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


                                    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 September 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
November 5, 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 Nine Months
          ended September 30, 1999 and 1998 (unaudited).......................
        Condensed Balance Sheets as of September 30, 1999
          (unaudited) and December 31, 1998...................................
        Condensed Statements of Cash Flows for the
          Nine Months ended September 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 September 30, 1999, and the related  condensed
statements of income for the three-month and nine-month  periods ended September
30, 1999 and 1998,  and condensed  statements  of cash flows for the  nine-month
periods ended September 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
October 26, 1999

                                        2

<PAGE>



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


                                                                            THREE MONTHS ENDED               NINE MONTHS ENDED
                                                                               SEPTEMBER 30                      SEPTEMBER 30
                                                                      ------------------------------------------------------------
                                                                         1999           1998              1999           1998
                                                                         ----           ----              ----           ----
<S>                                                                   <C>            <C>               <C>            <C>
REVENUES
     Premiums and policy fees                                         $11,550,772    $2,250,042        $43,733,030    $6,137,888
        Reinsurance ceded                                              (4,139,281)     (423,045)       (15,141,137)   (1,208,624)
                                                                      ------------   -----------       -----------    ----------
        Premiums and policy fees, net of reinsurance ceded              7,411,491     1,826,997         28,591,893     4,929,264
     Net investment income                                              8,755,048     2,047,860         21,644,715     4,893,543
     Realized investment gains (losses)                                   (74,151)                         (63,070)     (500,000)
     Other income (loss)                                                      977                           (5,416)
                                                                      ------------   -----------       -----------    ----------
                                                                       16,093,365     3,874,857         50,168,122     9,322,807
                                                                      ------------   -----------       -----------    ----------
BENEFITS AND EXPENSES
     Benefits and settlement expenses (net of reinsurance ceded:
        three months: 1999 - $3,645,383; 1998 - $1,206,396
        nine months: 1999 - $13,344,420; 1998 - $2,817,986)             8,881,623     2,686,038         25,407,794     5,967,483
     Amortization of deferred policy acquisition costs                    244,472       106,783          5,514,020       311,379
     Other operating expenses (net of reinsurance ceded:
        three months: 1999 - $52,541; 1998 - $213,656
        nine months: 1999 - $192,228; 1998 - $205,582)                  3,612,922       222,514          9,470,654     1,137,529
                                                                       ----------     ---------         ----------     ---------
                                                                       12,739,017     3,015,335         40,392,468     7,416,391
                                                                       ----------     ---------         ----------     ---------

INCOME BEFORE INCOME TAX                                                3,354,348       859,522          9,775,654     1,906,416

Income tax expense                                                        939,217       240,666          2,737,183       533,796
                                                                        ---------       -------          ---------     ---------


NET INCOME                                                            $ 2,415,131    $  618,856        $ 7,038,471   $ 1,372,620
                                                                      ===========    ==========        ===========     =========


</TABLE>

See notes to condensed financial statements

                                        3

<PAGE>



                  PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>


                                                                                   SEPTEMBER 30        DECEMBER 31
                                                                                       1999               1998
                                                                                -----------------------------------
                                                                                            (Unaudited)
<S>                                                                             <C>                 <C>
ASSETS
  Investments
    Fixed maturities                                                              $372,258,410        $360,113,277
    Mortgage loans on real estate                                                    3,795,372           7,900,221
    Investment in real estate, net of accumulated depreciation                       1,100,000
    Policy loans                                                                    54,195,717          54,103,044
    Short-term investments                                                           6,200,000          18,267,431
                                                                                  ------------         -----------
     Total investments                                                             437,549,499         440,383,973
  Cash                                                                               1,010,241
  Accrued investment income                                                          7,232,418           7,597,305
  Accounts and premiums receivable, net                                              2,910,859             673,967
  Reinsurance receivables                                                           24,946,154          22,405,337
  Deferred policy acquisition costs                                                128,270,945         133,275,451
  Other assets                                                                          42,173              55,968
  Assets related to separate accounts
    Variable annuity                                                                 2,555,911             237,565
                                                                                  ------------        ------------
                                                                                  $604,518,200        $604,629,566
                                                                                  ============        ============


LIABILITIES
  Policy liabilities and accruals                                                 $441,667,863        $442,329,379
  Annuity deposits                                                                   7,000,007           3,434,342
  Other policyholders' funds                                                        11,085,851          12,143,006
  Other liabilities                                                                 12,463,365           7,941,276
  Deferred income taxes                                                              3,607,375           7,305,381
  Liabilities related to separate accounts
    Variable annuity                                                                 2,555,911             237,565
                                                                                   -----------         -----------
                                                                                   478,380,372         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                                                                 25,391,961          18,353,492
  Accumulated other comprehensive income
    Net unrealized  gains (losses) on investments (net of income
     tax: 1999 - $(1,692,092); 1998 - $4,743,097                                    (3,142,457)          8,808,609
                                                                                  ------------         -----------
                                                                                   126,137,828         131,238,617
                                                                                  ------------         -----------
                                                                                  $604,518,200        $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>

                                                                                             NINE MONTHS ENDED
                                                                                                SEPTEMBER 30
                                                                                           1999           1998
                                                                                           ----           ----
<S>                                                                                  <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                        $  7,038,471     $ 1,372,620
    Adjustments to reconcile net income to net cash used in operating activities:
       Realized investment gains                                                            63,070
       Amortization of deferred policy acquisition costs                                 5,514,020         311,379
       Capitalization of deferred policy acquisition costs                                (509,514)       (593,050)
       Deferred income tax                                                               2,737,183        (566,340)
       Accrued income tax                                                                                   11,978
       Interest credited to universal life and investment products                       8,552,618         811,436
       Policy fees assessed on universal life and investment products                   (8,956,188)       (751,805)
       Change in accrued investment income and other receivables                        (4,412,822)        470,377
       Change in policy liabilities and other policyholder
          funds of traditional life and health products                                (15,205,019)       (194,536)
       Change in other liabilities                                                       4,522,089      (2,478,355)
       Other (net)                                                                        (174,396)         18,408
                                                                                      -------------    ------------
    Net cash used in operating activities                                                 (830,488)     (1,587,888)
                                                                                      -------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
    Maturities and principal reductions of investments
       Investments available for sale                                                   49,917,961      12,857,145
       Other                                                                             2,505,047       2,515,965
    Cost of investments acquired
       Investments available for sale                                                  (66,937,862)    (16,546,471)
       Other                                                                            (1,100,000)
                                                                                       ------------     -----------
    Net cash used in investing activities                                              (15,614,854)     (1,173,361)

CASH FLOWS FROM FINANCING ACTIVITIES
    Dividends to share owners                                                                              (50,000)
    Investment product deposits and change in universal life deposits                   17,455,583        (461,728)
    Capital contributions                                                                                2,000,000
                                                                                        ----------       ---------
    Net cash provided by financing activities                                           17,455,583       1,488,272
                                                                                        ----------       ---------

INCREASE (DECREASE) IN CASH                                                              1,010,241      (1,272,977)
CASH AT BEGINNING OF PERIOD                                                                      0       2,218,201
                                                                                        ----------       ---------
CASH AT END OF PERIOD                                                                  $ 1,010,241      $  945,224
                                                                                        ==========       =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period:
       Income taxes                                                                                   $    350,000

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
 FINANCIAL ACTIVITIES
    Issuance of common stock dividend                                                                  $   500,000

</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 nine month period ended  September 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 a  wholly-owned
subsidiary of Protective Life Corporation ("PLC"). All outstanding shares of the
Company's preferred stock are owned by 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 (where the Company maintains its headquarters),  juries have substantial
discretion in awarding  punitive and non-economic  compensatory  damages,  which
creates the potential for unpredictable  material adverse judgments in any given
lawsuit.  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  reasonably  likely to have a
material  adverse effect on the financial  position,  results of operations,  or
liquidity of the Company.


                                        6

<PAGE>



NOTE C - OPERATING SEGMENTS

         PLC, through its subsidiaries, operates seven divisions whose principal
strategic  focus can be grouped into three general  categories:  Life Insurance,
Specialty  Insurance Products,  and Retirement Savings and Investment  Products.
The Company is involved in the businesses of four of PLC's seven divisions.  The
following table sets forth  operating  segment income and assets for the periods
shown.  Adjustments  represent the inclusion of unallocated  realized investment
gains  (losses) and the  recognition  of income tax expense.  There are no asset
adjustments.
<TABLE>
<CAPTION>


                                                                       OPERATING SEGMENT INCOME FOR THE
                                                                     NINE MONTHS ENDED SEPTEMBER 30, 1999
                                                   ----------------------------------------------------------------
                                                                               DENTAL AND
                                                                                CONSUMER              FINANCIAL
                                                    ACQUISITIONS                BENEFITS             INSTITUTIONS
                                                    ------------                --------             ------------
<S>                                                 <C>                        <C>                    <C>
Premiums and policy fees                            $ 40,657,642               $1,865,248             $1,191,926
Reinsurance ceded                                    (14,593,146)                (547,991)
                                                     -----------                ---------              ---------
  Net of reinsurance ceded                            26,064,496                1,317,257              1,191,926
Net investment income                                 20,735,028                  344,133                175,597
Realized investment gains (losses)
Other income                                              (8,718)
                                                      ----------                ---------              ---------
     Total revenues                                   46,790,806                1,661,390              1,367,523
                                                      ----------                ---------              ---------
Benefits and settlement expenses                      23,177,480                1,482,549                605,625
Amortization of deferred policy
 acquisition costs                                     5,220,186                                         293,834
Other operating expenses                               9,019,249                   40,883                (12,480)
                                                      ----------                ---------                -------
     Total benefits and expenses                      37,416,915                1,523,432                886,979
                                                      ----------                ---------                -------
Income before income tax                               9,373,891                  137,958                480,544


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

Premiums and policy fees                            $  18,214                                          $43,733,030
Reinsurance ceded                                                                                      (15,141,137)
                                                       ------                                           ----------
  Net of reinsurance ceded                             18,214                                           28,591,893
Net investment income                                                $389,957                           21,644,715
Realized investment gains (losses)                                                  $   (63,070)           (63,070)
Other income                                            3,302                                               (5,416)
                                                       ------         -------           -------         ----------
     Total revenues                                    21,516         389,957           (63,070)        50,168,122
                                                       ------         -------           -------         ----------
Benefits and settlement expenses                      142,140                                           25,407,794
Amortization of deferred policy
 acquisition costs                                                                                       5,514,020
Other operating expenses                              397,872          25,130                            9,470,654
                                                      -------          ------                            ---------
     Total benefits and expenses                      540,012          25,130                           40,392,468
                                                      -------          ------            ------         ----------
Income (loss) before income tax                      (518,496)        364,827           (63,070)         9,775,654
Income tax expense                                                                    2,737,183          2,737,183
                                                                                                         ---------
     Net income                                                                                        $ 7,038,471
                                                                                                         =========

</TABLE>

                                        7

<PAGE>
<TABLE>
<CAPTION>



                                                                    OPERATING SEGMENT INCOME FOR THE
                                                                  NINE MONTHS ENDED SEPTEMBER 30, 1998
                                                    ---------------------------------------------------------------
                                                                               DENTAL AND
                                                                                CONSUMER               FINANCIAL
                                                    ACQUISITIONS                BENEFITS              INSTITUTIONS
                                                    ------------                ---------             ------------
<S>                                                 <C>                        <C>                    <C>
Premiums and policy fees                             $3,474,030                $2,135,891              $527,947
Reinsurance ceded                                      (593,678)                 (614,946)
                                                      ---------                 ---------               -------
  Net of reinsurance ceded                            2,880,352                 1,520,945               527,947
Net investment income                                 3,565,457                   518,138
                                                      ---------                 ---------               -------
     Total revenues                                   6,445,809                 2,039,083               527,947
                                                      ---------                 ---------               -------
Benefits and settlement expenses                      4,368,904                 1,329,099               268,035
Amortization of deferred policy
 acquisition costs                                      197,597                                         113,782
Other operating expenses                                581,969                   540,851                36,821
                                                      ---------                 ---------               -------
     Total benefits and expenses                      5,148,470                 1,869,950               418,638
                                                      ---------                 ---------               -------
Income before tax                                     1,297,339                   169,133               109,309


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

Premiums and policy fees                           $      20                                            $6,137,888
Reinsurance ceded                                                                                       (1,208,624)
                                                    --------                                             ---------
  Net of reinsurance ceded                                20                                             4,929,264
Net investment income                                                 $809,948                           4,893,543
Realized investment gains (losses)                                                     $(500,000)         (500,000)
                                                    --------           -------          ---------        ---------
     Total revenues                                       20           809,948          (500,000)        9,322,807
                                                    --------           -------          ---------        ---------
Benefits and settlement expenses                       1,445                                             5,967,483
Amortization of deferred policy
 acquisition costs                                                                                         311,379
Other operating expenses                             (22,112)                                            1,137,529
                                                    --------           -------                           ---------
     Total benefits and expenses                     (20,667)                                            7,416,391
                                                    --------           -------          --------         ---------
Income before tax                                     20,687           809,948          (500,000)        1,906,416
Income tax expense                                                                       533,796           533,796
                                                                                                         ---------
     Net income                                                                                         $1,372,620
                                                                                                         =========
</TABLE>

                                        8

<PAGE>
<TABLE>
<CAPTION>



                                                                      OPERATING SEGMENT ASSETS
                                                                         SEPTEMBER 30, 1999
                                                   ---------------------------------------------------------------
                                                                             DENTAL AND
                                                                              CONSUMER                 FINANCIAL
                                                   ACQUISITIONS               BENEFITS                INSTITUTIONS
                                                   ------------              -----------              ------------
<S>                                                <C>                        <C>                      <C>
Investments and other assets                        $422,153,997             $10,532,071                $3,711,851
Deferred policy acquisition costs                    127,362,341                                           908,604
                                                     -----------              ----------                 ---------
     Total assets                                   $549,516,338             $10,532,071                $4,620,455
                                                     ===========              ==========                 =========

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


Investments and other assets                         $4,460,225               $35,389,111             $476,247,255
Deferred policy acquisition costs                                                                      128,270,945
                                                      ---------                ----------              -----------
     Total assets                                    $4,460,225               $35,389,111             $604,518,200
                                                      =========                ==========              ===========


                                                                      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  September  30, 1999,  and for the nine months then ended,  the
Company had  share-owners'  equity and net income  prepared in  conformity  with
statutory reporting practices of $35.5 million and $10.0 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 September  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>


                                                           SEPTEMBER 30, 1999            DECEMBER 31, 1998
                                                           ------------------            -----------------
<S>                                                          <C>                           <C>
Total investments                                             $442,384,048                  $426,832,267
Deferred policy acquisition costs                              128,270,945                   133,275,451
All other assets                                                38,697,756                    30,970,142
                                                               -----------                   -----------
                                                              $609,352,749                  $591,077,860
                                                               ===========                   ===========

Deferred income taxes                                        $   5,299,467                 $   2,562,284
All other liabilities                                          474,772,997                   466,085,568
                                                               -----------                   -----------
                                                               480,072,464                   468,647,852
Share-owners' equity                                           129,280,285                   122,430,008
                                                               -----------                   -----------
                                                              $609,352,749                  $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 and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>


                                                                       THREE MONTHS ENDED            NINE MONTHS ENDED
                                                             --------------------------------------------------------------
                                                                    1999             1998            1999          1998
                                                                    ----             ----            ----          ----
<S>                                                            <C>                <C>             <C>          <C>
          Net income                                             $2,415,131        $618,856     $  7,038,471    $1,372,620
          Increase (decrease) in net unrealized gains
              on investments (net of income tax:
              three months: 1999 - $709,574; 1998 -
              $571,031; nine months: 1999 - $(6,452,848);
              1998 - $553,361)                                    1,302,951       1,195,601      (11,996,476)    1,422,927
          Reclassification adjustment for amounts
              included in net income (net of income
              tax: three months: 1999 - $20,762; nine
              months: 1999 - $17,659; 1998 - $140,000)               53,388                           45,410       360,000
                                                                  ---------       ---------       ----------     ---------
          Comprehensive income (loss)                            $3,771,470      $1,814,457      $(4,912,595)   $3,155,547
                                                                 ==========      ==========      ============   ==========
</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 September 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 herein 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>


                                                                NINE MONTHS
                                                                   ENDED                           PERCENTAGE
                                                                SEPTEMBER 30                        INCREASE
                                                       ----------------------------------          ----------
                                                           1999               1998
                                                           ----               ----
<S>                                                    <C>                  <C>                     <C>
         Premiums and policy fees                      $28,591,893          $4,929,264              480.0  %
         Net investment income                          21,644,715           4,893,543              342.3
         Realized investment losses                        (63,070)           (500,000)                --
         Other                                              (5,416)                                     -
                                                        ----------           ---------
                                                       $50,168,122          $9,322,807
                                                        ==========           =========
</TABLE>


         Premiums  and policy fees,  net of  reinsurance  ("premiums  and policy
fees")  increased  $23.7 million or 480.0% in the first nine months of 1999 over
the first nine months of 1998.  Premiums  and policy fees from the  Acquisitions
Division  increased $23.2 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  nine  months of 1999 as  compared  to the same  period in 1998.  The
Financial  Institutions  Division's  premiums  and policy  fees  increased  $0.7
million in the first nine  months of 1999 over the first nine 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 nine months of 1999.

         Net investment  income in the first nine months of 1999 increased $16.8
million or 342.3% 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
losses and other income (loss) in the first nine 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
                         NINE MONTHS ENDED SEPTEMBER 30

<TABLE>
<CAPTION>

                                                                               1999                    1998
                                                                               ----                    ----
<S>                                                                        <C>                      <C>
Operating Income (Loss)1
      Acquisitions                                                          $9,373,891              $1,297,339
      Dental and Consumer Benefits                                             137,958                 169,133
      Financial Institutions                                                   480,544                 109,309
      Investment Products                                                     (518,496)                 20,687
      Corporate and Other                                                      364,827                 809,948
                                                                             ---------               ---------
              Total operating income                                         9,838,724               2,406,416
                                                                             ---------               ---------
Realized Investment Gains (Losses)
      Unallocated Realized Investment Losses                                   (63,070)               (500,000)
                                                                             ---------                --------
              Total net                                                        (63,070)               (500,000)
                                                                             ---------                --------
Income (Loss) Before Income Tax
      Acquisitions                                                           9,373,891               1,297,339
      Dental and Consumer Benefits                                             137,958                 169,133
      Financial Institutions                                                   480,544                 109,309
      Investment Products                                                     (518,496)                 20,687
      Corporate and Other                                                      364,827                 809,948
      Unallocated Realized Investment Losses                                   (63,070)               (500,000)
                                                                             ---------               ---------
              Total income before tax                                       $9,775,654              $1,906,416
                                                                             =========               =========
</TABLE>

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


         Pretax operating income from the Acquisitions Division was $9.4 million
in the first nine months of 1999 as compared to $1.3  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 $0.1 million in the first nine
months of 1999 and $0.2 million in the first nine months of 1998.

         The Financial Institutions  Division's pretax operating income was $0.5
million for the first nine months of 1999 as compared to $0.1  million the first
nine 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 $0.5 million in the first nine 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 $0.4  million in the first nine
months of 1999 and $0.8 million in the first nine months of 1998.

Income Taxes

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

   NINE MONTHS
      ENDED                                            ESTIMATED EFFECTIVE
  SEPTEMBER 30                                          INCOME TAX RATES
  ------------                                         -------------------
      1998                                                     28  %
      1999                                                     28

         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
                                         ------------------------------------
         NINE MONTHS
           ENDED                                                PERCENTAGE
        SEPTEMBER 30                      TOTAL                  INCREASE
        ------------                      -----                 ----------
           1998                        $1,372,620                 (23.3)  %
           1999                         7,038,471                 412.8


         Compared  to the same  period in 1998,  net  income  in the first  nine
months of 1999  increased  $5.7  million,  reflecting  increases  related to the
Acquisitions  and  Financial  Institutions  Divisions,  and realized  investment
gains,  which were  partially  offset by decreases in 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
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 its  insurance
administration  systems  and  general  administration  systems.  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.  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 PLC's  mission  critical  systems.
Integrated tests involve multiple system testing and are used to verify the Year
2000 readiness of interfaces and connectivity across multiple systems.  PLC used
its mainframe  computer to simulate a Year 2000  production  environment  and to
facilitate  integrated  testing.  Integrated  tests were completed during August
1999.  Additional  testing will be  conducted  whenever  changing  circumstances
warrant additional testing.

     Significant  business  partners  and  suppliers  that  provide  products or
services  critical  to  Company  operations  are  being  reviewed  for year 2000
readiness. To date, no significant 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 costs 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 August 31, 1999, costs that have been specifically
identified  as relating to the Year 2000  problem  total $4.9  million,  with an
additional $0.3 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 has been  prepared  and  approved by senior
management. 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

                                       16

<PAGE>



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:  November 12, 1999                        /s/ Jerry W. DeFoor
                                                -------------------
                                                Jerry W. DeFoor
                                                Vice President and Controller,
                                                and Chief Accounting Officer
                                                (Duly authorized officer)


                                       18