PROTECTIVE INVESTMENT CO, 485APOS, 1999-02-26

PROTECTIVE INVESTMENT CO
485APOS, 1999-02-26

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999

FILE NO. 33-71592
FILE NO. 811-8674
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 9 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 10 /X/

PROTECTIVE INVESTMENT COMPANY
(Exact Name of Registrant)

2801 Highway 280 South
Birmingham, Alabama 35223
(Address of Principal Executive Offices)

Registrant's Telephone Number: 1-800-866-3555

Steve M. Callaway, Esquire
2801 Highway 280 South
Birmingham, Alabama, 35223
(Name and Address of Agent for Service of Process)

COPY TO:
Stephen E. Roth, Esquire
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404

It is proposed that this filing become effective (check appropriate box):

/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on May 1, 1998 pursuant to paragraph (b) of Rule 485
/X/ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
/ / on pursuant to paragraph (a)(i) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
/ / on pursuant to paragraph (a)(ii) of Rule 485

Title of Securities Being Registered: Shares of Common Stock

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<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
PROTECTIVE INVESTMENT COMPANY
PROSPECTUS

[COMPANY LOGO]

PROTECTIVE CORE U.S. EQUITY FUND

PROTECTIVE CAPITAL GROWTH FUND

PROTECTIVE SMALL CAP VALUE FUND

PROTECTIVE INTERNATIONAL EQUITY FUND

PROTECTIVE GROWTH AND INCOME FUND

PROTECTIVE GLOBAL INCOME FUND

The Securities and Exchange Commission has not approved or disapproved shares of
the Funds or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.

An investment in the Funds is not a bank deposit and is not insured, guaranteed,
or endorsed by the Federal Deposit Insurance Corporation, or any other
government agency. An investment in a Fund involves investment risks, including
possible loss of principal.

May 1, 1999
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
INTRODUCTION............................................................................................. 1

FUND INVESTMENT OBJECTIVES AND STRATEGIES AND RISK/RETURN SUMMARIES...................................... 3

Protective Core U.S. Equity Fund....................................................................... 3
Protective Capital Growth Fund......................................................................... 5
Protective Small Cap Value Fund........................................................................ 7
Protective Growth and Income Fund...................................................................... 9
Protective International Equity Fund................................................................... 11
Protective Global Income Fund.......................................................................... 13

PRINCIPAL RISKS OF THE FUNDS............................................................................. 16

HIGHER RISK SECURITIES AND TECHNIQUES.................................................................... 18

PRINCIPAL INVESTMENT SECURITIES AND TECHNIQUES........................................................... 24

MANAGEMENT OF THE FUNDS.................................................................................. 26

YEAR 2000................................................................................................ 29

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS................................................................ 30

DETERMINATION OF NET ASSET VALUE......................................................................... 30

TAXATION................................................................................................. 30

ADDITIONAL INFORMATION ABOUT THE FUNDS................................................................... 31
</TABLE>

i
<PAGE>
INTRODUCTION
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The Protective Investment Company (the "Company") is an open-end management
investment company consisting of six separate investment portfolios or "Funds."
This prospectus describes each Fund -- please read it and retain it for future
reference.

Each Fund has its own investment objective, investment policies, restrictions,
and attendant risks. Those investment restrictions and policies of a Fund that
are designated as fundamental cannot be changed without approval of a majority
of the outstanding shares of that Fund as defined in the Statement of Additional
Information ("SAI"). However, each Fund's investment objective, and all policies
not specifically designated as fundamental, are nonfundamental and may be
changed by the Company's board of directors without shareholder approval.

Notwithstanding their investment objective(s), each Fund may, for temporary
defensive purposes to preserve capital, invest all (35% for CORE U.S. Equity
Fund) of their assets in cash and/or money market instruments.

In selecting securities for a Fund, the Investment Advisers do not consider the
portfolio turnover rate as a limiting factor. A high rate of portfolio turnover
(100% or more) involves correspondingly greater expenses which must be borne by
a Fund and its shareholders. See "Financial Highlights" for a statement of the
Funds' historical portfolio turnover rates.

Shares of each Fund are offered exclusively to certain registered separate
accounts of Protective Life Insurance Company ("Protective Life") and Protective
Life and Annuity Insurance Company ("PLAI") (formerly, American Foundation Life
Insurance Company) as funding vehicles for certain variable annuity and variable
life insurance contracts issued by Protective Life and PLAI and are not offered
directly to the public.

Protective Investment Advisors, Inc. ("PIA") serves as the Company's investment
manager (the "Investment Manager") and is responsible for overall management of
the Company. PIA has engaged Goldman Sachs Asset Management International
("GSAMI"), an affiliate of Goldman Sachs & Co. ("Goldman Sachs"), as the
investment adviser to provide day-to-day portfolio management for the Protective
International Equity Fund and the Protective Global Income Fund. PIA also has
engaged Goldman Sachs Asset Management ("GSAM"), a separate operating division
of Goldman Sachs, as the investment adviser to provide day-to-day portfolio
management for each of the other Funds. (GSAM and GSAMI each are referred to
herein as the "Adviser" or together as the "Advisers," as appropriate.)

TERMS USED IN THIS PROSPECTUS

EQUITY SECURITIES: Equity securities include common stock, preferred stock,
securities convertible or exchangeable into common stock, including convertible
debt securities, convertible preferred stock and warrants or rights to acquire
common stock.

FOREIGN ISSUERS: (1) Companies organized outside the United States, (2)
companies whose securities are principally traded outside of the United States
and (3) foreign governments and agencies or instrumentalities of foreign
governments.

FIXED-INCOME SECURITIES: Bonds and notes (such as corporate and government debt
obligations), mortgage-backed securities, asset-backed securities and structured
securities that pay fixed or variable rates of interest, debt obligations that
are issued at a discount from face value (I.E., have an imputed rate of
interest), and preferred stock or other securities that pay dividends.

NON-DOLLAR SECURITIES: Securities denominated or quoted in a foreign currency
or paying income in foreign securities.

1
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RISKS AND RETURNS

- - EQUITY SECURITIES -- To the extent that a Fund invests in equity securities,
it is subject to market risk. In general, stock values fluctuate in response
to the fortunes of individual companies and in response to general market
and economic conditions. Accordingly, the value of the equity securities
that a Fund holds may decline over short or extended periods. This is known
as market risk. The U.S. equity markets tend to be cyclical, with periods
when prices generally rise and periods when prices generally decline. The
price volatility of equity securities means that the value of an investment
in those Funds that invest in them may increase or decrease. As of the date
of this Prospectus, domestic stock markets were trading at or close to
record high levels and no one can guarantee that such levels will continue.

- - FIXED-INCOME SECURITIES -- To the extent that a Fund invests in fixed-income
securities, it is subject to interest rate risk, credit risk and, as to some
portfolio holdings, call/extension risk. In general, interest rate risk
involves the risk that when interest rate decline, the market value of
fixed-income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed-income securities tends to decline.
Credit risk involves the risk that the issuer could default on its
obligations and a Fund will not recover its investment. Call risk and
extension risk are normally present in adjustable rate mortgage loans,
mortgage-backed securities and other asset-backed securities. For example,
homeowners have the option to prepay their mortgages. Therefore, the
duration of a security backed by home mortgages can either shorten (call
risk) or lengthen (extension risk). In general, if interest rates on new
mortgage loans fall sufficiently below the interest rates on existing
outstanding mortgage loans, the rate of prepayment would be expected to
increase. Conversely, if mortgage loan interest rates rise above the
interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to decrease. In either case, a change in the
prepayment rate can result in losses to investors.

The risk/return chart below illustrates the relative degree of short-term risk
for diversified portfolios of securities of the various types indicated. In
general, the potential for long-term gain is directly related to the level of
short-term risk that an investor is willing to accept. In other words, as
short-term risk increases so to does the potential for long-term gains.
Short-term risk refers to the likely volatility of a mutual fund's total return
and its potential for gain or loss over a relatively short time period.
Potential long-term gains refer to anticipated increases in a mutual fund's
average annual total return over a relatively long time period, such as 20
years. While historic performance is no guarantee of future results,
historically, accepting greater short-term risk often has lead to greater
average annual total returns over long time periods. Accordingly, an investor
should consider his or her investment time horizon (the length of time that an
investor expects to hold an investment) in deciding how much short-term risk to
accept. The longer the time horizon, the more short-term risk he or she may
consider accepting to achieve his or her investment goals.

[GRAPH]
The risk/return chart is intended to be used for comparative purposes only and
is not an indicator of future volatility or performance. The bar chart following
the description of each Fund illustrates the variability in the performance of
each Fund since its inception.

2
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FUND INVESTMENT OBJECTIVES AND STRATEGIES AND RISK/RETURN SUMMARIES
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PROTECTIVE CORE U.S. EQUITY FUND

INVESTMENT OBJECTIVE: Long-term growth of capital and dividend income.

INVESTMENT ADVISER: GSAM

BENCHMARK: S&P 500 Index

INVESTMENT FOCUS: U.S. equity securities representing a variety of industries

INVESTMENT STYLE: Blend (Value and Growth), enhanced by a proprietary
quantitative model (CORE).

[GRAPH]

Principal Investment Strategies: EQUITY SECURITIES. The Fund seeks its
investment objective by investing in a broadly diversified portfolio of large
cap and blue chip equity securities representing all major sectors of the U.S.
economy. Under normal circumstances, the Fund invests at least 90% of its total
assets in equity securities of U.S. issuers and of foreign issuers that are
traded in the United States.

The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to that of the S&P 500 Index. The Fund seeks a broad
representation in most major sectors of the U.S. economy and a portfolio of
securities of companies with average long-term earnings growth expectations and
dividend yields.

OTHER. Under unusual market conditions, the Fund may temporarily hold up to 35%
of its total assets in fixed-income securities that are considered cash
equivalents. It does not otherwise invest in fixed-income securities.

Principal Risks: The Fund is subject to market risk, the risk that the value of
securities in which the Fund invests may go up or down in response to the
prospects of individual companies and/or general economic conditions. Loss of
money is a significant risk of investing in this Fund.

CORE STANDS FOR COMPUTER-OPTIMIZED RESEARCH ENHANCED

The CORE U.S. Equity Fund uses the multifactor model, a rigorous computerized
rating system developed by the Investment Adviser, to forecast the returns of
securities held in the investment portfolio of the Fund.

The multifactor model incorporates common variables covering measures of:

- - Value (stock price-to-book value, stock price-to-earnings, cash flow to
enterprise value)
- - Momentum (earnings momentum, price momentum, sustainable growth)
- - Risk (market risk, company-specific risk, earnings risk)

All of the factors incorporated into the multi factor model have been shown to
significantly impact the performance of the securities and markets they were
designed to forecast. The multifactor model is described in greater detail in
the SAI.

3
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To the extent that the fund invests in higher-risk securities, it takes on
additional risks that could adversely affect its performance. For example, to
the extent that the Fund invests in securities of foreign issuers, it will be
subject to the risks related to such securities. The risks associated with these
and certain other higher-risk securities and practices that the fund may utilize
are described in more detail later in this prospectus and the SAI.

PERFORMANCE INFORMATION

HOW WELL HAS THE CORE U.S. EQUITY FUND PERFORMED SINCE ITS INCEPTION?

The following bar chart provides an illustration of the performance of the
CORE U.S. Equity Fund since its inception. The bar chart is intended to show
you the amount of variability the CORE U.S. Equity Fund has experienced in its
performance from year to year and is an indication of the degree of risk that
is involved with investing in the CORE U.S. Equity Fund.
PLEASE REMEMBER THAT PAST PERFORMANCE IS NO INDICATION OR GUARANTEE OF THE
RESULTS THE CORE U.S. EQUITY FUND MAY ACHIEVE IN THE FUTURE. FUTURE RETURNS
MAY BE HIGHER OR LOWER THAN THE RETURNS THAT THE CORE U.S. EQUITY FUND HAS
ACHIEVED IN THE PAST. PERFORMANCE REFLECTS EXPENSE LIMITATIONS THAT ARE
CURRENTLY IN EFFECT. IF THESE EXPENSE LIMITATIONS WERE NOT IN EFFECT, THE
FUND'S PERFORMANCE WOULD HAVE BEEN REDUCED.
[INSERT GRAPHIC]

<TABLE>
<S> <C> <C>
Best Quarter -- Q %
Worst Quarter -- Q %
</TABLE>

The following table compares the annual total returns of the CORE U.S. Equity
Fund with the performance of the S&P 500 Index.*

[INSERT TABLE]

* The S&P 500 Index is the Standard & Poor's Corporation's Composite Index of
500 stocks, a widely recognized, unmanaged index of common stock prices. The
S&P 500 Index figures do not reflect any fees or expenses and you cannot
invest directly in the S&P 500.

4
<PAGE>
PROTECTIVE CAPITAL GROWTH FUND

INVESTMENT OBJECTIVE: Long-term growth of capital

INVESTMENT ADVISER: GSAM

BENCHMARK: S&P 500 Index

INVESTMENT FOCUS: U.S. equity securities that offer long-term capital
appreciation potential

INVESTMENT STYLE: Growth

[GRAPH]

Principal Investment Strategies: EQUITY SECURITIES. The Fund invests, under
normal circumstances, at least 90% of its total assets in equity securities. The
Fund seeks its investment objective by investing in a diversified portfolio of
equity securities that the Investment Adviser considers to have long-term
capital appreciation potential. Although the Fund invests primarily in U.S.
equity securities, it may invest up to 10% of its total assets in securities of
foreign issues and non-dollar securities, including securities of issuers in
emerging countries.

To the extent that the Fund invests in higher-risk securities, it takes on
additional risks that could adversely affect its performance. For example, to
the extent that the Fund invests in securities of foreign issuers, it will be
subject to the risks related to such securities. The risks associated with these
and certain other higher-risk securities and practices that the Fund may utilize
are described in more detail later in this prospectus and the SAI.

GROWTH COMPANIES HAVE EARNINGS EXPECTATIONS THAT EXCEED THOSE OF THE STOCK
MARKET AS A WHOLE.

THE GROWTH INVESTMENT STYLE
In selecting stocks for the Capital Growth Fund, the Investment Adviser applies
the following principles:

1. Invest as if buying the company/business, not simply trading its stock:
- Understand the business, management, products and competition.
- Perform intensive, hands-on fundamental research.
- Seek businesses with strategic competitive advantages.
- Over the long-term, expect each company's stock price to ultimately
track the growth of the business.

2. Buy high-quality growth businesses that possess strong business franchises,
favorable long-term prospects and excellent management.

3. Purchase superior long-term growth at a favorable price -- seek to purchase
at a fair valuation, giving the investor the potential to fully capture
returns from above-average growth rates.

5
<PAGE>
PERFORMANCE INFORMATION

HOW WELL HAS THE CAPITAL GROWTH FUND PERFORMED SINCE ITS INCEPTION?

The following bar chart provides an illustration of the performance of the
Capital Growth Fund since its inception. The bar chart is intended to show you
the amount of variability the Capital Growth Fund has experienced in its
performance from year to year and is an indication of the degree of risk that
is involved with investing in the Capital Growth Fund.
PLEASE REMEMBER THAT PAST PERFORMANCE IS NO INDICATION OR GUARANTEE OF THE
RESULTS THE CAPITAL GROWTH FUND MAY ACHIEVE IN THE FUTURE. FUTURE RETURNS MAY
BE HIGHER OR LOWER THAN THE RETURNS THAT THE CAPITAL GROWTH FUND HAS ACHIEVED
IN THE PAST. PERFORMANCE REFLECTS EXPENSE LIMITATIONS THAT ARE CURRENTLY IN
EFFECT. IF THESE EXPENSE LIMITATIONS WERE NOT IN EFFECT, THE FUND'S
PERFORMANCE WOULD HAVE BEEN REDUCED.
[INSERT GRAPHIC]

<TABLE>
<S> <C> <C>
Best Quarter -- Q %
Worst Quarter -- Q %
</TABLE>

The following table compares the annual total returns of the Capital Growth
Fund with the performance of the S&P 500 Index.*

[INSERT TABLE]

6
<PAGE>
PROTECTIVE SMALL CAP VALUE FUND

INVESTMENT OBJECTIVE: Long-term capital growth

INVESTMENT ADVISER: GSAM

BENCHMARK: Russell 2000 Index

INVESTMENT FOCUS: Small-capitalization U.S. stocks that are believed to be
undervalued or undiscovered by the marketplace.

INVESTMENT STYLE: Value

[GRAPH]

Principal Investment Strategies: The Fund invests, under normal circumstances,
at least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of investment.
Under normal circumstances, the Fund's investment horizon for ownership of
stocks will be two to three years. Dividend income, if any, is an incidental
consideration. If the market capitalization of a company held by the Fund
increases above $1 billion, the Fund may, consistent with its investment
objective, continue to hold the security.

The Fund invests in companies which the Investment Adviser believes are well
managed niche businesses that have the potential to achieve high or improving
returns on capital and/or above average sustainable growth. The Fund may invest
in securities of small market capitalization companies which may have
experienced financial difficulties. The Fund may also invest in companies that
are in the early stages of their life and that the Investment Adviser believes
have significant growth potential. The Investment Adviser believes that the
companies in which the Fund may invest offer greater opportunity of capital
appreciation than larger, more mature, better known companies.

OTHER. The Fund may invest up to 25% of its total assets in securities of
foreign issuers and non-dollar securities, including securities of issuers in
emerging countries.

VALUE EXISTS WHEN A STOCK'S PRICE BECOMES INEXPENSIVE RELATIVE TO THE COMPANY'S
ESTIMATED EARNINGS AND/OR DIVIDEND-PAYING ABILITY OVER THE LONG TERM.

The Investment Adviser manages the Small Cap Value Fund using a "value"
investment style. The Investment Adviser seeks stocks that are discounted due
to:

- - Company-specific problems that are over-discounted in the marketplace.
- - Cyclically out-of-favor status.
- - Unrecognized positive fundamentals.

The Investment Adviser seeks to identify unrecognized value through:

- - Firsthand fundamental research.
- - Maintaining a long-term investment horizon.
- - A team approach to decision making.

7
<PAGE>
money is a significant risk of investing in this Fund. In addition to the risks
that are described above with regard to equity securities in general, the Fund
also is subject to the following risks:
- - SMALL COMPANY STOCKS -- Small capitalization stocks involve greater risk
than those associated with larger, more established companies. Small company
stocks may be subject to more abrupt or erratic price movements.
- - FOREIGN INVESTMENTS -- The Small Cap Value Fund also is subject to the risks
associated with securities of foreign issuers and non-dollar securities that are
not normally associated with dollar-denominated securities of domestic
issuers. The risks associated with such securities normally will be greatest
when the Fund invests in issuers located in emerging countries. These risks
are discussed in detail under the caption "Higher Risk Securities" below and
in the SAI.

The risks associated with these and certain other higher-risk securities and
practices that the Fund may utilize, are described in more detail later in this
prospectus and in the SAI.

PERFORMANCE INFORMATION

HOW WELL HAS THE SMALL CAP VALUE FUND PERFORMED SINCE ITS INCEPTION?

The following bar chart provides an illustration of the performance of the
Small Cap Value Fund since its inception. The bar chart is intended to show
you the amount of variability the Small Cap Value Fund has experienced in its
performance from year to year and is an indication of the degree of risk that
is involved with investing in the Small Cap Value Fund.
PLEASE REMEMBER THAT PAST PERFORMANCE IS NO INDICATION OR GUARANTEE OF THE
RESULTS THE SMALL CAP VALUE FUND MAY ACHIEVE IN THE FUTURE. FUTURE RETURNS MAY
BE HIGHER OR LOWER THAN THE RETURNS THAT THE SMALL CAP VALUE FUND HAS ACHIEVED
IN THE PAST. PERFORMANCE REFLECTS EXPENSE LIMITATIONS THAT ARE CURRENTLY IN
EFFECT. IF THESE EXPENSE LIMITATIONS WERE NOT IN EFFECT, THE FUND'S
PERFORMANCE WOULD HAVE BEEN REDUCED.
[INSERT GRAPHIC]

<TABLE>
<S> <C> <C>
Best Quarter -- Q %
Worst Quarter -- Q %
</TABLE>

The following table compares the annual total returns of the Small Cap Value
Fund with the performance of the Russell 2000 Index.*

[INSERT TABLE]

*The Russell 2000 Index is an unmanaged index of common stock prices. The
Russell 2000 Index figures do not reflect any fees or expenses and you cannot
invest directly in the Index.

8
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PROTECTIVE GROWTH AND INCOME FUND

INVESTMENT OBJECTIVE: Long-term growth of capital and growth of income.

INVESTMENT ADVISER: GSAM

BENCHMARK:]S&P 500 Index

INVESTMENT FOCUS: Large capitalization stocks that are believed to be
undervalued or undiscovered by the marketplace.

INVESTMENT STYLE: Value

[GRAPH]

Principal Investment Strategies: EQUITY SECURITIES. The Fund invests, under
normal circumstances, at least 65% of its total assets in equity securities that
the Investment Adviser considers to have favorable prospects for capital
appreciation and/or dividend-paying ability. Although the Fund will primarily
invest in publicly traded U.S. securities, it may invest up to 25% of its total
assets in securities of foreign issuers and non-dollar securities, including
securities of issuers in emerging countries.

OTHER. The Fund also may invest up to 35% of its total assets in fixed-income
securities that offer the potential to further the Fund's investment objective.

Principal Risks: As with any fund that invests in stocks and also seeks income,
the Growth and Income Fund is subject to market and interest rate risks, and the
value of an investment in the Fund will fluctuate in response to stock market
and interest rate movements. Loss of money is a risk of investing in this Fund.
To the extent that it invests in certain securities, the fund may be affected by
additional risks relating to securities of foreign issuers and non-dollar
securities and lower-rated debt securities.

The risks associated with these and certain other higher-risk securities and
practices that the Fund may utilize, are described in more detail later in this
prospectus and in the SAI.

VALUE EXISTS WHEN A STOCK'S PRICE BECOMES INEXPENSIVE RELATIVE TO THE COMPANY'S
ESTIMATED EARNINGS AND/OR DIVIDEND-PAYING ABILITY OVER THE LONG TERM.

The Investment Adviser manages the Growth and Income Fund using a "value"
investment style. The Investment Adviser seeks stocks that are discounted due
to:

- - Company specific problems that are over-discounted in the marketplace.
- - Cyclically out-of-favor status.
- - Unrecognized positive fundamentals.

The Investment Adviser seeks to identify unrecognized value through:

- - Firsthand fundamental research.
- - Maintaining a long-term investment horizon.
- - A team approach to decision making.

9
<PAGE>
PERFORMANCE INFORMATION

HOW WELL HAS THE GROWTH AND INCOME FUND PERFORMED SINCE ITS INCEPTION?

The following bar chart provides an illustration of the performance of the
Growth and Income Fund since its inception. The bar chart is intended to show
you the amount of variability the Growth and Income Fund has experienced in
its performance from year to year and is an indication of the degree of risk
that is involved with investing in the Growth and Income Fund.
PLEASE REMEMBER THAT PAST PERFORMANCE IS NO INDICATION OR GUARANTEE OF THE
RESULTS THE GROWTH AND INCOME FUND MAY ACHIEVE IN THE FUTURE. FUTURE RETURNS
MAY BE HIGHER OR LOWER THAN THE RETURNS THAT THE GROWTH AND INCOME FUND HAS
ACHIEVED IN THE PAST. PERFORMANCE REFLECTS EXPENSE LIMITATIONS THAT ARE
CURRENTLY IN EFFECT. IF THESE EXPENSE LIMITATIONS WERE NOT IN EFFECT, THE
FUND'S PERFORMANCE WOULD HAVE BEEN REDUCED.
[INSERT GRAPHIC]

<TABLE>
<S> <C> <C>
Best Quarter -- Q %
Worst Quarter -- Q %
</TABLE>

The following table compares the annual total returns of the Growth and Income
Fund with the performance of the S&P 500 Index.*

[INSERT TABLE]

10
<PAGE>
PROTECTIVE INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE: Long-term capital appreciation.
INVESTMENT ADVISER: GSAMI
BENCHMARK: FT/S&P Actuaries Europe & Pacific Index (unhedged)
PRIMARY INVESTMENT FOCUS: Equity securities of foreign issuers.
INVESTMENT STYLE: Actively managed

[GRAPH]

Principal Investment Strategies: The Fund invests, under normal circumstances,
substantially all, and at least 65% of its total assets in equity securities of
companies that are organized outside the United States or whose securities are
principally traded outside the United States. The Fund may allocate its assets
among countries as determined by the Investment Adviser from time to time
provided that the Fund's assets are invested in at least three foreign
countries.

The Fund expects to invest a substantial portion of its assets in the securities
of issuers located in the developed countries of Western Europe and in Japan.
However, the Fund may also invest in the securities of issuers located in
Australia, Canada, and New Zealand, as well as issuers located in certain
emerging countries.

OTHER. The Fund also may invest up to 35% of its total assets in fixed-income
securities.

Principal Risks: The Fund is subject to market risk, securities in which the
Fund invests may go up or down in response to the prospects of individual
companies and/or general economic conditions. Loss of money is a significant
risk of investing in this Fund. In addition to the risks that are described
above with regard to equity securities in general, the Fund also is subject to
the following risks:

- - FOREIGN INVESTMENTS -- The International Equity Fund may invest the majority
of its assets in securities of issuers that are organized outside of the
United States. Investing in securities of foreign issuers and non-dollar
securities may involve risks that are not normally associated with
dollar-denominated securities of domestic issuers. The risks associated with
such securities normally will be greatest when the Fund invests in issuers
located in emerging countries. These risks are discussed in detail under the
caption "Higher Risk Securities" later in this prospectus and in the SAI.

11
<PAGE>
PERFORMANCE INFORMATION

HOW WELL HAS THE INTERNATIONAL EQUITY FUND PERFORMED SINCE ITS INCEPTION?

The following bar chart provides an illustration of the performance of the
International Equity Fund since its inception. The bar chart is intended to
show you the amount of variability the International Equity Fund has
experienced in its performance from year to year and is an indication of the
degree of risk that is involved with investing in the International Equity
Fund.
PLEASE REMEMBER THAT PAST PERFORMANCE IS NO INDICATION OR GUARANTEE OF THE
RESULTS THE INTERNATIONAL EQUITY FUND MAY ACHIEVE IN THE FUTURE. FUTURE
RETURNS MAY BE HIGHER OR LOWER THAN THE RETURNS THAT THE INTERNATIONAL EQUITY
FUND HAS ACHIEVED IN THE PAST. PERFORMANCE REFLECTS EXPENSE LIMITATIONS THAT
ARE CURRENTLY IN EFFECT. IF THESE EXPENSE LIMITATIONS WERE NOT IN EFFECT, THE
FUND'S PERFORMANCE WOULD HAVE BEEN REDUCED.
[INSERT GRAPHIC]

<TABLE>
<S> <C> <C>
Best Quarter -- Q %
Worst Quarter -- Q %
</TABLE>

The following table compares the annual total returns of the International
Equity Fund with the performance of the FT/S&P Actuaries Europe & Pacific
Index (unhedged).*

[INSERT TABLE]

* The FT/S&P Actuaries Europe & Pacific Index is a market capitalization-
weighted composite of approximately 1,500 stocks from 20 countries in Europe
and the Asia Pacific region. The FT/S&P Actuaries Europe & Pacific Index
figures do not reflect any fees or expenses and you cannot invest directly in
the index.

12
<PAGE>
PROTECTIVE GLOBAL INCOME FUND

INVESTMENT OBJECTIVE: High total return, emphasizing current income, and to a
lesser extent, providing opportunities for capital appreciation

INVESTMENT ADVISER: GSAMI

BENCHMARK: JP Morgan Global Government Bond Index (hedged)

PRIMARY INVESTMENT FOCUS: Fixed income securities of U.S. and foreign issuers

INVESTMENT STYLE:

[GRAPH]

Principal Investment Strategies: The Fund primarily invests in high quality
fixed-income securities of U.S. and foreign issuers (including non-dollar
securities) and enters into transactions in foreign currencies. Under normal
market conditions, the Fund:

- - invests at least 30% of its total assets in securities, after considering
the effect of currency positions, denominated in U.S. dollars;
- - invests in securities of issuers from at least three different countries;
and
- - engages in currency transactions to enhance returns and to hedge against
fluctuations in currency exchange rates.

The Fund may invest more than 25% of its total assets in the securities of
corporate and government issuers located in each of Canada, Germany, Japan, and
the United Kingdom as well as in the securities of U.S. issuers. Not more than
25% of the Fund's total assets is invested in securities of issuers in any other
single foreign country or in any single issuer. The Fund may also invest up to
10% of its total assets in securities of issuers in emerging countries.

THE INVESTMENT ADVISER APPLIES A TEAM APPROACH THAT EMPHASIZES RISK MANAGEMENT
AND CAPITALIZES ON GOLDMAN SACHS' EXTENSIVE RESEARCH CAPABILITIES.

GOLDMAN SACHS' FIXED INCOME INVESTMENT PHILOSOPHY:
ACTIVE MANAGEMENT WITHIN A RISK-MANAGED FRAMEWORK

The Investment Adviser employs a disciplined, multi-step process to evaluate
potential investments:

1. SECTOR ALLOCATION -- The Investment Adviser assesses relative value of
different investment sectors (such as U.S. corporate, asset-backed and
mortgage-backed securities) to create investment strategies that meet the Fund's
objectives.

2. SECURITY SELECTION -- In selecting securities for the Fund, the Investment
Adviser draws on the extensive resources of Goldman Sachs, including
fixed-income research professionals.

3. YIELD CURVE STRATEGIES -- The Investment Adviser adjusts the term structure
of the Fund based on its expectations of changes in the shape of the yield curve
while closely controlling the overall duration of the Fund.

The Investment Adviser de-emphasizes interest predictions as a means of
generating incremental return. Instead, the Investment Adviser seeks to add
value through the selection of particular securities and investment sector
allocation as described above.

13
<PAGE>
The Fund may invest in the following fixed-income securities:

- - U.S. Government Securities and custodial receipts therefor
- - Securities issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, instrumentalities, or by
supranational entities
- - Corporate debt securities issued by domestic and foreign companies
- - Certificates of deposit and bankers' acceptances issued or guaranteed by
U.S. or foreign banks (and their branches wherever located) with total assets of
more than $1 billion
- - Commercial paper
- - Mortgage-backed securities and asset-backed securities

DURATION (UNDER NORMAL INTEREST RATE CONDITIONS): Duration approximates a
Fund's sensitivity to changes in interest rates. Typically, the higher the
duration, the more sensitive the Fund will be to changes in interest rates.

Target Duration = J.P. Morgan Global Government Bond Index (hedged) plus or
minus 2.5 years
Maximum Duration = 7.5 years

EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 6 year bond

CREDIT QUALITY:
Minimum -- BBB or Baa at time of purchase. At least 50% of total assets = AAA or
Aaa.
Securities will either be rated by a National Statistical Rating Organization
or, if unrated, determined by the Investment Adviser to be of comparable
quality.

Principal Risks: As with any fund that invests in fixed-income securities, the
Global Income Fund is subject to considerable credit risk and interest rate
risk. The value of an investment in the Fund will fluctuate in response to
movements in prevailing interest rates. This Fund also is subject to certain
additional risks, including:

- - NON-DIVERSIFICATION RISK -- The Global Income Fund is "non-diversified" as
that term is defined under the Investment Company Act of 1940, as amended
(the "Act"). It may invest more than 25% of its total assets in securities
of a limited number of issuers in the same industry or geographic region. As
a result, the Fund may be more susceptible to developments affecting the
securities of any single issuer held in its portfolio, and may be more
susceptible to greater loss because of these developments.

Notwithstanding the status of the Global Income Fund under the Act, the
Global Income Fund is still subject to the diversification requirements that
arise under federal tax law. For more information see "Taxes" in the SAI.

- - FOREIGN INVESTMENTS -- The Global Income Fund is subject to the risks
associated with securities of foreign issuers and non-dollar securities that
are not normally associated with dollar-denominated securities of domestic
issuers. The risks associated with such securities normally will be greatest
when the Fund invests in issuers located in emerging countries.

The risks associated with these and certain other higher-risk securities and
practices that the Fund may utilize, are described later in this prospectus and
in the SAI.

14
<PAGE>
PERFORMANCE INFORMATION

HOW WELL HAS THE GLOBAL INCOME FUND PERFORMED SINCE ITS INCEPTION?

The following bar chart provides an illustration of the performance of the
Global Income Fund since its inception. The bar chart is intended to show you
the amount of variability the Global Income Fund has experienced in its
performance from year to year and is an indication of the degree of risk that
is involved with investing in the Global Income Fund.
PLEASE REMEMBER THAT PAST PERFORMANCE IS NO INDICATION OR GUARANTEE OF THE
RESULTS THE GLOBAL INCOME FUND MAY ACHIEVE IN THE FUTURE. FUTURE RETURNS MAY
BE HIGHER OR LOWER THAN THE RETURNS THAT THE GLOBAL INCOME FUND HAS ACHIEVED
IN THE PAST. PERFORMANCE REFLECTS EXPENSE LIMITATIONS THAT ARE CURRENTLY IN
EFFECT. IF THESE EXPENSE LIMITATIONS WERE NOT IN EFFECT, THE FUND'S
PERFORMANCE WOULD HAVE BEEN REDUCED.
[INSERT GRAPHIC]

<TABLE>
<S> <C> <C>
Best Quarter -- Q %
Worst Quarter -- Q %
</TABLE>

The following table compares the annual total returns of the Global Income
Fund with the performance of the J.P. Morgan Global Government Bond Index
(hedged).*

[INSERT TABLE]

* The J.P. Morgan Global Government Bond Index (hedged), an unmanaged index,
does not reflect any fees or expenses. You cannot invest in the J.P. Morgan
Global Government Bond Index.

15
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
- --------------------------------------------------------------------------------

Loss of money is a risk of investing in each Fund. The following information
summarizes some of the important risks that apply to the Funds and may result in
a loss of your investment. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund will achieve its
investment objective.
<TABLE>
<CAPTION>
CORE U.S. CAPITAL INTERNATIONAL
RISK EQUITY GROWTH SMALL CAP VALUE EQUITY
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
CALL X
- ----------------------------------------------------------------------------------------------------------------------------
CONCENTRATION
- ----------------------------------------------------------------------------------------------------------------------------
CREDIT/DEFAULT X X
- ----------------------------------------------------------------------------------------------------------------------------
EXTENSION
- ----------------------------------------------------------------------------------------------------------------------------
FOREIGN X X X
- ----------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS X X X
- ----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST RATE X X
- ----------------------------------------------------------------------------------------------------------------------------
STOCK X X X X
- ----------------------------------------------------------------------------------------------------------------------------
SMALL CAP STOCK X
- ----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS X
- ----------------------------------------------------------------------------------------------------------------------------
DERIVATIVES X X X X
- ----------------------------------------------------------------------------------------------------------------------------
MANAGEMENT X X X X
- ----------------------------------------------------------------------------------------------------------------------------
MARKET X X X X
- ----------------------------------------------------------------------------------------------------------------------------
OTHER X X X X
- ----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
GROWTH AND GLOBAL INCOME
RISK INCOME FUND
<S> <C> <C>
- ------------------------------------------------------------
CALL X X
- ------------------------------------------------------------
CONCENTRATION X
- ------------------------------------------------------------
CREDIT/DEFAULT X X
- ------------------------------------------------------------
EXTENSION X
- ------------------------------------------------------------
FOREIGN X X
- ------------------------------------------------------------
EMERGING MARKETS X X
- ------------------------------------------------------------
U.S. GOVERNMENT SECURITIES X
- ------------------------------------------------------------
INTEREST RATE X X
- ------------------------------------------------------------
STOCK X X
- ------------------------------------------------------------
SMALL CAP STOCK
- ------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
- ------------------------------------------------------------
DERIVATIVES X X
- ------------------------------------------------------------
MANAGEMENT X X
- ------------------------------------------------------------
MARKET X X
- ------------------------------------------------------------
OTHER X X
- ------------------------------------------------------------
</TABLE>

- - Call Risk -- The risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as a Mortgage-Backed
Security) earlier than expected. This may happen when there is a decline in
interest rates. Under these circumstances, a Fund may be unable to recoup
all of its initial investment and will also suffer from having to reinvest
in lower yielding securities.

- - Non-Diversification Risk -- The Global Income Fund may invest more than 25%
of its total assets in the securities of corporate and government issuers
located in each of Canada, Germany, Japan and the United Kingdom, as well as
in the securities of U.S. issuers. Concentration of the Fund's investment in
such issuers will subject the Fund, to a greater extent than if investments
were less concentrated, to loses arising from adverse developments affecting
those issuers or countries.

- - Credit/Default Risk -- The risk that an issuer of fixed-income securities
held by a Fund (which may have low credit ratings) may default on its
obligation to pay interest and repay principal.

- - Extension Risk -- The risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as a Mortgage-Backed
Security) later than expected. This may happen when there is a rise in
interest rates. Under these circumstances, the value of the obligation will
decrease and a Fund will also suffer from the inability to invest in higher
yielding securities.

- - Foreign Risks -- To the extent that a Fund invests in securities of foreign
issuers and non-dollar denominated securities, the risk that it will be
subject to special risks not typically associated with domestic issuers
resulting from less government regulation, less public information and less
economic, political and social stability. A Fund will also be subject to the
risk of negative foreign currency rate fluctuations. Foreign risks will
normally be greatest when a Fund invests in issuers located in emerging
countries.

16
<PAGE>
- - Emerging Markets Risk -- The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market
capitalizations, have less government regulation and are not subject to as
extensive and frequent accounting, financial and other reporting
requirements as the securities markets of more developed countries. Further,
investment in equity securities of issuers located in Russia and certain
other emerging countries involves risk of loss resulting from problems in
share registration and custody and substantial economic and political
disruptions. These risks are not normally associated with investment in more
developed countries.

- - U.S. Government Securities Risk -- The risk that the U.S. government will
not provide financial support to U.S. government agencies, instrumentalities
or sponsored enterprises if it is not obligated to do so by law.

- - Interest Rate Risk -- The risk that the value of fixed-income securities
will decline in value when interest rates increase and when interest rates
decrease, income securities tend to increase in value.

- - Small Cap Stock and REIT Risk -- The securities of small capitalization
issuers and REITs involve greater risks than those associated with larger,
more established companies and may be subject to more abrupt or erratic
price movements. The securities of such issuers may lack sufficient market
liquidity to enable a Fund to effect sales at an advantageous time or
without a substantial drop in price.

RISKS THAT APPLY TO ALL FUNDS:

- - Derivatives Risk -- The risk that loss may result from a Fund's investments
in options, futures, swaps, structured securities and other derivative
instruments. These instruments may be leveraged so that small price changes
may produce disproportionate losses to a Fund.

- - Liquidity Risk -- The risk that a Fund will not be able to pay redemption
proceeds within the time period stated in this Prospectus, because of
unusual market conditions, an unusually high volume of redemption requests,
or other reasons. Funds that invest in small capitalization stocks, REITs
and emerging country issues will be especially subject to the risk that
during certain periods the liquidity of particular issuers or industries, or
all securities within these investment categories, will shrink or disappear
suddenly and without warning as a result of adverse economic, market or
political events, or adverse investor perceptions, whether or not accurate.

- - Management Risk -- The risk that a strategy used by the Investment Adviser
may fail to produce the intended results.

- - Market Risk -- The risk that the value of securities (principally equity
securities) in which a Fund invests may increase or decrease in response to
the prospects of individual companies and/or general economic conditions.
Price changes may be temporary or last for extended periods.

- - Other Risks -- Each Fund is subject to other risks, such as the risk that
its operations, or the value of its portfolio securities, will be disrupted
by the "Year 2000 Problem".

- - Stock Risk -- The risk that stock prices have historically risen and fallen
in periodic cycles. As of the date of this prospectus, U.S. stock markets
and certain foreign stock markets were trading at or close to record high
levels. There is no guarantee that such levels will continue.

While the chart set forth above summarizes the principal types of risk that each
Fund is subject to, each Fund also is subject to certain additional risks,
including risks that relate to specific securities that each Fund may invest in.
More information about the Fund's portfolio securities and investment
techniques, and their associated risks, is contained in the section entitled
"Higher Risk Securities and Techniques" later in this prospectus and the SAI.
You should consider the investment risks discussed in this section and in the
SAI. Both are important to your investment choice.

17
<PAGE>
HIGHER RISK SECURITIES AND TECHNIQUES

In addition to the securities and techniques that are described over the next
several pages, the SAI also contains information about additional securities in
which the Funds invest in and investment techniques that the Funds follow in
seeking to achieve their respective investment objectives.

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES

Historically, small market capitalization stocks and stocks of recently
organized companies have been more volatile in price than the larger market
capitalization stocks included in the S&P 500 Index. As a result, investing in
the securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Among the reasons for the greater price
volatility of these small company and unseasoned stocks are the less certain
growth prospects of smaller firms and the lower degree of liquidity in the
markets for such stocks. Small company stocks are thinly traded and may have to
be sold at a discount from current market prices or sold in small lots over an
extended period of time. Small companies also often have limited product lines,
markets or financial resources; may depend on or use a few key personnel for
management; and may be susceptible to losses and risks of bankruptcy. The
transaction costs associated with small company stocks are often higher than
those of larger capitalization companies.

RISKS OF FOREIGN INVESTMENTS

Foreign investments may offer potential benefits that are not available from
investments exclusively in equity securities of domestic issuers quoted in U.S.
dollars. Foreign countries may have economic policies or business cycles
different from those of the U.S., and markets for foreign securities do not
necessarily move in a manner parallel to U.S. markets.

Investing in the securities of foreign issuers and non-dollar securities
involves, however, special risks, including those set forth below, which are not
typically associated with investing in securities of U.S. issuers denominated in
U.S. dollars. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (E.G., currency blockage). A decline in the
exchange rate of the currency (I.E., weakening of the currency against the U.S.
dollar) in which a portfolio security is quoted or denominated relative to the
U.S. dollar would reduce the value of the portfolio security. In addition, if
the currency in which a Fund receives dividends, interest or other payments
declines in value against the U.S. dollar before such income is distributed as
dividends to shareholders or converted to U.S. dollars, the Fund may have to
sell portfolio securities to obtain sufficient cash to pay such dividends. The
introduction of a single currency, the euro, on January 1, 1999 for
participating nations in the European Economic and Monetary Union (EMU) presents
unique uncertainties, including whether the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of certain
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of exchange
rates for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2000 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the euro will converge over time;
and whether the conversion of the currencies of other EMU countries such as the
United Kingdom, Denmark and Greece into the euro and the admission of other
non-EMU countries such as Poland, Latvia and Lithuania as members of the EMU may
have an impact on the euro. These or other factors, including political and
economic risks, could cause market disruptions before or after the introduction
of the euro, and could adversely affect the value of securities held by the
Funds. Commissions on transactions in foreign securities may be higher than
those for similar transactions on domestic stock markets. In addition, clearance
and settlement procedures may be different in foreign countries and, in certain
markets, such procedures have been unable to keep pace with the volume of
securities transactions, thus making it difficult to conduct such transaction.

Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to U.S. issuers.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer. In addition, there is generally less government regulation
of foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S.
securities markets and securities of many foreign issuers are less liquid and
more volatile than securities of comparable domestic issuers. Furthermore, with
respect to certain foreign countries, there is a possibility

18
<PAGE>
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some cases,
capital gains), limitations on the removal of funds or other assets of the
Funds, political or social instability or diplomatic developments which could
affect investments in those countries.

Concentration of a Fund's assets in one of a few countries and currencies will
subject a Fund to greater risks than if a Fund's assets were not geographically
concentrated.

INVESTMENTS IN ADRS, EDRS AND GDRS

Many securities of foreign issuers are represented by ADRs, EDRs and GDRs. ADRs
are receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities of foreign corporations. GDRs are receipts
issued by non U.S. financial institutions evidencing an arrangement similar to
ADRs. Generally, ADRs, in registered form, are designed for trading in U.S.
securities markets and GDRs, issued in either registered or bearer form, are
designed for trading on a global basis. EDRs are receipts issued by non-U.S.
financial institutions evidencing an arrangement similar to ADRs. Generally,
EDRs, in bearer form, are designed for trading in European securities markets.
The Funds may invest in ADRs and GDRs and, except for the CORE U.S. Equity Fund,
may invest in EDRs. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a foreign correspondent bank. Prices of
ADRs are quoted in U.S. dollars, and ADRs are traded in the United States on
exchanges or over-the-counter and are sponsored and issued by domestic banks. In
general, there is a large, liquid market in the United States for ADRs quoted on
a national securities exchange or the NASD's national market system. The
information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, which standards are more uniform and more exacting than those to
which many foreign issuers may be subject. EDRs and GDRs are receipts evidencing
an arrangement with a non-U.S. bank similar to that for ADRs and are designed
for use in non-U.S. securities markets. EDRs and GDRs are not necessarily quoted
in the same currency as the underlying security.

Depository receipts do not eliminate all the risk inherent in investing in the
securities of foreign issuers. To the extent that a Fund acquires depository
receipts through banks which do not have a contractual relationship with the
foreign issuer of the security underlying the receipt to issue and service such
Depository receipts, there may be an increased possibility that the Fund would
not become aware of and be able to respond to corporate actions such as stock
splits or rights offerings involving the foreign issuer in a timely manner. The
market value of depository receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the receipts and the underlying securities are quoted. In addition, the
lack of information may result in inefficiencies in the valuation of such
instruments. However, by investing in Depository receipts rather than directly
in the stock of foreign issuers, a Fund will avoid currency risks during the
settlement period for either purchases or sales.

RISKS OF EMERGING MARKETS

The Capital Growth Fund, Small Cap Value Fund, International Equity Fund, Growth
and Income Fund and Global Income Fund may invest in securities of issuers
located in countries with emerging economies and or securities markets. These
countries are located in the Asia-Pacific region, Eastern Europe, Latin and
South America and Africa. Political and economic structures in many of these
countries may be undergoing significant evolution and rapid development, and
such countries may lack the social, political and economic stability
characteristic of more developed countries. Certain of these countries may have
in the past failed to recognize private property rights and have at times
nationalized or expropriated the assets of private companies. As a result, the
risks of foreign investment generally including the risks of nationalization or
expropriation of assets, may be heightened. See "Special Investment Methods and
Risks -- Foreign Securities" above. In addition, unanticipated political or
social developments may affect the values of a Fund's investments in those
countries and the availability to the Fund of additional investments in those
countries.

The small size and inexperience of the securities markets in certain of these
countries and the limited volume of trading in securities in those countries may
also make the Capital Growth Fund, Small Cap Value Fund, International Equity
Fund, Growth and Income Fund or Global Income Fund's investments in such
countries illiquid and more volatile than investments in Japan or most Western
European countries, and these Funds may be required to

19
<PAGE>
establish special custody or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.

A Fund's purchase or sale of portfolio securities in certain emerging markets
may be constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed based
on aggregate trading volume by or holdings of a Fund, the Adviser and its
affiliates and their respective clients and other service providers. A Fund may
not be able to sell securities in circumstances where price, trading or
settlement volume limitations have been reached.

Foreign investment in certain emerging securities markets is restricted or
controlled to varying degrees that may limit investment in such countries or
increase the administrative cost of such investments. For example, certain Asian
countries require government approval prior to investments by foreign persons or
limit investment by foreign persons to a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of such company available
for purchase by nationals. In addition, certain countries may restrict or
prohibit investment opportunities in issuers or industries important to national
interests. Such restrictions may affect the market price, liquidity and rights
of securities that may be purchased by a Fund.

Settlement procedures in emerging markets are frequently less developed and
reliable than those in the U.S. and may involve a Fund's delivery of securities
before receipt of payment for their sale. In addition, significant delays are
common in certain markets in registering the transfer of securities. Settlement
or registration problems may make it more difficult for a Fund to value its
portfolio assets and could cause a Fund to miss attractive investment
opportunities, to have its assets uninvested or to incur losses due to the
failure of a counterparty to pay for securities that the Fund has delivered or
due to the Fund's inability to complete its contractual obligations.

Currently, there is no market or only a limited market for many management
techniques and instruments with respect to the currencies and securities markets
of emerging market countries. Consequently, there can be no assurance that
suitable instruments for hedging currency and market-related risks will be
available at the times when a Fund wishes to use them.

FOREIGN CURRENCY TRANSACTIONS GENERALLY

Because investment in foreign issuers will usually involve currencies of foreign
countries, and because the Capital Growth Fund, Small Cap Value Fund,
International Equity Fund, Growth and Income Fund and Global Income Fund may
have currency exposure independent of their securities positions, the value of
the assets of these Funds as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates.

An issuer of securities purchased by a Fund may be domiciled in a country other
than the country in whose currency the instrument is denominated or quoted. The
International Equity and Global Income Funds may also invest in securities
quoted or denominated in the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts of the currencies of certain of the twelve
member states of the European Economic Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Economic Community from time to time to reflect changes in relative
values of the underlying currencies. In addition, these two Funds may invest in
securities quoted or denominated in other currency "baskets."

Currency exchange rates may fluctuate significantly over short periods of time
causing, along with other factors, a Fund's net asset value to fluctuate as
well. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments in the U.S. or abroad. The market in forward foreign currency
exchange contracts, currency swaps and other privately negotiated currency
instruments offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded on an exchange. To
the extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions, is
denominated or quoted in the currencies of foreign countries, the Fund will be
more susceptible to the risk of adverse economic and political developments
within those countries.

20
<PAGE>
In addition to investing in securities denominated or quoted in a foreign
currency, certain of the five Funds listed above may engage in a variety of
foreign currency management techniques. These Funds may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Adviser, it would be beneficial to convert such currency into
U.S. dollars at a later date, based on anticipated changes in the relevant
exchange rate. The Funds will incur costs in connection with conversions between
various currencies.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Capital Growth Fund, Small Cap Value Fund, International Equity Fund, Growth
and Income Fund, and Global Income Fund may purchase or sell forward foreign
currency exchange contracts for hedging purposes. The International Equity and
Global Income Funds also may use the contracts to seek to increase total return
when the Adviser anticipates that the foreign currency will appreciate or
depreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held in the Fund's
portfolio. When purchased or sold for the purpose of increasing total return,
forward foreign currency exchange contracts are considered speculative. In
addition, these five Funds may enter into forward foreign currency exchange
contracts in order to protect against anticipated changes in future foreign
currency, exchange rates. The International Equity Fund and Global Income Fund
may engage in cross-hedging by using forward contracts in a currency different
from that in which the hedged security is denominated or quoted if the Adviser
determines that there is a pattern of correlation between the two currencies.

All five of these Funds may enter into contracts to purchase foreign currencies
to protect against an anticipated rise in the U.S. dollar price of securities it
intends to purchase. They may enter in contracts to sell foreign currencies to
protect against the decline in value of its foreign currency denominated or
quoted portfolio securities, or a decline in the value of anticipated dividends
from such securities, due to a decline in the value of foreign currencies
against the U.S. dollar. Contracts to sell foreign currency could limit any
potential gain which might be realized by a Fund if the value of the hedged
currency increased.

If a Fund enters into a forward foreign currency exchange contract to sell
foreign currency to increase total return or to buy foreign currency for any
purpose, the Fund will be required to place cash or liquid assets in a
segregated account with the Fund's custodian in an amount equal to the value of
the Fund's total assets committed to the consummation of the forward contract.
If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the segregated account so that
the value of the account will equal the amount of the Fund's commitment with
respect to the contract.

Forward contracts are subject to the risk that the counterparty to such contract
will default on its obligations. Since a forward foreign currency exchange
contract is not guaranteed by an exchange or clearinghouse, a default on the
contract would deprive a Fund of unrealized profits, transaction costs or the
benefits of a currency hedge or force the Fund to cover its purchase or sale
commitments, if any, at the current market price. A Fund will not enter into
such transactions unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty is considered to be investment grade
by the Adviser.

OPTIONS ON FOREIGN CURRENCIES

The Capital Growth Fund, Small Cap Value Fund, International Equity Fund, Growth
and Income Fund and Global Income Fund may purchase and sell (write) put and
call options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of foreign portfolio securities and
anticipated dividends on such securities and against increases in the U.S.
dollar cost of foreign securities to be acquired. The International Equity and
Global Income Funds may use options on currency to cross-hedge, which involves
writing or purchasing options on one currency to hedge against changes in
exchange rates for a different currency, if there is a pattern of correlation
between the two currencies. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. A Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. In addition, the
International Equity and Global Income Funds may purchase call or put options on
currency to seek to increase total return when the Adviser anticipates that the
currency will appreciate or depreciate in value, but the securities quoted or
denominated in that currency do not present attractive investment

21
<PAGE>
opportunities and are not held in the Fund's portfolio. When purchased or sold
to increase total return, options on currencies are considered speculative.
Options on foreign currencies to be written or purchased by these Funds will be
traded on U.S. and foreign exchanges or over-the-counter. See "Options on
Securities and Securities Indices" in the SAI for a discussion of the liquidity
risks associated with options transactions.

FOREIGN GOVERNMENT SECURITIES

Foreign government securities are debt obligations of governments and
governmental agencies located outside of the United States of America, including
those of emerging countries.

Investment in sovereign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or pay interest when due in accordance with the
terms of such debt, and a Fund may have limited recourse to compel payment in
the event of a default.

A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by:
- - Its cash flow situation
- - The extent of its foreign currency reserves
- - The availability of sufficient foreign exchange on the date a payment is due
- - The relative size of the debt service burden to the economy as a whole
- - The sovereign debtor's policy toward international lenders
- - The political constraints to which a sovereign debtor may be subject

Periods of economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn a Fund's NAV, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES

Mortgage-backed securities are securities that represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. Certain Funds may also invest in stripped mortgage-
backed securities ("SMBS") (including interest only and principal only
securities). SMBS are derivative securities and are usually structured with two
different classes: one receiving 100% of the interest payments and the other
receiving 100% of the principal payments from a pool of mortgage loans.

Asset-backed securities are securities whose principal and interest payments are
collateralized by pools of assets such as auto loans, credit card receivables,
leases, installment contracts and personal property. Such asset pools are
securitized through the use of special purpose trusts or corporations. Principal
and interest payments may be credit enhanced by a letter of credit, a pool
insurance policy or a senior/subordinated structure.

If the underlying mortgage loans experience different than anticipated
prepayments of principal, the Fund may fail to recoup fully its initial
investment in these securities and thus, lose money. SMBS have additional risks.
The market value of the class consisting entirely of principal payments
generally is unusually volatile in response to changes in interest rates. The
yields on a class of SMBS that receives all or most of the interest from
mortgage loans are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. The Fund's investments in SMBS may require the Fund to sell portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements.

CONVERTIBLE SECURITIES

Convertible securities are preferred stock or debt obligations that are
convertible into common stock. Convertible securities have both equity and debt
or fixed-income risk characteristics. Generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price of the
convertible security, the convertible security tends to reflect the market price
of the underlying common stock. As the

22
<PAGE>
market price of the underlying common stock declines, the convertible security,
like an income security, tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.

Convertible securities rank senior to common stocks in an issuer's capital
structure and, consequently, present less risk than the issuer's common stock.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality.

RISKS OF DERIVATIVE TRANSACTIONS.

A Fund's transactions, if any, in options, futures, options on futures, swaps,
structured securities and currency transactions involve special risks, including
a possible lack of correlation between changes in the value of hedging
instruments and the portfolio assets (if any) being hedged, the potential
illiquidity of the markets for derivative instruments, the risks arising from
margin requirements and related leverage factors associated with such
transactions. The use of these management techniques to seek to increase total
return may be regarded as a speculative practice and involves the risk of loss
if the Investment Adviser is incorrect in its expectation of fluctuations in
securities prices, interest rates or currency prices. A Fund's use of certain
derivative transactions may be limited by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company.

LOWER-RATED FIXED-INCOME SECURITIES

Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their issuers'
capacity to pay interest and repay principal. A security will be deemed to have
met a rating requirement if it receives the minimum required rating from at
least one such rating organization even though it has been rated below the
minimum rating by one or more other rating organizations, or if unrated by such
rating organizations, determined by the Investment Adviser to be of comparable
credit quality.

Certain Funds may invest in fixed-income securities rated BB or Ba or below (or
comparable unrated securities) which are commonly referred to as "junk bonds."
Junk bonds are considered predominantly speculative and may be questionable as
to principal and interest payments.

In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, investment in
such bonds will present greater speculative risks than those associated with
investment in investment grade bonds. Also, to the extent that the rating
assigned to a security in a Fund's portfolio is downgraded by a rating
organization, the market price and liquidity of such security may be adversely
affected.

For more information about the investments of the Funds, please refer to the
SAI.

SHORT-TERM TRADING

Other than the Global Income Fund, no Fund expects to trade in securities for
short-term gain. However, an Investment Adviser may engage in such activity at
any time with regard to any Fund. To the extent that a Fund engages in frequent
trading, the portfolio turnover rate for such a Fund will be higher than a Fund
that does not engage in frequent trading. A high rate of portfolio turnover
(100% or higher) involves correspondingly greater expenses that must be borne by
a Fund and the Fund's shareholders and may, under certain circumstances, make it
more difficult for a Fund to qualify as a regulated investment company under the
Code. For more information concerning the federal tax implications of frequent
trading, please refer to the section entitled "Taxes" in the SAI.

23
<PAGE>
PRINCIPAL INVESTMENT SECURITIES AND TECHNIQUES

The following table shows each Fund's investment limitations with respect to
certain higher risk securities and practices as a percentage of portfolio
assets.

<TABLE>
<CAPTION>
CORE GROWTH GLOBAL
U.S. CAPITAL SMALL CAP INTERNATIONAL AND INCOME
EQUITY GROWTH VALUE EQUITY INCOME FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
- -----------------------------------------------------------------------------------------------------------------
Borrowings 33-1/3 33-1/3 33-1/3 33-1/3 33-1/3 33-1/3
- -----------------------------------------------------------------------------------------------------------------
Credit and Interest Rate Swaps -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Cross-Hedging of Currency -- -- -- - -- -
- -----------------------------------------------------------------------------------------------------------------
Currency Options and Futures -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Currency Swaps -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Custodial Receipts - - - - - -
- -----------------------------------------------------------------------------------------------------------------
Equity Swaps 10 10 10 10 10 --
- -----------------------------------------------------------------------------------------------------------------
Futures Contracts and Options on Futures
Contracts -(1) - - - - -
- -----------------------------------------------------------------------------------------------------------------
Foreign Currency Transactions - - - - - -
- -----------------------------------------------------------------------------------------------------------------
Forward Foreign Currency Exchange
Contracts -- - - - - -
- -----------------------------------------------------------------------------------------------------------------
Interest Rate Caps Floors and Collars -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Mortgage Dollar Rolls -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Mortgage Swaps -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies(1) - - - - - -
- -----------------------------------------------------------------------------------------------------------------
Options on Securities and Securities
Indices(1) - - - - - -
- -----------------------------------------------------------------------------------------------------------------
Repurchase Agreements - - - - - -
- -----------------------------------------------------------------------------------------------------------------
Securities Lending 33-1/3 33-1/3 33-1/3 33-1/3 33-1/3 33-1/3
- -----------------------------------------------------------------------------------------------------------------
Short Sales Against the Box -- 25 25 25 25 --
- -----------------------------------------------------------------------------------------------------------------
Unseasoned Companies - - - - - --
- -----------------------------------------------------------------------------------------------------------------
Warrants and Stock Purchase Rights - - - - - --
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

- - No policy limitation on usage; limited only by the objectives and strategies
of the Fund.
- -- Not permitted.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)

(1) The CORE U.S. Equit Fund may enter into futures transactions only with
respect to the S&P 500 Index.
(2) May purchase and sell call and put options.
(3) May sell covered call and put options and purchase call and put options.

24
<PAGE>

<TABLE>
<CAPTION>
CORE GROWTH GLOBAL
U.S. CAPITAL SMALL CAP INTERNATIONAL AND INCOME
EQUITY GROWTH VALUE EQUITY INCOME FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Securities
- -----------------------------------------------------------------------------------------------------------------
American, European and Global Depository
Receipts -(1) - - - - --
- -----------------------------------------------------------------------------------------------------------------
Asset-Backed and Mortgage-Backed
Securities - - - - - -
- -----------------------------------------------------------------------------------------------------------------
Bank Obligations - - - - - -
- -----------------------------------------------------------------------------------------------------------------
Convertible Securities(1) - - - - - --
- -----------------------------------------------------------------------------------------------------------------
Corporate Debt Obligations -(1) - - 35 - -
- -----------------------------------------------------------------------------------------------------------------
Equity Securities 90+ 90+ 65+ 65+ 65+ --
- -----------------------------------------------------------------------------------------------------------------
Emerging Market Securities -- 10 25 25 25 10
- -----------------------------------------------------------------------------------------------------------------
Fixed Income Securities(1) - -- -- 35 35 -
- -----------------------------------------------------------------------------------------------------------------
Foreign Securities - 10 25 - 25 -
- -----------------------------------------------------------------------------------------------------------------
Foreign Government Securities -- -- -- - -- -
- -----------------------------------------------------------------------------------------------------------------
Non-Investment Grade Fixed Income
Securities -- 10(1) 35(8) 35 10(8) -
- -----------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities
- -----------------------------------------------------------------------------------------------------------------
Adjustable Rate Mortgage Loans -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Multiple Class Mortgage
Backed-Securities -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Privately Issued Mortgage Backed
Securities -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Stripped Mortgage-Backed Securities -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - - - - - --
- -----------------------------------------------------------------------------------------------------------------
Structured Securities - - - - - -
- -----------------------------------------------------------------------------------------------------------------
Taxable Municipal Securities -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Tax-Free Municipal Securities -- -- -- -- -- -
- -----------------------------------------------------------------------------------------------------------------
Temporary Defensive Investments 35 100 100 100 100 -
- -----------------------------------------------------------------------------------------------------------------
U.S. Government Securities - - - - -
- -----------------------------------------------------------------------------------------------------------------
MISCELLANEOUS INVESTMENT SECURITIES AND
TECHNIQUES
- -----------------------------------------------------------------------------------------------------------------
Custodial receipts X X X X X X
- -----------------------------------------------------------------------------------------------------------------
Investment company securities (including
World Equity Benchmark Shares and
Standard & Poor's Depository Receipts) X X X X X --
- -----------------------------------------------------------------------------------------------------------------
Unseasoned Companies X X X X X --
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

X Permitted
- -- Not Permitted

(4) The U.S. CORE Equity Fund may not invest in European Depository Receipts.
(5) The CORE U.S. Equity Fund has not minimum rating criteria for convertible
securities, and all other Funds are the same rating criteria for
convertible and non-convertible debt securities.
(6) Cash equivalents only.
(7) Except as noted under "Junk Bonds," fixed income securities are rated at
least investment grade (I.E., BBB or higher by Standard & Poor's Rating
group ("Standard & Poor's") or Baa or higher by Moody's Ivestor's Service,
Inc. ("Moody's").
(8) May be rated BB or lower by Standard and Poor's or Ba or lower by Moody's.

25
<PAGE>
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------

DIRECTORS AND OFFICERS

The Company's board of directors is responsible for deciding matters of general
policy and reviewing the actions of the Investment Manager and the Adviser, the
custodian, accounting and administrative services provider and other providers
of services to the Company. The officers of the Company supervise its daily
business operations. The SAI contains more information about the management of
the Company and the Funds.

INVESTMENT MANAGER

Protective Investment Advisors, Inc. (formerly, Investment Distributors Advisory
Services, Inc.) located at 2801 Highway 280 South, Birmingham, Alabama 35223, is
the investment manager of the Company and its Funds. PIA has managed the Company
and the Funds since 1994. The Company is the sole mutual fund client of PIA.

For its services to the Company, the Investment Manager receives a monthly
management fee. The fee is based upon average daily net assets of each Fund and
is accrued daily and paid to the Investment Manager at the following annual
rates for each of the Funds:

<TABLE>
<CAPTION>
AGGREGATE MANAGEMENT FEES PAID
MANAGEMENT TO PIA DURING THE FISCAL YEAR
FUND FEE ENDED DECEMBER 31, 1998
- ---------------------------------------------------------- ------------- ------------------------------
<S> <C> <C>
CORE U.S. Equity Fund..................................... 0.80%
Capital Growth Fund....................................... 0.80%
Small Cap Value Fund...................................... 0.80%
International Equity Fund................................. 1.10%
Growth and Income Fund.................................... 0.80%
Global Income Fund........................................ 1.10%
</TABLE>

The investment management agreement does not place limits on the operating
expenses of the Company or of any Fund. However, the Investment Manager has
voluntarily undertaken to pay any such expenses (but not including brokerage or
other portfolio transaction expenses or expenses of litigation, indemnification,
taxes or other extraordinary expenses) to the extent that such expenses, as
accrued for each Fund, exceed the following percentages of that Fund's estimated
average daily net assets on an annualized basis: CORE U.S. Equity Fund, 0.80%,
Capital Growth Fund, 0.80%, Small Cap Value Fund, 0.80%, International Equity
Fund, 1.10%, Growth and Income Fund, 0.80%, and Global Income Fund, 1.10%. This
reduction of expenses will increase the yield or total return of the Funds for
any period for which it remains in effect. The Investment Manager may withdraw
this undertaking to pay expenses as to any or all of the Funds upon 120 days
notice to the Company.

See "Investment Manager" in the SAI for more detailed information about the
investment management agreement.

INVESTMENT ADVISERS

<TABLE>
<CAPTION>
INVESTMENT ADVISER FUND
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Asset Management ("GSAM") CORE U.S. Equity
One New York Plaza Capital Growth
New York, New York 10004 Small Cap Value
Growth and Income
- --------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Assets Management International ("GSAMI") International Equity
133 Peterborough Court Global Income
London EC4A 2BB England
</TABLE>

26
<PAGE>
GSAM is a separate operating division of Goldman Sachs, which registered as an
investment adviser in 1981. GSAMI was organized in 1990 as a company with
unlimited liability under the laws of England. It is authorized to conduct
investment advisory business in the United Kingdom as a member of the Investment
Management Regulatory Organization Limited, a U.K. self-regulatory organization.
The Goldman Sachs Group, L.P., which controls the Investment Advisers, was
merged into a new public company, The Goldman Sachs Group, Inc. As of December
31, 1998, GSAM and GSAMI, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $195 billion.

The Investment Advisers provide day-to-day advice as to the Funds' portfolio
transactions. The Investment Advisers make the investment decisions for the
Funds and place purchase and sale orders for the Funds' portfolio transactions
in the U.S. and foreign markets. As permitted by applicable law, these orders
may be directed to any brokers, including Goldman Sachs and its affiliates.
While each Investment Adviser is ultimately responsible for the management of
the Funds, they are able to draw upon the research and expertise of their asset
management affiliates for portfolio decisions and management with respect to
certain portfolio securities. In addition, each Investment Adviser has access to
the research and certain proprietary technical models developed by Goldman
Sachs.

M. Roch Hillenbrand, a Managing Director of Goldman, Sachs & Co., is the Head of
Global Equities for GSAM, overseeing U.S., Europe, Japan, and non-Japan Asia. In
this capacity, he is responsible for managing the group as if defines and
implements global portfolio management processes that are consistent, reliable
and predictable. Roch is also President of Commodities Corporation LLC, of which
Goldman, Sachs & Co. is the parent company. Over the course of his 18-year
career at Commidities Corporation, Roch has had extensive experience in dealing
with internal and external investment managers who have managed a range of
futures and equities strategies across multiple markets, using a variety of
styles.

All of the Value Style Funds, which include the Growth and Income and Small Cap
Value Fund, are managed on a team basis with certain members of the team taking
primary responsibility for particular Funds. Each member of the team generally
participates in the active discussion of the composition, structure and strategy
of each Fund. The members of the Value Team are Eileen A. Aptman, Paul D.
Farrell, Matthew B. McLennan and Karma Wilson.

<TABLE>
<CAPTION>
ACTIVE EQUITY VALUE TEAM (SMALL CAP VALUE FUND)
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ------------------------- ------------------------------ ----------- --------------------------------------------------
<C> <S> <C> <C>
Eileen A. Aptman Portfolio Manager -- Since 1997 Ms. Aptman joined GSAM in 1993
Vice President Small Cap Value

Paul D. Farrell Senior Portfolio Manager -- Since 1992 Mr. Farrell joined GSAM in 1991. In 1998, Mr.
Managing Director Small Cap Value Farrell became responsible for managing GSAM's
Value Team.

Matthew B. McLennan Portfolio Manager -- Since 1996 Mr. McLennan joined GSAM in 1995. From 1994 to
Small Cap Value 1995, he worked in the Investment Banking Division
of Goldman Sachs in Australia. From 1991 to 1994,
Mr. McLennan worked at Queensland Investment
Corporation in Australia.
</TABLE>

27
<PAGE>
<TABLE>
<CAPTION>
CORE U.S. EQUITY TEAM (CORE U.S. EQUITY FUND)
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ------------------------- ------------------------------ ----------- --------------------------------------------------
<C> <S> <C> <C>
Melissa Brown Portfolio Manager -- Since 1998 Ms. Brown joined GSAM in 1998. From 1984 to 1998,
Vice President CORE U.S. Equity she was the director of Quantitative Equity
Research and served on the Investment Policy
Committee at Prudential Securities.

Kent A. Clark Senior Portfolio Manager -- Since 1996 Mr. Clark joined GSAM in 1992.
Managing Director CORE U.S. Equity

Robert C. Jones Senior Portfolio Manager -- Since 1991 Mr. Jones joined GSAM in 1989.
Managing Director CORE U.S. Equity

Victory H. Pinter Senior Portfolio Manager -- Since 1996 Mr. Pinter joined GSAM in 1990.
Vice President CORE U.S. Equity
<CAPTION>

GROWTH INVESTMENT TEAM (CAPITAL GROWTH FUND AND GROWTH AND INCOME FUND)
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ------------------------- ------------------------------ ----------- --------------------------------------------------
<C> <S> <C> <C>
George D. Adler Portfolio Manager -- Since 1997 Mr. Adler joined GSAM in 1997. From 1990 to 1997,
Vice President Capital Growth he was a portfolio manager at Liberty Investment
Management, Inc. ("Liberty").

Robert G. Collins Senior Portfolio Manager -- Since 1997 Mr. Collins joined GSAM in 1997. From 1991 to
Vice President Capital Growth 1997, he was a portfolio manager at Liberty. His
past experiences include work as a special
situations analyst with Raymond James & Associates
for five years.

Herbert E. Ehlers Senior Portfolio Manager -- Since 1997 Mr. Ehlers joined GSAM in 1997. from 1994 to 1997,
Managing Director Capital Growth he was the Chief Investment Officer and Chairman
of Liberty. He was a portfolio manager and
President at Liberty's predecessor Firm, Eagle
Asset Management ("Eagle"), from 1984 to 1994.

Gregory H. Ekizian Senior Portfolio Manager -- Since 1997 Mr. Ekizian joined GSAM in 1997. From 1990 to
Vice President Capital Growth 1997, he was a portfolio manager at Liberty
Investment Management, Inc. and its predecessor
firm, Eagle.

David G. Shell Portfolio Manager -- Since 1997 Mr. Shell joined GSAM in 1997. From 1987 to 1997,
Vice President Capital Growth he was a portfolio manager at Liberty and its
predecessor firm, Eagle.

Ernest C. Segundo, Jr. Portfolio Manager -- Since 1997 Mr. Segundo joined GSAM in 1997. From 1992 to
Vice President Capital Growth 1997, he was a portfolio manager at Liberty.

Karma Wilson Portfolio Manager -- Since 1998 Ms. Wilson joined GSAM in 1994. Prior to 1994, she
Vice President Growth and Income was an investment analyst with Bankers Trust
Australia Ltd.
</TABLE>

28
<PAGE>
<TABLE>
<CAPTION>
GLOBAL FIXED INCOME INVESTMENT MANAGEMENT TEAM (GLOBAL INCOME FUND)
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ------------------------- ------------------------------ ----------- --------------------------------------------------
<C> <S> <C> <C>
Stephen Fitzgerald Portfolio Manager -- Global Since 1992 Mr. Fitzgerald joined GSAM in 1992.
Managing Director and Income Fund
Chief Investment Officer
for International Fixed-
Income

Andrew Wilson Portfolio Manager -- Global Since 1995 Mr. Wilson joined GSAM in 1995. Prior to this
Executive Director Income Fund current position, he spent three years as an
Assistant Director at Rothschild Asset Management,
where he was responsible for managing global and
international bond portfolios with specific focus
on the U.S., Canadian, Australian and Japanese
economies.
</TABLE>

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGER BY
GOLDMAN SACHS

The involvement of the Investment Advisers, Goldman Sachs and their affiliates
in the management of, or their interest in, other accounts and other activities
of Goldman Sachs may present conflicts of interest with respect to a Fund or
limit a Fund's investment activities. Goldman Sachs and its affiliates engage in
proprietary trading and advise accounts and funds which have investment
objectives similar to those of the Funds and/or which engage in and compete for
transactions in the same types of securities, currencies and instruments as the
Funds. Goldman Sachs and its affiliates will not have any obligation to make
available any information regarding their proprietary activities or strategies,
or the activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds. The results of a Fund's investment
activities, therefore, may differ from those of Goldman Sachs and its affiliates
and it is possible that a Fund could sustain losses during periods in which
Goldman Sachs and its affiliates and other accounts achieve significant profits
on their trading for proprietary or other accounts. In addition, the Funds may,
from time to time, enter into transactions in which other clients of Goldman
Sachs have an adverse interest. From time to time, a Fund's activities may be
limited because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions.

YEAR 2000

Many computer systems were designed using only two digits to signify the year
(for example, "98" for "1998"). On January 1, 2000, if these computer systems
are not corrected, they may incorrectly interpret "00" as the year "1900" rather
than the year "2000," which may lead to computer shutdowns or errors (commonly
known as the "Year 2000 Problem"). To the extent these systems conduct
forward-looking calculations, these computer problems may occur prior to January
1, 2000.

Like other investment companies and financial and business organizations, the
Funds could be adversely affected in their ability to process securities trades,
price securities, provide shareholder account services and otherwise conduct
normal business operations if the computer systems used by the Investment
Adviser or other Fund service providers do not adequately address this problem
in a timely manner.

The Investment Adviser has established a dedicated group to analyze these issues
and to implement the systems modifications necessary to prepare for the Year
2000 Problem. Currently, the Investment Adviser does not anticipate that the
transition to the 21st century will have any material impact on its ability to
continue to service the Funds at current levels. In addition, the Investment
Adviser has sought assurances from the Funds' other service providers that they
are taking the steps necessary so that they do not experience Year 2000
Problems. The Investment Adviser will continue to monitor the situation.

29
<PAGE>
In addition, the Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 preparedness of
the issuers of securities held by the Funds. The Investment Adviser may obtain
such Year 2000 information from various sources which the Investment Adviser
believes to be reliable, including the issuers; public regulatory filings.
However, the Investment Advisers is not in a position to verify the accuracy or
completeness of such information.

At this time, however, no assurance can be given that the actions taken by the
Investment Adviser and the Funds' other service providers will be sufficient to
avoid any adverse effect on the Funds due to the Year 2000 Problem.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Each Fund intends to distribute substantially all of their net investment income
annually. Each Fund also intends to annually distribute substantially all of its
net realized capital gains. All income dividends and capital gain distributions
made by a Fund will be reinvested in shares of that Fund at that Fund's net
asset value.

DETERMINATION OF NET ASSET VALUE

The net asset value per share of each Fund is normally determined once daily as
of the close of regular trading on the New York Stock Exchange, normally 4:00
p.m. New York time, on each day when the New York Stock Exchange is open, except
as noted below. The New York Stock Exchange is scheduled to be open Monday
through Friday throughout the year, except for certain federal and other
holidays. The net asset value of each Fund is determined by dividing the value
of the Fund's securities, cash, and other assets (including accrued but
uncollected interest and dividends), less all liabilities (including accrued
expenses but excluding capital and surplus) by the number of shares of the Fund
outstanding.

The value of each Fund's securities and assets, except for certain short-term
debt securities, is determined on the basis of their market values. Short-term
debt securities having remaining maturities of sixty days or less are valued by
the amortized cost method, which approximates market value. Investments for
which market quotations are not readily available are valued at their fair value
as determined in good faith by, or under authority delegated by, the Company's
board of directors. See "Determination of Net Asset Value" in the SAI.

TAXATION

For federal income tax purposes, each Fund will be treated as a separate entity.
Each Fund intends to qualify each year as a "regulated investment company" under
the Code. By so qualifying, a Fund will not be subject to federal income taxes
to the extent that its net investment income and net realized capital gains are
distributed to the separate accounts of insurance companies. Further, each Fund
intends to meet certain diversification requirements applicable to mutual funds
underlying variable insurance products.

The shareholders of the Funds are the separate accounts of Protective and PLIA.
Under current law, owners of variable annuity contracts and variable life
insurance policies that have invested in a Fund are not subject to federal
income tax on Fund distributions or on gains realized upon the sale or
redemption of Fund shares until they are withdrawn from the contracts or
policies. For information concerning the federal tax consequences to the
purchasers of the variable annuity contracts and variable life insurance
policies, see the attached prospectus for such contract or policy.

For more information about the tax status of the Funds, see "Taxes" in the SAI.

30
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS
- --------------------------------------------------------------------------------

For investors who would like more information about the Funds and the Company,
the following documents are available free upon request.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains additional information about all aspects of the Funds. A
current SAI has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. For a copy of the SAI, write or call the
Company at the address or phone number listed below. The SEC also maintains a
Web site located at
http://www.sec.gov that contains the SAI, material incorporated herein by
reference, and other information regarding the Funds.

ANNUAL AND SEMI-ANNUAL REPORTS

The Funds' annual and semi-annual reports provide additional information about
the Funds' investments. The annual report contains a discussion of the market
conditions and investment strategies that significantly affected each Fund's
performance during the last fiscal year.

TO OBTAIN THE SAI OR THE MOST RECENT ANNUAL OR
SEMI-ANNUAL REPORT FOR THE FUNDS YOU MAY WRITE
TO PROTECTIVE INVESTMENT COMPANY AT P.O. BOX
2606, BIRMINGHAM, AL 35202 OR CALL US AT
1-800-866-3555.

Investment Company Act File No. 811-8674

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PART B
INFORMATION REQUIRED TO BE IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION

PROTECTIVE INVESTMENT COMPANY

PROTECTIVE CORE U.S. EQUITY FUND
PROTECTIVE CAPITAL GROWTH FUND
PROTECTIVE SMALL CAP VALUE FUND
PROTECTIVE INTERNATIONAL EQUITY FUND
PROTECTIVE GROWTH AND INCOME FUND
PROTECTIVE GLOBAL INCOME FUND

May 1, 1998

This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement expands upon information discussed in
the prospectus for Protective Investment Company (the "Company") and should,
therefore, be read in conjunction with the prospectus for the Company. To obtain
a copy of the prospectus with the same date as this Statement of
Additional Information write to the Company at P. O. Box 2606, Birmingham,
Alabama 35202 or call 1-800-866-3555.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTRODUCTION.............................................................. 1
ADDITIONAL INVESTMENT POLICY INFORMATION.................................. 2
Protective CORE U.S. Equity Fund........................................ 2
Business Value Investing in Protective Small Cap Value Fund and
Protective Growth and Income Fund...................................... 2
Protective International Equity Fund.................................... 3
Protective Global Income Fund........................................... 3
SPECIAL INVESTMENT METHODS AND RISKS...................................... 4
Custody Receipts........................................................ 4
Restricted and Illiquid Securities...................................... 4
Options on Securities and Securities Indices............................ 5
Futures Contracts and Options on Futures Contracts...................... 7
Foreign Investments..................................................... 9
Fixed-Income Securities................................................. 14
Structured Securites.................................................... 17
Repurchase Agreements................................................... 18
Mortgage Dollar Rolls................................................... 18
Leading of Portfolio Securities......................................... 18
Borrowing............................................................... 19
Standard & Poor's Depository Receipts................................... 19
Short Sales Against-the-Box............................................. 19
Other Investment Companies.............................................. 19
Warrants and Rights..................................................... 19
Real Estate Investment Trusts........................................... 20
When-Issued Securities and Forward Commitments.......................... 20
INVESTMENT RESTRICTIONS................................................... 21
Fundamental Restrictions................................................ 21
Non-fundamental Restrictions............................................ 22
Interpretive Rules...................................................... 22
INVESTMENT MANAGER........................................................ 22
Investment Management Agreement......................................... 23
Expenses of the Company................................................. 24
INVESTMENT ADVISERS....................................................... 24
Investment Advisers..................................................... 24
Investment Advisory Agreements.......................................... 26
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 28
DETERMINATION OF NET ASSET VALUE.......................................... 30
PERFORMANCE INFORMATION................................................... 32
TAXES..................................................................... 33
General Tax Information................................................. 33
SHARES OF STOCK........................................................... 35
VOTING AND OTHER RIGHTS................................................... 36
CUSTODY OF ASSETS......................................................... 36
DIRECTORS AND OFFICERS.................................................... 38
Table of Directors Compensation......................................... 38
OTHER INFORMATION......................................................... 39
Independent Accountants................................................. 39
Legal Counsel........................................................... 39
Other Information....................................................... 39
APPENDIX A
DESCRIPTION OF BOND RATINGS............................................. 40
Standard & Poor's Ratings Group....................................... 41
APPENDIX B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.............................. 42
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES..... 42
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE............................ 42
</TABLE>

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INTRODUCTION

Protective Investment Company (the "Company") is an open-end management
investment company incorporated in the State of Maryland on September 2, 1993.
The Company consists of six separate investment portfolios or funds (the "Funds"
or a "Fund"), each of which is, in effect, a separate mutual fund. In previous
years, the Company offered seven Funds. The seventh Fund which is no longer
offered by the Company was called the Money Market Fund. The Company issues a
separate class of stock for each Fund representing fractional undivided
interests in that Fund. An investor, by investing in a Fund, becomes entitled to
a pro-rata share of all dividends and distributions arising from the net income
and capital gains on the investments of that Fund. Likewise, an investor shares
pro-rata in any losses of that Fund.

Pursuant to an investment management agreement and subject to the authority
of the Company's board of directors, Investment Distributors Protective
Investment Advisors, Inc. ("PIA") serves as the Company's investment manager
(the "Investment Manager") and conducts the business and affairs of the Company.
PIA has engaged Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), as the investment adviser
to provide day-to-day portfolio management for the Protective International
Equity Fund and the Protective Global Income Fund. PIA also has engaged Goldman
Sachs Asset Management ("GSAM"), a separate operating division of Goldman Sachs,
as the investment adviser to provide day-to-day portfolio management for each of
the other Funds. (GSAM and GSAMI are each referred to herein as the "Adviser" or
together as the "Advisers," as appropriate.)

The Company currently offers each class of its stock to a separate accounts
of Protective Life Insurance Company ("Protective Life") and Protective Life and
Annuity Insurance Company ("PLAI") (formerly, American Foundation Life Insurance
Company) as funding vehicles for certain variable annuity and variable life
insurance contracts (the "Contracts") issued by Protective Life or PLAI through
separate accounts (the "Accounts"). The Company does not offer its stock
directly to the general public. Each Account, like the Company, is registered as
an investment company with the Securities and Exchange Commission ("SEC") and a
separate prospectus, which accompanies the prospectus for the Company (the
"Prospectus"), describes the Account and the Contracts issued through that
Account. The prospectus for the Account and the Contracts also has a statement
of additional information similar to this statement of additional information
(the "SAI").

The Company may, in the future, offer its stock to other registered and
unregistered separate accounts of Protective Life, PLAI, and their affiliates
supporting other variable annuity contracts or variable life insurance contracts
and to qualified pension and retirement plans.

Terms appearing in the SAI that are defined in the Prospectus have the same
meaning herein as in the Prospectus.

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ADDITIONAL INVESTMENT POLICY INFORMATION

PROTECTIVE CORE U.S. EQUITY FUND

The CORE U.S. Equity Fund's investment objective is to provide its
shareholders with a total return consisting of capital appreciation plus
dividend income. Under normal circumstances, the Fund will invest at least 90%
of its total assets in equity securities.

Since normal settlement for equity securities is three trading days, the
Fund will need to hold cash balances to satisfy shareholder redemption requests.
Such cash balances normally range from 2% to 5% of the Fund's net assets. The
Fund may purchase futures contracts on the S&P 500 Index in order to keep the
Fund's effective equity exposure close to 100%. For example, if cash balances
are equal to 5% of the net assets, the Fund may enter into long futures
contracts covering an amount equal to 5% of the Fund's net assets. As cash
balances fluctuate based on new contributions or withdrawals, the Fund may enter
into additional contracts or close out existing positions.

THE MULTIFACTOR MODEL. The multifactor model is a rigorous computerized
rating system for evaluating equity securities according to a variety of
investment characteristics (or factors). The factors used by the multifactor
model incorporate many variables studied by traditional fundamental analysts,
and cover measures of value, yield, growth, momentum, risk and liquidity (E.G.,
price/ earnings ratio, sustainable growth rate, earnings momentum and market
liquidity). All of these factors have been shown to significantly impact the
performance of equity securities.

Because it includes many disparate factors, the Adviser believes that the
multifactor model is broader in scope and provides a more thorough evaluation
than most conventional, value-oriented quantitative models. As a result, the
securities ranked highest by the multifactor model do not have one dominant
investment characteristic (such as a low price/earnings ratio); rather, such
securities possess many different investment characteristics. By using a variety
of relevant factors to select securities from the recommended list, the Adviser
believes that the CORE U.S. Equity Fund will be better balanced and have more
consistent performance than an investment portfolio that uses only one or two
factors to select securities.

The Adviser will monitor, and may occasionally suggest and make changes to,
the method by which securities are selected for or weighted in the CORE U.S.
Equity Fund. Such changes (which may be the result of changes in the multifactor
model or the method of applying the multifactor model) may include: (i)
evolutionary changes to the structure of the multifactor model (E.G., the
addition of new factors or a new means of weighting the factors); (ii) changes
in trading procedures (E.G., trading frequency or the manner in which the Fund
uses futures); or (iii) changes in the method by which securities are weighted
in the Fund. Any such changes will preserve the Fund's basic investment
philosophy of combining qualitative and quantitative methods of selecting
securities using a disciplined investment process.

BUSINESS VALUE INVESTING IN PROTECTIVE SMALL CAP VALUE FUND AND PROTECTIVE
GROWTH AND INCOME FUND

Potential equity investments for Small Cap Value Fund and Growth and Income
Fund generally are evaluated using fundamental analysis, including criteria such
as earnings, cash flow, asset values and/or dividend-paying ability. In choosing
a Fund's securities, the Adviser utilizes first-hand fundamental research,
including visiting company facilities to assess operations and meet
decision-makers. The Adviser may also use a macro analysis of numerous economic
and valuation variables to determine and anticipate changes in company earnings
and the overall investment climate. The Adviser is able to draw on the research
and market expertise of the Goldman Sachs Research Department and other
affiliates of the Adviser as well as information provided by other securities
dealers.

The Adviser intends to purchase equity securities of companies that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying ability.
These Funds may also purchase securities of companies that have experienced
difficulties and that, in the opinion of the Adviser, are available at
attractive prices. Consideration is given to the business quality of the issuer.
Factors positively affecting the Adviser's

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<PAGE>
view of that quality include the competitiveness and degree of regulation in the
markets in which the company operates, the existence of a management team with a
record of success, the market position of the company in the markets in which it
operates, the level of the company's financial leverage and the sustainable
return on capital invested in the business.

Equity securities in a Fund's portfolio will generally be sold when the
Adviser believes that the market price fully reflects or exceeds the securities'
fundamental valuation or when other more attractive investments are identified.

PROTECTIVE INTERNATIONAL EQUITY FUND

INVESTING ABROAD: HIGH HISTORICAL RETURNS AND UNRECOGNIZED VALUES. Because
research coverage outside the U.S. is fragmented and relatively unsophisticated,
many foreign companies that are well-positioned to grow and prosper have not
come to the attention of investors. The Adviser believes that the high
historical returns and less efficient pricing of foreign markets create
favorable conditions for the Fund's highly focused investment approach.

A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and
company research, the Adviser's equity team in London, Hong Kong and Tokyo seeks
to identify companies that have a high probability of achieving superior
long-term returns. Stocks are carefully selected for the Fund's portfolio
through a three-stage investment process. Because the Fund is a long-term holder
of stocks, the portfolio managers adjust the Fund's portfolio only when expected
returns fall below acceptable levels or when the portfolio managers identify
substantially more attractive investments.

Using the research of the Adviser and Goldman Sachs as well as information
gathered from other sources in Europe and the Asia-Pacific region, the portfolio
managers first identify attractive industries around the world. Such industries
have favorable underlying economics and allow companies to generate sustainable
and predictable high returns. As a rule, they are less economically sensitive,
relatively free of regulation and favor strong franchises.

Within these industries the portfolio managers identify well-run companies
that enjoy a stable competitive advantage and are able to benefit from the
favorable dynamics of the industry. This stage includes analyzing the current
and expected financial performance of the company; contacting suppliers,
customers and competitors; and meeting with management. In particular, the
portfolio managers look for companies whose managers have a strong commitment to
both maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. The Fund looks for companies whose
management always acts in the interests of the owners and seek to maximize
returns to all stockholders.

HEDGING AND ENHANCING RETURNS THROUGH CURRENCY MANAGEMENT TECHNIQUES. The
Adviser's currency team may manage the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program may be utilized to
protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by seeking to take advantage of foreign exchange
fluctuations.

THE ADVISER'S INTERNATIONAL EQUITY TEAM. The members of the Adviser's
international equity team bring together years of experience in analyzing and
investing in companies in Europe and the Asia-Pacific region. Their expertise
spans a wide range of skills including investment analysis, investment
management, investment banking and business consulting. In addition, they have
access to over 200 economic, equity and currency research professionals of
Goldman Sachs in London, Frankfurt, Hong Kong, Tokyo and New York.

PROTECTIVE GLOBAL INCOME FUND

HIGH INCOME. The Fund's portfolio managers will seek out high yielding
bonds in the global fixed-income market that meet the Fund's credit quality
standards and certain other criteria.

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<PAGE>
CAPITAL APPRECIATION. Investing in the foreign bond markets offers the
potential for capital appreciation due to both interest rate and currency
exchange rate fluctuations. The portfolio managers also attempt to identify
investments with appreciation potential by carefully evaluating trends affecting
a country's currency as well as a country's fundamental economic strength.
However, there is a risk of capital depreciation as a result of unanticipated
interest rate and currency fluctuations.

PORTFOLIO MANAGEMENT FLEXIBILITY. The Fund is designed to be actively
managed. The Fund's portfolio managers invest in countries that, in their
judgment, meet the investment guidelines and often have strong currencies and
stable economies and in securities that they believe offer the best performance
prospects. Furthermore, because the Fund can purchase securities with various
maturities, the portfolio managers can adjust the Fund's holdings in an effort
to maximize returns in a variety of interest rate environments. In addition, the
Fund's ability to invest in securities of any maturity allows its portfolio
managers to adjust the Fund's portfolio as interest rates change to take
advantage of the most attractive segments of the yield curve.

RELATIVE STABILITY OF PRINCIPAL. The Fund may be able to reduce principal
fluctuation by investing in foreign countries with economic policies or business
cycles different from those of the United States and in foreign securities
markets that do not necessarily move in the same direction or magnitude as the
U.S. market. Investing in a broad range of U.S. and foreign fixed-income
securities and currencies reduces the dependence of the Fund's performance on
developments in any particular market to the extent that adverse events in one
market are offset by favorable events in other markets. The Fund's policy of
investing primarily in high credit quality securities may also reduce principal
fluctuation. However, there is no assurance that these strategies will always be
successful.

PROFESSIONAL MANAGEMENT. Individual U.S. investors may prefer professional
management of their global bond and currency portfolios because a
well-diversified portfolio requires a large amount of capital and because the
size of the global market requires access to extensive resources and a
substantial commitment of time.

SPECIAL INVESTMENT METHODS AND RISKS

CUSTODY RECEIPTS

The Funds may acquire custody receipts in connection with securities issued
or guaranteed as to principal and interest by the U.S. Government, its agencies,
political subdivisions, authorities or instrumentalities. Such custody receipts
evidence ownership of future interest payments, principal payments or both on
certain notes or bonds issued by the U.S. Government, its agencies, political
subdivisions authorities or instrumentalities. These custody receipts are known
by various names, including "Treasury Receipts," "Treasury Investors Growth
Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities"
("CATS"). For certain securities law purposes, custody receipts are not
considered U.S. Government securities.

RESTRICTED AND ILLIQUID SECURITIES

The Funds may purchase certain restricted securities (those that are not
registered under the Securities Act of 1933 (the "1933 Act") but can be offered
and sold to "qualified institutional buyers" under Rule 144A of that Act) and
limited amounts of illiquid investments, including illiquid restricted
securities. Limitations on illiquid securities and other illiquid investments
for each Fund are described in non-fundamental investment restrictions 3(a) -
3(c) below.

Illiquid investments include many restricted securities, repurchase
agreements that mature in more than seven days, fixed time deposits that mature
in more than seven days, participation interests in loans, certain
mortgage-backed securities, certain over-the-counter option contracts, and
securities that are not readily marketable.

Certain repurchase agreements which provide for settlement in more than
seven days, however, can be liquidated before the nominal fixed term on seven
days or less notice. The Company will

4
<PAGE>
consider such repurchase agreements as liquid. Likewise, restricted securities
(including commercial paper issued pursuant to Section 4(2) of the 1933 Act)
that the board of directors of the Company or the Advisers have determined to be
liquid will be treated as such.

The SEC staff has taken the position that fixed time deposits maturing in
more than seven days that cannot be traded on a secondary market and
participation interests in loans are illiquid and not readily marketable. Until
such time (if any) as this position changes, the Company will include such
investments in the percentage limitation on illiquid investments applicable to
each Fund.

OPTIONS ON SECURITIES AND SECURITIES INDICES

WRITING OPTIONS. All of the Funds except the CORE U.S. Equity Fund may
write (sell) covered call and put options on any securities in which it may
invest. A call option written by a Fund obligates such Fund to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. All call options written by a
Fund are covered, which means that such Fund will own the securities subject to
the option so long as the option is outstanding. A Fund's purpose in writing
covered call options is to realize greater income than would be realized on
portfolio securities transactions alone. However, a Fund may forgo the
opportunity to profit from an increase in the market price of the underlying
security.

A put option written by a Fund would obligate such Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Fund would be covered, which means that such Fund would have deposited with
its custodian cash or liquid high grade debt securities with a value at least
equal to the exercise price of the put option. The purpose of writing such
options is to generate additional income for the Fund. However, in return for
the option premium, a Fund accepts the risk that it will be required to purchase
the underlying securities at a price in excess of the securities' market value
at the time of purchase.

In addition, a written call option or put option may be covered by
segregating cash or liquid assets (either of which may be denominated in any
currency) with its custodian, by entering into an offsetting forward contract
and/or by purchasing an offsetting option which, by virtue of its exercise price
or otherwise, reduces a Fund's net exposure on its written option position.

The Funds other than the CORE U.S. Equity Fund may also write (sell) covered
call and put options on any securities index composed of securities in which it
may invest. Options on securities indices are similar to options on securities,
except that the exercise of securities index options requires cash payments and
does not involve the actual purchase or sale of securities. In addition,
securities index options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctuations
in a single security.

A Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration segregated
by the Fund) upon conversion or exchange of other securities in its portfolio. A
Fund may cover call and put options on a securities index by segregating cash or
liquid assets with a value equal to the exercise price.

A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase" transactions.

PURCHASING OPTIONS. The Funds other than the CORE U.S. Equity Fund may
purchase put and call options on any securities in which it may invest or
options on any securities index based on securities in which it may invest. A
Fund would also be able to enter into closing sale transactions in order to
realize gains or minimize losses on options it had purchased.

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A Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities at a specified price during the option period.
A Fund would ordinarily realize a gain if, during the option period, the value
of such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize a loss on the purchase of
the call option.

A Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs; otherwise such a Fund
would realize a no gain or loss on the purchase of the put option. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of the underlying portfolio securities.

The Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities.

YIELD CURVE OPTIONS. The Global Income Fund may enter into options on the
yield "spread," or yield differential between two securities. Such transactions
are referred to as "yield curve" options. In contrast to other types of options,
a yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a call) or narrows (in the
case of a put), regardless of whether the yields of the underlying securities
increase or decrease.

The Global Income Fund may purchase or write yield curve options for the
same purposes as other options on securities. For example, the Global Income
Fund may purchase a call option on the yield spread between two securities if it
owns one of the securities and anticipates purchasing the other security and
wants to hedge against an adverse change in the yield between the two
securities. The Global Income Fund may also purchase or write yield curve
options in an effort to increase its current income if, in the judgment of the
Adviser, the Fund will be able to profit from movements in the spread between
the yields of the underlying securities. The trading of yield curve options is
subject to all of the risks associated with the trading of other types of
options. In addition, however, such options present risk of loss even if the
yield of one of the underlying securities remains constant, if the spread moves
in a direction or to an extent which was not anticipated.

Yield curve options written by the Global Income Fund will be "covered." A
call (or put) option is covered if the Fund holds another call (or put) option
on the spread between the same two securities and segregates cash or liquid
assets sufficient to cover the Fund's net liability under the two options.
Therefore, the Fund's liability for such a covered option is generally limited
to the difference between the amount of the Global Income Fund's liability under
the option written by the Fund less the value of the option held by the Fund.
Yield curve options may also be covered in such other manner as may be in
accordance with the requirements of the counterparty with which the option is
traded and applicable laws and regulations. Yield curve options are traded
over-the-counter, and because they have been only recently introduced,
established trading markets for these options have not yet developed.

RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of
segregated assets until

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the options expire or are exercised. Similarly, if a Fund is unable to effect a
closing sale transaction with respect to options it has purchased, it will have
to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying securities.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.

The Funds other than the CORE U.S. Equity Fund may purchase and sell both
options that are traded on United States and foreign exchanges and options
traded over-the-counter with broker-dealers who make markets in these options.
The ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations.

Transactions by a Fund in options on securities and stock indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Advisers. An exchange, board of trade or other trading
facility may order the liquidations of positions found to be in excess of these
limits, and it may impose certain other sanctions.

The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Funds may purchase and sell futures contracts. Each Fund other than CORE
U.S. Equity Fund may also purchase and write options on futures contracts. These
Funds may purchase and sell futures contracts based on various securities (such
as U.S. Government Securities), securities indices, foreign currencies and other
financial instruments and indices. CORE U.S. Equity Fund may only purchase and
sell futures contracts on the S&P 500 Index. A Fund will engage in futures or,
in the case of Funds other than CORE U.S. Equity, related options transactions,
only for bona fide hedging purposes as defined below or for purposes of seeking
to increase total returns to the extent permitted by regulations of the
Commodity Futures Trading Commission ("CFTC"). All futures contracts entered
into by a Fund are traded on U.S. exchanges or boards of trade that are licensed
and regulated by the CFTC or on foreign exchanges.

FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).

When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising, a
Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated

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<PAGE>
purchases. Similarly, a Fund (other than the CORE U.S. Equity Fund) can sell
futures contracts on a specified currency to protect against a decline in the
value of such currency and its portfolio securities which are denominated in
such currency. These Funds can purchase futures contracts on foreign currency to
fix the price in U.S. dollars of a security denominated in such currency that
such Fund has acquired or expects to acquire.

Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While a Fund's futures contracts on securities or currency
will usually be liquidated in this manner, it may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures on securities or currency are traded guarantees that,
if still open, the sale or purchase will be performed on the settlement date.

HEDGING STRATEGIES. Hedging by use of futures contracts seeks to establish
more certainly than would otherwise be possible the effective price, rate of
return or currency exchange rate on portfolio securities or securities that a
Fund owns or proposes to acquire. A Fund may, for example, take a "short"
position in the futures market by selling futures contracts in order to hedge
against an anticipated rise in interest rates or a decline in market prices or
(other than CORE U.S. Equity Fund) foreign currency rates that would adversely
affect the U. S. dollar value of the Fund's portfolio securities. Such futures
contracts may (except in the case of CORE U.S. Equity Fund) include contracts
for the future delivery of securities held by the Fund or securities with
characteristics similar to those of a Fund's portfolio securities. Similarly, a
Fund (other than CORE U.S. Equity Fund) may sell futures contracts on a currency
in which its portfolio securities are denominated or in one currency to hedge
against fluctuations in the value of securities denominated in a different
currency if there is an established historical pattern of correlation between
the two currencies.

If, in the opinion of its Adviser, there is a sufficient degree of
correlation between price trends for a Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Adviser will attempt to estimate the extent of this difference in
volatility based on historical patterns and to compensate for it by having the
Fund enter into a greater or lesser number of futures contracts or by attempting
to achieve only a partial hedge against price changes affecting the Fund's
securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will substantially be offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of the Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.

On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.

OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.

The writing of a call option on a futures contract generates a premium which
may partially offset a decline in the value of a Fund's assets. By writing a
call option, a Fund becomes obligated, in exchange for the premium, to sell a
futures contract, which may have a value higher than the exercise price.
Conversely, the writing of a put option on a futures contract generates a
premium, which may

8
<PAGE>
partially offset an increase in the price of securities that the Fund intends to
purchase. However, a Fund becomes obligated to purchase a futures contract,
which may have a value lower than the exercise price. Thus, the loss incurred by
the Fund in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. A Fund will incur transaction costs in
connection with the writing of options on futures.

The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.

OTHER CONSIDERATIONS. Where permitted, a Fund will engage in futures
transactions and (except for CORE U.S. Equity Fund) in related options
transactions only for bona fide hedging or to seek to increase total return to
the extent permitted by CFTC regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, each Fund's
futures transactions will be entered into for traditional hedging purposes --
I.E., futures contracts will be sold to protect against a decline in the price
of securities (or the currency in which they are denominated) that the Fund
owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are
denominated) it intends to purchase.

As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test, under which the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures for the purpose
seeking to increase total return, will not exceed 5 percent of the net asset
value of the Fund's portfolio, after taking into account unrealized profits and
losses on any such positions and excluding the amount by which such options were
in-the-money at the time of purchase. As permitted, each Fund will engage in
transactions in futures contracts and (except for CORE U.S. Equity Fund) in
related options transactions only to the extent such transactions are consistent
with the requirements of the Internal Revenue Code of 1986, as amended (the
"Code") for maintaining its qualification as a regulated investment company for
federal income tax purposes (see "Taxes" in the Prospectus).

Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian liquid high grade debt securities in an amount
equal to the underlying value of such contracts and options.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and portfolio position which is
intended to be protected, the desired protection may not be obtained and a Fund
may be exposed to risk of loss.

Perfect correlation between a Fund's futures positions and portfolio
positions may be difficult to achieve because no futures contracts based on
individual equity securities are currently available. The only futures contracts
available to hedge a Fund's portfolio are various futures on U.S. Government
securities, securities indices and foreign currencies. In addition, it is not
possible for a Fund to hedge fully or perfectly against currency fluctuations
affecting the value of securities denominated in foreign currencies because the
value of such securities is likely to fluctuate as a result of independent
factors not related to currency fluctuations.

FOREIGN INVESTMENTS

Investing in the securities of companies organized outside the United States
or of companies whose securities are principally traded outside the United
States ("foreign issuers") or investments in

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<PAGE>
securities denominated or quoted in foreign currency ("non-dollar securities")
involves certain special risks, including those set forth below, which are not
typically associated with investing in securities of domestic issuers or U.S.
dollar denominated securities. Investments in foreign issuers usually involves
currencies of foreign countries and since a Fund may temporarily hold funds in
bank deposits in foreign currencies during completion of investment programs and
since a Fund may be subject to currency exposure independent of its securities
positions, the Fund may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.

Currency exchange rates may fluctuate significantly over short periods of
time. The generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates also
can be affected by intervention by U.S. or foreign governments or central banks
or the failure to intervene or by currency controls or political developments in
the U.S. or abroad.

Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers, there may be less publicly
available information about a foreign issuer than about a domestic issuer.
Volume and liquidity in most foreign securities markets are less than in the
United States and securities of many foreign issuers are less liquid and more
volatile than securities of comparable domestic issuers. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although the Funds endeavor to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted issuers than in the United States.

Foreign investment markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund are uninvested and no return is
earned on such assets. The inability of a Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio investments due to
settlement problems could result either in losses to a Fund due to subsequent
declines in value of the portfolio securities or, if the Fund has entered into a
contract to sell the securities, could result in possible liability to the
purchaser. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect a Fund's investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position.

International Equity Fund, Capital Growth Fund, Small Cap Value Fund, Global
Income Fund and Growth and Income Fund may also invest in countries with
emerging economics or securities markets. Political and economic structures in
many of such countries may be undergoing significant evolution and rapid
development, and such countries may lack the social, political and economic
stability characteristic of more developed countries. Certain of such countries
may have in the past failed to recognize private property rights and have at
times nationalized or expropriated the assets of private companies. As a result,
the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the values of a Fund's investments in those
countries and the availability to a Fund of additional investments in those
countries. The small size and inexperience of the securities markets in certain
of such countries and the limited volume of trading in securities in those
countries may make a Fund's investments in such countries illiquid and more
volatile than investments in more developed countries, and a Fund may be
required to establish special custodial or other arrangements before

10
<PAGE>
making certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in certain of
such countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers.

The International Equity Fund, Capital Growth Fund, Small Cap Value Fund,
Growth and Income Fund and Global Income Fund may invest in securities of
issuers domiciled in a country other than the country in whose currency the
instrument is denominated or quoted. The International Equity Fund and Global
Income Fund may also invest in securities quoted or denominated in the European
Currency Unit ("ECU"), which is a "basket" consisting of specified amounts of
the currencies of certain of the member states of the European Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community from time to time to reflect changes in
relative values of the underlying currencies. In addition, the Funds may invest
in securities quoted or denominated in other currency "baskets."

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Capital Growth Fund, Small
Cap Value Fund, International Equity Fund, Growth and Income Fund and Global
Income Fund may enter into forward foreign currency exchange contracts for the
purposes described in the Prospectus. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are generally charged
at any stage for trades.

At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract.

These Funds may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or quoted in a foreign currency, or
when the Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
will attempt to protect itself against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.

Additionally, when the Adviser of a Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the dollar value of only a portion of a Fund's foreign assets.

The International Equity Fund and Global Income Fund may engage in
cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities quoted or

11
<PAGE>
denominated in a different currency if the Adviser determines that there is a
pattern of correlation between the two currencies. These Funds may also purchase
and sell forward contracts to seek to increase total return when the Adviser
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated or quoted in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio.

Cash or liquid assets of the Fund are segregated in an amount equal to the
value of the Fund's total assets committed to the consummation of forward
foreign currency exchange contracts requiring the Fund to purchase foreign
currencies or forward contracts entered into to seek to increase total return.
If the value of the segregated assets declines, additional cash or other assets
are placed in the account on a daily basis so that the value of the account will
equal the amount of the Fund's commitments with respect to such contracts. The
segregated assets are marked-to-market on a daily basis. Although the contracts
are not presently regulated by the CFTC, the CFTC may in the future assert
authority to regulate these contracts. In such event, the Fund's ability to
utilize forward foreign currency exchange contracts may be restricted.

While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while a Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by the
Fund. Such imperfect correlation may cause the Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.

Markets for trading foreign forward currency contracts offer less protection
against defaults than is available when trading in currency instruments on an
exchange. Since a forward foreign currency exchange contract is not guaranteed
by an exchange or clearinghouse, a default on the contract would deprive a Fund
of unrealized profits or force the Fund to cover its commitments for purchase or
resale, if any, at the current market price.

Forward contracts are subject to the risk that the counterparty to the
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive a Fund of unrealized profits, transactions costs,
or the benefits of a currency hedge or force the Fund to cover its purchase or
sale commitments, if any, at the current market price. A Fund will not enter
into such transactions unless the credit quality of the unsecured senior debt or
the claims-paying ability of the counterparty is considered to be investment by
the Adviser.

WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. The Capital Growth
Fund, Small Cap Value Fund, International Equity Fund, Growth and Income Fund
and Global Income Fund may write covered put and call options and purchase put
and call options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of portfolio securities and against increases
in the dollar cost of securities to be acquired. The International Equity Fund
and Global Income Fund may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against changes
in exchange rates for a different currency if a pattern of correlation exists
between the values of the currencies. In addition, the International Equity and
Global Income Funds may purchase call options on currency to seek to increase
total return when the Adviser anticipates that the currency will appreciate in
value, but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not included in the Fund's
portfolio.

A call option written by a Fund obligates the Fund to sell specified
currency to the holder of the option at a specified price at any time before the
expiration date. A put option written by a Fund would obligate the Fund to
purchase specified currency from the option holder at a specified price at any
time before the expiration date. The writing of currency options involves a risk
that a Fund will, upon

12
<PAGE>
exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.

A Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." A Fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by it.

A Fund would normally purchase call options in anticipation of an increase
in the U.S. dollar value of currency in which securities to be acquired by the
Fund are quoted or denominated. The purchase of a call option would entitle a
Fund, in return for the premium paid, to purchase specified currency at a
specified price during the option period. The Fund would ordinarily realize a
gain if, during the option period, the value of such currency exceeded the sum
of the exercise price, the premium paid and transaction costs; otherwise the
Fund would realize either no gain or a loss on the purchase of the call option.

A Fund would normally purchase put options in anticipation of a decline in
the dollar value of currency in which securities in its portfolio are quoted or
denominated ("protective puts"). The purchase of a put option would entitle the
Fund, in exchange for the premium paid, to sell specified currency at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of the
Fund's portfolio securities due to currency exchange rate fluctuations. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency or portfolio securities.

In addition to using options for the hedging purposes described above, the
International Equity Fund and Global Income Fund may use options on currency to
seek to increase total return. These Funds may write (sell) covered put and call
options on any currency in order to realize greater income than would be
realized on portfolio securities transactions alone. However, in writing covered
call options for additional income, the Fund may forgo the opportunity to profit
from an increase in the market value of the underlying currency. Also, when
writing put options, a Fund accepts, in return for the option premium, the risk
that it may be required to purchase the underlying currency at a price in excess
of the currency's market value at the time of purchase.

These two Funds would normally purchase call options to seek to increase in
anticipation of an increase in the market value of a currency. They would
ordinarily realize a gain if, during the option period, the value of such
currency exceeded the sum of the exercise price, the premium paid and
transaction costs. Otherwise the Fund would realize either no gain or a loss on
the purchase of the call option. Put options may be purchased by these two Funds
for the purpose of benefiting from a decline in the value of currencies which it
does not own. They would ordinarily realize a gain if, during the option period,
the value of the underlying currency decreased below the exercise price
sufficiently to more than cover the premium and transaction costs. Otherwise
they would realize either no gain or a loss on the purchase of the put option.

SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time. For
some options no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that a Fund would have to exercise its options in order to realize
any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the

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<PAGE>
exercise of put options. If a Fund as a covered call option writer is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying currency (or security quoted or denominated in that
currency) until the option expires or it delivers the underlying currency upon
exercise.

There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.

The Funds may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in restricted securities. See
"Investment Restrictions" in the Prospectus. Trading in over-the-counter options
is subject to the risk that the other party will be unable or unwilling to
close-out options purchased or written by the Fund.

The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.

INTEREST RATE SWAPS, MORTGAGE SWAPS, CURRENCY SWAPS AND INTEREST RATE CAPS,
FLOORS AND COLLARS. The Global Income Fund may enter into interest rate,
mortgage and currency swaps for hedging purposes and to seek to increase total
return. The International Equity Fund may enter into currency swaps for these
purposes. The Global Income Fund may also enter into special interest rate swap
arrangements such as caps, floors and collars for both hedging purposes and to
seek to increase total return. Inasmuch as swaps are entered into for good faith
hedging purposes or are offset by a segregated assets as described below, the
Advisers believe that swaps do not constitute senior securities as defined in
the Act and, accordingly, will not treat them as being subject to the Fund's
borrowing restrictions. An amount of cash or liquid assets having an aggregate
net asset value at least equal to the entire amount of the payment stream
payable by the Fund will be segregated by the Fund. A Fund will not enter into
any interest rate swap (including caps, floors and collars), mortgage swap or
currency swap unless the credit quality of the unsecured senior debt or the
claims-paying ability of the other party thereto is considered to be investment
grade by the Adviser. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to the agreement,
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid in comparison with the markets for
other similar instruments which are traded in the interbank market. The Adviser,
under the supervision of the Company's board of directors, is responsible for
determining and monitoring the liquidity of the Funds' transactions in swaps,
caps, floors and collars.

FIXED-INCOME SECURITIES

SHORT-TERM BANK AND CORPORATE OBLIGATIONS. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by banks or bank
holding companies, corporations, and finance companies. The commercial paper
purchased by the Funds consists of direct U.S. dollar-denominated obligations of
domestic issuers. Bank obligations in which the Funds may invest include
certificates of deposit, bankers' acceptances, fixed time deposits and bank
notes. Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return.

Bankers' acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Fixed time deposits are
bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation.

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<PAGE>
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits. Certain fixed time deposits maturing in more than seven days
may be deemed to be illiquid securities. Bank notes rank junior to deposit
liabilities of the bank and PARI PASSU with other senior, unsecured obligations
of the bank. Bank notes are classified as "other borrowings" on a bank's balance
sheet, while deposit notes and certificates of deposit are classified as
deposits. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.

VARIABLE AMOUNT MASTER DEMAND NOTES. The Funds may purchase variable amount
master demand notes. These obligations permit the investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangements between the
lender and borrower and are not generally transferable nor are they ordinarily
rated. A Fund may invest in them only if the Adviser believes that the notes are
of comparable quality to the other obligations in which the Fund may invest.

VARIABLE RATE AND FLOATING RATE DEMAND INSTRUMENTS. The Funds may purchase
variable and floating rate demand instruments that are debt securities that
possess a floating or variable interest rate adjustment formula. These
instruments also permit a Fund to demand payment of the principal balance plus
unpaid accrued interest upon a specified number of days' notice to the issuer or
its agent. The demand feature may be backed by a bank letter of credit or
guarantee issued with respect to such instrument.

The terms of the variable or floating rate demand instruments that a Fund
may purchase provide that interest rates are adjustable at intervals ranging
from daily up to six months, and the adjustments are based upon current market
levels, the prime rate of a bank or other appropriate interest rate adjustment
index as provided in the respective instruments. Some of these instruments are
payable on demand on a daily basis or on not more than seven days' notice.
Others, such as instruments with quarterly or semiannual interest rate
adjustments, may be put back to the issuer on designated days on not more than
thirty days's notice. Still others are automatically called by the issuer unless
the Fund instructs otherwise. The Funds intend to exercise the demand only (1)
upon a default under the terms of the debt security, (2) as needed to provide
liquidity to the Fund, (3) to maintain the respective quality standards of a
Fund's investment portfolio, or (4) to attain a more optimal portfolio
structure.

The maturity of the variable or floating rate demand instruments held by any
of the Funds will ordinarily be deemed to be the longer of (1) the notice period
required before the Fund is entitled to receive payment of the principal amount
of the instrument or (2) the period remaining until the instrument's next
interest rate adjustment.

LOWER-RATED CORPORATE DEBT OBLIGATIONS. As described in the Prospectus, the
Capital Growth Fund, International Equity Fund, Small Cap Value Fund and Growth
and Income Fund may make certain investments including corporate debt
obligations that are unrated or rated in the lower rating categories by Standard
& Poor's Rating Group ("Standard & Poor's") or by Moody's Investors Service,
Inc. ("Moody's") (I.E., ratings of BB or lower by Standard & Poor's or Ba or
lower by Moody's). Bonds rated BB or Ba or below (or comparable unrated
securities) are commonly referred to as "lower-rated" securities or as "junk
bonds" and are considered speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative, have
poor prospects for reaching investment standing and be in default. As a result,
investment in such bonds will entail greater speculative risks than those
associated with investment in investment-grade bonds (I.E., bonds rated AAA, AA,
A or BBB by Standard & Poor's or Aaa, Aa, A or Baa by Moody's). See Appendix A
for a description of the ratings issued by investment rating services.

An economic downturn could severely affect the ability of highly leveraged
issuers of junk bonds to service their debt obligations or to repay their
obligations upon maturity. Factors having an adverse impact on the market value
of lower rated securities will have an adverse effect on a Fund's net asset

15
<PAGE>
value to the extent it invests in such securities. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.

The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on a
Fund's ability to dispose of a particular security when necessary to meet its
liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result, a
Fund's Adviser could find it more difficult to sell these securities or may be
able to sell the securities only at prices lower than if such securities were
widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating a Fund's net asset value.

Since investors generally perceive that there are greater risks associated
with lower-rated debt securities, the yields and prices of such securities may
tend to fluctuate more than those for higher rated securities. In the lower
quality segments of the fixed-income securities market, changes in perceptions
of issuers' creditworthiness tend to occur more frequently and in a more
pronounced manner than do changes in higher quality segments of the fixed-income
securities market resulting in greater yield and price volatility.

Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in a Fund's net asset value.

Lower-rated (and comparable non-rated) securities tend to offer higher
yields than higher-rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since lower rated securities generally
involve greater risks of loss of income and principal than higher-rated
securities, investors should consider carefully the relative risks associated
with investment in securities which carry lower ratings and in comparable
non-rated securities. In addition to the risk of default, there are the related
costs of recovery on defaulted issues. The Advisers will attempt to reduce these
risks through diversification of these Funds' portfolios and by analysis of each
issuer and its ability to make timely payments of income and principal, as well
as broad economic trends in corporate developments.

ZERO COUPON BONDS. The Capital Growth Fund, Small Cap Value Fund,
International Equity Fund, Growth and Income Fund and Global Income Fund may
invest in zero coupon bonds which are debt obligations that do not entitle the
holder to any periodic payments of interest prior to maturity or provide for a
specified cash payment date when the bonds begin paying current interest. As a
result, zero coupon bonds are generally issued and traded at a significant
discount from their face value. The discount approximates the present value
amount of interest the bonds would have accrued and compounded over the period
until maturity.

Zero coupon bonds benefit the issuer by mitigating its initial need for cash
to meet debt service, but generally provide a higher rate of return to
compensate investors for the deferment of cash interest or principal payments.
Such securities are often issued by companies that may not have the capacity to
pay current interest and so may be considered to have more risk than current
interest-bearing securities. In addition, the market price of zero coupon bonds
generally is more volatile than the market prices of securities that provide for
the periodic payment of interest. The market prices of zero coupon bonds are
likely to fluctuate more in response to changes in interest rates than those of
interest-bearing securities having similar maturities and credit quality.

Zero coupon bonds carry the additional risk that, unlike securities that
provide for the periodic payment of interest to maturity, the Funds will realize
no cash until a specified future payment date

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<PAGE>
unless a portion of such securities is sold. If the issuer of such securities
defaults, the Funds may obtain no return at all on their investment. In
addition, a Fund's investment in zero coupon bonds may require it to sell
certain of its portfolio securities to generate sufficient cash to satisfy
certain income distribution requirements. See "Taxation" below.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. All of the Funds except CORE
U.S. Equity Fund may invest in mortgage-backed securities, which represent
direct or indirect participation in, or are collateralized by and payable from,
mortgage loans secured by real property. These Funds may also invest in
asset-backed securities, which represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (I.E., credit card) agreements and other categories of
receivables. Such assets are securitized though the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.

Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. A Fund's
ability to maintain positions in such securities will be affected by reductions
in the principal amount of such securities resulting from prepayments, and its
ability to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time. To the extent that a Fund
invests in mortgage-backed and asset-backed securities, the values of its
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of U.S. Government
Securities and other mortgage-backed and asset-backed securities.

Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.

STRUCTURED SECURITES

Each Fund may invest in structured securities. The value of the principal
and/or interest on such securities is determined by reference to changes in the
value of specific currencies, interest rates, commodities, indices or other
financial indicators (the "Reference") or the relative change in two or more
References. The interest rate or the principal amount payable upon maturity or
redemption may be increased or decreased depending upon changes in the
applicable Reference. The terms of the structured securities may provide that in
certain circumstances no principal is due at maturity and, therefore, may result
in the loss of the Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at maturity.
In addition, changes in interest rates or the value of the security at maturity
may be a multiple of changes in the value of the Reference. Consequently,

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<PAGE>
structured securities may entail a greater degree of market risk than other
types of fixed-income securities. Structured securities may also be more
volatile, less liquid and more difficult to accurately price than less complex
fixed-income investments.

REPURCHASE AGREEMENTS

All of the Funds may enter into repurchase agreements with dealers in U.S.
Government Securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The International Equity Fund and Global Income
Fund may also enter into repurchase agreements involving certain foreign
government securities. In a repurchase agreement, a Fund purchases a debt
security from a seller which undertakes to repurchase the security at a
specified resale price on an agreed future date (ordinarily a week or less). The
resale price generally exceeds the purchase price by an amount which reflects an
agreed upon market interest rate for the term of the repurchase agreement. The
primary risk is that, if the seller defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and other
collateral held by that Fund in connection with the related repurchase agreement
are less than the repurchase price. In addition, in the event of bankruptcy of
the seller or failure of the seller to repurchase the securities as agreed, that
Fund could suffer losses, including loss of interest on or principal of the
security and costs associated with delay and enforcement of the repurchase
agreement. The Company's board of directors have reviewed and approved certain
sellers whom they believe to be creditworthy and have authorized the Funds to
enter into repurchase agreements with such sellers.

All of the Funds, together with other registered investment companies
advised by the Advisers, may transfer uninvested cash balances into a single
joint account, the daily aggregate balance of which is invested in one or more
repurchase agreements.

MORTGAGE DOLLAR ROLLS

The Global Income Fund may enter into mortgage "dollar rolls" in which the
Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) but not identical securities on a specified future
date. During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase or fee income plus the interest
earned on the caash proceeds of the securities sold until the settlement date
for the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use of
this technique will diminish the investment performance of the Fund. Successful
use of mortgage dollar rolls depends upon the Investment Adviser's ability to
predict correctly interest rates and mortgage prepayments. There is no assurance
that mortgage dollar rolls can be successfully employed. The Fund will hold and
maintain in a segregated account until the settlement date cash or liquid assets
in an amount equal to the forward purchase price. For financial reporting and
tax purposes, each Fund treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale. The Fund does not currently intend to enter into
mortgage dollar rolls that are accounted for as a financing.

LEADING OF PORTFOLIO SECURITIES

All of the Funds may seek to increase their income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
Securities maintained on a current basis at an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents. A Fund may experience a loss or delay in the recovery of its
securities if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Fund. If the Adviser determines to
make securities loans, the value of the securities loaned will not exceed
one-third of the value of the total assets of a Fund.

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BORROWING

All of the Funds may borrow money but only from banks and only for temporary
or short-term purposes. Temporary or short-term purposes may include: (i)
short-term (I.E., no longer than five business days) credits for clearance of
portfolio transactions; (ii) borrowing in order to meet redemption requests or
to finance failed settlements of portfolio trades without immediately
liquidating portfolio securities or other assets; and (iii) borrowing in order
to fulfill commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets in the near future. No
Fund will borrow for leveraging purposes. Each Fund will maintain continuous
asset coverage of at least 300% (as defined in the Act) with respect to all of
its borrowings. Should the value of a Fund's assets decline to below 300% of
borrowings, the Fund may be required to sell portfolio securities within three
days to reduce the Fund's debt and restore 300% asset coverage. Borrowing
involves interest costs. A Fund will not purchase additional securities while
its borrowings exceed 5% of its total assets.

STANDARD & POOR'S DEPOSITORY RECEIPTS

The CORE U.S. Equity Fund, Capital Growth Fund, Small Cap Value Fund,
International Equity Fund, and Growth and Income Fund may each invest up to 10%
of its total assets in Standard & Poor's Depository Receipts ("SPDRs"). SPDRs
are American Stock Exchange-traded securities that represent ownership in the
SPDR trust, a trust that has been established to accumulate and hold a portfolio
of common stock that is intended to track the price performance and dividend
yield of the S&P 500 Index. This trust is sponsored by a subsidiary of the
American Stock Exchange. SPDRs may be used by a Fund for a variety of reasons
including, but not limited to, facilitating the handling of cash flows or
trading, or reducing transactions costs. Investment in SPDRs generally entails
additional risk to a Fund in that the movement of SPDR prices does not perfectly
correlate with the price action of the S&P 500 Index.

SHORT SALES AGAINST-THE-BOX

The CORE U.S. Equity Fund, Capital Growth Fund, Small Cap Value Fund,
Internationally Equity Fund and Growth and Income Fund may make short sales of
securities or maintain short positions in securities, provided that the Fund
owns an equal amount of the shorted securities (or of securities convertible
into or exchangeable for -- without payment of additional consideration -- an
equal amount of the securities of the same issuer) (a short sale
against-the-box). Not more than 25% of a Fund's net assets (at the time of the
short sale) may be subject to short sales. These Funds make short sales
primarily to defer realization of gain or loss for federal tax purposes; a gain
or loss in a Fund's long position will be offset by a loss or gain in its short
position.

OTHER INVESTMENT COMPANIES

All of the Funds reserve the right to invest up to 10% of their total
assets, calculated at the time of purchase, in the securities of other
investment companies including business development companies and small business
investment companies. No Fund may invest more than 5% of its total assets in the
securities of any one investment company or in more than 3% of the voting
securities of any other investment company. Pursuant to an exemptive order
obtained from the SEC, other investment companies in which a Fund may invest may
include money markets funds for which its Adviser or its Adviser's affiliates
serve as the investment adviser. A Fund will indirectly bear its proportionate
share of any management fees paid by investment companies in which it invests in
addition to the advisory fees paid by the Fund. However, to the extent that a
Fund invests in a money market fund for which its Adviser or any of its
Adviser's affiliates act as adviser, the management fees payable by the Fund to
the Investment Manager will be reduced by an amount equal to the Fund's
proportionate share of the advisory and administration fees paid by such money
market fund to the Adviser or any of its affiliates.

WARRANTS AND RIGHTS

The CORE U.S. Equity Fund, Capital Growth Fund, Small Cap Value Fund,
International Equity Fund and Growth and Income Fund each may invest up to 5% of
its total assets, calculated at the time

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<PAGE>
of purchase, in warrants or rights (other than those acquired in units or
attached to other securities) which entitle the holder to buy equity securities
at a specific price for a specific period of time but will do so only if such
equity securities are deemed appropriate by the Adviser for investment by the
Fund. The Funds will each not invest more than 2% of their total assets,
calculated at the time of purchase, in warrants or rights which are not listed
on the New York or American Stock Exchanges. Warrants and rights have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.

REAL ESTATE INVESTMENT TRUSTS

The CORE U.S. Equity Fund, International Equity Fund, Capital Growth Fund,
Small Cap Value Fund and the Growth and Income Fund may invest in shares of real
estate investment trusts ("REITs"). REITs are pooled investment vehicles that
invest primarily in income producing real estate or real estate related loans or
interest. REITs are generally classified as equity REITs, mortgage REITs or a
combination of equity and mortgage REITs. Equity REITs invest the majority of
their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. REITs are not taxed on income distributed to shareholders
provided they comply with several requirements of the Code. A Fund will
indirectly bear its proportionate share of any expenses paid by REITs in which
it invests in addition to the expenses paid by a Fund.

Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers,
self-liquidation, and the possibilities of failing to qualify for the exemption
from tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940. REITs (especially mortgage
REITs) are also subject to interest rate risks.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

All of the Funds may purchase securities on a when-issued basis or purchase
or sell securities on a forward commitment basis. These transactions involve a
commitment by the Fund to purchase or sell securities at a future date. The
price of the underlying securities (usually expressed in terms of yield) and the
date when the securities will be delivered and paid for (the settlement date)
are fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges, but may be traded
over-the-counter.

A Fund will purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis only with the intention of completing
the transaction and actually purchasing or selling the securities. If deemed
advisable as a matter of investment strategy, however, a Fund may
dispose of or negotiate a commitment after entering into it. A Fund also may
sell securities it has committed to purchase before those securities are
delivered to it on the settlement date. The Fund may realize a capital gain or
loss in connection with these transactions. For purposes of determining a Fund's
average dollar weighted maturity, the maturity of when-issued or forward
commitment securities will be calculated from the commitment date.

A Fund is required to segregate with the Company's custodian until three
days prior to the settlement date, cash and liquid assets in an amount
sufficient to meet the purchase price. Alternatively, a Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Securities purchased or sold on a when-issued or forward commitment basis
involve a risk of loss of the value of the security to be purchased declines
prior to the increases prior to the settlement date.

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INVESTMENT RESTRICTIONS

FUNDAMENTAL RESTRICTIONS

The following investment restrictions have been adopted by the Company as
fundamental policies for the Fund to which each applies, as shown below. A
fundamental policy is one that cannot be changed without the affirmative vote of
the holders of a majority (as defined in the Act) of the outstanding votes
attributable to the shares of a Fund. The investment objective or objectives of
each Fund and all other investment policies or practices of the Fund are
considered by the Company not to be fundamental and accordingly may be changed
by the Company's board of directors without shareholder approval. See
"Investment Objective and Policies" in the Fund's Prospectus. For purposes of
the Act, "majority" means the lesser of (a) 67% or more of the votes
attributable to shares of the Fund present at a meeting, if the holders of more
than 50% of such votes are present or represented by proxy, or (b) more than 50%
of the votes attributable to shares of the Fund.

None of the Funds may:

1. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to
the deposit of assets in escrow in connection with the writing of covered
put and call options and the purchase of securities on a forward commitment
or delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures
contracts (including those relating to indices), and options on futures
contracts or indices.

2. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but a Fund may make
margin deposits in connection with transactions in currencies, options,
futures contracts and options on futures contracts.

3. Sell securities short or maintain a short position except for short
sales against-the-box.

4. Underwrite securities issued by others, except to the extent that the
sale of portfolio securities by a Fund may be deemed to be
underwriting.

5. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although a Fund may
purchase and sell securities that are secured by real estate or interests
therein and may purchase mortgage-related securities and securities issued
by real estate investment trusts and may hold and sell real estate acquired
for the Fund as a result of the ownership of securities.

6. Invest in commodities except that a Fund may purchase and sell
futures contracts, including those relating to securities, currencies
and indices, and options on futures contracts, securities, currencies or
indices, and purchase and sell currencies or securities on a forward
commitment or delayed-delivery basis as described in the Prospectus.

7. Lend any money or other assets except through the purchase of all or
a portion of an issue of securities or obligations of the type in
which the Fund may invest. However, a Fund may lend its portfolio securities
in an amount not to exceed one-third of the value of its total assets.

8. Issue any senior security (as such term is defined in Section 18(f)
of the Act) except as otherwise permitted under these fundamental
investment restrictions.

9. Alone or together with any other of the Funds, make investments for
the purpose of exercising control over, or management of, any issuer.

10. Borrow money except from banks for temporary or short-term purposes
and then only if each maintains asset coverage of at least 300% for
such borrowings. For purposes of this investment restriction, transactions
in currency, swaps, options, futures contracts, including those

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<PAGE>
relating to indices, forward contracts, options on futures contracts or
indices and forward commitment transactions shall not constitute borrowing.
None of the Funds will purchase securities when such borrowings exceed 5% of
its total assets.

Fund-specific restrictions:

11. None of the Funds may invest more than 25% of the value of its total
assets in the securities of issuers conducting their principal
business activities in the same industry. This limitation does not apply to
U.S. Government Securities.

12. CORE U.S. Equity Fund, Capital Growth Fund, Small Cap Value Fund,
International Equity Fund and the Growth and Income Fund each may
not, as to 75% of the total assets of each at the time of purchase, purchase
the securities of any issuer if more than 5% of the value of the Fund's
total assets would be invested in such securities.

NON-FUNDAMENTAL RESTRICTIONS

In addition to the investment restrictions mentioned above, the directors of
the Company have adopted certain non-fundamental restrictions for each Fund as
shown below. Non-fundamental restrictions represent the current intentions of
the Company's board of directors and they differ from fundamental investment
restrictions in that they may be changed or amended by the board of directors
without prior notice to or approval of shareholders.

None of the Funds (except the Global Income Fund) may:

1. Purchase the securities of any issuer if by such purchase the Fund
would own more than 10% of the outstanding voting securities of such
issuer.

Fund specific restrictions:

2(a). The Funds each will not invest more than 15% of its net assets in
illiquid investments, including repurchase agreements maturing in more than
seven days, securities that are not readily marketable and restricted
securities not eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act").

3. The Global Income Fund may not, as to 75% of its total assets at the
time of purchase, purchase the securities of any issuer if more than
10% of the value of the Fund's total assets would be invested in such
securities.

INTERPRETIVE RULES

For purposes of the foregoing limitations, any limitation which involves a
maximum percentage will not be violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. In addition, with regard to
exceptions recited in a restriction, a Fund may only rely on an exception if its
investment objective(s) or policies (as disclosed in the Prospectus) otherwise
permit it to rely on the exception.

INVESTMENT MANAGER

Protective Investment Advisors, Inc. ("PIA"), 2801 Highway 280 South,
Birmingham, Alabama 35223, is the investment manager of the Company and its
Funds. Prior to 1999, PIA was known as Investment Distributors Advisory
Services. PIA is a wholly-owned subsidiary of Protective Life Corporation
("PLC"), an insurance holding company whose common stock is traded on the New
York Stock Exchange. PLC's principal operating subsidiary is Protective Life
Insurance Company, a stock life insurance company which maintains its
administrative offices in Birmingham, Alabama. Protective Life was incorporated
in Alabama in 1907 and changed its state of domicile from Alabama to Tennessee
in 1992. Protective Life's principal business is the writing of individual and
group life and health insurance contracts, annuity contracts, and guaranteed
investment contracts.

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The Investment Manager has retained the Advisers, entities that have
extensive experience managing the assets of investment companies, pension plans
and other clients, to manage the investment and reinvestment of the Funds'
assets.

INVESTMENT MANAGEMENT AGREEMENT

The Investment Manager has entered into an investment management agreement,
dated March 20, 1996, with the Company under which the Investment Manager
assumes overall responsibility, subject to the supervision of the Company's
board of directors, for administering all operations of the Company and for
monitoring and evaluating the management of the assets of each of the Funds by
the Advisers on an ongoing basis. The Investment Manager provides or arranges
for the provision of the overall business management and administrative services
necessary for the Company's operations and furnishes or procures any other
services and information necessary for the proper conduct of the Company's
business. The Investment Manager also acts as liaison among, and supervisor of,
the various service providers to the Company, including the custodian, transfer
agent, and accounting services agent and to its own administration agent that
performs services for the Company on its behalf. The Investment Manager is also
responsible for overseeing the Company's compliance with the requirements of
applicable law and in conformity with each Fund's investment objective(s),
policies and restrictions, including oversight of the Advisers.

For its services to the Company, the Investment Manager receives a monthly
management fee. The fee is deducted daily from the assets of each of the Funds
and paid to the Investment Manager monthly. The fee for each Fund is based on
the average daily net assets of the Fund at the following annual rates: Money
Market Fund .60%, CORE U.S. Equity Fund .80%, Capital Growth Fund .80%, Small
Cap Value Fund .80%, International Equity Fund 1.10%, Growth and Income Fund
.80%, and Global Income Fund 1.10%. For the fiscal year ended December 31, 1996,
the Funds incurred the following management fees to the Investment Manager:
Money Market Fund $31,585, CORE U.S. Equity Fund $632,296, Capital Growth Fund
$161,938, Small Cap Value Fund $446,552, International Equity Fund $871,940,
Growth and Income Fund $1,325,914, and Global Income Fund $380,629. For the
fiscal year ended December 31, 1997, the Funds incurred the following management
fees to the Investment Manager: Money Market Fund $26,931, CORE U.S. Equity Fund
$1,127,773, Capital Growth Fund $406,029, Small Cap Value Fund $691,965,
International Equity Fund $1,305,891, Growth and Income Fund $2,327,494, and
Global Income Fund $470,207. For the fiscal year ended December 31, 1998, the
Funds incurred the following management fees to the Investment Manager: Money
Market Fund $ , CORE U.S. Equity Fund $ , Capital Growth Fund $ ,
Small Cap Value Fund $ , International Equity Fund $ , Growth and
Income Fund $ , and Global Income Fund $ .

The investment management agreement does not place limits on the operating
expenses of the Company or of any Fund. However, the Investment Manager has
voluntarily undertaken to pay any such expenses (but not including brokerage or
other portfolio transaction expenses or expenses of litigation, indemnification,
taxes or other extraordinary expenses) to the extent that such expenses, as
accrued for each Fund, exceed the following percentages of that Fund's average
daily net assets on an annualized basis: Money Market Fund, .60%; Capital Growth
Fund, .80%; CORE U.S. Equity Fund, .80%; Small Cap Value Fund, .80%;
International Equity Fund, 1.10%; Growth and Income Fund, .80%; and Global
Income Fund, 1.10%. This reduction of expenses will increase the yield or total
return of the Funds for any period for which it remains in effect. The
Investment Manager may withdraw this undertaking to pay expenses as to any or
all of the Funds upon 120 days notice to the Company.

The investment management agreement provides that the Investment Manager may
render similar services to others so long as the services that it provides
thereunder are not impaired thereby. The investment management agreement also
provides that the Investment Manager shall not be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in the management of the Company, except for (i) willful
misfeasance, bad faith or

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<PAGE>
gross negligence in the performance of its duties or by reason of reckless
disregard of its duties or obligations under the investment management
agreement, and (ii) to the extent specified in Section 36(b) of the Act
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation.

The investment management agreement was approved for each Fund (other than
Capital Growth Fund) by the directors of the Company, including a majority of
the directors of the Company who are not parties to the agreement or "interested
persons" (as such term is defined in the Act) of any party thereto (the
"non-interested directors"), on February 8, 1994, and by the sole initial
shareholder of the Fund on March 2, 1994. The investment management agreement
was approved for Capital Growth Fund by the directors of the Company, including
a majority of the non-interested directors on May 3, 1995 and by the sole
initial shareholder of the Fund on June 20, 1995. The investment management
agreement will remain in effect from year to year provided such continuance is
specifically approved as to each Fund at least annually by (a) the vote of a
majority of the votes attributable to shares of the Fund or a majority of the
directors of the Company, and (b) the vote of a majority of the non-interested
directors of the Company, cast in person at a meeting called for the purpose of
voting on such approval. The investment management agreement will terminate
automatically if assigned (as defined in the Act) and is terminable as to any
Fund at any time without penalty by the directors of the Company or by vote of a
majority of the votes attributable to outstanding voting securities of the
applicable Fund on 60 days' written notice to the Investment Manager and by the
Investment Manager on 60 days' written notice to the Company.

EXPENSES OF THE COMPANY

The company incurs certain operating and general administrative expenses in
addition to the Investment Manager's fee. These expenses, which are accrued
daily, include but are not limited to: taxes; expenses for legal and auditing
services; costs of printing; charges for custody services; transfer agent fees,
if any; expenses of redemption of shares; expense of registering shares under
federal and state securities laws; accounting costs; insurance; interest;
brokerage costs, and other expenses properly payable by the Company.

In general, each Fund is charged for the expenses incurred in its operations
as well as for a portion of the Company's general administrative expenses,
allocated on the basis of the asset size of the respective Funds, or by the
board of directors as appropriate. Expenses other than the Investment Manager's
fee that are borne directly and paid individually by a Fund include, but are not
limited to, brokerage commissions, dealer markups, taxes, custody fees, and
other costs properly payable by the Fund. Expenses which are allocated among the
Funds include, but are not limited to, directors' fees and expenses, independent
accountant fees, transfer agent fees, expenses of redemption, insurance costs,
legal fees, and all other costs of operation properly payable by the Company.

INVESTMENT ADVISERS

Goldman Sachs Asset Management, One New York Plaza, New York, New York
10004, a separate operating division of Goldman Sachs, acts as the investment
adviser of the Money Market Fund, CORE U.S. Equity Fund, Capital Growth Fund,
Small Cap Value Fund and Growth and Income Fund. In previous years, Goldman
Sachs Asset Management also acted as the investment adviser to the Money Market
Fund. Goldman Sachs Asset Management International, 133 Peterborough Court,
London EC4A 2BB England, an affiliate of Goldman Sachs, acts as the investment
adviser to the International Equity Fund and the Global Income Fund. Both
Goldman Sachs and GSAMI are registered with the SEC as investment advisers. As
of March 23, 1998, the Advisers, together with their affiliates, acted as
investment adviser, or distributor for assets in excess of $153 billion.

Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of

24
<PAGE>
investing and financing, participating in financial markets worldwide and
serving individuals, institutions, corporations and governments. Goldman Sachs
is among the principal market sources for current and thorough information on
companies, industrial sectors, markets, economies and currencies, and trades and
makes markets in a wide range of equity and debt securities 24-hours a day. The
firm is headquartered in New York and has offices throughout the United States
and in Beijing, Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City,
Milan, Montreal, Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney,
Taipei, Tokyo, Toronto, Vancouver and Zurich. It has trading professionals
throughout the United States, as well as in London, Tokyo, Hong Kong and
Singapore. The active participation of Goldman Sachs in the world's financial
markets enhances its ability to identify attractive investments.

The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs, whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $200
million, Goldman Sachs's Investment Research Department covers approximately
1,700 companies, including approximately 2,000 U.S. corporations in 60
industries. The in-depth information and analyses generated by Goldman Sachs's
research analysts are available to the Advisers. For more than a decade, Goldman
Sachs has been among the top-ranked firms in INSTITUTIONAL INVESTOR'S annual
"All-America Research Team" survey. In addition, many of Goldman Sachs's
economists, securities analysts, portfolio strategists and credit analysts have
consistently been highly ranked in respected industry surveys conducted in the
U.S. and abroad. Goldman Sachs is also among the leading investment firms using
quantitative analysis (now used by a growing number of investors) to structure
and evaluate portfolios.

The fixed-income research capabilities of Goldman Sachs available to each of
the Advisers include the Goldman Sachs Fixed-Income Research Department and the
Credit Department. The Fixed-Income Research Department monitors developments in
U.S. and foreign fixed-income markets, assesses the outlooks for various sectors
of the markets and provides relative value comparisons, as well as analyzes
trading opportunities within and across market sectors. The Fixed-Income
Research Department is at the forefront in developing and using computer-based
tools for analyzing fixed-income securities and markets, developing new
fixed-income products and structuring portfolio strategies for investment policy
and tactical asset allocation decisions. The Credit Department tracks specific
governments, regions and industries and from time to time may review the credit
quality of a Fund's investments.

In advising the Funds, the Advisers are supported by Goldman Sachs's
economics research. The Economics Research Department conducts economic,
financial and currency markets research which analyzes economic trends and
interest and exchange rate movements worldwide. The Economics Research
Department tracks factors such as inflation and money supply figures, balance of
trade figures, economic growth, commodity prices, monetary and fiscal policies,
and political events that can influence interest rates and currency trends. The
success of Goldman Sachs's international research team has brought wide
recognition to its members. The team has earned top rankings in the
INSTITUTIONAL INVESTOR annual "All British Research Team Survey" in the
following categories: Economics (U.K.) 1986-1993; Economics/International
1989-1993; and Currency Forecasting 1986-1993. In addition, the team has also
earned top rankings in the annual "Extel Financial Survey" of U.K. investment
managers in the following categories: U.K. Economy 1989-1995; International
Economies 1986, 1988-1995; and Currency Movements 1986-1993.

In allocating assets in a Fund's portfolio among foreign countries and
currencies, the Advisers will have access to the Global Asset Allocation Model.
The model is based on the observation that the prices of all financial assets,
including foreign currencies, will adjust until investors globally are
comfortable holding the pool of outstanding assets. Using the model, the
Advisers will estimate the total returns from each currency sector which are
consistent with the average investor holding a portfolio equal to the market
capitalization of the financial assets among those currency sectors.

25
<PAGE>
These estimated equilibrium returns are then combined with Goldman Sachs's
research professionals' expectations to produce an optimal currency and asset
allocation for the level of risk suitable for a Fund's investment objective and
criteria.

INVESTMENT ADVISORY AGREEMENTS

Each Adviser has entered into an investment advisory agreement, dated March
20, 1996 with the Investment Manager in connection with each Fund it advises.
Under the agreements, the Adviser, subject to the general supervision of the
Company's board of directors, manages the investment portfolio of each Fund.
Under the investment advisory agreements, the Advisers are responsible for
making investment decisions for the Funds and for placing the purchase and sale
orders for the portfolio transactions of each Fund. In this capacity, the
Advisers obtain and evaluate appropriate economic, statistical, timing, and
financial information and formulates and implements investment programs in
furtherance of each Fund's investment objective(s).

As compensation for its services to the Funds on behalf of the Investment
Manager, 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:

<TABLE>
<CAPTION>
0-100MM 100-200M 200MM+
----------- ------------- -----------
<S> <C> <C> <C>
Money Market .35% .25% .15%
International Equity .40% .30% .25%
Global Income .40% .30% .25%
Growth and Income .40% .30% .20%
CORE U.S. Equity .40% .30% .20%
Small Cap Value .40% .30% .20%
Capital Growth .40% .30% .20%
</TABLE>

For the fiscal year ended December 31, 1996, the Investment Manager paid the
following fees to the Advisers in connection with each of the Funds: Money
Market Fund $18,425, CORE U.S. Equity Fund $310,858, Capital Growth Fund
$80,969, Small Cap Equity Fund $223,180, International Equity Fund $311,366,
Growth and Income Fund $580,051, and Global Income Fund $138,411. For the fiscal
year ended December 31, 1997, the Investment Manager paid the following fees to
the Advisers in connection with each of the Funds: Money Market Fund $55,987,
CORE U.S. Equity Fund $522,915, Capital Growth Fund $162,737, Small Cap Value
Fund $344,230, International Equity Fund $455,679, Growth and Income Fund
$881,873, and Global Income Fund $170,984. For the fiscal year ended December
31, 1998, the Invesment Manager paid the following fees to the Advisers in
connection with each of the Funds: Money Market Fund $ , CORE U.S. Equity
Fund $ , Capital Growth Fund $ , Small Cap Value Fund $ ,
International Equity Fund $ , Growth and Income Fund $ , and Global
Income Fund $ .

The Funds' investment advisory agreements each provide that the Advisers may
render similar services to others so long as the services that they provide
thereunder are not impaired thereby.

The investment advisory agreement for each Fund was approved by the
directors of the Company, including a majority of the directors of the Company
who are not parties to the investment advisory agreement or "interested persons"
(as such term is defined in the Act) of any party thereto (the "non-interested
directors"), on March 20, 1996, and by the shareholders of each Fund on April
30, 1996. The foregoing agreements will remain in effect until April 30, 1999
and from year to year thereafter provided such continuance is specifically
approved at least annually by (a) the vote of a majority of the votes
attributable to shares of the Fund or a majority of the directors of the
Company, and (b) the vote of a majority of the non-interested directors of the
Company, cast in person at a meeting called for the purpose of voting on such
approval. The investment advisory agreements will each terminate automatically
if assigned (as defined in the Act) and each is terminable at any time without
penalty by the

26
<PAGE>
directors of the Company or by vote of a majority of the votes attributable to
outstanding voting securities of the applicable Fund on 60 days' written notice
to the Adviser and by the Adviser on 60 days' written notice to the Company.

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS AND ITS AFFILIATES. The involvement of the Advisers and Goldman
Sachs and their affiliates in the management of, or their interests in, other
accounts and other activities of Goldman Sachs may present conflicts of interest
with respect to the Funds or impede their investment activities.

Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, have proprietary interests in, and may
manage or advise with respect to funds or accounts (including insurance company
separate accounts and other funds and other collective investment vehicles),
which have investment objectives similar to those of the Funds and/or which
engage in transactions in the same types of securities, currencies and
instruments as the Funds. Goldman Sachs and its affiliates are major
participants in the global currency, equities, swap and fixed-income markets, in
each case both on a proprietary basis and for the accounts of customers. As
such, Goldman Sachs and its affiliates are actively engaged in transactions in
the same types of securities, currencies and instruments in which the Funds
invest. Such activities could affect the prices and availability of the
securities, currencies and instruments in which the Funds will invest, which
could have an adverse impact on a Fund's performance. Such transactions,
particularly in respect of proprietary accounts or customer accounts other than
those included in the Advisers' and their advisory affiliates asset management
activities, will be executed independently of a Fund's transactions and thus at
prices or rates that may be more or less favorable. When the Advisers and their
advisory affiliates seek to purchase or sell the same assets for their managed
accounts, including a Fund, the assets actually purchased or sold may be
allocated among the accounts on a basis determined in their good faith
discretion to be equitable. In some cases, this system may adversely affect the
size or the price of the assets purchased or sold for a Fund.

From time to time, a Fund's activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies, designed to comply with such restrictions. As a result,
there may be periods, for example, when the Advisers will not initiate or
recommend certain types of transactions in certain securities or instruments
with respect to which the Advisers and/or their affiliates are performing
services or when position limits have been reached.

In connection with their advice to the Funds, the Advisers may have access
to certain fundamental analysis and proprietary technical models developed by
Goldman Sachs and other affiliates. The Advisers will not be under any
obligation, however, to effect transactions on behalf of a Fund in accordance
with such analysis and models. In addition, neither Goldman Sachs nor any of its
affiliates will have any obligation to make available any information regarding
their proprietary activities or strategies, or the activities or strategies used
for other accounts managed by them, for the benefit of a Fund and it is not
anticipated that the Advisers will have access to such information for the
purpose of managing the Funds. The proprietary activities or portfolio
strategies of Goldman Sachs and its affiliates or the activities or strategies
used for accounts managed by them or other customer accounts, could conflict
with the transactions and strategies employed by the Advisers in advising the
Funds.

The results of a Fund's investment activities may differ significantly from
the results achieved by the Advisers and their affiliates for the proprietary
accounts or accounts (including investment companies or other collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment results
which are substantially more or less favorable than the results achieved by a
Fund. Moreover, it is possible that a Fund will sustain losses during periods in
which Goldman Sachs and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also possible.

27
<PAGE>
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for a Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or in individual issuers, by affiliated foreign investors.

An investment policy committee, which may include partners of Goldman Sachs
and its affiliates, may develop general policies regarding a Fund's activities,
but will not be involved in the day-to-day management of the Funds. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any such
member of an investment policy committee will have direct or indirect interests
in the activities of Goldman Sachs and its affiliates in securities, currencies
and investments similar to those in which the Funds invest.

In addition, certain principals and certain employees of the Advisers are
also principals or employees of Goldman Sachs or its affiliated entities. As a
result, the performance by these principals and employees of their obligations
to such other entities may be a consideration of which investors in a Fund
should be aware.

The Advisers may enter into transactions and invest in currencies or other
instruments on behalf of a Fund in which customers of Goldman Sachs serve as the
counterparty, principal or issuer. In such cases, such party's interests in the
transaction will be adverse to the interests of a Fund, and such party may have
no incentive to assure that the Funds obtain the best possible prices or terms
in connection with the transactions. Goldman Sachs and its affiliates may also
create, write or issue derivative instruments for customers of Goldman Sachs or
its affiliates, the underlying securities or instruments of which may be those
in which a Fund invests or which may be based on the performance of a Fund. The
Funds may, subject to applicable law, purchase investments which are the subject
of an underwriting or other distribution by Goldman Sachs or its affiliates and
may also enter into transactions with other clients of Goldman Sachs or its
affiliates where such other clients have interests adverse to those of the
Funds. At times, these activites may cause departments of the firm to give
advice to clients that may cause such client to take actions adverse to the
interests of the Company to the extent that affiliate transactions are
permitted. The Funds will deal with Goldman Sachs and its affiliates on an
arm's-length basis.

Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.

It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to time,
Goldman Sachs' activities may limit the Funds' flexibility in purchases and
sales of securities. When Goldman Sachs is engaged in an underwriting or other
distribution of securities of an entity, the Advisers may be prohibited from
purchasing or recommending the purchase of certain securities of that entity for
the Funds.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
negotiated commission for their services. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law, Goldman
Sachs.

In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a

28
<PAGE>
security usually includes a profit to the dealer. In underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments may be
purchased directly from an issuer, in which case no commissions or discounts are
paid. Except to the extent that the Money Market Fund purchases securities from
Goldman Sachs consistent with the terms of an SEC order permitting such sales,
the Company will not deal with Goldman Sachs in any transaction in which Goldman
Sachs acts as principal.

In placing orders for portfolio securities of a Fund, its Adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Adviser will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. While the
Adviser generally seeks reasonably competitive spreads or commissions, the Funds
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Advisers will consider research and investment
services provided by brokers or dealers who effect or are parties to portfolio
transactions of the Funds, the Advisers and their affiliates, or other clients
of the Advisers or their affiliates. Such research and investment services are
those which brokerage houses customarily provide to institutional investors and
include statistical and economic data and research reports on particular
companies and industries. Such services are used by the Advisers in connection
with all of their investment activities, and some of such services obtained in
connection with the execution of transactions for the Funds may be used in
managing other investment accounts. Conversely, brokers furnishing such services
may be selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of the Funds, and the services
furnished by such brokers may be used by the Advisers in providing investment
advisory services for the Funds.

On occasions when the Adviser deems the purchase or sale of a security to be
in the best interest of a Fund as well as its other advisory clients (including
any other fund or other investment company or advisory account for which the
Adviser or an affiliate acts as investment adviser), the Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution. In
such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser in the manner
it considers to be most equitable and consistent with its fiduciary obligations
to the Fund and such other customers. In some instances, this procedure may
adversely affect the price and size of the position obtainable for a Fund.

Commission rates are established pursuant to negotiations with the broker
based on the quality and quantity of execution services provided by the broker
in the light of generally prevailing rates. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the board of
directors of the Company.

Subject to the above considerations, the Advisers may use Goldman Sachs as a
broker for the Funds. In order for Goldman Sachs to effect any portfolio
transactions for a Fund, the commissions, fees or other remuneration received by
Goldman Sachs must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. This standard would
allow Goldman Sachs to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the board of directors of the Company, including a
majority of the non-interested directors, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to Goldman Sachs are consistent with the foregoing standard. Brokerage
transactions with Goldman Sachs are also subject to such fiduciary standards as
may be imposed upon Goldman Sachs by applicable law.

29
<PAGE>
In addition, although Section 11(a) of the Securities Exchange Act of 1934
provides that member firms of a national securities exchange may not effect
transactions on such exchange for the account of an investment company of which
the member firm or its affiliate is the investment adviser, except pursuant to
the requirements of that Section. The Company's board of directors has adopted
procedures designed to insure compliance with the requirements of Section 11(a).
In this regard, Goldman Sachs will provide the Company at least annually with a
statement setting forth the total amount of all compensation retained by Goldman
Sachs in connection with effecting transactions for the accounts of each Fund.
The board of directors of the Company will review and approve all of each Fund's
portfolio transactions with Goldman Sachs and the compensation received by
Goldman Sachs in connection therewith.

During the fiscal year ended December 31, 1996, the Funds paid the following
amounts in brokerage commissions: Money Market Fund $0, CORE U.S. Equity Fund
$86,791, Capital Growth Fund $38,218, Small Cap Equity Fund $202,278,
International Equity Fund $251,953, Growth and Income Fund $260,225, and Global
Income Fund $0. For the fiscal year ended December 31, 1997, the Funds paid the
following amounts in brokerage commissions: Money Market Fund $0, CORE U.S.
Equity Fund $250,554, Capital Growth Fund $104,067, Small Cap Value Fund
$269,631, International Equity Fund $275,970, Growth and Income Fund $659,922,
and Global Income Fund $0. During the fiscal year ended December 31, 1998, the
Funds paid the following amounts in brokerage commissions: Money Market Fund $0,
CORE U.S. Equity Fund $ , Capital Growth Fund $ , Small Cap Value Fund
$ , International Equity Fund $ , Growth and Income Fund $ , and
Global Income Fund $ .

During the fiscal year ended December 31, 1996, the Funds paid the following
amounts in brokerage commissions to Goldman Sachs: Money Market Fund $0, CORE
U.S. Equity Fund $0, Capital Growth Fund $9,752, Small Cap Equity Fund $3,955,
International Equity Fund $1,778, Growth and Income Fund $21,367, and Global
Income Fund $0. During the fiscal year ended December 31, 1997, the Funds paid
the following amounts in brokerage commissions to Goldman Sachs: Money Market
Fund $0, CORE U.S. Equity Fund $0, Capital Growth Fund $16,174, Small Cap Value
Fund $16,706, International Equity Fund $1,635, Growth and Income Fund $83,869,
and Global Income Fund $0. During the fiscal year ended December 31, 1998, the
Funds paid the following amounts in brokerage commissions to Goldman Sachs:
Money Market Fund $ , CORE U.S. Equity Fund $ , Capital Growth Fund
$ , Small Cap Value Fund $ , International Equity Fund $ , Growth
and Income Fund $ , and Global Income Fund $ .

During the fiscal year ended December 31, 1998, the brokerage commissions
paid by the Funds to Goldman Sachs represented the following percentages of
aggregate brokerage commissions paid by each Fund: Money Market Fund %, CORE
U.S. Equity Fund %, Capital Growth Fund %, Small Cap Value Fund %,
International Equity Fund %, Growth and Income Fund %, and Global Income
Fund %.

During the fiscal year ended December 31, 1998, the aggregate dollar amount
of transactions executed for each Fund by Goldman Sachs represented the
following percentages of aggregate dollar amount of transactions for such Fund:
Money Market Fund %, CORE U.S. Equity Fund %, Capital Growth Fund %,
Small Cap Value Fund %, International Equity Fund %, Growth and Income
Fund %, and Global Income Fund %.

For the fiscal period ended December 31, 1998, the Funds acquired and sold
securities of their regular broker-dealers. As of December 31, 1998, the Funds
held the following amounts of securities of their regular broker-dealers: Growth
and Income Fund $ , Capital Growth Fund $ , and CORE U.S. Equity Fund
$ .

DETERMINATION OF NET ASSET VALUE

Under the Act, the board of directors of the Company is responsible for
determining in good faith the fair value of securities of each Fund. In
accordance with procedures adopted by the board of

30
<PAGE>
directors of the Company, the net asset value per share is calculated by
determining the net worth of each Fund (assets, including securities at market
value, minus liabilities) divided by the number of that Fund's outstanding
shares. All securities are valued as of the close of regular trading on the New
York Stock Exchange. Each Fund will compute its net asset value once daily at
the close of such trading (normally 4:00 p.m. New York time), on each day (as
described in the Prospectus) that the Company is open for business.

In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the board of directors of the Company
will reconsider the time at which net asset value is computed. In addition, the
Funds may compute their net asset value as of any time permitted pursuant to any
exemption, order or statement of the SEC or its staff.

Portfolio assets of the Funds are valued as follows:

(a)securities and other investments listed on any U.S. or foreign stock
exchange or the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") are valued at the last sale price on that
exchange or NASDAQ on the valuation day; if no sale occurs, securities
traded on a U.S. exchange or NASDAQ are valued at the mean between the
closing bid and closing asked prices and securities traded on a foreign
exchange will be valued at the official bid price (the last sale price
and official bid price for securities traded principally on a foreign
exchange will be determined as of the close of the London Foreign
Exchange or, for securities traded on an exchange located the
Asia-Pacific region, noon London time);

(b)over-the-counter securities not quoted on NASDAQ are valued at the last
sale price on the valuation day or, if no sale occurs, at the mean
between the last bid and asked prices;

(c)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 the Adviser and approved by the board of directors of the
Company if those prices are deemed by the Adviser to be representative of
market values at the close of business of the New York Stock Exchange;

(d)options and futures contracts are valued at the last sale price on the
market where any such option or futures contracts is principally traded;

(e)over-the-counter options are valued based upon prices provided market
makers in such securities or dealers in such currencies.

(f)forward foreign currency exchange contracts are valued using a pricing
service and then calculating the mean between the last bid and asked
quotations supplied by dealers in such contracts;

(g)all other securities and other assets, including those for which a
pricing service supplies no quotations or quotations are not deemed by
the Adviser to be representative of market values, but excluding debt
securities with remaining maturities of 60 days or less, are valued at
fair value as determined in good faith pursuant to procedures established
by the board of directors of the Company; and

(h)debt securities with a remaining maturity of 60 days or less will be
valued at their amortized cost which approximates market value.

Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on
each business day at the close of the exchange representing the principal market
for such securities. The value of all assets and liabilities expressed in
foreign currencies will be converted into U.S. dollar values at the mean between
the buying and selling rates of such currencies against U.S. dollars last quoted
by any major bank. If such quotations are not available, the rate of exchange
will be determined in good faith by or under procedures established by the board
of directors of the Company.

31
<PAGE>
Trading in securities on European and Far Eastern securities exchanges and
on over-the-counter markets is normally completed well before the close of
business on each business day. In addition, European or Far Eastern securities
trading generally or in a particular country or countries may not take place on
all business days. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not business
days for the Company and days on which the Funds' net asset value is not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of regular trading on
the New York Stock Exchange will not be reflected in a Fund's calculation of net
asset values unless the Adviser deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.

PERFORMANCE INFORMATION

The Company may from time to time quote or otherwise use average annual
total return information for the Funds in advertisements, shareholder reports or
sales literature. Average annual total return values are computed pursuant to
equations specified by the SEC.

Average annual total return for a specified period is derived by calculating
the actual dollar amount of the investment return on a $1,000 investment in a
Fund made at the beginning of the period, and then calculating the annual
compounded rate of return which would produce that amount, assuming a redemption
at the end of the period. This calculation assumes a complete redemption of the
investment. It also assumes that all dividends and distributions are reinvested
at net asset value on the reinvestment dates during the period.

The Company also may from time to time quote or otherwise use year-by-year
total return, cumulative total return and yield information for the Funds in
advertisements, shareholder reports or sales literature. Year-by-year total
return and cumulative total return for a specified period are each derived by
calculating the percentage rate required to make a $1,000 investment in a Fund
(assuming that all distributions are reinvested) at the beginning of such period
equal to the actual total value of such investment at the end of such period.

Yield is computed by dividing net investment income earned during a recent
30 day period by the product of the average daily number of shares outstanding
and entitled to receive dividends during the period and the price per share on
the last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income for
these purposes may differ from the net investment income determined for
accounting purposes.

Any performance data quoted for a Fund will represent historical performance
and the investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
original cost.

From time to time the Company may publish an indication of the Funds' past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Incorporated, Weisenberger Investment Companies
Service, Donoghue's Money Fund Report, Barron's, Business Week, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Company may also advertise
information which has been provided to the NASD for publication in regional and
local newspapers. In addition, the Company may from time to time advertise its
performance relative to certain indices and benchmark investments, including:
(a) the Lipper Analytical Services, Inc. Mutual Fund Performance Analysis,
Fixed-Income Analysis and Mutual Fund Indices (which measure total return and
average current yield for the mutual fund industry and rank mutual fund
performance); (b) the CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. (which analyzes price, risk and various measures of return
for the mutual fund industry); (c) the Consumer Price Index published by the
U.S.

32
<PAGE>
Bureau of Labor Statistics (which measures changes in the price of goods and
services); (d) Stocks, Bonds, Bills and Inflation published by Ibbotson
Associates (which provides historical performance figures for stocks, government
securities and inflation); (e) the Hambrecht & Quist Growth Stock Index; (f) the
NASDAQ OTC Composite Prime Return; (g) the Russell Midcap Index; (h) the Russell
2000 Index -- Total Return; (i) the ValueLine Composite-Price Return; (j) the
Wilshire 4500 Index; (k) the Salomon Brothers' World Bond Index (which measures
the total return in U.S. dollar terms of government bonds, Eurobonds and foreign
bonds of ten countries, with all such bonds having a minimum maturity of five
years); (l) the Shearson Lehman Brothers Aggregate Bond Index or its component
indices (the Aggregate Bond Index measures the performance of Treasury, U.S.
Government agencies, mortgage and Yankee bonds); (m) the S&P Bond indices (which
measure yield and price of corporate, municipal and U.S. Government bonds); (n)
the J.P. Morgan Global Government Bond Index; (o) Donoghue's Money Market Fund
Report (which provides industry averages of 7-day annualized and compounded
yields of taxable, tax-free and U.S. Government money market funds); (p) other
taxable investments including certificates of deposit, money market deposit
accounts, checking accounts, savings accounts, money market mutual funds and
repurchase agreements; (q) historical investment data supplied by the research
departments of Goldman Sachs, Lehman Brothers, First Boston Corporation, Morgan
Stanley (including EAFE), Salomon Brothers, Merrill Lynch, Donaldson Lufkin and
Jenrette or other providers of such data; (r) the FT-Actuaries Europe and
Pacific Index; (s) mutual fund performance indices published by Variable Annuity
Research & Data Service; and (t) mutual fund performance indices published by
Morningstar, Inc. The composition of the investments in such indices and the
characteristics of such benchmark investments are not identical to, and in some
cases are very different from, those of a Fund's portfolio. These indices and
averages are generally unmanaged and the items included in the calculations of
such indices and averages may be different from those of the equations used by
the Company to calculate a Fund's performance figures.

The Company may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the Advisers'
views as to markets, the rationale for a Fund's investments and discussions of
the Fund's current asset allocation.

From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived by an investment in a particular
Fund. Such advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
in the communication.

Such performance data will be based on historical results and will not be
intended to indicate future performance. The total return or yield of a Fund
will vary based on market conditions, portfolio expenses, portfolio investments
and other factors. The value of a Fund's shares will fluctuate and an investor's
shares may be worth more or less than their original cost upon redemption. The
Company may also, at its discretion, from time to time make a list of a Fund's
holdings available to investors upon request.

TAXES

GENERAL TAX INFORMATION. The Company intends that each of the Funds will
continue to qualify as a regulated investment company under Subchapter M of
Chapter 1 of the Internal Revenue Code, as amended (the "Code"). If each Fund
continues to qualify as a regulated investment company and distributes
substantially all of its net income and gains to its shareholders (which the
Company intends to do), then under the provisions of Subchapter M, each Fund
should have little or no income taxable to it under the Code.

Each Fund of the Company must meet several requirements to maintain its
status as a regulated investment company. These requirements include the
following: (1) at least 90% of each Fund's gross income must be derived from
dividends, interest, payments with respect to securities loaned, and gains from
the sale or disposition of securities; and (2) at the close of each quarter of
each Fund's

33
<PAGE>
taxable year, (a) at least 50% of the value of each Fund's total assets must
consist of cash, U.S. Government securities and other securities (no more than
5% of the value of each Fund may consist of such other securities of any one
issuer, and each Fund must not hold more than 10% of the outstanding voting
stock of any issuer), and (b) each Fund must not invest more than 25% of the
value of its total assets in the securities of any one issuer (other than U.S.
Government securities).

In order to maintain the qualification of a Fund's status as a regulated
investment company, the Company may, in its business judgment, restrict a Fund's
ability to invest in certain financial instruments. For the same reason, the
Company may, in its business judgment, require a Fund to maintain or dispose of
an investment in certain types of financial instruments beyond the time when it
might otherwise be advantageous to do so.

Each of the Funds also intends to comply with section 817(h) of the Code and
the regulations issued thereunder, which impose certain investment
diversification requirements on life insurance companies' separate accounts
(such as the Accounts) that are used to fund benefits under variable life
insurance and variable annuity contracts. These requirements are in addition to
the requirements of subchapter M and of the Investment Company Act of 1940, and
may affect the securities in which a Fund may invest. In order to comply with
the current or future requirements of section 817(h) (or related provisions of
the Code), the Company may be required, for example, to alter the investment
objectives of one or more of the Funds. No such change of investment objectives
will take place without notice to the shareholders of an affected Fund and the
approval of the Securities and Exchange Commission, to the extent legally
required.

FOREIGN INVESTMENTS. Funds investing in foreign securities or currencies
may be required to pay withholding or other taxes to foreign governments.
Foreign tax withholding on dividends and interest, if any, is generally at a
rate between 10% and 35%. The investment yield of any Fund that invests in
foreign securities or currencies will be reduced by these foreign taxes. Owners
of variable life insurance and variable annuity contracts investing in such a
Fund will bear the costs of any foreign tax, but will not be able to claim a
foreign tax credit or deduction for these foreign taxes. Funds investing in
securities of passive foreign investment companies may be subject to U.S.
Federal income taxes and interest charges, and the investment yield of a Fund
making such investments will be reduced by these taxes and interest charges.
Owners of variable life insurance policies and variable annuity contracts
investing in such Funds would bear the cost of these taxes and interest charges.

If a Fund fails to qualify as a regulated investment company, the Fund will
be subject to federal, and possibly state, corporate taxes on its taxable income
and gains (without any deduction for its distributions to its shareholders) and
distributions to its shareholders will constitute ordinary income to the extent
of such Fund's available earnings and profits. Owners of variable life insurance
and annuity contracts which have invested in such a Fund might be taxed
currently on the investment earnings under their contracts and thereby lose the
benefit of tax deferral. In addition, if a Fund failed to comply with the
diversification requirements of section 817(h) of the Code and the regulations
thereunder, owners of variable life insurance and annuity contracts which have
invested in the Fund would be taxed on the investment earnings under their
contracts and thereby lose the benefit of tax deferral. Accordingly, compliance
with the above rules is carefully monitored by the Funds' investment advisers
and it is intended that each Fund will comply with these rules as they exist or
as they may be modified from time to time. Compliance with the tax requirements
described above may result in a reduction in the return achieved by a Fund,
since, to comply with the above rules, the investments utilized (and the time at
which such investments are entered into and closed out) may be different from
what the Fund's investment adviser might otherwise believe to be desirable.

The Funds should not be subject to the 4% Federal excise tax imposed on
regulated investment companies that do not distribute substantially all their
income and gains each calendar year because the tax does not apply to a
regulated investment company whose only shareholders are segregated asset
accounts of life insurance companies held in connection with variable annuity
contracts and/or variable life insurance policies.

34
<PAGE>
ADDITIONAL TAX CONSIDERATIONS. The discussion of "Taxes" in the Prospectus
and the foregoing discussion of federal income tax consequences is a general and
abbreviated summary based on tax laws and regulations in effect on the date of
the Prospectus. Tax law is subject to change by legislative, administrative or
judicial action. Each prospective investor should consult his or her own tax
adviser as to the tax consequences of investments in the Funds. For information
concerning the federal income tax consequences to the owners of variable life
insurance policies and variable annuity contracts, see the prospectuses for the
contracts.

SHARES OF STOCK

The Company was incorporated in Maryland on September 2, 1993. The
authorized capital stock of the Company consists of 1 billion (1,000,000,000)
shares, par value one-tenth of one per cent ($0.001) per share. Seven hundred
million (700,000,000) of the authorized shares have been divided into and may be
issued in seven designated classes as follows: Money Market Series, 100,000,000
shares; CORE U.S. Equity Series, 100,000,000 shares; Capital Growth Series,
100,000,000 shares; Small Cap Value Series, 100,000,000 shares; International
Equity Series, 100,000,000 shares; Growth and Income Series 100,000,000 shares;
and, Global Income Series, 100,000,000 shares. The shares of each class
represent fractional undivided interests in an investment portfolio of the
Company corresponding to that class. The board of directors of the Company have
authority, subject to certain limitations, under the Company's Charter to create
and classify shares of capital stock in additional separate series and to
reclassify existing series of stock into one or more different new classes
without further action by shareholders.

Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared for the respective class and, upon
liquidation or dissolution, in net assets allocated to such class remaining
after satisfaction of outstanding liabilities. The shares of each class, when
issued, will be fully paid and non-assessable and have no preemptive or
conversion rights.

Rule 18f-2 under the Act provides that any matter required to be submitted
by the provisions of the Act, applicable state law or otherwise to the holders
of the outstanding voting securities of an investment company such as the
Company shall not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each class or series
affected by such matter. Rule 18f-2 further provides that a class or series
shall be deemed to be affected by a matter unless the interests of each class or
series in the matter are substantially identical or the matter does not affect
any interest of such class or series. However, Rule 18f-2 exempts the selection
of independent public accountants, the approval of principal underwriting
contracts and the election of directors from the separate voting requirements of
Rule 18f-2.

Protective Life provided the initial capital for each of the Company's Funds
by purchasing stock of each class in the following amounts, ($10,000 per class
on March 2, 1994 and the balance on March 14, 1994): Money Market Fund,
$500,000; CORE U.S. Equity Fund, $1,000,000; Small Cap Value Fund, $1,000,000;
International Equity Fund, $3,000,000; Growth and Income Fund, $1,000,000; and
Global Income Fund, $3,000,000. Protective Life also provided the initial
capital for Capital Growth Fund by purchasing Capital Growth Series stock in the
amount of $1,000,000 on June 14, 1995. Such shares were acquired for investment
and can only be disposed of by redemption.

Under normal circumstances, subject to the reservation of rights explained
above, the Company will redeem shares of the Funds in cash within seven days.
However, the right of a shareholder to redeem shares and the date of payment by
the Company may be suspended for more than seven days for any period during
which the New York Stock Exchange is closed, other than the customary weekends
or holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for a Fund to dispose of securities owned by it or
fairly to determine the value of its net assets; or for such other period as the
SEC may by order permit for the protection of shareholders.

35
<PAGE>
VOTING AND OTHER RIGHTS

Each share outstanding is entitled to one vote for each dollar of net asset
value on all matters submitted to a vote of shareholders (of a Fund or the
Company) and is entitled to a pro-rata share of any distributions made by a Fund
and, in the event of liquidation, of its net assets remaining after satisfaction
of outstanding liabilities. Each share (of each Fund), when-issued, is
nonassessable and has no preemptive or conversion rights. The shares have
noncumulative voting rights. Protective Life and PLAI will each vote shares of a
Fund held by the respective Accounts which are attributable to Contracts in
accordance with instructions received from Contract owners, annuitants and
beneficiaries as provided in the preospectuses for the Contracts. Fund shares
held by the Accounts as to which no instructions have been received will be
voted for or against any proposition, or in abstention, in the same proportion
as the shares of the Accounts as to which instructions have been received. Fund
shares held by any registered separate account of Protective Life, PLAI or their
affiliates that are not attributable to Contracts will also be voted for or
against any proposition in the same proportion as the shares for which voting
instructions are received by that separate account. However, if Protective Life
or PLAI determines that they are permitted to vote any such shares of a Fund in
their own right, they may elect to do so, subject to the then current
interpretation of the Act and the rules thereunder. Fund shares held by
non-registered separate accounts or qualified plans will be voted for or against
any proposition in the same proportion as all other Fund shares are voted unless
the separate account or the plan makes other arrangements.

As a Maryland corporate entity, the Company is not required to hold regular
annual shareholder meetings. The Company is, however, required to hold
shareholder meetings for such purposes as, for example: (i) approving certain
agreements as required by the Act; (ii) changing fundamental investment
objectives, policies and restrictions of any Fund; and (iii) filling vacancies
on the board of directors in the event that less than a majority of the
directors were elected by shareholders. Directors may also be removed by
shareholders by a vote of two-thirds of the outstanding votes attributable
to shares at a meeting called at the request of holders of 10% or more of such
votes. The Company has the obligation to assist in the shareholder
communications.

CUSTODY OF ASSETS

Pursuant to a custody agreement with the Company, State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, holds the cash and portfolio securities of the Company as custodian.

State Street is responsible for holding all securities and cash of each
Fund, receiving and paying for securities purchased, delivering against payment
securities sold, and receiving and collecting income from investments, making
all payments covering expenses of the Company, all as directed by persons
authorized by the Company. State Street does not exercise any supervisory
function in such matters as the purchase and sale of portfolio securities,
payment of dividends, or payment of expenses of the Funds or the Company.
Portfolio securities of the Funds purchased domestically are maintained in the
custody of State Street and may be entered into the Federal Reserve, Depository
Trust Company, or Participant's Trust Company book entry systems. Pursuant to
the Custody Agreement, portfolio securities purchased outside the United States
will be maintained in the custody of various foreign branches of State Street
and such other custodians or subcustodians, including foreign banks and foreign
securities depositories, as are approved by the board of directors of the
Company, in accordance with regulations under the Act.

State Street holds securities of the Funds on which call options have been
written and certain assets of the Funds constituting margin deposits with
respect to financial futures contracts at the disposal of the futures commission
merchants ("FCMs") through which such transactions are effected. The Funds may
also be required to post margin deposits with respect to covered call and put
options written on stock indices and for this purpose certain assets of those
Funds may be held by the custodian pursuant to similar arrangements with the
brokers involved.

36
<PAGE>
This arrangement regarding margin deposits essentially consists of State
Street creating a separate segregated account into which it transfers (upon the
Company's instructions) assets from a Fund's general (regular) custodial
account. The custody agreement for such arrangement provides that FCMs or
brokers will have access to the funds in the segregated accounts when and if the
FCMs or brokers represent that the Company has defaulted on its obligation to
the FCMs or brokers and that the FCMs or brokers have met all the conditions
precedent to their right to receive such funds under the agreement between the
Company and the FCMs or brokers. The Company has an agreement with each FCM or
broker which provides (1) that the assets of any Fund held by the FCM or broker
will be in the possession of State Street until released or sold or otherwise
disposed of in accordance with or under the terms of such agreement, (2) that
such assets would not otherwise be pledged or encumbered by the FCM or broker,
(3) that when requested by the Company the FCM or broker will cause State Street
to release to its general custody account any assets to which a Fund is entitled
under the terms of such agreement, and (4) that the assets in the segregated
account shall otherwise be used only to satisfy the Company's obligations to the
FCM or broker under the terms of such agreement.

If on any day a Fund experiences net realized or unrealized gains with
respect to financial futures contracts or covered options on stock indices held
through a given FCM or broker, it is entitled immediately to receive from the
FCM or broker, and usually will receive by the next business day, the net amount
of such gains. There upon, such assets will be deposited in its general or
segregated account with State Street, as appropriate.

ACCOUNTING AND ADMINISTRATIVE SERVICES

Pursuant to the custody agreement, State Street also performs certain
accounting services for the Company. These services include maintaining and
keeping current the Company's books, accounts, records, journals and other
records of original entry related to the Company's business, performing certain
daily functions related thereto, including calculating each Fund's daily net
asset value. PIA is responsible for providing certain administrative services to
the Company such as calculating each Fund's standardized performance
information, preparing annual and semi-annual reports to share holders and the
SEC, preparing each Fund's tax returns, monitoring compliance and performing
other administrative duties. Pursuant to a subadministration agreement with PIA,
State Street performs many of these administrative services.

TRANSFER AGENT

Pursuant to a Transfer Agency and Service Agreement with the Company, State
Street also acts as a transfer, redemption and dividend disbursing agent for the
Company.

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<PAGE>
DIRECTORS AND OFFICERS

The directors and officers of the Company are listed below together with
their respective positions with the Company and a brief statement of their
principal occupations during the past five years.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE COMPANY, PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS
- ------------------------- ---------------------------------------------------------------------------------------
<S> <C>
D. Warren Bailey Director.
Carolyn King* Director and Chairman and President. Senior Vice President, Protective Life Corporation
(since May, 1995). Senior Vice President, Provident Life and Accident Insurance
Company (August 1994 - March 1995). Various other positions with Provident Life and
Accident Insurance Company (1980 - August 1994).
G. Ruffner Page, Jr. Director.
Cleophus Thomas, Jr. Director.
Richard J. Bielen* Director and Vice President and Compliance Officer. Senior Vice President, Investments,
Protective Life Corporation (since August 1996). Vice President, Protective Life
Corporation (July 1991-August 1996).**
John O'Sullivan* Treasurer. Vice President and Actuary, Investment Products Division Protective Life
Insurance Company
Jerry W. DeFoor* Vice President and Chief Accounting Officer. Vice President and Controller and Chief
Accounting Officer, Protective Life Corporation
Steve M. Callaway* Secretary. Senior Associate Counsel, Protective Life Corporation (since May, 1997).
</TABLE>

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

* "Interested Person" of the Company for purposes of the Act. The address of
Interested Persons of the Company is the same as that of Protective Life
Corporation.

** These are the most current titles and positions for these persons at
Protective Life Corporation. Each has held various positions with Protective
Life Corporation over the past five years. The address of Protective Life
Corporation is 2801 Highway 280 South, Birmingham, Alabama 35223.

As of the date of this Statement, no director or officer beneficially owns
more than 1% of the outstanding stock of any class of the Company.

TABLE OF DIRECTORS COMPENSATION

<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF DIRECTOR FROM THE COMPANY
- ----------------------------------------------------------------- -----------------
<S> <C>
Richard J. Bielen................................................ $ -0-
D. Warren Bailey................................................. 10,000
Carolyn King..................................................... -0-
G. Ruffner Page, Jr. ............................................ 10,000
Cleophus Thomas, Jr. ............................................ 10,000
</TABLE>

Directors and officers of the Company do not receive any benefits from the
Company upon retirement nor does the Company accrue any expense for pension or
retirement benefits. The directors and officers of the Company do not currently
serve as directors or officers of any investment company that is an affiliated
person of the Company or that is managed by the Investment Manager.

38
<PAGE>
OTHER INFORMATION

INDEPENDENT ACCOUNTANTS

PriceWaterhouseCoopers L.L.P. an international public accounting firm, has
served since inception of Protective Investment Company as its independent
accountants. Responsibility for the audit is assigned to the firm's office
located at One Post Office Square, Boston, Massachusetts 02109.

LEGAL COUNSEL

Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2415, is counsel to the Company.

OTHER INFORMATION

The Prospectus and this Statement do not contain all the information
included in the registration statement filed with the SEC under the 1933 Act
with respect to the securities offered by the Prospectus. Certain portions of
the registration statement have been omitted from the Prospectus and this
Statement pursuant to the rules and regulations of the SEC. The registration
statement including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.

Statements contained in the Prospectus or in this Statement as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the registration statement of which the
Prospectus and this Statement form parts, each such statement being qualified in
all respects by such reference.

39
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS (1)
MOODY'S INVESTORS SERVICE, INC.'S BOND RATINGS

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa: Bonds which are rated Baa are considered a medium grade obligation,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or maybe characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements and
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safe-guarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest principal or interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds which may be
in default, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

UNRATED: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

- ------------------------
(1) The rating systems described herein are believed to be the most recent
ratings systems available from Moody's Investors Service, Inc. and Standard
& Poor's Corporation at the date of this Statement for the securities
listed. Ratings are generally given to securities at the time of issuance.
While the rating agencies may from time to time revise such ratings, they
undertake no obligations to do so, and the ratings indicated do not
necessarily represent ratings which will be given to these securities on the
date of the Fund's fiscal year end.

40
<PAGE>
Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not published
in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

NOTE: Those bonds in the Aa, A and Baa groups which Moody's believe possess
the strongest investment attributes are designated by the symbols Aa1, A1 and
Baa1.

STANDARD & POOR'S
RATINGS GROUP

AAA: An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong. to pay interest and repay principal is extremely
strong.

AA: The obligor's capacity to meet its financial commitment on the
obligation is very strong and differs from the highest rated issues only in
small degree.

A: An obligation is somewhat more susceptible to the ad-verse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
committment on the obligation is still strong.

BBB: An obligation exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

D: Obligations rated D are in payment default. The D rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payment will be made during such grace period. The D rating is also used
upon the filing of a bankruptcy petition or the taking of similar action if
payments on an obligation are jeopardized.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

NR: Not rated.

NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative obligations. The Fund is dependent on the Adviser's
judgment, analysis and experience in the evaluation of such bonds.

41
<PAGE>
APPENDIX B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.

Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.

OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.

OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.

WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.

WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.

WE STRESS TEAMWORK IN EVERYTHING WE DO. While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of the
interests of the firm and its clients.

INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our people to
maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.

GOLDMAN, SACHS & CO.'S INVESTMENT BANKING
AND SECURITIES ACTIVITIES

Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.

Privately owned and ranked among Wall Street's best capitalized firms, with
partner capital and subordinated liabilities of over $6.1 billion as of November
28, 1997.

With thirty-four offices around the world, Goldman Sachs employs over 9,000
professionals focused on opportunities in major markets.

The number one lead manager of U.S. common stock offerings for the last
eight years (1989-1996).*

The number one underwriter of all international equity issues from
1993-1996.*

Premier lead manager of negotiated municipal bond offerings over the past
six years (1990-1995).

A research budget of $200 million for 1997.

The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1996).

* Source: Securities Data Corporation. Ranking excludes REITS, Trusts, Rights
and closed-end fund offerings.

42
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE

<TABLE>
<S> <C>
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs for business
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck public (oldest ongoing client)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film
1956 Goldman Sachs co-manages Ford's public offering, the largest to date
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1991 Goldman Sachs provides advisory services for the largest privatization
in the region of Telefonos de Mexico
1995 Dow Jones Industrial Average breaks 4,000
1996 Goldman Sachs takes Deutsche Telekom public
Dow Jones Industrial Average breaks 6,000
1997 Dow Jones Industrial Average breaks 7,000
Goldman Sachs increases assets under management by 100% over 1996.
</TABLE>

43
<PAGE>
PART C
OTHER INFORMATION

Item 23. EXHIBITS.

LIST ALL EXHIBITS FILED AS PART OF THE REGISTRATION STATEMENT.

<TABLE>
<S> <C> <C>
(a) Articles of Incorporation of Registrant. (1)
(b) By-Laws of Registrant. (1)
(c) None.
(d) (1) Investment Management Agreement Between Investment Distributors
Advisory Services, Inc. and the Registrant. (1)
(2) Investment Advisory Agreements (sub-advisory agreement) Between
Investment Distributors Advisory Services, Inc. and Goldman Sachs
Asset Management. (1)
(3) Investment Advisory Agreements (sub-advisory agreement) Between
Investment Distributors Advisory Services, Inc. and Goldman Sachs
Asset Management International. (3)
(e) Participation/Distribution Agreement between Registrant, Investment
Distributors, Inc. and Protective Life Insurance Company. (3)
(f) None.
(g) Custody Agreement between Registrant and State Street Bank and Trust
Company. (3)
(h) (1) Transfer Agency and Service Agreement between Registrant and State
Street Bank and Trust Company. (3)
(2) Subadministration Agreement Between Registrant, State Street Bank
and Trust Company and Investment Distributors Advisory Services,
Inc. (3)
(i) Opinion and Consent of Sutherland Asbill & Brennan LLP (2)
(j) (1) Consent of Sutherland Asbill & Brennan LLP (To be filed by
amendment.)
(2) Consent of Pricewaterhousecoopers LLP (To be filed by amendment.)
(k) None.
(l) (1) Subscription Agreement. (2)
(2) Subscription Agreement. (4)
(m) None.
(n) (1) Protective Global Income Fund Financial Data Schedule
(2) Protective International Equity Fund Financial Data Schedule
(3) Protective Growth and Income Fund Financial Data Schedule
(4) Protective CORE U.S. Equity Fund Financial Data Schedule
(5) Protective Small Cap Equity Fund Financial Data Schedule
(6) Protective Capital Growth Fund Financial Data Schedule
(o) None.
</TABLE>

- ------------------------
(1) Incorporated herein by reference to the initial Form N-1A registration
statement filed on November 12, 1993 (file No. 33-71592).
(2) Incorporated herein by reference to the pre-effective amendment No. 1 to the
Form N-1A registration statement filed on March 4, 1994 (file No. 33-71592).
(3) Incorporated herein by reference to the post-effective amendment No. 1 to
the Form N-1A registration statement filed on September 14, 1994 (file No.
33-71592).
(4) Incorporated herein by reference to the post-effective amendment No. 5 to
the Form N-1A registration statement filed on June 13, 1995 (file No.
33-71592).

C-1
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

No person is controlled by the Registrant. All of the outstanding common
stock of the Registrant is, or will be, owned by Protective Life Insurance
Company ("Protective"), a Tennessee life insurance corporation, Protective Life
and Annuity Insurance Company ("PLAI"), a New York stock life insurance company,
Protective Life Corporation 401(k) and Stock Ownership Plan, Protective Variable
Annuity Separate Account, a separate account of Protective that is registered as
a unit investment trust under the Investment Company Act of 1940 (File Nos.
811-8108/33-70984), Protective Variable Life Separate Account, a separate
account of Protective that is registered as a unit investment trust under the
Investment Company Act of 1940 (File Nos. 811-7337/33-61599), and Variable
Annuity Account A of Protective Life and Annuity Insurance Company, a separate
account of PLAI that is registered as a unit investment trust under the
Investment Company Act of 1940 (file Nos. 811-8537/333-41577). All of the
outstanding shares of stock of PLAI are owned by Protective. Protective is a
wholly-owned subsidiary of Protective Life Corporation ("PLC"), an insurance
holding corporation whose common stock is traded on the New York Stock Exchange.
Various companies controlled by Protective and PLC or otherwise affiliated with
Protective may be deemed to be under common control with the Registrant. These
companies, together with the identity of their controlling persons (where
applicable), are set forth in Exhibit 21 to Form 10-K of Protective Life
Corporation for the fiscal year ended December 31, 1998 (File No. 1-2332) filed
with the Commission on , 1999.

Item 25. INDEMNIFICATION.

See Article X of the Registrant's Articles of Incorporation, filed as
Exhibit 1 to the initial filing of this Registration Statement, which provision
is incorporated herein by reference.

The Investment Advisory Agreements between the Investment Manager and
Goldman Sachs Asset Management and Goldman Sachs Asset Management International
all provide that the Manager will indemnify the Adviser (and its affiliates) for
all claims, actions, losses, damages, liabilities, costs, charges, counsel fees
and expenses arising out of any breach by the Manager of any representation or
agreement contained in the Advisory Agreements. The Advisory Agreements also all
provide that the Adviser will indemnify the Manager for any losses arising out
of the Adviser's disabling conduct.

The Registrant has purchased a directors and officers liability insurance
policy to insure such persons (subject to the policy's coverage limits,
exclusions and deductibles) against loss resulting from claims by reason of any
act, error, omission, misstatement, misleading statement, neglect or breach of
duty.

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

Item 26.BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT MANAGER AND INVESTMENT
ADVISER.

INVESTMENT MANAGER

The Registrant's investment manager is Protective Investment Advisors, Inc.
("PIA"). PIA formerly was known as Investment Distributors Advisory Services,
Inc. The business of Protective is

C-2
<PAGE>
summarized in item 24 of this registration statement and in the prospectus
constituting Part A under the caption "Investment Manager" and in the statement
of additional information constituting Part B under the caption "Investment
Manager," which summarizations are incorporated by reference herein. Set forth
below is a list of: (a) each director of PIA, (b) each principal executive
officer of PIA, and (c) certain other officers of PIA who may be considered to
be involved in PIA's investment management activities.

As to each director, the list indicates business, profession, vocation or
employment of a substantial nature that such director has been, at any time
during the past two fiscal years, engaged for his or her own account or in the
capacity of director, officer, partner or trustee. Unless otherwise indicated,
officers of PIA have no other business, profession, vocation or employment of a
substantial nature than their position at PIA. The principal business address of
each officer of PIA is the same as that of the Registrant.

<TABLE>
<CAPTION>
ORGANIZATION AND BUSINESS
NAME POSITION ADDRESS OF ORGANIZATION
- ---------------------------- --------------------------- ------------------------------------------------------
<S> <C> <C>
R. Stephen Briggs President, Director Director
ProEquities, Inc.
2801 Highway 280 South
Birmingham, Alabama 35223
Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
Carolyn King Secretary, Chief Compliance Senior Vice President
Officer, Director Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
John O'Sullivan Treasurer, Director Vice President
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Steve M. Callaway Director Senior Associate Counsel
Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
</TABLE>

INVESTMENT ADVISER

The Registrant has two investment advisers: Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs & Company, and Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman, Sachs &
Co. The business of GSAM and GSAMI is summarized in the prospectus constituting
Part A under the caption "Advisers" and in the statement of additional
information constituting Part B under the caption "Investment Advisers," which
summarizations are incorporated by reference herein.

More information about GSAM and GSAMI, including the business and other
connections of the officers and partners of Goldman, Sachs & Co. and Goldman
Sachs Funds Management, L.P., is included in the Form ADVs for Goldman, Sachs &
Co., GSAMI, and Goldman Sachs Funds Management, L.P., respectively as currently
filed with the Securities and Exchange Commission (File Nos. 801-16048,
801-38157, and 801-37591, respectively) the text of which is incorporated herein
by reference.

C-3
<PAGE>
Item 27. PRINCIPAL UNDERWRITER.

(a)Investment Distributors, Inc. ("IDI") serves as principal underwriter for
Registrant and also acts as the principal underwriter for variable
annuity contracts issued by Protective and Protective Variable Annuity
Separate Account. IDI is a wholly-owned subsidiary of PLC.

(b)The principal business address of each director and officer of IDI is the
same as that of the Registrant. Set forth below is a list of each
director and officer of IDI.

<TABLE>
<CAPTION>
NAME POSITION WITH IDI POSITION WITH REGISTRANT
------ -------------------------------------------------- -----------------------------------
<S> <C> <C>
Briggs, R. Stephen Director, President and Chief Executive Officer None
King, Carolyn Secretary, Chief Compliance Officer Director and Chairman and President
Ballard, Michael B. Director None
Merrill, Lawrence G. Director None
Callaway, Steve M. Director Secretary
O'Sullivan, John Director, Financial Operations Principal and Treasurer
Treasurer
Summey, Janet Assistant Secretary None
Miller, Bonnie Assistant Secretary None
</TABLE>

(c)Inapplicable.

Item 28. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules thereunder will be
maintained at the following offices of the Registrant, Goldman Sachs Asset
Management, Goldman Sachs Asset Management International, or State Street Bank
and Trust Company.

Protective Investment Company
2801 Highway 280 South
Birmingham, Alabama 35223
Goldman Sachs Asset Management
32 Old Slip
New York, N.Y. 10005
Goldman Sachs Asset Management International
140 Fleet Street
London EC4A 2BJ
England
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

Item 29.MANAGEMENT SERVICES.

Inapplicable.

Item 30. UNDERTAKINGS.

(a)Inapplicable.

(b)Inapplicable.

(c)The Registrant undertakes to furnish, upon request and without charge, to
each person to whom a prospectus is delivered a copy of the Registrant's
latest annual report to shareholders.

C-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(a) under the Securities Act of 1933 and has duly caused this post-
effective amendment to the registration statement to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Birmingham and State of
Alabama, on the 25th day of February, 1999.

PROTECTIVE INVESTMENT COMPANY

By /s/ CAROLYN KING
-----------------------------------
Carolyn King, President

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<C> <S> <C>
/s/ RICHARD J. BIELEN
- --------------------------------- Director February 25, 1999
Richard J. Bielen

/s/ D. WARREN BAILEY
- --------------------------------- Director February 25, 1999
D. Warren Bailey

/s/ CAROLYN KING
- --------------------------------- President and Director February 25, 1999
Carolyn King (Principal Executive Officer)

/s/ CLEOPHUS THOMAS, JR.
- --------------------------------- Director February 25, 1999
Cleophus Thomas, Jr.

/s/ G. RUFFNER PAGE, JR.
- --------------------------------- Director February 25, 1999
G. Ruffner Page, Jr.

/s/ JERRY W. DEFOOR
- --------------------------------- Vice President, Chief February 25, 1999
Jerry W. DeFoor Accounting Officer
</TABLE>