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


                                    FORM 10-Q
                      ------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549


              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 1999

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to


                        Commission File Number 333-42425

                  Protective Life and Annuity Insurance Company
             (Exact name of registrant as specified in its charter)

           Alabama                                   63-0761690
(State or other jurisdiction of           (IRS Employer Identification Number)
 incorporation or organization)

                             2801 Highway 280 South
                            Birmingham, Alabama 35223
              (Address of principal executive offices and zip code)

                                 (205) 879-9230
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ x ] No [ ]

Number of shares of Common Stock, $10.00 par value, outstanding as of 
May 7, 1999:  250,000 shares.

The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore  filing this form with the reduced  disclosure
format pursuant to General Instruction H(2).


<PAGE>





                  Protective Life and Annuity Insurance Company



                                      INDEX



                                                                               
Part I.   Financial Information:
   Item 1.   Financial Statements:
        Report of Independent Accountants......................................
        Condensed Statements of Income for the Three Months
          ended March 31, 1999 and 1998 (unaudited)............................
        Condensed Balance Sheets as of March 31, 1999
          (unaudited) and December 31, 1998....................................
        Condensed Statements of Cash Flows for the
          Three Months ended March 31, 1999 and 1998 (unaudited)...............
        Notes to Condensed Financial Statements (unaudited)....................

   Item 2.   Management's Narrative Analysis of the Results of Operations......

Part II.     Other Information:
   Item 6. Exhibits and Reports on Form 8-K....................................

Signature......................................................................



<PAGE>





                        REPORT OF INDEPENDENT ACCOUNTANTS



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


We have reviewed the accompanying condensed balance sheet of Protective Life and
Annuity  Insurance  Company  as of March 31,  1999,  and the  related  condensed
statements of income and cash flows for the three-month  periods ended March 31,
1999  and  1998.  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  generally  accepted  auditing  standards,  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 condensed  financial  statements referred to above for them to be
in conformity with generally accepted accounting principles.

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards, the balance sheet as of December 31, 1998, and the related statements
of  income,  share-owners'  equity,  and cash flows for the year then ended (not
presented  herein);  and in our report dated  February 11, 1999, we expressed an
unqualified  opinion  on  those  financial  statements.   In  our  opinion,  the
information set forth in the accompanying condensed balance sheet as of December
31, 1998, is fairly  stated in all material  respects in relation to the balance
sheet from which it has been derived.




                                                     PricewaterhouseCoopers LLP

Birmingham, Alabama
April 23, 1999

                                        2

<PAGE>



                  PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
                         CONDENSED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                                                           THREE MONTHS ENDED
                                                                                                                MARCH 31
                                                                                                           -------------------
                                                                                                            1999         1998
                                                                                                            ----         ----
<S>                                                                                                   <C>            <C>
REVENUES
     Premiums and policy fees                                                                          $16,615,108    $1,963,086
     Reinsurance ceded                                                                                  (5,513,237)     (435,114)
                                                                                                        ----------     --------- 
        Premiums and policy fees, net of reinsurance ceded                                              11,101,871     1,527,972
     
     Net investment income                                                                               6,935,627     1,580,295
     Realized investment gains                                                                              11,044
     Other income                                                                                           (8,736)
                                                                                                        ----------     ---------
                                                                                                        18,039,806     3,108,267
                                                                                                        ----------     ---------

BENEFITS AND EXPENSES
     Benefits and settlement expenses (net of reinsurance ceded:
        1999 - $4,420,651; 1998 - $146,901)                                                             10,466,587     1,156,305
     Amortization of deferred policy acquisition costs                                                   2,225,730       126,598
     Other operating expenses (net of reinsurance ceded:
        1999 - $70,765; 1998 - $(82,984))                                                                2,313,441       397,526
                                                                                                        ----------     ---------
                                                                                                        15,005,758     1,680,429

INCOME BEFORE INCOME TAX                                                                                 3,034,048     1,427,838

Income tax expense                                                                                         849,533       399,794
                                                                                                       -----------    ----------
NET INCOME                                                                                             $ 2,184,515    $1,028,044
                                                                                                       ===========    ==========

</TABLE>




See notes to condensed financial statements

                                        3

<PAGE>
<TABLE>
<CAPTION>



                  PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
                            CONDENSED BALANCE SHEETS


                                                                                   MARCH 31            DECEMBER 31
                                                                                     1999                 1998
                                                                                   --------            -----------
                                                                                 (UNAUDITED)
<S>                                                                              <C>                <C>
ASSETS
  Investments
    Fixed maturities                                                              $373,626,924        $360,113,277
    Mortgage loans on real estate                                                    5,908,784           7,900,221
    Policy loans                                                                    53,672,596          54,103,044
    Short-term investments                                                           4,811,445          18,267,431
                                                                                  ------------        ------------
     Total investments                                                             438,019,749         440,383,973

  Cash                                                                                 996,165
  Accrued investment income                                                          7,426,710           7,597,305
  Accounts and premiums receivable, net                                              4,122,314             673,967
  Reinsurance receivables                                                           22,684,396          22,405,337
  Deferred policy acquisition costs                                                131,190,127         133,275,451
  Other assets                                                                          41,823              55,968
  Assets related to separate accounts
    Variable annuity                                                                 1,494,370             237,565
                                                                                  ------------        ------------
                                                                                  $605,975,654        $604,629,566
                                                                                  ============        ============
LIABILITIES
  Policy liabilities and accruals:
    Future policy benefits and claims                                             $441,781,972        $439,842,102
    Unearned premiums                                                                2,798,974           2,487,277
                                                                                  ------------        ------------
                                                                                   444,580,946         442,329,379

  Annuity deposits                                                                   4,660,998           3,434,342
  Other policyholders' funds                                                        11,839,638          12,143,006
  Other liabilities                                                                  8,509,055           7,941,276
  Deferred income taxes                                                              5,814,324           7,305,381
  Liabilities related to separate accounts
    Variable annuity                                                                 1,494,370             237,565
                                                                                  ------------        ------------
     Total liabilities                                                             476,899,331         473,390,949
                                                                                  ------------        ------------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B

SHARE-OWNERS' EQUITY
  Preferred Stock, $1.00 par value, shares authorized, issued, and
    outstanding: 2,000                                                                   2,000               2,000
  Common Stock, $10 par value
    Shares authorized: 500,000
    Shares issued and outstanding: 250,000                                           2,500,000           2,500,000
  Additional paid-in capital                                                       101,574,516         101,574,516
  Retained earnings                                                                 20,538,007          18,353,492
  Accumulated other comprehensive income
    Net unrealized  gains on investments (net of income
     tax: 1999 - $2,402,508; 1998 - $4,743,097)                                      4,461,800           8,808,609
                                                                                  ------------        ------------
     Total share-owners' equity                                                    129,076,323         131,238,617
                                                                                  ------------        ------------
                                                                                  $605,975,654        $604,629,566
                                                                                  ============        ============
</TABLE>
See notes to condensed financial statements

                                        4

<PAGE>



                  PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                             THREE MONTHS ENDED
                                                                                                  MARCH 31
                                                                                     ------------------------------
                                                                                           1999           1998
                                                                                           ----           ----
<S>                                                                                  <C>              <C>

CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                       $   2,184,515    $  1,028,044
    Adjustments to reconcile net income to net cash used in operating activities:
       Realized investment gains                                                           (11,044)
       Amortization of deferred policy acquisition costs                                 2,225,730         126,598
       Capitalization of deferred policy acquisition costs                                (140,406)       (152,577)
       Deferred income tax                                                                 849,533        (209,275)
       Interest credited to universal life and investment products                       2,928,606         252,161
       Policy fees assessed on universal life and investment products                     (250,505)       (257,535)
       Change in accrued investment income and other receivables                        (3,556,811)         61,964
       Change in policy liabilities and other policyholder
          funds of traditional life and health products                                   (800,200)     (1,109,247)
       Change in other liabilities                                                         567,779        (455,686)
       Other (net)                                                                          14,012          19,925
                                                                                     -------------    -------------
    Net cash provided by (used in) operating activities                                  4,011,209        (695,628)     
                                                                                     -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Maturities and principal reductions of investments
       Investments available for sale                                                   96,448,241      48,399,721
       Other                                                                             1,994,242         246,103
    Sale of investments
       Investments available for sale                                                   14,009,410
    Cost of investments acquired
       Investments available for sale                                                 (116,763,891)    (49,063,670)
                                                                                     -------------     ------------
    Net cash (used in) investing activities                                             (4,311,998)       (417,846)
                                                                                     -------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Investment product deposits and change in universal life deposits                    1,296,954        (182,408)
                                                                                     -------------     ------------
    Net cash provided by (used in) financing activities                                  1,296,954        (182,408)
                                                                                     -------------     ------------

INCREASE (DECREASE) IN CASH                                                                996,165      (1,295,882)
CASH AT BEGINNING OF PERIOD                                                                      0       2,218,201
                                                                                     -------------     ------------
CASH AT END OF PERIOD                                                               $      996,165    $    922,319
                                                                                     =============     ============
</TABLE>

See notes to condensed financial statements

                                        5

<PAGE>



                  PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE A - BASIS OF PRESENTATION

         The accompanying unaudited condensed financial statements of Protective
Life and  Annuity  Insurance  Company  ("the  Company")  have been  prepared  in
accordance with generally accepted  accounting  principles 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
generally accepted accounting principles for complete financial  statements.  In
the opinion of  management,  all  adjustments  (consisting  of normal  recurring
accruals)  necessary  for a fair  presentation  have  been  included.  Operating
results for the three month  period ended March 31,  1999,  are not  necessarily
indicative of the results that may be expected for the year ending  December 31,
1999.  The  year-end  condensed  balance  sheet data was  derived  from  audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. For further information,  refer to the financial
statements  and notes thereto  included in the  Company's  annual report on Form
10-K for the year ended December 31, 1998.

         All  outstanding  shares  of the  Company's  common  stock are owned by
Protective  Life  Insurance  Company  ("Protective"),  which  is  the  principal
operating  subsidiary  of  Protective  Life  Corporation  ("PLC"),  an insurance
holding company  domiciled in the state of Delaware.  All outstanding  shares of
the Company's  preferred  stock are owned by PLC.  Protective is a  wholly-owned
subsidiary of 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.  The Company  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 in
the  jurisdictions  in which the Company does  business  involving the insurers'
sales practices, alleged agent misconduct, failure to properly supervise agents,
and other  matters.  Increasingly  these  lawsuits have resulted in the award of
substantial  judgments  against the  insurer  that are  disproportionate  to the
actual damages,  including material amounts of punitive damages. In addition, in
some class  action  and other  lawsuits  involving  insurers'  sales  practices,
insurers  have made  material  settlement  payments.  In some states  (including
Alabama),  juries have substantial discretion in awarding punitive damages which
creates the potential for unpredictable  material adverse judgments in any given
punitive damages suit. The Company and its affiliates,  like other insurers,  in
the  ordinary   course  of  business,   are  involved  in  such   litigation  or
alternatively  in  arbitration.  Although the outcome of any such  litigation or
arbitration cannot be predicted with certainty, the Company believes that at the
present time there are no pending or threatened lawsuits that are

                                        6

<PAGE>



reasonably  likely to have a material adverse effect on the financial  position,
results of operations, or liquidity of the Company.


NOTE C - OPERATING SEGMENTS

         The following table sets forth operating  segment income and assets for
the periods shown.  Adjustments represent the recognition of income tax expense.
There are no asset adjustments.
<TABLE>
<CAPTION>


                                                                      OPERATING SEGMENT INCOME FOR THE
                                                                      THREE MONTHS ENDED MARCH 31, 1999
                                                  --------------------------------------------------------------------
                                                                              DENTAL AND
                                                                               CONSUMER                FINANCIAL
                                                    ACQUISITIONS               BENEFITS               INSTITUTIONS
                                                    ------------              ----------              ------------
<S>                                                <C>                         <C>                     <C>
Premiums and policy fees                            $ 15,658,767                $605,037                $349,482
Reinsurance ceded                                     (5,336,719)               (176,518)
                                                    -------------               ---------                -------
  Net of reinsurance ceded                            10,322,048                 428,519                 349,482
Net investment income                                  6,657,571                 120,269                  59,342
Realized investment gains (losses)
Other income                                              (8,718)
                                                    -------------               ---------                -------
     Total revenues                                   16,970,901                 548,788                 408,824
                                                    -------------               ---------                -------
Benefits and settlement expenses                       9,850,644                 436,081                 153,913
Amortization of deferred policy
 acquisition costs                                     2,138,361                                          87,369
Other operating expenses                               2,182,085                   8,554                 (57,899)
                                                    ------------                ---------                -------
     Total benefits and expenses                      14,171,090                 444,635                 183,383
                                                    ------------                ---------                -------  
Income before income tax                               2,799,811                 104,153                 225,441


                                                                     CORPORATE
                                                    INVESTMENT          AND
                                                     PRODUCTS          OTHER           ADJUSTMENTS        TOTAL
                                                    ----------       ---------         -----------     ------------

Premiums and policy fees                           $   1,822                                           $16,615,108
Reinsurance ceded                                                                                       (5,513,237)
                                                    ----------                                         ------------
  Net of reinsurance ceded                             1,822                                            11,101,871
Net investment income                                                 $ 98,445                           6,935,627
Realized investment gains (losses)                                      11,044                              11,044
Other income                                             (18)                                               (8,736)
                                                    ----------        ---------                        ------------
     Total revenues                                    1,804           109,489                          18,039,806
                                                    ----------        ---------                        ------------
Benefits and settlement expenses                      25,949                                            10,466,587
Amortization of deferred policy
 acquisition costs                                                                                       2,225,730
Other operating expenses                             155,571            25,130                           2,313,441
                                                    ----------        ---------                         -----------
     Total benefits and expenses                     181,520            25,130                          15,005,758
                                                    ----------        ---------                         -----------
Income (loss) before income tax                     (179,716)           84,359                           3,034,048
Income tax expense                                                                     $849,533            849,533
                                                                                                        -----------
     Net income                                                                                        $ 2,184,515
                                                                                                        ===========
</TABLE>


                                        7

<PAGE>
<TABLE>
<CAPTION>



                                                                      OPERATING SEGMENT INCOME FOR THE
                                                                      THREE MONTHS ENDED MARCH 31, 1998
                                                  ------------------------------------------------------------------
                                                                              DENTAL AND
                                                                               CONSUMER                FINANCIAL
                                                    ACQUISITIONS               BENEFITS               INSTITUTIONS
                                                    ------------              -----------             ------------

<S>                                                  <C>                        <C>                    <C>
Premiums and policy fees                             $1,388,183                 $475,952                $98,951
Reinsurance ceded                                      (435,114)
                                                    ------------              -----------             ------------
  Net of reinsurance ceded                              953,069                  475,952                 98,951
                                                    ------------              -----------             ------------
Net investment income                                 1,156,083                  194,703
     Total revenues                                   2,109,152                  670,655                 98,951
Benefits and settlement expenses                      1,120,588                      288                 35,429
Amortization of deferred policy
 acquisition costs                                      110,597                                          16,001
Other operating expenses                                 68,225                  343,317                 11,845
                                                    ------------              -----------             ------------
     Total benefits and expenses                      1,299,410                  343,605                 63,275
                                                    ------------              -----------             ------------
Income before tax                                       809,742                  327,050                 35,676


                                                                     CORPORATE
                                                    INVESTMENT          AND
                                                     PRODUCTS          OTHER           ADJUSTMENTS         TOTAL
                                                    ----------       ---------         -----------      -----------

Premiums and policy fees                                                                                $1,963,086
Reinsurance ceded                                                                                         (435,114)
                                                                                                         ---------
  Net of reinsurance ceded                                                                               1,527,972

Net investment income                                                 $229,509                           1,580,295
                                                                      --------                          -----------
     Total revenues                                                    229,509                           3,108,267
                                                                      --------                          -----------
Benefits and settlement expenses                                                                         1,156,305
Amortization of deferred policy
 acquisition costs                                                                                         126,598
Other operating expenses                            $(25,861)                                              397,526
                                                  -----------                                           -----------
     Total benefits and expenses                     (25,861)                                            1,680,429
                                                  -----------         --------                          -----------
Income before tax                                     25,861           229,509                           1,427,838

Income tax expense                                                                     $399,794            399,794
                                                                                                        -----------      
     Net income                                                                                         $1,028,044
                                                                                                        ===========
</TABLE>

                                        8

<PAGE>

<TABLE>
<CAPTION>


                                                                       OPERATING SEGMENT ASSETS
                                                                             MARCH 31, 1999
                                                ---------------------------------------------------------------------
                                                                              DENTAL AND
                                                                               CONSUMER                 FINANCIAL
                                                   ACQUISITIONS                BENEFITS                INSTITUTIONS
                                                   ------------               ----------               ------------
<S>                                               <C>                         <C>                      <C>
Investments and other assets                       $433,753,378               $6,509,592                $2,913,165
Deferred policy acquisition costs                   130,444,165                                            745,962
                                                   ------------               ----------                -----------
     Total assets                                  $564,197,543               $6,509,592                $3,659,127
                                                   ============               ==========                ===========


                                                                               Corporate
                                                     Investment                   and
                                                      Products                   Other                   Total
                                                     ----------              ------------             ------------
                                                    
Investments and other assets                         $2,073,981               $29,535,411             $474,785,527
Deferred policy acquisition costs                                                                      131,190,127
                                                     ----------              ------------             ------------
     Total assets                                    $2,073,981               $29,535,411             $605,975,654



                                                                        OPERATING SEGMENT ASSETS
                                                                          DECEMBER 31, 1998
                                                  ------------------------------------------------------------------
                                                                              DENTAL AND
                                                                               CONSUMER                 FINANCIAL
                                                   ACQUISITIONS                BENEFITS                INSTITUTIONS
                                                  -------------              ------------              ------------

Investments and other assets                       $434,928,613               $6,642,241                $2,658,668
Deferred policy acquisition costs                   132,582,526                                            692,925
                                                   ------------              ------------              ------------
     Total assets                                  $567,511,139               $6,642,241                $3,351,593
                                                   ============              ============              ============

                                                                              Corporate
                                                     Investment                  and
                                                      Products                  Other                    Total
                                                     ----------              -----------             -------------
Investments and other assets                          $774,504               $26,350,089              $471,354,115
Deferred policy acquisition costs                                                                      133,275,451
                                                     ----------              -----------             -------------
     Total assets                                     $774,504               $26,350,089              $604,629,566
                                                     ==========              ===========             =============

</TABLE>


                                        9

<PAGE>



NOTE D - STATUTORY REPORTING PRACTICES

         Financial  statements  prepared in conformity  with generally  accepted
accounting  principles  (i.e.,  GAAP) differ in some respects from the statutory
accounting   practices   prescribed   or  permitted   by  insurance   regulatory
authorities. At March 31, 1999, and for the three months then ended, the Company
had  share-owners'  equity and net income  prepared in conformity with statutory
reporting practices of $29.5 million and $3.8 million, respectively.


NOTE E - INVESTMENTS

         As prescribed by Statement of Financial  Accounting  Standards ("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-owners' 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 the Company's operations, its reported share-owners' equity will
fluctuate significantly as interest rates change.

         The Company's  balance  sheets at March 31, 1999 and December 31, 1998,
prepared on the basis of reporting  investments at amortized cost rather than at
market values, are as follows:
<TABLE>
<CAPTION>


                                                              MARCH 31, 1999             DECEMBER 31, 1998
                                                              --------------             -----------------   
                                           
<S>                                                           <C>                            <C>
Total investments                                              $431,155,441                  $426,832,267
Deferred policy acquisition costs                               131,190,127                   133,275,451
All other assets                                                 36,765,778                    30,970,142
                                                               ------------                  ------------
                                                               $599,111,346                  $591,077,860
                                                               ============                  ============

Deferred income taxes                                          $  3,411,816                  $  2,562,284
All other liabilities                                           471,085,007                   466,085,568
                                                               ------------                  ------------
                                                                474,496,823                   468,647,852
Share-owners' equity                                            124,614,523                   122,430,008
                                                               ------------                  ------------
                                                               $599,111,346                  $591,077,860
                                                               ============                  ============
</TABLE>




                                       10

<PAGE>



NOTE F - COMPREHENSIVE INCOME (LOSS)

         The  following  table sets  forth the  Company's  comprehensive  income
(loss) for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>


                                                                                         THREE MONTHS ENDED
                                                                                -----------------------------------
                                                                                    1999                   1998
                                                                                    ----                   ----
<S>                                                                             <C>                     <C>
          Net income                                                             $ 2,184,515            $1,028,044
          Increase (decrease) in net unrealized gains
              on investments (net of income tax:
              1999 - $(2,336,724); 1998 - $17,349)                                (4,339,630)               32,219
          Reclassification adjustment for amounts
              included in net income (net of income
              tax: 1999 - $(3,865))                                                   (7,179)
                                                                                 ------------           ----------
          Comprehensive income (loss)                                            $(2,162,294)           $1,060,263
                                                                                 ============           ==========
</TABLE>


NOTE G - 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-owners' equity.


                                                    11

<PAGE>



                 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE
                              RESULTS OF OPERATIONS


         Protective Life and Annuity Insurance Company ("the Company"),  a stock
life  insurance  company,  was  founded  in 1978  as  American  Foundation  Life
Insurance  Company.  Effective March 1, 1999, the Company was renamed Protective
Life and Annuity Insurance  Company.  Since 1983, all outstanding  shares of the
Company's  common stock have been owned by  Protective  Life  Insurance  Company
("Protective"),   which  is  a  wholly-owned   subsidiary  of  Protective   Life
Corporation  ("PLC"),  an insurance holding company whose common stock is traded
on the New York Stock Exchange under the symbol "PL". All outstanding  shares of
the  Company's  preferred  stock are owned by PLC. The Company is  authorized to
transact insurance business as an insurance company or a reinsurance  company in
48 states, including New York.

         In accordance with General  Instruction  H(2)(a),  the Company includes
the following analysis with the reduced disclosure format.

         PLC through its subsidiaries  provides  financial  services through the
production,   distribution,  and  administration  of  insurance  and  investment
products.  PLC through its subsidiaries 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 life  insurance  category  includes the  Individual  Life,  West Coast,  and
Acquisitions  Divisions.  The specialty insurance products category includes the
Dental and Consumer Benefits  ("Dental") and Financial  Institutions  Divisions.
The retirement savings and investment  products category includes the Guaranteed
Investment Contracts and Investment Products Divisions.

         The  Company,  since it is  licensed  in the State of New York,  is the
entity  through  which PLC  markets,  distributes,  and services  insurance  and
annuity  products in New York. As of March 31, 1999, the Company was involved in
the businesses of four of PLC's seven divisions:  the Acquisition Division,  the
Dental Division, the Financial Institutions Division and the Investment Products
Division.  The Company has an  additional  business  segment  which is described
herein as Corporate and Other.

         Protective  has  entered  into  an  intercompany   guaranty  agreement,
enforceable by the Company or its successors,  whereby Protective has guaranteed
the  Company's  payment  of  claims  made by the  holders  of  Company  policies
according  to the terms of such  policies.  The  guarantee  will remain in force
until the earlier of (a) when the Company achieves a claims-paying  rating equal
to or better than Protective  without the benefit of any  intercompany  guaranty
agreement  or (b) 90 days  after the  guaranty  agreement  is revoked by written
instrument;  provided, however, even after any revocation or termination by such
notice,  the guarantee  shall remain  effective as to policies issued during the
existence of the guaranty agreement.

          This report includes "forward-looking statements" which express the
expectations of future events and/or  results.  The words  "believe",  "expect",
"anticipate" and similar expressions identify  forward-looking  statements which
are  based on  future  expectations  rather  than on  historical  facts  and are
therefore subject to a number of risks and uncertainties, and the Company cannot
give assurance that such  statements  will prove to be correct.  Please refer to
Exhibit 99 for more information about factors which could affect future results.

                                       12

<PAGE>



Revenues

         The following table sets forth revenues by source for the period shown,
and the percentage change from the prior period:
<TABLE>
<CAPTION>

                                                                THREE MONTHS
                                                                   ENDED                       PERCENTAGE
                                                                  MARCH 31                      INCREASE
                                                      ----------------------------------       ----------    
                                                           1999               1998
                                                           ----               ----
<S>                                                    <C>                 <C>                 <C>

         Premiums and policy fees                      $11,101,871          $1,527,972            626.6  %
         Net investment income                           6,935,627           1,580,295            338.9
         Realized investment gains                          11,044                                - -
         Other                                              (8,736)                               - -
                                                       ------------        -----------
                                                       $18,039,806          $3,108,267
                                                       ============        ===========
</TABLE>

         Premiums  and policy fees,  net of  reinsurance  ("premiums  and policy
fees")  increased  $9.6 million or 626.6% in the first three months of 1999 over
the first three months of 1998.  Premiums and policy fees from the  Acquisitions
Division  increased $9.4 million  primarily due to the coinsurance of a block of
policies from Lincoln National  Corporation in October 1998. Premiums and policy
fees related to the Dental Division decreased slightly in the first three months
of 1999 as  compared  to the same  period in 1998.  The  Financial  Institutions
Division's  premiums and policy fees  increased  $0.3 million in the first three
months of 1999 over the first three  months of 1998 due to  increased  marketing
efforts and sales  momentum.  The Investment  Products  Division began marketing
certain annuity products in the state of New York through the Company during the
latter part of 1998, which resulted in a small amount of new premiums and policy
fees in the first three months of 1999.

         Net investment  income in the first three months of 1999 increased $5.4
million or 338.9% as compared to the corresponding  period of the preceding year
primarily due to increases in the average amount of invested  assets  associated
with the coinsurance transaction described above.

         The Company generally purchases its investments with the intent to hold
to  maturity  by  purchasing  investments  that match  future  cash-flow  needs.
However,  the Company may sell any of its  investments  to maintain  approximate
matching of assets and liabilities.  Accordingly, the Company 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 Company  reported an  insignificant  amount of realized  investment
gains and other income (loss) in the first three months of 1999.



                                       13

<PAGE>



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
                           THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>


                                                                               1999                    1998
                                                                               ----                    ----
<S>                                                                        <C>                      <C>
Operating Income (Loss)(1)
      Acquisitions                                                          $2,799,811               $ 809,742
      Dental and Consumer Benefits                                             104,153                 327,050
      Financial Institutions                                                   225,441                  35,676
      Investment Products                                                     (179,716)                 25,861
      Corporate and Other                                                       73,315                 229,509
                                                                             ---------               ---------
              Total operating income                                         3,023,004               1,427,838
                                                                             ---------               ---------
Realized Investment Gains (Losses)
      Corporate and Other                                                       11,044
                                                                             ---------
              Total net                                                         11,044
                                                                             ---------
Income (Loss) Before Income Tax
      Acquisitions                                                           2,799,811                 809,742
      Dental and Consumer Benefits                                             104,153                 327,050
      Financial Institutions                                                   225,441                  35,676
      Investment Products                                                     (179,716)                 25,861
      Corporate and Other                                                       84,359                 229,509
                                                                             ---------               ---------
              Total income before tax                                       $3,034,048              $1,427,838
                                                                             =========               =========

</TABLE>

(1) Income (loss) before tax excluding realized investment gains and losses.



         Pretax earnings from the Acquisitions  Division  increased $2.0 million
in the  first  three  months  of 1999 as  compared  to the same  period of 1998.
Earnings from the  Acquisitions  Division are 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.  In October  1998,  the  Division
coinsured  a  block  of  policies  from  Lincoln  National   Corporation.   This
acquisition  represented  most  of the  increase  in  pretax  earnings  for  the
Division.
   
         Dental  Division  pretax  earnings were $0.2 million lower in the first
three months of 1999 as compared to the first three months of 1998.

         The Financial  Institutions Division began operations in the Company in
late 1997. The Division had pretax  earnings of $0.2 million for the first three
months of 1999 as compared to an  insignificant  level of earnings for the first
three months of 1998.

         The  Investment  Products  Division  began  marketing  certain  annuity
products in the state of New York in the latter part of 1998. The Division had a
pretax loss of $0.2 million in the first three months of 1999 primarily  related
to start-up expenses.


                                       14

<PAGE>



         The Corporate and Other segment  consists of net investment  income and
realized investment gains not identified with the preceding operating divisions.
Pretax  income from this  segment was $0.1  million in the first three months of
1999 and $0.2 million in the first three months of 1998.

Income Taxes

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

       THREE MONTHS
          ENDED                                    ESTIMATED EFFECTIVE
         MARCH 31                                    INCOME TAX RATES
       ------------                                -------------------

           1998                                            28.0  %
           1999                                            28.0

         The  effective  income  tax rate for the full  year of 1998 was  28%.
Management's estimate of the effective income tax rate for 1999 is 28%.

Net Income

         The following  table sets forth net income for the periods  shown,  and
the percentage change from the prior period:

      THREE MONTHS                NET INCOME
         ENDED                                                 PERCENTAGE
        MARCH 31                    TOTAL                       INCREASE
      ------------                ----------                   ----------

          1998                    $1,028,044                      39.5   %
          1999                     2,184,515                     112.5


         Compared  to the same  period in 1998,  net  income in the first  three
months of 1999  increased  $1.2  million,  reflecting  increases  related to the
Acquisitions and Financial Institutions Divisions, and realized investment gains
which were  partially  offset by decreases  related to the Dental and Investment
Products Divisions, and the Corporate and Other segment.

Year 2000 Disclosure

         Computer  hardware and software  often denote the year using two digits
rather than four;  for example,  the year 1999 often is denoted by such hardware
and  software as "99." It is  probable  that such  hardware  and  software  will
malfunction when calculations  involving the year 2000 are attempted because the
hardware  and/or  software will  interpret  "00" as  representing  the year 1900
rather  than the year 2000.  This "Year  2000"  issue  potentially  affects  all
individuals  and  companies  (including  the Company,  its  customers,  business
partners, suppliers, banks, custodians and administrators).  The problem is most
prevalent in older  mainframe  systems,  but personal  computers  and  equipment
containing computer chips could also be affected.


                                       15

<PAGE>



         The Company shares  computer  hardware and software with PLC. PLC began
work on the Year 2000 problem in 1995. At that time, PLC identified and assessed
PLC's critical mainframe systems,  and prioritized the remediation  efforts that
were  to  follow.  During  1998  all  other  hardware  and  software,  including
non-information technology (non-IT) related hardware and software, were included
in the process. PLC's Year 2000 plan includes all subsidiaries.

         PLC estimates  that Year 2000  remediation  is complete for most of its
insurance  administration  and general  administration  systems.  Of the general
administration systems that are not yet remediated, the majority are new systems
that were  implemented  during  1998 and are  scheduled  to be  upgraded  to the
current  release of the system during the second quarter of 1999. All remediated
systems are currently in  production.  Personal  computer  network  hardware and
software have been reviewed, with upgrades implemented where necessary. A review
of personal computer desktop software is in progress, but not complete. All Year
2000  personal  computer  preparations  are expected to be completed by June 30,
1999.  With  respect to non-IT  equipment  and  processes,  the  assessment  and
remediation  is  progressing on schedule and all known issues are expected to be
remediated before December 31, 1999.

         One  insurance  administration  system,  a personal  computer  database
system that processes member information for one subsidiary, has been identified
as mission critical is not yet fully remediated.  This effort is on schedule and
targeted to be complete by June 30, 1999.

         Future  date  tests are used to verify a  system's  ability  to process
transactions  dated up to and  beyond  January 1,  2000.  Future  date tests are
complete or in-progress for the majority of PLC's  mission-critical  systems.  A
large  portion of the  testing is  conducted  by a  contract  programming  staff
dedicated full time to Year 2000 preparations. These resources have been part of
PLC's Year 2000 project since 1995.

         Integrated tests involve multiple system testing and are used to verify
the Year 2000 readiness of interfaces and connectivity  across multiple systems.
PLC  is  using  its  mainframe  computer  to  simulate  a Year  2000  production
environment and to facilitate integrated testing.
Integrated testing will continue throughout 1999.

         Business  partners  and  suppliers  that  provide  products or services
critical to PLC's  operations  are being  reviewed  and in some cases their Year
2000  preparations  are being monitored by the Company.  To date, no partners or
suppliers  have  reported  that they expect to be unable to  continue  supplying
products and services after January 1, 2000.  Monitoring and testing of critical
partners  and  suppliers  will  continue  throughout  1999.  Formal  contingency
planning began in March 1999 and will continue  throughout the year. These plans
will augment PLC's existing disaster recovery plans.

         PLC  cannot  specifically  identify  all of the  costs to  develop  and
implement its Year 2000 plan.  The cost of new systems to replace  non-compliant
systems have been  capitalized in the ordinary  course of business.  Other costs
have been expensed as incurred.  Through February 28, 1999, costs that have been
specifically identified as relating to the Year 2000 problem total $4.1 million,
with an additional  $1.1 million  estimated to be required to support  continued
testing activity. PLC's Year 2000 efforts have not adversely affected its normal
procurement and development of information technology.


                                                    16

<PAGE>



         Although  PLC  believes  that a  process  is in place  to  successfully
address Year 2000 issues,  there can be no assurances that PLC's efforts will be
successful, that interactions with other service providers with Year 2000 issues
will not impair the Company's  operations,  or that the Year 2000 issue will not
otherwise adversely affect the Company.

         Should  some  of  PLC's  systems  not be  available  due to  Year  2000
problems, in a reasonably likely worst case scenario, the Company may experience
significant  delays in its ability to perform  certain  functions,  but does not
expect  to be unable to  perform  critical  functions  or to  otherwise  conduct
business.


                                                    17

<PAGE>



                                     PART II


Item 6.                  Exhibits and Reports on Form 8-K

         (a)   Exhibit 27 - Financial data schedule
               Exhibit 99 - Safe Harbor for Forward-Looking Statements




                                    SIGNATURE


          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
the  registrant  has  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                Protective Life and Annuity Insurance Company




Date: May 14, 1999              /s/ Jerry W. DeFoor
                                Jerry W. DeFoor
                                Vice President and Controller,
                                and Chief Accounting Officer
                                (Duly authorized officer)


                                       18

<PAGE>