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A Modified Guaranteed Annuity Issued by
Protective Life Insurance Company
P.O. Box 10648
Birmingham, Alabama 35202-0648
Telephone: 1-800-456-6330

        This Prospectus describes the ProSaver® Platinum Contract, a group and individual modified guaranteed annuity contract. This Contract is designed for investors who desire to accumulate capital on a tax deferred basis for retirement or other long term investment purposes. It may be purchased on a non-qualified basis or for use with certain qualified retirement plans.

        An Annuity Deposit of at least $10,000 is required to purchase a Contract. Any subsequent Deposit you want to add to your Contract must also be at least $10,000.

        You may allocate each Annuity Deposit to one or more investment periods, called Guaranteed Periods, from those we offer at the time you make the deposit. Each allocation to a Guaranteed Period must be at least $10,000. The amounts you allocate will earn interest for the selected period at the interest rate we offer at the time of your deposit. Protective Life Insurance Company makes the final determination as to Guaranteed Interest Rates it declares. We cannot predict nor do we guarantee what future interest rates we will declare.

        If you surrender your Contract, or any portion of it, before the end of a Guaranteed Period, we may assess a surrender charge on the amount you surrender. We will also apply a Market Value Adjustment to the amount you surrender, which could increase or decrease the value of your Contract. Under certain conditions, you may withdraw earned interest without a surrender charge or Market Value Adjustment. Surrenders and withdrawals of interest will be subject to income tax and may be subject to a 10% IRS penalty tax if taken before age 59¹/2.

        On the Annuity Commencement Date, we will apply your Net Account Value to the annuity option you have selected, or you may take that amount in one lump sum payment. The annuity payment options are (1) payments for a fixed period from five to thirty years, (2) life income with payments guaranteed for ten or twenty years, or (3) payments of a fixed amount until the amount we hold is exhausted.

        Please read this prospectus carefully. Investors should keep a copy for future reference.

The ProSaver Platinum Contract is not a deposit or obligation of, or guaranteed by, any bank or financial institution. It is not insured by the Federal Deposit Insurance Corporation or any other government agency, and it is subject to investment risk including the possible loss of investment principal.

The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is March 5, 2002.

        TABLE OF CONTENTS

	Page
SUMMARY	3
DESCRIPTION OF THE CONTRACT	6
The Contract	6
Parties to the Contract	6
Issuing a Contract	7
Right to Cancel	7
Annuity Deposits	7
Guaranteed Periods and Sub-Accounts	8
Initial Guaranteed Period	8
Subsequent Guaranteed Periods	8
Surrenders at the End of a Guaranteed Period	8
Selecting a Subsequent Guaranteed Period	8
Automatic Subsequent Guaranteed Periods	8
Guaranteed Interest Rates in Subsequent Guaranteed Periods	8
Guaranteed Interest Rates	9
Compounding of Interest	9
Interest Withdrawals	10
Account Values	10
SURRENDERS	10
Surrenders	10
Surrenders and Partial Surrenders	10
Taxes May Apply	10
Delay of Payments	11
Surrender Value	11
Surrender Charges	11
The Market Value Adjustment	11
Premium Tax	13
DEATH BENEFIT	14
Death of an Owner	14
Determining the Death Benefit	14
Paying the Death Benefit	14
ANNUITY BENEFITS	14
Annuity Commencement Date	14
Annuity Options	15
Annuity Payments	15
Death of the Owner or Annuitant After the Annuity Commencement Date	16
INVESTMENTS BY PROTECTIVE	16
OTHER CONTRACT PROVISIONS	17
Non-Participating	17
Notice	17
Reports	17
Transactions and Modifications of the Contract	17
Assignment of a Contract	18
Facility of Payment	18
Protection of Proceeds	18
Error in Age or Gender	18
DISTRIBUTION OF THE CONTRACTS	18
FEDERAL TAX MATTERS	19
Introduction	19
Protective's Tax Status	19
Taxation of Annuities in General	19
Tax Deferral During Accumulation Period	19
Taxation of Interest Withdrawals and Partial and Full Surrenders	20
Taxation of Annuity Payments	20
Taxation of Death Benefit Proceeds	21
Penalty Tax on Premature Distributions	21
Aggregation of Contracts	21
Loss of Interest Deduction Where Contracts Are Held by or for the Benefit of Certain Non-natural Persons	22
Qualified Retirement Plans	22
In General	22
Direct Rollover Rules	24
Federal Income Tax Withholding	24
PROTECTIVE LIFE INSURANCE COMPANY	25
Business	25
Life Insurance	25
Specialty Insurance Products	28
Retirement Savings and Investment Products	30
Selected Financial Data	33
Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Results of Operations	34
Premiums and Policy Fees	34
Net Investment Income	36
Realized Investment Gains (Losses)	36
Other Income	37
Income Before Income Tax	38
Income Tax Expense	41
Net Income	41
Known Trends and Uncertainties	42
Recently Issued Accounting Standards	45
Liquidity and Capital Resources	46
Investments	55
Insurance in Force	58
Underwriting	60
Indemnity Reinsurance	60
Policy Liabilities and Accruals	61
Federal Income Tax Consequences	61
Competition	61
Regulation	62
Recent Developments	63
Employees	64
Properties	64
DIRECTORS AND EXECUTIVE OFFICERS	65
DIRECTOR COMPENSATION	66
EXECUTIVE COMPENSATION	66
Summary Compensation Table	67
Aggregated FY-End Option/SAR Values	68
Long-Term Incentive Plan-Awards in Last Fiscal Year	68
OTHER PLANS AND ARRANGEMENTS	68
EMPLOYMENT CONTINUATION AGREEMENTS	69
RETIREMENT ARRANGEMENT	70
Compensation Committee Interlocks and Insider Participation	70
MANAGEMENT OWNERSHIP OF PLC STOCK	71
LEGAL PROCEEDINGS	72
EXPERTS	72
INDEPENDENT ACCOUNTANTS	72
LEGAL MATTERS	73
REGISTRATION STATEMENT	73
WHERE YOU CAN FIND MORE INFORMATION	73
APPENDIX A: MATTERS RELATING TO CONTRACTS OFFERED IN CERTAIN STATES AFTER SEPTEMBER 10, 1991 AND PRIOR TO MAY 1, 1996	A-1
APPENDIX B: MATTERS RELATING TO CONTRACTS OFFERED IN CERTAIN STATES PRIOR TO SEPTEMBER 10, 1991	B-1
FINANCIAL STATEMENTS	F-1

        No one is authorized to make any statement that contradicts this prospectus. You must not rely upon any such statement. This prospectus is not an offer to inquire about, or purchase the securities described in any jurisdiction where it is unlawful to do so.

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SUMMARY

Company: Protective Life Insurance Company, also referred to as "Protective," "we," "us" and "our."

What is the ProSaver Platinum Contract?	The ProSaver Platinum Contract is a modified guaranteed annuity contract issued by Protective. (See "The Contract," page 6.)
How is a Contract Issued?	We will issue the Contract when we receive and accept your complete application information and an initial Annuity Deposit. (See "Issuing a Contract," page 7.)
What is an Annuity Deposit?	The Annuity Deposit is the premium payment you send us to purchase or add to a Contract. You may send us more than one Annuity Deposit provided each Annuity Deposit is at least $10,000. We may refuse to accept an Annuity Deposit and we may limit the total Annuity Deposits we will accept. (See "Annuity Deposits," page 7.)
Can I cancel my contract?	You may cancel your Contract by returning it to us with a written cancellation request within the number of days after receiving it that your Contract specifies. This period will never be less than 10 days. When we receive your cancellation request we will treat the Contract as if it had never been issued. Depending on the laws of the state in which the Contract is delivered, the amount we will return will generally equal either 1) your total Annuity Deposit(s), or 2) the Account Value, adjusted by the Market Value Adjustment formula, on the date we receive your cancellation request. (See "Right to Cancel," page 7.)
How do my Annuity Deposits earn interest?	You allocate each Annuity Deposit (less applicable premium taxes) to one or more Guaranteed Periods. Each allocation to a Guaranteed Period must be at least $10,000. We establish a Sub-Account for each Guaranteed Period you select. The Sub-Account will earn interest at the Guaranteed Interest Rate for the entire Guaranteed Period. (See "Guaranteed Periods and Sub-Accounts," page 8.)
What happens at the end of a Guaranteed Period?	At the end of a Guaranteed Period you may: 1) surrender all or a part of your ending Sub-Account value without a surrender charge or Market Value Adjustment; 2) instruct us to apply the ending Sub-Account Value to one or more Guaranteed Periods that you may select from the Guaranteed Periods we are then offering; or 3) do nothing and a subsequent Guaranteed Period will automatically begin. (See "Guaranteed Periods and Sub-Accounts," page 8.)

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Can I take money out of the contract before the end of a Guaranteed Period?	You may take money out of your Contract before the end of a Guaranteed Period by surrendering all or part of the Contract, or by withdrawing the interest earned during the prior contract year.
	Surrenders:  If you surrender all or part of your Contract before the end of a Guaranteed Period, we may deduct a surrender charge and we will apply a Market Value Adjustment to the amount surrendered. We will not deduct a surrender charge after the first seven years of any Guaranteed Period. (See "Surrender Charges," page 11, and "Market Value Adjustment," page 11.)
	Interest withdrawals:  Once each Contract year, you may withdraw some or all of the interest earned in your Contract in the prior Contract year. An automatic interest withdrawal program that allows monthly, quarterly, semi-annual or annual interest withdrawals may also be available. We will not deduct a surrender charge or apply a Market Value Adjustment to annual or automatic interest withdrawals. (See "Interest Withdrawals, " page 10.)
	Tax consequences and limitations:  Surrenders and interest withdrawals may be subject to federal and state income taxes and, if taken prior to age 591/2, may be subject to a 10% federal tax penalty. (See "Federal Tax Matters, Taxation of Interest Withdrawals and Partial and Full Surrenders," pages 19-20, and "Penalty Tax on Premature Distributions," page 21.) Surrenders and interest withdrawals from Contracts issued as qualified contracts under the Internal Revenue Code may not be allowed in certain circumstances. (See "Federal Tax Matters, Qualified Retirement Plans," page 22.)
What is the surrender charge?	The surrender charge is a percentage of the amount that you surrender before the end of a Guaranteed Period. The maximum surrender charge for any Guaranteed Period is 6% and it declines to 0% after seven years. We do not apply the surrender charge to amounts that may be withdrawn as annual or automatic interest withdrawals. (See "Surrender Charges," page 11.)
What is a Market Value Adjustment?	The Market Value Adjustment is an amount we deduct from or add to amounts that you surrender before the end of a Guaranteed Period. The Market Value Adjustment formula is tied to market interest rates, as measured by the appropriate Treasury Rate. Generally, if the applicable Treasury Rate at the time of the surrender is more than 0.25% lower than the Treasury Rate associated with the Sub-Account, the

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	Market Value Adjustment will increase the Surrender Value. Otherwise, the Market Value Adjustment will decrease the Surrender Value. Please see "The Market Value Adjustment," at pages 11-13 of this Prospectus for a more complete explanation and examples of the Market Value Adjustment formula.
Does the contract provide a Death Benefit?	If you die before the Annuity Commencement Date, we will pay a death benefit, less any applicable premium tax, to your beneficiary. Generally, the death benefit will be the greater of the Account Value or the Net Account Value as of the date we receive the paperwork necessary to process the death claim, but there are other requirements and conditions. (See "Death Benefit," page 14.)
What annuity benefit does the contract provide?	On the Annuity Commencement Date we will pay the Net Account Value in a lump sum or apply that amount to the annuity option you select. Annuity options can provide periodic payments that are based on the life of one or two Annuitants, that are guaranteed for a fixed amount of time, or both. As a general rule, the Annuity Commencement Date cannot be after an Annuitant's 85th birthday. (See "Annuity Benefits," page 14.)
When is premium tax deducted?	If your Contract is subject to a premium tax, we will deduct it, according to applicable law, from the Annuity Deposits when we receive them, upon a full or partial surrender, from the Net Account Value when we apply it to an annuity option, or from the Death Benefit before we pay it. (See "Premium Tax," page 13.)
Is the Contract available for Qualified retirement plans?	The Contract may be issued for use with retirement plans receiving special federal income tax treatment under Sections 401, 403, 408, or 408A of the Internal Revenue Code such as pension and profit sharing plans (including H.R. 10 plans), individual retirement accounts, and individual retirement annuities. Contracts issued for use with these qualified retirement plans are referred to as Qualified Contracts and these types of plans are referred to as Qualified Plans. (See "Federal Tax Matters," page 18.)

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DESCRIPTION OF THE CONTRACT

        Contracts sold before May 1, 1996 vary significantly from those described below. Those contracts provide different rights and benefits, and the surrender charge and Market Value Adjustment may be calculated differently. Appendix A describes contracts offered from September 10, 1991 through April 30, 1996. Contracts offered before September 10, 1991 and certain Contracts offered after that date are described in Appendix B. You may always contact us if you have questions about your contract.

The Contract

        The ProSaver® Platinum Contract is a modified guaranteed annuity contract issued by Protective Life Insurance Company. Generally, this prospectus describes certificates issued under an allocated group modified guaranteed annuity contract issued by Protective to the Protective Financial Insurance Trust. AmSouth Bank, N.A. of Birmingham, Alabama is the Contract Holder, as the Trustee of the Protective Financial Insurance Trust. Eligible Owners include account holders of broker-dealers that have entered into a distribution agreement to offer the Contract. Eligible Owners also include employers and other entities and organized groups acceptable to us. The certificate we issue to an Owner summarizes the provisions of the group modified guaranteed annuity contract. The provisions of the group modified guaranteed annuity contract control whether or not they are included in the certificate. We will provide a copy of the group modified guaranteed annuity contract to an Owner upon request.

        In states where we do not issue a group contract, we will issue an individual modified guaranteed annuity contract directly to the Owner. In this prospectus, we will refer to both the certificates under the group Contract and the individual Contracts as a "Contract," and we will use the term "Owner" to describe the owners of group Contract certificates as well as the owners of individual Contracts. (See "Parties to the Contract," page 6.)

        Contracts are either Qualified or Non-Qualified. Qualified Contracts are used to fund pension and retirement programs that receive favorable tax treatment under Sections 401, 403, 408 or 408A of the Internal Revenue Code. These include H.R. 10 (Keogh) Plans, Individual Retirement Accounts or Annuities (IRAs), Tax-Sheltered Annuity Programs or Annuities (TSAs), or corporate pension and profit sharing plans. Non-Qualified Contracts may also enjoy tax favored status. (See, "Federal Tax Matters," page 18.)

Parties to the Contract

        Company:  Protective Life Insurance Company, also referred to as "Protective," "we," "us" and "our."

        Owner:  The person or persons who own a group Contract certificate (sometimes called "Participants" in our contract language and literature) or who own an individual Contract. An Owner is entitled to exercise all rights and privileges provided in the Contract, without the consent of a group Contract Holder. Individuals as well as non-natural persons, such as corporations or trusts, may own a Contract; two persons may own a Contract together. In this prospectus, we may refer to Owners as "you" or "your." If an Annuitant is still alive, the Owner may transfer a Contract to a new Owner by making a written request to our administrative office.

        Beneficiary:  The person or persons who may receive the benefits of a Contract upon the death of an Owner. We will treat the surviving Owner of a jointly owned Contract as the primary Beneficiary. If there is no surviving Owner, the primary Beneficiary is the person or persons so designated by the Owner and named in our records. The contingent Beneficiary is the person or persons designated by the Owner and named in our records to be Beneficiary if no primary Beneficiary is living. In the case of some Qualified Contracts, Treasury Department Regulations may restrict who may be designated as a Beneficiary,

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

        Unless designated irrevocably, the Owner may change the Beneficiary by written notice prior to any Owner's death. If a Beneficiary is designated irrevocably, that Beneficiary's written consent is required before the Owner can change the Beneficiary designation or exercise certain other rights. Your request

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will be effective on the day you sign it. We will not be liable for any payments made to a former Beneficiary, however, unless we have first notified you that we have received your written request and all necessary written consents at our Administrative Office.

        Annuitant:  The person on whose life annuity income payments may be based. The Owner is the Annuitant unless the Owner designates another person as the Annuitant.

        The Owner may change the Annuitant by written notice prior to the Annuity Commencement Date. If changing Annuitants, the Owner may not select an Annuitant whose 85th birthday comes before the end of any Guaranteed Period or the Annuity Commencement Date without our prior approval. If any Owner is not a natural person and changes the Annuitant, the change will be treated as the death of the Owner and the Death Benefit will be paid to the Beneficiary. (See "Death Benefit," page 14.)

        If an Annuitant who is not an Owner dies before the Annuity Commencement Date, the first Owner named on the application will become the new Annuitant unless the Owner had designated otherwise.

        Payee:  The person or persons who, generally at the designation of the Owner, receive annuity income payments under the Contract.

Issuing a Contract

        You purchase a Contract by completing an application and making an Annuity Deposit of at least $10,000. After we issue a Contract, you may make additional Annuity Deposits of at least $10,000 each. Regardless of how many Annuity Deposits you make, we will generally only issue one Contract. We have the right to decline any application or any Annuity Deposit. When we sell Contracts to retirement plans or in connection with retirement plans, those retirement plans may or may not qualify for special tax treatment under the Internal Revenue Code.

        If we do not receive all of the necessary application information at our Administrative Office when we receive your Annuity Deposit, we will hold your Annuity Deposit while we attempt to complete the application. If the necessary application information is not complete after a reasonable time, we will inform you of the reason for the delay and we will return your Annuity Deposit unless you specifically consent to our holding it until the application is complete. Once we have all of your necessary application information, we will apply your Annuity Deposit to the appropriate Guaranteed Periods and issue a Contract.

        The date we apply your initial Annuity Deposit to the appropriate Guaranteed Periods is the Effective Date for the Contract. You will begin to earn interest under the Contract as of this date. The Contract Year is based on the anniversary of your Effective Date.

Right to Cancel

        You may cancel your Contract by returning it to us with a written cancellation request within the number of days after receiving it that your Contract specifies. Unless otherwise provided by law, this period will never be less than 10 days. You must return the Contract and cancellation request to our Administrative Office or to the sales representative who sold it to you. If you return the Contract by mail, the effective date of the return will be the postmark date on your properly addressed and postage paid envelope.

        Upon receiving your returned Contract and cancellation request, we will cancel the Contract and treat it as if it had never been issued. Your Contract will specify the amount we will return upon cancellation. Depending on the laws of the state in which the Contract is delivered, the amount we will return will generally equal either 1) your total Annuity Deposit(s), or 2) the Account Value, adjusted by the Market Value Adjustment formula, on the date we receive your cancellation request.

Annuity Deposits

        The Annuity Deposit is the premium payment you send us to purchase or add to a Contract. Generally, we only accept Annuity Deposits made prior to the Annuitant's 85th birthday and we have the right not to accept any Annuity Deposit if we so choose. The minimum Annuity Deposit is $10,000. We also have the right to limit the total Annuity Deposits we accept without prior approval. Currently, this

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amount is $2,000,000. You can make an Annuity Deposit in the form of a check made out to Protective Life Insurance Company or by any other method we deem acceptable.

        You allocate Annuity Deposits, less any applicable premium tax, to one or more of the Guaranteed Periods available when you make the Annuity Deposit. You must allocate at least $10,000 to each Guaranteed Period you choose and you may not select a Guaranteed Period that extends beyond the Annuity Commencement Date.

Guaranteed Periods and Sub-Accounts

        A Guaranteed Period is the period of years during which we will credit the Guaranteed Interest Rate to a Sub-Account. Currently, we offer a variety of Guaranteed Periods up to 10 years, though all Guaranteed Periods may not be available in all states. You may not select a Guaranteed Period that extends past the Annuity Commencement Date for your Contract.

    Initial Guaranteed Period

        We will establish a Sub-Account for each Guaranteed Period to which you allocate an Annuity Deposit. Each Sub-Account earns interest at the Guaranteed Interest Rate in effect for that Guaranteed Period from the date the Annuity Deposit is credited to the Sub-Account through the end of the Guaranteed Period or until the Sub-Account is surrendered, if earlier.

    Subsequent Guaranteed Periods

        At the end of a Guaranteed Period, you may select from the following options:

1.

Surrender all or part of your ending Sub-Account value without a surrender charge or Market Value Adjustment;         



2.

Instruct us to apply the ending Sub-Account value to one or more subsequent Guaranteed Periods that you select from the Guaranteed Periods we are then offering; or         



3.

Do nothing and allow a subsequent Guaranteed Period automatically to begin.

    Surrenders at the end of a Guaranteed Period

        To surrender your ending Sub-Account value, you must request the surrender in writing no later than 10 days after the end of the expiring Guaranteed Period. If you surrender your ending Sub-Account value, any surrendered amount may be subject to income taxes, and a 10% IRS penalty tax may apply if you are not yet 59¹/2 years old.

    Selecting a subsequent Guaranteed Period

        To apply the ending Sub-Account value to one or more subsequent Guaranteed Periods, you must give us written instructions as to the Guaranteed Periods that you select no later than 10 days after the end of the expiring Guaranteed Period. You may select a subsequent Guaranteed Period only from the Guaranteed Periods we are offering at the time you make your selection. No subsequent Guaranteed Period may extend past the Annuity Commencement Date for your Contract. At least $10,000 must be allocated to any subsequent Guaranteed Period.

    Automatic subsequent Guaranteed Periods

        Unless you instruct otherwise, the Sub-Account Value at the end of an expiring Guaranteed Period will be allocated to a subsequent Guaranteed Period. The subsequent Guaranteed Period will be of the same duration as the expiring Guaranteed Period or, if we do not offer a Guaranteed Period of the same duration at that time or if such a Guaranteed Period would expire after the Annuity Commencement Date, the longest Guaranteed Period we offer that is shorter than the expiring Guaranteed Period and does not extend past the Annuity Commencement Date. The new Sub-Account will earn interest at the Guaranteed Interest Rate in effect for that subsequent Guaranteed Period when your Sub-Account Value is allocated to it.

    Guaranteed Interest Rates in subsequent Guaranteed Periods

        Your beginning Sub-Account value for any subsequent Guaranteed Period earns interest at the rate we have declared that is in effect for the subsequent Guaranteed Period(s) on the date your subsequent

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Guaranteed Period(s) begins. Our Guaranteed Interest Rates for subsequent Guaranteed Periods may differ from our Guaranteed Interest Rates for initial Guaranteed Periods of the same duration.

Guaranteed Interest Rates

        From time to time and at our sole discretion we set Guaranteed Interest Rates for each available Guaranteed Period. A Guaranteed Interest Rate credited to a Sub-Account will not change during the Guaranteed Period. We may, at our discretion, offer higher interest rates on Annuity Deposits, renewals, or both if your Account Value or your Annuity Deposit is $100,000 or more.

        In determining Guaranteed Interest Rates, we consider the interest rates available on the types of instruments in which the Company intends to invest the proceeds attributable to the Contracts. (See "Investments by Protective," page 16). In addition, we may also consider various other factors in determining Guaranteed Interest Rates, including but not limited to the following factors: regulatory and tax requirements; sales commissions and administrative expenses the Company incurs; general economic trends; and competitive factors. Protective Life Insurance Company makes the final determination as to Guaranteed Interest Rates it declares. We cannot predict nor do we guarantee what future interest rates we will declare.

    Compounding of Interest

        The Guaranteed Interest Rate we declare for each Sub-Account is the annual effective interest rate for the Sub-Account, which means the declared interest rate includes the effects of compounding. Interest compounds daily in the Sub-Account for the duration of the Guaranteed Period. Below is an illustration of how interest is credited during each year of a five-year Guaranteed Period. For the purposes of this example, we have made assumptions as indicated.

        Please note that the following example assumes no surrenders or withdrawals of any amount and no premium tax due on issuance. A Market Value Adjustment and surrender charge may apply to any full or partial surrender you make prior to the end of a Guaranteed Period (See "Surrenders," page 10). The hypothetical interest rates are for purposes of illustration only and we do not intend them as a prediction of any future interest rates we may declare under the Contract. The actual interest rates we declare for any Guaranteed Period may be more or less than what we have used in this illustration.

Example of Compounding at the Guaranteed Interest Rate

Deposit:	$100,000
Guaranteed Period:	5 Years
Guaranteed Interest Rate:	5.0%

	Year 1		Year 2		Year 3		Year 4		Year 5
Beginning of Year 1 Account Value:	$	100,000.00
x   (1 + Guaranteed Interest Rate):		1.05
=   End or Year 1 Account Value:	$	105,000.00
Beginning of Year 2 Account Value:			$	105,000.00
x   (1 + Guaranteed Interest Rate):				1.05
=   End of Year 2 Account Value:			$	110,250.00
Beginning of Year 3 Account Value:					$	110,250.00
x   (1 + Guaranteed Interest Rate):						1.05
=   End of Year 3 Account Value:					$	115,762.50
Beginning of Year 4 Account Value:							$	115,762.50
x   (1 + Guaranteed Interest Rate):								1.05
=   End of Year 4 Account Value:							$	121,550.62
Beginning of Year 5 Account Value:									$	121,550.62
x   (1 + Guaranteed Interest Rate):										1.05
=   End of Year 5 Account Value:									$	127,628.16

Total Interest Credited in Guaranteed Period: $127,628.16 - $100,000 = $27,628.16
Account Value at End of Guaranteed Period: $100,000 + $27,628.16 = $127,628.16

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Interest Withdrawals

        Once each Contract year, you may instruct us to send you all or a portion of the interest credited to your Sub-Accounts during the prior Contract year. Your instructions must be in writing. Currently, for most Guaranteed Periods, you may establish automatic interest withdrawals that are paid to you monthly, quarterly, semi-annually or annually. We reserve the right to limit automatic interest withdrawals to one per Contract year upon notice to you.

        Interest withdrawals remove money from your Sub-Account that would otherwise have been compounding interest on a daily basis. Because of this interruption of interest compounding, the more you withdraw, the less interest your Sub-Account will generate over time. Larger withdrawals reduce the compounding of interest more than smaller withdrawals; frequent withdrawals hinder the compounding process more than infrequent withdrawals; and earlier withdrawals reduce your interest more than later withdrawals would.

        We will not impose a surrender charge or Market Value Adjustment on interest withdrawals but interest withdrawals may be subject to federal and state income tax and a 10% penalty tax. In addition, interest withdrawals from Contracts issued as Tax-Sheltered Annuities are prohibited in certain circumstances. (See Federal Tax Matters, page 18.)

Account Values

        The value of a Sub-Account at any time is equal to the amounts that were allocated to that Sub-Account, plus any interest credited to it, minus any interest withdrawals and surrenders (including any surrender charges, Market Value Adjustment and premium tax). The sum of the Sub-Account values in your Contract is called the Account Value and represents the total value of your Contract.

        The Net Sub-Account Value is equal to the Sub-Account value modified by any Market Value Adjustment, minus surrender charges, and premium tax that would apply in the case of a full surrender of the Sub-Account. The Net Account Value, which is the sum of all the Net Sub-Account values under your Contract, is the amount you would be entitled to receive if you made a full surrender of your Contract. For this reason, the Net Account Value is sometimes called the "Surrender Value" of a Contract.

SURRENDERS

Surrenders

    Surrenders and Partial Surrenders

        You may surrender your entire Contract at any time. You may surrender part of the Contract if the value of each remaining Sub-Account is at least $10,000 after the surrender.

        Your surrender request must be in writing and, if you request a partial surrender, you must specify the Sub-Accounts from which the partial surrender will be taken. If you have more than one Sub-Account with the same Guaranteed Period, you must take the partial surrender from the Sub-Account with the shortest time remaining until maturity.

        Partial and full surrenders from Contracts issued as Tax-Sheltered Annuities are prohibited in certain circumstances. (See "Federal Tax Matters," page 18.)

    Taxes May Apply

        Amounts surrendered may be subject to federal and state income taxes. The taxable amount of a surrender may, under certain circumstances, be subject to a 10% federal tax penalty. In the case of Qualified Contracts, federal tax law imposes restrictions on the form and manner in which benefits may be paid. For example, surrenders from Qualified Contracts may require your spouse's consent even if your spouse is not an Owner. (See "Federal Tax Matters," page 18.) Premium tax may also apply. (See "Premium Tax," page 13.) You should consult your tax advisor about the effect a surrender from the Contract may have on your taxes.

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    Delay of Payments

        We may delay payment of a surrender for up to six months from the date we receive your written request, or for the period permitted by state insurance law, if less.

Surrender Value

        The surrender value is the amount available to you upon a surrender or partial surrender. The surrender value is calculated as of the date we receive your surrender request using the following formula:

                                             Surrender Value = A - S - M - P, where

                                             A = the amount of account value you surrender;
                                             S = the amount of the surrender charge;
                                             M = the amount of the Market Value Adjustment;
                                             P = the amount of any applicable premium tax.

Surrender Charges

        Surrenders and partial surrenders may be subject to a surrender charge. Generally, we will assess a surrender charge if you take a surrender during the first seven years of any Guaranteed Period. We calculate the surrender charge separately for each Sub-Account. We determine the amount of the surrender charge for a Sub-Account as follows: first, we subtract any amount available as an interest withdrawal from the surrender amount you request; then we multiply the result by the appropriate surrender charge percentage from the table below. The surrender charge percentage is determined based on the age of the Sub-Account from which the surrender is taken.

Number of Completed Years In a Guaranteed Period	Surrender Charge Percentage
0	6%
1	6%
2	5%
3	4%
4	3%
5	2%
6	1%
7 or more	0%

        We will include the surrender charge in the amount we deduct from the Sub-Account to satisfy your surrender request. The total surrender charge for your surrender is the sum of the surrender charges for the Sub-Accounts from which you make your surrender.

        We do not apply the surrender charge after the first seven years of any Guaranteed Period or from any amount available as an interest withdrawal. Also, we do not apply a surrender charge to surrenders you request at the end of a Sub-Account's Guaranteed Period if we receive your written surrender request no later than 10 days after the end of the Guaranteed Period.

The Market Value Adjustment

        We will apply a Market Value Adjustment if you request a full or partial surrender before the end of a Sub-Account's Guaranteed Period. The Market Value Adjustment reflects the relationship between market interest rates available when a Sub-Account was established and the interest rates available at the time of the surrender from that Sub-Account, as measured by an independent index called the Treasury Rate. The Treasury Rate is the annual effective interest rate credited to certain United States Treasury instruments and it is published by Bloomberg L.P., a nationally recognized service. On the fifteenth day and the last day of each month we will identify a Treasury Rate for each Guaranteed Period. For the purpose of determining the Market Value Adjustment during the cancellation period, we will identify a Treasury Rate each day. We will be consistent in the method we use to identify the Treasury Rate and the determination is binding upon any Owner, Annuitant and Beneficiary.

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        The Market Value Adjustment formula contains a 0.25% set percentage factor that compensates the Company for certain expenses and losses that we may incur, either directly or indirectly, as a result of the surrender. Another factor in the formula decreases the effect of the Market Value Adjustment as the Sub-Account matures by taking into consideration the number of months remaining in the Guaranteed Period from which the surrender is taken.

        Like the Surrender Charge, the Market Value Adjustment is calculated separately for each Sub-Account. We determine the amount of the Market Value Adjustment for each Sub-Account by subtracting any amount available as an interest withdrawal from the surrender amount requested, and then multiplying the result by the Market Value Adjustment percentage derived from the formula below:

Market Value Adjustment Percentage = (C - I + 0.25%) x (N/12), where

C = the current Treasury Rate established for the same term as the Guaranteed Period from which the surrender is taken;

I = the initial Treasury Rate for the Guaranteed Period from which the surrender is taken;

N = the number of months remaining in the Guaranteed Period from which the surrender is taken.

        We will include the Market Value Adjustment in the amount we deduct from the Sub-Account to satisfy your surrender request. The total Market Value Adjustment for your surrender is the sum of the Market Value Adjustments to the Sub-Accounts from which the surrender is taken.

        The Market Value Adjustment may increase or decrease the Surrender Value. If the applicable Treasury Rate at the time of the surrender is more than 0.25% lower than the Treasury Rate associated with the Sub-Account, the Market Value Adjustment will increase the Surrender Value. Otherwise, the Market Value Adjustment will decrease the Surrender Value.

        We do not apply the Market Value Adjustment to an interest withdrawal. When calculating the Market Value Adjustment, we consider any amount available as an interest withdrawal to be surrendered before amounts to which the Market Value Adjustment applies. If we receive your written surrender request no later than 10 days after the end of the Guaranteed Period, we do not apply the Market Value Adjustment to surrenders requested at the end of a Sub-Account's Guaranteed Period.

        Please note that the following example assumes no interest withdrawals, no premium tax due on issuance, and no surrenders other than those shown in the example. The hypothetical interest rates are for purposes of illustration only and we do not intend them as a prediction of any future interest rates we may declare under the Contract. The actual interest rates we declare for any Guaranteed Period may be more or less than what we have used in this illustration.

MARKET VALUE ADJUSTMENT AND SURRENDER CHARGE EXAMPLES
FULL SURRENDER AFTER COMPLETION OF YEAR 3

Interest Guarantee Period (years):	3		5		7		Total
Initially -
Annuity Deposit:	$	10,000.00	$	10,000.00	$	10,000.00	$	30,000.00
Guaranteed Interest Rate:		4.75%		5.00%		5.25%
Year 1 -
Beginning of Year Account Value:	$	10,000.00	$	10,000.00	$	10,000.00	$	30,000.00
x (1 + Guaranteed Interest Rate):		1.0475		1.0500		1.0525
= End of Year Account Value:	$	10,475.00	$	10,500.00	$	10,525.00	$	31,500.00
- Beginning of Year Account Value:	$	10,000.00	$	10,000.00	$	10,000.00	$	30,000.00
= Interest Earned during Year:	$	475.00	$	500.00	$	525.00	$	1,500.00

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Year 2 -
Beginning of Year Account Value:	$	10,475.00	$	10,500.00		$	10,525.00		$	31,500.00
x (1 + Guaranteed Interest Rate):		1.0476		1.0500			1.0525
= End of Year Account Value:	$	10,972.56	$	11,025.00		$	11,077.56		$	33,075.13
- Beginning of Year Account Value:	$	10,475.00	$	10,500.00		$	10,525.00		$	31,500.00
= Interest Earned during Year:	$	497.56	$	525.00		$	552.56		$	1,575.13
Year 3 -
Beginning of Year Account Value:	$	10,972.56	$	11,025.00		$	11,077.56		$	33,075.13
x (1 + Guaranteed Interest Rate):		1.0475		1.0500			1.0525
= End of Year Account Value:	$	11,493.76	$	11,576.25		$	11,659.13		$	34,729.14
- Beginning of Year Account Value:	$	10,972.56	$	11,025.00		$	11,077.56		$	33,075.13
= Interest Earned during Year:	$	521.20	$	551.25		$	581.57		$	1,654.02
After Completion of Year 3 -
Account Value:	$	11,493.76	$	11,576.25		$	11,659.13		$	34,729.14
-  Prior Year's Interest:	$	521.20	$	551.25		$	581.57		$	1,654.02
= Amount Subject to Surrender Charge and Market Value Adjustment:	$	10,972.56	$	11,025.00		$	11,077.56		$	33,075.13
Surrender Charge Percentage:		0%		4%			4%
x Subjected Amount:	$	10,972.56	$	11,025.00		$	11,077.56		$	33,075.13
= Surrender Charge:	$	0.00	$	441.00		$	443.10		$	884.10
Number of Months Remaining in the Guaranteed Period:		—		24			48
Example #1 — Increasing Interest Rate Environment
Current Treasury Rate:		5.75%		6.25%			6.75%
- Initial Treasury Rate:		5.00%		5.50%			6.00%
+ 0.25%:		0.25%		0.25%			0.25%
x Number Months Remaining / 12:		—		2.00			4.00
= Market Value Adjustment Percentage:		0.00%		2.00%			4.00%
x Subjected Amount:	$	10,972.56	$	11,025.00		$	11,077.56		$	33,075.12
= Market Value Adjustment:	$	0.00	$	220.50		$	443.10		$	663.60
Account Value:	$	11,493.76	$	11,576.25		$	11,659.13		$	34,729.14
-  Surrender Charge:	$	0.00	$	441.00		$	443.10		$	884.10
-  Market Value Adjustment:	$	0.00	$	220.50		$	443.10		$	663.60
= Net Account Value:	$	11,493.76	$	10,914.75		$	10,772.03		$	33,181.44
Example #2 — Decreasing Interest Rate Environment
Current Treasury Rate:		4.25%		4.75%			5.25%
- Initial Treasury Rate:		5.00%		5.50%			6.00%
+ 0.25%:		0.25%		0.25%			0.25%
x Number Months Remaining / 12:		0.00		2.00			4.00
= Market Value Adjustment Percentage:		0.00%		-1.00%			-2.00%
x Subjected Amount:	$	10,972.56	$	11,025.00		$	11,077.56		$	33,075.12
= Market Value Adjustment:	$	0.00	$	(110.25	)	$	(221.55	)	$	(331.80	)
Account Value:	$	11,493.76	$	11,576.25		$	11,659.13		$	34,729.14
- Surrender Charge:	$	0.00	$	441.00		$	443.10		$	884.10
- Market Value Adjustment:	$	0.00	$	(110.25	)	$	(221.55	)	$	(331.80	)
= Net Account Value:	$	11,493.76	$	11,245.80		$	11,437.58		$	34,176.84

Premium Tax

        Premium tax (including related retaliatory taxes and fees, if any) will be deducted when applicable. If your Contract is subject to a premium tax, we will deduct it according to applicable law from either your Annuity Deposits when received, upon a full or partial surrender, from the amount applied to an annuity option, or from the Death Benefit. The current rate of premium tax ranges up to 3.50%.

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DEATH BENEFIT

Death of an Owner

        If any Owner dies prior to the Annuity Commencement Date while the Contract is in force, we will pay a death benefit to the Beneficiary. If there are joint Owners to a Contract and one dies prior to the Annuity Commencement Date, the surviving Owner will be treated as the Beneficiary. If there is no Beneficiary living or named, we will pay the death benefit to the estate of the deceased Owner. If any Owner is not a natural person, the death of the Annuitant or a change in the Annuitant will be treated as the death of an Owner.

Determining the Death Benefit

        We will determine the death benefit as of the date we receive due proof of an Owner's death. If we receive a claim for the death benefit in good order and within 12 months of the date of the Owner's death, the death benefit will be the greater of the Net Account Value or the Account Value less applicable premium tax. If we receive the claim for the death benefit 12 months or more after the date of death, the death benefit will be the Net Account Value. If a death benefit is payable because an Owner who is not a natural person changes the Annuitant, the death benefit will be the Net Account Value.

Paying the Death Benefit

        Only one death benefit is payable under a Contract, even though the Contract may, under some circumstances, continue beyond the time of an Owner's death.

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

(1)

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



(2)

the entire interest must be distributed within five years of the Owner's death.

        If the Beneficiary is the deceased Owner's spouse, the surviving spouse may choose, in lieu of taking the death benefit, to continue the Contract and become the new Owner. The surviving spouse may then select a new Beneficiary. Upon the surviving spouse's death, the death benefit will become payable to the new Beneficiary and must then be distributed to the new Beneficiary under option 1 or 2, described above.

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

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

ANNUITY BENEFITS

Annuity Commencement Date

        You may select an Annuity Commencement Date when you purchase a Contract. The Annuity Commencement Date may not be earlier than the end of any Guaranteed Period nor later than the Annuitant's 85th birthday without our prior consent. If you do not select one, the Annuity Commencement Date will be the end of the Contract year immediately before the Annuitant's 85th birthday.

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        You may change the Annuity Commencement Date, subject to some general restrictions:

•

You must request the change in writing.         



•

We must receive the written request at least 30 days before the new Annuity Commencement Date you requested.         



•

The new Annuity Commencement Date may not come before the end of any existing Guaranteed Period.         



•

Unless we agree prior to the change, the new Annuity Commencement Date may not be later than the Annuitant's 85th birthday.

        Once our Administrative Office notifies you that we have received and approved your written request to change the Annuity Commencement Date, the change will be made effective as of the date you signed the request.

        Annuity Commencement Dates that occur after the Annuitant's 85th birthday may have adverse income tax consequences so you should consult your tax advisor before requesting an Annuity Commencement Date at these advanced ages. You may be required to begin distributions from Qualified Contracts before the Annuity Commencement Date. (See "Federal Tax Matters, Qualified Retirement Plans" page 22.)

Annuity Options

        On the Annuity Commencement Date we will apply part or all of the Net Account Value to the annuity option you have selected. If you have not selected an annuity option, we will apply your Net Account Value to Option 2 — Life Income with Payments for a 10-year fixed period. You may select from the following annuity options. For qualified Contracts, additional annuity options may apply with certain restrictions.

• Option 1 — Payments for a Fixed Period.

We will make equal monthly payments for any period not less than five years nor more than 30 years. The amount of each payment depends upon the total amount applied, the period selected and the interest rate we are using when the annuity payments are determined.

• Option 2 — Life Income with Payments for a Fixed Period.

We will make equal monthly payments based on the life of 1 or 2 named Annuitants. Payments will continue for the lifetime of the Annuitant(s) with payments guaranteed for either 10 or 20 years. Payments stop at the end of the selected fixed period or when the last surviving named Annuitant dies, whichever is later.

• Option 3 — Payments for a Fixed Amount.

We will make equal monthly payments for a fixed amount. The amount of each payment may not be less than $10 for each $1,000 of Net Account Value applied to the annuity option. Each month we will credit interest on the unpaid balance and add that interest to it. We will set the interest rate in our sole discretion, but it will not be less than an annual effective rate of 4%. Payments will continue until the amount we hold runs out. The last payment will be for the balance only.

         Other annuity options may be available on your Annuity Commencement Date.

Annuity Payments

        We will use the Annuitant's age on the Annuity Commencement Date to determine the amount of the payments under the annuity option you select. We calculate the amount of each annuity payment using the Annuity Tables published in the Contract. Those tables are based on the 1983 Individual

15

Annuitant Mortality Table A projected four years with interest credited at 4% per annum. One year will be deducted from the attained age of the Annuitant for every three completed years beyond the year 1987. If, at the time you select an annuity option, we offer options or rates more favorable that those guaranteed, the higher benefits will apply.

        We will make the first annuity payment one month after the Annuity Commencement Date. We will make subsequent payments according to the payment mode you select. We reserve the right to pay the Net Account Value in a lump sum if it is less than $5,000, and to change the frequency of your annuity payments if at any time the annuity payment is less than our current minimum payment amount.

        As a condition for making the first annuity payment, we may require proof of the Annuitant's age and gender. As a condition for continuing to make annuity payments that are based on the life of an Annuitant, we may also require, at any time, proof that an Annuitant is still living. You may not surrender this Contract after annuity payments begin.

Death of the Owner or Annuitant After the Annuity Commencement Date

        If any Owner or Annuitant dies on or after the Annuity Commencement Date and before all the annuity payments have been made, we will distribute any remaining payments at least as rapidly as under the annuity option in effect on the date of death. After the death of an Annuitant, we will make any remaining payments to the Beneficiary unless you specified otherwise before the Annuitant died.

INVESTMENTS BY PROTECTIVE

        Protective's investment philosophy is to maintain a portfolio that is matched to its liabilities with respect to yield, risk, and cash flow characteristics. The types of assets in which Protective may invest are influenced by state laws which prescribe qualified investment assets. Within the parameters of these laws, Protective invests its assets giving consideration to such factors as liquidity needs, investment quality, investment return, matching of assets and liabilities, and the overall composition of the investment portfolio by asset type and credit exposure.

        In establishing Guaranteed Interest Rates, Protective intends to take into account, among other things, the yields available on the instruments in which it intends to invest the proceeds from the Contracts. (See "Guaranteed Interest Rates," on page 9.) Protective's investment strategy with respect to the proceeds attributable to the Contracts will be to primarily invest in investment-grade debt instruments having durations tending to match the applicable Guaranteed Periods. It is anticipated that some portion of the portfolio will be invested in mortgages. Protective may also invest in lower than investment-grade debt instruments.

        Investment-grade debt instruments in which Protective intends to invest the proceeds from the Contracts include:

        Securities issued by the United States Government or its agencies or instrumentalities, which issues may or may not be guaranteed by the United States Government.

         Mortgage-backed and corporate debt securities which have an investment grade, at the time of purchase, within the four highest-grades assigned by Moody's Investors Service, Inc. (Aaa, Aa, A, Baa), Standard & Poor's Corporation ("S&P") (AAA, AA, A, or BBB) or any other nationally recognized rating service. Protective considers bonds rated Baa or higher by Moody's or BBB or higher by S&P to be investment grade. At September 30, 2001, 96.6% of bonds in which Protective invests were considered investment grade; 24.5% of these bonds were rated Baa or BBB.

        Mortgage-backed securities are based upon residential mortgages which have been pooled into securities. Mortgage-backed securities may have greater cash flow volatility as a result of the pass-through of prepayments of principal on the underlying loans. Prepayments of principal on the underlying

16

residential loans can be expected to accelerate with decreases in interest rates and diminish with increases in interest rates.

        Debt obligations which have a Moody's or Standard & Poor's rating below investment-grade may comprise a portion of the portfolio. Risks associated with investments in less than investment-grade debt obligations may be significantly higher than risks associated with investments in debt securities rated investment-grade. Risk of loss upon default by the borrower is significantly greater with respect to such debt obligations than with other debt securities because these obligations may be unsecured or subordinated to other creditors. Additionally, there is often a thinly traded market for such securities and current market quotations are frequently not available for some of these securities. Issuers of less than investment-grade debt obligations usually have higher levels of indebtedness and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment-grade issuers. Fixed maturity securities rated BBB may have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than is the case with higher rated fixed maturity securities.

        Protective's primary mortgage lending emphasis has been on small commercial mortgage loans to finance shopping centers that provide for the necessities of life to people within a smaller city or town. Protective has been making this type of loan for many years with little principal loss over that time.

        The federal government or its instrumentalities does not guarantee the Contracts. Protective backs the guarantees associated with the Contracts.

        While the foregoing generally describes our investment strategy with respect to the proceeds attributable to the Contracts, we are not obligated to invest the proceeds attributable to the Contracts according to any particular strategy, except as may be required by the insurance laws of Tennessee and other states.

OTHER CONTRACT PROVISIONS

Non-Participating

        The Contract does not share in our surplus or profits and does not pay dividends.

Notice

        All instructions and requests to change or assign a Contract must be in a written form acceptable to us and signed by the Owner. The instruction, change or assignment will relate back to and take effect on the date it was signed, but we will not be responsible for following any instruction or making any change or assignment before we receive it and acknowledge it through our Administrative Office. Send correspondence to: Investment Products Services, P. O. Box 10648, Birmingham, Alabama 35202-0648.

Reports

        At least once each year, we will send you a report showing the current Account Value, Sub-Account values, interest credited and any other information required by law.

Transactions and Modification of the Contract

        Currently, you must make any request for a change or transaction under your Contract in writing and on a form acceptable to Protective Life. Changes and transactions under your Contract include actions such as: making additional Annuity Deposits; requesting surrenders or interest withdrawals; changing the Annuity Commencement Date; annuity option, or Annuitant; or making a death benefit claim. No one is authorized to modify or waive any term or provision of the Contract unless we agree and unless it is signed by our President, Vice-President or Secretary. We reserve the right to change or modify the provisions of the Contract to conform to any applicable laws, rules or regulations issued by a government agency, or to assure

17

the Contract continues to qualify as an annuity under the Internal Revenue Code. We will send you a copy of any endorsement that modifies your Contract and will obtain all necessary approvals including, where required, that of the Owner.

Assignment of a Contract

        You have the right to assign a Contract if it is permitted by applicable law. Generally, you do not have the right to assign a qualified Contract. We do not assume responsibility for any assignment. Any claim made under an assignment is subject to proof of the nature and extent of the assignee's interest before we make a payment. Assignments have federal income tax consequences. An assignment may result in the Owner recognizing taxable income. (See, "Federal Tax Matters, Taxation of Interest Withdrawals and Partial and Full Surrenders" page 19.)

Facility of Payment

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

Protection of Proceeds

        To the extent permitted by law, no benefits payable under a Contract will be subject to the claims of creditors of any payee.

Error in Age or Gender

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

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

DISTRIBUTION OF THE CONTRACTS

        Investment Distributors, Inc., ("IDI") is the principal underwriter for the Contracts and has agreed to use its best efforts to distribute them. IDI is registered with the Securities and Exchange Commission as a broker-dealer under the Securities Exchange Act of 1934. It is a member of the National Association of Securities Dealers ("NASD"). IDI is a wholly owned subsidiary of Protective Life Corporation, which is the parent corporation of Protective Life Insurance Company.

        IDI enters into distribution agreements with other broker-dealers registered under the Securities Exchange Act of 1934. These broker-dealers offer the Contracts to individuals and groups who have established accounts with them. IDI may also offer the Contracts to members of certain other eligible groups or other eligible individuals.

        Unless forbidden by law, we pay a commission on each Annuity Deposit and on the Sub-Account Value transferred to a subsequent Guaranteed Period. The maximum commission we will pay is 7%.

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FEDERAL TAX MATTERS

Introduction

        The following discussion of the federal income tax treatment of the Contracts is not exhaustive, does not purport to cover all situations, and is not intended as tax advice. The federal income tax treatment of the Contracts is unclear in certain circumstances, and a qualified tax adviser should always be consulted with regard to the application of law to individual circumstances. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations, and interpretations existing on the date of this Prospectus. These authorities, however, are subject to change by Congress, the Treasury Department, and judicial decisions.

        This discussion does not address state or local tax consequences associated with the purchase of the Contracts. In addition, the Company makes no guarantee regarding any tax treatment — federal, state or local — of any Contract or of any transaction involving a Contract.

Protective's Tax Status

        Protective is taxed as a life insurance company under the Code. The assets underlying the Contracts will be owned by Protective, and the income derived from such assets will be includible in Protective's income for federal income tax purposes.

Taxation of Annuities in General

    Tax Deferral During Accumulation Period

        Under existing provisions of the Code (and except as described below), the Contracts should be treated as annuities and any increase in an Owner's Account Value is generally not taxable to the Owner or Annuitant until received, either in the form of annuity payments as contemplated by the Contracts, or in some other form of distribution.

        As a general rule, Contracts held by "non-natural persons" such as a corporation, trust or other similar entity, as opposed to a natural person, are not treated as annuities for federal tax purposes. The income on such Contracts (as defined in the tax law) is taxed as ordinary income that is received or accrued by the Owner during the taxable year. There are several exceptions to this general rule for Contracts held by non-natural persons. First, Contracts will generally be treated as held by a natural person if the nominal owner is a trust or other entity which holds the Contract as an agent for a natural person. Thus, if a group Contract is held by a trust or other entity as an agent for Certificate owners who are individuals, those individuals should be treated as owning an annuity for federal income tax purposes. However, this special exception will not apply in the case of any employer who is the nominal owner of a Contract under a non-qualified deferred compensation arrangement for its employees.

        In addition, exceptions to the general rule for non-natural Contract owners will apply with respect to (1) Contracts acquired by an estate of a decedent by reason of the death of the decedent, (2) Contracts issued in connection with certain Qualified Plans, (3) Contracts purchased by employers upon the termination of certain Qualified Plans, (4) certain Contracts used in connection with structured settlement agreements, and (5) Contracts purchased with a single premium when the annuity starting date is no later than a year from purchase of the Contract and substantially equal periodic payments are made, not less frequently than annually, during the annuity period.

        If the Contract's Annuity Commencement Date occurs (or is scheduled to occur) at a time when the Annuitant has reached an advanced age,   e.g., past age 85, it is possible that the Contract would not be treated as an annuity for federal income tax purposes. In that event, the Owner would be taxable currently on the annual increase in the Account Value.

        The remainder of this discussion assumes that the Contract will constitute an annuity for federal tax purposes.

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    Taxation of Interest Withdrawals and Partial and Full Surrenders

        In the case of an interest withdrawal or partial surrender, amounts received generally are includible in income to the extent the Owner's Account Value before the withdrawal or partial surrender exceeds his or her "investment in the contract." In the case of a full surrender, amounts received are includible in income to the extent they exceed the "investment in the contract." For these purposes the investment in the contract at any time equals the premiums paid under the Contract (to the extent such premium payments were neither deductible when made nor excludable from income as, for example, in the case of certain contributions to Qualified Contracts) less any amounts previously received from the Contract which were not included in income.

        Other than in the case of Qualified Contracts (which generally cannot be assigned or pledged), any assignment or pledge (or agreement to assign or pledge) any portion of the Account Value is treated as a withdrawal of such amount or portion. The investment in the contract is increased by the amount includible as income with respect to such assignment or pledge, though it is not affected by any other aspect of the assignment or pledge (including its release). If an Owner transfers a Contract without adequate consideration to a person other than the Owner's spouse (or to a former spouse incident to divorce), the Owner will be taxed on the difference between his or her Account Value and the investment in the contract at the time of transfer. In such case, the transferee's investment in the contract will be increased to reflect the increase in the transferor's income.

        There is some uncertainty regarding the treatment of the Market Value Adjustment for purposes of determining the amount includible in income as a result of any interest withdrawal, partial surrender, assignment or pledge or transfer without adequate consideration. Congress has given the Internal Revenue Service ("IRS") regulatory authority to address this uncertainty. However, as of the date of this Prospectus, the IRS has not issued any regulations addressing these determinations.

    Taxation of Annuity Payments

        Normally, the portion of each annuity payment taxable as ordinary income is equal to the excess of the payment over the excludable amount. The excludable amount is the amount determined by multiplying (1) the payment by (2) the ratio of the investment in the contract, adjusted for any period certain or refund feature, to the total expected value of annuity payments for the term of the Contract (determined under Treasury Department regulations).

        Once the total amount of the investment in the contract is excluded using this ratio, annuity payments will be fully taxable. If annuity payments cease because of the death of the Annuitant and before the total amount of the investment in the contract is recovered, the unrecovered amount generally will be allowed as a deduction to the Annuitant in his last taxable year.

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

Example of Determination of Excludable Amount

Assumptions:
Investment in contract:	$70,000
Annuity option selected:	10 year certain period
Payment frequency:	monthly, with the initial payment made immediately upon annuitization
Hypothetical payment:	$1,000

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Calculations:
Total payments =	Hypothetical payment multiplied by the number of payments to be made: $1,000 x 120 = $120,000
Exclusion ratio =	Cost basis divided by the total payments: $70,000 ÷ $120,000 = 58.33%
Excludable amount =	Exclusion ratio multiplied by the hypothetical payment: 58.33% x $1,000 = $583.33

    Taxation of Death Benefit Proceeds

        Prior to the Annuity Commencement Date, amounts may be distributed from a Contract because of the death of an Owner or, in certain circumstances, the death of the Annuitant. Such Death Benefit proceeds are includible in income as follows: (1) if distributed in a lump sum, they are taxed in the same manner as a full surrender, as described above, or (2) if distributed under an Annuity option, they are taxed in the same manner as annuity payments, as described above. After the Annuity Commencement Date, where a guaranteed period exists under an annuity option and the Annuitant dies before the end of that period, payments made to the Beneficiary for the remainder of that period are includible in income as follows: (1) if received in a lump sum, they are includible in income to the extent that they exceed the unrecovered investment in the contract at that time, or (2) if distributed in accordance with the existing Annuity option selected, they are fully excludable from income until the remaining investment in the contract is deemed to be recovered, and all annuity payments thereafter are fully includible in income.

        Proceeds payable on death may be subject to federal income tax withholding requirements. (See "Federal Income Tax Withholding, page 24.) In addition, in the case of such proceeds from certain Qualified Contracts, mandatory withholding requirements may apply, unless a "direct rollover" of such proceeds is made. (See "Direct Rollover Rules, page 24.)

    Penalty Tax on Premature Distributions

        Where a Contract has not been issued in connection with a Qualified Plan, there generally is a 10% penalty tax on the taxable amount of any payment from the Contract unless the payment is: (a) received on or after the Owner reaches age 59¹/2; (b) attributable to the Owner becoming disabled (as defined in the tax law); (c) made on or after the death of the Owner or, if an Owner is not an individual, on or after the death of the primary annuitant (as defined in the tax law); (d) made as a series of substantially equal periodic payments (not less frequently than annually) for the life (or life expectancy) of the Owner or the joint lives (or joint life expectancies) of the Owner and a designated beneficiary (as defined in the tax law); or (e) made under a Contract purchased with a single premium when the Annuity Commencement Date is no later than a year from purchase of the Contract and substantially equal periodic payments are made, not less frequently than annually, during the annuity period. (Similar rules, described below, generally apply in the case of Qualified Contracts.)

    Aggregation of Contracts

        In certain circumstances, the IRS may determine the amount of an annuity payment or a withdrawal or surrender from a Contract that is includible in income by combining some or all of the annuity contracts owned by an individual which are not issued in connection with a Qualified Plan. For example, if a person purchases a Contract offered by this Prospectus and also purchases at approximately the same time an immediate annuity, the IRS may treat the two contracts as one contract. Similarly, if a person transfers part of his or her interest in one annuity contract to purchase another annuity contract, the IRS might treat the two contracts as one contract. In addition, if a person purchases two or more deferred annuity contracts from the same insurance company (or its affiliates) during any calendar year, all such

21

contracts will be treated as one contract for purposes of determining whether any payment not received as an annuity (including interest withdrawals and surrenders prior to the Annuity Commencement Date) is includible in income. The effects of such aggregation are not always clear; however, it could affect the time when income is taxable and the amount which might be subject to the 10% penalty tax described above.

    Loss of Interest Deduction Where Contracts Are Held by or for the Benefit of Certain Non-natural Persons

        In the case of Contracts issued after June 8, 1997 to a non-natural taxpayer (such as a corporation or a trust), or held for the benefit of such an entity, a portion of otherwise deductible interest may not be deductible by the entity, regardless of whether the interest relates to debt used to purchase or carry the Contract. However, this interest deduction disallowance does not affect Contracts where the income on such Contracts is treated as ordinary income that is received or accrued by the Owner during the taxable year. Entities that are considering purchasing the Contract, or entities that will be beneficiaries under a Contract, should consult a tax advisor.

Qualified Retirement Plans

    In General

        The Contracts are also designed for use in connection with certain types of retirement plans which receive favorable treatment under the Code. Those who are considering the purchase of a Contract for use in connection with a Qualified Plan should consider, in evaluating the suitability of the Contract, that the Contract requires an Annuity Deposit of at least $10,000. Numerous special tax rules apply to participants in Qualified Plans and to Contracts used in connection with Qualified Plans. Therefore, no attempt is made in this prospectus to provide more than general information about the use of the Contracts with the various types of Qualified Plans.

        The tax rules applicable to Qualified Plans vary according to the type of plan and the terms and conditions of the plan itself. For example, both the amount of the contribution that may be made, and the tax deduction or exclusion that the Owner may claim for such contribution, are limited under Qualified Plans and vary with the type of plan. Also, in the case of interest withdrawals, full and partial surrenders, and annuity payments under Qualified Contracts, there may be no "investment in the contract" and the total amount received may be taxable.

        If a Contract is issued in connection with a Qualified Plan, the Owner and the Annuitant must be the same person. Additionally, for Contracts issued in connection with Qualified Plans subject to the Employee Retirement Income Security Act, the spouse or ex-spouse of the Owner will have rights in the Contract. In such a case, the Owner may need the consent of the spouse or ex-spouse to change annuity options, elect an interest withdrawal, or make a partial or full surrender of the Contract.

        In addition, special rules apply to the time at which distributions must commence and the form in which the distributions must be paid. For example, the length of any fixed period may be limited in some circumstances to satisfy certain minimum distribution requirements under the Code. Furthermore, failure to comply with minimum distribution requirements applicable to Qualified Plans will result in the imposition of an excise tax. This excise tax generally equals 50% of the amount by which a minimum required distribution exceeds the actual distribution from the Qualified Plan. In the case of Individual Retirement Accounts or Annuities ("IRAs"), distributions of minimum amounts (as specified in the tax law) must generally commence by April 1 of the calendar year following the calendar year in which the Owner attains age 70¹/2. In the case of certain other Qualified Plans, distributions of such minimum amounts generally must commence by the later of this date or April 1 of the calendar year following the calendar year in which the employee retires.

        There is also a 10% penalty tax on the taxable amount of any payment from certain Qualified Contracts. There are exceptions to this penalty tax which vary depending on the type of Qualified Plan. In the case of an IRA, exceptions provide that the penalty tax does not apply to a payment (a) received on or

22

after the Owner reaches age 59¹/2, (b) received on or after the Owner's death or because of the Owner's disability (as defined in the tax law), or (c) made as a series of substantially equal periodic payments (not less frequently than annually) for the life (or life expectancy) of the Owner or for the joint lives (or joint life expectancies) of the Owner and the Owner's designated Beneficiary (as defined in the tax law). These exceptions, as well as certain others not described herein, generally apply to taxable distributions from other Qualified Plans (although, in the case of plans qualified under sections 401 and 403, exception "c" above for substantially equal periodic payments applies only if the Owner has separated from service). In addition, the penalty tax does not apply to certain distributions from IRAs which are used for qualified first time home purchases or for higher education expenses. Special conditions must be met for these two exceptions to the penalty tax. Those wishing to take a distribution from an IRA for these purposes should consult their tax advisor.

        When issued in connection with a Qualified Plan, a Contract will be amended as generally necessary to conform to the requirements of the plan. However, Owners, Annuitants, and Beneficiaries are cautioned that the rights of any person to any benefits under Qualified Plans may be subject to the terms and conditions of the plans themselves, regardless of the terms and conditions of the Contract. In addition, the Company shall not be bound by terms and conditions of Qualified Plans to the extent such terms and conditions contradict the Contract, unless the Company consents.

        Following are brief descriptions of various types of Qualified Plans in connection with which Protective will generally issue a Contract.

        Individual Retirement Annuities.  Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an "Individual Retirement Annuity" or "IRA." IRAs are subject to limits on the amounts that may be contributed, the persons who may be eligible and on the time when distributions may commence. Also, subject to the direct rollover and mandatory withholding requirements (discussed below), distributions from certain Qualified Plans may be "rolled over" on a tax-deferred basis into an IRA. The Contract may not, however, be used in connection with a "Coverdell Education Savings Account" (formerly known as an "Education IRA") under Section 530 of the Code, a "Simplified Employee Pension" under Section 408(k) of the Code, or as a "SIMPLE IRA" under Section 408(p) of the Code.

        Roth IRAs.  Section 408A of the Internal Revenue Code permits eligible individuals to contribute to a type of IRA known as a "Roth IRA." Roth IRAs are generally subject to the same rules as non-Roth IRAs, but differ in several respects. Among the differences is that, although contributions to a Roth IRA are not deductible, "qualified distributions" from a Roth IRA will be excludable from income.

        A qualified distribution is a distribution that satisfies two requirements:

•

First, the distribution must be made in a taxable year that is at least five years after the first taxable year for which a contribution was made to any Roth IRA established for the Owner.         



•

Second, the distribution must be either:

1)

made after the Owner reaches age 59¹/2;         

2)

made after the Owner's death;         

3)

attributable to the Owner being disabled; or         

4)

a qualified first-time homebuyer distribution within the meaning of Section 72(t)(2)(F) of the Internal Revenue Code.

        In addition, distributions from Roth IRAs need not commence when the Owner reaches age 70¹/2. A Roth IRA may accept a "qualified rollover contribution" from a non-Roth IRA, but a Roth IRA may not accept rollover contributions from other Qualified Plans. The state tax treatment of a Roth IRA may differ from the federal income tax treatment of a Roth IRA.

        Corporate and Self-Employed ("H.R. 10" and "Keogh") Pension and Profit-Sharing Plans.  Sections 401(a) and 403(a) of the Code permit corporate employers to establish various types of tax-

23

favored retirement plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed individuals also to establish such tax-favored retirement plans for themselves and their employees. Such retirement plans may permit the purchase of the Contract in order to provide benefits under the plans. Employers intending to use the Contract in connection with such plans should seek competent advice.

        Tax-Sheltered Annuities.  Section 403(b) of the Code permits public school employees and employees of certain types of charitable, educational and scientific organizations specified in Section 501(c)(3) of the Code to have their employers purchase annuity contracts for them and, subject to certain limitations, to exclude the amount of purchase payments from gross income for tax purposes. These annuity contracts are commonly referred to as "tax- sheltered annuities." Purchasers of the Contracts for such purposes should seek competent advice as to eligibility, limitations on permissible amounts of purchase payments and other tax consequences associated with the Contracts. Section 403(b) Contracts contain restrictions on withdrawals of (i) contributions made pursuant to a salary reduction agreement in years beginning after December 31, 1988, (ii) earnings on those contributions, and (iii) earnings after December 31, 1988 on amounts attributable to salary reduction contributions held as of December 31, 1988. These amounts can be paid only if the employee has reached age 59¹/2, separated from service, died, become disabled, or in the case of hardship. Amounts permitted to be distributed in the event of hardship are limited to actual contributions; earnings thereon can not be distributed on account of hardship. (These limitations on withdrawals do not apply to the extent Protective is directed to transfer some or all of the Account Value to the issuer of another tax-sheltered annuity or into a Section 403(b)(7) custodial account.)

    Direct Rollover Rules

        In the case of Contracts used in connection with a pension, profit-sharing, or annuity plan qualified under Sections 401(a) or 403(a) of the Code, or in the case of a Section 403(b) Tax-Sheltered annuity, any "eligible rollover distribution" from the Contract will be subject to direct rollover and mandatory withholding requirements. An eligible rollover distribution generally is any taxable distribution from a qualified pension plan under Section 401(a) of the Code, qualified annuity plan under Section 403(a) of the Code, or Section 403(b) Tax-Sheltered annuity or custodial account, excluding certain amounts (such as minimum distributions required under Section 401(a)(9) of the Code, distributions which are part of a "series of substantially equal periodic payments" made for life or a specified period of 10 years or more, or hardship distributions as defined in the tax law).

        Under these requirements, withholding at a rate of 20 percent will be imposed on any eligible rollover distribution. In addition, the Owner in these qualified retirement plans cannot elect out of withholding with respect to an eligible rollover distribution. However, this 20 percent withholding will not apply if, instead of receiving the eligible rollover distribution, the Owner elects to have amounts directly transferred to certain Qualified Plans (such as to an IRA). Prior to receiving an eligible rollover distribution, you will receive a notice (from the plan administrator or Protective) explaining generally the direct rollover and mandatory withholding requirements and how to avoid the 20% withholding by electing a direct transfer.

Federal Income Tax Withholding

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

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PROTECTIVE LIFE INSURANCE COMPANY

BUSINESS

        Protective Life Insurance Company, a stock life insurance company, was founded in 1907. Protective is a wholly-owned and the largest operating subsidiary of Protective Life Corporation (PLC), an insurance holding company whose common stock is traded on the New York Stock Exchange (symbol PL). Protective provides financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires, "Protective" refers to the consolidated group of Protective Life Insurance Company and its subsidiaries.

        Protective offers a competitive selection of individual life insurance products, credit life and disability insurance products, guaranteed investment contracts, guaranteed funding agreements, and fixed and variable annuities. Protective distributes these products through many channels, primarily independent agents, insurance brokers, stockbrokers, financial institutions, company sales representatives, and automobile dealerships. Protective also seeks to acquire insurance policies from other insurers.

        Protective operates seven divisions each having a strategic focus which can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. The life insurance category includes the Individual Life, West Coast, and Acquisitions Divisions. The specialty insurance products category includes the Dental Benefits and Financial Institutions Divisions. The retirement savings and investment products category includes the Stable Value Products and Investment Products Divisions. Protective also has an additional business segment which is described herein as Corporate and Other.

        The following table shows the percentages of pretax operating income represented by each of the strategic focuses and the Corporate and Other segment.

Year Ended December 31	Life Insurance		Specialty Insurance Products		Retirement Savings and Investment Products		Corporate and Other
1996	55.3	%	7.9	%	38.8	%	(1.8	)%
1997	58.9		16.7		24.6		(0.2	)
1998	58.1		15.0		23.1		3.8
1999	61.6		20.6		20.6		(2.8	)
2000	62.5		27.5		21.6		(11.6	)
Nine months Ended September 30
2000	66.5		28.0		22.4		(16.9	)
2001	71.6		29.8		27.3		(28.7	)

        In the following paragraphs, Protective reports its divisional sales, new capital invested, members, and annualized premium. These statistics are used by Protective to measure the relative progress of its marketing and acquisition efforts. These statistics were derived from Protective's various sales tracking and administrative systems and were not derived from Protective's financial reporting systems or financial statements. These statistics attempt to measure only one of many factors that may affect future divisional profitability, and therefore are not intended to be predictive of future profitability.

LIFE INSURANCE

        A strategic focus of Protective is to expand its life insurance operations through internal growth and acquisitions. The Individual Life, West Coast, and Acquisitions Divisions support this strategy.

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Individual Life Division

        The Individual Life Division markets level premium term and term-like insurance, universal life and variable universal life products on a national basis through networks of independent insurance agents. The Division is also developing other distribution channels. These include marketing life insurance products through regional stockbrokers and banks, and through direct response and worksite arrangements.

        The Division has two primary agent networks. The first is based on experienced independent personal producing general agents who are recruited by regional sales managers. At September 30, 2001, Protective Life Insurance Company had approximately 70 regional sales managers located throughout the United States. Approximately 37% of the Division's sales during the first nine months of 2001 came from this distribution system.

        The Division also distributes insurance products in the life insurance brokerage market through a wholly-owned subsidiary, Empire General Life Assurance Corporation, representing approximately 41% of sales.

        For the entire Division, sales during the first nine months of 2001 through stockbrokers and banks represented 13% of sales, and direct response and other represented 9%.

        The following table shows the Individual Life Division's sales measured by new premium.

Year Ended December 31	Sales
	(in millions)
1996	$	45.4
1997		48.7
1998		71.2
1999		80.4
2000		92.8
Nine Months Ended September 30
2000		71.7
2001		69.9

West Coast Division

        In 1997, Protective acquired West Coast Life Insurance Company (West Coast). West Coast sells universal life and level premium term and term-life insurance products in the life insurance brokerage market and in the "bank owned life insurance" (BOLI) market. Headquartered in San Francisco, the Division also has regional offices in Atlanta and Detroit.

        The Division primarily utilizes a distribution system comprised of brokerage general agencies (BGAs) who recruit a network of independent life agents. At September 30, 2001, the Division worked with approximately 379 BGAs located throughout the United States. This distribution system represented approximately 79% of the Division's sales during the nine months ended September 30, 2001.

        The Division also offers corporate owned life insurance products to the BOLI market through an independent marketing organization which specializes in this market. The products are sold to smaller and regional banks, and represent approximately 21% of the Division's sales during the nine months ended September 30, 2001.

26

        The following table shows the West Coast Division's sales measured by new premium including sales prior to Protective's acquisition of West Coast for comparison purposes.

Year Ended December 31	BGA Sales		BOLI Sales		Total Sales
	(in millions)
1996	$	10.3	$	4.6	$	14.9
1997		19.5		10.3		29.8
1998		22.1		18.5		40.6
1999		39.0		19.8		58.8
2000		60.0		9.0		69.0
Nine Months Ended September 30
2000		52.9		5.8		58.7
2001		29.4		8.0		37.4

Acquisitions Division

        The Acquisitions Division focuses on acquiring, converting, and servicing policies acquired from other companies. The Division's primary focus is on life insurance policies sold to individuals. These acquisitions may be accomplished through acquisitions of companies or through the reinsurance of blocks of policies from other insurers. Forty-two transactions have been closed by the Division since 1970, including 15 since 1989. Policies acquired through the Division are usually administered as "closed" blocks; i.e., no new policies are being marketed. Therefore, the amount of insurance in force for a particular acquisition is expected to decline with time due to lapses and deaths of the insureds.

        Most acquisitions closed by the Division do not include the acquisition of an active sales force. In transactions where some marketing capacity was included, the Division generally either ceased future marketing efforts or redirected those efforts to another Division of Protective. However, in the case of the acquisition of West Coast which was closed by the Acquisitions Division, Protective elected to continue the marketing of new policies and operate West Coast as a separate division of Protective.

        The Division believes that its focused and disciplined approach to the acquisition process and its experience in the assimilation, conservation, and servicing of policies give it a significant competitive advantage over many other companies that attempt to make similar acquisitions. The Division expects acquisition opportunities to continue to be available as the life insurance industry continues to consolidate; however, management believes that Protective may face increased competition for future acquisitions.

        Total revenues and income before income tax from the Acquisitions Division are expected to decline with time unless new acquisitions are made. Therefore, the Division's revenues and earnings may fluctuate from year to year depending upon the level of acquisition activity.

        Although acquisition opportunities were pursued, no transactions were completed in 1999 or 2000. In January 2001, the Division coinsured a block of individual life policies from Standard Insurance Company representing approximately $115 million of capital invested.

27

        The following table shows the number of transactions closed by the Acquisitions Division and the approximate amount of (statutory) capital invested for each year in which an acquisition was made.

Year Ended December 31	Number of Transactions		New Capital Invested
			(in millions)
1996	3		$	47.1
1997	1	(1)		116.8	(1)
1998	1			77.8
Nine Months Ended September 30
2001	1			115.0

(1) West Coast

        On October 1, 2001 PLC, through its Acquisitions Division, completed the acquisition of the stock of Inter-State Assurance Company and First Variable Life Insurance Company from Ilona Financial Group, Inc., a subsidiary of Irish Life & Permanent plc of Dublin, Ireland. The purchase price was approximately $250 million. The companies' business primarily consists of universal life insurance products and fixed and variable annuities, representing 170,000 policies, $160 million of annual premiums and $1.6 billion of reserves.

        From time to time, other of Protective's Divisions have acquired companies and blocks of policies which are included in their respective results.

SPECIALTY INSURANCE PRODUCTS

        A second strategic focus of Protective is to participate in specialized segments of the insurance industry that offer attractive growth opportunities. The Dental Benefits and Financial Institutions Divisions have supported support this strategy.

Dental Benefits Division

        In 1997, the Division substantially exited from the group major medical business, fulfilling the Division's strategy to focus primarily on dental and related products.

        On December 31, 2001, PLC completed its previously announced sale of substantially all of its Dental Benefits Division to Fortis, Inc. This transaction, which was valued at approximately $300 million, included the coinsurance of the Division's indemnity dental business and the sale of the Division's prepaid dental subsidiaries. In addition, PLC discontinued certain other remaining Dental Division operations and discontinued other Dental Division related operations reported in the Corporate and Other segment, primarily other health insurance lines. These transactions will be accounted for as discontinued operations.

        The Division's primary strategic emphasis is on indemnity and prepaid dental products. The Division was a pioneer in developing indemnity dental products for the voluntary payroll deduction market. The Division's prepaid dental business has been conducted through affiliates. Prior to October 1, 2000, these affiliates were subsidiaries of PLC, and therefore, the results of these affiliates were not included in Protective's consolidated group. Effective October 1, 2000, PLC transferred most of these affiliates to Protective and their results are included in Protective's Dental Benefits Division since the effective date of the transfer.

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        The following table shows the Division's approximate annualized dental premium in-force. This table also includes amounts attributable to subsidiaries of PLC.

Year Ended December 31	Indemnity Annualized Premium		Prepaid Annualized Premium		Total Annualized Premium
	(in millions)
1996	$	67.0	$	34.2	$	101.2
1997		98.3		47.8		146.1
1998		113.4		203.8		317.2
1999		149.3		163.7		313.0
2000		171.8		143.6		315.4
Nine Months Ended September 30
2000		170.0		145.2		315.2
2001		174.1		131.1		305.2

        Prepaid annualized premium declined in 1999 and 2000 and the nine months ended September 30, 2001 due to the Division's exit from unprofitable lines of business within United Dental Care and higher than expected lapses.

        The Division has offered a variety of discounted fee-for-service, club-based programs to individual consumers and groups through its Consumer Direct where enrolled consumers have access to a network of providers who have agreed to a discounted fee schedule.

        The Division also had group life, and group disability coverages.

Financial Institutions Division

        The Financial Institutions Division markets credit life and disability insurance products through banks, consumer finance companies and automobile dealers. The Division also markets vehicle and recreational marine extended service contracts.

        In 1997, the Division acquired the Western Diversified Group. The Western Diversified Group markets credit insurance and related products through automobile dealers primarily in the midwestern United States. The Western Diversified Group included a property and casualty insurer that offers automobile extended service contracts.

        In January 2000, Protective acquired Lyndon Insurance Group (Lyndon). Lyndon markets a variety of specialty insurance products, including credit insurance and vehicle and marine extended service contracts. Lyndon distributes products on a national basis through financial institutions and automobile dealers.

        The Division markets through employee field representatives, independent brokers and wholly-owned subsidiaries. The Division is one of the largest independent writers of credit insurance in the United States. The majority of these policies cover consumer loans made by financial institutions located primarily in the southeastern United States and automobile dealers throughout the United States. Protective believes it has been a beneficiary of a "flight to quality," as financial institutions and automobile dealers increasingly prefer to do business with insurers having quality products, strong balance sheets and high-quality training and service capabilities.

        The demand for the Division's credit insurance and extended service contracts is related to the general level of automobile sales and consumer loans. During the nine months ended September 30, 2001, approximately 60% of the Division's sales were from automobile dealers, and approximately 37% of sales were extended service contracts.

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        The following table shows the Financial institutions Division's sales measured by new premium including the sales of Western Diversified and Lyndon since the date of acquisition.

Year Ended December 31	Sales
	(in millions)
1996	$	147.2
1997		189.3
1998		273.5
1999		283.4
2000		523.6
Nine Months Ended September 30
2000		397.4
2001		384.4

        A portion of the Division's sales are reinsured with producer-owned reinsurers.

        The Division has also coinsured closed blocks of credit policies in 1996 and 1997, and in 1999 the Division recpatured closed block of credit policies that it had previously ceded to another insurer.

RETIREMENT SAVINGS AND INVESTMENT PRODUCTS

        A third strategic focus of Protective is to offer products that respond to the shift in consumer preference to savings products brought about by demographic trends as "baby-boomers" move into the saving stage of their life cycle. The two Divisions that support this strategy are the Stable Value Products and Investment Products Divisions.

Stable Value Products Division

        The Stable Value Products Division markets guaranteed investment contacts (GICs) to 401(k) and other qualified retirement savings plans. GICs are generally contracts which specify a return on deposits for a specified period and often provide flexibility for withdrawals at book value in keeping with the benefits provided by the plan. The demand for GICs is related to the relative attractiveness of the "fixed rate" investment option in a 401(k) plan compared to the equity-based investment options available to plan participants. The Division also markets fixed and floating rate funding agreements to the trustees of municipal bond proceeds, institutional investors, bank trust departments and money market funds, and long-term annuity contracts. The Division also distributes funding agreements through structured programs that facilitate the marketing of units in smaller, transferrable denominations.

        The Division's emphasis is on a consistent and disciplined approach to product pricing and asset/liability management, careful underwriting of early withdrawal risks and maintaining low distribution and administration costs. Most GIC contracts and funding agreements written by the Division have maturities of three to five years. At September 30, 2001, the Division had approximately $1.2 billion of contracts that pay a floating rate of interest, and had $30.1 million, $62.7 million, and $62.9 million of contracts which may be terminated upon seven, thirty, and ninety days' notice, respectively.

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        The following table shows the Stable Value Products Division's sales.

Year Ended December 31	GICs		Funding Agreements		Long-Term Annuities		Total
	(in millions)
1996	$	318	$	290	$	78	$	686
1997		203		461		32		696
1998		488		336		3		827
1999		584		386				970
2000		418		801				1,219
Nine Months Ended September 30
2000		265		741				1,006
2001		351		637				988

        The following tables shows the Division's account balances (consisting of Stable Value Contract and certain annuity account balances).

Year Ended December 31	GICs		Funding Agreements		Long-Term Annuities		Total
	(in millions)
1996	$	2,013	$	462	$	152	$	2,627
1997		1,806		883		180		2,869
1998		1,699		1,007		173		2,879
1999		1,780		903		167		2,850
2000		1,813		1,365		162		3,340
Nine Months Ended September 30
2001		1,843		1,996		156		3,995

        The rate of growth in the Division's account balances is affected by the amount of maturing contracts relative to the amount of sales.

Investment Products Division

        The Investment Products Division manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers (including ProEquities, Inc., a securities broker-dealer and subsidiary of PLC) but are also sold through financial institutions and the Individual Life Division's sales force.

        The Division offers modified guaranteed annuities which guarantee an interest rate for a fixed period. Because contract values are "market-value adjusted" upon surrender prior to maturity, these products afford Protective a measure of protection from changes in interest rates. The Division also offers variable annuities which offer the policyholder the opportunity to invest in various investment accounts.

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        The following table shows the Investment Products Division's sales. The demand for annuity products is related to the general level of interest rates and performance of the equity markets.

Year Ended December 31	Fixed Annuities		Variable Annuities		Total Annuities
	(in millions)
1996	$	199	$	169	$	368
1997		180		324		504
1998		97		472		569
1999		350		361		711
2000		635		257		892
Nine Months Ended September 30
2000	$	548		188		736
2001		552		198		750

        The following table shows the Investment Products account balances.

Year Ended December 31	Fixed Annuities		Variable Annuities		Total Annuities
	(in millions)
1996	$	1,192	$	625	$	1,817
1997		1,229		1,057		2,286
1998		1,105		1,555		2,660
1999		1,269		2,085		3,354
2000		1,735		2,044		3,779
Nine Months Ended September 30
2001		2,184		1,732		3,916

Corporate and Other

         Protective has an additional business segment referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the Divisions described above (including net investment income on unallocated capital and interest on substantially all debt). This segment also includes earnings from several lines of business which Protective is not actively marketing (mostly health insurance) and various investment-related transactions. The earnings of this segment may fluctuate from year to year.

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SELECTED FINANCIAL DATA

         The following Selected Financial Data for Protective and its subsidiaries should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Prospectus.

SELECTED FINANCIAL DATA
(in thousands)

	Nine Months Ended September 30						Year Ended December 31
	2001			2000			2000			1999			1998			1997			1996
	(Unaudited)			(Unaudited)
INCOME STATEMENT DATA
Premiums and policy fees	$	1,260,231		$	1,118,089		$	1,545,969		$	1,137,256		$	1,027,340		$	814,420		$	770,224
Reinsurance ceded		(554,307	)		(585,344	)		(822,450	)		(538,033	)		(459,215	)		(334,214	)		(308,174	)
Net of reinsurance ceded		705,924			532,745			723,519			599,223			568,125			480,206			462,050
Net investment income		613,815			512,961			696,937			623,231			603,795			557,488			498,781
Realized investment gains (losses)		(3,016	)		(7,262	)		(14,599	)		4,760			2,136			1,824			5,510
Other income		40,083			38,710			51,202			27,102			20,201			6,149			5,010
Total revenues		1,356,806			1,077,154			1,457,059			1,254,316			1,194,257			1,045,667			971,351
Benefits and expenses		1,192,595			934,335			1,264,953			1,052,879			1,013,912			895,917			846,042
Income tax expense		55,931			50,504			68,071			73,179			63,162			52,302			42,766
Cumulative effect of change in accounting principal		(8,341	)
Net income	$	99,939		$	92,315		$	124,035		$	128,258		$	117,183		$	97,448		$	82,543
	September 30						December 31
	2001			2000			2000			1999			1998			1997			1996
	(Unaudited)			(Unaudited)
BALANCE SHEET DATA
Total assets	$	18,405,388		$	15,026,548		$	15,026,548		$	12,581,143		$	11,622,895		$	10,375,281		$	8,163,343
Total debt(1)	$	10,297		$	14,221		$	12,315		$	16,338		$	23,261		$	28,055		$	25,014
Share-owners equity	$	1,915,027		$	1,213,888		$	1,530,415		$	996,543		$	1,069,371		$	1,018,779		$	776,191
Share-owners equity excluding net unrealized gains and losses on investments	$	1,801,388		$	1,294,245		$	1,581,785		$	1,142,623		$	1,014,314		$	957,052		$	769,503

(1) Includes indebtedness to related parties. Such indebtedness totaled $8.0 million and $12.0 million at September 30, 2001 and 2000, respectively and $10.0 million, $14.0 million, $20.9 million, $28.1 million, and $25.0 million at December 31, 2000, 1999, 1998, 1997 and 1996 respectively. See also Note E to the Consolidated Financial Statements. Excludes stable value contract account balances and annuity account balances which do not possess significant mortality risk. Such account balances totaled $4.0 billion and $3.3 billion at September 30, 2001 and 2000, respectively and $3.4 billion, $2.9 billion, $3.0 billion, $3.0 billion and $2.8 billion at December 31, 2000, 1999, 1998, 1997 and 1996, respectively.

33

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        This prospectus and information incorporated by reference includes "forward looking statements" which express expectations of future events and/or results. The words "believe," "expect," "estimate," "project," "budget," "forecast," "anticipate," "plan" and similar expressions identify forward-looking statements which are based on future expectations rather than on historical factors and involve a number of risks and uncertainties, and Protective cannot give assurance that such statements will prove to be correct. Please refer to "Known Trends and Uncertainties" and "Other Developments" herein for more information about factors which could affect future results.

        You should not place undue reliance on these forward-looking statements which speak only as of their dates. Protective undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to projections over time.

Results of Operations

        Protective operates seven divisions each having a strategic focus which can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. Protective's divisions are: Individual Life, West Coast, Acquisitions, Dental Benefits (sold as of December 31, 2001), Financial Institutions, Stable Value Products, and Investment Products. Protective also has an additional business segment referred to as Corporate and Other.

Premiums and Policy Fees

        The following table sets forth for the periods shown the amount of premiums and policy fees, net of reinsurance (premiums and policy fees), and the percentage change from the prior period:

Premiums and Policy Fees

Year Ended December 31	Amount		Percentage Increase
	(in thousands)
1998	$	568,125	18.3	%
1999		599,223	5.5
2000		723,519	20.7
Nine Months Ended September 30
2000		532,745	16.3
2001		705,924	32.5

        In 1999, premiums and policy fees increased $31.1 million or 5.5% over 1998. Premiums and policy fees in the Individual Life Division decreased $33.7 million due to a higher amount of reinsurance ceded. Premiums and policy fees from the West Coast Division increased $0.8 million. The West Coast Division has also increased its use of reinsurance. The full year effect of the October 1998 coinsurance of a block of policies from Lincoln National was a $29.0 million increase in premiums and policy fees in the Acquisitions Division, whereas decreases in older acquired blocks resulted in a $10.9 million decrease in premiums and policy fees. Premiums and policy fees related to the Dental Benefits Division increased $44.5 million due to a general growth in business. Premiums and policy fees from the Financial Institutions Division decreased $4.3 million of which $11.0 million related to the normal decrease in premiums on closed blocks of policies acquired in prior years. Premiums and policy fees related to the Financial Institutions Division's other businesses increased $6.7 million. The increase in premiums and policy fees from the Investment Products Division was $5.4 million. Premiums and policy fees relating to various health insurance lines in the Corporate and Other segment increased $12.3 million.

34

        In 2000, premiums and policy fees increased $124.3 million or 20.7% over 1999. The Individual Life Division's premiums and policy fees decreased $18.7 million due to a higher amount of reinsurance ceded. The West Coast Division's premiums and policy fees increased $2.8 million. Premiums and policy fees in the Acquisitions Division are expected to decline with time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made. No acquisitions were completed in this Division in 1999 or 2000, resulting in a decrease of $11.9 million in premiums and policy fees in 2000. In October 2000, PLC transferred ownership of twenty companies (that provide prepaid dental products) to Protective. The operations of these companies are included in Protective's Dental Benefits Division and resulted in a $29.6 million increase in premiums and policy fees in the Division. Premiums and policy fees related to the Dental Benefits Division's other businesses increased $20.6 million. In January 2000, the Financial Institutions Division acquired the Lyndon Insurance Group (Lyndon), which resulted in a $97.1 million increase in premiums and policy fees. Premiums and policy fees related to the Financial Institutions Division's other businesses increased $15.4 million. The increase in premiums and policy fees from the Investment Products Division was $5.9 million. Premium and policy fees relating to various health insurance lines in the Corporate and Other segment decreased $16.5 million.

        Premiums and policy fees, net of reinsurance ceded, increased $173.2 million or 32.5% in the first nine months of 2001 over the nine months of 2000. Premiums and policy fees in the Individual Life Division increased $8.5 million in the first nine months of 2001 as compared to the same period in 2000. Premiums and policy fees in the West Coast Division increased $12.5 million in the first nine months of 2001 as compared to the same period in 2000. Premiums and policy fees in the Acquisitions Division are expected to decline with time unless new acquisitions are made. In the first quarter of 2001 Protective Life coinsured a block of individual life policies from Standard Insurance Company. This coinsurance arrangement resulted in a $52.2 million increase in premium and policy fees. Premiums and policy fees from older acquired blocks decreased $6.5 million in the first nine months of 2001 as compared to the same period last year. In October 2000, PLC transferred ownership of twenty companies (that provide prepaid dental products) to Protective Life. In May 2001, PLC transferred ownership of five additional companies (that provide prepaid dental products) to Protective Life. The operations of these companies are included in Protective Life's Dental Benefits Division and resulted in a $88.9 million increase in premium and policy fees in the Division in the first nine months of 2001. Premiums and policy fees related to the Dental Benefits Division's other businesses increased $5.6 million in the first nine months of 2001 as compared to the same period in 2000. Premiums and policy fees from the Financial Institutions Division increased $17.0 million in the first nine months of 2001 as compared to the first nine months of 2000 due to a growth in sales. Premiums and policy fees from the Investment Products Division decreased $1.4 million in the first nine months of 2001 as compared to the same period last year. Premiums and policy fees relating to various health insurance lines in the Corporate and Other segment decreased $3.5 million in the first nine months of 2001 as compared to the same period in 2000.

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Net Investment Income

        The following table sets forth for the periods shown the amount of net investment income, the percentage change from the prior period, and the percentage earned on average cash and investments:

Net Investment Income

Year Ended December 31	Amount		Percentage Increase		Percentage Earned on Average Cash and Investments
	(in thousands)
1998	$	603,795	8.3	%	7.3	%
1999		623,231	3.2		7.1
2000		696,937	11.8		7.1
Nine Months Ended September 30
2000		512,961	10.8		5.3
2001		613,815	19.7		5.2

        Net investment income in 1999 was $19.4 million or 3.2% higher than in 1998, and in 2000 was $73.7 million or 11.8% higher than the preceding year, primarily due to increases in the average amount of invested assets. Invested assets have increased primarily due to acquisitions, receiving stable value and annuity deposits and the asset growth that results from the sale of various insurance products. The full year effect of the Lincoln National acquisition and the September 1999 recapture of a block of credit policies increased 1999 net investment income $18.8 million. The January 2000 Lyndon acquisition increased 2000 net investment income $21.8 million. The percentage earned on average cash and investments was 7.1% in 1999 and 2000.

        Net investment income in the first nine months of 2001 increased by $100.9 million over the corresponding period of the preceding year primarily due to an increase in the average amount of invested assets. The January 2001 acquisition of a block of individual life policies resulted in an increase in investment income of $41.9 million.

Realized Investment Gains (Losses)

        Protective generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, Protective may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, Protective has classified its fixed maturities and certain other securities as "available for sale." The sales of investments that have occurred generally result from portfolio management decisions to maintain proper matching of assets and liabilities. The following table sets forth realized investment gains (losses) for the periods shown:

Realized Investment Gains (Losses)

Year Ended December 31	Amount
	(in thousands)
1998	$	2,136
1999		4,760
2000		(14,599	)
Nine Months Ended September 30
2000		(7,262	)
2001		(3,016	)

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        Protective recognizes certain other than temporary impairments through changes to an allowance for uncollectible amounts on investments. The allowance totaled $21.1 million, $21.8 million and $34.4 million, at December 31, 1999, December 31, 2000 and September 30, 2001, respectively. Additions and reductions to the allowance are included in realized investment gains (losses).

        Realized investment gains in 1999 of $55.2 million were largely offset by realized investment losses of $50.4 million. Realized investment losses do not include $3.7 million of credit losses charged against the allowance for uncollectible amounts on investments.

        Realized investment gains in 2000 were $27.7 million and realized investment losses were $42.3 million, including a $0.7 million increase in the allowance for uncollectible amounts on investments.

        Realized investment gains related to derivative financial instruments were $6.9 million for the first nine months of 2001 compared to gains of $0.6 million in the same period of 2000. Realized investment losses related to all other investments were $9.9 million for the first nine months of 2001 compared to a loss of $7.8 million for the corresponding period of 2000. During the third quarter of 2001, Protective recorded other than temporary impairments in its investments of $12.6 million.

Other Income

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

Other Income

Year Ended December 31	Amount
	(in thousands)
1998	$	20,201
1999		27,102
2000		51,202
Nine Months Ended September 30
2000		38,710
2001		40,083

        Other income consists primarily of revenues from Protective's direct response business, service contract business, non-insurance subsidiaries and rental of space in Protective's administrative building to PLC. In 1999, other income was $27.1 million compared to $20.2 million in 1998. In 2000, revenues from Protective's direct response business and service contract business increased $7.5 million and $13.3 million, respectively. Income from other sources increased $3.3 million.

        In the first nine months of 2001 other income was $40.1 million compared to $38.7 million in the same period of 2000. Revenues from Protective's direct response business and service contract business increased $1.7 million and decreased $2.0 million, respectively. Income from other sources increased $1.7 million.

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Income Before Income Tax

        The following table sets forth operating income or loss and income or loss before income tax by business segment for the periods shown:

Operating Income (Loss) and Income (Loss) Before Income Tax
(in thousands)

	Year Ended December 31									Nine Months Ended September 30
	1998			1999			2000			2000			2001
										(Unaudited)
Operating Income (Loss)(1)
Life Insurance
Individual Life	$	30,183		$	31,433		$	39,439		$	29,478		$	36,625
West Coast		20,983			26,063			36,367			26,373			32,876
Acquisitions		52,940			64,460			53,624			39,148			48,179
Specialty Insurance Products
Dental		9,447			18,335			22,059			14,673			22,791
Financial Institutions		17,650			22,570			34,826			25,385			26,118
Retirement Savings and Investment Products
Stable Value Products		30,780			29,465			31,208			22,986			24,422
Investment Products		10,639			11,360			13,584			11,239			12,534
Corporate and Other		6,477			(5,563	)		(23,992	)		(18,744	)		(35,218	)
Total operating income		179,099			198,123			207,115			150,538			168,297
Realized Investment Gains (Losses)
Stable Value Products		1,609			(549	)		(6,556	)		(2,272	)		7,928
Investment Products		1,318			1,446			410			457			1,070
Unallocated Realized Investment Gains (Losses)		(791	)		3,863			(8,453	)		(5,447	)		(12,014	)
Related Amortization of Deferred Policy Acquisition Costs
Investment Products		(890	)		(1,446	)		(410	)		(457	)		(1,070	)
Total net		1,246			3,314			(15,009	)		(7,719	)		(4,086	)
Income (Loss) Before Income Tax Life Insurance
Individual Life		30,183			31,433			39,439			29,478			36,625
West Coast		20,983			26,063			36,367			26,373			32,876
Acquisitions		52,940			64,460			53,624			39,148			48,149
Specialty Insurance Products
Dental		9,447			18,335			22,059			14,673			22,791
Financial Institutions		17,650			22,570			34,826			25,385			26,118
Retirement Savings and Investment Products
Stable Value Products		32,389			28,916			24,652			20,714			32,350
Investment Products		11,067			11,360			13,584			11,239			12,534
Corporate and Other		6,477			(5,563	)		(23,992	)		(18,744	)		(35,218	)
Unallocated Realized Investment Gains (Losses)		(791	)		3,863			(8,453	)		(5,497	)		(12,014	)
Total income before income tax	$	180,345		$	201,437		$	192,106		$	142,819		$	164,211

(1) Income before income tax excluding realized investment gains and losses and related amortization of deferred policy acquisition costs.

38

        The Individual Life Division's 1999 pretax income was $31.4 million, $1.2 million above 1998. The Division's mortality experience was $1.3 million more favorable in 1999 as compared to 1998. The Division's 2000 pretax income was $39.4 million, $8.0 million above 1999. The Division has grown through sales. The Division's mortality experience was approximately $0.8 million better than expected in 2000 as compared to being $1.8 million better than expected in 1999. The Division's 2000 results also include expenses to develop new distribution channels.

        The Individual Life Division's pretax operating income was $36.6 million in the first nine months of 2001 compared to $29.5 million in the same period of 2000. The Division's mortality experience was $1.8 million less favorable than expected in the first nine months 2001 (including life insurance claims related to the attacks on September 11 which after reinsurance netted to $0.5 million) as compared to $2.5 million better than expected in the first nine months of 2000. The higher claims were offset by earnings growth. Also, the Division received $3.1 million of additional investment income in the first nine months of 2001 from an internal duration/interest rate swap with Protective's Stable Value Products Division.

        The West Coast Division's 1999 pretax operating income was $26.1 million, $5.1 million above 1998. The Division's 2000 pretax operating income was $36.4 million, $10.3 million above 1999. The Division's pretax operating income was $32.9 million for the first nine months of 2001 compared to $26.4 million for the same period last year. These increases reflect the Division's growth through sales.

        In the ordinary course of business, the Acquisitions Division regularly considers acquisitions of blocks of policies or smaller insurance companies. Blocks of policies acquired through the Division are usually administered as "closed" blocks; i.e., no new policies are being marketed. Therefore, earnings from the Acquisitions Division are normally expected to decline over time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made. The Division did not make an acquisition in 1999 or 2000.

        The Acquisitions Division's 1999 pretax income was $64.5 million, $11.5 million above 1998. The Division's mortality experience was approximately $8.9 million better than expected in 1999 compared to being at expected levels in 1998. The full year effect of the October 1998 coinsurance of a block of policies from Lincoln National increased earnings $7.7 million in 1999. The Division's 2000 pretax operating income was $53.6 million, $10.8 million below 1999. The Division's mortality experience was approximately $5.8 million better than expected in 2000. Additionally, in the fourth quarter of 1999, adjustments were made to the Division's investment portfolio, which had the effect of transferring approximately $10.0 million of investment income to the Corporate and Other segment during 2000.

        Pretax operating income from the Acquisitions Division was $48.1 million in the first nine months of 2001 as compared to $39.1 million in the same period of 2000. The coinsurance of a block of life insurance policies from Standard Life Insurance Company resulted in $9.4 million of the increase in earnings in the first nine months of 2001 as compared to the same period last year. Additionally, the Division received $2.0 million additional investment income in the first nine months of 2001 from an internal rate swap with Protective's Stable Value Products Division. These increases were partially offset by a change in mortality experience. The Division's mortality experience was $1.6 million less favorable than expected in the first nine months of 2001 as compared to $2.9 million better than expected in the first nine months of 2000.

        The Dental Benefits Division's 1999 pretax operating income was $18.3 million compared to $9.4 million in 1998. The Division's 2000 pretax operating income was $22.1 million. The aforementioned transfer of companies from PLC resulted in a $2.6 million increase in pretax operating income in 2000. The remainder of the increase reflects the Division's growth through sales.

        The Dental Benefits Division's pretax operating income was $22.8 million in the first nine months of 2001 compared to $14.7 million in the first nine months of 2000. The aforementioned transfer of companies from PLC resulted in a $5.5 million increase in pretax operating income. As previously

39

discussed, on December 31, 2001, PLC completed its previously announced sale of substantially all of its Dental Benefits Division to Fortis, Inc.

        The Financial Institutions Division's 1999 pretax operating income was $22.6 million, an increase of $4.9 million over 1998. In September 1999, Protective recaptured a block of credit life and disability policies that it had previously ceded resulting in $2.7 million of earnings in 1999. The Division's 2000 pretax operating income increased $12.3 million to $34.8 million. Included in the Division's 2000 results were $16.9 million from the Lyndon acquisition. Earnings in the Division's other businesses were lower than expected due to higher than expected claims.

        Pretax operating income of the Financial Institutions Division was $26.1 million in the first nine months of 2001 as compared to $25.4 million in the same period of 2000. Service contract claims were seasonally higher in the 2001 third quarter consistent with last year. Incurred credit insurance claims were also higher in the current quarter, but were offset by a release of reserves. The Division's future results may be negatively affected by the slowing economy. Lower consumer lending and fewer automobile purchases could negatively affect the Division's sales. Also, the level of claims typically increases in a slowing economy.

        The Stable Value Products Division's 1999 pretax operating income decreased $1.3 million compared to 1998 to $29.5 million. The decrease was primarily due to lower interest rate spreads. The Division's 2000 pretax operating income increased to $31.2 million. The increase was due to higher account balances which was partially offset by the lower interest rate spreads. Operating spreads in 2000 were compressed due to higher interest rates and an inverted yield curve. Realized investment losses associated with this Division were $0.5 million in 1999 as compared to $6.5 million of realized investment losses in 2000. As a result, total pretax income was $28.9 million in 1999 and $24.7 million in 2000.

        The Stable Value Products Division had pretax operating income of $24.4 million in the first nine months of 2001 as compared to $23.0 million in the corresponding period of 2000. This increase is due primarily to higher account balances. Operating spreads in the first nine months of 2001 were lower than last year. Internal duration/interest rate swaps between the Division and the Individual Life and Acquisitions Divisions shifted investment income to those Divisions as short-term interest rates have fallen and the yield curve has steepened. Realized investments gains associated with this Division in the first nine months of 2001 were $7.9 million as compared to losses of $2.3 million in the same period last year. As a result, total pretax earnings were $32.4 and $20.7 million in the first nine months of 2001 and 2000, respectively.

        The Investment Products Division's 1999 pretax operating income was $11.4 million, an increase of $0.7 million over 1998. The Division's 2000 pretax operating income increased $2.2 million to $13.6 million. The Division had no realized investment gains or losses (net of related amortization of deferred policy acquisitions costs in 1999 or 2000. As a result, total pretax income was $11.4 million in 1999 and $13.6 million in 2000.

        The Investment Products Division's pretax operating income was $12.5 million in the first nine months of 2001 compared to $11.2 million in the same period of 2000. The 2001 operating results include a $2.0 million tax benefit related to the Division's variable annuities which was partially offset by a $0.9 million increase in reserves related to minimum death benefit guarantees. An additional $1.0 million of tax benefit is expected in the 2001 fourth quarter. The Division's future results may also be negatively affected by the slowing economy. Volatile equity markets could negatively affect sales of variable annuities and the fees the Division assesses on variable annuity contracts. Lower interest rates could negatively affect sales of fixed annuities. The Division had no realized investment gains or losses (net of related amortization of deferred policy acquisition costs) in the first nine months of 2001 or 2000.

        The Corporate and Other segment consists primarily of net investment income on unallocated capital, and other operating expenses not identified with the preceding operating divisions (including management fees paid to PLC and interest on substantially all debt), several lines of business which

40

Protective is not actively marketing (mostly health insurance), and the operations of a small noninsurance subsidiary. Pretax operating losses for this segment were $24.0 million in 2000 as compared to pretax operating losses of $5.6 million in 1999. Earnings from health insurance lines decreased $7.0 million. In 2000, higher short-term interest rates and an inverted yield curve reduced investment income and increased interest expense.

        Pretax operating losses of this segment were $35.2 million in the first nine months of 2001 as compared to pretax operating loss of $18.7 million in the first months of 2000. The first nine months of 2001 included a loss of $16.0 million related to reserve strengthening in the health insurance lines that will be discontinued when the sale of the Dental Benefits Division is completed. (See section entitled "Other Matters" included herein). Excluding the other health insurance lines' reserve strengthening in the second quarter of 2001, the Corporate and Other business segment had a pretax operating loss of $19.2 million in the first nine months of 2001, compared to a loss of $18.7 million in the same period of 2000.

Income Tax Expense

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

Income Tax Expense

Year Ended December 31	Effective Income Tax Rates
1998	35.0	%
1999	36.3
2000	35.4
Nine Months Ended September 30
2000	35.4
2001	34.1

        Management's current estimate of the effective tax rate for 2001 is approximately 34.1%.

Net income

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

Net Income

Year Ended December 31	Amount		Percentage Increase/(Decrease
	(in thousands)
1998	$	117,183	20.3	%
1999		128,258	9.5
2000		124,035	(3.3	)
Nine Months Ended September 30
2000		92,315	(0.3	)
2001		99,939	8.3

        Net income in 1999 increased 9.5% over 1998, reflecting improved operating earnings in the Individual Life, West Coast, Acquisitions, Dental, Financial Institutions, and Investment Products Divisions, and higher realized investment gains, offset by lower operating earnings in the Stable Value Products Division and the Corporate and Other segment. Compared to 1999, net income in 2000

41

decreased 3.3% reflecting improved operating earnings in the Individual Life, West Coast, Dental Benefits, Financial Institutions, Investment Products, and Stable Value Products Divisions, which were offset by lower operating earnings in the Acquisitions Division, the Corporate and Other segment and higher realized investment losses.

        Compared to the same period in 2000, net income in the first nine months of 2001 increased $7.6 million, reflecting improved operating earnings in all Divisions which were offset by lower realized investment losses (net of related amortization of deferred policy acquisition costs), lower operating results in the Corporate and Other segment and a charge to earnings resulting from the cumulative effect of a change in accounting principle.

Known Trends and Uncertainties

        The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect Protective's future results include, but are not limited to, general economic conditions and certain known trends and uncertainties which are discussed more fully below.

•    We are exposed to many types of risks that could negatively affect our business. There are many types of risks that all companies are exposed to in their businesses. For example, companies are exposed to the risks of natural disasters, malicious acts, computer viruses, and other perils. While Protective has obtained insurance, implemented risk management and contingency plans, and taken preventive measures and other precautions, no assurance can be given that there are not scenarios that could have an adverse effect on Protective.

•    We operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry. Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry. Protective encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than Protective, as well as competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products.

        The life and health insurance industry is consolidating with larger, potentially more efficient organizations emerging from consolidation. Also, some mutual insurance companies are converting to stock ownership, which will give them greater access to capital markets. Additionally, commercial banks, insurance companies, and investment banks may now combine, provided certain requirements are satisfied.

        Protective's ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong ratings from rating agencies. However, irrational competition from other insurers could adversely affect Protective's competitive position.

•    A ratings downgrade could adversely affect our ability to compete. Ratings are an important factor in Protective's competitive position. Rating organizations periodically review the financial performance and condition of insurers, including Protective and its subsidiaries. A downgrade in the ratings of Protective or any of its subsidiaries could adversely affect its ability to sell its products, retain existing business, and compete for attractive acquisition opportunities.

        For the past several years rating downgrades in the industry have exceeded upgrades. Rating organizations assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating organization, general economic conditions, and circumstances outside the rated company's control. Protective cannot predict what actions the rating

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organizations may take, or what actions Protective may be required to take in response to the actions of the rating organizations, which could adversely affect Protective.

•    Our policy claims fluctuate from year to year. Protective's results may fluctuate from year to year due to fluctuations in policy claims received by Protective. Protective's businesses may experience higher claims if the economy is growing slowly or in recession.

        Mortality and morbidity expectations incorporate assumptions about many factors, including for example, how a product is distributed, persistency and lapses, and future progress in the fields of health and medicine. Actual mortality and morbidity could differ from our expectations if actual results differ from those assumptions.

•    We could be forced to sell investments at a loss to cover policyholder withdrawals. Many of the products offered by Protective and its insurance subsidiaries allow policyholders and contract holders to withdraw their funds under defined circumstances. Protective and its insurance subsidiaries manage their liabilities and configure their investment portfolios so as to provide and maintain sufficient liquidity to support anticipated withdrawal demands and contract benefits and maturities. While Protective and its insurance subsidiaries own a significant amount of liquid assets, a certain portion of their assets are relatively illiquid. Unanticipated withdrawal or surrender activity could, under some circumstances, compel Protective and its insurance subsidiaries to dispose of assets on unfavorable terms, which could have an adverse effect on Protective.

•    Interest-rate fluctuations could negatively affect our spread income or otherwise impact our business. Significant changes in interest rates expose insurance companies to the risk of not earning anticipated spreads between the interest rate earned on investments and the credited interest rates paid on outstanding policies and contracts. Both rising and declining interest rates can negatively affect Protective's spread income. While Protective develops and maintains asset/liability management programs and procedures designed to preserve spread income in rising or falling interest rate environments, no assurance can be given that changes in interest rates will not affect such spreads.

        Changes in interest rates may also impact our business in other ways. Lower interest rates may result in lower sales of certain of Protective's insurance and investment products. In addition, certain of Protective's insurance and investment products guarantee a minimum credited interest rate.

        Higher interest rates may create a less favorable environment for the origination of mortgage loans and decrease the investment income we receive in the form of prepayment fees, make-whole payments, and mortgage participation income. Higher interest rates may also increase the cost of debt and other obligations having floating rate or rate reset provisions, and may result in lower sales of variable products. Also, the amount of policy fees received from variable products is affected by the performance of the equity markets.

        Additionally, Protective's asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, and other factors. The effectiveness of Protective's asset/liability management programs and procedures may be negatively affected whenever actual results differ from these assumptions.

•    Insurance companies are highly regulated. Protective and its insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with many aspects of the insurance business, which may include premium rates, marketing practices, advertising, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than share owners. From time to time, regulators may raise issues during examinations or audits of Protective and its subsidiaries. Even though such issues are unlikely to result in any material impact to Protective and its subsidiaries, Protective cannot predict what regulatory actions may be taken or what initiatives may be enacted which could adversely affect Protective.

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        Protective and its insurance subsidiaries may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). Severe penalties are imposed for breach of duties under ERISA.

        Certain policies, contracts, and annuities offered by Protective and its insurance subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions.

•    Tax law changes could adversely affect our ability to compete with non-insurance products or reduce the demand for certain insurance products. Under the Internal Revenue Code of 1986, as amended, income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of Protective's products a competitive advantage over other non-insurance products. To the extent that the Internal Revenue Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies, including Protective and its subsidiaries, would be adversely affected with respect to their ability to sell such products, and, depending upon grandfathering provisions, the surrenders of existing annuity contracts and life insurance policies. In addition, life insurance products are often used to fund estate tax obligations. Legislation has recently been enacted that would, over time, reduce and eventually eliminate the estate tax. If the estate tax is significantly reduced or eliminated, the demand for certain life insurance products could be adversely affected. Protective cannot predict what tax initiatives may be enacted which could adversely affect Protective.

•    Financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments. A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments in any given lawsuit. In addition, in some class action and other lawsuits, companies have made material settlement payments. Protective and its subsidiaries, like other financial services companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. Protective cannot predict the outcome of any such litigation or arbitration.

•    A decrease in sales or persistency could negatively affect our results. Protective's ability to maintain low unit costs is dependent upon the level of sales and persistency. A decrease in sales or persistency without a corresponding reduction in expenses may result in higher unit costs.

        Additionally, a decrease in persistency may result in higher amortization of deferred policy acquisition costs. Although many of Protective's products contain surrender charges, the charges decrease over time and may not be sufficient to cover the unamortized deferred policy acquisition costs with respect to the insurance policy or annuity contract being surrendered. A decrease in persistency may also result in higher claims.

•    Our investments are subject to risks. Protective's invested assets and derivative financial instruments are subject to customary risks of credit defaults and changes in market values. The value of Protective's commercial mortgage loan portfolio depends in part on the financial condition of the tenants occupying the properties which Protective has financed. Factors that may affect the overall default rate on, and market value of, Protective's invested assets, derivative financial instruments, and mortgage loans

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include interest rate levels, financial market performance, and general economic conditions as well as particular circumstances affecting the businesses of individual borrowers and tenants.

•    Our growth from acquisitions involves risks. Protective's acquisitions have increased its earnings in part by allowing Protective to enter new markets and to position itself to realize certain operating efficiencies. There can be no assurance, however, that Protective will realize the anticipated financial results from its acquisitions, or that suitable acquisitions, presenting opportunities for continued growth and operating efficiencies, or capital to fund acquisitions will continue to be available to Protective.

•    We are dependent on the performance of others. Protective's results may be affected by the performance of others because Protective has entered into various arrangements involving other parties. Examples include, but are not limited to, the following: many of Protective's products are sold through independent distribution channels and variable annuity deposits are invested in funds managed by third parties. Protective may also use third-party administrators to collect premiums, pay claims, and/or perform customer service functions. Additionally, Protective's operations are dependent on various technologies some of which are provided and/or maintained by other parties.

        As with all financial services companies, our ability to conduct business is dependent upon consumer confidence in the industry and its products. Actions of competitors, and financial difficulties of other companies in the industry, could undermine consumer confidence and adversely affect the Protective.

•    Our reinsurance program involves risks. Protective and its insurance subsidiaries cede insurance to other insurance companies through reinsurance. However, Protective remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it.

        The cost of reinsurance is, in some cases, reflected in the premium rates charged by Protective. Under certain reinsurance agreements, the reinsurer may increase the rate it charges Protective for the reinsurance, though Protective does not anticipate increases to occur. Therefore, if the cost of reinsurance were to increase or if reinsurance were to become unavailable, Protective could be adversely affected.

        Additionally, Protective assumes policies of other insurers. Any regulatory or other adverse development affecting the ceding insurer could also have an adverse effect on Protective.

Recently Issued Accounting Standards

        The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." Effective January 1, 2001, SFAS No. 133 (as amended by SFAS Nos. 137 and 138) requires Protective to record derivative financial instruments, including certain derivative instruments embedded in other contracts, on its balance sheet and to carry such derivatives at fair value. Derivatives that are not designated to be part of a qualifying hedging relationship must be adjusted to fair value each period through net income. If the derivative is a hedge, its change in fair value is either offset against the change in fair value of the hedged item through net income or recorded in share-owners' equity until the hedged item is recognized in net income. The fair value of derivatives increase or decrease as interest rates and general economic conditions change. The adoption of SFAS No. 133 on January 1, 2001, resulted in a cumulative after-tax charge to net income of approximately $8.3 million and a cumulative after-tax increase to other comprehensive income of approximately $4.0 million in the first quarter of fiscal 2001. The adoption also impacted assets and liabilities recorded on the balance sheet. Prospectively, the adoption may introduce volatility into Protective's reported net income and other comprehensive income depending on future market conditions and Protective's hedging activities.

        In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of SFAS No. 125." SFAS No. 140 revises the standards of accounting for securitizations and other transfers of financial assets. This

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statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001.

        In June 2001, the FASB issued SFAS Nos. 141, "Business Combinations", and 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that business combinations initiated after June 30, 2001, be accounted for using the purchase method. SFAS No. 142 revises the standards for accounting for acquired goodwill and other intangible assets. This statement is effective for fiscal years beginning after December 15, 2001, and effective for any goodwill or intangible asset acquired after June 30, 2001. Protective does not expect the adoption of SFAS No. 142 to have a material effect on Protective's financial position or results of operations.

        In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires that companies record the fair value of a liability for an asset retirement obligation in the period in which the liability is incurred. The Statement is effective for fiscal years beginning after June 15, 2002. Protective does not expect the adoption of SFAS No. 143 to have a material effect on Protective's financial position or results of operations.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires that the same accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and expands the use of discontinued operations accounting to include more types of transactions. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Protective Life does not expect the adoption of SFAS No. 144 to have a material effect on Protective's financial position or results of operations.

Liquidity and Capital Resources

        Protective's operations usually produce a positive cash flow. This cash flow is used to fund an investment portfolio to finance future benefit payments. Since future benefit payments largely represent medium-and long-term obligations reserved using certain assumed interest rates, Protective's investments are predominantly in medium- and long-term, fixed-rate investments such as bonds and mortgage loans.

Investments

        Protective generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, Protective may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, Protective has classified its fixed maturities and certain other securities as "available for sale."

        Protective's investments in debt and equity securities are reported at market value, and investments in mortgage loans are reported at amortized cost. At September 30, 2001, the fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $9,512.6 million, which is 2.3% above amortized cost (less allowances for uncollectible amounts on investments) of $9,301.4 million. Protective had $2,507.6 million in mortgage loans at September 30, 2001. While Protective's loans do not have quoted market values, Protective estimates the market value of its mortgage loans to be $2,714.4 million (using discounted cash flows from the next call date) at September 30, 2001, which is 8.3% above amortized cost. Most of Protective's loans have significant prepayment penalties. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market fluctuations should not adversely affect liquidity.

        At December 31, 2000, the fixed maturity investments had a market value of $7,390.1 million, which is 1.0% below amortized cost of $7,463.7 million. At December 31, 2000 Protective estimates the market value of its mortgage loans to be $2,385.2 million, which is 5.2% above the amortized cost.

        At December 31, 1999, Protective's fixed maturity investments had a market value of $6,304.6 million, which was 3.7% below amortized cost of $6,546.8 million. Protective estimated the

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market value of its mortgage loans to be $1,909.0 million at December 31, 1999, which was 1.9% below amortized cost of $1,946.7 million.

        The following table sets forth the estimated market values of Protective's fixed maturity investments and mortgage loans resulting from a hypothetical immediate 1 percentage point increase in interest rates from levels prevailing at December 31, and the percent change in market value the following estimated market values would represent.

Estimated Market Values Resulting From an
Immediate 1 Percentage Point Increase in Interest Rates

At December 31, 1999	Amount (in millions)		Percent Change
Fixed maturities	$	6,046.1	(4.1	)%
Mortgage loans		1,825.0	(4.4	)
At December 31, 2000
Fixed maturities	$	7,131.4	(3.5	)%
Mortgage loans		2,277.9	(4.5	)

        Estimated market values were derived from the durations of Protective's fixed maturities and mortgage loans. Duration measures the relationship between changes in market value to changes in interest rates. While these estimated market values generally provide an indication of how sensitive the market values of Protective's fixed maturities and mortgage loans are to changes in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.

        For several years Protective has offered a type of commercial mortgage loan under which Protective will permit a slightly higher loan-to-value ratio in exchange for a participating interest in the cash flows from the underlying real estate. As of September 30, 2001 and December 31, 2000, approximately $564.8 million and $572.2 million of Protective's mortgage loans have this participation feature, respectively.

        At September 30, 2001 and December 31, 2000, delinquent mortgage loans and foreclosed properties were 0.2% of invested assets. Bonds rated less than investment grade were 2.6% and 2.2% of invested assets, respectively. Protective does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. Protective's allowance for uncollectible amounts on investments was $34.4 million and $21.8 million at September 30, 2001 and December 31, 2000, respectively.

        Policy loans at September 30, 2001 and December 31, 2000, were $329.8 and $230.5 million, respectively. The January 2001 coinsurance of a block of individual life policies from Standard Insurance Company resulted in an increase of $99.2 million in policy loans in the first nine months of 2001. Policy loan rates are generally in the 4.0% to 8.0% range. Such rates at least equal the assumed interest rates used for future policy benefits.

        In the ordinary course of its commercial mortgage lending operations, Protective will commit to provide a mortgage loan before the property to be mortgaged has been built or acquired. The mortgage loan commitment is a contractual obligation to fund a mortgage loan when called upon by the borrower. The commitment is not recognized in Protective's financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest which may be less than prevailing interest rates.

        At September 30, 2001, Protective had outstanding mortgage loan commitments of $292.0 million. At December 31, 2000, Protective had outstanding mortgage loan commitments of $308.4 million, having an estimated fair value of $319.0 million (using discounted cash flows from the first call date). At December 31,

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1999, Protective had outstanding commitments of $552.6 million with an estimated fair value of $531.0 million. The following table sets forth the estimated fair value of Protective's mortgage loan commitments resulting from a hypothetical immediate 1 percentage point increase in interest rate levels prevailing at December 31, and the percent change in fair value the following estimated fair values would represent.

Estimated Fair Values Resulting From an
Immediate 1 Percentage Point Increase in Interest Rates

At December 31	Amount (in millions)		Percent Change
1999	$	503.4	(5.2	)%
2000		305.0	(4.4	)

        The estimated fair values were derived from the durations of Protective's outstanding mortgage loan commitments. While these estimated fair values generally provide an indication of how sensitive the fair value of Protective's outstanding commitments are to changes in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.

Liabilities

        Many of Protective's products contain surrender charges and other features that reward persistency and penalize the early withdrawal of funds. Surrender charges for these products generally are sufficient to cover Protective's unamortized deferred policy acquisition costs with respect to the policy being surrendered. Certain stable value and annuity contracts have market-value adjustments that protect Protective against investment losses if interest rates are higher at the time of surrender than at the time of issue.

        At September 30, 2001 and December 31, 2000, Protective had policy liabilities and accruals of $6,949.8 and $5,969.0 million, respectively. Protective's life insurance products have a weighted average minimum credited interest rate of approximately 4.4%.

        At December 31, 2000, Protective had $3,177.9 million of stable value account balances having an estimated fair value of $3,251.0 million (using discounted cash flows), and $1,916.9 million of annuity account balances having an estimated fair value of $1,893.7 million (using surrender value).

        At December 31, 1999, Protective had $2,680.0 million of stable value account balances with an estimated fair value of $2,649.6 million (using discounted cash flows), and $1,639.2 million of annuity account balances with an estimated fair value of $1,599.0 million (using surrender values).

        The following table sets forth the estimated fair values of Protective's stable value and annuity account balances resulting from a hypothetical immediate 1 percentage point decrease in interest rates from levels prevailing at December 31, and the percent change in fair value the following estimated fair values would represent.

Estimated Fair Values Resulting from an
Immediate 1 Percentage Point Decrease in Interest Rates

At December 31, 1999	Amount (in millions)		Percent Change
Stable value account balances	$	2,692.0	1.6	%
Annuity account balances		1,658.2	3.7
At December 31, 2000
Stable value account balances	$	3,299.8	1.5	%
Annuity account balances		1,975.1	4.3

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      Estimated fair values were derived from the durations of Protective's stable value and annuity account balances. While these estimated fair values generally provide an indication of how sensitive the fair values of Protective's stable value and annuity account balances are to change in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.

        Approximately one-fourth of Protective's liabilities relate to products (primarily whole life insurance), the profitability of which could be affected by changes in interest rates. The effect of such changes in any one year is not expected to be material.

Derivative Financial Instruments

For the Nine Months Ended September 30, 2001

        On January 1, 2001, Protective adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS No. 137 and 138, will require Protective to record derivative financial instruments, at fair value on the balance sheet. Changes in fair value of a derivative instrument are reported in net income or other comprehensive income, depending on the designated use of the derivative instrument. The adoption of SFAS No. 133 resulted in a cumulative after-tax charge to net income of $8.3 million and a cumulative after-tax increase to other comprehensive income of $4.0 million on January 1, 2001. The charge to net income and increase to other comprehensive income primarily resulted from the recognition of derivative instruments embedded in Protective's corporate bond portfolio. In addition, the charge to net income includes the recognition of the ineffectiveness on existing hedging relationships including the difference in spot and forward exchange rates related to foreign currency swaps used as an economic hedge of foreign-currency-denominated stable value contracts. Prospectively, the adoption of SFAS No. 133 may introduce volatility into Protective's reported net income and other comprehensive income depending on future market conditions and Protective's hedging activities.

        Protective utilizes a risk management strategy that incorporates the use of derivative instruments, primarily to reduce its exposure to interest rate risk as well as currency exchange risk.

        Combinations of interest rate swap contracts, options and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments and mortgage-backed securities. Interest rate swap contracts generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date. Interest rate futures generally involve exchange traded contracts to buy or sell treasury bonds and notes in the future at specified prices. Interest rate options represent contracts that allow the holder of the option to receive cash or purchase, sell or enter into a financial instrument at a specified price within a specified period of time. Protective uses interest rate swap contracts, caps, and floors to modify the interest characteristics of certain investments. Swap contracts are also used to alter the effective durations of assets and liabilities. Protective uses foreign currency swaps to reduce its exposure to currency exchange risk on certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.

        Derivative instruments expose Protective to credit and market risk. Protective minimizes its credit risk by entering into transactions with highly rated counterparties. Protective manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken.

        Protective monitors its use of derivatives in connection with its overall asset/liability management programs and procedures. Protective's asset/liability committee is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into Protective's overall interest rate and currency exchange risk management strategies.

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        All derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is entered into, Protective designates the derivative as (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value" hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), or (3) as an other derivative either held for investment purposes or held as a natural hedging instrument designed to act as an economic hedge against the changes in value or cash flows of a hedged item ("other" derivative). Changes in the fair value of a derivative that is highly effective as — and that is designated and qualifies as — a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as — and that is designated and qualified as — a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows. Changes in the fair value of other derivatives are recognized in current earnings and reported in Realized Investment Gains (Losses) — Derivative Financial Instruments in Protective's consolidated condensed statements of income.

        Protective formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. Protective also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, Protective discontinues hedge accounting prospectively, as discussed below.

        Protective discontinues hedge accounting prospectively when (1) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) the derivative is dedesignated as a hedge instrument, because it is unlikely that a forecasted transaction will occur; (4) because a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument is no longer appropriate.

        When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative will continue to be carried on the balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative will continue to be carried on the balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment will be removed from the balance sheet and recognized as a gain or loss in current-period earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all other situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the balance sheet, with changes in its fair value recognized in current-period earnings.

Fair-Value Hedges

        Protective has designated, as a fair value hedge, callable interest rate swaps used to modify the interest characteristics of certain stable value contracts. In assessing hedge effectiveness, Protective excludes the embedded call option's time value component from each derivative's total gain or loss. For the nine months ended September 30, 2001, total measured ineffectiveness for the fair value hedging relationships was insignificant while the excluded time value component resulted in a pre-tax gain of

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$1.2 million. Both the measured ineffectiveness and the excluded time value component are reported in Realized Investment Gains (Losses) — Derivative Financial Instruments in Protective's consolidated condensed statements of income.

Cash-Flow Hedges

        Protective has not designated any hedging relationships as a cash flow hedge.

Other Derivatives

        Protective uses certain interest rate swaps, caps, floors, options and futures contracts as economic hedges against the changes in value or cash flows of outstanding mortgage loan commitments and certain owned investments of Protective. For the nine months ended September 30, 2001, Protective recognized total pre-tax gains of $5.7 million representing the change in fair value of these derivative instruments.

        On its foreign currency swaps, Protective recognized a $0.9 million pre-tax loss for the first nine months of fiscal 2001 while recognizing a $6.1 million foreign exchange pre-tax gain on the related foreign-currency-denominated stable value contracts. The net gain primarily results from the difference in the forward and spot exchange rates used to revalue the currency swaps and the stable value contracts, respectively. This net gain is reflected in Realized Investment Gains (Losses) — Derivative Financial Instruments in Protective's consolidated condensed statements of income.

        Protective has entered into asset swap arrangements to effectively sell the equity options embedded in owned convertible bonds in exchange for a interest rate swap that converts the remaining host bond to a variable rate instrument. For the nine months ended September 30, 2001, Protective recognized a $12.0 million pre-tax gain for the change in the asset swaps' fair value and recognized a $17.2 million pre-tax loss to separately record the embedded equity options at fair value.

For the Years Ended December 31, 2000 and 1999

        Combinations of interest rate swap contracts, options, and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments, mortgage loans, and mortgage-backed securities, and liabilities arising from interest-sensitive products. Realized gains and losses on certain contracts are deferred and amortized over the life of the hedged asset or liability, and such amortization is recorded in investment income or interest expense. Any unamortized gain or loss is recorded as a realized investment gain or loss upon the early termination of a hedged asset or liability, or when the anticipated transaction is no longer likely to occur. No realized gains or losses were deferred in 2000 and 1999.

        Protective accounts for certain interest rate swaps designated as hedges of available-for-sale securities on a mark-to-market basis. The accrual of interest payable or receivable on these interest rate swaps is reported in investment income. Changes in the market values of these interest rate swaps, exclusive of net interest accruals, are reported in other comprehensive income on a net-of-tax basis.

        Protective uses interest rate swap contracts, swaptions (options to enter into interest rate swap contracts), caps and floors to convert certain investments from a variable to a fixed rate of interest and from a fixed rate to a variable rate of interest. Swap contracts are also used to alter the effective durations of assets and liabilities. Amounts paid or received related to the initiation of certain interest rate swap contracts, swaptions, caps, and floors are deferred and amortized over the life of the related financial instrument, and subsequent periodic settlements are recorded in investment income or interest expense. Gains or losses on contracts terminated upon the early termination of the related financial instrument are recorded as realized investment gains or losses. Amounts paid and received related to the initiation of interest rate swap contracts, swaptions, caps and floors were $1.3 million and $1.1 million, respectively, in 2000. Amounts paid were $1.4 million and $1.0 million in 1999 and 1998, respectively. No amounts were received in 1999 and 1998.

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        Protective utilizes foreign currency swaps as hedges of the foreign currency exchange risk associated with its obligations under certain stable value contracts denominated in foreign currencies. Gains and losses are recognized on the currency swaps to the extent of changes in spot exchange rates since inception of the contracts.

        At December 31, 2000, contracts with a notional amount of $2,424.3 million were in a $13.0 million net unrealized loss position. At December 31, 1999, contracts with a notional amount of $1,328.9 million were in a $2.1 million net unrealized gain position. Protective recognized realized investment gains related to derivative financial instruments of $4.5 million and $3.8 million in 2000 and 1999, respectively.

        The following table sets forth the notional amount and net unrealized gains and losses of Protective's derivative financial instruments, and the estimated net unrealized gains and losses resulting from a hypothetical immediate plus and minus 1 percentage point change in interest rates from levels prevailing at the indicated dates.

Derivative Financial Instruments

			Net Unrealized Gain (Loss)
						Resulting From An Immediate +/-1 Percentage Point Change In Interest Rates
			At December 31, 1999
	Notional Amount					+1%			- -1%
	(in millions)
Options
Puts	$	450.0	$	(1.4	)	$	(1.5	)	$	(1.2	)
Fixed to floating
Swaps		280.0		4.0			9.4			(1.6	)
Floors		15.0		(0.1	)		(0.0	)		(0.1	)
Floating to fixed
Swaps		583.9		(0.3	)		(28.7	)		30.5
	$	1,328.9	$	2.2		$	(20.8	)	$	27.6

			Net Unrealized Gain (Loss)
						Resulting From An Immediate +/-1 Percentage Point Change in Interest Rates
			At December 31, 2000
	Notional Amount					+1%			- -1%
	(in millions)
Options
Puts	$	50.0	$	0.0		$	0.2		$	0.0
Futures		100.8		(2.8	)		4.0			(9.0	)
Fixed to floating
Swaps		689.3		(5.5	)		(27.2	)		16.8
Swaptions		275.0		0.5			0.0			7.4
Caps		200.0		0.0			0.3			0.0
Floors		100.0		(0.3	)		0.0			(0.8	)
Floating to fixed
Swaps		160.0		(2.5	)		4.5			(9.4	)
Caps		300.0		0.0			0.5			0.0
Floors		300.0		(1.1	)		0.0			(3.1	)
	$	2,175.1	$	(11.7	)	$	(17.7	)	$	1.9

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      Protective is also subject to foreign exchange risk arising from stable value contracts denominated in foreign currencies and related foreign currency swaps. At December 31, 2000, stable value contracts of $249.2 million had a foreign exchange loss of approximately $4.0 million. At December 31, 2000, the related foreign currency swaps had a net unrealized loss of approximately $1.3 million.

        The following table sets for the notional amount and net unrealized gains and losses of the funding agreements and related foreign currency swaps and the estimated net unrealized gains and losses resulting from a hypothetical 10% change in quoted foreign currency exchange rates from levels prevailing at December 31, 2000.

			Net Unrealized Gain (Loss)
						Resulting From An Immediate +/-10% Change in Foreign Currency Exchange Rates
			At December 31, 2000
	Notional Amount					+10%			- -10%
	(in millions)
Stable Value Contracts	$	249.2	$	(4.0	)	$	(29.3	)	$	21.3
Foreign Currency Swaps		249.2		(1.3	)		23.7			(26.4	)
	$	498.4	$	(5.3	)	$	(5.6	)	$	(5.1	)

      Estimated unrealized gains and losses were derived using pricing models specific to derivative financial instruments. While these estimated unrealized gains and losses generally provide an indication of how sensitive Protective's derivative financial instruments are to changes in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.

Asset/Liability Management

        Protective's asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to duration, yield, risk, and cash flow characteristics. It is Protective's policy to maintain asset and liability durations within one-half year of one another, although from time to time a broader interval may be allowed.

        Protective believes its asset/liability management programs and procedures and certain product features provide significant protection for Protective against the effects of changes in interest rates. Additionally, Protective believes its asset/liability management programs and procedures provide sufficient liquidity to enable it to fulfill its obligation to pay benefits under its various insurance and deposit contracts. However, Protective's asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity and other factors. The effectiveness of Protective's asset/liability management programs and procedures may be negatively affected whenever actual results differ from those assumptions. During 2000, market conditions and an inverted yield curve limited Protective's ability to offset the effects of rising short-term interest rates.

        Cash outflows related to stable value contracts (primarily maturing contracts, scheduled interest payments, and expected withdrawals) were approximately $874 million during 2000. Cash outflows related to stable value contracts are estimated to be approximately $801 million in 2001. At September 30, 2001, Protective had $30.1 million, $62.7 million, and $62.9 million of stable value contracts which may be terminated by the contract holder upon seven, thirty, and ninety days' notice, respectively. Protective's asset/liability management programs and procedures take into account maturing contracts and expected withdrawals. Accordingly, Protective does not expect stable value contract related cash outflows to have an unusual effect on the future operations and liquidity of Protective.

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        Protective and its life insurance subsidiaries were committed at September 30, 2001, to fund mortgage loans and to purchase fixed maturity and other long-term investments in the amount of $292.0 million. Protective held $79.7 million in short-term investments at September 30, 2001.

        While Protective generally anticipates that the cash flow of its subsidiaries will be sufficient to meet their investment commitments and operating cash needs, Protective recognizes that investment commitments scheduled to be funded may from time to time exceed the funds then available. Therefore, Protective has arranged sources of credit to use when needed. Protective expects that the rate received on its investments will equal or exceed its borrowing rate. Additionally, Protective may from time to time sell short-duration stable value contracts to complement its cash management practices.

        Protective has also used securitization transactions to increase its liquidity. In 1998, Protective sold approximately $146 million of its commercial mortgage loans in a securitization transaction. Proceeds from the sale consisted of cash of approximately $104 million, net of expenses, and securities issued in the securitization transaction of approximately $42 million. In 1999, Protective sold $263 million of loans, receiving cash of $220 million and securities of approximately $43 million.

Capital

        At September 30, 2001, Protective had no borrowings outstanding under its credit arrangements. In October 2001, Protective replaced its existing lines of credit with a new revolving line of credit arrangement under which the Company can borrow up to $200 million.

        As disclosed in the Notes to the Consolidated Financial Statements, at December 31, 2000, approximately $1,122.9 million of consolidated share-owner's equity, excluding net unrealized investment gains and losses, represented net assets of Protective that cannot be transferred to PLC. In addition, the states in which Protective and its insurance subsidiaries are domiciled impose certain restrictions on their ability to pay dividends to PLC. Also, distributions, including cash dividends to PLC from Protective in excess of approximately $882 million, would be subject to federal income tax at rates then effective. Protective plans to retain substantial portions of its earnings primarily to support future growth.

        A life insurance company's statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners (NAIC), as modified by the insurance company's state of domicile. Statutory accounting rules are different from generally accepted accounting principles and are intended to reflect a more conservative view by, for example, requiring immediate expensing of policy acquisition costs. The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of Protective. Protective may secure additional statutory capital through various sources, which could include retained statutory earnings or equity contributions by PLC.

Other Developments

        The NAIC has adopted the Codification of Statutory Accounting Principles (Codification). Codification changes current statutory accounting rules in several areas and is effective January 1, 2001. The effect of the adoption of codification did not have a material effect on the financial position, results of operation, or liquidity of Protective.

        During 1999 and 2000 and the first nine months of 2001, most financial services companies, including PLC, experienced a decrease in the market price of their common stock. Although PLC believes it has sufficient capital to fund its immediate growth and capital needs, a lower stock price may limit PLC's ability to raise capital to fund other growth opportunities and acquisitions.

        Protective believes that the tragic events of September 11, 2001 will have little direct effect on its operations or financial strength. However, many of Protective's businesses and the performance of its investment portfolio are affected by general economic conditions, therefore a downturn in the general economy could have a negative effect on Protective's operations and financial strength.

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Impact of Inflation

        Inflation increases the need for life insurance. Many policyholders who once had adequate insurance programs may increase their life insurance coverage to provide the same relative financial benefits and protection. Higher interest rates may result in higher sales of certain of Protective's investment products.

        The higher interest rates that have traditionally accompanied inflation could also affect Protective's operation. Policy loans increase as policy loan interest rates become relatively more attractive. As interest rates increase, disintermediation of stable value and annuity account balances and individual life policy cash values may increase, the market value of Protective's fixed-rate, long-term investments may decrease, and Protective may be unable to implement fully the interest rate reset and call provisions of its mortgage loans, and Protective's ability to make attractive mortgage loans, including participating mortgage loans, may decrease. In addition, participating mortgage loan income may decrease. The difference between the interest rate earned on investments and the interest rate credited to life insurance and investment products may also be adversely affected by rising interest rates.

        Inflation also increases the level of claims of Protective's dental and cancer insurance products.

INVESTMENTS

        The types of assets in which Protective may invest are influenced by state laws which prescribe qualified investment assets. Within the parameters of these laws, Protective invests its assets giving consideration to such factors as liquidity needs, investment quality, investment return, matching of assets and liabilities, and the composition of the investment portfolio by asset type and credit exposure.

        A significant portion of Protective's bond portfolio is invested in mortgage-backed securities. Mortgage-backed securities are constructed from pools of residential mortgages, and may have cash flow volatility as a result of changes in the rate at which prepayments of principal occur with respect to the underlying loans. Prepayments of principal on the underlying residential loans can be expected to accelerate with decreases in interest rates and diminish with increases in interest rates. Protective has not invested in the riskiest tranches of mortgage-backed securities. In addition, Protective has entered into hedging transactions to reduce the volatility in market value of its mortgage-backed securities.

        The table below shows a breakdown of Protective's mortgage-backed securities portfolio by type at September 30, 2001. PACs pay down according to a schedule. TACs pay down in amounts approximating a targeted schedule. NAS receive no principal payments in the first five years, after which NAS receive an increasing percentage of pro rata principal payments until the tenth year, after which NAS receive principal as principal of the underlying mortgages is received. All of these types of structured mortgage-backed securities give Protective some measure of protection against both prepayment and extension risk.

        Accretion directed securities have a stated maturity but may repay more quickly. Sequentials receive scheduled payments with any "excess" cash flow going to repay the earliest maturing tranches first. Pass through securities receive principal as principal of the underlying mortgages is received. Support tranches are designed to receive cash after the more stable tranches (i.e., PACs and TACs) are satisfied. The CMBS are commercial mortgage-backed securities issued in securitization transactions sponsored by Protective, in which Protective securitized portions of its mortgage loan portfolio.

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Type	Percentage of Mortgage-Backed Securities
PAC	8.0	%
TAC	4.0
NAS	10.0
Accretion Directed	5.0
Sequential	18.0
Pass Through	46.0
Support	1.0
CMBS	8.0
	100.0	%

      Protective obtains ratings of its fixed maturities from Moody's Investors Service, Inc. (Moody's) and Standard & Poor's Corporation (S&P). If a bond is not rated by Moody's or S&P, Protective uses ratings from the Securities Valuation Office of the National Association of Insurance Commissioners (NAIC), or Protective rates the bond based upon a comparison of the unrated issue to rated issues of the same issuer or rated issues of other issuers with similar risk characteristics. At December 31, 2000, approximately 99.6% of bonds were rated by Moody's, S&P, or the NAIC.

        The approximate percentage distribution of Protective's fixed maturity investment by quality rating is as follows:

			December 31
Rating	September 30 2001		2000		1999
AAA	41.3	%	37.3	%	37.5	%
AA	5.7		7.0		6.3
A	25.1		25.2		26.6
BBB	24.5		27.4		25.7
BB or less	3.3		3.0		3.8
Redeemable preferred stocks	0.1		0.1		0.1
	100.0	%	100.0	%	100.0	%

      At September 30, 2001, approximately $9,189.2 million of Protective's $9,512.6 million bond portfolio was invested in U.S. Government or agency-backed securities or investment grade corporate bonds and only approximately $323.4 million of its bond portfolio was rated less than investment grade, of which $63.5 million were securities issued in Protective-sponsored commercial mortgage loan securitizations.

        Risks associated with investments in less than investment grade debt obligations may be significantly higher than risks associated with investments in debt securities rated investment grade. Risk of loss upon default by the borrower is significantly greater with respect to such debt obligations than with other debt securities because these obligations may be unsecured or subordinated to other creditors. Additionally, there is often a thinly traded market for such securities and current market quotations are frequently not available for some of these securities. Issuers of less than investment grade debt obligations usually have higher levels of indebtedness and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment-grade issuers.

        Protective also invests a significant portion of its portfolio in mortgage loans. Results for these investments have been excellent due to careful management and a focus on a specialized segment of the market. Protective generally does not lend on speculative properties and has specialized in making loans on either credit-oriented commercial properties or credit-anchored strip shopping centers. The average size of loans made during the first nine months of 2001 was approximately $3.7 million. The average size mortgage loan in Protective's portfolio is approximately $2.0 million. The largest single loan amount is $18.8 million.

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        The following table shows a breakdown of Protective's mortgage loan portfolio by property type at September 30, 2001:

Property Type	Percentage of Mortgage Loans on Real Estate
Retail	74.8	%
Apartments	9.6
Office Buildings	7.3
Warehouses	7.1
Other	1.2
Total	100	%

      Retail loans are generally on strip shopping centers located in smaller towns and anchored by one or more regional or national retail stores. The anchor tenants enter into long-term leases with Protective's borrowers. These centers provide the basic necessities of life, such as food, pharmaceuticals, and clothing, and have been relatively insensitive to changes in economic conditions. The following are some of the largest anchor tenants (measured by Protective's exposure) in the strip shopping centers at September 30, 2001:

Anchor Tenants	Percentage of Mortgage Loans on Real Estate
Food Lion, Inc.	4	%
Winn Dixie Stores, Inc.	4
Wal-Mart Stores, Inc.	3
Rite-Aid Corporation	2
Walgreen Corporation	2

      Protective's mortgage lending criteria generally require that the loan-to-value ratio on each mortgage be at or under 75% at the time of origination. Projected rental payments from credit anchors (i.e., excluding rental payments from smaller local tenants) generally exceed 70% of the property's projected operating expenses and debt service.

        For several years Protective has offered a commercial loan product under which Protective will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. Approximately $564.8 million of Protective's mortgage loans as of September 30, 2001 have this participation feature.

        Many of Protective's mortgage loans have call or interest rate reset provisions between 3 and 10 years. However, if interest rates were to significantly increase, Protective may be unable to call the loans or increase the interest rates on its existing mortgage loans commensurate with the significantly increased market rates.

        At September 30, 2001, $25.6 million or 1.0% of the mortgage loan portfolio was nonperforming. It is Protective's policy to cease to carry accrued interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is Protective's general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place.

        In 1996, Protective sold approximately $554 million of its commercial mortgage loans in a securitization transaction. In 1997, Protective sold approximately $445 million of its loans in a second securitization transaction. In 1998 Protective securitized $146 million of its mortgage loans and in 1999 Protective securitized $263 million. The securitizations' senior tranches were sold, and Protective retained the junior tranches. Protective continues to service the securitized mortgage loans.

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        As a general rule, Protective does not invest directly in real estate. The investment real estate held by Protective consists largely of properties obtained through foreclosures or the acquisition of other insurance companies. In Protective's experience, the appraised value of foreclosed properties often approximates the mortgage loan balance on the property plus costs of foreclosure. Also, foreclosed properties often generate a positive cash flow enabling Protective to hold and manage the property until the property can be profitably sold.

        Protective has established an allowance for uncollectible amounts on investments. This allowance was $34.4 million at September 30, 2001.

        For further discussion regarding Protective's investments and the maturity of and the concentration of risk among Protective's invested assets, see Note C to the Consolidated Financial Statements included herein.

        The following table shows the investment results of Protective for the years 1996 through 2000 and nine month periods ended September 30, 2000 and 2001:

Year Ended December 31	Cash, Accrued Investment Income, and Investments at period end		Net Investment Income		Percentage Earned on Average of Cash and Investments		Realized Investment Gains (Losses)
	(in thousands)
1996	$	6,698,236	$	498,781	7.8	%	$	5,510
1997		8,126,647		557,488	7.6			1,824
1998		8,613,789		603,795	7.3			2,136
1999		8,751,882		623,231	7.1			4,760
2000		10,338,078		696,937	7.1			(14,599	)
Nine Months Ended September 30
2000		10,001,148		512,961	7.1			(7.262	)
2001		13,096,607		613,815	7.0			(3,016	)

        For further information regarding Protective's investments, the maturity of and the concentration of risk among Protective's invested assets, derivative financial instruments, and liquidity, see Notes A and B to the Consolidated Financial Statements, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.

INSURANCE IN FORCE

        Protective's total consolidated life insurance in force at December 31, 2000 was $170.4 billion. The following table shows sales by face amount and insurance in force for Protective's divisions.

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	Year Ended December 31
	2000		1999		1998		1997		1996
	(in thousands)
New Business Written
Individual Life	$	22,429,530	$	16,305,923	$	16,188,344	$	10,588,594	$	9,245,002
West Coast		23,488,843		10,612,852		5,050,309		1,984,928
Dental and Consumer Benefits		143,192		123,648		113,056		124,230		115,748
Financial Institutions		7,052,106		6,665,219		5,257,957		4,183,216		3,956,581
Total	$	53,113,671	$	33,707,642	$	26,609,666	$	16,880,968	$	13,317,331
Business Acquired
West Coast							$	10,237,731
Acquisitions					$	7,787,284			$	1,286,673
Financial Institutions	$	2,457,296	$	620,000				3,364,617		1,607,463
Total	$	2,457,296	$	620,000	$	7,787,284	$	13,602,348	$	2,894,136
Insurance in Force at End of Year(1)
Individual Life	$	83,523,420	$	67,026,950	$	50,587,419	$	39,715,608	$	35,765,841
West Coast		45,978,885		24,600,268		15,498,799		12,004,967
Acquisitions		20,133,370		22,054,734		27,606,592		20,955,836		20,037,857
Dental and Consumer Benefits		7,348,195		6,065,604		6,665,815		6,393,076		6,054,947
Financial Institutions		13,438,226		10,069,030		9,632,466		10,183,997		7,468,761
Total	$	170,422,096	$	129,816,586	$	109,991,091	$	89,253,484	$	69,327,406

(1) Reinsurance assumed has been included; reinsurance ceded (2000-$128,374,583; 1999-$92,566,755; 1998-$64,846,246; 1997-$34,139,554; 1996-$18,840,221) has not been deducted.

      The ratio of voluntary terminations of individual life insurance to mean individual life insurance in force, which is determined by dividing the amount of insurance terminated due to lapses during the year by the mean of the insurance in force at the beginning and end of the year, adjusted for the timing of major acquisitions and assumptions was:

Year Ended December 31	Ratio of Voluntary Terminations
1996	6.4	%
1997	6.9
1998	6.4
1999	6.0
2000	5.8

      Net terminations reflect voluntary lapses, some of which may be due to the replacement of Protective's products with competitors' products. Also, a higher percentage of voluntary lapses typically occurs in the first 15 months of a policy, and accordingly, lapses will tend to increase or decrease in proportion to the change in new insurance written during the immediately preceding periods.

        The amount of investment products in force is measured by account balances. The following table shows stable value contract and annuity account balances. Most of the variable annuity account balances are reported in Protective's financial statements as liabilities related to separate accounts.

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Year Ended December 31	Stable Value Contracts		Modified Guaranteed Annuities		Fixed Annuities		Variable Annuities
	(in thousands)
1996	$	2,474,728	$	862,747	$	390,461	$	624,714
1997		2,684,676		926,071		453,418		1,057,186
1998		2,691,697		818,566		432,237		1,554,969
1999		2,680,009		941,692		391,085		2,085,072
2000		3,177,863		1,384,027		331,937		2,043,878
Nine Months Ended September 30
2001		3,838,608		1,793,321		396,996		1,731,815

UNDERWRITING

        The underwriting policies of Protective and its insurance subsidiaries are established by management. With respect to individual insurance, the subsidiaries use information from the application and, in some cases, inspection reports, attending physician statements, or medical examinations to determine whether a policy should be issued as applied for, rated, or rejected. Medical examinations of applicants are required for individual life insurance in excess of certain prescribed amounts (which vary based on the type of insurance) and for most individual insurance applied for by applicants over age 50. In the case of "simplified issue" policies, which are issued primarily through the Financial Institutions Division and the payroll deduction market, coverage is rejected if the responses to certain health questions contained in the application indicate adverse health of the applicant. For other than "simplified issue" policies, medical examinations are requested of any applicant, regardless of age and amount of requested coverage, if an examination is deemed necessary to underwrite the risk. Substandard risks may be referred to reinsurers for full or partial reinsurance of the substandard risk.

        Protective and its insurance subsidiaries require blood samples to be drawn with individual insurance applications for coverage at age 16 and above except in the payroll deduction market where the face amount must be $100,000 or more before blood testing is required. Blood samples are tested for a wide range of chemical values and are screened for antibodies to the HIV virus. Applications also contain questions permitted by law regarding the HIV virus which must be answered by the proposed insureds.

        Group insurance underwriting policies are administered by experienced group underwriters. The underwriting policies are designed for single employer groups. Initial premium rates are based on prior claim experience and manual premium rates with relative weights depending on the size of the group and the nature of the benefits.

INDEMNITY REINSURANCE

        Protective and its insurance subsidiaries cede insurance to other insurance companies. The ceding insurance company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it. Protective sets a limit on the amount of insurance retained on the life of any one person. In the individual lines it will not retain more than $500,000, including accidental death benefits, on any one life; for group insurance, the maximum amount retained on any one life is $100,000. In many cases the retention is less. At December 31, 2000, Protective had insurance in force of $170.4 billion of which approximately $128.4 billion was ceded to reinsurers.

        Over the past several years, Protective's reinsurers have reduced the net cost of reinsurance to Protective. Consequently, Protective has increased the amount of reinsurance which it cedes on newly-written individual life insurance policies, and has also ceded a portion of the mortality risk of existing business of the Individual Life, West Coast, and Acquisitions Divisions.

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POLICY LIABILITIES AND ACCRUALS

        The applicable insurance laws under which Protective and its insurance subsidiaries operate require that each insurance company report policy liabilities to meet future obligations on the outstanding policies. These liabilities are the amounts which, with the additional premiums to be received and interest thereon compounded annually at certain assumed rates, are calculated in accordance with applicable law to be sufficient to meet the various policy and contract obligations as they mature. These laws specify that the liabilities shall not be less than liabilities calculated using certain named mortality tables and interest rates.

        The policy liabilities and accruals carried in Protective's financial reports (presented on the basis of accounting principles generally accepted in the United States of America "GAAP") differ from those specified by the laws of the various states and carried in the insurance subsidiaries' statutory financial statements (presented on the basis of statutory accounting principles mandated by state insurance regulations). For policy liabilities other than those for universal life policies, annuity contracts, and GICs and funding agreements these differences arise from the use of mortality and morbidity tables and interest rate assumptions which are deemed under GAAP to be more appropriate for financial reporting purposes than those required for statutory accounting purposes; from the introduction of lapse assumptions into the calculation; and from the use of the net level premium method on all business. Policy liabilities for universal life policies, annuity contracts, GICs and funding agreements are carried in Protective's financial reports at the account value of the policy or contract.

FEDERAL INCOME TAX CONSEQUENCES

        Existing federal laws and regulations affect the taxation of Protective's products. Income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. Congress has from time to time considered proposals that, if enacted, would have had an adverse impact on the federal income tax treatment of such products, or would increase the tax-deferred status of competing products. In addition, life insurance products are often used to fund estate tax-obligations. If the estate tax were eliminated, the demand for certain insurance products would be adversely affected.

        Protective and its insurance subsidiaries are taxed by the federal government in a manner similar to companies in other industries. However, certain restrictions on consolidating recently acquired life insurance companies and on consolidating life insurance company income with non-insurance income are applicable to the Company; thus, the Company is not able to consolidate all of the operating results of its subsidiaries for federal income tax purposes.

        Under pre-1984 tax law, certain income of Protective was not taxed currently, but was accumulated in a memorandum account designated as "Policyholders' Surplus Account" to be taxed only when such income was distributed to the share owner or when certain limits on accumulated amounts were exceeded. Consistent with current tax law, amounts accumulated in the Policyholders' Surplus Account have been carried forward, although no accumulated income may be added to these accounts. As of December 31, 2000, the aggregate accumulation in the Policyholders' Surplus account was $70.5 million. Under current income tax laws, Protective does not anticipate paying income tax on amounts in the Policyholders' Surplus accounts.

COMPETITION

        Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry. Protective encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than Protective, as well as competition from other providers of financial

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services. Competition could result in, among other things, lower sales or higher lapses of existing products.

        The insurance industry is consolidating, with larger, potentially more efficient organizations emerging from consolidation. Also, some mutual insurance companies are converting to stock ownership which will give them greater access to capital markets. Additionally, commercial banks, insurance companies, and investment banks may now combine, provided certain requirements are satisfied.

        Protective's ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong financial strength ratings from rating agencies. However, irrational competition from other insurers could adversely affect Protective's competitive position.

REGULATION

        Protective and its insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with many aspects of the insurance business, which may include premium rates, marketing practices, advertising, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than share owners.

        A life insurance company's statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners (NAIC) as modified by the insurance company's state of domicile. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs and more conservative computations of policy liabilities. The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. These requirements are intended to allow insurance regulators to identify inadequately capitalized insurance companies based upon the types and mixtures of risks inherent in the insurer's operations. The formula includes components for asset risk, liability risk, interest rate exposure, and other factors. Based upon the December 31, 2000 statutory financial reports, Protective and its insurance subsidiaries are adequately capitalized under the formula.

        Protective and its insurance subsidiaries are required to file detailed annual reports with the supervisory agencies in each of the jurisdictions in which they do business and their business and accounts are subject to examination by such agencies at any time. Under the rules of the NAIC, insurance companies are examined periodically (generally every five years) by one or more of the supervisory agencies on behalf of the states in which they do business. To date, no such insurance department examinations have produced any significant adverse findings regarding any insurance company subsidiary of Protective.

        Under insurance guaranty fund laws in most states, insurance companies doing business in such a state can be assessed up to prescribed limits for policyholder losses incurred by insolvent or failed insurance companies. Although Protective cannot predict the amount of any future assessments, most insurance guaranty fund laws currently provide that an assessment may be excused or deferred if it would threaten an insurer's financial strength. Protective and its insurance subsidiaries were assessed immaterial amounts in 2000 and during the first nine months of 2001, which will be partially offset by credits against future state premium taxes.

        In addition, many states, including the states in which Protective and its insurance subsidiaries are domiciled, have enacted legislation or adopted regulations regarding insurance holding company systems. These laws require registration of and periodic reporting by insurance companies domiciled within the jurisdiction which control or are controlled by other corporations or persons so as to constitute an insurance holding company system. These laws also affect the acquisition of control of insurance

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companies as well as transactions between insurance companies and companies controlling them. Most states, including Tennessee, where Protective is domiciled, require administrative approval of the acquisition of control of an insurance company domiciled in the state or the acquisition of control of an insurance holding company whose insurance subsidiary is incorporated in the state. In Tennessee, the acquisition of 10% of the voting securities of an entity is generally deemed to be the acquisition of control for the purpose of the insurance holding company statute and requires not only the filing of detailed information concerning the acquiring parties and the plan of acquisition, but also administrative approval prior to the acquisition.

        Protective and its insurance subsidiaries are subject to various state statutory and regulatory restrictions on the insurance subsidiaries' ability to pay dividends to PLC. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval. Dividends in larger amounts are subject to approval by the insurance commissioner of the state of domicile. The maximum amount that would qualify as ordinary dividends to PLC by Protective in 2001 is estimated to be $83.6 million. No assurance can be given that more stringent restrictions will not be adopted from time to time by states in which Protective and its insurance subsidiaries are domiciled, which restrictions could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to PLC by Protective without affirmative prior approval by state regulatory authorities.

        Protective and its insurance subsidiaries may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). Severe penalties are imposed for breach of duties under ERISA.

        Certain policies, contracts and annuities offered by Protective and its insurance subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative and private remedial provisions.

        Additional issues related to regulation of Protective are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.

RECENT DEVELOPMENTS

        On October 1, 2001 PLC, through its Acquisitions Division, completed the acquisition of the stock of Inter-State Assurance Company and First Variable Life Insurance Company from Ilona Financial Group, Inc., a subsidiary of Irish Life & Permanent plc of Dublin, Ireland. The purchase price was approximately $250 million. The companies' business primarily consists of universal life insurance products and fixed and variable annuities, representing 170,000 policies, $160 million of annual premiums and $1.6 billion of reserves.

        On December 31, 2001, PLC completed its previously announced sale of substantially all of its Dental Benefits Division to Fortis, Inc. This transaction, which was valued at approximately $300 million, included the coinsurance of the Division's indemnity business and the sale of the Division's prepaid dental subsidiaries. In addition, PLC discontinued certain other remaining Dental Division operations and discontinued other Dental Division related operations reported in the Corporate and Other segment, primarily other health insurance lines. These transactions will be accounted for as discontinued operations.

        On February 13, 2002, PLC announced its results for the fourth quarter of 2001. PLC's diluted operating income from continuing operations in the 2001 fourth quarter was $.59 per share compared to $.51 per share in 2000. PLC's 2001 diluted operating income from continuing operations was $2.41 per share compared to $1.91 in 2000, excluding income in 2000 of $.24 per share from the sale of PLC's Hong Kong affiliate.

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        At December 31, 2001, the PLC's assets were approximately $19.7 billion. Shareowners' equity per share was $19.63 excluding $.83 per share of unrealized investment gains resulting from marking the PLC's securities to market value.

        As a result of the loss on sale and discontinuance of PLC's Dental operations of $.46 per share, and realized investment losses (primarily related to a decrease in market values of the PLC's derivative financial instruments) of $.21 per share, PLC reported a net loss for the quarter of $0.08 per share, compared to net income of $.56 per share, in the fourth quarter of 2000.

        Net income for 2001 was $102.9 million, or $1.47 per share, compared to $153.5 million, or $2.32 per share in 2000. Net income for 2001 includes a loss on sale and discontinuance of $.43 per share, $.20 per share of net realized investment losses, and an $.11 per share change for the cumulative effect of the change in accounting principle related to the implementation of SFAS No. 133. Net income for 2000 includes net realized investment losses of $.07 per share.

EMPLOYEES

        At December 31, 2001 Protective had approximately 1,648 authorized positions, including approximately 1,004 in Birmingham, Alabama. Most employees are covered by contributory major medical, dental, group life, and long-term disability insurance plans. The cost to Protective of these benefits in 2001 was approximately, $8.2 million. In addition, substantially all of the employees are covered by a pension plan. Protective also matches employee contributions to its 401(k) Plan and makes discretionary profit sharing contributions for employees not otherwise covered by a bonus or sales incentive plan. See Note L to Consolidated Financial Statements.

PROPERTIES

        Protective's administrative office building is located at 2801 Highway 280 South, Birmingham, Alabama. This campus includes the original 142,000 square-foot building which was completed in 1976 and a second contiguous 220,000 square-foot building which was completed in 1985. In addition, parking is provided for approximately 2,800 vehicles. In 2000, Protective began construction of a third contiguous building which will have approximately 315,000 square feet. The building is expected to be completed during 2002.

        Protective leases administrative and marketing office space in 46 cities, including approximately 143,034 square feet in Birmingham, with most leases being for periods of three to five years. The aggregate annualized rent is approximately $7.8 million.

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DIRECTORS AND EXECUTIVE OFFICERS

        The executive officers and directors of Protective are as follows:

John D. Johns	49	Chairman of the Board and President and a Director
R. Stephen Briggs	52	Executive Vice President and a Director
Jim E. Massengale	59	Executive Vice President, Acquisitions and a Director
Allen W. Ritchie	44	Executive Vice President, Chief Financial Officer and a Director
Steven A. Schultz	48	Senior Vice President, Financial Institutions and a Director
Richard J. Bielen	41	Senior Vice President, Chief Investment Officer, Treasurer and a Director
J. William Hamer, Jr.	57	Director
T. Davis Keyes	48	Director
Carolyn King	51	Senior Vice President, Investment Products and a Director
Deborah J. Long	48	Senior Vice President, Secretary and General Counsel, and a Director
Wayne E. Stuenkel	48	Senior Vice President, and Chief Actuary and a Director
Carl S. Thigpen	45	Senior Vice President, Chief Mortgage & Real Estate Officer
Judy Wilson	43	Senior Vice President, Stable Value Products
Jerry W. DeFoor	49	Vice President and Controller, and Chief Accounting Officer

       All executive officers and directors are elected annually. Executive officers serve at the pleasure of the Board of Directors and directors are elected annually by PLC. None of the individuals listed above is related to any director of PLC or Protective or to any executive officer.

        Mr. Johns has been President and Chief Executive Officer of PLC since December 2001 and President and Chairman of the Board of Protective since December 2001. He was President and Chief Operating Officer of PLC from August 1996 to December 2001. Mr. Johns has been employed by PLC and its subsidiaries since 1993. He is a director of National Bank of Commerce of Birmingham and Alabama National Bancorporation and John H. Harland Company.

        Mr. Ritchie has been Executive Vice President and Chief Financial Officer of PLC since August 2001 and Executive Vice President and Chief Financial Officer of Protective since November 2001. From July 1998 until 2000, Mr. Ritchie was President, Chief Executive Officer and Director of Per-Se Technologies, Inc. From April 1998 until July 1998, he served as Chief Operating Officer of Per-Se. From January 1998 to April 1998, Mr. Ritchie served as Executive Vice President and Chief Financial Officer of Per-Se Technologies, Inc. From 1996 to 1997, Mr. Ritchie was President of AGCO Corporation.

        Mr. Briggs has been Executive Vice President of PLC and Protective since October 1993 and has responsibility for the Individual Life Division. Mr. Briggs has been associated with PLC and its subsidiaries since 1971.

        Mr. Massengale has been Executive Vice President, Acquisitions of Protective and PLC since August 1996 and also has responsibility for the West Coast Division. Mr. Massengale has been employed by PLC and its subsidiaries since 1983.

        Mr. Bielen has been Senior Vice President, Chief Investment Officer and Treasurer of PLC and Protective since January 2002. From August 1996 to January 2002 he was Senior Vice President, Investments of PLC and Protective. Mr. Bielen has been employed by PLC and its subsidiaries since 1991. Mr. Bielen is also a director of Protective Investment Company.

        Mr. Hamer has been Senior Vice President and Chief Human Resources Officer of PLC since May 2001, and a Director of Protective since June 2001. Mr. Hamer served as Vice President, Human

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Resources of PLC from May 1982 to May 2001. Mr. Hamer has been employed by PLC and its subsidiaries since May 1982.

        Mr. Keyes has been Senior Vice President, Information Services of PLC since April 1999. Mr. Keyes has been a Director of Protective since May, 1999. Mr. Keyes served as Vice President, Information Services of PLC from May 1993 to April 1999. Mr. Keyes has been employed by PLC and its subsidiaries since 1982.

        Ms. King has been Senior Vice President, Investment Products of PLC and of Protective since April 1995. Ms. King is also a director of Protective Investment Company.

        Ms. Long has been Senior Vice President, Secretary and General Counsel of PLC since November 1996 and of Protective since September 1996. Ms. Long has been employed by PLC and its subsidiaries since 1993.

        Mr. Schultz has been Senior Vice President, Financial Institutions of Protective and PLC since March 1993. Mr Schultz has been employed by PLC and its subsidiaries since 1989.

        Mr. Stuenkel has been Senior Vice President and Chief Actuary of Protective and PLC since March 1987. Mr. Stuenkel is a Fellow in the Society of Actuaries and has been employed by PLC and its subsidiaries since 1978.

        Mr. Thigpen has been Senior Vice President, Chief Mortgage and Real Estate Officer of PLC and Protective since January 2002. From March 2001 to January 2002, he was Senior Vice President, Investments of PLC and Protective. From May 1996 to March 2001, he was Vice President, Investments for PLC and Protective. Mr. Thigpen has been employed by PLC and its subsidiaries since 1992.

        Ms. Wilson has been Senior Vice President, Stable Value Products of Protective and PLC since January 1995. Ms. Wilson has been employed by PLC and its subsidiaries since 1991.

        Mr. DeFoor has been Vice President and Controller, and Chief Accounting Officer of Protective and PLC since April 1989. Mr. DeFoor is a certified public accountant and has been employed by PLC and its subsidiaries since 1982.

DIRECTOR COMPENSATION

        All of the directors of Protective are employees of PLC or Protective and do not receive additional compensation for serving as a director. The membership of the Compensation and Management Succession Committee of PLC is composed of disinterested directors.

EXECUTIVE COMPENSATION

        Executive officers of Protective also serve as executive officers and/or directors of one or more affiliate companies of PLC. Compensation allocations are made as to each individual's time devoted to duties as an executive officer of Protective and its affiliates. The following table shows the total compensation paid during the past three fiscal years to the named executive officers of Protective by Protective or any of its affiliates including PLC. Of the amounts of total compensation shown in the Summary Compensation Table and other executive compensation information below, virtually all of Mr. Brigg's, Mr. Massengale's, Mr. Schultz's and Mr. Williams', total compensation, and a significant percentage of Mr. Nabers' and Mr. Johns' total compensation was attributable to services performed for or on behalf of Protective and its subsidiaries.

        PLC has established a Deferred Compensation Plan for Officers (the "Officers' Plan") whereby eligible officers may voluntarily elect to defer to a specified date receipt of all or any portion of their Annual Incentive Plan and Performance Share Plan bonuses. The bonuses so deferred are credited to the officers in cash or PLC stock equivalents or a combination thereof. The cash portion earns interest at

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approximately PLC's short-term borrowing rate. Cash amounts may be deferred into a common stock equivalent or an interest-bearing equivalent. Stock compensation may only be deferred as common stock equivalents. Deferred bonuses will be distributed in stock or cash as specified by the officers in accordance with the Officers' Plan unless distribution is accelerated under certain provisions, including upon a change in control of PLC.

    The following table sets forth certain information regarding compensation paid to each of the individuals who served as the chief executive officer of Protective during 2001 and the four other most highly compensated executive officers of Protective (collectively, the "Named Executives") during or with respect to the last three fiscal years.

SUMMARY COMPENSATION TABLE

								Long-Term Compensation
		Annual Compensation
									Payouts
								Awards	Long-Term Incentive Plan Payouts (3)(4) $
Name and Principal Position	Year	Salary (2)		Bonus (2)(3) (7)		Other Annual Compensation		Securities Underlying Options/SARs #				All Other Compensation (5)
Drayton Nabers, Jr. Former Chairman of the Board (1)	2001 2000 1999	$	686,731 643,333 605,000	$	(6) 185,300 707,500	$	165 - -0- - -0-	-0- - -0- - -0-	$	1,486,586 902,870 988,171	(7)(8)	$	2,065,064 6,800 4,800	(11)
John D. Johns Chairman of the Board and President	2001 2000 1999		494,167 460,833 431,667		(6) 88,400 425,300		-0- - -0- - -0-	-0- 50,000 - -0-		(8) 433,076 360,010			6,800 6,800 4,800
R. Stephen Briggs Executive Vice President	2001 2000 1999		321,667 304,167 299,167		(6) 154,300 168,900		-0- - -0- - -0-	-0- - -0- - -0-		(8) 321,041 360,010			6,800 6,800 4,800
Jim E. Massengale Executive Vice President, Acquisitions	2001 2000 1999		336,667 316,667 296,667		(6) 176,400 183,800		-0- - -0- - -0-	-0- 10,000 - -0-		(8) 256,080 213,408			6,800 6,800 4,800
A. S. Williams III Former Executive Vice President, Investment and Treasurer	2001 2000 1999		309,167 304,167 298,333		(6) 377,208 455,508		-0- - -0- 2,324	-0- - -0- - -0-		367,909 299,387 276,502	(8)		2,140,026 6,800 4,800	(9)
Steven A. Schultz Senior Vice President, Financial Institutions	2001 2000 1999		257,917 242,917 216,667		(6) 79,400 125,400		-0- - -0- - -0-	-0- - -0- - -0-		(8) 156,284 171,654			-0- - -0- - -0-

(1)

Mr. Nabers retired as of December 27, 2001.

(2)

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

(3)

Includes amounts that the Named Executives may have voluntarily deferred under PLC's Deferred Compensation Plan for Officers.

(4)

(Valued as of December 31) For further information, see the "Long-Term Incentive Plan — Awards In Last Fiscal Year" table.

(5)

Includes $6,800 in matching contributions to PLC's 401(k) and Stock Ownership Plan for Messrs. Nabers, Johns, Briggs, Massengale and Williams.

(6)

Annual Incentive Plan bonus for 2001 is not yet determinable.

(7)

Includes amounts payable to under the 1997 Long Term Incentive Plan Mr. Nabers upon his retirement. Mr. Nabers will also receive additional amounts, to the extent earned, when the Company's 2001 results are determinable.

(8)

Long-term Incentive Plan compensation for 2001 is not yet determinable.

(9)

Includes amounts earned with respect to prior years under a special bonus program payable but remained subject to forfeiture until normal retirement.

(10)

Includes amounts payable under the 1997 Long Term Incentive Plan to Mr. Williams upon his retirement. Mr. Williams will also receive additional amounts, to the extent earned, when the Company's 2001 results are determinable.

(11)

Includes payments in the amount of $1,553,483 and SARs valued at $504,782 (as of December 31) related to the crediting of additional years of service under outstanding Long Term Incentive Awards in connection with his retirement (See "Retirement Arrangements").

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      No options or SARs were awarded to the Named Executives during 2001.

        The following table sets forth the value of the stock appreciation rights held by the Named Executives based upon the value of the Common Stock as of December 31, 2001.

AGGREGATED FY-END OPTION/SAR VALUES

Name	Number of Securities Underlying Unexercised Options/SARs at FY-End (#) Exercisable/ Unexercisable	Value of Unexercised In-the-Money Options/SARs at FY-End ($) Exercisable/ Unexercisable
Drayton Nabers, Jr.	452,502/0	$	4,457,313/$0
John D. Johns	150,000/50,000		1,723,875/331,000
R. Stephen Briggs	40,000/0		459,700/0
Jim E. Massengale	40,000/10,000		459,700/66,200
A. S. Williams III	40,000/0		459,700/0
Steven A. Schultz	15,000/0		172,388/0

      In 2001, the Compensation and Management Succession Committee of PLC awarded performance shares under PLC's 1997 Long-Term Incentive Plan to the Named Executives as indicated in the table below. These awards are generally payable, if at all, at the time the results of the comparison group of companies for the four-year period ending December 31, 2004 are known.

LONG-TERM INCENTIVE PLAN — AWARDS IN LAST FISCAL YEAR

			Estimated Future Payouts Under Non-Stock Price-Based Plans (in shares)(2)
	Number of Shares, Units or Other Rights (#)(1)	Performance or Other Period Until Maturation or Payout
Name			Threshold	Target	Maximum
Drayton Nabers, Jr.	30,930 shares	December 31, 2004(3)	15,465	38,663	52,581
John D. Johns	20,110 shares	December 31, 2004	10,055	25,138	34,187
R. Stephen Briggs	4,900 shares	December 31, 2004	2,450	6,125	8,330
Jim E. Massengale	5,140 shares	December 31, 2004	2,570	6,425	8,738
A. S. Williams III	4,900 shares	December 31, 2004(3)	2,450	6,125	8,330
Steven A. Schultz	3,280 shares	December 31, 2004	1,640	4,100	5,576

(1)

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

(2)

Award is earned based on comparison of PLC's average return on average equity or total rate of return for a four year period to a peer group. Below threshold, which is the median of the comparison group, no portion of award is earned.

(3)

Under the terms of the 1997 Long-Term Incentive Plan as a result of their retirement, awards to Mr. Nabers and Mr. Williams will be based on performance as if the award period had ended as of December 31, 2001.

OTHER PLANS AND ARRANGEMENTS

        Retirement Benefits.  The table below illustrates the annual pension benefits payable to executive officers under the Protective Life Corporation Pension Plan. The table also reflects the Excess Benefit Plan that we have established to provide retirement benefits over the Internal Revenue Code limitations. Benefits in the table are not reduced by social security or other offset amounts. Since the benefits shown

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in the table reflect a straight life form of annuity benefit, if the payment is made in the form of a joint and survivor annuity, the annual amounts of benefit could be substantially below those illustrated.

PENSION PLAN TABLE

		Years of Service
Remuneration		15		20		25		30		35
$	150,000	$	33,042	$	44,056	$	55,070	$	66,083	$	77,097
	200,000		45,042		60,056		75,070		90,083		105,097
	250,000		57,042		76,056		95,070		114,083		133,097
	300,000		69,042		92,056		115,070		138,083		161,097
	400,000		93,042		124,056		155,070		186,083		217,097
	500,000		117,042		156,056		195,070		234,083		273,097
	750,000		177,042		236,056		295,070		354,083		413,097
	1,000,000		237,042		316,056		395,070		474,083		553,097
	1,250,000		297,042		396,056		495,070		594,083		693,097
	1,500,000		357,042		476,056		595,070		714,083		833,097
	1,750,000		417,042		556,056		695,070		834,083		973,097
	2,000,000		477,042		636,056		795,070		954,083		1,113,097

      Compensation covered by the Pension Plan (for purposes of pension benefits) excludes commissions and performance share awards and generally corresponds to that shown under the heading "Annual Compensation" in the Summary Compensation Table. Compensation is calculated based on the average of the highest level of compensation paid during a period of 36 consecutive whole months. Only three Annual Incentive Plan bonuses (whether paid or deferred) may be included in obtaining the average compensation.

        The Named Executives and their credited years of service as of December 31, 2001 are provided in the following table.

Name	Years of Service
Drayton Nabers, Jr.	23	*
John D. Johns	8
R. Stephen Briggs	29
Jim E. Massengale	19
A. S. Williams III	37
Steven A. Schultz	12

*

In connection with his retirement, Mr. Nabers will receive payments equal to the benefit he would have received under the Pension Plan and Excess Benefit Plan resulting from thiry-six additional months of credited service.

EMPLOYMENT CONTINUATION AGREEMENTS

        The Board of Directors of PLC has authorized PLC to enter into Employment Continuation Agreements with each of the Named Executives which provide for certain benefits in the event such executive's employment is actually or constructively (by means of a reduction in duties or compensation) terminated following certain events constituting a "change in control". Such benefits include (i) a payment equal to three times the sum of the annual base salary in effect at the time of the change in control and the average annual incentive plan bonus for the three years preceding the change in control; (ii) continuation (for twenty-four months) in PLC's hospital, medical, accident, disability, and life insurance plans as provided to the executive immediately prior to the date of his termination of employment; (iii) delivery of an annuity to equal increased benefits under the Pension Plan and the

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Excess Benefit Plan resulting from an additional three years of credited service (subject to the Pension Plan's maximum on crediting service); and (iv) an additional payment, if necessary, to reimburse the executive for any additional tax (other than normal Federal, state and local income taxes) incurred as a result of any benefits received in connection with the change in control.

RETIREMENT ARRANGEMENT

        In consideration of his contributions to PLC and its subsidiaries as its Chief Executive Officer, and in recognition of his planned retirement, in addition to compensation payable under the terms of the PLC's plans and programs, the Compensation and Management Succession Committee of PLC awarded to Mr. Nabers:

•

a payment in the amount of $1,553,483 and 76,251 stock appreciation rights which was the Committee's estimate of payment equal to the difference between what Mr. Nabers receives under the terms of awards currently outstanding under the 1997 Long-Term Incentive Plan and what Mr. Nabers would have received if he had an additional 36 months of service credit with no award to earn out at less than target and to be valued at $33.43 per share;         



•

payments equal to the difference between the benefit payments Mr. Nabers will receive under PLC's Pension and Excess Benefit Plans and what Mr. Nabers would have received if he had an additional 36 months of credited service under such plans and no reduction for early retirement, such payments to be made consistent with the time of payments due under the plans;         



•

continuation of the exercise period for the outstanding stock appreciation rights awarded in 1996 until August 15, 2006, the original termination date of such award;         



•

Annual Incentive Plan bonus based on performance of the Company in 2001, as though Mr. Nabers was employed through the end of 2001.

Compensation Committee Interlocks and Insider Participation

        The current members of PLC's Compensation and Management Succession Committee ("Committee") are Messrs. McMahon (Chairman), A.W. Dahlberg, and Robert A. Yellowlees. Mr. Ronald L. Kuehn, Jr. also served as a member of the Committee until his retirement from the Board of Directors of PLC in May of 2001. No member of the Committee was an officer or employee of PLC or any of its subsidiaries at any time during 2001. Also, no member of the Committee was formerly an officer of PLC or any of its subsidiaries.

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MANAGEMENT OWNERSHIP OF PLC STOCK

        No director or named executive officer of Protective owns any stock of Protective or of any affiliated corporation except for the shares of PLC common stock which are shown as owned as of December 31, 2001:

	Amount and Nature of Beneficial Ownership(1)
Name and Beneficial Owner	Sole Power		Shared Power(2)		Percent of Class(1)
Drayton Nabers, Jr.-	251,145	(3)	10,470		*
John D. Johns	112,894	(3)	4,200		*
R. Stephen Briggs	185,499	(3)	2,886		*
Jim E. Massengale	97,088	(3)	-0-		*
A. S. Williams III	69,686	(3)	-0-		*
Allen W. Ritchie	-0-	(3)	-0-		*
Steven A. Schultz	65,338	(3)	-0-		*
Richard J. Bielen	42,596	(3)	-0-		*
J. William Hamer, Jr.	40,619	(3)	478		*
T. Davis Keyes	17,927	(3)	-0-		*
Carolyn King	32,258	(3)	-0-		*
Deborah J. Long	49,721	(3)	-0-		*
Wayne E. Stuenkel	104,046	(3)	-0-		*
Carl S. Thigpen	5,505	(3)	-0-		*
Judy Wilson	24,709	(3)	-0-		*
Jerry W. DeFoor	40,663	(3)	-0-		*
All directors and executive officers as a group (16 persons)	1,139,694	(3)(4)	18,034	(2)	1.6	%

*	less than one percent
(1)	The number of shares reflected are shares which under applicable regulations of the Securities and Exchange Commission are deemed to be beneficially owned. Shares deemed to be beneficially owned, under such regulations, include shares as to which, directly or indirectly, through any contract, relationship, arrangement, understanding or otherwise, either voting power or investment power is held or shared. The total number of shares beneficially owned is subdivided, where applicable, into two categories: shares as to which voting/investment power is held solely and shares as to which voting/investment power is shared. The percentage calculation is based on the aggregate number of shares beneficially owned.
(2)	This column may include shares held in the name of a spouse, minor children, or certain other relatives sharing the same home as the director or officer, or held by the director or officer, or the spouse of the director or officer, as a trustee or as a custodian for children. Unless otherwise noted below, the directors and officers disclaim beneficial ownership of these shares.

71

(3)

The amounts reported include shares allocated to accounts under PLC's 401(k) and Stock Ownership Plan as follows: Mr. Nabers, -0- shares; Mr. Johns, 4,940 shares; Mr. Briggs, 30,218 shares; Mr. Massengale, -0- shares; Mr. Williams, 29,315 shares; Mr. Ritchie, -0- shares; Mr. Bielen, 10,745 shares; Mr. Hamer, 5,781 shares; Mr. Keyes, 8,200 shares; Ms. King, 1,649 shares; Ms. Long, 1,757 shares; Mr. Schultz, 6,364 shares; Mr. Stuenkel, 7,199 shares; Mr. Thigpen, 5,505 shares; Ms. Wilson, 5,925 shares; Mr. DeFoor, 11,771 shares; and all current directors and executives officers as a group 129,369. The amounts reported also include stock equivalents under PLC's Deferred Compensation Plan for Officers, entitling each participant to receive upon distribution a share of Common Stock or each stock equivalent. The number of stock equivalents included are as follows: Mr. Nabers, 248,985; Mr. Johns, 103,554; Mr. Briggs, 138,516; Mr. Massengale, 86,468; Mr. Williams, 40,055; Mr. Ritchie, -0-; Mr. Bielen, 24,375; Mr. Hamer, 34,838; Mr. Keyes, 9,490; Ms. King, 30,609; Ms. Long, 42,997; Mr. Schultz, 57,116; Mr. Stuenkel, 87,311; Mr. Thigpen, -0-; Ms. Wilson, 11,957; Mr. DeFoor, 28,862; and all current directors and executive officers as a group, 992,272. The reported amounts do not include stock appreciation rights ("SARs"): Mr. Nabers, 300,000 SARs; Mr. Johns, 200,000 SARs; Mr. Briggs, 40,000 SARs; Mr. Massengale, 50,000 SARs; Mr. Williams, 40,000 SARs; Mr. Bielen, 15,000 SARs; Mr. Keyes, 10,000 SARs; Ms. King, 15,000 SARs; Ms. Long, 15,000 SARs; Mr. Schultz, 15,000 SARs; Mr. Stuenkel, 15,000 SARs; Ms. Wilson, 15,000 SARs; Mr. DeFoor, 10,000 SARs; and all current directors and executive officers as a group, 765,000 SARs.

(4)

No officer or director owns any stock of any affiliate of PLC, with one exception. Mr. Schultz, as required by Louisiana law, owns 10 shares of stock in each of two Louisiana insurance affiliates for which he serves as a director.

LEGAL PROCEEDINGS

        There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business of PLC and Protective, to which PLC or Protective or any of its subsidiaries is a party or of which any of PLC or Protective's properties is the subject. For additional information regarding legal proceedings see Note G to the Consolidated Financial Statements included herein.

EXPERTS

        The financial statements as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 included in this Prospectus and the financial statement schedules included in the Registration Statement have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

INDEPENDENT ACCOUNTANTS

        With respect to the unaudited financial information of Protective Life Insurance Company and subsidiaries for the nine-month periods ended September 30, 2001 and 2000 included in this Prospectus, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated November 8, 2001 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act.

72

LEGAL MATTERS

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

REGISTRATION STATEMENT

        A Registration Statement has been filed with the Securities and Exchange Commission under the Securities Act of 1933 as amended with respect to the Contracts. This Prospectus does not contain all information set forth in the Registration Statement, its amendments and exhibits, to all of which reference is made for further information concerning Protective and the Contracts. Statements contained in this Prospectus as to the content of the Contracts and other legal instruments are summaries. For a complete statement of the terms thereof, reference is made to the instruments as filed in the Registration Statement.

WHERE YOU CAN FIND MORE INFORMATION

        Protective files reports and other information with the Securities and Exchange Commission. Our SEC filings are available over the Internet at the SEC's website at http://www.sec.gov. You may also read and copy any document we file at the SEC's public reference rooms in Washington, DC, New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information on the public reference rooms and their copy charges.

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APPENDIX A


MATTERS RELATING TO CONTRACTS
OFFERED IN CERTAIN STATES AFTER SEPTEMBER 10, 1991
AND PRIOR TO MAY 1, 1996

          The following sections describe Contracts offered after September 10, 1991 and before May 1, 1996. The following descriptions of certain provisions should be substituted in their entirety for the related terms and descriptions found elsewhere in this Prospectus. The page references listed below indicate where in the Prospectus the substituted descriptions can be found. Refer to your Contract for complete details of these provisions.

Summary (page 4)

        The paragraphs in the Summary describing the guaranteed Death Benefit, Market Value Adjustment, and Surrender Charge should be revised as follows:

How is the surrender charge calculated?	The surrender charge applies during the first seven years of each Guaranteed Period. If the Guaranteed Period is seven years or less, a surrender charge will apply for the entire Guaranteed Period. The surrender charge is equal to six months of interest on the amount you withdraw from a Sub-Account. The total surrender charges for a Guaranteed Period will never exceed six months' interest on the amount of the Annuity Deposit or Sub-Account value you allocated to the Guaranteed Period. (See "Surrender Charges," page 11.)
What is a Market Value Adjustment?	The Market Value Adjustment is the amount we deduct from or add to the Sub-Account value when you request a surrender before the end of the Sub-Account's Guaranteed Period. The Market Value Adjustment reflects the relationship between 1) the Guaranteed Interest Rate that we are currently offering for a Guaranteed Period equal to the time remaining in your Guaranteed Period at the time you request a full or partial surrender, and 2) the Guaranteed Interest Rate being applied to the Sub-Account from which you are requesting a full or partial surrender. (See "Market Value Adjustment," page 11.)
Does the contract provide a Death Benefit?	If any Owner dies while the Contract is in force and before the Annuity Commencement Date, we will pay a guaranteed Death Benefit, less any applicable premium tax, to any surviving Owner.
	If there is no surviving Owner, we will pay the guaranteed Death Benefit to the Beneficiary that the Owner has named. The Beneficiary will have 60 days from the date of death to exercise this right to the guaranteed Death Benefit. If the Beneficiary has not exercised this right within 60 days, we will treat any payments as a surrender request subject to the surrender charge and Market Value Adjustment.
	The guaranteed Death Benefit will be equal to the Account Value of your Contract. If applicable, we will total the Death Benefits for all of your Guaranteed Periods to determine the amount of your guaranteed Death Benefit. (See "Death Benefit," page 14.)

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Parties to the Contract (page 6)

        Beneficiary:  The person named under the Contract to receive the Death Benefit upon the Death of any Owner is the primary Beneficiary. If an Owner dies, the surviving Owner, if any, will always be the primary Beneficiary, regardless of whom the Contract may designate. A contingent Beneficiary is the person named in the Contract to receive the Death Benefit if the primary Beneficiary is not living at the time of the Owner's death.

        If no Beneficiary designation is in effect or if no Beneficiary is living at the time of an Owner's death, the Beneficiary will be the estate of the deceased Owner.

        Unless designated irrevocably, you may change Beneficiaries at any time by sending a written request to our Administrative Office. If you have designated a Beneficiary irrevocably, that Beneficiary's written consent is necessary before you can change the Beneficiary or exercise certain other rights.

Issuing a Contract (page 7, first paragraph)

        You purchase a Contract by completing an application and making an Annuity Deposit of at least $5,000. After we issue the Contract, you may make additional Annuity Deposits of at least $5,000. We must pre-approve any Annuity Deposits of less than $5,000. You cannot make additional Annuity Deposits in the states of California, Minnesota, South Carolina or Michigan. Regardless of how many Annuity Deposits you make, we will issue only one Contract. We have the right to decline any Annuity Deposit or any application. When we sell Contracts to retirement plans or in connection with retirement plans, those retirement plans may or may not qualify for special tax treatment under the Internal Revenue Code.

Guaranteed Period and Sub-Accounts

    Selecting a subsequent Guarantee Period (page 8)

        To apply the ending Sub-Account value to one or more subsequent Guaranteed Periods that you select, you must give us written instructions to this effect no later than 10 days after the end of the expiring Guaranteed Period. You may select a subsequent Guaranteed Period only from Guaranteed Periods we are offering at the time you make your selection. Any subsequent Guaranteed Period may not extend past the Annuity Commencement Date for your Contract. At least $5,000 must be allocated to any subsequent Guaranteed Period.

    Automatic subsequent Guaranteed Periods (page 8)

        If you do not instruct us otherwise under the first or second options described above, a subsequent Guaranteed Period will automatically begin when the prior Guaranteed Period ends. Your ending Sub-Account value will become the beginning Sub-Account value for the subsequent Guaranteed Period. The Subsequent Guaranteed Period will be the longest Guaranteed Period we offer that is not longer than the Guaranteed Period that just ended, and does not extend past the Annuity Commencement Date. You must allocate at least $5,000 to any subsequent Guaranteed Period.

Surrenders

    Surrenders and Partial Surrenders (page 10, first paragraph)

        You may surrender your entire Contract at any time. You may surrender part of the Contract if the value of each remaining Sub-Account is at least $5,000 after the surrender.

Surrender Charges (page 11)

        Surrenders and partial surrenders may be subject to a surrender charge. Generally, we assess a surrender charge if you take a surrender during the first seven years of any Guarantee Period. The surrender charge is equal to six months of interest on the amount you surrender from a Sub-Account.

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The total surrender charges for a Guaranteed Period will never exceed six months' interest on the amount of the Annuity Deposit or Sub-Account value you allocated to the Guaranteed Period. We will compute this interest at the same rate we are crediting the Sub-Account from which you make a surrender. We will deduct the surrender charge from the amount you have chosen to surrender.

        We do not apply the surrender charge after the first seven years of a Guaranteed Period or from any amount available as an interest withdrawal. Also, we do not apply a surrender charge to surrenders you request at the end of a Guaranteed Period provided that we receive your written request, in a form we deem acceptable, within twenty days prior to the end of the Guaranteed Period.

        If we receive your request for a surrender prior to the end of a Guaranteed Period, we will calculate the surrender value, as of the date of the surrender, as follows:

[(A × B) - SC] where:

        A      = the Sub-Account value of the Sub-Account from which you request a surrender

        B      = the Market Value Adjustment

        SC    = the surrender charge plus any premium taxes, if applicable

        On the date we receive your request, we will inform you of the amounts available for you to surrender. Any surrender may be subject to federal and state income tax and, in some cases, premium taxes.

        Because a Guaranteed Period cannot extend past the Annuity Commencement Date, we will not deduct a surrender charge or Market Value Adjustment if you use your Net Account value to purchase an Annuity on the Annuity Commencement Date.

    Waiver of Surrender Charges (page 11)

        We will waive any applicable surrender charge if you meet any of the following conditions after the first year of the Contract:

1)

You enter, for a period of at least 90 days, a facility that is licensed by the state and qualifies as a skilled nursing home facility under Medicare or Medicaid.         



2)

A physician who is not related to you or the Annuitant diagnoses you as having a terminal illness as the term is defined in your Contract. You must submit to us written proof of this illness that we deem satisfactory and we reserve the right to require an examination by a physician of our choice to confirm your terminal illness.

        If we waive your surrender charge, we will still impose a Market Value Adjustment where applicable. Our waiver of surrender charges is not available in all states due to applicable insurance laws.

Market Value Adjustment (page 11)

        We will apply a Market Value Adjustment if your request a surrender before the end of a Sub-Account's Guaranteed Period. The Market Value Adjustment may increase or decrease the amount you receive from a surrender. Like the surrender charge, we calculate the Market Value Adjustment separately for each Sub-Account. The Market Value Adjustment is applied to the surrendered Sub-Account value, less any amount available as an interest withdrawal from interest earned during the prior Contract year, before we deduct any surrender charge. We will include the Market Value Adjustment in

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the amount we deduct from your Sub-Account to satisfy your surrender request. The formula we use to determine the Market Value Adjustment is:

(1+g / 1+c) × (N/12) where:

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

        C = The current Guaranteed Interest Rate we offer for a Guaranteed Period that has a duration equal to the number of months left before the end of the Guaranteed Period from which you are making the surrender.

        N = The number of months remaining in your Guaranteed Period as of the date you request a surrender.

        The Market Value Adjustment reflects the relationship between 1) the current Guaranteed Interest Rate we offer for a Guaranteed Period equal in duration to the amount of time left in the surrendered Guaranteed Period, and 2) the Guaranteed Interest Rate we are applying to the Guaranteed Period from which you are making a surrender.

        Generally, if your Guaranteed Interest Rate is lower than the one we offer for Guaranteed Period equal to the time remaining in your Guaranteed Period, the Market Value Adjustment may produce a surrender value that is less than the sum of the portion of your Annuity Deposit being surrendered plus the interest it has earned. Similarly, if your Guaranteed Interest Rate is higher than the applicable current Guaranteed Interest Rate, the Market Value Adjustment may increase your surrender value beyond the sum of the portion of your Annuity Deposit being surrendered plus the interest it has earned.

        Because we base current Guaranteed Interest Rates in part upon the investment yields that are available to us, the effect of the Market Value Adjustment will be related to those yields. Therefore, if these yields increase from the time, you purchase your Contract, it is possible that the Market Value Adjustment, coupled with the surrender charge and any premium tax, could produce a full surrender value for your Contract that is less than the total of your Annuity Deposits.

Determining the Death Benefit (page 14)

        We will calculate the guaranteed Death Benefit as of the date of an Owner's death. The guaranteed Death Benefit will be equal to the Account Value less applicable premium taxes.

Annuity Options (page 15)

        On the Annuity Commencement Date we will apply part or all of the Net Account Value to the annuity option you have selected. If you have not selected an annuity option, we will apply your Net Account Value to Option 2 – Life Income with Payments for a 10-Year Guaranteed Period. You may select from the following annuity options. For Qualified Contracts, annuity options may apply with certain restrictions.

•

Option 1 – Payment for a Fixed Period


    We will make equal monthly payments for any period not less than five years and not more than 30 years. The amount of each payment depends upon the total amount applied, the period selected and the interest rate we are using when the annuity payments are determined.

•

Option 2 – Life Income with Payments for a Guaranteed Period


    We will make equal monthly payments based on the life of the named Annuitant or Annuitants. Payments will continue for the lifetime of the Annuitant or Annuitants with payments guaranteed for either 10 or 20 years. Payments will stop at the end of the selected guaranteed period or when the Annuitant dies, whichever is later.

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•

Option 3 – Payments for a Fixed Amount


We will make equal monthly payments for a fixed amount. The amount of each payment may not be less than $10 for each $1,000 of Net Account Value applied to the annuity option. Each month we will credit interest on the unpaid balance and add that interest to it. We will set the interest rate in our sole discretion, but it will not be less than an annual effective interest rate of 4%. Payments will continue until the amount we hold runs out. The last payment will be for the balance only.

•

Option 4 – Purchase of Other Annuities



The total amount you apply is used to purchase any kind of annuity we issue on the date this option is selected.

        The dollar amount of monthly payments for every $1,000 you apply to each available annuity option is calculated in accordance with annuity tables set forth in the Contract. We base these tables on the 1983 Individual Annuity Mortality Table A projected four years with interest at 4% per year.

Taxation of Annuities in General

    Loss of Interest Deduction Where Contracts Are Held for the Benefit of Certain Non-Natural Persons
(page 22)

        In order that they may be treated as annuity contracts for federal tax purposes, section 72(s) of the Internal Revenue Code requires that Contracts held by persons other than individuals (other than Contracts issued in connection with certain qualified plans) contain certain provisions relating to distributions upon the death of an Annuitant. Certain Contracts do not contain these provisions. The income under such Contracts is taxable as it accrues. We issue Form 1099s with respect to such Contracts.

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APPENDIX B

MATTERS RELATING TO CONTRACTS
OFFERED IN CERTAIN STATES
PRIOR TO SEPTEMBER 10, 1991

          The following sections describe Contracts with a Certificate Date prior to September 10, 1991, and certain Contracts with a Certificate Date after that date. The Contracts contain provisions that differ from those described in this Prospectus. In particular, surrender charge, Death Benefit, and certain Annuity benefit provisions may be different. Refer to your Contract for complete details of these provisions. The following descriptions of certain provisions should be substituted in their entirety for the related terms and descriptions found elsewhere in this Prospectus. The page references listed below indicate where in the Prospectus the substituted descriptions can be found.

Summary (page 4)

        The paragraphs in the Summary describing the guaranteed Death Benefit, Market Value Adjustment, and Surrender Charge should be revised as follows:

How is the surrender charge calculated?	The surrender charge applies during the first seven years of each Guaranteed Period. If the Guaranteed Period is seven years or less, a surrender charge will apply for the entire Guaranteed Period. The surrender charge is equal to six months of interest on the amount you withdraw from a Sub-Account. The total surrender charges for a Guaranteed Period will never exceed six months' interest on the amount of the Annuity Deposit or Sub-Account value you allocated to the Guaranteed Period. (See "Surrender Charge," page 11.)
What is a Market Value Adjustment?	The Market Value Adjustment is the amount we deduct from or add to the Sub-Account value when you request a surrender before the end of the Sub-Account's Guaranteed Period. The Market Value Adjustment reflects the relationship between 1) the Guaranteed Interest Rate that we are currently offering for a Guaranteed Period equal to the time remaining in your Guaranteed Period at the time you request a full or partial surrender, and 2) the Guaranteed Interest Rate being applied to the Sub-Account from which you are requesting a full or partial surrender. (See, "Market Value Adjustment," page 11.)
Does the contract provide a Death Benefit?	If any Owner dies while the Contract is in force and before the Annuity Commencement Date, we will pay a guaranteed Death Benefit, less any applicable premium tax, to any surviving Owner.
	If there is no surviving Owner, we will pay the guaranteed Death Benefit to the Beneficiary as determined under the provisions of the Contract. If the named Beneficiary under the Contract is the spouse of the Owner and the Annuitant is living, the spouse may elect, in lieu of taking a Death Benefit, to become the Owner and continue the Contract.
	The guaranteed Death Benefit will be equal to the Account Value of your Contract. If applicable, we will total the Death Benefits for all of your Guaranteed Periods to determine the amount of your guaranteed Death Benefit. (See "Death Benefit," page 14.)

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Parties to the Contract (page 6)

        Beneficiary:  The person named under the Contract to receive the Death Benefit upon the Death of any Owner or Annuitant, as applicable, is the primary Beneficiary. If an Owner dies, the surviving Owner, if any, will always be the primary Beneficiary, regardless of whom the Contract may designate. A contingent Beneficiary is the person named in the Contract to receive the Death Benefit if the primary Beneficiary is not living at the time of the Owner's death.

        If no Beneficiary designation is in effect or if no Beneficiary is living at the time of an Owner's death, the Beneficiary will be the estate of the deceased Owner.

        Unless designated irrevocably, you may change Beneficiaries at any time by sending a written request to our Administrative Office. If you have designated a Beneficiary irrevocably, that Beneficiary's written consent is necessary before you can change the Beneficiary or exercise certain other rights.

Issuing a Contract (page 7, first paragraph)

        You purchase a Contract by completing an application and making an Annuity Deposit of at least $5,000. After we issue the Contract, you may make additional Annuity Deposits of at least $5,000. We must pre-approve any Annuity Deposits of less than $5,000. Regardless of how many Annuity Deposits you make, we will issue only one Contract. We have the right to decline any Annuity Deposit or any application. When we sell Contracts to retirement plans or in connection with retirement plans, those retirement plans may or may not qualify for special tax treatment under the Internal Revenue Code.

Guaranteed Periods and Sub-Accounts

    Selecting a subsequent Guarantee Period (page 8)

        To apply the ending Sub-Account value to one or more subsequent Guaranteed Periods that you select, you must give us written instructions to this effect no later than 10 days after the end of the expiring Guaranteed Period. You may select a subsequent Guaranteed Period only from Guaranteed Periods we are offering at the time you make your selection. Any subsequent Guaranteed Period may not extend past the Annuity Commencement Date for your Contract. At least $5,000 must be allocated to any subsequent Guaranteed Period.

    Automatic subsequent Guaranteed Periods (page 8)

        If you do not instruct us otherwise under the first or second options described above, a subsequent Guaranteed Period will automatically begin when the prior Guaranteed Period ends. Your ending Sub- Account value will become the beginning Sub-Account value for the subsequent Guaranteed Period. The Subsequent Guaranteed Period will be the longest Guaranteed Period we offer that is not longer than the Guaranteed Period that just ended, and does not extend past the Annuity Commencement Date. You must allocate at least $5,000 to any subsequent Guaranteed Period.

Surrenders

    Surrenders and Partial Surrenders (page 10, first paragraph)

        You may surrender your entire Contract at any time. You may surrender part of the Contract if the value of each remaining Sub-Account is at least $5,000 after the surrender.

Surrender Charges (page 11)

        Surrenders and partial surrenders may be subject to a surrender charge. Generally, we assess a surrender charge if you take a surrender during the first seven years of any Guarantee Period. The surrender charge is equal to six months of interest on the amount you surrender from a Sub-Account. The total surrender charges for a Guaranteed Period will never exceed six months' interest on the

B-2

amount of the Annuity Deposit or Sub-Account value you allocated to the Guaranteed Period. We will compute this interest at the same rate we are crediting the Sub-Account from which you make a surrender. We will deduct the surrender charge from the amount you have chosen to surrender.

        We do not apply the surrender charge after the first seven years of a Guaranteed Period or from any amount available as an interest withdrawal. Also, we do not apply a surrender charge to surrenders you request at the end of a Guaranteed Period provided that we receive your written request, in a form we deem acceptable, within twenty days prior to the end of the Guaranteed Period.

        If we receive your request for a surrender prior to the end of a Guaranteed Period, we will calculate the surrender value, as of the date of the surrender, as follows:

[(A × B) - SC] where:

        A      = the Sub-Account value of the Sub-Account from which you request a surrender

        B      = the Market Value Adjustment

        SC    = the surrender charge plus any premium tax, if applicable

        On the date we receive your request, we will inform you of the amounts available for you to surrender. Any surrender may be subject to federal and state income tax and, in some cases, premium taxes.

        Because a Guaranteed Period cannot extend past the Annuity Commencement Date, we will not deduct a surrender charge or Market Value Adjustment if you use your Net Account value to purchase an Annuity on the Annuity Commencement Date.

    Waiver of Surrender Charges (page 11)

        We will waive any applicable surrender charge if you meet any of the following conditions after the first year of the Contract:

3)

You enter, for a period of at least 90 days, a facility that is licensed by the state and qualifies as a skilled nursing home facility under Medicare or Medicaid.         



4)

A physician who is not related to you or the Annuitant diagnoses you as having a terminal illness as the term is defined in your Contract. You must submit to us written proof of this illness that we deem satisfactory and we reserve the right to require an examination by a physician of our choice to confirm your terminal illness.

        If we waive your surrender charge, we will still impose a Market Value Adjustment where applicable. Our waiver of surrender charges is not available in all states due to applicable insurance laws.

Market Value Adjustment (page 11)

        We will apply a Market Value Adjustment if your request a surrender before the end of a Sub-Account's Guaranteed Period. The Market Value Adjustment may increase or decrease the amount you receive from a surrender. Like the surrender charge, we calculate the Market Value Adjustment separately for each Sub-Account. The Market Value Adjustment is applied to the surrendered Sub-Account value, less any amount available as an interest withdrawal from interest earned during the prior Contract year, before we deduct any surrender charge. We will include the Market Value Adjustment in

B-3

the amount we deduct from your Sub-Account to satisfy your surrender request. The formula we use to determine the Market Value Adjustment is:

(1+g / 1+c) × (N/12) where:

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

        C = The current Guaranteed Interest Rate we offer for a Guaranteed Period that has a duration equal to the number of months left before the end of the Guaranteed Period from which you are making the surrender.

        N = The number of months remaining in your Guaranteed Period as of the date you request a surrender.

        The Market Value Adjustment reflects the relationship between 1) the current Guaranteed Interest Rate we offer for a Guaranteed Period equal in duration to the amount of time left in the surrendered Guaranteed Period, and 2) the Guaranteed Interest Rate we are applying to the Guaranteed Period from which you are making a surrender.

        Generally, if your Guaranteed Interest Rate is lower than the one we offer for Guaranteed Period equal to the time remaining in your Guaranteed Period, the Market Value Adjustment may produce a surrender value that is less than the sum of the portion of your Annuity Deposit being surrendered plus the interest it has earned. Similarly, if your Guaranteed Interest Rate is higher than the applicable current Guaranteed Interest Rate, the Market Value Adjustment may increase your surrender value beyond the sum of the portion of your Annuity Deposit being surrendered plus the interest it has earned.

        Because we base current Guaranteed Interest Rates in part upon the investment yields that are available to us, the effect of the Market Value Adjustment will be related to those yields. Therefore, if these yields increase from the time, you purchase your Contract, it is possible that the Market Value Adjustment, coupled with the surrender charge and any premium tax, could produce a full surrender value for your Contract that is less than the total of your Annuity Deposits.

Death of an Annuitant (page 14)

        If an Annuitant dies while the Contract is in force, either before or after the Annuity Commencement Date, the Beneficiary will be the person designated as such under the Contract. If you have not designated a Beneficiary or the Beneficiary is no longer living, the surviving Owner will be the Beneficiary. If neither the Owner nor the Beneficiary have survived the Annuitant, the Beneficiary will be the Annuitant's estate. You cannot change Annuitants under this Contract.

Death of an Owner (page 14)

        Upon the death of a joint Owner prior to the Annuity Commencement Date, the surviving Owner will become the Beneficiary. If the sole Owner of a Contract dies while the Contract is in force and before the Annuity Commencement Date, the Beneficiary will be the person designated as such under the Contract. If the Beneficiary is the spouse of the deceased Owner and the Annuitant is still living, the spouse may elect to become the Owner in lieu of receiving a guaranteed Death Benefit. If you have not designated a Beneficiary or the Beneficiary is no longer living, the estate of the Owner will be the Beneficiary.

B-4

Determining the Death Benefit (page 14)

        If an Annuitant or Owner dies before the Annuity Commencement Date, we will pay a guaranteed Death Benefit to the Beneficiary. We will calculate the guaranteed Death Benefit as of the date of an Annuitant's or Owner's death. We will calculate the guaranteed Death Benefit as follows:

5)

If the deceased had not yet reached age 85, the guaranteed Death Benefit will be the greater of:

•

the Net Account Value, or                 



•

the original Annuity Deposit, less interest withdrawals and surrenders (including surrender charges, Market Value Adjustments, and premium tax), credited with interest at 5% compounded annually.

6)

If the deceased reached age 85, the guaranteed Death Benefit will be equal to the total of the Sub-Account values multiplied by their respective Market Value Adjustments.

Paying the Death Benefit (page 14)

        We will only pay one guaranteed Death Benefit under a Contract, even though the Contract may, under some circumstances, continue after an Owner or Annuitant's death. We will calculate the guaranteed Death Benefit as of the date of the death that triggers its payment.

        We will pay the guaranteed Death Benefit in a lump sum, in which event the Contract will terminate, or under any of the annuity options available under the Contract provided that:

•

in the event of the Owner's death, any chosen annuity option must provide that the guaranteed Death Benefit will be distributed within five years of the date of the Owner's death; or         



•

if the chosen annuity option provides for the guaranteed Death Benefit to be paid over a period that does not extend beyond the Beneficiary's life or life expectancy, the distribution must commence within one year of the Owner's death.

        In addition to these options, if the Beneficiary is the spouse of the deceased Owner and the Annuitant is living, the spouse may elect to become the Owner in lieu of receiving a guaranteed Death Benefit.

Annuity Commencement Date (page 14)

        You may select an Annuity Commencement Date when you purchase a Contract. The Annuity Commencement Date may not be earlier than the end of a Guaranteed Period nor later than the end of the Contract year immediately before the Annuitant's 85th birthday. Our Administrative Office must approve any request for an extension of the Annuity Commencement Date beyond this maximum.

        You may change the Annuity Commencement Date subject to the following restrictions:

•

You must request the change in writing.         



•

We must receive your written request at least 30 days before the new Annuity Commencement Date you have requested.         



•

The new Annuity Commencement Date may not come before the end of any existing Guaranteed Period.         



•

Unless we agree prior to the change, the new Annuity Commencement Date may not be later than the Annuitant's 85th birthday.

        Annuity Commencement Dates which occur after the Annuitant's 85th birthday may have adverse tax consequences so you should consult your tax advisor before requesting an Annuity Commencement Date at these advanced ages. You may be required to begin distributions from Qualified Contracts before the Annuity Commencement Date. (See "Federal Tax Matters," page 18.)

B-5

        Once our Administrative Office notifies you that we have received and approved your written request for changing the Annuity Commencement Date, the change will be made effective as of the date you signed the request.

Annuity Options (page 15)

        On the Annuity Commencement Date we will apply part or all of the Net Account Value to the annuity option you have selected. If you have not selected an annuity option, we will apply your Net Account Value to Option 2 – Life Income with Payments for a 10-Year Guaranteed Period. You may select from the following annuity options. For Qualified Contracts, annuity options may apply with certain restrictions.

•

Option 1 – Payment for a Fixed Period



We will make equal monthly payments for any period not less than five years and not more than 30 years. The amount of each payment depends upon the total amount applied, the period selected and the interest rate we are using when the annuity payments are determined.

•

Option 2 – Life Income with Payments for a Guaranteed Period


We will make equal monthly payments based on the life of the named Annuitant. Payments will continue for the lifetime of the Annuitant with payments guaranteed for either 10 or 20 years. Payments will stop at the end of the selected guaranteed period or when the Annuitant dies, whichever is later.

•

Option 3 – Payments for a Fixed Amount


We will make equal monthly payments for a fixed amount. The amount of each payment may not be less than $10 for each $1,000 of Net Account Value applied to the annuity option. Each month we will credit interest on the unpaid balance and add that interest to it. We will set the interest rate in our sole discretion, but it will not be less than an annual effective interest rate of 4%. Payments will continue until the amount we hold runs out. The last payment will be for the balance only.

•

Option 4 – Purchase of Other Annuities


The total amount you apply is used to purchase any kind of annuity we issue on the date this option is selected.

        The dollar amount of monthly payments for every $1,000 you apply to each available annuity option is calculated in accordance with annuity tables set forth in the Contract. We base these tables on the 1983 Individual Annuity Mortality Table A projected four years with interest at 4% per year.

Taxation of Annuities in General

    Loss of Interest Deduction Where Contracts Are Held for the Benefit of Certain Non-Natural Persons (page 22)

        In order that they may be treated as annuity contracts for federal tax purposes, section 72(s) of the Internal Revenue Code requires that Contracts held by persons other than individuals (other than Contracts issued in connection with certain qualified plans) contain certain provisions relating to distributions upon the death of an Annuitant. Certain Contracts do not contain these provisions. The income under such Contracts is taxable as it accrues. We issue Form 1099s with respect to such Contracts.

B-6

INDEX TO FINANCIAL STATEMENTS

(TO BE FILED BY AMENDMENT)

Report of Independent Accountants	F-2
Consolidated Condensed Statements of Income for the Three and Nine Months Ended September 30, 2001 and 2000 (unaudited)	F-3
Consolidated Condensed Balance Sheets as of September 30, 2001 (unaudited) and December 31, 2000	F-4
Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (unaudited)	F-5
Notes to Consolidated Condensed Financial Statements (unaudited)	F-6
Report of Independent Accountants	F-18
Consolidated Statements of Income for the years ended December 31, 2000, 1999, and 1998	F-19
Consolidated Balance Sheets as of December 31, 2000 and 1999	F-20
Consolidated Statements of Share-Owner's Equity for the years ended December 31, 2000, 1999, and 1998	F-21
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998	F-22
Notes to Consolidated Financial Statements	F-23
Financial Statement Schedules:
Schedule III — Supplementary Insurance Information	S-1
Schedule IV — Reinsurance	S-2

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

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Share Owner
Protective Life Insurance Company

        We have reviewed the accompanying consolidated condensed balance sheet of Protective Life Insurance Company and subsidiaries as of September 30, 2001, and the related consolidated condensed statements of income for each of the three-month and nine-month periods ended September 30, 2001 and 2000, and the consolidated condensed statements of cash flows for the nine-month periods ended September 30, 2001 and 2000. These financial statements are the responsibility of the Company's management.

        We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

        Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

        We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2000, and the related consolidated statements of income, share-owner's equity, and cash flows for the year then ended (not presented herein), and in our report dated March 1, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2000 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

PricewaterhouseCoopers LLP

Birmingham, Alabama
November 8, 2001

F-2

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Dollars in thousands)
(Unaudited)

	Three Months Ended September 30						Nine Months Ended September 30
	2001			2000			2001			2000
REVENUES
Premiums and policy fees	$	420,745		$	377,852		$	1,260,231		$	1,118,089
Reinsurance ceded		(192,542	)		(199,680	)		(554,307	)		(585,344	)
Premiums and policy fees, net of reinsurance ceded		228,203			178,172			705,924			532,745
Net investment income		211,918			176,295			613,815			512,961
Realized investment gains (losses)
Derivative financial instruments		6,415			1,080			6,918			580
All other investments		(10,900	)		(6,932	)		(9,934	)		(7,842	)
Other income		13,484			12,607			40,083			38,710
		449,120			361,222			1,356,806			1,077,154
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: three months: 2001 — $179,043; 2000 — $131,984 nine months: 2001 — $371,256; 2000 — $371,234)		288,292			233,117			900,046			691,629
Amortization of deferred policy acquisition costs		34,584			38,054			95,203			107,018
Amortization of goodwill		2,075			505			6,224			1,372
Other operating expenses (net of reinsurance ceded: three months: 2001 — $33,675; 2000 — $48,461 nine months: 2001 — $119,138; 2000 — $131,268)		67,063			40,784			191,122			134,316
		392,014			312,460			1,192,595			934,335
INCOME BEFORE INCOME TAX		57,106			48,762			164,211			142,819
Income tax expense		18,561			17,274			55,931			50,504
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		38,545			31,488			108,280			92,315
Cumulative effect of change in accounting principle								(8,341	)
NET INCOME	$	38,545		$	31,488		$	99,939		$	92,315

See notes to consolidated condensed financial statements

F-3

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands)

	September 30 2001			December 31 2000
	(Unaudited)
ASSETS
Investments:
Fixed maturities, at market	$	9,512,577		$	7,390,110
Equity securities, at market		62,830			41,792
Mortgage loans on real estate		2,507,560			2,268,224
Investment in real estate, net of accumulated depreciation		20,810			12,566
Policy loans		329,762			230,527
Other long-term investments		179,646			66,646
Short-term investments		79,682			172,699
Total investments		12,692,867			10,182,564
Cash		256,193			33,517
Accrued investment income		147,547			121,996
Accounts and premiums receivable, net		108,825			72,189
Accounts receivable — investments		558,900
Reinsurance receivables		1,152,856			1,099,574
Deferred policy acquisition costs		1,374,836			1,189,380
Goodwill, net		235,577			241,831
Property and equipment, net		50,530			51,166
Other assets		243,814			120,874
Receivable from related parties					4,768
Assets related to separate accounts
Variable Annuity		1,514,327			1,841,439
Variable Universal Life		65,193			63,504
Other		3,923			3,746
	$	18,405,388		$	15,026,548
LIABILITIES
Policy liabilities and accruals	$	6,949,790		$	5,969,002
Stable value investment contract deposits		3,838,608			3,177,863
Annuity deposits		2,407,805			1,916,894
Other policyholders' funds		144,780			125,336
Accounts payable — investments		939,951
Other liabilities		407,584			324,901
Accrued income taxes		37,377			(10,932	)
Deferred income taxes		170,726			72,065
Debt:
Notes payable		2,297			2,315
Indebtedness to related parties		8,000			10,000
Liabilities related to separate accounts
Variable Annuity		1,514,327			1,841,439
Variable Universal Life		65,193			63,504
Other		3,923			3,746
		16,490,361			13,496,133
COMMITMENTS AND CONTINGENT LIABILITIES — NOTE B
SHARE-OWNER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation preference $2,000		2			2
Common Stock, $1.00 par value, shares authorized and issued: 5,000,000		5,000			5,000
Additional paid-in capital		762,419			632,805
Note receivable from PLC Employee Stock Ownership Plan		(4,498	)		(4,841	)
Retained earnings		1,038,465			948,819
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments (net of income tax: 2001-$61,190; 2000-$(27,661))		113,639			(51,370	)
		1,915,027			1,530,415
	$	18,405,388		$	15,026,548

See notes to consolidated condensed financial statements

F-4

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)
(Unaudited)

	Nine Months Ended September 30
	2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	99,939		$	92,315
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment losses		3,016			7,262
Amortization of deferred policy acquisition costs		95,203			111,866
Capitalization of deferred policy acquisition costs		(232,630	)		(266,820	)
Depreciation expense		9,031			6,824
Deferred income tax		20,736			15,273
Accrued income tax		48,310			40,580
Amortization of goodwill		6,224			1,372
Interest credited to universal life and investment products		681,442			633,147
Policy fees assessed on universal life and investment products		(155,106	)		(147,933	)
Change in accrued investment income and other receivables		(90,065	)		44,609
Change in policy liabilities and other policyholders' funds of traditional life and health products		(2,560	)		(84,801	)
Change in other liabilities		79,047			(19,344	)
Other (net)		(21,444	)		5,970
Net cash provided by operating activities		541,143			440,320
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments
Investments available for sale		2,467,861			9,400,353
Other		206,937			35,696
Sale of investments
Investments available for sale		1,977,264			580,406
Other		1,363			66,795
Cost of investments acquired
Investments available for sale		(5,827,327	)		(10,253,006	)
Corporate owned life insurance		(100,000	)
Other		(119,025	)		(307,318	)
Acquisitions and bulk reinsurance assumptions		137,754			(150,903	)
Purchase of property and equipment		(8,053	)		(4,164	)
Net cash used in investing activities		(1,263,226	)		(632,141	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit arrangements and debt		1,284,100			1,590,400
Principal payments on line of credit arrangements and debt		(1,284,100	)		(1,578,500	)
Capital contribution from PLC		111,000			59,000
Principal payment on surplus notes to PLC		(2,000	)		(2,000	)
Investment product deposits and change in universal life deposits		1,537,164			1,533,505
Investment product withdrawals		(701,405	)		(1,379,119	)
Net cash provided by financing activities		944,759			223,286
INCREASE IN CASH		222,676			31,465
CASH AT BEGINNING OF PERIOD		33,517			0
CASH AT END OF PERIOD	$	256,193		$	31,465

See notes to consolidated condensed financial statements

F-5

PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE A — BASIS OF PRESENTATION

        The accompanying unaudited consolidated condensed financial statements of Protective Life Insurance Company and subsidiaries ("Protective Life") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the consolidated financial statements and notes thereto included in the Protective Life's annual report on Form 10-K for the year ended December 31, 2000.

        Protective Life is a wholly-owned subsidiary of Protective Life Corporation ("PLC").

NOTE B — COMMITMENTS AND CONTINGENT LIABILITIES

        Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Protective Life does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength.

        A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive non-economic compensatory damages. In some states, juries, judges and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments in any given lawsuit. In addition, in some class action and other lawsuits, companies have made material settlement payments. Protective Life, like other financial service companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, Protective Life believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of Protective Life.

NOTE C — OPERATING SEGMENTS

        Protective Life operates seven divisions whose principal strategic focuses can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. The following table sets forth operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses) and the recognition

F-6

of income tax expense and the cumulative effect of change in accounting principle. There are no asset adjustments.

	Operating Segment Income for the Three Months Ended September 30, 2001
	(In Thousands)
	Life Insurance									Specialty Insurance Products
	Individual Life			West Coast			Acquisitions			Dental Benefits			Financial Institutions
Premiums and policy fees	$	96,489		$	33,870		$	52,538		$	85,975		$	129,614
Reinsurance ceded		(75,625	)		(27,376	)		(9,193	)		(8,334	)		(68,339	)
Net of reinsurance ceded		20,864			6,494			43,345			77,641			61,275
Net investment income		19,803			26,351			46,228			2,444			11,823
Realized investment gains (losses)
Other income		394									4,526			7,751
Total revenues		41,061			32,845			89,573			84,611			80,849
Benefits and settlement expenses		22,777			21,009			59,715			50,593			34,911
Amortization of deferred policy acquisition costs		873			4,192			7,000			1,898			13,938
Amortization of goodwill											1,368			707
Other operating expenses		2,482			(3,914	)		6,912			24,015			22,828
Total benefits and expenses		26,132			21,287			73,627			77,874			72,384
Income before income tax		14,929			11,558			15,946			6,737			8,465

	Retirement Savings and Investment Products
	Stable Value Products		Investment Products		Corporate and Other			Adjustments			Total Consolidated
Premiums and policy fees			$	6,948	$	15,311					$	420,745
Reinsurance ceded						(3,675	)					(192,542	)
Net of reinsurance ceded				6,948		11,636						228,203
Net investment income	$	66,373		44,188		(5,292	)					211,918
Realized investment gains (losses)		5,233		1,046				$	(10,764	)		(4,485	)
Other income				875		(62	)					13,484
Total revenues		71,606		53,057		6,282			(10,764	)		449,120
Benefits and settlement expenses		57,117		36,246		5,924						296,072
Amortization of deferred policy acquisition costs		503		5,693		487						26,804
Amortization of goodwill												2,075
Other operating expenses		986		5,956		7,798						67,063
Total benefits and expenses		58,606		47,895		14,209						392,014
Income before income tax		13,000		5,162		(7,927	)					57,106
Income tax expense									18,561			18,561
Cumulative effect of change in accounting principle
Net income											$	38,545

F-7

	Operating Segment Income for the Three Months Ended September 30, 2000
	(In Thousands)
	Life Insurance									Specialty Insurance Products
	Individual Life			West Coast			Acquisitions			Dental Benefits			Financial Institutions
Premiums and policy fees	$	84,161		$	30,978		$	33,045		$	69,763		$	121,150
Reinsurance ceded		(62,308	)		(24,177	)		(7,240	)		(23,107	)		(66,531	)
Net of reinsurance ceded		21,853			6,801			25,805			46,656			54,619
Net investment income		15,630			22,787			29,077			1,876			11,390
Realized investment gains (losses)
Other income		(879	)					9			4,291			7,439
Total revenues		36,604			29,588			54,891			52,823			73,448
Benefits and settlement expenses		16,355			21,252			32,141			32,960			34,725
Amortization of deferred policy acquisition costs		8,423			4,205			4,252			1,676			12,598
Amortization of goodwill														505
Other operating expenses		2,036			(5,357	)		5,929			11,980			16,653
Total benefits and expenses		26,814			20,100			42,322			46,616			64,481
Income before income tax		9,790			9,488			12,569			6,207			8,967

	Retirement Savings and Investment Products
	Stable Value Products			Investment Products		Corporate and Other			Adjustments			Total Consolidated
Premiums and policy fees				$	7,849	$	30,906					$	377,852
Reinsurance ceded							(16,317	)					(199,680	)
Net of reinsurance ceded					7,849		14,589						178,172
Net investment income	$	61,417			35,138		(1,020	)					176,295
Realized investment gains (losses)		(2,183	)		37				$	(3,706	)		(5,852	)
Other income					870		877						12,607
Total revenues		59,234			43,894		14,446			(3,706	)		361,222
Benefits and settlement expenses		53,270			28,963		13,451						233,117
Amortization of deferred policy acquisition costs		229			6,230		441						38,054
Amortization of goodwill													505
Other operating expenses		879			4,349		4,315						40,784
Total benefits and expenses		54,378			39,542		18,207						312,460
Income before income tax		4,856			4,352		(3,761	)					48,762
Income tax expense										17,274			17,274
Cumulative effect of change in accounting principle
Net income												$	31,488

F-8

	Operating Segment Income for the Nine Months Ended September 30, 2001
	(In Thousands)
	Life Insurance									Specialty Insurance Products
	Individual Life			West Coast			Acquisitions			Dental Benefits			Financial Institutions
Premiums and policy fees	$	282,106		$	94,888		$	154,893		$	267,716		$	377,891
Reinsurance ceded		(202,041	)		(60,915	)		(29,541	)		(35,117	)		(202,576	)
Net of reinsurance ceded		80,065			33,973			125,352			232,599			175,315
Net investment income		54,703			75,622			131,793			7,163			35,366
Realized investment gains (losses)
Other income		819						(52	)		13,473			22,531
Total revenues		135,587			109,595			257,093			253,235			233,212
Benefits and settlement expenses		87,371			72,734			173,086			153,369			108,515
Amortization of deferred policy acquisition costs		8,217			11,336			14,341			5,410			36,440
Amortization of goodwill											4,104			2,120
Other operating expenses		3,374			(7,351	)		21,517			67,561			60,019
Total benefits and expenses		98,962			76,719			208,944			230,444			207,094
Income before income tax		36,625			32,876			48,149			22,791			26,118

	Retirement Savings and Investment Products
	Stable Value Products		Investment Products		Corporate and Other			Adjustments			Total Consolidated
Premiums and policy fees			$	21,420	$	61,317					$	1,260,231
Reinsurance ceded						(24,117	)					(554,307	)
Net of reinsurance ceded				21,420		37,200						705,924
Net investment income	$	196,117		122,047		(8,996	)					613,815
Realized investment gains (losses)		7,928		1,070				$	(12,014	)		(3,016	)
Other income				2,599		713						40,083
Total revenues		204,045		147,136		28,917			(12,014	)		1,356,806
Benefits and settlement expenses		167,617		99,782		37,572						900,046
Amortization of deferred policy acquisition costs		1,111		17,011		1,337						95,203
Amortization of goodwill												6,224
Other operating expenses		2,967		17,809		25,226						191,122
Total benefits and expenses		171,695		134,602		64,135						1,192,595
Income before income tax		32,350		12,534		(35,218	)					164,211
Income tax expense									55,931			55,931
Cumulative effect of change in accounting principle									(8,341	)		(8,341	)
Net income											$	99,939

F-9

	Operating Segment Income for the Nine Months Ended September 30, 2000
	(In Thousands)
	Life Insurance									Specialty Insurance Products
	Individual Life			West Coast			Acquisitions			Dental Benefits			Financial Institutions
Premiums and policy fees	$	250,557		$	99,939		$	101,803		$	198,136		$	355,686
Reinsurance ceded		(178,942	)		(78,426	)		(22,151	)		(60,069	)		(197,362	)
Net of reinsurance ceded		71,615			21,513			79,652			138,067			158,324
Net investment income		44,966			66,999			87,992			6,640			33,692
Realized investment gains (losses)
Other income		(2,446	)					9			11,028			22,467
Total revenues		114,135			88,512			167,653			155,735			214,483
Benefits and settlement expenses		62,365			64,670			96,691			100,633			99,674
Amortization of deferred policy acquisition costs		22,957			10,120			13,179			4,715			35,371
Amortization of goodwill														1,372
Other operating expenses		(665	)		(12,651	)		18,635			35,714			52,681
Total benefits and expenses		84,657			62,139			128,505			141,062			189,098
Income before income tax		29,478			26,373			39,148			14,673			25,385

	Retirement Savings and Investment Products
	Stable Value Products			Investment Products		Corporate and Other			Adjustments			Total Consolidated
Premiums and policy fees				$	22,858	$	89,110					$	1,118,089
Reinsurance ceded							(48,394	)					(585,344	)
Net of reinsurance ceded					22,858		40,716						532,745
Net investment income	$	178,850			95,810		(1,988	)					512,961
Realized investment gains (losses)		(2,272	)		457				$	(5,447	)		(7,262	)
Other income					2,260		5,392						38,710
Total revenues		176,578			121,385		44,120			(5,447	)		1,077,154
Benefits and settlement expenses		152,299			78,837		36,460						691,629
Amortization of deferred policy acquisition costs		658			18,298		1,720						107,018
Amortization of goodwill													1,372
Other operating expenses		2,907			13,011		24,684						134,316
Total benefits and expenses		155,864			110,146		62,864						934,335
Income before income tax		20,714			11,239		(18,744	)					142,819
Income tax expense										50,504			50,504
Net income												$	92,315

F-10

	Operating Segment Assets September 30, 2001
	(In Thousands)
	Life Insurance						Specialty Insurance Products
	Individual Life		West Coast		Acquisitions		Dental Benefits		Financial Institutions
Investments and other assets	$	1,516,896	$	1,734,832	$	2,429,131	$	192,332	$	1,077,983
Deferred policy acquisition costs and goodwill		497,935		315,094		292,569		212,247		165,541
Total assets	$	2,014,831	$	2,049,926	$	2,721,700	$	404,579	$	1,243,524

	Retirement Savings and Investment Products
	Stable Value Products		Investment Products		Corporate and Other			Total Consolidated
Investments and other assets	$	3,995,087	$	3,985,603	$	1,863,111		$	16,794,975
Deferred policy acquisition costs and goodwill		6,899		144,246		(24,118	)		1,610,413
Total assets	$	4,001,986	$	4,129,849	$	1,838,993		$	18,405,388

	Operating Segment Assets December 31, 2000
	(In Thousands)
	Life Insurance						Specialty Insurance Products
	Individual Life		West Coast		Acquisitions		Dental Benefits		Financial Institutions
Investments and other assets	$	1,237,867	$	1,576,577	$	1,604,854	$	192,906	$	1,369,915
Deferred policy acquisition costs and goodwill		354,320		276,518		223,430		214,770		150,984
Total assets	$	1,592,187	$	1,853,095	$	1,828,284	$	407,676	$	1,520,899

	Retirement Savings and Investment Products
	Stable Value Products		Investment Products		Corporate and Other		Total Consolidated
Investments and other assets	$	3,340,099	$	3,844,168	$	428,951	$	13,595,337
Deferred policy acquisition costs and goodwill		2,144		127,334		81,711		1,431,211
Total assets	$	3,342,243	$	3,971,502	$	510,662	$	15,026,548

F-11

NOTE D — STATUTORY REPORTING PRACTICES

        Financial statements prepared in conformity with accounting principles generally accepted in the United States of America (i.e., GAAP) differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. At September 30, 2001, and for the nine months then ended, Protective Life and its life insurance subsidiaries had combined share-owner's equity and a net loss prepared in conformity with statutory reporting practices of $629.2 million and $63.5 million, respectively. The net loss was primarily due to the payment of a reinsurance-ceding commission to coinsure a block of individual life policies from Standard Insurance Company.

        The National Association of Insurance Commissioners ("NAIC") has adopted the Codification of Statutory Accounting Principles ("Codification"). Codification changed statutory accounting rules in several areas and was effective January 1, 2001. The adoption of Codification did not have a material effect on Protective Life's statutory capital.

NOTE E — INVESTMENTS

        As prescribed by Statement of Financial Accounting Standard ("SFAS") No. 115, certain investments are recorded at their market values with the resulting net unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, recorded as a component of share-owner's equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the application of SFAS No. 115 does not affect Protective Life's operations, its reported share-owner's equity will fluctuate significantly as interest rates change.

        Protective Life's balance sheets at September 30, 2001 and December 31, 2000, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows:

	September 30		December 31
	(In Thousands)
Total investments	$	12,483,615	$	10,258,809
Deferred policy acquisition costs		1,409,259		1,192,696
All other assets		4,337,685		3,654,604
	$	18,230,559	$	15,106,109
Deferred income taxes	$	109,536	$	100,256
All other liabilities		16,319,635		13,424,068
		16,429,171		13,524,324
Share-owner's equity		1,801,388		1,581,785
	$	18,230,559	$	15,106,109

NOTE F — RECENTLY ISSUED ACCOUNTING STANDARDS

        On January 1, 2001, Protective Life adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS No. 137 and 138, will require Protective Life to record derivative financial instruments, at fair value on the balance sheet. Changes in fair value of a derivative instrument are reported in net income or other comprehensive income, depending on the designated use of the derivative instrument. The adoption of SFAS No. 133 resulted in a cumulative after-tax charge to net income of $8.3 million and a cumulative after-tax increase to other comprehensive income of $4.0 million on January 1, 2001. The

F-12

charge to net income and increase to other comprehensive income primarily resulted from the recognition of derivative instruments embedded in the Company's corporate bond portfolio. In addition, the charge to net income includes the recognition of the ineffectiveness on existing hedging relationships including the difference in spot and forward exchange rates related to foreign currency swaps used as an economic hedge of foreign-currency-denominated stable value contracts. Prospectively, the adoption of SFAS No. 133 may introduce volatility into Protective Life's reported net income and other comprehensive income depending on future market conditions and Protective Life's hedging activities.

        In September 2000 the Financial Accounting Standards Board ("FASB") issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinquishments of Liabilities, a replacement of SFAS No. 125". SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets. This Statement is effective for transfers and servicing of financial assets and extinquishments of liabilities occurring after March 31, 2001. The adoption of this accounting standard did not have a material effect on Protective Life's financial position or results of operations.

        In June 2001, the FASB issued SFAS Nos. 141, "Business Combinations", and 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that business combinations initiated after June 30, 2001, be accounted for using the purchase method. SFAS No. 142 revises the standards for accounting for acquired goodwill and other intangible assets. This statement is effective for fiscal years beginning after December 15, 2001, and effective for any goodwill or intangible asset acquired after June 30, 2001. Protective Life does not expect the adoption of SFAS No. 142 to have a material effect on Protective Life's financial position or results of operations.

        In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires that companies record the fair value of a liability for an asset retirement obligation in the period in which the liability is incurred. The Statement is effective for fiscal years beginning after June 15, 2002. Protective Life does not expect the adoption of SFAS No. 143 to have a material effect on Protective Life's financial position or results of operations.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires that the same accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and expands the use of discontinued operations accounting to include more types of transactions. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Protective Life does not expect the adoption of SFAS No. 144 to have a material effect on Protective Life's financial position or results of operations.

NOTE G — DERIVATIVES AND HEDGING ACTIVITIES

        Protective Life utilizes a risk management strategy that incorporates the use of derivative instruments, primarily to reduce its exposure to interest rate risk as well as currency exchange risk.

        Combinations of interest rate swap contracts, options and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments and mortgage-backed securities. Interest rate swap contracts generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date. Interest rate futures generally involve exchange traded contracts to buy or sell treasury bonds and notes in the future at specified prices. Interest rate options represent contracts that allow the holder of the option to receive cash or purchase, sell or enter into a financial instrument at a

F-13

specified price within a specified period of time. Protective Life uses interest rate swap contracts, caps, and floors to modify the interest characteristics of certain investments. Swap contracts are also used to alter the effective durations of assets and liabilities. Protective Life uses foreign currency swaps to reduce its exposure to currency exchange risk on certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.

        Derivative instruments expose Protective Life to credit and market risk. Protective Life minimizes its credit risk by entering into transactions with highly rated counterparties. Protective Life manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken.

        Protective Life monitors its use of derivatives in connection with its overall asset/liability management programs and procedures. Protective Life's asset/liability committee is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into Protective Life's overall interest rate and currency exchange risk management strategies.

        All derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is entered into, Protective Life designates the derivative as (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value" hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), or (3) as an other derivative either held for investment purposes or held as a natural hedging instrument designed to act as an economic hedge against the changes in value or cash flows of a hedged item ("other" derivative). Changes in the fair value of a derivative that is highly effective as — and that is designated and qualifies as — a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as — and that is designated and qualified as — a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows. Changes in the fair value of other derivatives are recognized in current earnings and reported in Realized Investment Gains (Losses) — Derivative Financial Instruments in Protective Life's consolidated condensed statements of income.

        Protective Life formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. Protective Life also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, Protective Life discontinues hedge accounting prospectively, as discussed below.

        Protective Life discontinues hedge accounting prospectively when (1) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) the derivative is dedesignated as a hedge instrument, because it is unlikely that a

F-14

forecasted transaction will occur; (4) because a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument is no longer appropriate.

        When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative will continue to be carried on the balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative will continue to be carried on the balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment will be removed from the balance sheet and recognized as a gain or loss in current-period earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all other situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the balance sheet, with changes in its fair value recognized in current-period earnings.

Fair-Value Hedges

        Protective Life has designated, as a fair value hedge, callable interest rate swaps used to modify the interest characteristics of certain stable value contracts. In assessing hedge effectiveness, Protective Life excludes the embedded call option's time value component from each derivative's total gain or loss. For the nine months ended September 30, 2001, total measured ineffectiveness for the fair value hedging relationships was insignificant while the excluded time value component resulted in a pre-tax gain of $1.2 million. Both the measured ineffectiveness and the excluded time value component are reported in Realized Investment Gains (Losses) — Derivative Financial Instruments in Protective Life's consolidated condensed statements of income.

Cash-Flow Hedges

        Protective Life has not designated any hedging relationships as a cash flow hedge.

Other Derivatives

        Protective Life uses certain interest rate swaps, caps, floors, options and futures contracts as economic hedges against the changes in value or cash flows of outstanding mortgage loan commitments and certain owned investments of Protective Life. For the nine months ended September 30, 2001, Protective Life recognized total pre-tax gains of $5.7 million representing the change in fair value of these derivative instruments.

        On its foreign currency swaps, Protective Life recognized a $0.9 million pre-tax loss for the first nine months of fiscal 2001 while recognizing a $6.1 million foreign exchange pre-tax gain on the related foreign-currency-denominated stable value contracts. The net gain primarily results from the difference in the forward and spot exchange rates used to revalue the currency swaps and the stable value contracts, respectively. This net gain is reflected in Realized Investment Gains (Losses) — Derivative Financial Instruments in Protective Life's consolidated condensed statements of income.

        Protective Life has entered into asset swap arrangements to effectively sell the equity options embedded in owned convertible bonds in exchange for a interest rate swap that converts the remaining

F-15

host bond to a variable rate instrument. For the nine months ended September 30, 2001, Protective Life recognized a $12.0 million pre-tax gain for the change in the asset swaps' fair value and recognized a $17.2 million pre-tax loss to separately record the embedded equity options at fair value.

NOTE H — COMPREHENSIVE INCOME

        The following table sets forth Protective Life's comprehensive income for the periods shown:

	Three Months Ended September 30				Nine Months Ended September 30
	2001		2000		2001		2000
Net income	$	38,545	$	31,488	$	99,939	$	92,315
Increase in net unrealized gains on investments (net of income tax: three months: 2001 — $58,125; 2000 — $39,584 nine months: 2001 — $83,247; 2000 — $32,645)		107,946		73,513		154,601		60,626
Reclassification adjustment for amounts included in net income (net of income tax: three months: 2001 — $3,815; 2000 — $2,426 nine months: 2001 — $3,477; 2000 — $2,745)		7,085		4,506		6,457		5,097
Transition adjustment on derivative financial instruments (net of income tax: nine months: 2001 — $2,127)						3,951
Comprehensive income	$	153,576	$	109,507	$	264,948	$	158,038

NOTE I — SUPPLEMENTAL CASH FLOW INFORMATION

        The following table sets forth supplemental cash flow information for the periods presented below:

	Nine Months Ended September 30
	2001			2000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest on debt	$	921		$	2,447
Income taxes		431			12,383
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP		342			307
Acquisitions and bulk reinsurance assumptions
Assets acquired, net of cash		658,200			496,221
Liabilities assumed		(795,954	)		(345,318	)
Equity from subsidiary transfer		(7,772	)
Net	$	(145,526	)	$	150,903

F-16

NOTE J — ACQUISITION

        On October 1, 2001, PLC announced that Protective Life had completed the acquisition of the stock of Inter-State Assurance Company and First Variable Life Insurance Company from Ilona Financial Group, Inc., a subsidiary of Irish Life & Permanent plc of Dublin, Ireland. The purchase price was approximately $250 million. The companies' business primarily consists of universal life insurance products and fixed and variable annuities, representing approximately 170,000 policies, $160 million of annual premiums, and $1.6 billion of reserves.

NOTE K — RECLASSIFICATIONS

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

NOTE L — PENDING SALE OF DENTAL BENEFITS DIVISION

        On July 10, 2001, PLC announced that it had entered into an agreement to sell substantially all of its Dental Benefits Division to Fortis, Inc. for approximately $300 million. Substantially all of the Dental Benefits Division is owned by Protective Life. Protective Life anticipates that the transaction will close in December 2001, and will be accounted for as discontinued operations. The transaction is subject to regulatory approval and certain customary closing conditions. Protective Life will realize a pretax gain on the sale, but will incur income tax expense and exit costs that currently are estimated to result in a loss after income tax of approximately $23.9 million. Protective Life will also discontinue other health insurance lines that are operated by the Dental Benefits Division, but are currently reported in the Corporate and Other segment. These other health insurance lines reported a loss in the second quarter of 2001 of approximately $16.0 million due to reserve strengthening.

F-17

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Share Owner
Protective Life Insurance Company
Birmingham, Alabama

        In our opinion, the consolidated the accompanying consolidated balance sheets and the related consolidated statements of income, Share-owners' equity and of cash flows present fairly, in all material respects, the financial position of Protective Life Insurance Company and Subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index on page F-1 of this Form S-1 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Birmingham, Alabama
March 1, 2001

F-18

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands)

	Year Ended December 31
	2000			1999			1998
REVENUES
Premiums and policy fees	$	1,545,969		$	1,137,256		$	1,027,340
Reinsurance ceded		(822,450	)		(538,033	)		(459,215	)
Net of reinsurance ceded		723,519			599,223			568,125
Net investment income		696,937			623,231			603,795
Realized investment gains (losses)		(14,599	)		4,760			2,136
Other income		51,202			27,102			20,201
		1,457,059			1,254,316			1,194,257
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: 2000 — $538,291; 1999 — $344,474; 1998 — $330,494)		924,210			771,527			730,496
Amortization of deferred policy acquisition costs		149,574			104,913			111,188
Amortization of goodwill		3,867
Other operating expenses (net of reinsurance ceded: 2000 — $223,498; 1999 — $150,570; 1998 — $166,375)		187,302			176,439			172,228
		1,264,953			1,052,879			1,013,912
INCOME BEFORE INCOME TAX		192,106			201,437			180,345
INCOME TAX EXPENSE
Current		15,491			47,504			48,237
Deferred		52,580			25,675			14,925
		68,071			73,179			63,162
NET INCOME	$	124,035		$	128,258		$	117,183

See notes to consolidated financial statements.

F-19

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

	December 31
	2000			1999
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 2000 — $7,463,700; 1999 — $6,546,798)	$	7,390,110		$	6,304,554
Equity securities, at market (cost: 2000 — $44,450; 1999 — $32,092)		41,792			30,696
Mortgage loans on real estate		2,268,224			1,946,690
Investment real estate, net of accumulated depreciation (2000 — $1,226; 1999 — $1,014)		12,566			15,582
Policy loans		230,527			232,126
Other long-term investments		66,646			39,943
Short-term investments		172,699			81,171
Total investments		10,182,564			8,650,762
Cash		33,517
Accrued investment income		121,996			101,120
Accounts and premiums receivable, net of allowance for uncollectible amounts (2000 — $2,195; 1999 — $2,540)		72,189			45,852
Reinsurance receivables		1,099,574			859,684
Deferred policy acquisition costs		1,189,380			1,011,524
Goodwill, net		241,831
Property and equipment, net		51,166			49,002
Other assets		120,874			27,712
Receivable from related parties		4,768			13,059
Assets related to separate accounts
Variable Annuity		1,841,439			1,778,618
Variable Universal Life		63,504			40,293
Other		3,746			3,517
	$	15,026,548		$	12,581,143
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims	$	5,033,397		$	4,566,426
Unearned premiums		935,605			507,659
Total policy liabilities and accruals		5,969,002			5,074,085
Stable value investment contract deposits		3,177,863			2,680,009
Annuity deposits		1,916,894			1,639,231
Other policyholders' funds		125,336			116,815
Other liabilities		324,901			293,862
Accrued income taxes		(10,932	)		(25,833	)
Deferred income taxes		72,065			(32,335	)
Note payable		2,315			2,338
Indebtedness to related parties		10,000			14,000
Liabilities related to separate accounts
Variable Annuity		1,841,439			1,778,618
Variable Universal Life		63,504			40,293
Other		3,746			3,517
Total liabilities		13,496,133			11,584,600
COMMITMENTS AND CONTINGENT LIABILITIES — NOTE G
SHARE-OWNER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation preference $2,000		2			2
Common Stock, $1.00 par value, shares authorized and issued: 5,000,000		5,000			5,000
Additional paid-in capital		632,805			327,992
Note receivable from PLC Employee Stock Ownership Plan		(4,841	)		(5,148	)
Retained earnings		948,819			814,777
Accumulated other comprehensive income
Net unrealized gains (losses) on investments (net of income tax: 2000 — $(27,661); 1999 — $(78,658))		(51,370	)		(146,080	)
Total share-owner's equity		1,530,415			996,543
	$	15,026,548		$	12,581,143

See notes to consolidated financial statements

F-20

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF SHARE-OWNER'S EQUITY

(Dollars in thousands, except per share amounts)

	Preferred Stock		Common Stock		Additional Paid-In Capital		Note Receivable From PLC ESOP			Retained Earnings			Net Unrealized Gains (Losses) on Investments			Total Share-Owner's Equity
Balance, December 31, 1997	$	2	$	5,000	$	327,992	$	(5,378	)	$	629,436		$	61,727		$	1,018,779
Net income for 1998											117,183						117,183
Decrease in net unrealized gains on investments (net of income tax — $(2,844))														(5,281	)		(5,281	)
Reclassification adjustment for amounts included in net income (net of income tax: $(747))														(1,389	)		(1,389	)
Comprehensive income for 1998																	110,513
Common dividends ($12 per share)											(60,000	)					(60,000	)
Preferred dividends ($50 per share)											(100	)					(100	)
Decrease in note receivable from PLC ESOP								179									179
Balance, December 31, 1998		2		5,000		327,992		(5,199	)		686,519			55,057			1,069,371
Net income for 1999											128,258						128,258
Decrease in net unrealized gains on investments (net of income tax — $(106,638))														(198,043	)		(198,043	)
Reclassification adjustment for amounts included in net income (net of income tax: $(1,666))														(3,094	)		(3,094	)
Comprehensive loss for 1999																	(72,879	)
Decrease in note receivable from PLC ESOP								51									51
Balance, December 31, 1999		2		5,000		327,992		(5,148	)		814,777			(146,080	)		996,543
Net income for 2000											124,035						124,035
Decrease in net unrealized losses on investments (net of income tax — $45,887)														85,221			85,221
Reclassification adjustment for amounts included in net income (net of income tax — $5,110)														9,489			9,489
Comprehensive income for 2000																	218,745
Capital contribution						81,000											81,000
Transfer of subsidiaries from PLC (see Note A)						223,813					10,007						233,820
Decrease in note receivable from PLC ESOP								307									307
Balance, December 31, 2000	$	2	$	5,000	$	632,805	$	(4,841	)	$	948,819		$	(51,370	)	$	1,530,415

See notes to consolidated financial statements.

F-21

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	December 31
	2000			1999			1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	124,035		$	128,258		$	117,183
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment (gains) losses		14,599			(4,760	)		(2,136	)
Amortization of deferred policy acquisition costs		149,574			104,913			111,188
Amortization of goodwill		3,867
Capitalization of deferred policy acquisition costs		(338,685	)		(239,483	)		(192,838	)
Depreciation expense		9,581			10,513			7,110
Deferred income taxes		55,161			24,234			14,925
Accrued income taxes		13,265			(14,841	)		(11,933	)
Interest credited to universal life and investment products		766,004			331,746			352,721
Policy fees assessed on universal life and investment products		(197,581	)		(165,818	)		(139,689	)
Change in accrued investment income and other receivables		(160,488	)		(119,183	)		(159,362	)
Change in policy liabilities and other policyholder funds of traditional life and health products		508,454			215,201			322,464
Change in other liabilities		1,809			67,552			(19,771	)
Other (net)		(34,626	)		(5,526	)		(22,634	)
Net cash provided by operating activities		914,969			332,806			377,228
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale		12,828,276			9,973,742			10,445,407
Other		133,814			243,280			198,559
Sale of investments:
Investment available for sale		810,716			537,343			1,080,265
Other		5,222			267,892			155,906
Cost of investments acquired:
Investments available for sale		(14,384,625	)		(10,625,354	)		(11,505,098	)
Other		(463,909	)		(864,100	)		(662,350	)
Acquisitions and bulk reinsurance assumptions		(141,040	)		46,508
Purchase of property and equipment		(5,085	)		(18,075	)		(13,077	)
Sale of property and equipment					151
Net cash used in investing activities		(1,216,631	)		(438,613	)		(300,388	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt		2,197,800			4,351,177			1,975,800
Capital contribution from PLC		81,000
Principal payments on line of credit arrangements and long-term debt		(2,197,823	)		(4,351,203	)		(1,973,437	)
Principal payment on surplus note to PLC		(4,000	)		(4,000	)		(2,000	)
Dividends to share owner								(60,100	)
Investment product deposits and change in universal life deposits		1,811,484			1,300,736			981,124
Investment product withdrawals		(1,553,282	)		(1,190,903	)		(1,037,424	)
Net cash provided by (used in) financing activities		335,179			105,807			(116,037	)
INCREASE(DECREASE) IN CASH		33,517			0			(39,197	)
CASH AT BEGINNING OF YEAR		0			0			39,197
CASH AT END OF YEAR	$	33,517		$	0		$	0
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt	$	3,310		$	5,611		$	8,338
Income taxes	$	25,638		$	56,192		$	57,429
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP	$	307		$	51		$	179
Acquisitions, related reinsurance transactions and subsidiary transfer
Assets acquired	$	759,067		$	12,502		$	247,894
Liabilities assumed		(384,207	)		(12,502	)		(380,405	)
Equity from subsidiary transfer (see Note A)		(233,820	)		0			0
Net	$	141,040		$	0		$	(132,511	)

See notes to consolidated financial statements.

F-22

PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in tables are in thousands)

NOTE A — SIGNIFICANT ACCOUNTING POLICIES

    Basis of Presentation

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

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make various estimates that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, as well as the reported amounts of revenues and expenses. Actual results could differ from these estimates.

    Entities Included

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

        On October 1, 2000, PLC transferred its ownership of twenty companies (that market prepaid dental products) to Protective. This transfer was accounted for in a manner similar to that in pooling-of-interests accounting, which resulted in the assets and liabilities of these companies being transferred at amounts equal to PLC's bases (including approximately $200 million of goodwill). In addition, Protective's share-owner's equity was adjusted by an amount equal to the companies' share-owner's equity at October 1, 2000. The results of operations of these companies have been included in the accompanying financial statements since the effective date of the transfer.

    Nature of Operations

        Protective provides financial services through the production, distribution, and administration of insurance and investment products. Protective markets individual life insurance, indemnity and prepaid dental products, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. Protective also maintains a separate division devoted exclusively to the acquisition of insurance policies from other companies.

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

    Recently Issued Accounting Standards

        In 1999, Protective adopted Statement of Financial Accounting Standards (SFAS) No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise," Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," and Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for Insurance Related Assessments" issued by the American Institute of Certified Public Accountants. The adoption of these accounting standards did not have a material effect on PLC's or Protective's financial statements.

F-23

        The Financial Accounting Standards Board (FASB) has issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Effective January 1, 2001, SFAS No. 133 (as amended by SFAS Nos. 137 and 138) requires Protective to record derivative financial instruments, including certain derivative instruments embedded in other contracts, on its balance sheet and to carry such derivatives at fair value. Derivatives that are not designated to be part of a qualifying hedging relationship must be adjusted to fair value each period through net income. If the derivative is a hedge, its change in fair value is either offset against the change in fair value of the hedged item through net income or recorded in share-owners' equity until the hedged item is recognized in net income. The fair value of derivatives increases or decreases as interest rates and general economic conditions change. The adoption of SFAS No. 133 on January 1, 2001, will result in a cumulative after-tax charge to net income of approximately $8.3 million and a cumulative after-tax increase to other comprehensive income of approximately $4.0 million in the first quarter of fiscal 2001. The adoption will also impact assets and liabilities recorded on the balance sheet. Prospectively, the adoption may introduce volatility into Protective's reported net income and other comprehensive income depending on future market conditions and Protective's hedging activities.

        In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of SFAS No. 125." SFAS No. 140 revises the standards of accounting for securitizations and other transfers of financial assets. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001.

    Investments

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

        Investments are reported on the following bases less allowances for uncollectible amounts on investments, if applicable:

•

Fixed maturities (bonds, and redeemable preferred stocks) — at current market value. Where market values are unavailable, Protective obtains estimates from independent pricing services or estimates market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics.         



•

Equity securities (common and nonredeemable preferred stocks) — at current market value.         



•

Mortgage loans — at unpaid balances, adjusted for loan origination costs, net of fees, and amortization of premium or discount.         



•

Investment real estate — at cost, less allowances for depreciation computed on the straight-line method. With respect to real estate acquired through foreclosure, cost is the lesser of the loan balance plus foreclosure costs or appraised value.         



•

Policy loans — at unpaid balances.         



•

Other long-term investments — at a variety of methods similar to those listed above, as deemed appropriate for the specific investment.         



•

Short-term investments — at cost, which approximates current market value.

F-24

        Substantially all short-term investments have maturities of three months or less at the time of acquisition and include approximately $0.6 million in bank deposits voluntarily restricted as to withdrawal.

        As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," certain investments are recorded at their market values with the resulting unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, reported as a component of share-owner's equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the adoption of SFAS No. 115 does not affect Protective's operations, its reported share-owner's equity will fluctuate significantly as interest rates change.

        Protective's balance sheets at December 31, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows:

	2000		1999
Total investments	$	10,258,809	$	8,894,426
Deferred policy acquisition costs		1,192,696		992,518
All other assets		3,654,604		2,918,857
	$	15,106,109	$	12,805,801
Deferred income taxes	$	100,256	$	46,243
All other liabilities		13,424,068		11,616,935
		13,524,324		11,663,178
Share-owner's equity		1,581,785		1,142,623
	$	15,106,109	$	12,805,801

        Realized gains and losses on sales of investments are recognized in net income using the specific identification basis.

    Derivative Financial Instruments

        Combinations of interest rate swap contracts, options, and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments, mortgage loans, and mortgage-backed securities, and liabilities arising from interest-sensitive products. Realized gains and losses on certain contracts are deferred and amortized over the life of the hedged asset or liability, and such amortization is recorded in investment income or interest expense. Any unamortized gain or loss is recorded as a realized investment gain or loss upon the early termination of a hedged asset or liability, or when the anticipated transaction is no longer likely to occur. No realized gains or losses were deferred in 2000 and 1999.

        Protective accounts for certain interest rate swaps designated as hedges of available-for-sale securities on a mark-to-market basis. The accrual of interest payable or receivable on these interest rate swaps is reported in investment income. Changes in the market values of these interest rate swaps, exclusive of net interest accruals, are reported in other comprehensive income on a net-of-tax basis.

        Protective uses interest rate swap contracts, swaptions (options to enter into interest rate swap contracts), caps and floors to convert certain investments from a variable to a fixed rate of interest and from a fixed rate to a variable rate of interest. Swap contracts are also used to alter the effective

F-25

durations of assets and liabilities. Amounts paid or received related to the initiation of certain interest rate swap contracts, swaptions, caps, and floors are deferred and amortized over the life of the related financial instrument, and subsequent periodic settlements are recorded in investment income or interest expense. Gains or losses on contracts terminated upon the early termination of the related financial instrument are recorded as realized investment gains or losses. Amounts paid and received related to the initiation of interest rate swap contracts, swaptions, caps and floors were $1.3 million and $1.1 million, respectively, in 2000. Amounts paid were $1.4 million and $1.0 million in 1999 and 1998, respectively. No amounts were received in 1999 and 1998.

        Protective utilizes foreign currency swaps as hedges of the foreign currency exchange risk associated with its obligations under certain stable value contracts denominated in foreign currencies. Gains and losses are recognized on the currency swaps to the extent of changes in spot exchange rates since inception of the contracts.

        At December 31, 2000, contracts with a notional amount of $2,424.3 million were in a $13.0 million net unrealized loss position. At December 31, 1999, contracts with a notional amount of $1,328.9 million were in a $2.1 million net unrealized gain position. Protective recognized realized investment gains related to derivative financial instruments of $4.5 million and $3.8 million in 2000 and 1999, respectively.

        Protective's derivative financial instruments are with highly rated counterparties.

    Cash

        Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. Protective has deposits with certain financial institutions which exceed federally insured limits. Protective has reviewed the credit worthiness of these financial institutions and believes there is minimal risk of a material loss.

    Property and Equipment

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

        Property and equipment consisted of the following at December 31:

	2000		1999
Home office building	$	41,184	$	40,524
Other, principally furniture and equipment		66,484		54,412
		107,668		94,936
Accumulated depreciation		56,502		45,934
	$	51,166	$	49,002

F-26

    Separate Accounts

        The assets and liabilities related to separate accounts in which Protective does not bear the investment risk are valued at market and reported separately as assets and liabilities related to separate accounts in the accompanying consolidated financial statements.

    Revenues and Benefits Expense

•

Traditional Life, Health, and Credit Insurance Products — Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits and include whole life insurance policies, term and term-like life insurance policies, limited-payment life insurance policies, and certain annuities with life contingencies. Life insurance and immediate annuity premiums are recognized as revenue when due. Health and credit insurance premiums are recognized as revenue over the terms of the policies. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contracts. This is accomplished by means of the provision for liabilities for future policy benefits and the amortization of deferred policy acquisition costs.


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

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

	2000			1999			1998
Balance beginning of year	$	120,575		$	90,332		$	106,121
Less reinsurance		47,661			20,019			18,673
Net balance beginning of year		72,914			70,313			87,448
Incurred related to:
Current year		311,633			311,002			288,015
Prior year		(4,489	)		(5,574	)		(10,198	)
Total incurred		307,144			305,428			277,817
Paid related to:
Current year		241,566			264,298			236,001
Prior year		60,972			40,197			58,951
Total paid		302,538			304,495			294,952
Other changes:
Acquisitions and reserve transfers		6,623			1,668			0
Net balance end of year		84,143			72,914			70,313
Plus reinsurance		25,830			47,661			20,019
Balance end of year	$	109,973		$	120,575		$	90,332

F-27

•

Universal Life and Investment Products — Universal life and investment products include universal life insurance, guaranteed investment contracts, deferred annuities, and annuities without life contingencies. Revenues for universal life and investment products consist of policy fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest credit rates for universal life and investment products ranged from 3.6% to 9.4% in 2000.

        Protective's accounting policies with respect to variable universal life and variable annuities are identical except that policy account balances (excluding account balances that earn a fixed rate) are valued at market and reported as components of assets and liabilities related to separate accounts.

    Deferred Policy Acquisition Costs

        Commissions and other costs of acquiring traditional life and health insurance, credit insurance, universal life insurance, and investment products that vary with and are primarily related to the production of new business have been deferred. Traditional life and health insurance acquisition costs are amortized over the premium-payment period of the related policies in proportion to the ratio of annual premium income to the present value of the total anticipated premium income. Credit insurance acquisition costs are being amortized in proportion to earned premium. Acquisition costs for universal life and investment products are amortized over the lives of the policies in relation to the present value of estimated gross profits before amortization. Under SFAS No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments,"' Protective makes certain assumptions regarding the mortality, persistency, expenses, and interest rates it expects to experience in future periods. These assumptions are to be best estimates and are to be periodically updated whenever actual experience and/or expectations for the future change from that assumed. Additionally, relating to SFAS No. 115, these costs have been adjusted by an amount equal to the amortization that would have been recorded if unrealized gains or losses on investments associated with Protective's universal life and investment products had been realized.

        The cost to acquire blocks of insurance representing the present value of future profits from such blocks of insurance is also included in deferred policy acquisition costs. Protective amortizes the present value of future profits over the premium payment period, including accrued interest of up to approximately 8%. The unamortized present value of future profits for all acquisitions was approximately $343.6 million and $340.6 million at December 31, 2000 and 1999, respectively. During 2000 $47.3 million of present value of future profits was capitalized (relating to acquisitions made during the year) and $44.3 million was amortized. During 1999 $13.3 million of present value of future profits was capitalized, and $43.0 million was amortized.

F-28

    Goodwill

        Goodwill is being amortized straight-line over periods ranging from 20 to 40 years. Goodwill at December 31, 2000, is as follows:

Goodwill	$	260,773
Accumulated amortization		18,942
	$	241,831

        Protective periodically evaluates the recoverability of its goodwill by comparing expected future cash flows to the amount of unamortized goodwill. If this evaluation were to indicate the unamortized goodwill is impaired, the goodwill would be reduced to an amount representing the present value of applicable estimated future cash flows.

    Income Taxes

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

    Reclassifications

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

NOTE B — RECONCILIATION WITH STATUTORY REPORTING PRACTICES

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

F-29

        The reconciliations of net income and share-owner's equity prepared in conformity with statutory reporting practices to that reported in the accompanying consolidated financial statements are as follows:

	Net Income									Share-Owner's Equity
	2000			1999			1998			2000			1999			1998
In conformity with statutory reporting practices:(1)	$	66,694		$	75,114		$	147,077		$	628,274		$	567,634		$	531,956
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net of amortization		157,617			120,644			68,155			1,189,380			1,011,524			841,425
Deferred income tax		(52,580	)		(25,675	)		(14,925	)		(72,065	)		32,335			(51,735	)
Asset Valuation Reserve											103,853			41,104			66,922
Interest Maintenance Reserve		(3,540	)		(226	)		(1,355	)		9,715			19,328			15,507
Nonadmitted items											97,447			51,350			42,835
Other timing and valuation adjustments		(43,757	)		72,527			(76,214	)		(204,985	)		(467,130	)		(282,480	)
Noninsurance affiliates		21,276			20,698			18,171
Consolidation elimination		(21,675	)		(134,824	)		(23,726	)		(221,204	)		(259,602	)		(95,059	)
In conformity with generally accepted accounting principles	$	124,035		$	128,258		$	117,183		$	1,530,415		$	996,543		$	1,069,371

(1) Consolidated

        As of December 31, 2000, Protective and its insurance subsidiaries had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $83.6 million.

        The National Association of Insurance Commissioners has adopted the Codification of Statutory Accounting Principles (Codification). Codification changes current statutory accounting rules in several areas and is effective January 1, 2001. Although Protective has not estimated the potential effect, it does not believe Codification will have a material effect on the financial position, results of operations, or liquidity of Protective.

F-30

NOTE C — INVESTMENT OPERATIONS

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

	2000		1999		1998
Fixed maturities	$	531,887	$	466,957	$	463,416
Equity securities		2,532		775		905
Mortgage loans		177,917		172,027		158,461
Investment real estate		2,027		1,949		1,224
Policy loans		14,977		15,994		12,346
Other, principally short-term investments		15,491		20,244		16,536
		744,831		677,946		652,888
Investment expenses		47,894		54,715		49,093
	$	696,937	$	623,231	$	603,795

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

	2000			1999			1998
Fixed maturities	$	(14,896	)	$	13,049		$	4,374
Equity securities		1,685			(3,371	)		(4,465	)
Mortgage loans and other investments		(1,388	)		(4,918	)		2,227
	$	(14,599	)	$	4,760		$	2,136

        Protective recognizes permanent impairments through changes to an allowance for uncollectible amounts on investments. The allowance totaled $21.8 million at December 31, 2000 and $21.1 million at December 31, 1999. Additions and reductions to the allowance are included in realized investment gains (losses). Without such additions/reductions, Protective had net realized investment losses of $13.9 million in 2000, net realized investment gains of $1.7 million in 1999, and net realized investment gains of $3.2 million in 1998.

        In 2000, gross gains on the sale of investments available for sale (fixed maturities, equity securities and short-term investments) were $21.2 million and gross losses were $34.4 million. In 1999, gross gains were $48.8 million and gross losses were $33.6 million. In 1998, gross gains were $32.3 million and gross losses were $32.5 million.

F-31

        The amortized cost and estimated market values of Protective's investments classified as available for sale at December 31 are as follows:

2000	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Values
Fixed maturities:
Bonds:
Mortgage-backed securities	$	2,915,813	$	49,372	$	33,173	$	2,932,012
United States Government and authorities		95,567		2,662		0		98,229
States, municipalities, and political subdivision		88,222		3,408		0		91,630
Public utilities		631,698		7,803		5,591		633,910
Convertibles and bonds with warrants		69,013		11,277		12,145		68,145
All other corporate bonds		3,662,586		49,536		146,732		3,565,390
Redeemable preferred stocks		801		0		7		794
		7,463,700		124,058		197,648		7,390,110
Equity securities		44,450		2,761		5,419		41,792
Short-term investments		172,699		0		0		172,699
	$	7,680,849	$	126,819	$	203,067	$	7,604,601

1999	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Values
Fixed maturities:
Bonds:
Mortgage-backed securities	$	2,619,918	$	18,491	$	101,150	$	2,537,259
United States Government and authorities		154,954		138		1,257		153,835
States, municipalities, and political subdivisions		27,254		7		295		26,966
Public utilities		537,834		301		14,690		523,445
Convertibles and bonds with warrants		693		0		155		538
All other corporate bonds		3,204,963		5,938		149,591		3,061,310
Redeemable preferred stocks		1,182		19		0		1,201
		6,546,798		24,894		267,138		6,304,554
Equity securities		32,092		644		2,040		30,696
Short-term investments		81,171		0		0		81,171
	$	6,660,061	$	25,538	$	269,178	$	6,416,421

        The amortized cost and estimated market values of fixed maturities at December 31, by expected maturity, are shown as follows. Expected maturities are derived from rates of prepayment that may differ from actual rates of prepayment.

F-32

2000	Amortized Cost		Estimated Market Values
Due in one year or less	$	508,619	$	505,081
Due after one year through five years		3,946,183		3,930,126
Due after five years through ten years		2,125,817		2,108,270
Due after ten years		883,081		846,633
	$	7,463,700	$	7,390,110

1999	Amortized Cost		Estimated Market Values
Due in one year or less	$	322,576	$	322,074
Due after one year through five years		2,926,510		2,877,029
Due after five years through ten years		2,161,638		2,058,897
Due after ten years		1,136,074		1,046,554
	$	6,546,798	$	6,304,554

        At December 31, 2000 and 1999, Protective had bonds which were rated less than investment grade of $226.5 million and $243.6 million, respectively, having an amortized cost of $306.0 million and $293.1 million, respectively. At December 31, 2000, approximately $70.1 million of the bonds rated less than investment grade were securities issued in company-sponsored commercial mortgage loan securitizations. Approximately $1,160.5 million of bonds are not publicly traded.

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

	2000			1999			1998
Fixed maturities	$	109,625		$	(217,901	)	$	(21,705	)
Equity securities		(820	)		973			4,605

        At December 31, 2000, all of Protective's mortgage loans were commercial loans of which 76% were retail, 11% were apartments, 6% were office buildings, and 5% were warehouses, and 2% other. Protective specializes in making mortgage loans on either credit-oriented or credit-anchored commercial properties, most of which are strip shopping centers in smaller towns and cities. No single tenant's leased space represents more than 5% of mortgage loans. Approximately 75% of the mortgage loans are on properties located in the following states listed in decreasing order of significance: Texas, Tennessee, Georgia, Florida, Alabama, South Carolina, Virginia, North Carolina, Mississippi, Washington, Ohio, and Kentucky.

        Many of the mortgage loans have call provisions after 3 to 10 years. Assuming the loans are called at their next call dates, approximately $121.3 million would become due in 2001, $595.5 million in 2002 to 2005, and $282.6 million in 2006 to 2010, and $21.4 million thereafter.

        At December 31, 2000, the average mortgage loan was approximately $2.3 million, and the weighted average interest rate was 7.8%. The largest single mortgage loan was $19.0 million.

F-33

        At December 31, 2000 and 1999, Protective's problem mortgage loans (over ninety days past due) and foreclosed properties totaled $20.6 million and $22.9 million, respectively. Since Protective's mortgage loans are collateralized by real estate, any assessment of impairment is based upon the estimated fair value of the real estate. Based on Protective's evaluation of its mortgage loan portfolio, Protective does not expect any material losses on its mortgage loans.

        Certain investments with a carrying value of $4.7 million were non-income producing for the twelve months ended December 31, 2000.

        Policy loan interest rates generally range from 4.0% to 8.0%.

NOTE D — FEDERAL INCOME TAXES

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

	2000		1999		1998
Statutory federal income tax rate applied to pretax income	35.0	%	35.0	%	35.0	%
Dividends received deduction and tax-exempt interest	(0.6	)	(0.1	)	(0.1	)
Low-income housing credit	(0.4	)	(0.5	)	(0.5	)
Other	0.2		0.3		0.1
State income taxes	1.2		1.6		0.5
Effective income tax rate	35.4	%	36.3	%	35.0	%

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

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

	2000			1999			1998
Deferred policy acquisition costs	$	44,815		$	46,175		$	60,746
Benefits and other policy liability changes		10,969			(27,158	)		(41,268	)
Temporary differences of investment income		(3,333	)		6,655			(3,491	)
Other items		129			3			(1,062	)
	$	52,580		$	25,675		$	14,925

F-34

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

	2000			1999
Deferred income tax assets:
Policy and policyholder liability reserves	$	205,815		$	217,642
Other		1,959			2,088
		207,774			219,730
Deferred income tax liabilities:
Deferred policy acquisition costs		302,631			257,816
Unrealized losses on investments		(22,792	)		(70,421	)
		279,839			187,395
Net deferred income tax liability	$	72,065		$	(32,335	)

        Under pre-1984 life insurance company income tax laws, a portion of Protective's gain from operations which was not subject to current income taxation was accumulated for income tax purposes in a memorandum account designated as Policyholders' Surplus. The aggregate accumulation in this account at December 31, 2000 was approximately $70.5 million. Should the accumulation in the Policyholders' Surplus account exceed certain stated maximums, or should distributions including cash dividends be made to PLC in excess of approximately $882 million, such excess would be subject to federal income taxes at rates then effective. Deferred income taxes have not been provided on amounts designated as Policyholders' Surplus. Under current income tax laws, Protective does not anticipate paying income tax on amounts in the Policyholders' Surplus accounts.

        Protective's income tax returns are included in the consolidated income tax returns of PLC. The allocation of income tax liabilities among affiliates is based upon separate income tax return calculations.

NOTE E — DEBT

        Under revolving line of credit arrangements with several banks, PLC can borrow up to $125 million on an unsecured basis. These lines of credit arrangements contain, among other provisions, requirements for maintaining certain financial ratios, and restrictions on indebtedness incurred by PLC's subsidiaries including Protective. Additionally, PLC, on a consolidated basis, cannot incur debt in excess of 50% of its total capital. At December 31, 2000, PLC had no borrowings outstanding under these credit arrangements.

        Protective has arranged sources of credit to temporarily fund scheduled investment commitments. Protective expects that the rate received on its investments will equal or exceed its borrowing rate. Protective had no such temporary borrowings outstanding at December 31, 2000 and 1999. Also, Protective has a mortgage note on investment real estate amounting to approximately $2.3 million that matures in 2003.

        Included in indebtedness to related parties is a surplus debenture issued by Protective to PLC. At December 31, 2000, the balance of the surplus debenture was $10.0 million. The debenture matures in 2003 and has an interest rate of 8.5%.

F-35

        Protective routinely receives from or pays to affiliates under the control of PLC reimbursements for expenses incurred on one another's behalf. Receivables and payables among affiliates are generally settled monthly.

        Interest expense on debt totaled $3.8 million, $5.1 million, and $8.3 million in 2000, 1999, and 1998, respectively.

NOTE F — RECENT ACQUISITIONS

        In October 1998 Protective coinsured a block of life insurance policies from Lincoln National Corporation. The policies represent the payroll deduction business originally marketed and underwritten by Aetna. In September 1999, Protective recaptured a block of credit life and disability policies which it had previously ceded.

        In January 2000, Protective acquired the Lyndon Insurance Group (Lyndon). The assets acquired included $47.3 million of present value of future profits and $41.4 million of goodwill.

        These transactions have been accounted for as purchases, and the results of the transactions have been included in the accompanying financial statements since their respective effective dates.

        Summarized below are the consolidated results of operations for 1999, on an unaudited pro forma basis, as if the Lyndon acquisition had occurred as of January 1, 1999. The pro forma information is based on Protective's consolidated results of operations for 1999, and on data provided by Lyndon, after giving effect to certain pro forma adjustments. The pro forma financial information does not purport to be indicative of results of operations that would have occurred had the transaction occurred on the basis assumed above nor are they indicative of results of the future operations of the combined enterprises.

	1999
	(unaudited)
Total revenues	$	1,353,850
Net income	$	136,923

        On January 19, 2001, Protective coinsured a block of individual life insurance policies with approximately $80 million of annual premium and $725 million of policy liabilities.

NOTE G — COMMITMENTS AND CONTINGENT LIABILITIES

        Protective leases administrative and marketing office space in approximately 46 cities including Birmingham, with most leases being for periods of three to five years. The aggregate annual rent is approximately $7.8 million.

        Under insurance guaranty fund laws, in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Protective does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength.

        A number of civil jury verdicts have been returned against insurers and other providers of financial services involving the sales practices, alleged agent misconduct, failure to properly supervise representatives, and other matters. Increasingly these lawsuits have resulted in the award of substantial

F-36

judgments that are disproportionate to the actual damages, including material amounts of punitive damages. In some states, including Alabama, (where Protective maintains its headquarters), juries have substantial discretion in awarding punitive and non-economic compensatory damages which creates the potential for unpredictable material adverse judgments in any given lawsuit. In addition, in some class action and other lawsuits, companies have made material settlement payments. Protective and its subsidiaries, like other financial service companies, in the ordinary course of business, are involved in such litigation or, alternatively in arbitration. Although the outcome of any litigation or arbitration cannot be predicted, Protective believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of Protective.

NOTE H — SHARE-OWNER'S EQUITY AND RESTRICTIONS

        At December 31, 2000, approximately $1,122.9 million of consolidated share-owner's equity, excluding net unrealized gains on investments, represented net assets of Protective and its subsidiaries that cannot be transferred to PLC. In addition, Protective and its subsidiaries are subject to various state statutory and regulatory restrictions on their ability to pay dividends to PLC. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as ordinary dividends to PLC by Protective in 2001 is estimated to be $83.6 million.

NOTE I — PREFERRED STOCK

        PLC owns all of the 2,000 shares of preferred stock issued by Protective's subsidiary, Protective Life and Annuity Insurance Company (PL&A). Prior to November 1998, the stock paid, when and if declared, annual minimum cumulative dividends of $50 per share, and noncumulative participating dividends to the extent PL&A's statutory earnings for the immediately preceding fiscal year exceeded $1 million. PL&A paid no preferred dividends during 2000 or 1999. Dividends of $0.1 million were paid to PLC in 1998. Effective November 3, 1998, PL&A's articles of incorporation were amended such that the provision for an annual minimum cumulative dividend was removed.

NOTE J — RELATED PARTY MATTERS

        On August 6, 1990, PLC announced that its Board of Directors approved the formation of an Employee Stock Ownership Plan (ESOP). On December 1, 1990, Protective transferred to the ESOP 520,000 shares of PLC's common stock held by it in exchange for a note. The outstanding balance of the note, $4.8 million at December 31, 2000, is accounted for as a reduction to share-owner's equity. The stock will be used to match employee contributions to PLC's existing 401(k) Plan. The ESOP shares are dividend paying. Dividends on the shares are used to pay the ESOP's note to Protective.

        Protective leases furnished office space and computers to affiliates. Lease revenues were $4.0 million in 2000, $3.7 million in 1999, and $3.0 million in 1998. Protective purchases data processing, legal, investment and management services from affiliates. The costs of such services were $76.7 million, $69.2 million, and $56.2 million in 2000, 1999, and 1998, respectively. Commissions paid to affiliated

F-37

marketing organizations of $12.0 million, $11.4 million, and $8.4 million in 2000, 1999, and 1998, respectively, were included in deferred policy acquisition costs.

        Certain corporations with which PLC's directors were affiliated paid Protective premiums and policy fees or other amounts for various types of insurance and investment products. Such premiums, policy fees, and other amounts totaled $50.9 million, $70.3 million and $28.6 million in 2000, 1999, and 1998, respectively. Protective and/or PLC paid commissions, interest on debt and investment products, and fees to these same corporations totaling $28.2 million, $16.7 million and $7.3 million in 2000, 1999, and 1998, respectively.

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

NOTE K — OPERATING SEGMENTS

        Protective operates seven divisions each having a strategic focus which can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. Each division has a senior officer of Protective responsible for its operations. A division is generally distinguished by products and/or channels of distribution. A brief description of each division follows.

Life Insurance

        The Individual Life Division markets level premium term and term-like insurance, universal life, and variable universal life products on a national basis primarily through networks of independent insurance agents.

        The West Coast Division sells universal life and level premium term-like insurance products in the life insurance brokerage market and in the "bank owned life insurance" market.

        The Acquisitions Division focuses on acquiring, converting, and servicing policies acquired from other companies. The Division's primary focus is on life insurance policies sold to individuals.

Specialty Insurance Products

        The Dental Benefits Division's primary focus is on indemnity and prepaid dental products.

        The Financial Institutions Division specializes in marketing credit life and disability insurance products through banks, consumer finance companies and automobile dealers. The Division also offers automobile and recreational marine extended service contracts.

Retirement Savings and Investment Products

        The Stable Value Products Division markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans. The Division also markets fixed and floating rate funding agreements (to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds) and long-term annuity contracts.

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

F-38

Corporate and Other

        Protective has an additional business segment herein referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the Divisions above (including net investment income on unallocated capital and interest on substantially all debt). This segment also includes earnings from several lines of business which Protective is not actively marketing (mostly health insurance).

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

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

        There are no significant intersegment transactions.

        The following table sets forth total operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses), the reclassification and tax effecting of pretax minority interest, and the recognition of income tax expense. There are no asset adjustments.

        In the first quarter of 2000, certain health insurance lines were transferred from the Dental Benefits Division to the Corporate and Other segment in order to reflect management's current focus. Prior period segment results have been restated to reflect the change.

F-39

	Life Insurance
Operating Segment Income	Individual Life			West Coast			Acquisitions
2000
Premiums and policy fees	$	340,238		$	147,482		$	134,099
Reinsurance ceded		(266,412	)		(121,495	)		(31,102	)
Net of reinsurance ceded		73,826			25,987			102,997
Net investment income		60,629			91,688			116,940
Realized investment gains (losses)
Other income		(1,379	)					(4	)
Total revenues		133,076			117,675			219,933
Benefits and settlement expenses		70,365			79,065			125,151
Amortization of deferred policy acquisition costs and goodwill		33,767			15,003			17,081
Other operating expenses		(10,495	)		(12,760	)		24,077
Total benefits and expenses		93,637			81,308			166,309
Income before income tax		39,439			36,367			53,624
Income tax expense
Net income
1999
Premiums and policy fees	$	274,598		$	87,226		$	148,620
Reinsurance ceded		(182,092	)		(64,019	)		(33,754	)
Net of reinsurance ceded		92,506			23,207			114,866
Net investment income		59,916			78,128			129,806
Realized investment gains (losses)
Other income		(2,250	)		1,302			(9	)
Total revenues		150,172			102,637			244,663
Benefits and settlement expenses		74,455			73,176			129,581
Amortization of deferred policy acquisition costs		23,434			6,047			19,444
Other operating expenses		20,850			(2,649	)		31,178
Total benefits and expenses		118,739			76,574			180,203
Income before income tax		31,433			26,063			64,460
Income tax expense
Net income
1998
Premiums and policy fees	$	228,701		$	75,757		$	125,329
Reinsurance ceded		(102,533	)		(53,377	)		(28,594	)
Net of reinsurance ceded		126,168			22,380			96,735
Net investment income		55,779			63,492			112,154
Realized investment gains (losses)
Other income		70			6			1,713
Total revenues		182,017			85,878			210,602
Benefits and settlement expenses		106,308			54,617			112,051
Amortization of deferred policy acquisition costs		30,543			4,924			18,894
Other operating expenses		14,983			5,354			26,717
Total benefits and expenses		151,834			64,895			157,662
Income before income tax		30,183			20,983			52,940
Income tax expense
Net income
Operating Segment Assets
2000
Investments and other assets	$	1,237,867		$	1,576,577		$	1,604,854
Deferred policy acquisition costs and goodwill		354,320			276,518			223,430
Total assets	$	1,592,187		$	1,853,095		$	1,828,284
1999
Investments and other assets	$	1,205,968		$	1,343,517		$	1,553,954
Deferred policy acquisition costs		379,117			200,605			235,903
Total assets	$	1,585,085		$	1,544,122		$	1,789,857
1998
Investments and other assets	$	1,076,202		$	1,149,642		$	1,600,123
Deferred policy acquisition costs		301,941			144,455			255,347
Total assets	$	1,378,143		$	1,294,097		$	1,855,470

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

F-40

	Specialty Insurance Products						Retirement Savings and Investment Products
Operating Segment Income	Dental Benefits			Financial Institutions			Stable Value Products			Investment Products		Corporate and Other			Adjustments(1)			Total Consolidated
2000
Premiums and policy fees	$	294,564		$	479,397					$	30,127	$	120,062					$	1,545,969
Reinsurance ceded		(78,951	)		(258,931	)							(65,559	)					(822,450	)
Net of reinsurance ceded		215,613			220,466						30,127		54,503						723,519
Net investment income		8,913			46,464		$	243,133			132,204		(3,034	)					696,937
Realized investment gains (losses)								(6,556	)		410				$	(8,453	)		(14,599	)
Other income		15,279			28,352						2,809		6,145						51,202
Total revenues		239,805			295,282			236,577			165,550		57,614						1,457,059
Benefits and settlement expenses		151,202			135,494			207,143			109,607		46,183						924,210
Amortization of deferred policy acquisition costs and goodwill		7,739			52,646			900			24,156		2,149						153,441
Other operating expenses		58,805			72,316			3,882			18,203		33,274						187,302
Total benefits and expenses		217,746			260,456			211,925			151,966		81,606						1,264,953
Income before income tax		22,059			34,826			24,652			13,584		(23,992	)					192,106
Income tax expense																68,071			68,071
Net income																		$	124,035
1999
Premiums and policy fees	$	217,661		$	284,891					$	24,248	$	100,012					$	1,137,256
Reinsurance ceded		(52,252	)		(176,928	)							(28,988	)					(538,033	)
Net of reinsurance ceded		165,409			107,963						24,248		71,024						599,223
Net investment income		11,141			24,121		$	210,208			106,599		3,312						623,231
Realized investment gains (losses)								(549	)		1,446				$	3,863			4,760
Other income		7,628			15,831						2,146		2,454						27,102
Total revenues		184,178			147,915			209,659			134,439		76,790						1,254,316
Benefits and settlement expenses		119,950			55,899			175,290			88,642		54,534						771,527
Amortization of deferred policy acquisition costs		8,219			24,718			744			19,820		2,487						104,913
Other operating expenses		37,674			44,728			4,709			14,617		25,332						176,439
Total benefits and expenses		165,843			125,345			180,743			123,079		82,353						1,052,879
Income before income tax		18,335			22,570			28,916			11,360		(5,563	)					201,437
Income tax expense																73,179			73,179
Net income																		$	128,258
1998
Premiums and policy fees	$	218,773		$	301,230					$	18,809	$	58,741					$	1,027,340
Reinsurance ceded		(85,753	)		(188,958	)													(459,215	)
Net of reinsurance ceded		133,020			112,272						18,809		58,741						568,125
Net investment income		11,166			25,068		$	213,136			105,827		17,173						603,795
Realized investment gains (losses)								1,609			1,318				$	(791	)		2,136
Other income		4,848			10,302						1,799		1,463						20,201
Total revenues		149,034			147,642			214,745			127,753		77,377						1,194,257
Benefits and settlement expenses		101,586			52,629			178,745			85,045		39,515						730,496
Amortization of deferred policy acquisition costs		6,859			28,526			735			17,213		3,494						111,188
Other operating expenses		31,142			48,837			2,876			14,428		27,891						172,228
Total benefits and expenses		139,587			129,992			182,356			116,686		70,900						1,013,912
Income before income tax		9,447			17,650			32,389			11,067		6,477						180,345
Income tax expense																63,162			63,162
Net income																		$	117,183
Operating Segment Assets
2000
Investments and other assets	$	192,906		$	1,369,915		$	3,340,099		$	3,844,168	$	428,951					$	13,595,337
Deferred policy acquisition costs and goodwill		214,770			150,984			2,144			127,334		81,711						1,431,211
Total assets	$	407,676		$	1,520,899		$	3,342,243		$	3,971,502	$	510,662					$	15,026,548
1999
Investments and other assets	$	197,673		$	727,857		$	2,766,178		$	3,355,863	$	418,609					$	11,569,619
Deferred policy acquisition costs		25,819			51,339			1,156			117,577		8						1,011,524
Total assets	$	223,492		$	779,196		$	2,767,334		$	3,473,440	$	418,617					$	12,581,143
1998
Investments and other assets	$	197,337		$	645,909		$	2,869,304		$	2,542,536	$	700,417					$	10,781,470
Deferred policy acquisition costs		23,836			39,212			1,448			75,177		9						841,425
Total assets	$	221,173		$	685,121		$	2,870,752		$	2,617,713	$	700,426					$	11,622,895

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

F-41

NOTE L — EMPLOYEE BENEFIT PLANS

        PLC has a defined benefit pension plan covering substantially all of its employees. The plan is not separable by affiliates participating in the plan. However, approximately 86% of the participants in the plan are employees of Protective. The benefits are based on years of service and the employee's highest thirty-six consecutive months of compensation. PLC's funding policy is to contribute amounts to the plan sufficient to meet the minimum finding requirements of ERISA plus such additional amounts as PLC may determine to be appropriate from time to time. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.

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

	2000			1999
Projected benefit obligation, beginning of the year	$	36,530		$	36,547
Service cost - benefits earned during the year		3,338			3,270
Interest cost - on projected benefit obligation		3,195			2,779
Actuarial gain (loss)		1,968			(5,729	)
Plan amendment		833			32
Benefits paid		(326	)		(369	)
Projected benefit obligation, end of the year		45,538			36,530
Fair value of plan assets beginning of the year		34,420			25,147
Actual return on plan assets		(148	)		2,594
Employer contribution		6,876			7,048
Benefits paid		(326	)		(369	)
Fair value of plan assets end of the year		40,822			34,420
Plan assets less than the projected benefit obligation		(4,716	)		(2,110	)
Unrecognized net actuarial loss from past experience different from that assumed		7,766			2,601
Unrecognized prior service cost		1,226			569
Unrecognized net transition asset					(17	)
Net pension liability recognized in balance sheet	$	4,276		$	1,043

        Net pension cost of the defined benefit pension plan includes the following components for the years ended December 31:

	2000			1999			1998
Service cost	$	3,338		$	3,270		$	2,585
Interest cost		3,195			2,779			2,203
Expected return on plan assets		(3,049	)		(2,348	)		(1,950	)
Amortization of prior service cost		176			115			112
Amortization of transition asset		(17	)		(17	)		(17	)
Recognized net actuarial loss					494			305
Net pension cost	$	3,643		$	4,293		$	3,238

        Protective's share of the net pension cost was approximately $4.1 million, $3.6 million, and $2.6 million, in 2000, 1999, and 1998, respectively.

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

	2000		1999		1998
Weighted average discount rate	7.50	%	8.00	%	6.75	%
Rates of increase in compensation level	5.25	%	5.75	%	4.75	%
Expected long-term rate of return on assets	8.50	%	8.50	%	8.50	%

        At December 31, 2000, approximately $20.9 million of the assets of the pension plan were in a group annuity contract with Protective and therefore are included in the general assets of Protective. Approximately $19.9 million of the assets of the pension plan are invested in a collective trust managed by Northern Trust Corporation.

        Prior to July 1, 1999, upon retirement, the amount of pension plan assets vested in the retiree were used to purchase a single premium annuity from Protective in the retiree's name. Therefore, amounts presented above as plan assets exclude assets relating to such retirees. Beginning July 1, 1999, retiree obligations are being fulfilled from pension plan assets.

        PLC also sponsors an unfunded excess benefits plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed by federal income tax law. At December 31, 2000 and 1999, the projected benefit obligation of this plan totaled $14.3 million and $13.1 million, respectively, of which $10.1 million and $8.3 million, respectively, have been recognized in PLC's financial statements.

        Net pension cost of the excess benefits plan includes the following components for the years ended December 31:

	2000		1999		1998
Service cost	$	736	$	695	$	611
Interest cost		1,067		887		722
Amortization of prior service cost		19		113		112
Amortization of transition asset		37		37		37
Recognized net actuarial loss		194		265		173
Net pension cost	$	2,053	$	1,997	$	1,655

        In addition to pension benefits, PLC provides limited healthcare benefits to eligible retired employees until age 65. The postretirement benefit is provided by an unfunded plan. At December 31, 2000 and 1999, the liability for such benefits was approximately $1.2 million. The expense recorded by PLC was $0.1 million in 2000, 1999 and 1998. PLC's obligation is not materially affected by a 1% change in the healthcare cost trend assumptions used in the calculation of the obligation.

        Life insurance benefits for retirees are provided through the purchase of life insurance policies upon retirement from $10,000 up to a maximum of $75,000. This plan is partially funded at a maximum of $50,000 face amount of insurance.

        PLC sponsors a defined contribution retirement plan which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code. PLC established an Employee Stock Ownership Plan (ESOP) to match voluntary employee contributions to PLC's 401(k) Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees who are not otherwise under a bonus or sales incentive plan. Expense related to the ESOP consists of the cost of the shares allocated to participating employees plus the interest expense on the ESOP's note payable to Protective less dividends on shares held by the ESOP. At December 31, 2000, PLC had committed up to 143,229 shares to be released to fund employee benefits. The expense recorded by PLC for these employee benefits was less than $0.1 million in 2000, 1999, and 1998.

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        PLC sponsors a deferred compensation plan for certain directors, officers, agents, and others. Compensation deferred is credited to the participants in cash, PLC Common Stock, or as a combination thereof.

NOTE M — STOCK BASED COMPENSATION

        Certain Protective employees participate in PLC's stock-based incentive plans and receive stock appreciation rights (SARs) from PLC.

        Since 1973, PLC has had stock-based incentive plans to motivate management to focus on PLC's long-range performance through the awarding of stock-based compensation. Under plans approved by share owners in 1997 and 1998, up to 5,000,000 shares may be issued in payment of awards.

        The criteria for payment of performance awards is based upon a comparison of PLC's average return on average equity and total rate of return over a four year award period (earlier upon the death, disability, or retirement of the executive, or in certain circumstances, of a change in control of PLC) to that of a comparison group of publicly held life and multiline insurance companies. If PLC's results are below the median of the comparison group, no portion of the award is earned. If PLC's results are at or above the 90th percentile, the award maximum is earned.

        In 1998 and 1999, 71,340 and 99,380 performance shares were awarded, respectively, having an estimated fair value on the grant date of $2.3 million and $3.4 million, respectively. In 2000, 3,330 performance shares and 513,618 stock appreciation rights (SARs) were awarded, having a combined estimated fair value on the grant date of $3.7 million. The SARs, if earned, expire after ten years.

        A performance share is equivalent in value to one share of PLC Common Stock. With respect to SARs, PLC will pay an amount equal to the difference between the specified base price of PLC's Common Stock and the market value at the exercise date. Awards are paid in shares of PLC Common Stock. At December 31, 2000, outstanding awards measured at maximum payouts were 398,878 performance shares and 793,236 SARs.

        During 1996 and 2000, SARs were granted to certain officers of PLC to provide long-term incentive compensation based solely on the performance of PLC's Common Stock. The SARs are exercisable after five years (earlier upon the death, disability, or retirement of the officer, or in certain circumstances, of a change in control of PLC) and expire after ten years or upon termination of employment. In 2000, 217,500 SARs were awarded, having an estimated fair value on the grant date of $1.5 million. The number of SARs granted in 1996 and 2000 outstanding at December 31, 2000, was 660,000 and 215,000, respectively.

        The 1996 SARs have a base price of $17.4375. The 2000 SARs have a base price of $22.31. The fair value of the 2000 SARs was estimated using a Black-Sholes option pricing model. Assumptions used in the model were as follows: expected volatility of 23.65% (approximately equal to that of the S&P Life Insurance Index), a risk-free interest rate of 6.5%, a dividend rate of 2.15%, and an expected exercise date of March 7, 2007.

        The expense recorded by PLC for its stock-based compensation plans was $4.1 million, $4.0 million, and $3.3 million in 2000, 1999, and 1998, respectively.

NOTE N — REINSURANCE

        Protective reinsures certain of its risks with, and assumes risks from other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Under yearly renewable term agreements, Protective generally pays specific premiums to the reinsurer and receives specific amounts from the reinsurer as reimbursement for certain expenses. Coinsurance agreements are accounted for by

F-44

passing a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate part of the premiums less commissions and is liable for a corresponding part of all benefit payments. Modified coinsurance is accounted for similarly to coinsurance except that the liability for future policy benefits is held by the original company, and settlements are made on a net basis between the companies. A substantial portion of Protective's new life insurance and credit insurance sales are being reinsured. Protective reviews the financial condition of its reinsurers and monitors the amount of reinsurance it has with its reinsurers.

        Protective has reinsured approximately $126.0 billion, $93.5 billion, and $64.8 billion in face amount of life insurance risks with other insurers representing $496.4 million, $364.7 million, and $294.4 million of premium income for 2000, 1999, and 1998, respectively. Protective has also reinsured accident and health risks representing $262.2 million, $172.8 million, and $164.8 million of premium income for 2000, 1999, and 1998, respectively. In 2000 and 1999, policy and claim reserves relating to insurance ceded of $988.4 million and $739.3 million respectively, are included in reinsurance receivables. Should any of the reinsurers be unable to meet its obligation at the time of the claim, obligation to pay such claim would remain with Protective. At December 31, 2000 and 1999, Protective had paid $33.5 million and $46.8 million, respectively, of ceded benefits which are recoverable from reinsurers. In addition, at December 31, 2000, Protective had receivables of $78.2 million related to insurance assumed.

NOTE O — ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS

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

	2000						1999
	Carrying Amount			Estimated Fair Values			Carrying Amount		Estimated Fair Values
Assets (see Notes A and C):
Investments:
Fixed maturities	$	7,390,110		$	7,390,110		$	6,304,554	$	6,304,554
Equity securities		41,792			41,792			30,696		30,696
Mortgage loans on real estate		2,268,224			2,385,174			1,946,690		1,909,026
Short-term investments		172,699			172,699			81,171		81,171
Liabilities (see Notes A and E):
Stable value account balances		3,177,863			3,250,991			2,680,009		2,649,616
Annuity account balances		1,916,894			1,893,749			1,639,231		1,598,993
Notes payable		2,315			2,315			2,338		2,338
Other (see Note A):
Derivative Financial Instruments		(6,079	)		(13,011	)		5,273		3,564

        Except as noted below, fair values were estimated using quoted market prices. Protective estimates the fair value of its mortgage loans using discounted cash flows from the next call date. Protective believes the fair value of its short-term investments and notes payable to banks approximates book value due to either being short-term or having a variable rate of interest. Protective estimates the fair value of its guaranteed investment contracts and annuities using discounted cash flows and surrender values, respectively. Protective believes it is not practicable to determine the fair value of its policy loans since there is no stated maturity, and policy loans are often repaid by reductions to policy benefits.

        Protective estimates the fair value of its derivative financial instruments using market quotes or derivative pricing models. The fair value represents the net amount of cash Protective would have received (or paid) had the contracts been terminated on December 31.

F-45

SCHEDULE III — SUPPLEMENTARY INSURANCE INFORMATION

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(in thousands)

COL. A	COL. B		COL. C		COL. D		COL. E		COL. F		COL. G			COL. H		COL. I		COL. J
Segment	Deferred Policy Acquisition Costs		Future Policy Benefits and Claims		Unearned Premiums		Stable Value and Annuity Deposits Policyholders' Funds		Premiums and Policy Fees		Net Investment Income(1)			Benefits and Settlement Expenses		Amortization of Deferred Policy Acquisition Costs		Other Operating Expenses(1)
Year Ended
December 31, 2000:
Life Insurance
Individual Life	$	354,320	$	1,222,673	$	315	$	14,878	$	73,826	$	60,629		$	70,365	$	33,767	$	(10,495	)
West Coast		276,518		1,499,173		0		86,227		25,987		91,688			79,065		15,003		(12,760	)
Acquisitions		223,430		1,364,830		484		238,465		102,997		116,940			125,151		17,081		24,077
Specialty Insurance Products
Dental Benefits		11,788		95,665		2,602		63,351		215,613		8,913			151,202		6,386		60,158
Financial Institutions		112,135		294,458		929,943		3,945		220,466		46,464			135,494		50,132		74,830
Retirement Savings and Investment Products
Stable Value Products		2,144		162,236		0		3,177,863		0		243,133			207,143		900		3,882
Investment Products		127,334		306,021		0		1,633,203		30,127		132,204			109,607		24,156		18,203
Corporate and Other		81,711		88,341		2,261		2,161		54,503		(3,034	)		46,183		2,149		33,274
TOTAL	$	1,189,380	$	5,033,397	$	935,605	$	5,220,093	$	723,519	$	696,937		$	924,210	$	149,574	$	191,169
Year Ended
December 31, 1999:
Life Insurance
Individual Life	$	379,117	$	1,210,188	$	338	$	17,159	$	92,506	$	59,916		$	74,455	$	23,434	$	20,851
West Coast		200,605		1,279,554		0		74,831		23,208		78,126			73,176		6,047		(2,649	)
Acquisitions		235,903		1,374,445		558		260,267		114,866		129,806			129,581		19,444		31,178
Specialty Insurance Products
Dental Benefits		25,819		126,592		2,994		74,204		165,409		11,141			119,950		5,534		40,359
Financial Institutions		51,339		150,888		503,735		9,044		107,962		24,122			55,899		24,718		44,728
Retirement Savings and Investment Products
Stable Value Products		1,156		167,415		0		2,680,009		0		210,209			175,290		744		4,708
Investment Products		117,577		254,492		0		1,320,453		24,248		106,599			88,642		19,820		14,617
Corporate and Other		8		2,852		34		88		71,024		3,312			54,534		5,172		22,647
TOTAL	$	1,011,524	$	4,566,426	$	507,659	$	4,436,055	$	599,223	$	623,231		$	771,527	$	104,913	$	176,439
Year Ended
December 31, 1998:
Life Insurance
Individual Life	$	301,941	$	1,054,253	$	355	$	10,802	$	126,168	$	55,779		$	106,308	$	30,543	$	14,983
West Coast		144,455		1,006,280		0		77,254		22,380		63,492			54,617		4,924		5,354
Acquisitions		255,347		1,383,759		553		233,846		96,735		112,154			112,051		18,894		26,717
Specialty Insurance Products
Dental Benefits		23,836		111,916		3,341		78,224		133,020		11,166			101,586		4,171		33,830
Financial Institutions		39,212		215,451		385,006		105,434		112,272		25,068			52,629		28,526		48,837
Retirement Savings and Investment Products
Stable Value Contracts		1,448		172,674		0		2,691,697		0		213,136			178,745		735		2,876
Investment Products		75,177		194,726		0		1,233,528		18,809		105,827			85,045		17,213		14,428
Corporate and Other		9		944		39		88		58,741		17,173			39,515		6,182		25,203
TOTAL	$	841,425	$	4,140,003	$	389,294	$	4,430,873	$	568,125	$	603,795		$	730,496	$	111,188	$	172,228

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

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SCHEDULE IV — REINSURANCE

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(Dollars in thousands)

COL. A	COL. B		COL. C		COL. D		COL. E		COL. F
	Gross Amount		Ceded to Other Companies		Assumed from Other Companies		Net Amount		Percentage of Amount Assumed to Net
Year Ended December 31, 2000:
Life insurance in force	$	153,371,754	$	128,374,583	$	17,050,342	$	42,047,513	40.6	%
Premiums and policy fees:
Life insurance	$	691,153	$	496,715	$	112,669	$	307,107	36.7	%
Accident and health insurance		545,240		261,940		24,393		307,693	7.9	%
Property and liability insurance		159,346		63,795		13,168		108,719	12.1	%
TOTAL	$	1,395,739	$	822,450	$	150,230	$	723,519
Year Ended December 31, 1999:
Life insurance in force	$	112,726,959	$	92,566,755	$	17,089,627	$	37,249,831	45.9	%
Premiums and policy fees:
Life insurance	$	540,430	$	364,680	$	131,855	$	307,605	42.9	%
Accident and health insurance		403,491		172,852		27,266		257,905	10.6	%
Property and liability insurance		34,104		501		110		33,713	0.3	%
TOTAL	$	978,025	$	538,033	$	159,231	$	599,223
Year Ended December 31, 1998:
Life insurance in force	$	91,980,657	$	64,846,246	$	18,010,434	$	45,144,845	39.9	%
Premiums and policy fees:
Life insurance	$	537,002	$	294,363	$	87,965	$	330,604	26.6	%
Accident and health insurance		361,705		164,852		14,279		211,132	6.8	%
Property and liability insurance		26,389						26,389	0.0	%
TOTAL	$	925,096	$	459,215	$	102,244	$	568,125

S-2

QuickLinks

SUMMARY
DESCRIPTION OF THE CONTRACT

The Contract
Parties to the Contract
Issuing a Contract
Right to Cancel
Annuity Deposits
Guaranteed Periods and Sub-Accounts
Guaranteed Interest Rates
Interest Withdrawals
Account Values

SURRENDERS

Surrenders
Surrender Value
Surrender Charges
The Market Value Adjustment
Premium Tax

DEATH BENEFIT

Death of an Owner
Determining the Death Benefit
Paying the Death Benefit

ANNUITY BENEFITS

Annuity Commencement Date
Annuity Options
Annuity Payments
Death of the Owner or Annuitant After the Annuity Commencement Date

INVESTMENTS BY PROTECTIVE
OTHER CONTRACT PROVISIONS

Non-Participating
Notice
Reports
Transactions and Modification of the Contract
Assignment of a Contract
Facility of Payment
Protection of Proceeds
Error in Age or Gender

DISTRIBUTION OF THE CONTRACTS
FEDERAL TAX MATTERS

Introduction
Protective's Tax Status
Taxation of Annuities in General
Qualified Retirement Plans
Federal Income Tax Withholding

PROTECTIVE LIFE INSURANCE COMPANY

BUSINESS
LIFE INSURANCE
SPECIALTY INSURANCE PRODUCTS
RETIREMENT SAVINGS AND INVESTMENT PRODUCTS
SELECTED FINANCIAL DATA

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Liquidity and Capital Resources
INVESTMENTS

INSURANCE IN FORCE
UNDERWRITING
INDEMNITY REINSURANCE
POLICY LIABILITIES AND ACCRUALS
FEDERAL INCOME TAX CONSEQUENCES
COMPETITION
REGULATION
RECENT DEVELOPMENTS
EMPLOYEES
PROPERTIES

DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
AGGREGATED FY-END OPTION/SAR VALUES
LONG-TERM INCENTIVE PLAN — AWARDS IN LAST FISCAL YEAR
OTHER PLANS AND ARRANGEMENTS
EMPLOYMENT CONTINUATION AGREEMENTS
RETIREMENT ARRANGEMENT
MANAGEMENT OWNERSHIP OF PLC STOCK
LEGAL PROCEEDINGS
EXPERTS
INDEPENDENT ACCOUNTANTS
LEGAL MATTERS
REGISTRATION STATEMENT
WHERE YOU CAN FIND MORE INFORMATION
APPENDIX A MATTERS RELATING TO CONTRACTS OFFERED IN CERTAIN STATES AFTER SEPTEMBER 10, 1991 AND PRIOR TO MAY 1, 1996
APPENDIX B MATTERS RELATING TO CONTRACTS OFFERED IN CERTAIN STATES PRIOR TO SEPTEMBER 10, 1991
REPORT OF INDEPENDENT ACCOUNTANTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
CONSOLIDATED CONDENSED BALANCE SHEETS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
REPORT OF INDEPENDENT ACCOUNTANTS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF SHARE-OWNER'S EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS