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


                                    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 June 30, 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
August 6, 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 and Six Months
          ended June 30, 1999 and 1998 (unaudited)............................
        Condensed Balance Sheets as of June 30, 1999
          (unaudited) and December 31, 1998...................................
        Condensed Statements of Cash Flows for the
          Six Months ended June 30, 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 June  30,  1999,  and the  related  condensed
statements of income for the  three-month  and six-month  periods ended June 30,
1999 and 1998,  and  consolidated  condensed  statements  of cash  flows for the
six-month  periods ended June 30, 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 interim financial statements referred to above for them
to be in conformity with generally accepted accounting principles.

We 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.




                                                /s/ PricewaterhouseCoopers LLP
                                                PricewaterhouseCoopers LLP


Birmingham, Alabama
July 27, 1999

                                        2

<PAGE>



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


                                                                            THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                                JUNE 30                            JUNE 30
                                                                        --------------------------------------------------------
                                                                          1999           1998              1999          1998
                                                                          ----           ----              ----          ----
<S>                                                                   <C>            <C>              <C>             <C>
REVENUES
     Premiums and policy fees                                         $15,567,150   $ 1,924,760        $32,182,258    $3,887,846
        Reinsurance ceded                                              (5,488,619)     (350,465)       (11,001,856)     (785,579)
                                                                     ------------   -----------        -----------   -----------
        Premiums and policy fees, net of reinsurance ceded             10,078,531     1,574,295         21,180,402     3,102,267
     Net investment income                                              5,954,040     1,265,388         12,889,667     2,845,683
     Realized investment gains (losses)                                        37      (500,000)            11,081      (500,000)
     Other income (loss)                                                    2,344                           (6,392)
                                                                     ------------   -----------        -----------   -----------
                                                                       16,034,952     2,339,683         34,074,758     5,447,950
                                                                     ------------   -----------        -----------   -----------

BENEFITS AND EXPENSES
     Benefits and settlement expenses (net of reinsurance ceded:
        three months: 1999 - $5,278,386; 1998 - $1,464,688
        six months: 1999 - $9,699,037; 1998 - $1,611,589)               6,059,584     2,125,140         16,526,171     3,281,445
     Amortization of deferred policy acquisition costs                  3,043,818        77,998          5,269,548       204,596
     Other operating expenses (net of reinsurance ceded:
        three months: 1999 - $68,922; 1998 - $74,910
        six months: 1999 - $139,687; 1998 - $(8,074))                   3,544,292       517,489          5,857,733      915,015
                                                                      -----------   -----------        -----------    ----------
                                                                       12,647,694     2,720,627         27,653,452     4,401,056
                                                                      -----------   -----------        -----------    ----------

INCOME (LOSS) BEFORE INCOME TAX                                         3,387,258      (380,944)         6,421,306     1,046,894

Income tax expense (benefit)                                              948,433      (106,664)         1,797,966       293,130
                                                                     ------------    ----------        -----------   -----------


NET INCOME (LOSS)                                                     $ 2,438,825    $ (274,280)        $4,623,340   $   753,764
                                                                      ===========    ==========         ==========   ===========

</TABLE>
See notes to condensed financial statements

                                        3

<PAGE>



                  PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                    JUNE 30          DECEMBER 31
                                                                                     1999                1998
                                                                                ---------------      -------------
                                                                                             (Unaudited)

<S>                                                                             <C>                 <C>
ASSETS
  Investments
    Fixed maturities                                                              $370,420,788        $360,113,277
    Mortgage loans on real estate                                                    5,798,217           7,900,221
    Policy loans                                                                    53,844,889          54,103,044
    Short-term investments                                                           5,306,243          18,267,431
                                                                                 -------------       -------------
     Total investments                                                             435,370,137         440,383,973
  Cash                                                                               4,623,274
  Accrued investment income                                                          7,623,722           7,597,305
  Accounts and premiums receivable, net                                                555,336             673,967
  Reinsurance receivables                                                           22,425,140          22,405,337
  Deferred policy acquisition costs                                                128,324,394         133,275,451
  Other assets                                                                          42,098              55,968
  Assets related to separate accounts
    Variable annuity                                                                 2,302,447             237,565
                                                                                --------------     ---------------
                                                                                  $601,266,548        $604,629,566
                                                                                ==============     ===============

LIABILITIES
  Policy liabilities and accruals                                                 $436,823,295        $442,329,379
  Annuity deposits                                                                   6,253,256           3,434,342
  Other policyholders' funds                                                        11,344,669          12,143,006
  Other liabilities                                                                 20,238,699           7,941,276
  Deferred income taxes                                                              1,937,822           7,305,381
  Liabilities related to separate accounts
    Variable annuity                                                                 2,302,447             237,565
                                                                                --------------      --------------
                                                                                   478,900,188         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                                                       101,386,324         101,574,516
  Retained earnings                                                                 22,976,832          18,353,492
  Accumulated other comprehensive income
    Net unrealized  gains (losses) on investments (net of income
     tax: 1999 - $(2,422,428); 1998 - $4,743,097                                    (4,498,796)          8,808,609
                                                                                ---------------     --------------
                                                                                   122,366,360         131,238,617
                                                                                ---------------     --------------
                                                                                  $601,266,548        $604,629,566
                                                                                ==============      ==============

</TABLE>
See notes to condensed financial statements

                                        4

<PAGE>

<TABLE>
<CAPTION>


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


                                                                                             SIX MONTHS ENDED
                                                                                                  JUNE 30
                                                                                           1999           1998
                                                                                           ----           ----
<S>                                                                                  <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                        $  4,623,340   $     753,764
    Adjustments to reconcile net income to net cash used in operating activities:
       Realized investment gains                                                           (11,081)
       Amortization of deferred policy acquisition costs                                 5,269,548         204,596
       Capitalization of deferred policy acquisition costs                                (318,491)       (353,845)
       Deferred income tax                                                               1,797,966         131,774
       Interest credited to universal life and investment products                       3,101,263         502,210
       Policy fees assessed on universal life and investment products                     (488,856)       (501,699)
       Change in accrued investment income and other receivables                            72,411         410,447
       Change in policy liabilities and other policyholder
          funds of traditional life and health products                                 (8,326,802)       (331,383)
       Change in other liabilities                                                      12,297,423      (2,772,450)
       Other (net)                                                                        (174,455)         18,409
                                                                                      ------------   -------------
    Net cash provided by (used in) operating activities                                 17,842,266      (1,938,177)
                                                                                      ------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Maturities and principal reductions of investments
       Investments available for sale                                                   33,623,078      43,867,398
       Other                                                                             2,107,560       1,396,084
    Cost of investments acquired
       Investments available for sale                                                  (51,178,518)    (46,470,555)
                                                                                      -------------   -------------
    Net cash (used in) investing activities                                            (15,447,880)     (1,207,073)

CASH FLOWS FROM FINANCING ACTIVITIES
    Dividends to share owners                                                                              (50,000)
    Investment product deposits and change in universal life deposits                    2,228,888        (500,848)
    Capital contributions                                                                                2,000,000
                                                                                      ------------   -------------
    Net cash provided by (used in) financing activities                                  2,228,888       1,449,152
                                                                                      ------------   -------------

INCREASE (DECREASE) IN CASH                                                              4,623,274      (1,696,098)
CASH AT BEGINNING OF PERIOD                                                                      0       2,218,201
                                                                                      ------------   -------------
CASH AT END OF PERIOD                                                                  $ 4,623,274   $     522,103
                                                                                      ============   =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period:
       Income taxes                                                                                   $    200,000
</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 six month  period  ended  June 30,  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
                                                                       SIX MONTHS ENDED JUNE 30, 1999
                                                  --------------------------------------------------------------------
                                                                               DENTAL AND
                                                                                CONSUMER               FINANCIAL
                                                    ACQUISITIONS                BENEFITS              INSTITUTIONS
                                                    ------------               ----------             ------------
<S>                                               <C>                         <C>                     <C>

Premiums and policy fees                             $30,186,919               $1,241,619               $744,800
Reinsurance ceded                                    (10,633,046)                (368,810)
                                                     -----------               ----------               --------
  Net of reinsurance ceded                            19,553,873                  872,809                744,800
Net investment income                                 12,350,158                  218,497                108,455
Realized investment gains (losses)
Other income                                              (8,718)
                                                     -----------               ----------               --------
     Total revenues                                   31,895,313                1,091,306                853,255
                                                     -----------               ----------               --------
Benefits and settlement expenses                      15,203,723                  842,643                408,742
Amortization of deferred policy
 acquisition costs                                     5,085,560                                         183,988
Other operating expenses                               5,529,534                   23,096                (35,861)
                                                     -----------               ----------               --------
     Total benefits and expenses                      25,818,817                  865,739                556,869
                                                     -----------               ----------               --------
Income before income tax                               6,076,496                  225,567                296,386


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

Premiums and policy fees                           $   8,920                                          $ 32,182,258
Reinsurance ceded                                                                                      (11,001,856)
                                                    ---------                                          -----------
  Net of reinsurance ceded                             8,920                                            21,180,402
Net investment income                                                $ 212,557                          12,889,667
Realized investment gains (losses)                                      11,081                              11,081
Other income                                           2,326                                                (6,392)
                                                    --------         ---------                         -----------
     Total revenues                                   11,246           223,638                          34,074,758
                                                    --------         ---------                         -----------
Benefits and settlement expenses                      71,063                                            16,526,171
Amortization of deferred policy
 acquisition costs                                                                                       5,269,548
Other operating expenses                             315,834            25,130                           5,857,733
                                                    --------         ---------                         -----------
     Total benefits and expenses                     386,897            25,130                          27,653,452
                                                    --------         ---------                         -----------
Income (loss) before income tax                     (375,651)          198,508                           6,421,306
Income tax expense                                                                   $1,797,966          1,797,966
                                                                                                       -----------
     Net income                                                                                        $ 4,623,340
                                                                                                       ===========
</TABLE>


                                        7

<PAGE>
<TABLE>
<CAPTION>



                                                                      OPERATING SEGMENT INCOME FOR THE
                                                                       SIX MONTHS ENDED JUNE 30, 1998
                                                  ------------------------------------------------------------------
                                                                               DENTAL AND
                                                                                CONSUMER               FINANCIAL
                                                    ACQUISITIONS                BENEFITS              INSTITUTIONS
                                                    ------------               ----------             ------------
<S>                                                 <C>                       <C>                    <C>

Premiums and policy fees                             $2,403,520                $1,211,314              $273,012
Reinsurance ceded                                      (474,885)                 (310,694)
                                                     ----------                 ---------              --------
  Net of reinsurance ceded                            1,928,635                   900,620               273,012
Net investment income                                 2,095,553                   327,846
                                                     ----------                ----------
     Total revenues                                   4,024,188                 1,228,466               273,012
                                                     ----------                ----------              --------
Benefits and settlement expenses                      2,691,819                   465,462               124,164
Amortization of deferred policy
 acquisition costs                                      156,597                                          47,999
Other operating expenses                                358,701                   552,412                29,763
                                                     ----------                ----------              --------
     Total benefits and expenses                      3,207,117                 1,017,874               201,926
                                                     ----------                ----------              --------
Income before tax                                       817,071                   210,592                71,086


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

Premiums and policy fees                                                                                $3,887,846
Reinsurance ceded                                                                                         (785,579)
                                                                                                        ----------
  Net of reinsurance ceded                                                                               3,102,267
Net investment income                                                 $422,284                           2,845,683
Realized investment gains (losses)                                    (500,000)                           (500,000)
                                                                      --------                          ----------
     Total revenues                                                    (77,716)                          5,447,950
                                                                      --------                          ----------
Benefits and settlement expenses                                                                         3,281,445
Amortization of deferred policy
 acquisition costs                                                                                         204,596
Other operating expenses                            $(25,861)                                              915,015
                                                    --------                                            ----------
     Total benefits and expenses                     (25,861)                                            4,401,056
                                                    --------          ---------                         ----------
Income before tax                                     25,861           (77,716)                          1,046,894
Income tax expense                                                                      $293,130           293,130
                                                                                                        ----------
     Net income                                                                                         $  753,764
                                                                                                        ==========


                                        8
</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                                                                       OPERATING SEGMENT ASSETS
                                                                            JUNE 30, 1999
                                                  -----------------------------------------------------------------
                                                                              DENTAL AND
                                                                               CONSUMER                FINANCIAL
                                                   ACQUISITIONS                BENEFITS               INSTITUTIONS
                                                   ------------              -----------              ------------
<S>                                               <C>                        <C>                      <C>

Investments and other assets                        $427,107,112              $6,195,170                $3,334,135
Deferred policy acquisition costs                    127,496,966                                           827,428
                                                    ------------             -----------                ----------
     Total assets                                   $554,604,078              $6,195,170                $4,161,563
                                                    ============             ===========                ==========


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

Investments and other assets                         $3,734,025               $32,571,712             $472,942,154
Deferred policy acquisition costs                                                                      128,324,394
                                                     ----------               -----------             ------------
     Total assets                                    $3,734,025               $32,571,712             $601,266,548
                                                     ==========               ===========             ============



                                                                       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 June 30, 1999,  and for the six months then ended,  the Company
had  share-owners'  equity and net income  prepared in conformity with statutory
reporting practices of $32.6 million and $7.3 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 June 30, 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>

                                                                 JUNE 30, 1999          DECEMBER 31, 1998
                                                                 -------------          -----------------
<S>                                                              <C>                    <C>
Total investments                                                 $442,291,359              $426,832,267
Deferred policy acquisition costs                                  128,324,394               133,275,451
All other assets                                                    37,572,017                30,970,142
                                                                  ------------              ------------
                                                                  $608,187,770              $591,077,860
                                                                  ============              ============

Deferred income taxes                                             $  4,360,250              $  2,562,284
All other liabilities                                              476,962,364               466,085,568
                                                                  ------------              ------------
                                                                   481,322,614               468,647,852
Share-owners' equity                                               126,865,156               122,430,008
                                                                  ------------              ------------
                                                                  $608,187,770              $591,077,860
                                                                  ============              ============
</TABLE>




                                       10

<PAGE>



NOTE F - COMPREHENSIVE INCOME (LOSS)

         The  following  table sets  forth the  Company's  comprehensive  income
(loss) for the six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>


                                                                                          Six Months Ended
                                                                                ----------------------------------
                                                                                    1999                    1998
                                                                                    ----                    ----
<S>                                                                             <C>                      <C>
          Net income                                                            $  4,623,340           $   753,764
          Increase (decrease) in net unrealized gains
              on investments (net of income tax:
              1999 - $(7,162,422); 1998 - $(17,670))                             (13,299,427)              227,326
          Reclassification adjustment for amounts
              included in net income (net of income
              tax: 1999 - $(3,103); 1998 - $140,000)                                  (7,978)              360,000
                                                                                 -----------            ----------
          Comprehensive income (loss)                                            $(8,684,065)           $1,341,090
                                                                                 ===========            ==========

</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 Stable
Value Products 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 June 30, 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 subject
to a number of risks and uncertainties, and the Company cannot

                                       12

<PAGE>

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.

REVENUES

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

                                                                  SIX MONTHS
                                                                    ENDED                       PERCENTAGE
                                                                   JUNE 30                       INCREASE
                                                       -------------------------------         ------------
                                                           1999               1998
                                                           ----               ----
<S>                                                    <C>                 <C>                  <C>
         Premiums and policy fees                      $21,180,402          $3,102,267            582.7  %
         Net investment income                          12,889,667           2,845,683            353.0
         Realized investment gains                          11,081            (500,000)           - -
         Other                                              (6,392)                               - -
                                                       -----------          ----------
                                                       $34,074,758          $5,447,950
                                                       ===========          ==========
</TABLE>


         Premiums  and policy fees,  net of  reinsurance  ("premiums  and policy
fees")  increased  $18.1  million or 582.7% in the first six months of 1999 over
the first six months of 1998.  Premiums  and policy  fees from the  Acquisitions
Division  increased $17.6 million primarily due to the coinsurance of a block of
policies from Lincoln National Corporation ("Lincoln National") in October 1998.
Premiums and policy fees related to the Dental  Division  decreased  slightly in
the  first six  months  of 1999 as  compared  to the same  period  in 1998.  The
Financial  Institutions  Division's  premiums  and policy  fees  increased  $0.5
million in the first six months of 1999 over the first six 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 six months of 1999.

         Net investment  income in the first six months of 1999 increased  $10.0
million or 353.0% 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 six 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:
<TABLE>
<CAPTION>

           OPERATING INCOME (LOSS) AND INCOME (LOSS) BEFORE INCOME TAX
                            SIX MONTHS ENDED JUNE 30

                                                                               1999                    1998
                                                                               ----                    ----
<S>                                                                        <C>                      <C>
Operating Income (Loss)1
      Acquisitions                                                          $6,076,496             $   817,071
      Dental and Consumer Benefits                                             225,567                 210,592
      Financial Institutions                                                   296,386                  71,086
      Investment Products                                                     (375,651)                 25,861
      Corporate and Other                                                      187,427                 422,284
                                                                            ----------               ---------
              Total operating income                                         6,410,225               1,546,894
                                                                            ----------               ---------

Realized Investment Gains (Losses)
      Corporate and Other                                                       11,081                (500,000)
                                                                            ----------               ---------
              Total net                                                         11,081                (500,000)
                                                                            ----------               ---------
Income (Loss) Before Income Tax
      Acquisitions                                                           6,076,496                 817,071
      Dental and Consumer Benefits                                             225,567                 210,592
      Financial Institutions                                                   296,386                  71,086
      Investment Products                                                     (375,651)                 25,861
      Corporate and Other                                                      198,508                 (77,716)
                                                                            ----------              ----------
              Total income before tax                                       $6,421,306              $1,046,894
                                                                            ==========              ==========

</TABLE>

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


         Pretax operating income from the Acquisitions Division was $6.1 million
in the first six months of 1999 as compared  to $0.8  million in 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.  This acquisition
represented most of the increase in pretax earnings for the Division.

         Dental  Division  pretax  earnings  were $0.2  million in the first six
months of 1999 and 1998.

         The Financial Institutions  Division's pretax operating income was $0.3
million for the first six months of 1999 as  compared to $0.1  million the first
six months of 1998.  The  increase  was  primarily  due to  increased  marketing
efforts.

         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  operating loss of $0.4 million in the first six 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
operating  income from this  segment was $0.2 million in the first six months of
1999 and $0.4  million in the first six  months of 1998.

INCOME TAXES

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

         SIX MONTHS
           ENDED                                      ESTIMATED EFFECTIVE
          JUNE 30                                       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:

                                                        NET INCOME
                                             -------------------------------
           SIX MONTHS
             ENDED                                               PERCENTAGE
            JUNE 30                           TOTAL               INCREASE
          -----------                         -----              ----------
             1998                         $  753,764                (34.2)%
             1999                          4,623,340                513.3


         Compared to the same period in 1998, net income in the first six months
of  1999  increased   $3.9  million,   reflecting   increases   related  to  the
Acquisitions,  Dental, and Financial Institutions  Divisions,  and the Corporate
and Other segment,  and realized investment gains which were partially offset by
a decrease in the Investment Products Division.

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
its 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  systems 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  for year 2000
testing  in  August  1999 with the  compliant,  tested  version  to be placed in
production  by  September   1999.  All  remediated   systems  are  currently  in
production.

         Mainframe  application  remediation  was  completed  December 31, 1998.
Personal  computer network hardware,  software,  and operating systems have been
reviewed,  with  upgrades  implemented  where  necessary.  Remaining  Year  2000
personal  computer  preparations  are expected to be completed by September  30,
1999. In March 1999 a personal  computer test lab was  established to facilitate
client server system  testing.  That testing is now materially  complete and the
lab  facility is being used for desktop  application  testing.  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.

         Future  date  tests are  complete  for the  majority  of PLC's  mission
critical systems and are expected to be completed by August 31, 1999. 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.  Current expectations are that integrated testing
will be completed on or before September 30, 1999.

         Significant  business  partners and suppliers that provide  products or
services  critical  to  Company  operations  are  being  reviewed  for year 2000
readiness.  To date, no partners or suppliers  have reported that they expect to
be unable to continue supplying products and services after January 1, 2000.

         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  June 30,  1999,  costs that have been
specifically identified as relating to the Year 2000 problem total $4.7 million,
with an additional  $0.5 million  estimated to be required to support  continued
Year 2000 preparations.  PLC's Year 2000 efforts have not adversely affected its
normal procurement and development of information technology.

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

         A formal  contingency  plan is being  prepared  for  senior  management
approval in September  1999. The plan will also be reviewed with the Finance and
Investments Committee of PLC's

                                       16

<PAGE>



Board of  Directors  at their  October  meeting.  Those  systems  and  functions
identified as mission critical are included in the contingency plan.

         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: August 13, 1999                           /s/ Jerry W. DeFoor
                                                -------------------
                                                Jerry W. DeFoor
                                                Vice President and Controller,
                                                and Chief Accounting Officer
                                                (Duly authorized officer)


                                       18