<PAGE>
PROTECTIVE INVESTMENT COMPANY
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW BY FUND
PROTECTIVE CORE U.S. EQUITY FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
PERFORMANCE REVIEW AND HOLDINGS: For the 12 months ended December 31, 1997, the
Protective CORE U.S. Equity Fund had a total return of 30.95%1 based on net
asset value, compared with 33.37% for the S&P 500 Index, the Fund's benchmark.
Throughout the fiscal period, the Fund placed above-average emphasis on
defensive, value-oriented securities. However, although the Fund achieved a
strong absolute return, in part due to the strong results achieved by the
qualitative stock recommendations produced by the Goldman Sachs Global
Investment Research Department, it lagged the benchmark.
Fund performance was hurt in the last quarter, when investors ignored the usual
valuation criteria and chose just to buy up the most well-recognized names.
Once the short-term impact of the flight to quality lessens, we believe
investors will once again respond to companies that possess the value, momentum
and low risk characteristics typical of those in which the Fund invests.
Noteworthy company performance spanned a diverse group of sectors. The Fund
benefited from its positions in healthcare, as pharmaceutical holdings ELI LILLY
& CO., PFIZER INC. and BRISTOL MYERS SQUIBB CO. generated strong returns over
the period. Our bias toward the consumer services sector was rewarded via
positions in general merchandisers DAYTON HUDSON CORP. and WAL-MART STORES INC.,
as well as building materials and home improvement supplier HOME DEPOT INC.
Disappointing results over the period were posted by EASTMAN KODAK, ORACLE
CORP., NIKE INC. and BOEING CO. (These positions are no longer held by the
Fund.)
PORTFOLIO COMPOSITION: In general, the portfolio's sector exposures approximated
that of the S&P 500 Index, although our tilt toward defensive stocks resulted in
slight overweightings in less volatile sectors such as energy and
underweightings in cyclically oriented sectors such as basic industry. These
differences were the residual effect of our bottom-up stock selection process
and not a reflection of an economic forecast for specific sectors.
OUTLOOK Over the near-term, we intend to maintain our disciplined approach and
defensive stance, as the cautionary conditions that initially motivated us--the
market's increasing volatility and historically low risk premiums--have not yet
abated. In fact, in view of the market's recent behavior, we intend to
strengthen our focus on value-oriented, lower volatility stocks.
ROBERT C. JONES KENT A. CLARK VICTOR H. PINTER
Managing Director, Portfolio Manager, Portfolio Manager,
Quantitative Equity Quantitative Equity Quantitative Equity
Protective CORE U.S. Equity Fund
February 2, 1998
2
<PAGE>
PROTECTIVE CORE U.S. EQUITY FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
The following graph shows a comparison of a hypothetical investment of $10,000
in the Fund (assumes reinvestment of all dividends and distributions) versus the
S&P 500 Index.
[GRAPH]
<TABLE>
<CAPTION>
3/14/94 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Protective CORE U.S. Equity Fund 10,000 10,053 13,746 16,762 21,949
S&P 500 Index (with income reinvested) 10,000 10,073 13,857 17,036 22,720
<CAPTION>
TOTAL RETURN(1) SUMMARY
Cumulative Total Average Annual
Year Ended Return through Total Return through
December 31, 1997 December 31, 1997 (a) December 31, 1997 (a)
----------------- --------------------- ---------------------
<S> <C> <C> <C>
Protective CORE U.S. Equity Fund 30.95% 119.49% 22.96%
S&P 500 Index (with income reinvested) 33.37% 127.20% 25.55%
</TABLE>
(a) From the commencement of investment operations on March 14, 1994.
<TABLE>
<CAPTION>
TOP 10 PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1997
--------------------------------------------------
PERCENTAGE
OF NET
COMPANY ASSETS
--------------------------------------------------
<S> <C>
General Electric Co. 3.75%
Exxon Corp. 2.14%
General Motors Corp. 1.91%
Ford Motor Co. 1.82%
American International Group Inc. 1.78%
GTE Corp. 1.72%
Royal Dutch Petroleum Co. 1.66%
Merrill Lynch & Co., Inc. 1.57%
Bristol Myers Squibb Co. 1.51%
Coca Cola Co. 1.50%
--------------------------------------------------
</TABLE>
3
<PAGE>
PROTECTIVE GROWTH AND INCOME FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
PERFORMANCE REVIEW AND HOLDINGS: During the 12 months ended December 31, 1997,
the Protective Growth and Income Fund had a total return of 29.84%1 based on net
asset value, compared with a total return of 33.37% for the S&P 500 Index, the
Fund's benchmark.
Top performers during the year included leading home appliances company SUNBEAM
CORP., which appreciated as new management executed restructuring plans. The
company's achievements over the course of the year included cost-savings and
product innovation efforts in order to improve shareholder returns. In a
generally positive environment for airlines, CONTINENTAL AIRLINES INC. benefited
from fewer discounting offers, cheaper fuel pricing and increased traffic.
Continental's performance was also driven by increased passenger load and an
improved mix shift (toward more business passengers). Homebuilding stocks LENNAR
CORP. and CENTEX CORP. did well in the slow-growth, low-inflation economic
environment; however, company-specific developments further abetted these
positions. Lennar appreciated as the market realized the worth of its different
divisions, including its newly spun-off real estate investment and management
business. Centex's announcement of better-than-expected second fiscal quarter
earnings augmented the already positive effects of the market's recognition of
(1) results in the company's cost-cutting efforts in homebuilding operations and
(2) the use of its substantial free cash flow to reduce debt and grow its
business.
Weak performers for the year included T-shirt and underwear manufacturer FRUIT
OF THE LOOM INC. Below-expectation second quarter earnings hurt this position's
performance; however, we believe the stock is presently undervalued and poised
for improvement in 1998. AETNA INC.'S performance suffered after the company was
charged for higher-than-expected commercial HMO and Medicare medical costs.
OUTLOOK: Typically, our holdings are undervalued due to company-specific issues
that are over-discounted in the marketplace, their cyclically out-of-favor
status or their unrecognized positive fundamentals. In a market driven more by
asset allocation and indexing strategies than by fundamental research, our
approach trailed the market. Nevertheless, our research-based investment process
seeks to build a portfolio of stocks that offer long-term value, especially in
the event of a large-cap downturn (as we saw in August, when the Fund
outperformed the S&P 500 Index by 459 basis points). We believe that our value
approach is well suited to weather the ups and downs associated with a turbulent
market and that research-based investments should perform positively over the
long term.
RONALD E. GUTFLEISH G. LEE ANDERSON EILEEN A. APTMAN
Managing Director, Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value U.S. Active Equity Value
LAWRENCE S. SIBLEY
Portfolio Manager,
U.S. Active Equity Value
Protective Growth and Income Fund
February 2, 1998
4
<PAGE>
PROTECTIVE GROWTH AND INCOME FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- --------------------------------------------------------------------------------
The following graph shows a comparison of a hypothetical investment of $10,000
in the Fund (assumes reinvestment of all dividends and distributions) versus the
S&P 500 Index.
[GRAPH]
<TABLE>
<CAPTION>
3/14/94 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Protective Growth and Income Fund 10,000 9,813 12,983 16,465 21,376
S&P 500 Index (with income reinvested) 10,000 10,073 13,857 17,036 22,720
<CAPTION>
TOTAL RETURN(1) SUMMARY
Cumulative Total Average Annual
Year Ended Return through Total Return through
December 31, 1997 December 31, 1997 (a) December 31, 1997 (a)
----------------- --------------------- ---------------------
<S> <C> <C> <C>
Protective Growth and Income Fund 29.84% 113.76% 22.12%
S&P 500 Index (with income reinvested) 33.37% 127.20% 25.55%
</TABLE>
(a) From the commencement of investment operations on March 14, 1994.
<TABLE>
<CAPTION>
TOP 10 PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1997
--------------------------------------------------------
PERCENTAGE
OF NET
COMPANY ASSETS
--------------------------------------------------------
<S> <C>
Quantum Corp. 4.05%
CIGNA Corp. 4.05%
Aetna Inc. 3.73%
Unicom Corp. 3.50%
Lockheed Martin Corp. 3.48%
Tosco Corp. 3.46%
Morgan Stanley, Dean Witter, Discover & Co. 3.44%
Lear Seating Corp. 3.43%
Avnet Inc. 3.20%
Union Carbide Corp. 3.08%
--------------------------------------------------------
</TABLE>
5
<PAGE>
PROTECTIVE CAPITAL GROWTH FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
PERFORMANCE REVIEW AND HOLDINGS: For the 12-month period ended December 31,
1997, the Protective Capital Growth Fund had a total return of 34.57%1 based on
net asset value, outperforming the 33.37% return of the S&P 500 Index, the
Fund's benchmark, during the same period. The Fund ranked number one, based on
total return, among 222 variable annuity capital appreciation funds according to
Lipper Analytical Services. (Please note that past performance is not a
guarantee of future results.)
There were several noteworthy performers over the year. Pharmaceutical companies
PFIZER INC., ELI LILLY & CO. and BRISTOL MYERS SQUIBB CO. turned in strong
performances. Pfizer's stock appreciated in anticipation of new drug launches
and a more visible product pipeline, while Eli Lilly's stock rose in concert
with solid earnings and robust sales growth of several of its products (most
notably Prozac). Bristol-Myers Squibb' stock benefited substantially from a
positive outlook for its diabetes drug Glucophage and, more recently, in
response to the FDA's approval of the company's new heart drug. Top performer
VALASSIS COMMUNICATIONS appreciated meaningfully as growth in the company's free
standing advertising inserts business boosted revenue and earnings growth. An
economic environment in which modest loan demand, low inflation and stable
interest rates prevailed was beneficial for banking positions BANKAMERICA CORP.
and NATIONSBANK CORP. Finally, steady growth in the drugstore business drove
the strong performances of WALGREEN CO., RITE AID CORP. and CVS CORP. This
once-mature business has been reenergized as shifting demographics--a result of
an aging baby boom generation--and the growing influence of third-party payers
(such as HMOs) rewrite the way consumers gain access to prescription drugs.
Disappointing performers included AETNA INC., INTEL CORP. and AVON PRODUCTS INC.
Aetna was hurt by complications resulting from its complex acquisition and
integration of U.S. Healthcare. Intel was adversely affected by
weaker-than-expected chip prices and earnings. Avon Corp. was negatively
impacted by sluggish sales in Southeast Asia and Brazil, but recently announced
a meaningful cost-rationalization program for 1998.
OUTLOOK: The outlook for the economy and the stock market appears favorable,
with low inflation, stable interest rates and modest economic growth expected to
help the Fund's holdings produce favorable earnings gains. We will actively seek
companies that fit our selective "growth at a reasonable price" style and that,
among other characteristics, have strong brand franchises, favorable long-term
prospects and free cash flow and whose stocks are believed to be selling at a
discount to the true value of their business.
<TABLE>
<CAPTION>
<S> <C> <C>
HERBERT E. EHLERS ERNEST C. SEGUNDO SCOTT KOLAR
Managing Director, Portfolio Manager, Portfolio Manager,
U.S. Active Equity Growth U.S. Active Equity Growth U.S. Active Equity Growth
GREGORY H. EKIZIAN ROBERT G. COLLINS DAVID G. SHELL
Portfolio Manager, Portfolio Manager, Portfolio Manager,
U.S. Active Equity Growth U.S. Active Equity Growth U.S. Active Equity Growth
GEORGE D. ADLER
Portfolio Manager,
U.S. Active Equity Growth
</TABLE>
Protective Capital Growth Fund
February 2, 1998
6
<PAGE>
PROTECTIVE CAPITAL GROWTH FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
The following graph shows a comparison of a hypothetical investment of $10,000
in the Fund (assumes reinvestment of all dividends and distributions) versus the
S&P 500 Index.
[GRAPH]
<TABLE>
<CAPTION>
6/13/95 12/31/95 12/31/96 12/31/97
------- -------- -------- --------
<S> <C> <C> <C> <C>
Protective Capital Growth Fund 10,000 10,693 13,051 17,564
S&P 500 Index (with income reinvested) 10,000 11,626 14,293 19,060
<CAPTION>
TOTAL RETURN(1) SUMMARY
Cumulative Total Average Annual
Year Ended Return through Total Return through
December 31, 1997 December 31, 1997 (a) December 31, 1997 (a)
----------------- --------------------- ---------------------
<S> <C> <C> <C>
Protective Capital Growth Fund 34.57% 75.64% 24.70%
S&P 500 Index (with income reinvested) 33.37% 90.60% 28.81%
</TABLE>
(a) From the commencement of investment operations on June 13, 1995.
<TABLE>
<CAPTION>
TOP 10 PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1997
--------------------------------------------------------
PERCENTAGE
OF NET
COMPANY ASSETS
--------------------------------------------------------
<S> <C>
Pfizer Inc. 3.36%
Bristol Myers Squibb Co. 3.21%
General Electric Co. 2.82%
BankAmerica Corp. 2.76%
Banc One Corp. 2.68%
American Home Products Corp. 2.29%
NationsBank Corp. 2.27%
Warner Lambert Co. 2.23%
MBNA Corp. 2.22%
Valassis Communications Inc. 2.09%
--------------------------------------------------------
</TABLE>
7
<PAGE>
PROTECTIVE SMALL CAP EQUITY FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
PERFORMANCE REVIEW AND HOLDINGS: The Protective Small Cap Equity Fund
significantly outperformed its benchmark for the 12-month period ended December
31, 1997, achieving a total return of 32.20%1 based on net asset value, compared
with a return of 22.36% for the Russell 2000, an index that tracks the stock
price performance of small companies.
Small-cap stocks lagged large-caps early in the period, mainly due to the
relatively weak performance of emerging growth small-caps early in the year.
Mid-period, small-caps emerged as market leaders, a circumstance that was
short-lived as investors eventually refocused on the large-cap arena. However,
increasing market volatility--particularly that occurring overseas-- kept small-
and mid-capitalization stocks in the investor consciousness. Unlike large-caps,
smaller capitalization stocks generally have greater exposure to the domestic
economy and more attractive relative valuations, including higher forecasted
earnings and lower price-to-earnings ratios.
Strong performances were generated by a number of companies, including MORTONS
RESTAURANT GROUP INC., which benefited from the strength of its steakhouse
restaurant chain. Healthcare stocks MARINER HEALTH GROUP INC. and SUN HEALTHCARE
GROUP INC., two of the Fund's longest term holdings, posted strong results over
the period as the regulatory environment for healthcare grew friendlier and a
consolidation wave passed through the industry. CARBIDE/GRAPHITE GROUP, INC., a
manufacturer of graphite electrodes and calcium carbide products, had solid
performance in both product lines and has continued to benefit from strong
industry trends. PEGASUS COMMUNICATIONS CORP., a diversified media and
communications company, benefited from its purchase of a number of DirectTV
satellite-TV franchisees.
There were some disappointments during the period. FRIEDMAN'S INC., a specialty
jewelry retailer, saw its stock depreciate due to a decline in net income and
per share earnings. However, the company is expected to benefit in the future as
it intensifies its merchandising initiatives with more exclusive merchandise and
a greater focus on automated replenishment. Although apparel and footwear
retailer J. BAKER INC. began the fiscal year on a positive note, the stock
underperformed toward the end of the period as unseasonably warm weather hurt
cold weather clothing and shoe sales and investors grew weary waiting for the
company's anticipated turnaround.
OUTLOOK: To a significant extent, the performance of small-caps will depend on
investors broadening their focus from the largest, most liquid stocks to
smaller, less widely followed issues. Though small-caps have lagged, this trend
has left many interesting investment opportunities trading at attractive
valuations. In addition, we remain optimistic that the Fund's current holdings
should offer the potential for above-average returns through the compounding of
sustainable internal growth and the advantageous reinvestment of excess cash
flow.
PAUL D. FARRELL MATTHEW B. MCLENNAN TIMOTHY G. EBRIGHT
Portfolio Manager, Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value U.S. Active Equity Growth
Protective Small Cap Equity Fund
February 2, 1998
8
<PAGE>
PROTECTIVE SMALL CAP EQUITY FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
The following graph shows a comparison of a hypothetical investment of $10,000
in the Fund (assumes reinvestment of all dividends and distributions) versus the
Russell 2000.
[GRAPH]
<TABLE>
<CAPTION>
3/14/94 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Protective Small Cap Equity Fund 10,000 9,013 9,596 11,537 15,251
Russell 2000 (with income reinvested) 10,000 9,547 12,263 14,290 17,485
<CAPTION>
TOTAL RETURN(1) SUMMARY
Cumulative Total Average Annual
Year Ended Return through Total Return through
December 31, 1997 December 31, 1997 (a) December 31, 1997 (a)
----------------- --------------------- ---------------------
<S> <C> <C> <C>
Protective Small Cap Equity Fund 32.20% 52.51% 11.74%
Russell 2000 (with income reinvested) 22.36% 74.85% 17.40%
</TABLE>
(a) From the commencement of investment operations on March 14, 1994.
<TABLE>
<CAPTION>
TOP 10 PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1997
--------------------------------------------------------
PERCENTAGE
OF NET
COMPANY ASSETS
--------------------------------------------------------
<S> <C>
Quest Diagnostics Inc. 3.21%
HealthPlan Services Corp. 3.20%
Central Maine Power Co. 2.94%
Friedman's Inc. 2.90%
Movado Group Inc. 2.80%
Integrated Health Services Inc. 2.74%
Groupe AB SA 2.48%
Terra Nova (Bermuda) Holdings Ltd. 2.32%
Hutchison Technology Inc. 2.23%
Syms Corp. 1.97%
--------------------------------------------------------
</TABLE>
9
<PAGE>
PROTECTIVE INTERNATIONAL EQUITY FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
PERFORMANCE REVIEW AND HOLDINGS: The Fund outperformed its benchmark during the
12-month period ending December 31, 1997, achieving a total return of 4.42%1
based on net asset value, compared with a return of -0.22% for the Financial
Times/S&P Actuaries Europe & Pacific Index ("EuroPac") unhedged. EuroPac is a
capitalization-weighted composite of approximately 1,500 stocks from 23
countries in Europe and the Asia-Pacific region and is calculated on a monthly
basis. The Fund's performance versus the EuroPac can primarily be attributed to
successful stock selection across regions.
- - EUROPE. As of December 31, 1997, European stocks constituted 64.5% of the
portfolio, compared to the benchmark's allocation of 66.0%. Several of the
portfolio's holdings did well during the fiscal period. ADIDAS AG (Germany)
gained market share this year in part due to its exposure to the fast-growing
running and football sectors and lack of exposure in basketball, a declining
sector in the U.S. ASM LITHOGRAPHY HOLDINGS (the Netherlands) benefited from
strong demand for its products due to the underlying growth in global
semiconductor demand and the increasing need for complex value-added machines.
MISYS PLC, the U.K.'s leading application software company, recently moved into
a promising new area of activity in the healthcare industry through the $923
million acquisition of Medic in the U.S.
- - JAPAN As of December 31, 1997, 24.9% of the portfolio was invested in Japan,
a slight underweighting when compared with the 26.1% allocation of the
benchmark. Among the portfolio's top five holdings, SMC CORP., a pneumatic
control device manufacturer, turned in strong performance. SMC's management has
implemented a strategy that is focused on expanding its global sales network, a
move that has already contributed to the company's rising market share. TDK
CORP., an electronic components manufacturer, advanced strongly over the
12-month period, in the wake of robust sales resulting from the company's
leading position in a new type of hard-disk drive head. NINTENDO CO. also
contributed to the portfolio's return, rising significantly since it was added
to the portfolio in February. The company has the potential to demonstrate
strong earnings growth over the next few years as new games software for the
company's Nintendo-64 platform is introduced.
- - ASIA-PACIFIC. As of December 31, 1997, the Asia-Pacific region represented
5.6% of the portfolio, an underweighting versus the benchmark weighting of 7.9%.
Several of the portfolio's positions in Australia performed strongly, including
ANZ BANKING. Strong earnings improvement, coupled with a falling interest rate
environment in Australia, led to very positive share price performance for ANZ
Banking. In October, we took a profit in ANZ Banking to invest in WESTPAC
BANKING CORP. LTD., which we believe is attractively valued. In Hong Kong, ASIA
SATELLITE TELECOM HOLDINGS LTD. demonstrated consistently positive relative
performance over the fiscal period, and has been very resilient given that its
revenues are secured by long-term, U.S. dollar-denominated contracts.
OUTLOOK: We believe that Europe's domestic economy is well positioned to
withstand the moderate global shock resulting from Asia's market crisis, as both
monetary and fiscal policy underpin Europe's economic growth. Of all the equity
markets, continental Europe seems to be the least sensitive to events occurring
in Asia. Moreover, European companies with domestic production facilities are
not subject to excessive risk from the Asian downturn. In Japan, we are
reasonably optimistic about the prospects for the equity market. We believe that
the stock market is significantly undervalued relative to interest rates and
compared with many of the conventional valuation measures, such as price-to-book
and price-to-cash flow. There is a possibility that interest rates may edge up
over the next year, but only to the extent that current abnormally low interest
rates are corrected to normal levels. Many Japanese companies will likely be
negatively affected by the slowdown in the Asian economies, although it is still
difficult to measure the actual impact at this stage. However, for many of the
export-oriented companies, including most of the stocks held in the Fund, Asian
countries are used as overseas production sites, not necessarily as markets for
final products. Hence, any negative effects resulting from Asia's crisis would
likely be company-specific rather than a sweeping, all-inclusive problem for
Japanese companies. In Asia, we anticipate further weakness in the markets and
currencies, as investors await the reforms that would attract capital back into
these markets.
IVOR H. FARMAN SHOGO MAEDA WARWICK M. NEGUS
Executive Director, London Managing Director, Tokyo Managing Director,
Singapore
Protective International Equity Fund
February 2, 1998
10
<PAGE>
PROTECTIVE INTERNATIONAL EQUITY FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
The following graph shows a comparison of a hypothetical investment of $10,000
in the Fund (assumes reinvestment of all dividends and distributions) versus the
Financial Times/S&P Actuaries Europe & Pacific Index (Unhedged).
[GRAPH]
<TABLE>
<CAPTION>
4/1/94(b) 12/31/94 12/31/95 12/31/96 12/31/97
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Protective International Equity Fund 10,000 9,793 11,718 13,949 14,565
Financial Times/S&P Actuaries Europe
& Pacific Index (Unhedged) 10,000 10,405 11,512 12,182 12,154
<CAPTION>
TOTAL RETURN(1) SUMMARY
Cumulative Total Average Annual
Year Ended Return through Total Return through
December 31, 1997 December 31, 1997 December 31, 1997
----------------- --------------------- ---------------------
<S> <C> <C> <C>
Protective International Equity Fund 4.42% 42.48%(a) 9.76%(a)
Financial Times/S&P Actuaries Europe
& Pacific Index (Unhedged) (0.22)% 21.54%(b) 4.62%(b)
</TABLE>
(a) From the commencement of investment operations on March 14, 1994.
(b) Performance for the benchmark is not available for the period March
14, 1994 (commencement of investment operations) through March 31,
1994. For that reason, performance is shown from April 1, 1994.
<TABLE>
<CAPTION>
TOP 10 PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1997
--------------------------------------------------------
PERCENTAGE
OF NET
COMPANY COUNTRY ASSETS
<S> <S> <C>
Misys PLC U.K. 4.04%
Rentokil Group PLC U.K. 3.70%
Novartis AG Switzerland 3.70%
Telecomm Italia Italy 3.67%
Bank of Ireland Ireland 3.36%
Dexia France France 3.21%
Aegon N.V. Netherlands 2.69%
SMC Corp. Japan 2.63%
Securitas AB, Class B Sweden 2.60%
Nintendo Co. Japan 2.57%
--------------------------------------------------------
</TABLE>
11
<PAGE>
PROTECTIVE GLOBAL INCOME FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
PERFORMANCE REVIEW AND HOLDINGS: For the 12-month period ended December 31,
1997, the total return of the Protective Global Income Fund was 9.94%(1),
compared with a return of 10.86% for the J.P. Morgan Global Government Bond
Index (hedged into U.S. dollars) (the "benchmark"). The following is a
snapshot of the Fund's positions as of December 31, 1997.
- - U.S. The Fund was underweighted in U.S. Treasuries relative to the
benchmark (30.9% versus 39.7% as of December 31, 1997), which worked in its
favor when Treasuries came under pressure during the first quarter of 1997
amid accelerating growth and a Federal Reserve rate hike. When Treasuries
later rallied, however, the underweighting detracted from the Fund's
performance.
- - OTHER DOLLAR BLOC COUNTRIES. In June, we initiated a position in New
Zealand (7.3% of the portfolio as of December 31, 1997), given our
expectation that economic weakness would push interest rates lower. Later
in the period, when yield spreads between U.S. and New Zealand narrowed,
the allocation contributed to performance. However, the position hurt
performance when, in the last month of the period, New Zealand bonds fared
poorly. The Fund also held an overweighted position in Australian bonds
during the first half of the period, which we then sold at a profit after
that market rallied. Toward the end of the period, we reestablished a
neutral weighting in Australia (0.6% as of December 31, 1997).
- - EUROPE. European bonds were the strongest performers over the period.
-- GERMANY AND FRANCE. Within "core" European markets, weak economic
activity in Germany and France helped support their bond markets during the
first half of the period. During the summer, however, the performance of
these markets began to deteriorate when accelerating growth in Germany
rekindled inflationary fears. In early October, these concerns prompted
the Bundesbank to raise its repo rate (Germany's equivalent of the U.S.
Federal Funds rate), and other "core" markets, such as France, quickly
followed suit. As of the end of the period, the portfolio was overweighted
in Germany (10.8% versus 8.8% for the benchmark) and underweighted in
France (7.4% versus 8.0%).
-- U.K. In January, we increased the Fund's U.K. allocation to an
overweighting when our analysis indicated that the gilt market had become
oversold. When the U.K. market recovered, this strategy significantly
contributed to the Fund's performance. At the end of the period, we shifted
our allocation to this sector back to an underweighting (6.5 % versus 7.1%
for the benchmark), given fears of strong economic growth over the
Christmas season and the potential for ensuing rate hikes.
-- SPAIN AND ITALY. The portfolio benefited from a significant
overweighting in Italy (18.3% versus 5.9% for the benchmark as of December
31, 1997) and a slight overweighting in Spain (5.5% versus 3.2%). Both of
these markets performed extremely well as yield spreads relative to other
European markets narrowed significantly in anticipation of their
participation in European Monetary Union.
- - JAPAN. During the first half of the period, the portfolio was
significantly underweighted in Japan. This strategy detracted from
performance, since JGBs performed well as investors focused on the
fragility of Japan's banking system. When Japan's economy deteriorated
during the latter half of the period, we increased the portfolio's
duration-weighted exposure in the expectation that interest rates would
need to remain at historically low levels in the absence of fiscal
stimulus. However, as of December 31, 1997, we reduced this position, to
2.8%, compared with a 14.1% weighting for the benchmark, as it became
apparent that the Asian market downturn could spread to Japan.
- - CASH EQUIVALENTS. As of December 31, 1997, 8.5% of the portfolio was in
cash equivalents.
OUTLOOK: The outlook for the global bond markets will be heavily dependent
upon the fortunes of the global equity markets. If uncertainty related to
the Asian financial downturn continues to impact equities, we expect bonds
will continue to benefit from investor demand for lower risk assets. We
expect to maintain neutral positions in the U.S. and Japan, as we believe
these markets have already priced in the impact of the Asian market crisis.
Conversely, we will maintain our overweighting in Europe, as we believe
these markets have not yet fully discounted the effects of Asia's crisis.
STEPHEN C. FITZGERALD ANDREW F. WILSON
Executive Director, Portfolio Manager,
Fixed Income Investments Fixed Income Investments
Protective Global Income Fund
London, February 2, 1998
12
<PAGE>
PROTECTIVE GLOBAL INCOME FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
The following graph shows a comparison of a hypothetical investment of $10,000
in the Fund (assumes reinvestment of all dividends and distributions) versus the
J.P. Morgan Global Government Bond Index (hedged to U.S. dollars).
[GRAPH]
<TABLE>
<CAPTION>
4/1/94(b) 12/31/94 12/31/95 12/31/96 12/31/97
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Protective Global Income Fund 10,000 10,014 11,711 12,820 14,093
J.P. Morgan Global Government
Bond Index (Hedged) 10,000 9,911 11,684 12,693 14,071
<CAPTION>
TOTAL RETURN(1) SUMMARY
Cumulative Total Average Annual
Year Ended Return through Total Return through
December 31, 1997 December 31, 1997 December 31, 1997
----------------- --------------------- ---------------------
<S> <C> <C> <C>
Protective Global Income Fund 9.94% 39.71%(a) 9.19%(a)
J.P. Morgan Global Government
Bond Index (Hedged) 10.86% 40.71%(b) 9.25%(b)
</TABLE>
(a) From the commencement of investment operations on March 14, 1994.
(b) Performance for the benchmark is not available for the period March
14, 1994 (commencement of investment operations) through March 31,
1994. For that reason, performance is shown from April 1, 1994.
<TABLE>
<CAPTION>
BOND ALLOCATION AS OF DECEMBER 31, 1997
--------------------------------------------------------
COUNTRY % OF POSITION
--------------------------------------------------------
<S> <C>
U.S. 30.95%
Italy 18.34%
Germany 10.81%
France 7.35%
New Zealand 7.30%
U.K. 6.46%
Spain 5.54%
Japan 2.76%
Sweden 1.36%
Australia 0.59%
--------------------------------------------------------
</TABLE>
13
<PAGE>
PROTECTIVE MONEY MARKET FUND
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
PERFORMANCE REVIEW AND COMPOSITION: As of December 31, 1997, the seven-day
current yield of the Protective Money Market Fund was 5.08%, based on net asset
value. We expect to maintain a weighted average maturity in a range between 20
and 35 days in order to best meet the objectives of the Fund.
OUTLOOK: Given the very low and stable status of all major inflation gauges,
Federal Reserve officials have considerable flexibility to await further
evidence of the damage resulting from events occurring in the Asian market.
Therefore, we anticipate that monetary policy is likely to remain stable in
early 1998, at which time a better assessment of the Asian problems and their
impact on the U.S. economy should be possible.
ELIZABETH D. ANDERSON
Portfolio Manager, Money Market Investments
Protective Money Market Fund
February 2, 1998
- --------------------
OPINIONS EXPRESSED REPRESENT OUR PRESENT OPINIONS ONLY. REFERENCE TO INDIVIDUAL
SECURITIES IN THIS REPORT SHOULD NOT BE CONSTRUED AS A COMMITMENT THAT SUCH
SECURITIES WILL BE RETAINED IN THE FUND. FROM TIME TO TIME, THE FUND MAY CHANGE
THE INDIVIDUAL SECURITIES IT HOLDS, THE NUMBER OR TYPES OF SECURITIES HELD AND
THE MARKETS IN WHICH IT INVESTS. REFERENCES TO INDIVIDUAL SECURITIES DO NOT
CONSTITUTE A RECOMMENDATION TO THE INVESTOR TO BUY, HOLD OR SELL SUCH
SECURITIES. IN ADDITION, REFERENCES TO PAST PERFORMANCE OF THE FUND DO NOT
INDICATE FUTURE RETURNS, WHICH ARE NOT GUARANTEED AND WILL VARY. FURTHERMORE,
THE VALUE OF SHARES OF THE FUND MAY FALL AS WELL AS RISE.
(1) Total return is calculated assuming a purchase of shares at net asset value
per share on the last day of the prior 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 record 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 contract. If the performance information included the
effect of these charges or had Protective Life Insurance Company not reimbursed
certain Fund expenses, performance numbers would be lower.
14
<PAGE>
<TABLE>
<CAPTION>
PROTECTIVE GLOBAL INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (000) U.S. $ VALUE
-------------------- ----- ------------
<S> <C> <C> <C>
GOVERNMENT AND AGENCY SECURITIES--91.5%
AUSTRALIA--0.6%
Commonwealth of Australia
6.750%, 11/15/2006 . . . . AUD 400 $ 273,977
------------
FRANCE--7.4%
Government of France
4.750%, 03/12/2002 . . . . FRF 8,000 1,336,280
5.500%, 10/25/2007 . . . . FRF 12,500 2,102,268
------------
3,438,548
------------
GERMANY--10.8%
Bayerische Landesbank Girozent
6.625%, 06/25/2007 . . . . DEM 1,800 1,852,344
Federal Republic of Germany
6.250%, 01/04/2024 . . . . DEM 4,500 2,628,283
LB Rheinland--Pfalz Giro
5.750%, 10/16/2003 . . . . DEM 1,000 571,278
------------
5,051,905
------------
ITALY--18.3%
Republic of Italy
9.500%, 05/01/2001 . . . . ITL 12,200,000 7,837,931
5.125%, 07/29/2003 . . . . JPY 80,000 730,259
------------
8,568,190
------------
JAPAN--2.8%
Asian Development Bank
5.625%, 02/18/2002 . . . . JPY 100,000 901,815
European Investment Bank
2.125%, 09/20/2007 . . . . JPY 50,000 389,102
------------
1,290,917
------------
NEW ZEALAND--7.3%
Government of New Zealand
8.000%, 02/15/2001 . . . . NZD 1,500 884,667
International Bank Reconstruction
& Development
7.000%, 09/18/2000 . . . . NZD 1,700 965,512
6.625%, 08/21/2006 . . . . USD 1,500 1,561,800
------------
3,411,979
------------
SPAIN--5.5%
Government of Spain
10.300%, 06/15/2002 . . . . ESP 200,000 1,582,343
3.100%, 09/20/2006 . . . . ESP 120,000 1,007,506
------------
2,589,849
------------
SWEDEN--1.4%
Kingdom of Sweden
6.000%, 02/09/2005 . . . . SEK 4,000 507,422
6.500%, 10/25/2006 . . . . SEK 1,000 130,329
------------
637,751
------------
UNITED KINGDOM--6.5%
U.K. Treasury
8.500%, 07/16/2007 . . . . GBP 1,600 3,016,450
------------
UNITED STATES--30.9%
Federal National Mortgage Assn.
7.000%, 09/26/2000 . . . . NZD 1,700 962,032
2.125%, 10/09/2007 . . . . JPY 170,000 1,324,248
United States Treasury Notes
6.500%, 08/15/2005 . . . . USD 1,100 1,147,784
7.000%, 07/15/2006 . . . . USD 4,200 4,533,354
6.500%, 10/15/2006 . . . . USD 6,200 6,491,586
------------
14,459,004
------------
TOTAL GOVERNMENT AND
AGENCY SECURITIES--
(Cost $42,990,540) 42,738,570
------------
SHORT TERM INVESTMENT--8.5%
TIME DEPOSIT--8.5%
State Street Bank and Trust Co.
Eurodollar Time Deposit
6.500%, 01/02/1998 . . . . USD 3,981 3,981,000
------------
TOTAL SHORT TERM
INVESTMENT--(Cost $3,981,000) 3,981,000
------------
TOTAL INVESTMENTS--100.0%
(Cost $46,971,540). . . . . $ 46,719,570
------------
------------
</TABLE>
See Glossary of Terms on page 46.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
<PAGE>
<TABLE>
<CAPTION>
PROTECTIVE INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES U.S. $ VALUE
-------------------- ------ ------------
<S> <C> <C>
COMMON STOCK--92.5%
AUSTRALIA--3.3%
Telstra Corp. * . . . . . . . . 308,900 $ 652,295
Westpac Banking Corp. Ltd. . . . 204,633 1,309,155
Woodside Petroleum Ltd. . . . . 144,300 1,017,594
Woolworths Ltd. . . . . . . . . 394,401 1,318,671
------------
4,297,715
------------
FRANCE--6.4%
Comptoirs Modernes . . . . . . . 4,125 2,110,991
Dexia France . . . . . . . . . . 36,525 4,229,946
SGS-Thomson
Microelectronics N.V. * . . 32,935 2,038,429
------------
8,379,366
------------
GERMANY--4.7%
Adidas AG . . . . . . . . . . . 24,755 3,255,806
Hoechst AG . . . . . . . . . . . 84,875 2,972,359
------------
6,228,165
------------
HONG KONG--1.7%
Asia Satellite Telecom
Holdings Ltd. . . . . . . . 478,500 818,186
Dao Heng Bank Group Ltd. . . . . 310,000 774,100
Sun Hung Kai Properties . . . . 97,000 675,958
------------
2,268,244
------------
IRELAND--3.4%
Bank of Ireland . . . . . . . . 287,794 4,432,052
------------
ITALY--5.6%
ENI SPA . . . . . . . . . . . . 454,615 2,577,608
Telecom Italia . . . . . . . . . 624,000 2,880,136
Telecom Italia (savings shares) 690,000 1,961,956
------------
7,419,700
------------
JAPAN--24.9%
Aderans Co. . . . . . . . . . . 43,000 1,037,375
Autobacs Seven Co. . . . . . . . 20,400 585,893
Canon Inc. . . . . . . . . . . . 137,000 3,189,706
Circle K Japan Co. . . . . . . . 40 1,915
Hoya Corp. . . . . . . . . . . . 59,000 1,852,646
Inaba Denkisangyo Co. . . . . . 45,100 376,495
Itoen Ltd. . . . . . . . . . . . 64,300 1,698,974
Kokuyo Co. . . . . . . . . . . . 66,000 1,137,321
Kyocera Corp. . . . . . . . . . 34,400 1,559,684
Max Co. . . . . . . . . . . . . 69,000 453,940
Mirai Industry Co. . . . . . . . 43,010 477,633
Mitsubishi Heavy Industries Ltd. 457,000 1,904,021
JAPAN (CONTINUED)
Mitsui Marine & Fire . . . . . . 479,000 2,443,241
Nintendo Co. . . . . . . . . . . 34,600 3,391,897
Ono Pharmaceutical Co. . . . . . 57,000 1,104,465
Sankyo Co. Ltd. . . . . . . . . 86,000 1,943,019
Santen Pharmaceutical Co. . . . 70,600 811,059
Sanyo Shinpan Finance Co. Ltd. . 25,200 1,113,610
Shimachu Co. . . . . . . . . . . 60,000 942,023
SMC Corp. . . . . . . . . . . . 39,400 3,470,169
Taikisha Ltd. . . . . . . . . . 69,500 691,966
TDK Corp. . . . . . . . . . . . 35,000 2,637,665
York Benimaru Co. . . . . . . . 4,000 48,097
------------
32,872,814
------------
THE NETHERLANDS--8.2%
Aegon N.V. . . . . . . . . . . . 39,900 3,551,871
ASM Lithography Holding . . . . 28,995 1,901,874
Verenigde Nederlandse
Uitgeversbedrijven
Verenigd Bezit . . . . . . 93,435 2,635,801
Wolters Kluwer N.V. . . . . . . 21,523 2,780,003
------------
10,869,549
------------
PORTUGAL--1.9%
Electricidade de Portugal SA * . 133,300 2,524,045
------------
SINGAPORE--0.5%
Parkway Holdings Ltd. . . . . . 296,000 667,339
------------
SPAIN--2.5%
Banco Popular Espana . . . . . . 47,275 3,304,750
------------
SWEDEN--8.8%
Ericsson LM Telephone . . . . . 64,470 2,423,745
Securitas AB, Class B . . . . . 113,605 3,433,948
Sparbanken Sverige AB, Class A . 139,690 3,175,612
Swedish Match . . . . . . . . . 767,715 2,562,305
------------
11,595,610
------------
SWITZERLAND--6.5%
Adecco SA . . . . . . . . . . . 8,392 2,432,256
Cie Financier Richemont AG . . . 1,175 1,278,572
Novartis AG . . . . . . . . . . 3,010 4,882,083
------------
8,592,911
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
<PAGE>
<TABLE>
<CAPTION>
PROTECTIVE INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES U.S. $ VALUE
-------------------- ------ ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
UNITED KINGDOM--14.1%
Electrocomponents PLC . . . . . 405,687 $ 3,018,524
Misys PLC . . . . . . . . . . . 176,342 5,329,408
Premier Farnell . . . . . . . . 304,187 2,188,367
Rentokil Group PLC . . . . . . . 1,101,480 4,874,474
Siebe PLC . . . . . . . . . . . 162,490 3,189,334
------------
18,600,107
------------
TOTAL COMMON STOCK--
(Cost $110,644,902) . . . . 122,052,367
------------
PREFERRED STOCK--2.5%
AUSTRALIA--0.1%
Village Roadshow Ltd., Class A . 85,793 176,469
------------
GERMANY--2.4%
Fresenius AG . . . . . . . . . . 17,163 3,157,927
------------
TOTAL PREFERRED STOCK--
(Cost $2,084,219) . . . . . 3,334,396
------------
<CAPTION>
PRINCIPAL
AMOUNT
(000)
-----
<S> <C> <C> <C>
SHORT TERM INVESTMENT--5.0%
TIME DEPOSIT--5.0%
State Street Bank and Trust Co.
Eurodollar Time Deposit
6.500%, 01/02/1998 . . . . USD 6,568 6,568,000
------------
TOTAL SHORT TERM INVESTMENT--
(Cost $6,568,000) . . . . . 6,568,000
------------
TOTAL INVESTMENTS--100.0%
(Cost $119,297,121) . . . . $131,954,763
------------
------------
<CAPTION>
ANALYSIS OF INDUSTRY CLASSIFICATIONS
------------------------------------
INDUSTRY % OF INVESTMENTS VALUE
- -------- ---------------- -----
<S> <C> <C>
Auto Components 0.4 % $ 585,893
Business Services 12.2 16,070,086
Commercial Banks 9.9 12,995,669
Computer/Office Equipment 5.1 6,750,772
Conglomerates 0.5 667,339
Consumer Goods 3.0 3,916,237
Electrical Equipment 2.6 3,455,618
Electronics 9.8 12,936,019
Engineering 3.9 5,093,355
Entertainment/Leisure/Toy 2.7 3,568,366
Financial Services 5.5 7,286,575
Food/Wholesale 2.3 3,017,645
Health Care 9.8 12,927,893
Insurance 4.5 5,995,112
Machinery 3.2 4,162,135
Media 4.1 5,415,804
Oil 2.7 3,595,202
Real Estate 0.5 675,958
Retail Trade 3.1 4,140,401
Textile 2.5 3,255,806
Time Deposit 5.0 6,568,000
Tobacco 1.9 2,562,305
Utility 4.8 6,312,573
------ --------------
Totals 100.0 $ 131,954,763
------ --------------
------ --------------
</TABLE>
* Denotes non-income producing security.
See Glossary of Terms on page 46.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
<PAGE>
<TABLE>
<CAPTION>
PROTECTIVE CAPITAL GROWTH FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCK--92.4%
AEROSPACE/DEFENSE--1.1%
Boeing Co. . . . . . . . . . . . . 17,400 $ 851,512
--------------
ALUMINUM--0.4%
Aluminum Co. of America . . . . . 4,100 288,538
--------------
AUTO PARTS--0.5%
Lear Seating Corp. * . . . . . . . 8,400 399,000
--------------
BANKS--8.7%
Banc One Corp. . . . . . . . . . . 36,979 2,008,422
BankAmerica Corp. . . . . . . . . 28,400 2,073,200
Citicorp . . . . . . . . . . . . . 2,800 354,025
First Union Corp. . . . . . . . . 14,300 732,875
NationsBank Corp. . . . . . . . . 28,000 1,702,750
--------------
6,871,272
--------------
BEVERAGES--2.9%
Anheuser Busch Cos. Inc. . . . . . 10,000 440,000
Coca Cola Co. . . . . . . . . . . 14,400 959,400
PepsiCo Inc. . . . . . . . . . . . 24,100 878,144
--------------
2,277,544
--------------
BROADCAST MEDIA--1.0%
Cablevision Systems Corp. * . . . 3,800 363,850
HBO & Co. . . . . . . . . . . . . 9,200 441,600
--------------
805,450
--------------
BUILDING MATERIALS--0.6%
Home Depot Inc. . . . . . . . . . 7,350 432,731
--------------
BUSINESS SERVICES--4.9%
Ecolab Inc. . . . . . . . . . . . 13,500 748,406
Envoy Corp. * . . . . . . . . . . 11,500 334,938
First Data Corp. . . . . . . . . . 40,900 1,196,325
Galileo International Inc.*. . . . 16,700 461,337
Service Corporation International 29,700 1,097,044
--------------
3,838,050
--------------
CHEMICALS--2.2%
BetzDearborn Inc. . . . . . . . . 9,600 586,200
E I Du Pont De Nemours & Co. . . . 5,900 354,369
Monsanto Co. . . . . . . . . . . . 8,200 344,400
Sherwin-Williams Co. . . . . . . . 5,100 141,525
Sigma-Aldrich Corp. . . . . . . . 8,100 321,975
--------------
1,748,469
--------------
COMPUTER SOFTWARE & SERVICES--3.6%
Cisco Systems Inc. * . . . . . . . 6,000 334,500
International Business
Machines Inc. . . . . . . . . 4,600 480,987
COMPUTER SOFTWARE &
SERVICES (CONTINUED)
Microsoft Corp. * . . . . . . . . 10,300 1,331,275
Peoplesoft Inc. * . . . . . . . . 7,400 288,600
Sterling Commerce Inc. * . . . . . 9,300 357,469
--------------
2,792,831
--------------
COSMETICS--2.2%
Avon Products Inc. . . . . . . . . 11,500 705,812
Gillette Co. . . . . . . . . . . . 10,100 1,014,419
--------------
1,720,231
--------------
DIVERSIFIED MANUFACTURING--2.7%
General Electric Co. . . . . . . . 28,800 2,113,200
--------------
DIVERSIFIED OPERATIONS--0.6%
American Standard Cos. Inc. * . . 9,000 344,813
Norfolk Southern Corp. . . . . . . 4,500 138,656
--------------
483,469
--------------
DRUGS & HEALTH CARE--14.4%
American Home Products Corp. . . . 22,500 1,721,250
Bristol Myers Squibb Co. . . . . . 25,480 2,411,045
Eli Lilly & Co. . . . . . . . . . 12,600 877,275
Johnson & Johnson Co. . . . . . . 19,700 1,297,738
Pfizer Inc. . . . . . . . . . . . 33,800 2,520,212
Schering-Plough Corp. . . . . . . 13,800 857,325
Warner Lambert Co. . . . . . . . . 13,500 1,674,000
--------------
11,358,845
--------------
ELECTRIC UTILITIES--0.7%
AES Corp. * . . . . . . . . . . . 12,300 573,488
--------------
ELECTRONICS/ELECTRICAL
EQUIPMENT--1.4%
Hewlett Packard Co. . . . . . . . 4,700 293,750
Intel Corp. . . . . . . . . . . . 11,600 814,900
--------------
1,108,650
--------------
ENTERTAINMENT--0.9%
Walt Disney Co. . . . . . . . . . 7,500 742,969
--------------
FINANCIAL SERVICES--6.9%
Federal Home Loan Mortgage Corp. . 26,900 1,128,119
Federal National Mortgage Assn. . 20,700 1,181,194
H&R Block Inc. . . . . . . . . . . 12,600 564,637
MBNA Corp. . . . . . . . . . . . . 61,100 1,668,794
State Street Corp. . . . . . . . . 14,200 826,262
The CIT Group, Inc. * . . . . . . 2,700 87,075
--------------
5,456,081
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
<PAGE>
PROTECTIVE CAPITAL GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
COMMON STOCK (CONTINUED)
FOODS--3.0%
Nabisco Holdings Corp. Class A . . 11,000 $ 532,812
Ralston Purina Group . . . . . . . 11,600 1,078,075
Wrigley (WM) Jr. Co. . . . . . . . 9,740 774,939
--------------
2,385,826
--------------
HOUSEHOLD PRODUCTS--3.8%
Amway Asia Pacific Ltd. . . . . . 5,200 101,400
Clorox Co. . . . . . . . . . . . . 5,500 434,844
Colgate-Palmolive Co. . . . . . . 11,900 874,650
Procter & Gamble Co. . . . . . . . 19,300 1,540,381
--------------
2,951,275
--------------
INSURANCE--3.9%
Aetna Inc. . . . . . . . . . . . . 11,573 816,620
American International Group Inc.. 5,400 587,250
Hartford Life Inc. . . . . . . . . 9,100 412,344
Nationwide Financial Services Inc. 12,400 447,950
SunAmerica Inc. . . . . . . . . . 18,900 807,975
--------------
3,072,139
--------------
MANUFACTURING--1.5%
Hasbro Inc. . . . . . . . . . . . 20,100 633,150
Minnesota Mining &
Manufacturing Co. . . . . . . 6,200 508,787
--------------
1,141,937
--------------
MULTIMEDIA--2.7%
Gannett Inc. . . . . . . . . . . . 13,000 803,562
Time Warner Inc. . . . . . . . . . 14,500 899,000
Tribune Co. . . . . . . . . . . . 6,800 423,300
--------------
2,125,862
--------------
OFFICE EQUIPMENT & SUPPLIES--0.3%
Xerox Corp. . . . . . . . . . . . 3,100 228,819
--------------
OIL--4.0%
Atlantic Richfield Co. . . . . . . 3,900 312,488
Exxon Corp. . . . . . . . . . . . 10,500 642,469
Mobil Corp. . . . . . . . . . . . 7,900 570,281
Schlumberger Ltd. . . . . . . . . 6,100 491,050
Texaco Inc. . . . . . . . . . . . 14,700 799,312
Unocal Corp. . . . . . . . . . . . 8,000 310,500
--------------
3,126,100
--------------
PAPER AND FOREST PRODUCTS--0.5%
Georgia Pacific Corp. . . . . . . 5,170 314,078
Georgia Pacific Corp. (Timber) * . 5,170 117,294
--------------
431,372
--------------
PUBLISHING--2.0%
Valassis Communications Inc. * . . 42,300 1,565,100
--------------
PUBLISHING--NEWSPAPERS--1.1%
New York Times Co. . . . . . . . . 13,100 866,237
--------------
RESTAURANTS--1.0%
Marriot International Inc. . . . . 11,400 789,450
--------------
RETAIL--5.4%
CVS Corp. . . . . . . . . . . . . 6,400 410,000
Federated Dept. Stores Inc. * . . 7,900 340,194
Rite Aid Corp. . . . . . . . . . . 7,800 457,763
Tandy Corp. . . . . . . . . . . . 24,600 948,637
Toys "R" Us Inc. * . . . . . . . . 10,400 326,950
Wal-Mart Stores Inc. . . . . . . . 20,300 800,581
Walgreen Co. . . . . . . . . . . . 30,600 960,075
--------------
4,244,200
--------------
TELECOMMUNICATIONS--3.3%
Lucent Technologies Inc. . . . . . 11,400 910,575
Tele-Communications Inc.
Liberty Media Unit, Series A * 29,900 1,083,875
Tele-Communications Inc.
TCI Unit, Series A * . . . . 20,735 579,284
Tele-Communications Inc.
TCI Ventures Group, Series A * 1 20
--------------
2,573,754
--------------
TIRES & RUBBER--0.4%
Goodyear Tire & Rubber Co. . . . . 4,400 279,950
--------------
TOBACCO--3.8%
Philip Morris Cos. Inc. . . . . . 30,900 1,400,156
RJR Nabisco Holdings Corp. . . . . 19,100 716,250
UST Inc. . . . . . . . . . . . . . 22,900 845,869
--------------
2,962,275
--------------
TOTAL COMMON STOCK--
(Cost $59,597,992) . . . . . 72,606,626
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
19
<PAGE>
PROTECTIVE CAPITAL GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
DEPOSITORY RECEIPTS--0.9%
PUBLISHING--0.9%
Reuters Holdings PLC . . . . . . . 10,690 $ 708,213
--------------
TOTAL DEPOSITORY RECEIPTS--
(Cost $715,755) . . . . . . . 708,213
--------------
PRINCIPAL
AMOUNT
(000)
SHORT TERM INVESTMENT--6.7%
REPURCHASE AGREEMENT--6.7%
State Street Bank and Trust Co.
5.750%, 01/02/1998, maturity value
of $5,302,693, dated 12/31/1997,
(Collateralized by $5,350,000 United
States Treasury Note, 5.875%,
04/30/1998, with a value
of $5,408,818) . . . . . . . $ 5,301 5,301,000
--------------
TOTAL SHORT TERM INVESTMENT--
(Cost $5,301,000) . . . . . . 5,301,000
--------------
TOTAL INVESTMENTS--100.0%
(Cost $65,614,747). . . . . . $ 78,615,839
--------------
</TABLE>
* Denotes non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
20
<PAGE>
<TABLE>
<CAPTION>
PROTECTIVE GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCK--94.7%
AEROSPACE/DEFENSE--5.3%
Boeing Co. . . . . . . . . . . . . 133,840 $ 6,549,795
Lockheed Martin Corp. . . . . . . 125,800 12,391,300
--------------
18,941,095
--------------
AGRICULTURE--0.9%
IMC Global Inc. . . . . . . . . . 102,400 3,353,600
--------------
AIRLINES--4.3%
AMR Corp. * . . . . . . . . . . . 60,400 7,761,400
Continental Airlines Inc., Class B * 160,000 7,700,000
--------------
15,461,400
--------------
AUTO PARTS--3.4%
Lear Seating Corp. * . . . . . . . 257,800 12,245,500
--------------
AUTOMOBILE--3.0%
Ford Motor Co. . . . . . . . . . . 222,500 10,832,969
--------------
BANKS--4.9%
Chase Manhattan Corp. . . . . . . 82,200 9,000,900
Wells Fargo & Co. . . . . . . . . 25,100 8,519,881
--------------
17,520,781
--------------
CHEMICALS--3.1%
Union Carbide Corp. . . . . . . . 255,700 10,979,119
--------------
COMPUTER HARDWARE--4.0%
Quantum Corp. * . . . . . . . . . 720,400 14,453,025
--------------
DRUGS & HEALTH CARE--4.2%
Foundation Health Systems Inc. * . 213,100 4,768,112
Tenet Healthcare Corp. * . . . . . 316,400 10,480,750
--------------
15,248,862
--------------
ELECTRIC UTILITIES--4.6%
Northeast Utilities . . . . . . . 357,400 4,221,787
Unicom Corp. . . . . . . . . . . . 405,200 12,459,900
--------------
16,681,687
--------------
ELECTRONICS--3.2%
Avnet Inc. . . . . . . . . . . . . 173,000 11,418,000
--------------
FINANCIAL SERVICES--8.3%
Morgan Stanley, Dean Witter,
Discover & Co. . . . . . . . 207,700 12,280,262
Fleet Financial Group Inc. . . . . 137,300 10,288,919
Republic New York Corp. . . . . . 63,500 7,250,906
--------------
29,820,087
--------------
HOMEBUILDING--2.5%
Centex Corp. . . . . . . . . . . . 71,400 4,493,738
Lennar Corp. . . . . . . . . . . . 217,000 4,679,062
--------------
9,172,800
--------------
HOUSEWARES--2.6%
Sunbeam Corp. . . . . . . . . . . 226,200 9,528,675
--------------
INSURANCE--11.0%
Aetna Inc. . . . . . . . . . . . . 188,500 13,301,031
CIGNA Corp. . . . . . . . . . . . 83,400 14,433,413
CNA Financial Corp. * . . . . . . 6,100 779,275
Loews Corp. . . . . . . . . . . . 78,000 8,277,750
USF&G Corp. . . . . . . . . . . . 131,600 2,903,425
--------------
39,694,894
--------------
LEISURE TIME--1.1%
Circus Circus Enterprises * . . . 186,200 3,817,100
--------------
NETWORKING PRODUCTS--2.2%
Bay Networks Inc. * . . . . . . . 304,800 7,791,450
--------------
OIL--1.2%
Texaco Inc. . . . . . . . . . . . 81,200 4,415,250
--------------
PAPER AND FOREST PRODUCTS--4.1%
Georgia Pacific Corp. . . . . . . 133,600 8,116,200
Georgia Pacific Corp. (Timber) * . 108,800 2,468,400
Stone Container Corp. *. . . . . . 394,100 4,113,419
--------------
14,698,019
--------------
PETROLEUM SERVICES--3.4%
Tosco Corp. . . . . . . . . . . . 326,500 12,345,781
--------------
REAL ESTATE--1.5%
LNR Property Corp. . . . . . . . . 228,900 5,407,763
--------------
RETAIL--3.8%
Fleming Cos. Inc. . . . . . . . . 299,600 4,025,875
Sears Roebuck & Co. . . . . . . . 48,200 2,181,050
Supervalu Inc. . . . . . . . . . . 179,100 7,499,812
--------------
13,706,737
--------------
STEEL--3.0%
AK Steel Holding Corp. . . . . . . 329,400 5,826,262
Ispat International N.V. * . . . . 230,900 4,993,213
--------------
10,819,475
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
21
<PAGE>
PROTECTIVE GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
COMMON STOCK (CONTINUED)
TEXTILE--2.8%
Fruit of the Loom Inc. * . . . . . 398,800 $ 10,219,250
--------------
TIRES & RUBBER--2.4%
Goodyear Tire & Rubber Co. . . . . 136,000 8,653,000
--------------
TOBACCO--2.4%
RJR Nabisco Holdings Corp. . . . . 120,700 4,526,250
UST Inc. . . . . . . . . . . . . . 111,400 4,114,838
--------------
8,641,088
--------------
TRANSPORTATION--1.5%
CNF Transportation Inc. . . . . . 138,900 5,330,288
--------------
TOTAL COMMON STOCK--
(Cost $293,391,622) . . . . . 341,197,695
--------------
PREFERRED STOCK--0.1%
LEISURE TIME--0.1%
Royal Caribbean Cruises Ltd.,
Class A . . . . . . . . . . . 6,000 510,375
--------------
TOTAL PREFERRED STOCK--
(Cost $300,000) . . . . . . . 510,375
--------------
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (000) VALUE
-------------------- ----- -----
<S> <C> <C>
SHORT TERM INVESTMENT--5.2%
REPURCHASE AGREEMENT--5.2%
State Street Bank and Trust Co.
5.750%, 01/02/1998, maturity value
of $18,694,970, dated 12/31/1997,
(Collateralized by $18,860,000 United
States Treasury Note, 5.875%,
04/30/1998, with a value
of $19,067,347) . . . . . . . $ 18,689 $ 18,689,000
--------------
TOTAL SHORT TERM INVESTMENT--
(Cost $18,689,000) . . . . . 18,689,000
--------------
TOTAL INVESTMENTS--100.0%
(Cost $312,380,622) . . . . . $ 360,397,070
--------------
</TABLE>
* Denotes non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
<PAGE>
<TABLE>
<CAPTION>
PROTECTIVE CORE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCK--94.5%
AEROSPACE/DEFENSE--1.6%
General Motors Corp.--Class H. . . 23,300 $ 860,644
Raytheon Co., Class A . . . . . . 16,669 821,973
United Technologies Corp. . . . . 16,900 1,230,531
--------------
2,913,148
--------------
AGRICULTURE--0.3%
IMC Global Inc. . . . . . . . . . 14,800 484,700
--------------
AIRLINES--1.3%
AMR Corp. * . . . . . . . . . . . 9,000 1,156,500
Delta Air Lines Inc. . . . . . . . 9,900 1,178,100
--------------
2,334,600
--------------
AUTO PARTS--0.4%
Cummins Engine Inc. . . . . . . . 10,900 643,781
--------------
AUTOMOBILE--3.7%
Ford Motor Co. . . . . . . . . . . 66,100 3,218,244
General Motors Corp. . . . . . . . 55,900 3,388,937
--------------
6,607,181
--------------
BANKS--8.2%
BankAmerica Corp. . . . . . . . . 28,800 2,102,400
Barnett Banks, Inc. . . . . . . . 23,800 1,710,625
Chase Manhattan Corp. . . . . . . 15,900 1,741,050
Citicorp . . . . . . . . . . . . . 9,100 1,150,581
First Chicago NBD Corp. . . . . . 11,000 918,500
First Union Corp. . . . . . . . . 38,400 1,968,000
H. F. Ahmanson & Co. . . . . . . . 26,100 1,747,069
NationsBank Corp. . . . . . . . . 30,800 1,873,025
U.S. Bancorp . . . . . . . . . . . 11,600 1,298,475
--------------
14,509,725
--------------
BEVERAGES--2.3%
Coca Cola Co. . . . . . . . . . . 39,800 2,651,675
PepsiCo Inc. . . . . . . . . . . . 39,000 1,421,063
--------------
4,072,738
--------------
BUILDING MATERIALS--0.3%
USG Corp. * . . . . . . . . . . . 11,200 548,800
--------------
BUSINESS SERVICES--0.9%
Automatic Data Processing Inc. . . 14,900 914,488
Interim Services Inc. * . . . . . 26,200 677,925
--------------
1,592,413
--------------
CHEMICALS--1.8%
Dow Chemical Co. . . . . . . . . . 16,000 1,624,000
E I Du Pont De Nemours & Co. . . . 25,600 1,537,600
--------------
3,161,600
--------------
COMMERCIAL SERVICES--1.1%
Dun & Bradstreet Corp. . . . . . . 63,500 1,964,531
--------------
COMPUTER HARDWARE/SOFTWARE
& SERVICES--4.0%
Compaq Computer Corp. . . . . . . 19,300 1,089,244
International Business
Machines Inc. . . . . . . . . 22,200 2,321,287
Microsoft Corp. * . . . . . . . . 20,300 2,623,775
Silicon Graphics Inc. * . . . . . 6,700 83,331
Sun Microsystems Inc. * . . . . . 25,000 996,875
--------------
7,114,512
--------------
CONGLOMERATES--0.5%
Textron Inc. . . . . . . . . . . . 12,600 787,500
--------------
COSMETICS--0.8%
Gillette Co. . . . . . . . . . . . 13,300 1,335,819
--------------
DIVERSIFIED OPERATIONS--0.1%
ACX Technologies, Inc. * . . . . . 9,000 219,938
--------------
DRUGS & HEALTH CARE--9.3%
Abbott Laboratories . . . . . . . 23,600 1,547,275
American Home Products Corp. . . . 13,100 1,002,150
Bristol Myers Squibb Co. . . . . . 28,200 2,668,425
Cardinal Health Inc. . . . . . . . 18,700 1,404,837
Eli Lilly & Co. . . . . . . . . . 16,800 1,169,700
Forest Labs Inc. * . . . . . . . . 2,800 138,075
Johnson & Johnson Co. . . . . . . 23,400 1,541,475
Merck & Co. Inc. . . . . . . . . . 23,200 2,465,000
Pfizer Inc. . . . . . . . . . . . 23,600 1,759,675
Schering-Plough Corp. . . . . . . 24,600 1,528,275
Tenet Healthcare Corp. * . . . . . 37,400 1,238,875
--------------
16,463,762
--------------
ELECTRIC UTILITIES--3.3%
Cinergy Corp. . . . . . . . . . . 31,800 1,218,337
Dominion Resources Inc. . . . . . 34,800 1,481,175
Duke Energy Corp. . . . . . . . . 17,000 941,375
Edison International . . . . . . . 43,000 1,169,063
Texas Utilities Co. . . . . . . . 23,100 960,094
--------------
5,770,044
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
23
<PAGE>
PROTECTIVE CORE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
COMMON STOCK (CONTINUED)
ELECTRONICS--6.6%
General Electric Co. . . . . . . . 90,600 $ 6,647,775
Hewlett Packard Co. . . . . . . . 14,700 918,750
Intel Corp. . . . . . . . . . . . 28,800 2,023,200
National Semiconductor Corp. * . . 43,900 1,138,656
Texas Instruments Inc. . . . . . . 22,200 999,000
--------------
11,727,381
--------------
ENTERTAINMENT--0.9%
Walt Disney Co. . . . . . . . . . 15,681 1,553,399
--------------
FINANCIAL SERVICES--4.8%
A.G. Edwards Inc. . . . . . . . . 20,900 830,775
Federal National Mortgage Assn. . 26,700 1,523,569
Lehman Brothers Holdings, Inc. . . 22,800 1,162,800
Merrill Lynch & Co. Inc. . . . . . 38,100 2,778,919
Morgan Stanley, Dean Witter,
Discover & Co. . . . . . . . 38,100 2,252,662
--------------
8,548,725
--------------
FOODS--3.4%
Archer Daniels Midland Co. . . . . 99,500 2,157,906
Campbell Soup Co. . . . . . . . . 25,900 1,505,437
ConAgra Inc. . . . . . . . . . . . 20,800 682,500
IBP Inc. . . . . . . . . . . . . . 3,000 62,813
Interstate Bakeries Corp. . . . . 20,800 777,400
Sara Lee Corp. . . . . . . . . . . 15,800 889,738
--------------
6,075,794
--------------
HEALTH CARE--0.6%
Wellpoint Health Networks Inc. * . 24,600 1,039,350
--------------
HOUSEHOLD PRODUCTS--1.5%
Alberto-Culver Co. . . . . . . . . 16,700 535,444
Procter & Gamble Co. . . . . . . . 26,800 2,138,975
--------------
2,674,419
--------------
HOUSEWARES--0.5%
Sunbeam Corp. . . . . . . . . . . 22,600 952,025
--------------
INSURANCE--5.4%
Aegon N.V. . . . . . . . . . . . . 18,159 1,627,500
Allstate Corp. . . . . . . . . . . 12,405 1,127,304
American International Group Inc.. 28,950 3,148,313
Everest Reinsurance Holdings Inc. 29,000 1,196,250
Hartford Financial Services Group Inc. 14,400 1,347,300
Travelers Group Inc. . . . . . . . 20,340 1,095,818
--------------
9,542,485
--------------
MACHINERY--1.6%
Case Corp. . . . . . . . . . . . . 26,000 $ 1,571,375
Caterpillar Inc. . . . . . . . . . 26,400 1,282,050
--------------
2,853,425
--------------
MULTIMEDIA--0.7%
A.H. Belo Corp. . . . . . . . . . 21,800 1,223,525
--------------
OFFICE EQUIPMENT & SUPPLIES--1.3%
Herman Miller Inc. . . . . . . . . 21,300 1,162,181
Xerox Corp. . . . . . . . . . . . 14,200 1,048,138
--------------
2,210,319
--------------
OIL--7.4%
Amoco Corp. . . . . . . . . . . . 8,600 732,075
Ashland Inc. . . . . . . . . . . . 19,400 1,041,538
Columbia Gas Systems Inc. . . . . 16,400 1,288,425
Exxon Corp. . . . . . . . . . . . 61,900 3,787,506
Mobil Corp. . . . . . . . . . . . 34,600 2,497,687
Phillips Petroleum Co. . . . . . . 23,900 1,162,137
Sun Co. Inc. . . . . . . . . . . . 41,900 1,762,419
Texaco Inc. . . . . . . . . . . . 15,600 848,250
--------------
13,120,037
--------------
OIL & GAS DRILLING--0.6%
Ensco International Inc. . . . . . 21,200 710,200
Marine Drilling Cos. Inc. * . . . 12,500 259,375
--------------
969,575
--------------
OIL REFINING--0.4%
Valero Energy Corp. . . . . . . . 24,300 763,931
--------------
PACKAGING & CONTAINERS--1.2%
Avery Dennison Corp. . . . . . . . 21,200 948,700
Tenneco Inc. . . . . . . . . . . . 29,700 1,173,150
--------------
2,121,850
--------------
PAPER AND FOREST PRODUCTS--1.9%
Champion International Corp. . . . 23,000 1,042,187
Georgia Pacific Corp. . . . . . . 16,700 1,014,525
Georgia Pacific Corp. (Timber)* . 16,700 378,881
International Paper Co. . . . . . 23,100 996,188
--------------
3,431,781
--------------
PETROLEUM SERVICES--0.5%
BJ Services Co. * . . . . . . . . 12,300 884,831
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24
<PAGE>
PROTECTIVE CORE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
COMMON STOCK (CONTINUED)
RETAIL--7.7%
American Stores Co. . . . . . . . 8,400 $ 172,725
Best Buy Co. Inc. * . . . . . . . 38,300 1,412,312
Dayton Hudson Corp. . . . . . . . 39,200 2,646,000
Home Depot Inc. . . . . . . . . . 20,550 1,209,881
Kroger Co. * . . . . . . . . . . . 47,300 1,747,144
Ross Stores Inc. . . . . . . . . . 28,400 1,033,050
Safeway Inc. * . . . . . . . . . . 30,055 1,900,979
TJX Cos. Inc. . . . . . . . . . . 39,300 1,350,937
Wal-Mart Stores Inc. . . . . . . . 54,100 2,133,569
--------------
13,606,597
--------------
TELECOMMUNICATIONS--3.1%
BellSouth Corp. . . . . . . . . . 20,700 1,165,669
GTE Corp. . . . . . . . . . . . . 58,200 3,040,950
MCI Communications Corp. . . . . . 28,100 1,203,031
--------------
5,409,650
--------------
TELEPHONE--1.2%
Ameritech Corp. . . . . . . . . . 15,400 1,239,700
Worldcom Inc. * . . . . . . . . . 28,400 859,100
--------------
2,098,800
--------------
TEXTILE--0.5%
Jones Apparel Group Inc. * . . . . 21,100 907,300
--------------
TOBACCO--1.9%
Philip Morris Cos. Inc. . . . . . 53,400 2,419,688
RJR Nabisco Holdings Corp. . . . . 26,800 1,005,000
--------------
3,424,688
--------------
TRANSPORTATION--0.9%
Federal Express Corp. * . . . . . 25,000 1,526,563
--------------
TOTAL COMMON STOCK--
(Cost $127,248,077) . . . . . 167,191,242
--------------
DEPOSITORY RECEIPTS--3.1%
OIL--2.2%
Royal Dutch Petroleum Co. . . . . 54,400 2,947,800
Shell Transport & Trading Co. . . 21,700 949,375
--------------
3,897,175
--------------
TELECOMMUNICATIONS--0.9%
Telecom Argentina Stet-France
Telecom S.A. . . . . . . . . 45,800 $ 1,637,350
--------------
TOTAL DEPOSITORY RECEIPTS--
(Cost $4,198,858) . . . . . . 5,534,525
--------------
PRINCIPAL
AMOUNT
(000)
-----
SHORT TERM INVESTMENTS--2.4%
REPURCHASE AGREEMENT--2.3%
State Street Bank and Trust Co.
5.750%, 01/02/1998, maturity value
of $4,131,319, dated 12/31/1997,
(Collateralized by $4,170,000 United
States Treasury Note, 5.875%,
04/30/1998, with a value
of $4,215,845) . . . . . . . $ 4,130 4,130,000
--------------
U.S. GOVERNMENT SECURITIES--0.1%
United States Treasury Bills
5.200%, 01/22/1998** . . . . 25 24,924
5.230%, 01/22/1998** . . . . 100 99,695
5.240%, 02/12/1998** . . . . 10 9,939
5.180%, 02/12/1998** . . . . 20 19,872
--------------
154,430
--------------
TOTAL SHORT TERM INVESTMENTS--
(Cost $4,284,430) . . . . . . 4,284,430
--------------
TOTAL INVESTMENTS--100.0%
(Cost $135,731,365) . . . . . $ 177,010,197
--------------
--------------
</TABLE>
OTHER INFORMATION--
At December 31, 1997, the CORE U.S. Equity Fund had open futures contracts as
follows:
<TABLE>
<CAPTION>
Market Unrealized
Futures Expiration Contracts Value Gain
------- ---------- --------- ----- ----
<S> <C> <C> <C> <C>
S&P 500 March 1998 15 $3,671,625 $30,042
</TABLE>
* Denotes non-income producing security.
** Security has been pledged (in whole or in part) to cover
initial margin requirements for futures contracts.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<PAGE>
<TABLE>
<CAPTION>
PROTECTIVE SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCK--87.3%
AGRICULTURE--0.2%
Cadiz Land Co. Inc. * . . . . . . 27,500 $ 235,469
--------------
AIRLINE PARTS--1.2%
AVTEAM Inc. * . . . . . . . . . . 145,400 1,290,425
--------------
AUTO PARTS--0.5%
APS Holding Corp. * . . . . . . . 92,100 230,250
Titan International Inc. . . . . . 17,600 353,100
--------------
583,350
--------------
BUILDING CONSTRUCTION--0.9%
Synthetic Industries Inc. * . . . 39,300 972,675
--------------
BUILDING MATERIALS--0.6%
Congoleum Corp. * . . . . . . . . 53,900 592,900
--------------
BUSINESS SERVICES--3.5%
Galileo International Inc. . . . . 29,800 823,225
Metromail Corp. * . . . . . . . . 114,500 2,046,687
RCM Technologies Inc. * . . . . . 30,900 525,300
Scientific Games Holdings Corp. * 21,100 427,275
--------------
3,822,487
--------------
CHEMICALS--0.8%
Spartech Corp. . . . . . . . . . . 58,100 878,763
--------------
COMMERCIAL SERVICES--0.2%
BridgeStreet Accomodations Inc. * 15,900 161,485
Video Services Corp. * . . . . . . 30,700 90,181
--------------
251,666
--------------
COMMUNICATION SERVICES--3.2%
Pegasus Communications Corp. * . . 79,700 1,653,775
Rural Cellular Corp., Class A * . 55,200 721,050
Telephone & Data Systems Inc. . . 23,500 1,094,219
--------------
3,469,044
--------------
COMPUTER HARDWARE--3.5%
Hutchinson Technology Inc. * . . . 110,000 2,406,250
Scitex Corp. Ltd. . . . . . . . . 24,400 294,325
UNOVA Inc. * . . . . . . . . . . . 65,000 1,068,437
--------------
3,769,012
--------------
COMPUTER SOFTWARE & SERVICES--0.9%
Black Box Corp. * . . . . . . . . 20,700 $ 732,263
DecisionOne Holdings * . . . . . . 1,672 41,804
MAPICS Inc. * . . . . . . . . . . 9,600 104,400
Opinion Research Corp. * . . . . . 8,600 49,450
--------------
927,917
--------------
CONSUMER DURABLES/ RECREATIONAL PRODUCTS--0.2%
DSI Toys Inc. * . . . . . . . . . 104,900 196,688
--------------
DRUGS & HEALTH CARE--14.0%
American Physician Partners Inc. * 67,900 721,438
HealthPlan Services Corp. . . . . 164,300 3,450,300
Integrated Health Services Inc. . 94,700 2,953,456
Matria Healthcare Inc. * . . . . . 192,500 1,082,813
Perrigo Co. * . . . . . . . . . . 105,000 1,404,375
Physicians Resource Group Inc. * . 153,400 671,125
Quest Diagnostics Inc. * . . . . . 205,100 3,461,062
Sierra Health Services Inc. * . . 40,300 1,355,087
--------------
15,099,656
--------------
ELECTRIC UTILITIES--3.8%
Central Maine Power Co. . . . . . 208,500 3,179,625
Northeast Utilities . . . . . . . 73,400 867,037
--------------
4,046,662
--------------
ELECTRICAL EQUIPMENT--1.4%
Carbide/Graphite Group Inc. * . . 46,000 1,552,500
--------------
ELECTRONICS--0.3%
Stoneridge Inc. * . . . . . . . . 19,500 312,000
--------------
ENTERTAINMENT--2.3%
Metromedia International Group Inc. * 147,100 1,397,450
Platinum Entertainment Inc. * . . 154,500 1,042,875
--------------
2,440,325
--------------
FINANCE & BANKING--0.7%
Northwest Savings Bank . . . . . . 53,200 751,450
--------------
FINANCIAL SERVICES--1.4%
American Capital Strategies Ltd. . 35,500 643,438
Annaly Mortgage Management Inc. . 61,200 673,200
Long Beach Financial Corp. * . . . 19,200 223,200
--------------
1,539,838
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<PAGE>
PROTECTIVE SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
COMMON STOCK (CONTINUED)
HOSPITAL MANAGEMENT--2.3%
Mariner Health Group Inc. * . . . 102,300 $ 1,662,375
Sun Healthcare Group Inc. * . . . 43,900 850,562
--------------
2,512,937
--------------
HOTELS--2.4%
Boykin Lodging Co. . . . . . . . . 39,000 1,031,062
La Quinta Inns Inc. . . . . . . . 83,200 1,606,800
--------------
2,637,862
--------------
INSURANCE--10.6%
Amerin Corp. * . . . . . . . . . . 44,400 1,243,200
ARM Financial Group Inc. . . . . . 61,200 1,614,150
ESG Re Ltd. * . . . . . . . . . . 45,200 1,062,200
GAINSCO Inc. . . . . . . . . . . . 69,800 593,300
IPC Holdings Ltd. . . . . . . . . 3,400 109,437
SCPIE Holdings Inc. . . . . . . . 53,700 1,553,944
Seibels Bruce Group Inc. * . . . . 92,300 692,250
Symons International Group Inc. * 105,600 2,029,500
Terra Nova (Bermuda) Holdings Ltd. 95,300 2,501,625
--------------
11,399,606
--------------
MANUFACTURING--2.6%
Fedders Corporation . . . . . . . 121,100 756,875
Fedders Corporation Class A . . . 147,500 903,437
Figgie International Holdings Inc.
Class A * . . . . . . . . . . 20,300 266,438
Figgie International Holdings Inc.
Class B * . . . . . . . . . . 72,400 877,850
--------------
2,804,600
--------------
NETWORKING PRODUCTS--1.5%
Hypercom Corp. * . . . . . . . . . 113,000 1,596,125
--------------
PRINTING--0.3%
Norwood Promotional Products Inc. * 18,300 279,075
--------------
REAL ESTATE--3.4%
Insignia Financial Group Inc. * . 58,700 1,350,100
Prime Group Realty Trust . . . . . 4,600 93,150
Prime Retail Inc. . . . . . . . . 73,000 1,035,688
RFS Hotel Investors Inc. . . . . . 56,700 1,130,456
--------------
3,609,394
--------------
RESTAURANTS--2.9%
Friendly Ice Cream Corp. * . . . . 117,700 $ 1,368,262
Mortons Restaurant Group Inc. * . 87,600 1,773,900
--------------
3,142,162
--------------
RETAIL--13.6%
Brookstone Inc. * . . . . . . . . 150,800 1,885,000
Finlay Enterprises Inc. * . . . . 61,900 1,408,225
Friedman's Inc. * . . . . . . . . 229,700 3,129,662
J. Baker Inc. . . . . . . . . . . 331,600 1,865,250
Loehmann's Holdings Inc. * . . . . 207,800 1,194,850
Movado Group Inc. . . . . . . . . 131,437 3,023,051
Syms Corp. * . . . . . . . . . . . 179,000 2,125,625
--------------
14,631,663
--------------
STEEL--1.6%
Ispat International N.V. * . . . . 12,700 274,638
WHX Corp. * . . . . . . . . . . . 120,500 1,430,937
--------------
1,705,575
--------------
TELECOMMUNICATIONS--1.7%
CommScope Inc. * . . . . . . . . . 139,800 1,878,563
--------------
TEXTILE--0.7%
Pluma Inc. * . . . . . . . . . . . 93,800 803,163
--------------
TOBACCO--1.2%
UST Inc. . . . . . . . . . . . . . 45,400 1,259,850
--------------
TRANSPORTATION--2.9%
Allied Holdings Inc. * . . . . . . 58,700 1,122,638
Landstar Systems Inc. * . . . . . 77,700 2,049,337
--------------
3,171,975
--------------
TOTAL COMMON STOCK--
(Cost $85,729,838) . . . . . 94,165,377
--------------
DEPOSITORY RECEIPTS--4.9%
BUILDING CONSTRUCTION--2.5%
Groupe AB SA * . . . . . . . . . . 416,000 2,678,000
--------------
MACHINERY--1.0%
Denison International PLC * . . . 62,700 1,081,575
--------------
MULTIMEDIA--1.4%
News Corporation Ltd. . . . . . . 77,808 1,546,434
--------------
TOTAL DEPOSITORY RECEIPTS--
(Cost $6,205,854) . . . . . . 5,306,009
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
27
<PAGE>
PROTECTIVE SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (000) VALUE
-------------------- ----- -----
<S> <C> <C>
SHORT TERM INVESTMENT--7.8%
REPURCHASE AGREEMENT--7.8%
State Street Bank and Trust Co.
5.750%, 01/02/1998, maturity value
of $8,350,667, dated 12/31/1997,
(Collateralized by $8,425,000 United
States Treasury Note, 5.875%,
04/30/1998, with a value
of $8,517,624) . . . . . . . $ 8,348 $ 8,348,000
--------------
TOTAL SHORT TERM INVESTMENT--
(Cost $8,348,000) . . . . . . 8,348,000
--------------
TOTAL INVESTMENTS--100.0%
(Cost $100,283,692) . . . . . $ 107,819,386
--------------
--------------
</TABLE>
* Denotes non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
28
<PAGE>
<TABLE>
<CAPTION>
PROTECTIVE MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
-------------------- ------ -----
<S> <C> <C>
GOVERNMENT AND AGENCY SECURITIES--100.0%
FEDERAL AGENCIES--100.0%
Federal Farm Credit Bank
5.740%, 01/05/1998 . . . . . $100,000 $ 99,936
5.580%, 01/06/1998 . . . . . 600,000 599,535
Federal Home Loan Bank
5.660%, 01/05/1998 . . . . . 110,000 109,931
5.490%, 02/04/1998 . . . . . 629,000 625,738
Federal Home Loan Mortgage Corp.
5.700%, 01/05/1998 . . . . . 135,000 134,915
5.750%, 01/05/1998 . . . . . 300,000 299,808
5.700%, 01/07/1998 . . . . . 100,000 99,905
5.730%, 01/12/1998 . . . . . 290,000 289,492
Federal National Mortgage Assn.
5.700%, 01/06/1998 . . . . . 200,000 199,842
5.650%, 01/15/1998 . . . . . 139,000 138,695
5.670%, 02/20/1998 . . . . . 418,000 414,708
Tennessee Valley Authority
5.480%, 01/13/1998 . . . . . 300,000 299,452
United States Treasury Bills
5.000%, 01/22/1998 300,000 299,125
--------------
3,611,082
--------------
TOTAL GOVERNMENT AND
AGENCY SECURITIES--
(Cost $3,611,082) . . . . . . 3,611,082
--------------
TOTAL INVESTMENTS--100.0%
(Cost $3,611,082) . . . . . . $ 3,611,082
--------------
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
29
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL
INCOME FUND EQUITY FUND
------------- -------------
<S> <C> <C>
ASSETS
Investments in securities, at value (Note B). . . . . . . . . . . . $ 46,719,570 $ 131,954,763
Cash, including foreign currency at value . . . . . . . . . . . . . 19,509 10,108
Dividends receivable. . . . . . . . . . . . . . . . . . . . . . . . 0 56,221
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . 950,774 1,186
Receivable for securities sold. . . . . . . . . . . . . . . . . . . 0 24,621
Unrealized appreciation on forward currency contracts (Note G). . . 1,313,363 419,910
Receivable for fund shares sold . . . . . . . . . . . . . . . . . . 31,076 58,999
Foreign income tax reclaim receivable . . . . . . . . . . . . . . . 21,247 48,266
Receivable due from Protective Life (Note C). . . . . . . . . . . . 6,205 28,875
------------- -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . 49,061,744 132,602,949
------------- -------------
LIABILITIES
Unrealized depreciation on forward currency contracts (Note G). . . 154,013 442,131
Payable for securities purchased. . . . . . . . . . . . . . . . . . 0 0
Payable for variation margin. . . . . . . . . . . . . . . . . . . . 0 0
Investment management fee payable (Note C). . . . . . . . . . . . . 45,179 121,019
Accounts payable and accrued expenses . . . . . . . . . . . . . . . 26,835 50,738
Payable for fund shares redeemed. . . . . . . . . . . . . . . . . . 2,616 102,138
------------- -------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 228,643 716,026
------------- -------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,833,101 $ 131,886,923
------------- -------------
------------- -------------
NET ASSETS
Paid-in capital (Note E). . . . . . . . . . . . . . . . . . . . . . $48,436,660 $120,374,064
Undistributed (distributions in excess of) net investment
income (Note B) . . . . . . . . . . . . . . . . . . . . . . . . . (702,875) 167,201
Accumulated net realized gain (loss) on
investments and foreign currency transactions . . . . . . . . . . 209,106 (1,287,312)
Net unrealized appreciation (depreciation) of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . (251,970) 12,657,642
Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Foreign currency translations . . . . . . . . . . . . . . . . . . 1,142,180 (24,672)
------------- -------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,833,101 $ 131,886,923
------------- -------------
------------- -------------
NET ASSET VALUE PER SHARE
Offering and redemption price per share (based on
shares of capital stock outstanding,
par value $.001 per share). . . . . . . . . . . . . . . . . . . . $ 10.134 $ 12.452
Total shares outstanding at end of year . . . . . . . . . . . . . . 4,818,976 10,591,738
Cost of investments . . . . . . . . . . . . . . . . . . . . . . . . $ 46,971,540 $ 119,297,121
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
30
<PAGE>
<TABLE>
<CAPTION>
CAPITAL GROWTH AND CORE U.S. SMALL CAP MONEY
GROWTH FUND INCOME FUND EQUITY FUND EQUITY FUND MARKET FUND
- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
$ 78,615,839 $ 360,397,070 $ 177,010,197 $ 107,819,386 $ 3,611,082
333 981 0 212 6,205
80,546 394,363 246,560 49,064 0
847 2,985 659 1,333 0
0 4,268,631 0 920,756 0
0 0 0 0 0
76,071 342,787 138,600 61,324 20,125
47 0 1,294 0 0
8,781 12,861 6,660 5,886 3,104
- ------------- ------------- ------------- ------------- -------------
78,782,464 365,419,678 177,403,970 108,857,961 3,640,516
- ------------- ------------- ------------- ------------- -------------
0 0 0 0 0
3,603,931 8,605,913 0 748,513 0
0 0 750 0 0
48,945 236,593 117,275 71,024 2,083
19,375 34,350 24,299 19,757 10,943
67,737 40,132 51,587 35,120 5,549
- ------------- ------------- ------------- ------------- -------------
3,739,988 8,916,988 193,911 874,414 18,575
- ------------- ------------- ------------- ------------- -------------
$ 75,042,476 $ 356,502,690 $ 177,210,059 $ 107,983,547 $ 3,621,941
- ------------- ------------- ------------- ------------- -------------
- ------------- ------------- ------------- ------------- -------------
$ 62,208,294 $ 297,910,976 $ 135,893,300 $ 95,341,708 $ 3,621,941
2,754 12,418 51,791 13,860 0
(169,664) 10,562,848 (43,906) 5,092,285 0
13,001,092 48,016,448 41,278,832 7,535,694 0
0 0 30,042 0 0
0 0 0 0 0
- ------------- ------------- ------------- ------------- -------------
$ 75,042,476 $ 356,502,690 $ 177,210,059 $ 107,983,547 $ 3,621,941
- ------------- ------------- ------------- ------------- -------------
- ------------- ------------- ------------- ------------- -------------
$ 15.820 $ 15.762 $ 18.409 $ 11.726 $ 1.000
4,743,606 22,618,336 9,626,522 9,209,181 3,621,941
$ 65,614,747 $ 312,380,622 $ 135,731,365 $ 100,283,692 $ 3,611,082
</TABLE>
31
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL
INCOME FUND EQUITY FUND
------------- -------------
<S> <C> <C>
INVESTMENT INCOME
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 1,626,621
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 2,730,517 289,490
Foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . (8,720) (204,301)
------------- -------------
TOTAL INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . 2,721,797 1,711,810
EXPENSES
Investment management fee (Note C). . . . . . . . . . . . . . . . . 470,207 1,305,891
Custodian fees and expenses . . . . . . . . . . . . . . . . . . . . 62,211 276,015
Audit fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,409 27,866
Printing expense. . . . . . . . . . . . . . . . . . . . . . . . . . 2,765 7,070
Transfer agent fee. . . . . . . . . . . . . . . . . . . . . . . . . 2,285 2,285
Legal fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,249 5,774
Directors' fee (Note C) . . . . . . . . . . . . . . . . . . . . . . 2,068 5,294
Miscellaneous expense . . . . . . . . . . . . . . . . . . . . . . . 70 175
------------- -------------
Total operating expenses before reimbursement . . . . . . . . . . 565,264 1,630,370
Expenses borne by Protective Life (Note C). . . . . . . . . . . . (95,057) (324,479)
------------- -------------
NET EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . 470,207 1,305,891
------------- -------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . 2,251,590 405,919
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FOREIGN CURRENCY,
OPTIONS AND FUTURES TRANSACTIONS
Net realized gain (loss) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,219,339 5,301,387
Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Foreign currency transactions . . . . . . . . . . . . . . . . . . 618,184 1,931,104
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,074) 0
------------- -------------
Total net realized gain . . . . . . . . . . . . . . . . . . . . 1,831,449 7,232,491
Change in unrealized appreciation (depreciation) of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . (856,081) (3,738,515)
Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Foreign currency translations . . . . . . . . . . . . . . . . . . 921,509 18,097
------------- -------------
Total change in unrealized appreciation (depreciation). . . . . 65,428 (3,720,418)
------------- -------------
NET REALIZED AND UNREALIZED GAIN. . . . . . . . . . . . . . . . 1,896,877 3,512,073
------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,148,467 $ 3,917,992
------------- -------------
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
32
<PAGE>
<TABLE>
<CAPTION>
CAPITAL GROWTH AND CORE U.S. SMALL CAP MONEY
GROWTH FUND INCOME FUND EQUITY FUND EQUITY FUND MARKET FUND
- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
$ 688,186 $ 4,389,898 $ 2,418,178 $ 592,093 $ 0
178,943 492,432 219,712 430,165 244,145
(3,011) (4,420) (12,886) (3,991) 0
- ------------- ------------- ------------- ------------- -------------
864,118 4,877,910 2,625,004 1,018,267 244,145
406,029 2,327,494 1,127,773 691,965 26,931
63,057 83,125 49,431 49,096 24,025
14,346 24,353 16,713 14,346 9,759
2,202 15,386 7,418 4,715 448
2,285 2,285 2,285 2,285 2,285
1,808 12,570 6,066 3,846 366
1,652 11,521 5,553 3,528 337
54 383 186 117 11
- ------------- ------------- ------------- ------------- -------------
491,433 2,477,117 1,215,425 769,898 64,162
(85,404) (149,623) (87,652) (77,933) (37,231)
- ------------- ------------- ------------- ------------- -------------
406,029 2,327,494 1,127,773 691,965 26,931
- ------------- ------------- ------------- ------------- -------------
458,089 2,550,416 1,497,231 326,302 217,214
- ------------- ------------- ------------- ------------- -------------
4,504,363 53,904,717 12,647,298 16,132,010 6
124,702 0 537,573 0 0
15 (500) 0 0 0
0 0 0 0 0
- ------------- ------------- ------------- ------------- -------------
4,629,080 53,904,217 13,184,871 16,132,010 6
9,112,024 12,856,048 21,397,509 6,548,104 0
(26,975) 0 14,517 0 0
0 0 0 0 0
- ------------- ------------- ------------- ------------- -------------
9,085,049 12,856,048 21,412,026 6,548,104 0
- ------------- ------------- ------------- ------------- -------------
13,714,129 66,760,265 34,596,897 22,680,114 6
- ------------- ------------- ------------- ------------- -------------
$ 14,172,218 $ 69,310,681 $ 36,094,128 $ 23,006,416 $ 217,220
- ------------- ------------- ------------- ------------- -------------
- ------------- ------------- ------------- ------------- -------------
</TABLE>
33
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GLOBAL INCOME FUND INTERNATIONAL EQUITY FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/97 12/31/96
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income . . . . . . . . . . . . . $ 2,251,590 $ 1,977,025 $ 405,919 $ 418,287
Net realized gain (loss) on:
Investments. . . . . . . . . . . . . . . . . . 1,219,339 918,561 5,301,387 3,727,854
Futures. . . . . . . . . . . . . . . . . . . . 0 0 0 0
Foreign currency transactions. . . . . . . . . 618,184 481,271 1,931,104 154,420
Options. . . . . . . . . . . . . . . . . . . . (6,074) 35,396 0 (110,596)
------------ ------------ ------------ ------------
Total net realized gain. . . . . . . . . . . . 1,831,449 1,435,228 7,232,491 3,771,678
Change in unrealized appreciation
(depreciation) of:
Investments. . . . . . . . . . . . . . . . . . (856,081) (277,482) (3,738,515) 9,314,829
Futures. . . . . . . . . . . . . . . . . . . . 0 0 0 0
Foreign currency translations. . . . . . . . . 921,509 67,046 18,097 (89,819)
------------ ------------ ------------ ------------
Total change in unrealized
appreciation (depreciation). . . . . . . . . 65,428 (210,436) (3,720,418) 9,225,010
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations. . . . . . . . . . 4,148,467 3,201,817 3,917,992 13,414,975
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM: (NOTE B)
Net investment income. . . . . . . . . . . . . (3,996,275) (1,977,025) (2,629,399) (38,556)
In excess of net investment income . . . . . . 0 (299,207) 0 0
Net realized gains on investments. . . . . . . (605,051) (594,964) (6,951,138) (1,983,461)
In excess of net realized gains. . . . . . . . 0 0 0 0
------------ ------------ ------------ ------------
Total dividends and distributions
to shareholders. . . . . . . . . . . . . . . (4,601,326) (2,871,196) (9,580,537) (2,022,017)
FUND SHARE TRANSACTIONS (NOTE E). . . . . . . . 11,611,243 6,258,780 40,813,851 26,500,961
------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . 11,158,384 6,589,401 35,151,306 37,893,919
NET ASSETS
Beginning of year. . . . . . . . . . . . . . . 37,674,717 31,085,316 96,735,617 58,841,698
------------ ------------ ------------ ------------
END OF YEAR (1). . . . . . . . . . . . . . . . $ 48,833,101 $ 37,674,717 $131,886,923 $ 96,735,617
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
(1) . Including undistributed (distributions in
excess of) net investment income. . . . . . . $ (702,875) $ (57,056) $ 167,201 $ 459,577
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
34
<PAGE>
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND GROWTH AND INCOME FUND CORE U.S. EQUITY FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 458,089 $ 312,175 $ 2,550,416 $ 3,495,189 $ 1,497,231 $ 1,137,758
4,504,363 243,508 53,904,717 16,534,076 12,647,298 2,937,542
124,702 46,353 0 0 537,573 (34,854)
15 0 (500) 0 0 0
0 0 0 0 0 0
------------ ------------ ------------ ------------ ------------ ------------
4,629,080 289,861 53,904,217 16,534,076 13,184,871 2,902,688
9,112,024 3,715,510 12,856,048 21,786,858 21,397,509 11,847,717
(26,975) 37,400 0 0 14,517 15,525
0 0 0 0 0 0
------------ ------------ ------------ ------------ ------------ ------------
9,085,049 3,752,910 12,856,048 21,786,858 21,412,026 11,863,242
------------ ------------ ------------ ------------ ------------ ------------
14,172,218 4,354,946 69,310,681 41,816,123 36,094,128 15,903,688
------------ ------------ ------------ ------------ ------------ ------------
(455,335) (312,175) (2,537,498) (3,495,189) (1,468,909) (1,137,758)
0 (3,999) 0 0 0 0
(4,704,337) (289,861) (47,393,437) (13,694,011) (13,999,983) (2,401,439)
0 (111,306) 0 0 0 0
------------ ------------ ------------ ------------ ------------ ------------
(5,159,672) (717,341) (49,930,935) (17,189,200) (15,468,892) (3,539,197)
35,730,473 15,945,890 126,536,130 57,883,907 54,961,243 32,535,620
------------ ------------ ------------ ------------ ------------ ------------
44,743,019 19,583,495 145,915,876 82,510,830 75,586,479 44,900,111
30,299,457 10,715,962 210,586,814 128,075,984 101,623,580 56,723,469
------------ ------------ ------------ ------------ ------------ ------------
$ 75,042,476 $ 30,299,457 $356,502,690 $210,586,814 $177,210,059 $101,623,580
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
$ 2,754 $ 0 $ 12,418 $ 0 $ 51,791 $ 0
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
35
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SMALL CAP EQUITY FUND MONEY MARKET FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/97 12/31/96
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . $ 326,302 $ 170,478 $ 217,214 $ 248,420
Net realized gain (loss) on:
Investments. . . . . . . . . . . . . . . . . 16,132,010 7,907,243 6 0
Futures. . . . . . . . . . . . . . . . . . . 0 0 0 0
Foreign currency transactions. . . . . . . . 0 0 0 0
Options. . . . . . . . . . . . . . . . . . . 0 0 0 0
------------ ------------ ------------ ------------
Total net realized gain. . . . . . . . . . . . 16,132,010 7,907,243 6 0
Change in unrealized appreciation
(depreciation) of:
Investments. . . . . . . . . . . . . . . . . 6,548,104 1,105,418 0 0
Futures. . . . . . . . . . . . . . . . . . . 0 0 0 0
Foreign currency translations. . . . . . . . 0 0 0 0
Options. . . . . . . . . . . . . . . . . . . 0 0 0 0
------------ ------------ ------------ ------------
Total change in unrealized
appreciation (depreciation). . . . . . . . . 6,548,104 1,105,418 0 0
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations. . . . . . . . . . 23,006,416 9,183,139 217,220 248,420
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM: (NOTE B)
Net investment income. . . . . . . . . . . . . (312,710) (170,210) (217,214) (248,420)
In excess of net investment income . . . . . . 0 0 0 0
Net realized gains on investments. . . . . . . (11,888,468) (6,646,997) (6) 0
In excess of net realized gains. . . . . . . . 0 0 0 0
------------ ------------ ------------ ------------
Total dividends and distributions
to shareholders. . . . . . . . . . . . . . . (12,201,178) (6,817,207) (217,220) (248,420)
FUND SHARE TRANSACTIONS (NOTE E). . . . . . . . 32,745,138 18,237,546 (2,498,719) 1,050,935
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS. . . . 43,550,376 20,603,478 (2,498,719) 1,050,935
NET ASSETS
Beginning of year. . . . . . . . . . . . . . . 64,433,171 43,829,693 6,120,660 5,069,725
------------ ------------ ------------ ------------
END OF YEAR (1). . . . . . . . . . . . . . . . $107,983,547 $ 64,433,171 $ 3,621,941 $ 6,120,660
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
(1)Including undistributed (distributions in
excess of) net investment income . . . . . . $ 13,860 $ 268 $ 0 $ 0
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
36
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
37
<PAGE>
PROTECTIVE INVESTMENT COMPANY
FINANCIAL HIGHLIGHTS
FOR A SHARE OF COMMON STOCK OUTSTANDING FOR THE PERIOD INDICATED
<TABLE>
<CAPTION>
Distributions
Net Asset Total Dividends in excess
Value at Net Realized and from from Net of Net Distributions
Beginning Investment Unrealized Investment Investment Investment from Net
of Period Income(3) Gain (Loss) Operations Income Income Realized Gains
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Global Income Fund
1/1/97 - 12/31/97. . . . . . $10.177 $0.558 $0.455 $1.013 $(0.917) $0.000 $(0.139)
1/1/96 - 12/31/96 . . . . . 10.074 0.628 0.310 0.938 (0.628) (0.036) (0.171)
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
1/1/97 - 12/31/97. . . . . . $12.865 $0.038 $0.525 $0.563 $(0.238) $0.000 $(0.738)
1/1/96 - 12/31/96 . . . . . 11.045 0.140 1.955 2.095 (0.005) 0.000 (0.270)
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
1/1/97 - 12/31/97. . . . . . $12.647 $0.104 $4.243 $4.347 $(0.104) $0.000 $(1.070)
1/1/96 - 12/31/96 . . . . . 10.613 0.134 2.209 2.343 (0.134) (0.002) (0.125)
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
1/1/97 - 12/31/97. . . . . . $14.183 $0.132 $4.030 $4.162 $(0.131) $0.000 $(2.452)
1/1/96 - 12/31/96 . . . . . 12.197 0.266 2.987 3.253 (0.266) 0.000 (1.001)
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)
- -----------------------------------------------------------------------------------------------------------------------------
CORE U.S. Equity Fund
1/1/97 - 12/31/97. . . . . . $15.437 $0.170 $4.568 $4.738 $(0.165) $0.000 $(1.601)
1/1/96 - 12/31/96 . . . . . 13.109 0.180 2.706 2.886 (0.180) 0.000 (0.378)
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
1/1/97 - 12/31/97. . . . . . $10.022 $0.040 $3.162 $3.202 $(0.038) $0.000 $(1.460)
1/1/96 - 12/31/96 . . . . . 9.345 0.030 1.840 1.870 (0.030) 0.000 (1.163)
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
1/1/97 - 12/31/97. . . . . . $1.000 $0.049 $0.000 $0.049 $(0.049) $0.000 $0.000
1/1/96 - 12/31/96 . . . . . 1.000 0.047 0.000 0.047 (0.047) 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
Insurance Company ("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 year ended December 31, 1997: Global Income Fund,
$0.539 and 1.32%; International Equity Fund, $(0.008) and 1.37%; Capital
Growth Fund, $0.086 and 0.97%; Growth and Income Fund, $0.126 and 0.85%;
CORE U.S. Equity Fund, $0.162 and 0.86%; Small Cap Equity Fund, $0.032 and
0.89%; and Money Market Fund, $0.038 and 1.42%, respectively. For the year
ended December 31, 1996: Global Income Fund, $0.598 and 1.42%;
International Equity Fund, $0.110 and 1.38%; Capital Growth Fund, $0.115
and 1.02%; Growth and Income Fund, $0.257 and 0.88%; CORE U.S. Equity Fund,
$0.166 and 0.91%; Small Cap Equity Fund, $0.018 and 0.94%; and Money Market
Fund, $0.041 and 1.27%, 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%; CORE U.S. 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%; CORE U.S. 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 record dates of each Fund. Total return for a
period of less than one year is not annualized. Total return would have
been lower had Protective Life not reimbursed certain Fund expenses.
38
<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 (7)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.000 $(1.056) $10.134 9.94% $48,833 1.10% 5.27% 369% N/A
0.000 (0.835) 10.177 9.48 37,675 1.10 5.71 214 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 $(0.976) $12.452 4.42% $131,887 1.10% 0.34% 34% $0.021
0.000 (0.275) 12.865 19.00 96,736 1.10 0.52 38 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 $(1.174) $15.820 34.57% $75,042 0.80% 0.90% 61% $0.061
(0.048) (0.309) 12.647 22.05 30,299 0.80 1.54 35 0.058
0.000 (0.080) 10.613 6.93 10,716 0.80 (5) 2.57 (5) 5 (6) --
- ------------------------------------------------------------------------------------------------------------------------------
$0.000 $(2.583) $15.762 29.84% $356,503 0.80% 0.88% 69% $0.059
0.000 (1.267) 14.183 26.82 210,587 0.80 2.11 49 0.058
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 $(1.766) $18.409 30.95% $177,210 0.80% 1.06% 61% $0.058
0.000 (0.558) 15.437 21.94 101,624 0.80 1.44 34 0.054
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 $(1.498) $11.726 32.20% $107,984 0.80% 0.38% 99% $0.048
0.000 (1.193) 10.022 20.22 64,433 0.80 0.31 100 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 $(0.049) $1.000 4.96% $3,622 0.60% 4.84% N/A N/A
0.000 (0.047) 1.000 4.82 6,121 0.60 4.72 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>
(1) Annualized.
(1) Non-Annualized.
(2) 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.
39
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 shares in
seven funds: Global Income Fund, International Equity Fund, Capital Growth Fund,
Growth and Income Fund, CORE U.S. Equity Fund (formerly the 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 each of the Global Income Fund, International Equity Fund, Growth and
Income Fund, CORE U.S. 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. Effective May 1, 1997, the name of the Select Equity Fund was
changed to the CORE U.S. Equity Fund.
The Company offers each class of its stock to separate accounts 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 any
national securities exchange or the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") 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 (not quoted on NASDAQ) 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 sale 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, a 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.
40
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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. Realized and unrealized gains and losses arising
from Forwards are included in net realized gain (loss) on foreign currency
transactions. 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. Realized
and unrealized gains and losses arising from call and put options are included
in net realized gain (loss) on options. 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.
41
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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 their
respective 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. Futures contracts open at December 31, 1997 are included in the
schedule of investments and their related realized and unrealized gains and
losses are included in the net realized and unrealized gain (loss) on futures
contracts.
EXPENSES - The Company's 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, CORE U.S. Equity Fund and Small Cap
Equity Fund; and declared daily and distributed monthly for Money Market Fund.
Distributions from net realized 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 of 1986, 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. 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 paid-in capital 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%; CORE U.S. 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%; CORE U.S. 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.
42
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
Goldman Sachs Asset Management acts as the investment adviser (the "Adviser") of
Capital Growth Fund, Growth and Income Fund, Money Market Fund, CORE U.S. Equity
Fund and Small Cap Equity Fund. Goldman Sachs Asset Management International
acts as the Adviser to Global Income Fund and International Equity Fund. With
respect to each Fund, the Adviser has entered into an investment advisory
agreement with the Investment Manager under which the Adviser manages the
investment portfolios of the Fund of which it is Adviser. As compensation for
their 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, CORE U.S. 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 year ended December 31, 1997, 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 . . . . . . $128,104,920 $22,814,719 $119,924,297 $17,132,797
International Equity Fund. . . 68,543,996 0 37,361,413 0
Capital Growth Fund. . . . . . 61,970,585 0 28,983,818 0
Growth and Income Fund . . . . 272,358,612 0 193,324,639 0
CORE U.S. Equity Fund. . . . . 123,443,566 0 83,129,799 0
Small Cap Equity Fund. . . . . 99,181,521 0 78,452,958 0
</TABLE>
Purchases and sales, including maturities, of short-term securities by the Money
Market Fund for the year ended December 31, 1997 were $63,264,640 and
$65,946,048, 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 December 31, 1997 were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
IDENTIFIED GROSS UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
---------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Global Income Fund . . . . . . $46,982,362 $ 653,556 $ 916,348 $ (262,792)
International Equity Fund. . . 119,336,124 26,845,788 14,227,149 12,618,639
Capital Growth Fund. . . . . . 65,645,511 13,739,790 769,462 12,970,328
Growth and Income Fund . . . . 312,504,663 64,363,178 16,470,771 47,892,407
CORE U.S. Equity Fund. . . . . 135,737,692 44,799,419 3,526,914 41,272,505
Small Cap Equity Fund. . . . . 100,351,320 15,980,790 8,512,724 7,468,066
Money Market Fund. . . . . . . 3,611,082 0 0 0
</TABLE>
For the year ended December 31, 1997, Goldman Sachs Asset Management and Goldman
Sachs Asset Management International, each an Adviser to the Funds, earned
approximately $1,635, $16,174, $83,869, and $16,706 of brokerage commissions,
respectively, from portfolio transactions executed on behalf of the
International Equity Fund, Capital Growth Fund, Growth and Income Fund, and
Small Cap Equity Funds, respectively.
43
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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;
CORE U.S. 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
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold or exchanged in. . . . . . . . . 1,217,747 $ 12,870,879 745,616 $ 7,605,827
Shares issued to shareholders in
reinvestment of dividends. . . . . . . . . 453,698 4,601,326 283,177 2,871,192
Shares redeemed or exchanged out . . . . . . (554,438) (5,860,962) (412,374) (4,218,239)
------------ ------------ ------------ ------------
Net increase . . . . . . . . . . . . . . . . 1,117,007 $ 11,611,243 616,419 $ 6,258,780
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold or exchanged in. . . . . . . . . 3,085,412 $42,023,523 2,476,463 $29,939,941
Shares issued to shareholders in
reinvestment of dividends. . . . . . . . . 774,291 9,580,537 159,256 2,022,021
Shares redeemed or exchanged out . . . . . . (787,248) (10,790,209) (443,758) (5,461,001)
------------ ------------ ------------ ------------
Net increase . . . . . . . . . . . . . . . . 3,072,455 $40,813,851 2,191,961 $26,500,961
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
CAPITAL GROWTH FUND CAPITAL GROWTH FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold or exchanged in. . . . . . . . . 2,255,062 $34,225,506 1,471,196 $16,890,584
Shares issued to shareholders in
reinvestment of dividends. . . . . . . . . 333,159 5,159,672 56,365 717,339
Shares redeemed or exchanged out . . . . . . (240,475) (3,654,705) (141,415) (1,662,033)
------------ ------------ ------------ ------------
Net increase . . . . . . . . . . . . . . . . 2,347,746 $35,730,473 1,386,146 $15,945,890
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
GROWTH AND INCOME FUND GROWTH AND INCOME FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold or exchanged in. . . . . . . . . 5,741,493 $97,578,882 4,215,959 $55,439,807
Shares issued to shareholders in
reinvestment of dividends. . . . . . . . . . 3,252,805 49,930,935 1,221,625 17,189,194
Shares redeemed or exchanged out . . . . . . (1,223,841) (20,973,687) (1,090,605) (14,745,094)
------------ ------------ ------------ ------------
Net increase . . . . . . . . . . . . . . . . 7,770,457 $126,536,130 4,346,979 $57,883,907
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
44
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
CORE U.S. EQUITY FUND CORE U.S. EQUITY FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold or exchanged in. . . . . . . . . 2,828,740 $51,406,215 2,458,365 $35,167,409
Shares issued to shareholders in
reinvestment of dividends. . . . . . . . . 859,034 15,468,892 225,190 3,539,193
Shares redeemed or exchanged out . . . . . . (644,366) (11,913,864) (427,469) (6,170,982)
----------- ----------- ----------- -----------
Net increase . . . . . . . . . . . . . . . . 3,043,408 $54,961,243 2,256,086 $32,535,620
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
SMALL CAP EQUITY FUND SMALL CAP EQUITY FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold or exchanged in. . . . . . . . . 2,449,808 $29,170,745 1,711,568 $18,377,940
Shares issued to shareholders in
reinvestment of dividends. . . . . . . . . 1,057,540 12,201,178 690,344 6,817,211
Shares redeemed or exchanged out . . . . . . (727,471) (8,626,785) (662,561) (6,957,605)
----------- ----------- ----------- -----------
Net increase . . . . . . . . . . . . . . . . 2,779,877 $32,745,138 1,739,351 $18,237,546
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
MONEY MARKET FUND MONEY MARKET FUND
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
SHARES DOLLARS SHARES DOLLARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold or exchanged in. . . . . . . . . 9,024,875 $9,024,875 10,940,141 $10,940,141
Shares issued to shareholders in
reinvestment of dividends. . . . . . . . . 217,220 217,220 249,104 249,104
Shares redeemed or exchanged out . . . . . . (11,740,814) (11,740,814) (10,138,310) (10,138,310)
----------- ----------- ----------- -----------
Net increase (decrease). . . . . . . . . . . (2,498,719) $(2,498,719) 1,050,935 $1,050,935
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
NOTE F - TAX INFORMATION NOTICE
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Funds for its fiscal year ended December 31,
1997; which designates long term capital gain dividends paid.
LONG TERM
CAPITAL GAIN
DIVIDENDS PAID
--------------
Global Income Fund . . . . . . . . . . . . . . . . . . $ 12,558
International Equity Fund. . . . . . . . . . . . . . . 6,596,458
Capital Growth Fund. . . . . . . . . . . . . . . . . . 3,126,361
Growth and Income Fund . . . . . . . . . . . . . . . . 34,034,898
CORE U.S. Equity Fund. . . . . . . . . . . . . . . . . 9,558,879
Small Cap Equity Fund. . . . . . . . . . . . . . . . . 4,631,149
45
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE G - FORWARD FOREIGN CURRENCY CONTRACTS
At December 31, 1997, 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 12/31/97 UNREALIZED
ON ORIGINATION U.S. $ APPRECIATION
FOREIGN CURRENCY PURCHASE CONTRACTS DATE VALUE (DEPRECIATION)
- ----------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
DEM, expiring 01/08/1998-01/09/1998 (4 contracts). . $ 3,271,168 $ 3,193,584 $ (77,584)
SEK, expiring 01/12/1998 (2 contracts) . . . . . . . 1,585,697 1,551,423 (34,274)
-------------- -------------- --------------
4,856,865 4,745,007 (111,858)
--------------
FOREIGN CURRENCY SALE CONTRACTS
- -------------------------------
AUD, expiring 03/18/1998 (1 contract). . . . . . . . 284,124 274,127 9,997
DEM, expiring 01/12/1998-02/27/1998 (4 contracts). . 4,211,600 4,149,997 61,603
ESP, expiring 03/11/1998 (1 contract). . . . . . . . 1,662,244 1,642,642 19,602
FRF, expiring 01/23/1998 (2 contracts) . . . . . . . 5,749,892 5,678,684 71,208
GBP, expiring 01/26/1998 (1 contract). . . . . . . . 3,203,870 3,093,213 110,657
IEP, expiring 01/08/1998 (3 contracts) . . . . . . . 2,274,578 2,232,593 41,985
ITL, expiring 02/13/1998 (3 contracts) . . . . . . . 8,148,334 7,836,751 311,583
JPY, expiring 01/12/1998-01/22/1998 (2 contracts) . 4,641,093 4,369,044 272,049
NZD, expiring 03/19/1998 (1 contract). . . . . . . . 2,919,785 2,880,093 39,692
-------------- -------------- --------------
33,095,520 32,157,144 938,376
--------------
Offsetting forward currency contracts not yet settled
(12 contracts) 332,832
--------------
NET UNREALIZED APPRECIATION $1,159,350
--------------
--------------
<CAPTION>
INTERNATIONAL EQUITY FUND
- -------------------------
U.S. $ COST 12/31/97 UNREALIZED
ON ORIGINATION U.S. $ APPRECIATION
FOREIGN CURRENCY PURCHASE CONTRACTS DATE VALUE (DEPRECIATION)
- ----------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
DEM, expiring 01/08/1998-02/23/1998 (3 contracts). . $10,208,414 $9,886,738 $ (321,676)
FOREIGN CURRENCY SALE CONTRACTS
- -------------------------------
DEM, expiring 02/27/1998 (1 contract). . . . . . . . 128,187 126,359 1,828
FRF, expiring 01/23/1998 (1 contract). . . . . . . . 6,363,622 6,294,030 69,592
HKD, expiring 08/10/1998 (1 contract). . . . . . . . 2,886,210 2,822,493 63,717
IEP, expiring 01/08/1998 (1 contract). . . . . . . . 3,366,277 3,309,074 57,203
-------------- -------------- --------------
12,744,296 12,551,956 192,340
--------------
Offsetting forward currency contracts not yet settled
(5 contracts) 107,115
--------------
NET UNREALIZED DEPRECIATION $ (22,221)
--------------
--------------
</TABLE>
GLOSSARY OF TERMS
-----------------
AUD - Australian Dollar IEP - Irish Punt
DEM - Deutsche Mark ITL - Italian Lira
ESP - Spanish Peseta JPY - Japanese Yen
FRF - French Franc NZD - New Zealand Dollar
GBP - Great British Pound SEK - Swedish Krona
HKD - Hong Kong Dollar USD - United States Dollar
46
<PAGE>
PROTECTIVE INVESTMENT COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND INVESTORS OF PROTECTIVE INVESTMENT COMPANY:
We have audited the accompanying statements of assets and liabilities of
Protective Investment Company (the "Company"), consisting of Global Income Fund,
International Equity Fund, Capital Growth Fund, Growth and Income Fund, CORE
U.S. Equity Fund (formerly Select Equity Fund), Small Cap Equity Fund and Money
Market Fund, including the schedules of investments, as of December 31, 1997,
and the related statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Protective Investment Company as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 13, 1998
47
<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
Richard J. Bielen, DIRECTOR, VICE PRESIDENT AND COMPLIANCE OFFICER
Jerry W. DeFoor, VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER
John O'Sullivan, TREASURER
Steve M. Callaway, SECRETARY
------------
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 insurance and annuity
contracts.
- --------------------------------------------------------------------------------
