farm Credit Bank
5.210%, 07/02/1996. . . $ 185 $184,920
5.200%, 07/08/1996. . . 300 299,610
5.210%, 07/08/1996. . . 100 99,870
5.280%, 07/17/1996. . . 110 109,710
5.210%, 08/07/1996. . . 55 54,690
5.300%, 08/08/1996. . . 500 497,056
Federal Home Loan Bank
5.210%, 07/03/1996. . . 395 394,771
5.190%, 07/09/1996. . . 400 399,426
5.210%, 07/19/1996. . . 125 124,638
5.220%, 07/19/1996. . . 600 598,260
5.250%, 07/24/1996. . . 200 199,271
Federal Home Loan Mortgage
5.240%, 08/02/1996. . . 300 298,515
Federal National Mortgage Assn.
5.270%, 07/08/1996. . . 100 99,868
5.270%, 07/24/1996. . . 100 99,634
5.210%, 07/26/1996. . . 100 99,609
5.200%, 08/30/1996. . . 300 297,313
Tennessee Valley Authority
5.250%, 07/18/1996. . . 800 797,783
-------------
TOTAL GOVERNMENT AND
AGENCY SECURITIES--(Cost $4,654,944) 4,654,944
-------------
TOTAL INVESTMENTS--
(Cost $4,654,944)--97.4% 4,654,944
OTHER ASSETS LESS LIABILITIES--2.6% 124,492
-------------
NET ASSETS--100.0% . . . . $4,779,436
-------------
-------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
23
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL
INCOME FUND EQUITY FUND
----------- -----------
<S> <C> <C>
ASSETS
Investments in securities, at value (Note B). . . . . . . $ 33,983,299 $ 81,572,656
Investments in repurchase agreements (Note B) . . . . . . 0 0
Cash, including foreign currency at value . . . . . . . . 32,826 266,633
Dividends receivable. . . . . . . . . . . . . . . . . . . 0 99,563
Interest receivable . . . . . . . . . . . . . . . . . . . 695,575 576
Receivable for securities sold. . . . . . . . . . . . . . 299,184 752,936
Receivable for currency sold. . . . . . . . . . . . . . . 0 760,664
Unrealized appreciation on forward currency contracts
(Note F). . . . . . . . . . . . . . . . . . . . . . . . 186,102 81,832
Receivable for fund shares sold . . . . . . . . . . . . . 43,460 160,269
Foreign income tax reclaim receivable . . . . . . . . . . 36,530 52,997
Receivable due from Protective Life (Note C). . . . . . . 36,199 79,868
------------ ------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . 35,313,175 83,827,994
LIABILITIES
Unrealized depreciation on forward currency contracts
(Note F). . . . . . . . . . . . . . . . . . . . . . . . 327,145 135,911
Payable for securities purchased. . . . . . . . . . . . . 304,921 604,833
Payable for currency purchased. . . . . . . . . . . . . . 0 760,286
Investment management fee payable (Note C). . . . . . . . 28,958 68,025
Accounts payable and accrued expenses . . . . . . . . . . 34,353 76,134
Payable for fund shares redeemed. . . . . . . . . . . . . 31,298 18,633
------------ ------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . 726,675 1,663,822
------------ ------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . $ 34,586,500 $ 82,164,172
------------ ------------
------------ ------------
NET ASSETS
Paid-in capital (Note E). . . . . . . . . . . . . . . . . $ 33,937,235 $ 66,963,997
Undistributed (distributions in excess of)
net investment income (Note B). . . . . . . . . . . . . (254,695) (42,753)
Accumulated net realized gain on investments
and foreign currency transactions . . . . . . . . . . . 1,003,297 2,099,069
Net unrealized appreciation (depreciation) of:
Investments . . . . . . . . . . . . . . . . . . . . . . 45,385 13,218,503
Foreign currency translations . . . . . . . . . . . . . (144,722) (74,644)
------------ ------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . $ 34,586,500 $ 82,164,172
------------ ------------
------------ ------------
NET ASSET VALUE PER SHARE
Offering and redemption price per share (based on
shares of capital stock outstanding,
par value $.001 per share). . . . . . . . . . . . . . . $ 10.111 $ 12.599
Total shares outstanding at end of period . . . . . . . . 3,420,624 6,521,269
Cost of investments . . . . . . . . . . . . . . . . . . . $ 33,937,914 $ 68,354,153
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24
<PAGE>
<TABLE>
<CAPTION>
CAPITAL GROWTH AND SELECT SMALL CAP MONEY
GROWTH FUND INCOME FUND EQUITY FUND EQUITY FUND MARKET FUND
- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ 17,708,041 $ 151,388,697 $ 76,904,284 $ 51,547,262 $ 4,654,944
2,439,000 13,092,000 2,418,000 8,766,000 0
222 931 849 759 41,038
28,489 299,070 130,125 33,448 0
1,057 1,891 349 1,266 0
45,726 1,694,725 0 838,703 0
0 0 0 0 0
0 0 0 0 0
110,646 330,711 271,949 105,771 84,765
307 0 2,270 0 0
21,672 51,751 32,518 30,479 11,447
- ------------- ------------- ------------- ------------- -------------
20,355,160 166,859,776 79,760,344 61,323,688 4,792,194
0 0 0 0 0
453,845 2,257,118 0 2,243,532 0
0 0 0 0 0
11,829 100,416 47,398 35,652 2,347
9,767 40,568 29,699 21,594 10,201
4,068 80,371 24,942 17,409 210
- ------------- ------------- ------------- ------------- -------------
479,509 2,478,473 102,039 2,318,187 12,758
- ------------- ------------- ------------- ------------- -------------
$ 19,875,651 $ 164,381,303 $ 79,658,305 $ 59,005,501 $ 4,779,436
- ------------- ------------- ------------- ------------- -------------
- ------------- ------------- ------------- ------------- -------------
$ 18,689,239 $ 140,139,854 $ 64,985,749 $ 49,184,194 $ 4,779,436
147,945 1,207,351 483,950 137,691 0
66,685 5,253,618 1,925,156 4,573,655 0
971,782 17,780,480 12,263,450 5,109,961 0
0 0 0 0 0
- ------------- ------------- ------------- ------------- -------------
$ 19,875,651 $ 164,381,303 $ 79,658,305 $ 59,005,501 $ 4,779,436
- ------------- ------------- ------------- ------------- -------------
- ------------- ------------- ------------- ------------- -------------
$ 11.420 $ 13.054 $ 14.426 $ 11.455 $ 1.000
1,740,475 12,592,016 5,521,977 5,151,096 4,779,436
$ 19,175,259 $ 146,700,217 $ 67,058,834 $ 55,203,301 $ 4,654,944
</TABLE>
25
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL
INCOME FUND EQUITY FUND
----------- -----------
<S> <C> <C>
INVESTMENT INCOME
Interest income . . . . . . . . . . . . . . . . . . . . . $ 1,164,048 $ 97,300
Dividend income . . . . . . . . . . . . . . . . . . . . . 0 737,397
Foreign taxes withheld. . . . . . . . . . . . . . . . . . (17,631) (94,545)
------------ ------------
TOTAL INVESTMENT INCOME . . . . . . . . . . . . . . . . 1,146,417 740,152
EXPENSES
Investment management fee (Note C). . . . . . . . . . . . 179,588 384,899
Custodian fees and expenses . . . . . . . . . . . . . . . 38,950 90,677
Audit fee . . . . . . . . . . . . . . . . . . . . . . . . 9,442 10,573
Legal fee . . . . . . . . . . . . . . . . . . . . . . . . 2,434 4,320
Printing expense. . . . . . . . . . . . . . . . . . . . . 1,948 3,456
Directors' fees (Note C). . . . . . . . . . . . . . . . . 1,168 2,074
Transfer agent fee. . . . . . . . . . . . . . . . . . . . 1,125 1,125
Miscellaneous expense . . . . . . . . . . . . . . . . . . 49 86
------------ ------------
Total operating expenses before reimbursement . . . . . 234,704 497,210
Expenses borne by Protective Life (Note C). . . . . . . (55,116) (112,311)
------------ ------------
NET EXPENSES. . . . . . . . . . . . . . . . . . . . . 179,588 384,899
------------ ------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . 966,829 355,253
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FOREIGN CURRENCY,
OPTION AND FUTURES TRANSACTIONS
Net realized gain (loss) on:
Investments . . . . . . . . . . . . . . . . . . . . . . 129,315 2,173,063
Foreign currency transactions . . . . . . . . . . . . . 799,307 873,932
Futures . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Change in unrealized appreciation (depreciation) of:
Investments . . . . . . . . . . . . . . . . . . . . . . (836,207) 6,137,175
Foreign currency translations . . . . . . . . . . . . . (298,348) (121,694)
Futures . . . . . . . . . . . . . . . . . . . . . . . . 0 0
------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) . . . . . . . (205,933) 9,062,476
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . $ 760,896 $ 9,417,729
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<PAGE>
<TABLE>
<CAPTION>
CAPITAL GROWTH AND SELECT SMALL CAP MONEY
GROWTH FUND INCOME FUND EQUITY FUND EQUITY FUND MARKET FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ 72,329 $ 322,638 $ 52,275 $ 219,397 $ 141,783
138,051 2,237,298 713,895 116,375 0
(465) (1,015) (10,720) (1,348) 0
----------- ----------- ----------- ----------- -----------
209,915 2,558,921 755,450 334,424 141,783
61,970 584,806 271,500 196,733 15,961
14,459 32,082 27,434 24,716 11,620
5,409 10,082 7,376 5,409 3,688
607 9,259 4,093 3,389 488
484 7,407 3,274 2,713 391
290 4,444 1,966 1,627 234
1,123 1,125 1,125 1,125 1,124
13 185 81 68 9
----------- ----------- ----------- ----------- -----------
84,355 649,390 316,849 235,780 33,515
(22,385) (64,584) (45,349) (39,047) (17,554)
----------- ----------- ----------- ----------- -----------
61,970 584,806 271,500 196,733 15,961
----------- ----------- ----------- ----------- -----------
147,945 1,974,115 483,950 137,691 125,822
----------- ----------- ----------- ----------- -----------
28,417 4,042,114 1,631,729 4,985,157 4
0 0 0 0 0
21,369 0 0 0 0
798,224 4,406,939 4,229,845 5,227,790 0
0 0 0 0 0
10,425 0 0 0 0
----------- ----------- ----------- ----------- -----------
858,435 8,449,053 5,861,574 10,212,947 4
----------- ----------- ----------- ----------- -----------
$ 1,006,380 $10,423,168 $ 6,345,524 $10,350,638 $ 125,826
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
27
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GLOBAL INCOME FUND INTERNATIONAL EQUITY FUND
SIX MONTHS SIX MONTHS
ENDED 6/30/96 YEAR ENDED ENDED 6/30/96 YEAR ENDED
(UNAUDITED) 12/31/95 (UNAUDITED) 12/31/95
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . $ 966,829 $ 1,419,625 $ 355,253 $ 390,106
Net realized gain (loss) on:
Investments . . . . . . . . . . . . . . . . . . . . . . 129,315 890,583 2,173,063 (640,025)
Foreign currency transactions . . . . . . . . . . . . . 799,307 149,263 873,932 1,671,359
Options . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 (357,171)
Futures . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0
Change in unrealized appreciation
(depreciation) of:
Investments . . . . . . . . . . . . . . . . . . . . . . (836,207) 1,128,602 6,137,175 6,588,738
Foreign currency translations . . . . . . . . . . . . . (298,348) 94,458 (121,694) 161,660
Options . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 250,336
Futures . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0
------------ ------------ ------------ ------------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . 760,896 3,682,531 9,417,729 8,065,003
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income . . . . . . . . . . . . . . . . . (630,310) (1,419,625) 0 (390,106)
In excess of net investment income. . . . . . . . . . . 0 (828,216) 0 (1,766,850)
Net realized gain on investments. . . . . . . . . . . . 0 (537,311) 0 0
In excess of net realized gains . . . . . . . . . . . . 0 0 0 0
------------ ------------ ------------ ------------
Total dividends and distributions
to shareholders . . . . . . . . . . . . . . . . . . . (630,310) (2,785,152) 0 (2,156,956)
FUND SHARE TRANSACTIONS (NOTE E). . . . . . . . . . . . . 3,370,598 12,906,465 13,904,745 25,548,590
------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS. . . . . . . . . . . . . . 3,501,184 13,803,844 23,322,474 31,456,637
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . 31,085,316 17,281,472 58,841,698 27,385,061
------------ ------------ ------------ ------------
END OF PERIOD (1) . . . . . . . . . . . . . . . . . . . $ 34,586,500 $ 31,085,316 $ 82,164,172 $ 58,841,698
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
(1) Including undistributed (distributions in
excess of) net investment income. . . . . . . . . . . $ (254,695) $ (591,214) $ (42,753) $ (398,006)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
28
<PAGE>
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND GROWTH AND INCOME FUND SELECT EQUITY FUND
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED 6/30/96 PERIOD ENDED ENDED 6/30/96 YEAR ENDED ENDED 6/30/96 YEAR ENDED
(UNAUDITED) 12/31/95* (UNAUDITED) 12/31/95 (UNAUDITED) 12/31/95
----------- --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 147,945 $ 80,038 $ 1,974,115 $ 1,951,172 $ 483,950 $ 598,538
28,417 (15,740) 4,042,114 4,484,478 1,631,729 1,136,257
0 0 0 0 0 0
0 0 0 0 0 0
21,369 32,639 0 0 0 0
798,224 173,558 4,406,939 14,188,139 4,229,845 8,369,198
0 0 0 0 0 0
0 0 0 0 0 0
10,425 (10,425) 0 0 0 0
------------- ------------- ------------- ------------- ------------- -------------
1,006,380 260,070 10,423,168 20,623,789 6,345,524 10,103,993
------------- ------------- ------------- ------------- ------------- -------------
0 (80,038) (766,764) (1,951,172) 0 (598,538)
0 0 0 0 0 0
0 0 0 (3,237,795) 0 (839,755)
0 0 0 0 0 0
------------- ------------- ------------- ------------- ------------- -------------
0 (80,038) (766,764) (5,188,967) 0 (1,438,293)
8,153,309 10,535,930 26,648,915 70,336,044 16,589,312 30,340,320
------------- ------------- ------------- ------------- ------------- -------------
9,159,689 10,715,962 36,305,319 85,770,866 22,934,836 39,006,020
10,715,962 0 128,075,984 42,305,118 56,723,469 17,717,449
------------- ------------- ------------- ------------- ------------- -------------
$ 19,875,651 $ 10,715,962 $ 164,381,303 $ 128,075,984 $ 79,658,305 $ 56,723,469
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
$ 147,945 $ 0 $ 1,207,351 $ 0 $ 483,950 $ 0
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
* For the period from June 13, 1995 (commencement of operations) through
December 31, 1995.
29
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
SMALL CAP EQUITY FUND MONEY MARKET FUND
SIX MONTHS SIX MONTHS
ENDED 6/30/96 YEAR ENDED ENDED 6/30/96 YEAR ENDED
(UNAUDITED) 12/31/95 (UNAUDITED) 12/31/95
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . $ 137,691 $ 363,638 $ 125,822 $ 250,290
Net realized gain (loss) on:
Investments . . . . . . . . . . . . . . . . . . . . . . 4,985,157 140,108 4 0
Foreign currency transactions . . . . . . . . . . . . . 0 0 0 0
Options . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0
Futures . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0
Change in unrealized appreciation
(depreciation of):
Investments . . . . . . . . . . . . . . . . . . . . . . 5,227,790 1,484,325 0 0
Foreign currency translations . . . . . . . . . . . . . 0 0 0 0
Options . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0
Futures . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0
------------- ------------ ------------- ------------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . 10,350,638 1,988,071 125,826 250,290
------------- ------------ ------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income . . . . . . . . . . . . . . . . . 0 (363,638) (125,822) (250,290)
In excess of net investment income. . . . . . . . . . . 0 0 0 (3)
Net realized gain on investments. . . . . . . . . . . . 0 (140,108) (4) 0
In excess of net realized gains . . . . . . . . . . . . 0 (355,217) 0 0
------------- ------------ ------------- ------------
Total dividends and distributions
to shareholders . . . . . . . . . . . . . . . . . . . 0 (858,963) (125,826) (250,293)
FUND SHARE TRANSACTIONS (NOTE E). . . . . . . . . . . . . 4,825,170 20,887,839 (290,289) 1,451,237
------------- ------------ ------------- ------------
TOTAL INCREASE IN NET ASSETS. . . . . . . . . . . . . . 15,175,808 22,016,947 (290,289) 1,451,234
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . 43,829,693 21,812,746 5,069,725 3,618,491
------------- ------------ ------------- ------------
END OF PERIOD (1) . . . . . . . . . . . . . . . . . . . $ 59,005,501 $ 43,829,693 $ 4,779,436 $ 5,069,725
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
(1) Including undistributed (distributions in
excess of) net investment income. . . . . . . . . . . $ 137,691 $ 0 $ 0 $ 0
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
30
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
31
<PAGE>
PROTECTIVE INVESTMENT COMPANY
FINANCIAL HIGHLIGHTS
FOR A SHARE OF COMMON STOCK OUTSTANDING FOR THE PERIOD INDICATED
<TABLE>
<CAPTION>
Realized and Dividends
Net Asset Unrealized Total Dividends in excess Distributions
Value at Net Gain (Loss) from from Net of Net from Net
Beginning Investment on Investment Investment Investment Realized
of Period Income(3)(7) Investments(7) Operations Income Income Capital Gains
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Global Income Fund
1/1/96 - 6/30/96 (Unaudited). . $10.074 $0.316 $(0.088) $0.228 $(0.191) $0.000 $0.000
1/1/95 - 12/31/95 . . . . . . . 9.558 0.607 0.968 1.575 (0.553) (0.323) (0.183)
3/14/94 - 12/31/94 (1). . . . . 10.000 0.367 (0.442) (0.075) (0.367) 0.000 0.000
- ----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund
1/1/96 - 6/30/96 (Unaudited). . 11.045 0.105 1.449 1.554 0.000 0.000 0.000
1/1/95 - 12/31/95 . . . . . . . 9.581 0.067 1.817 1.884 (0.076) (0.344) 0.000
3/14/94 - 12/31/94 (1). . . . . 10.000 0.048 (0.467) (0.419) 0.000 0.000 0.000
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund
1/1/96 - 6/30/96 (Unaudited). . 10.613 0.085 0.722 0.807 0.000 0.000 0.000
6/13/95 - 12/31/95 (2). . . . . 10.000 0.080 0.613 0.693 (0.080) 0.000 0.000
- ----------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund
1/1/96 - 6/30/96 (Unaudited). . 12.197 0.162 0.761 0.923 (0.066) 0.000 0.000
1/1/95 - 12/31/95 . . . . . . . 9.661 0.246 2.854 3.100 (0.246) 0.000 (0.318)
3/14/94 - 12/31/94 (1). . . . . 10.000 0.114 (0.300) (0.186) (0.114) 0.000 (0.031)
- ----------------------------------------------------------------------------------------------------------------------------------
Select Equity Fund
1/1/96 - 6/30/96 (Unaudited). . 13.109 0.088 1.229 1.317 0.000 0.000 0.000
1/1/95 - 12/31/95 . . . . . . . 9.839 0.143 3.470 3.613 (0.143) 0.000 (0.200)
3/14/94 - 12/31/94 (1). . . . . 10.000 0.093 (0.039) 0.054 (0.093) 0.000 (0.120)
- ----------------------------------------------------------------------------------------------------------------------------------
Small Cap Equity Fund
1/1/96 - 6/30/96 (Unaudited). . 9.345 0.027 2.083 2.110 0.000 0.000 0.000
1/1/95 - 12/31/95 . . . . . . . 8.951 0.079 0.502 0.581 (0.079) 0.000 (0.031)
3/14/94 - 12/31/94 (1). . . . . 10.000 0.038 (1.025) (0.987) (0.038) 0.000 (0.001)
- ----------------------------------------------------------------------------------------------------------------------------------
Money Market Fund
1/1/96 - 6/30/96 (Unaudited). . 1.000 0.023 0.000 0.023 (0.023) 0.000 0.000
1/1/95 - 12/31/95 . . . . . . . 1.000 0.052 0.000 0.052 (0.052) 0.000 0.000
3/14/94 - 12/31/94 (1). . . . . 1.000 0.031 0.000 0.031 (0.031) 0.000 0.000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Investment operations commenced on March 14, 1994.
(2) Investment operations commenced on June 13, 1995.
(3) Net Investment Income and Ratio of Operating Expenses to Average Net
Assets is after reimbursement of certain fees and expenses by Protective
Life. Had Protective Life not undertaken to reimburse expenses related
to the Funds, net investment income per share and the ratio of operating
expenses to average net assets would have been as follows: For the six
months ended June 30, 1996: Global Income Fund, $0.300 and 1.44%;
International Equity Fund, $0.088 and 1.42%; Capital Growth Fund, $0.072
and 1.08%; Growth and Income Fund, $0.157 and 0.89%; Select Equity Fund,
$0.079 and 0.93%; Small Cap Equity Fund, $.019 and 0.96%; and Money
Market Fund, $0.020 and 1.26%, respectively. For the period ended
December 31, 1995: Global Income Fund, $0.577 and 1.50%; International
Equity Fund, $0.032 and 1.55%; Capital Growth Fund, $0.055 and 1.62%;
Growth and Income Fund, $0.236 and 0.93%; Select Equity Fund, $0.125 and
1.01%; Small Cap Equity Fund, $0.065 and 1.00%; and Money Market Fund,
$0.046 and 1.17%, respectively. For the period ended December 31, 1994:
Global Income Fund, $0.320 and 2.12%; International Equity Fund, $0.004
and 2.24%; Growth and Income Fund, $0.097 and 1.31%; Select Equity Fund,
$0.055 and 1.81%; Small Cap Equity Fund, $0.009 and 1.62%; and Money
Market Fund, $0.018 and 2.24%, respectively.
(4) Total return is calculated assuming a purchase of shares at net asset
value per share on the first day and a sale at net asset value per
share on the last day of each period reported. Distributions are
assumed, for the purposes of this calculation, to be reinvested at the
net asset value per share on the respective payment dates of each Fund.
Total return for a period of less than one year is not annualized.
32
<PAGE>
<TABLE>
<CAPTION>
Distributions Ratio Ratio of Net
in Excess Net Asset Net Assets of Operating Investment
of Value at End Expenses Income to Portfolio Average
Net Realized Total End Total of Period to Average Average Turnover Commission
Gains Distributions of Period Return(4) (000) Net Assets(3) Net Assets Rate Rate(8)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.000 $(0.191) $10.111 2.35% $34,587 1.10%(5) 5.91%(5) 99%(6) N/A
0.000 (1.059) 10.074 16.94 31,085 1.10 5.94 295 --
0.000 (0.367) 9.558 (0.74) 17,281 1.10(5) 5.58(5) 210(6) --
- -----------------------------------------------------------------------------------------------------------------------------------
0.000 0.000 12.599 14.08 82,164 1.10(5) 1.00(5) 20(6) 0.032
0.000 (0.420) 11.045 19.66 58,842 1.10 0.96 40
0.000 0.000 9.581 (4.18) 27,385 1.10(5) 1.25(5) 33(6) --
- -----------------------------------------------------------------------------------------------------------------------------------
0.000 0.000 11.420 7.60 19,876 0.80(5) 1.90(5) 23(6) 0.057
0.000 (0.080) 10.613 6.93 10,716 0.80(5) 2.57(5) 5(6) --
- -----------------------------------------------------------------------------------------------------------------------------------
0.000 (0.066) 13.054 7.57 164,381 0.80(5) 2.70(5) 23(6) 0.059
0.000 (0.564) 12.197 32.29 128,076 0.80 2.36 55
(0.008) (0.153) 9.661 (1.86) 42,305 0.80(5) 2.21(5) 36(6) --
- -----------------------------------------------------------------------------------------------------------------------------------
0.000 0.000 14.426 10.04 79,658 0.80(5) 1.42(5) 21(6) 0.056
0.000 (0.343) 13.109 36.73 56,723 0.80 1.69 60 --
(0.002) (0.215) 9.839 0.53 17,717 0.80(5) 2.44(5) 56(6) --
- -----------------------------------------------------------------------------------------------------------------------------------
0.000 0.000 11.455 22.62 59,006 0.80(5) 0.56(5) 57 (6) 0.049
(0.077) (0.187) 9.345 6.46 43,830 0.80 1.09 60 --
(0.023) (0.062) 8.951 (9.87) 21,813 0.80(5) 1.07(5) 17(6) --
- -----------------------------------------------------------------------------------------------------------------------------------
0.000 (0.023) 1.000 2.35 4,779 0.60(5) 4.73(5) N/A N/A
0.000 (0.052) 1.000 5.32 5,070 0.60 5.19 N/A --
0.000 (0.031) 1.000 3.14 3,618 0.60(5) 3.80(5) N/A --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(5) Annualized.
(6) Non-Annualized.
(7) The per share computation is a mathematical computation which may appear
inconsistent with the statement of operations.
(8) For fiscal years beginning on or after September 1, 1995, a fund, which
invests 10% or more of its net assets in equity securities that trade with
a commission, is required to disclose its average commission rate per
share.
33
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
NOTE A - ORGANIZATION
Protective Investment Company (the "Company") was incorporated in the State of
Maryland on September 2, 1993 as an open-end management investment company. The
Company offers seven separately managed pools of assets which have differing
investment objectives and policies. The Company currently issues seven classes
of its shares: Global Income Fund, International Equity Fund, Capital Growth
Fund, Growth and Income Fund, Select Equity Fund, Small Cap Equity Fund and
Money Market Fund (individually a "Fund" and collectively the "Funds"). The
Company had no operations prior to March 2, 1994, other than those relating to
organizational matters. The initial capital contribution of $60,000, $10,000
per class, resulting in 1,000 shares being issued by the Global Income Fund,
International Equity Fund, Growth and Income Fund, Select Equity Fund and Small
Cap Equity Fund and 10,000 shares being issued by the Money Market Fund, was
provided on March 2, 1994 by Protective Life Insurance Company. The Company
commenced investment operations on March 14, 1994. On June 13, 1995 the Capital
Growth Fund commenced investment operations by issuing 100,000 shares of stock
to Protective Life Insurance Company ("Protective Life") in exchange for an
initial contribution of $1,000,000.
The Company offers each class of its stock to a separate account of Protective
Life as funding vehicles for certain variable annuity and variable life
contracts issued by Protective Life through separate accounts.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
The accounting policies are in conformity with generally accepted accounting
principles for investment companies. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from these estimates.
The following is a summary of significant accounting policies followed by the
Company in the preparation of its financial statements.
VALUATION OF INVESTMENTS - The Company's portfolio securities traded on a
national securities exchange are valued at the last sale price, or, if no sale
occurs, at the mean between the closing bid and closing asked prices. Portfolio
securities traded over-the-counter are valued at the last sale price, or, if no
sale occurs, at the mean between the last bid and asked prices. Debt securities
with a remaining maturity of 61 days or more are valued on the basis of dealer-
supplied quotations or by a pricing service selected by Goldman Sachs Asset
Management, investment adviser to the Company, and approved by the board of
directors of the Company. Short-term securities and debt securities with a
remaining maturity of 60 days or less are valued at their amortized cost which
approximates market value. Options and futures contracts are valued at the last
sale price on the market where any such options or futures contracts are
principally traded. Options traded over-the-counter are valued based upon
prices provided by market makers in such securities or dealers in such
currencies. Securities for which current market quotations are unavailable or
for which quotations are not deemed by the investment adviser to be
representative of market values are valued at fair value as determined in good
faith pursuant to procedures established by the board of directors.
FOREIGN SECURITIES - Foreign securities traded on a recognized securities
exchange are valued at the last sale price in the principal market where they
are traded, or, if closing prices are unavailable, at the last bid price
available prior to the time a Fund's net asset value is determined. Foreign
portfolio securities prices are furnished by quotation services expressed in the
local currency's value and are translated into U.S. dollars at the current rate
of exchange.
REPURCHASE AGREEMENTS - In connection with transactions in repurchase
agreements, the Company's custodian takes possession of the underlying
collateral securities, the value or market price of which is at least equal to
the principal amount, including interest, of the repurchase transaction. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to ensure the adequacy of
the collateral. In the event of default of the obligation to repurchase, the
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to delay due to legal
proceedings.
34
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
INVESTMENT TRANSACTIONS - Investment security transactions are recorded on trade
date. Realized gains and losses from security transactions are determined on
the basis of identified cost.
INVESTMENT INCOME - Dividend income is recorded on the ex-dividend date, or, in
the case of dividend income on foreign securities, on the ex-dividend date or
when the Fund becomes aware of its declaration. Interest income is recorded on
the accrual basis.
FOREIGN CURRENCY TRANSLATIONS - The records of the Funds are maintained in U.S.
dollars. Foreign currency amounts are translated into U.S. dollars at a current
rate of exchange of such currency to determine the value of investments, other
assets and liabilities on the date of any determination of net asset value of
the Funds. Purchases and sales of securities and income and expenses are
converted at the prevailing rate of exchange on the respective dates of such
transactions. Net realized gain or loss on foreign currency includes net
realized currency gains and losses recognized between accrual and payment dates.
Unrealized currency gains and losses on securities held are not segregated for
financial statement presentation.
Upon the purchase or sale of a security denominated in a foreign currency, the
Funds may enter into a foreign currency exchange contract for the purchase or
sale, for a fixed amount of U.S. dollars, of an amount of the foreign currency
required to settle the security transaction. Accordingly, the Company would not
realize currency gains or losses between the trade and settlement dates on such
security transactions.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Funds on each day and the resulting net unrealized
appreciation, depreciation and related net receivable or payable amounts are
determined by using forward currency exchange rates supplied by a quotation
service.
FORWARD CURRENCY CONTRACTS - A forward foreign currency contract ("Forward") is
an agreement between two parties to buy and sell a currency at a set price on a
future date. The market value of the Forward fluctuates with changes in
currency exchange rates. The Forward is marked-to-market daily and the change
in the market value is recorded by the Funds as an unrealized gain or loss. A
Forward may be closed prior to the contractual settlement date by entering into
an offsetting position in the same currency with the same settlement terms. The
unrealized gain or loss resulting from the offsetting transaction is not
realized until the contractual settlement date. On the contractual settlement
date the Fund recognizes a realized gain or loss equal to the difference between
the value of the Forward when entered into and the value of the Forward on the
contractual settlement date. The Funds could be exposed to risk if a
counterparty is unable to meet the terms of the contract or if the value of the
currency changes unfavorably. The Funds may enter into Forwards in connection
with planned purchases and sales of securities, to hedge specific receivables or
payables against changes in future exchange rates, to hedge the U.S. dollar
value of portfolio securities denominated in a foreign currency and, in certain
circumstances, to increase the Funds' total returns.
CALL AND PUT OPTIONS - A call option written by a Fund obligates the Fund to
sell a specified currency or security to the option holder at a specified price
at any time before the expiration date. A put option written by a Fund
obligates the Fund to purchase a specified currency or security from the option
holder at a specified price at any time before the expiration date. These
transactions involve a risk that a Fund may, upon exercise of the option, be
required to sell currency or securities at a price that is less than its market
value or be required to purchase currency or securities at a price that exceeds
its market value. A Fund may also realize gains or losses by entering into
closing purchase transactions identical to call or put options that have been
written by the Fund in order to terminate its obligation under a call or put
option. In determining the amount of gain or loss realized, the option premium
paid and related transactions costs are added to the exercise price. The Funds
enter into option transactions to hedge against the fluctuation in a security's
value, an index's value or a foreign currency's value or to seek to increase the
Funds total returns.
35
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
FUTURES CONTRACTS - In order to gain exposure to or protect against declines in
security values, the Funds may buy and sell futures contracts. The Funds may
also buy or write put or call options on these futures contracts. A Fund
generally sells futures contracts to hedge against declines in the value of
portfolio securities. A Fund may also purchase futures contracts to gain
exposure to market changes as it may be more efficient or cost effective than
actually buying securities. The Funds segregate assets to cover its
commitments under such futures contracts. Upon entering into a futures
contract, a Fund is required to deposit either cash or securities in an amount
(initial margin) equal to a certain percentage of the contract value.
Subsequent payments (variation margin) are made or received by the Fund each
day. The variation margin payments are equal to the daily changes in the
contract value and are recorded as unrealized gains and losses. The Funds
recognize a realized gain or loss when the contract is closed. Risks of
entering into futures contracts (and related options) include the possibility
that there may be an illiquid market and that a change in the value of the
contract or option may not correlate with changes in the value of the underlying
securities.
EXPENSES - Expenses directly attributable to a Fund are charged to that Fund.
Expenses not directly attributable to a Fund are, allocated on the basis of
relative average net assets, or otherwise allocated among the Funds as the board
of directors may direct or approve.
DISTRIBUTIONS - Distributions from net investment income are declared and
distributed at least annually for International Equity Fund, Global Income Fund,
Growth and Income Fund, Capital Growth Fund, Select Equity Fund and Small Cap
Equity Fund; and declared daily and distributed monthly for Money Market Fund.
Distributions from net realized capital gains, if any, are declared and
distributed at least annually. Distributions are recorded on the ex-dividend
date.
FEDERAL INCOME TAXES - Each Fund of the Company is treated as a separate entity
for federal tax purposes. Each Fund intends to qualify each year as a regulated
investment company under Subchapter M of the Internal Revenue Code, as amended.
By so qualifying, the Funds will not be subject to federal income taxes to the
extent that they distribute all of their taxable income, including realized
capital gains, for the fiscal year. In addition, by distributing during each
calendar year substantially all of their net investment income, capital gains
and certain other amounts, if any, the Funds will not be subject to a federal
excise tax. Income distributions and capital gains distributions of a Fund are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to differing treatments for futures and options, foreign currency transactions
and losses deferred due to wash sales. Any permanent book and tax basis
differences at fiscal year-end have been reclassified to reflect the tax
characterization.
NOTE C - AGREEMENTS AND FEES
The Company has entered into an investment management agreement with Investment
Distributors Advisory Services, Inc. (the "Investment Manager"), a wholly-owned
subsidiary of Protective Life Corporation, under which the Company agrees to pay
for business management and administrative services furnished by the Investment
Manager. For its services to the Company, the Investment Manager receives a
monthly management fee based on the average daily net assets of each Fund at the
following annual rates: Global Income Fund, 1.10%; International Equity Fund,
1.10%; Capital Growth Fund, .80%; Growth and Income Fund, .80%; Select Equity
Fund, .80%; Small Cap Equity Fund, .80%; and Money Market Fund, .60%.
In order to limit expenses, Protective Life has voluntarily undertaken to pay
certain operating expenses of the Company or of any Fund to the extent that such
expenses (excluding brokerage or other portfolio transaction expenses or
expenses of litigation, indemnification, taxes or other extraordinary expenses,
as accrued for each Fund) exceed the following percentages of that Fund's
estimated average daily net assets on an annualized basis: Global Income Fund,
1.10%; International Equity Fund, 1.10%; Capital Growth Fund, .80%; Growth and
Income Fund, .80%; Select Equity Fund, .80%; Small Cap Equity Fund, .80%; and
Money Market Fund, .60%. Protective Life may terminate its obligations to pay
such expenses upon 120 days notice to the Company.
36
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
Goldman Sachs Asset Management acts as the investment adviser (the "Adviser") of
Capital Growth Fund, Growth and Income Fund, Money Market Fund, Select Equity
Fund and Small Cap Equity Fund. Goldman Sachs Asset Management-International
acts as the Adviser to Global Income Fund and International Equity Fund. Each
Adviser has entered into an investment advisory agreement for each Fund with the
Investment Manager under which the Adviser manages the investment portfolios of
the Funds of which it is Adviser. As compensation for its services, the
Advisers receive a monthly fee from the Investment Manager based on the average
daily net assets of each Fund at the following annual rates: Global Income Fund
and International Equity Fund, .40% of the first $100 million, .30% of the next
$100 million, and .25% of assets in excess of $200 million; Capital Growth
Fund, Growth and Income Fund, Select Equity Fund and Small Cap Equity Fund, .40%
of the first $100 million, .30% of the next $100 million, and .20% of assets in
excess of $200 million; and Money Market Fund, .35% of the first $100 million,
.25% of the next $100 million, and .15% of assets in excess of $200 million.
Directors of the Company who are not interested persons receive an annual fee of
$2,000 and $2,000 for each meeting attended.
NOTE D - INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investments, excluding
short-term securities, for the period ended June 30, 1996, were as follows:
<TABLE>
<CAPTION>
NON-U.S. U.S. NON-U.S. U.S.
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
PURCHASES PURCHASES SALES SALES
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Global Income Fund . . . . . . $ 23,221,325 $ 7,856,083 $ 22,112,986 $ 6,932,863
International Equity Fund . . . 29,668,106 0 13,472,935 0
Capital Growth Fund . . . . . . 11,824,213 98,790 2,910,296 160,000
Growth and Income Fund . . . . 61,729,748 0 31,149,158 0
Select Equity Fund . . . . . . 29,732,406 0 14,011,657 0
Small Cap Equity Fund . . . . . 27,572,683 0 24,430,335 0
</TABLE>
Purchases and sales, including maturities, of short-term securities by the Money
Market Fund for the period ended June 30, 1996 were $23,150,010 and $23,712,187,
respectively.
The identified cost of investments in securities owned by each Fund for federal
income tax purposes and their respective gross unrealized appreciation and
depreciation at June 30, 1996 were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
IDENTIFIED GROSS UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Global Income Fund . . . . . . $ 33,957,329 $ 505,909 $ 479,939 $ 25,970
International Equity Fund . . . 68,373,008 14,251,105 1,051,457 13,199,648
Capital Growth Fund . . . . . . 19,176,762 1,350,234 379,955 970,279
Growth and Income Fund . . . . 146,703,706 21,009,139 3,232,148 17,776,991
Select Equity Fund . . . . . . 67,086,087 12,916,645 680,448 12,236,197
Small Cap Equity Fund . . . . . 55,241,822 7,765,290 2,693,850 5,071,440
Money Market Fund . . . . . . . 4,654,944 0 0 0
</TABLE>
In addition, the International Equity Fund had capital loss carryforwards of
$247,765 and $260,222 for the years ended December 31, 1994 and December 31,
1995, respectively. The capital loss carryforwards may be utilized to offset
capital gains through December 31, 2002 and December 31, 2003, respectively.
The Capital Growth Fund had no open futures contracts as of June 30, 1996. The
aggregate face value of futures contracts opened and closed during the six
months ended June 30, 1996 was $2,930,500 and $3,868,600, respectively.
37
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
NOTE E - SHAREHOLDER TRANSACTIONS
The authorized capital stock of the Company consists of 1 billion shares, par
value $.001 per share. 700 million of the authorized shares have been divided
into, and may be issued in, seven designated classes as follows: Global Income
Fund, 100 million shares; International Equity Fund, 100 million shares; Capital
Growth Fund, 100 million shares; Growth and Income Fund, 100 million shares;
Select Equity Fund, 100 million shares; Small Cap Equity Fund, 100 million
shares; and Money Market Fund, 100 million shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
GLOBAL INCOME FUND GLOBAL INCOME FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold or exchanged in. . . . . . . 489,825 $ 4,922,874 1,255,603 $ 12,700,315
Shares issued to shareholders in
reinvestment of dividends. . . . . . . 62,932 630,310 276,359 2,785,152
Shares redeemed or exchanged out . . . . (217,683) (2,182,586) (254,564) (2,579,002)
----------- ----------- ----------- -----------
Net increase . . . . . . . . . . . . . . 335,074 $ 3,370,598 1,277,398 $ 12,906,465
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
Shares sold or exchanged in . . . . . . . 1,382,633 $ 16,138,237 2,601,322 $ 26,748,946
Shares issued to shareholders in
reinvestment of dividends. . . . . . . 0 0 195,153 2,156,956
Shares redeemed or exchanged out . . . . (188,686) (2,233,492) (327,344) (3,357,312)
----------- ----------- ----------- -----------
Net increase . . . . . . . . . . . . . . 1,193,947 $ 13,904,745 2,469,131 $ 25,548,590
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
CAPITAL GROWTH FUND CAPITAL GROWTH FUND
SIX MONTHS ENDED JUNE 13, 1995* TO
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
Shares sold or exchanged in . . . . . . . 773,708 $ 8,638,544 1,020,331 $ 10,646,035
Shares issued to shareholders in
reinvestment of dividends. . . . . . . 0 0 7,542 80,037
Shares redeemed or exchanged out . . . . (42,947) (485,235) (18,159) (190,142)
----------- ----------- ----------- -----------
Net increase . . . . . . . . . . . . . . 730,761 $ 8,153,309 1,009,714 $ 10,535,930
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
GROWTH AND INCOME FUND GROWTH AND INCOME FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
Shares sold or exchanged in . . . . . . . 2,536,486 $ 32,347,871 6,106,217 $ 69,914,606
Shares issued to shareholders in
reinvestment of dividends. . . . . . . 60,152 766,764 431,665 5,188,967
Shares redeemed or exchanged out . . . . (505,522) (6,465,720) (415,846) (4,767,529)
----------- ----------- ----------- -----------
Net increase . . . . . . . . . . . . . . 2,091,116 $ 26,648,915 6,122,036 $ 70,336,044
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
38
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SELECT EQUITY FUND SELECT EQUITY FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold or exchanged in. . . . 1,416,078 $ 19,655,510 2,599,094 $ 31,044,432
Shares issued to shareholders in
reinvestment of dividends. . . . 0 0 109,717 1,438,293
Shares redeemed or exchanged out . (221,129) (3,066,198) (182,611) (2,142,405)
------------ ------------ ------------ ------------
Net increase . . . . . . . . . . . 1,194,949 $ 16,589,312 2,526,200 $ 30,340,320
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SMALL CAP EQUITY FUND SMALL CAP EQUITY FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
Shares sold or exchanged in. . . . 859,283 $ 8,790,155 2,572,788 $ 23,875,696
Shares issued to shareholders in
reinvestment of dividends. . . . 0 0 91,938 858,963
Shares redeemed or exchanged out . (398,140) (3,964,985) (411,612) (3,846,820)
------------ ------------ ------------ ------------
Net increase . . . . . . . . . . . 461,143 $ 4,825,170 2,253,114 $ 20,887,839
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
MONEY MARKET FUND MONEY MARKET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
Shares sold or exchanged in. . . . 5,409,441 $ 5,409,441 8,282,138 $ 8,282,138
Shares issued to shareholders in
reinvestment of dividends. . . . 126,512 126,512 249,594 249,594
Shares redeemed or exchanged out . (5,826,242) (5,826,242) (7,080,495) (7,080,495)
------------ ------------ ------------ ------------
Net increase (decrease). . . . . . (290,289) $ (290,289) 1,451,237 $ 1,451,237
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
* Commencement of investment operations.
39
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
NOTE F - FORWARD FOREIGN CURRENCY CONTRACTS
At June 30, 1996, outstanding forward exchange currency contracts, which
contractually obligate the Fund to deliver currencies at a specified date, were
as follows:
<TABLE>
<CAPTION>
GLOBAL INCOME FUND U.S. $ COST U.S. $ UNREALIZED
ON ORIGINATION CURRENT APPRECIATION
FOREIGN CURRENCY PURCHASE CONTRACTS DATE VALUE (DEPRECIATION)
- ----------------------------------- ------------- ------------- --------------
<S> <C> <C> <C>
DEM, expiring 09/09/1996 (3 contracts) . . . . . . $ 1,834,760 $ 1,798,136 $ (36,624)
FOREIGN CURRENCY SALE CONTRACTS
AUD, expiring 07/30/1996 (2 contracts) . . . . . . 1,608,221 1,591,023 17,198
BEL, expiring 09/09/1996 (4 contracts) . . . . . . 2,411,821 2,378,811 33,010
DEM, expiring 09/04/1996 (1 contract) . . . . .. . 5,573,209 5,619,319 (46,110)
DKK, expiring 07/22/1996 (2 contracts) . . . . . . 799,021 793,401 5,620
ESP, expiring 07/16/1996 (2 contracts) . . . . . . 2,465,795 2,444,139 21,656
FRF, expiring 07/23/1996 (1 contract) . . . . .. . 366,069 361,908 4,161
GBP, expiring 08/14/1996 (2 contracts) . . . . . . 4,560,070 4,638,336 (78,266)
IEP, expiring 10/01/1996 (1 contract) . . . . .. . 869,238 873,973 (4,735)
ITL, expiring, 07/15/1996 (2 contracts) . . . .. . 1,869,908 1,926,284 (56,376)
JPY, expiring 07/17/1996 (1 contract) . . . . .. . 1,120,118 1,099,208 20,910
SEK, expiring 08/07/1996 (2 contracts) . . . . . . 3,048,634 3,127,373 (78,739)
------------- ------------- -------------
24,692,104 24,853,775 (161,671)
----------
Offsetting forward currency contracts not yet
settled (10 contracts) . . . . . . . . . . . . . 57,252
----------
NET UNREALIZED DEPRECIATION. . . . . . . . . . . . $ (141,043)
----------
----------
INTERNATIONAL EQUITY FUND U.S. $ COST U.S. $ UNREALIZED
ON ORIGINATION CURRENT APPRECIATION
FOREIGN CURRENCY PURCHASE CONTRACTS DATE VALUE (DEPRECIATION)
- ----------------------------------- -------------- ------------- --------------
DEM, expiring 09/09/1996 (3 contracts) . . . . . . $ 1,018,480 $ 997,977 $ (20,503)
FOREIGN CURRENCY SALE CONTRACTS
- -------------------------------
BEL, expiring 09/09/1996 (1 contract) . . . . .. . 579,558 567,524 12,034
DEM, expiring 09/04/1996 (1 contract) . . . . .. . 5,224,738 5,267,965 (43,227)
HKD, expiring 08/07/1996 (2 contracts) . . . . . . 3,523,243 3,523,785 (542)
SEK, expiring 08/07/1996 (2 contracts) . . . . . . 2,690,747 2,760,014 (69,267)
------------- ------------- -------------
12,018,286 12,119,288 (101,002)
----------
Offsetting forward currency contracts not yet
settled (6 contracts). . . . . . . . . . . . . . 67,426
----------
NET UNREALIZED DEPRECIATION. . . . . . . . . . . . $ (54,079)
----------
----------
</TABLE>
GLOSSARY OF TERMS
-----------------
AUD - Australian Dollar
BEL - Belgian Franc
DEM - Deutsche Mark
DKK - Danish Krone
ESP - Spanish Peseta
FRF - French Franc
GBP - Great British Pound
HKD - Hong Kong Dollar
IEP - Irish Punt
ITL - Italian Lira
JPY - Japanese Yen
SEK - Swedish Krona
USD - United States Dollar
40
<PAGE>
PROTECTIVE INVESTMENT COMPANY
OTHER INFORMATION
JUNE 30, 1996 (UNAUDITED)
RESULTS OF ANNUAL SHAREHOLDERS MEETING VOTING
A special meeting of stockholders of the Company was held on April 30, 1996.
Set forth below is the number of votes cast for, against or withheld, as well as
the number of abstentions as to each matter proposed, including a chart which
indicates which shareholders were entitled to vote on each proposal.
<TABLE>
<CAPTION>
VOTING GROUPS
------------------------------------------------------------------------------------------------
PROPOSAL Money Select Capital Small Cap Growth International Global
Market Equity Growth Equity and Income Equity Income
Fund Fund Fund Fund Fund Fund Fund
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Approval of investment X X X X X X X
management agreement
with IDASI
------------------------------------------------------------------------------------------------
2a. Approval of investment X X X X X
advisory agreement
with GSAM
------------------------------------------------------------------------------------------------
2b. Approval of investment X X
advisory agreement
with GSAMI
------------------------------------------------------------------------------------------------
3. Election of Directors X X X X X X X
------------------------------------------------------------------------------------------------
4. Ratification of X X X X X X X
selection of the
independent public
accountant
------------------------------------------------------------------------------------------------
</TABLE>
1) APPROVAL OR DISAPPROVAL OF THE INVESTMENT MANAGEMENT AGREEMENTS - The
Shareholders of the Funds approved the Investment Management Agreement
between Investment Distributors Advisory Services, Inc. ("IDASI") and
Protective Investment Company.
For Against Abstain
--- ------- -------
340,362,132 7,580,529 18,316,590
2a) APPROVAL OR DISAPPROVAL OF THE GSAM INVESTMENT ADVISORY AGREEMENTS - The
Shareholders of the Funds approved the Investment Advisory Agreements
between IDASI and Goldman Sachs Asset Management.
For Against Abstain
--- ------- -------
343,180,302 4,139,557 18,939,391
2b) APPROVAL OR DISAPPROVAL OF THE GSAMI INVESTMENT ADVISORY AGREEMENTS - The
Shareholders of Funds approved the Investment Advisory Agreements
between IDASI and Goldman Sachs Asset Management International.
For Against Abstain
--- ------- -------
346,332,755 4,358,921 15,567,575
3) ELECTION OF DIRECTORS - The Shareholders of the Funds elected Carolyn King,
R. Stephen Briggs, D. Warren Bailey, G. Ruffner Page, Jr. and Cleophus
Thomas, Jr. to the Board of Directors to hold office until their successors
are elected and qualified.
For Withheld
--- ---------
Carolyn King 357,065,224 9,194,027
R. Stephen Briggs 357,138,483 9,120,767
D. Warren Bailey 356,552,410 9,706,841
G. Ruffner Page, Jr. 357,138,483 9,120,767
Cleophus Thomas, Jr. 356,986,400 9,272,850
4) RATIFICATION OR REJECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS - The
Shareholders of the Funds ratified the selection of Coopers & Lybrand
L.L.P. as independent public accountants of the Funds.
For Against Abstain
--- ------- -------
351,080,907 1,592,959 13,585,384
41
<PAGE>
PROTECTIVE INVESTMENT COMPANY
----------------
DIRECTORS AND OFFICERS
D. Warren Bailey, DIRECTOR
G. Ruffner Page, Jr., DIRECTOR
Cleophus Thomas, Jr., DIRECTOR
Carolyn King, PRESIDENT AND CHAIRMAN
R. Stephen Briggs, DIRECTOR
Richard J. Bielen, VICE PRESIDENT AND COMPLIANCE OFFICER
Jerry W. DeFoor, VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER
John O'Sullivan, TREASURER
Lizabeth R. Nichols, VICE PRESIDENT, SECRETARY AND COMPLIANCE OFFICER
----------------
INVESTMENT MANAGER
Investment Distributors Advisory Services, Inc.
----------------
INVESTMENT ADVISERS
Goldman Sachs Asset Management
Goldman Sachs Asset Management International
----------------
The information contained in this report is intended for general informational
purposes only. This report is not authorized for distribution to prospective
investors unless preceded or accompanied by current Company and Separate
Account prospectuses which contain important information concerning the
Company, the Separate Account and its current public offering of variable
annuity contracts.
42
