#### 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, 2001

# OR

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

# For the transition period from ___ to ___

# Commission File Number 333-42425

# Protective Life and Annuity Insurance Company

| |  | ALABAMA | 63-0761690
| |  | ------- | ----------
|
|

# 2801 HIGHWAY 280 SOUTHBIRMINGHAM, ALABAMA 35223

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  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 10, 2001: 250,000 shares.

`PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY



                                                                 INDEX


                                                                                               Page Number
                                                                                               -----------

Part I.  Financial Information:
   Item 1.  Financial Statements:
       Report of Independent Accountants..................................................................2
       Condensed Statements of Income for the Three and
           Six Months ended June 30, 2001 and 2000 (unaudited)............................................3
       Condensed Balance Sheets as of June 30, 2001
           (unaudited) and December 31, 2000..............................................................4
       Condensed Statements of Cash Flows for the
           Six Months ended June 30, 2001 and 2000 (unaudited)............................................5
       Notes to Condensed Financial Statements (unaudited)................................................6

   Item 2.  Management's Narrative Analysis of the Results of Operations.................................12

Part II.  Other Information:

   Item 6.  Exhibits and Reports on Form 8-K.............................................................16

Signature................................................................................................16`

# 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, 2001, and the related condensed statements of income for
each of the three-month and six-month periods ended June 30, 2001 and 2000, and
the condensed statements of cash flows for the six-month periods ended June 30,
2001 and 2000. These financial statements are the responsibility of the
Companys management.

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

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

We previously audited in
accordance with auditing
standards generally accepted in the United States of America, the balance sheet
as of December 31, 2000, 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 March 1, 2001, 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, 2000, is fairly stated in all material respects in relation to the balance
sheet from which it has been derived. </FONT></P>

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Birmingham, Alabama
August 3, 2001

`PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
                                                    CONDENSED STATEMENTS OF INCOME
                                                              (Unaudited)

                                                                THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                     JUNE 30                             JUNE 30
                                                              ------------------------------------------------------------


                                                                   2001           2000              2001           2000
                                                                   ----           ----              ----           ----

REVENUES
    Premiums and policy fees                                   $12,176,806    $12,410,779       $24,565,672    $25,187,085
    Reinsurance ceded                                           (3,532,217)    (3,605,928)       (8,398,677)    (8,284,706)
                                                              ------------   ------------      ------------   ------------
      Premiums and policy fees, net of reinsurance ceded         8,644,589      8,804,851        16,166,995     16,902,379
    Net investment income                                        8,448,558      8,097,829        16,502,629     15,464,192
    Realized investment gains (losses)                             (53,164)                         611,280
    Other income                                                       501          4,691             2,482          8,399
                                                         --------------------------------   ------------------------------
                                                                17,040,484     16,907,371        33,283,386     32,374,970
                                                              ------------    -----------       -----------    -----------

BENEFITS AND EXPENSES
    Benefits and settlement expenses
      (net of reinsurance ceded:
      three months: 2001 - $2,374,605; 2000 - $3,392,895
      six months: 2001 - $5,689,226; 2000 - $6,916,650)          9,438,514      9,048,737        17,697,011     17,066,128
    Amortization of deferred policy acquisition costs            1,763,835      1,973,521         3,533,157      3,548,372
    Other operating expenses (net of reinsurance ceded:
      three months: 2001 - $95,672; 2000 - $67,938
      six months: 2001 - $175,545; 2000 - $146,534)              2,300,564      2,600,168         4,348,477      5,955,295
                                                             -------------   ------------      ------------   ------------
                                                                13,502,913     13,622,426        25,578,645     26,569,795
                                                              ------------    -----------       -----------    -----------

INCOME BEFORE INCOME TAX                                         3,537,571      3,284,945         7,704,741      5,805,175

Income tax expense                                               1,220,462      1,133,306         2,658,136      2,002,785
                                                             -------------   ------------      ------------   ------------

NET INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE                                                        2,317,109      2,151,639         5,046,605      3,802,390

Cumulative effective of change in accounting
principle, net of income tax                                                                       (284,968)
                                                      ---------------------------------------  ------------ -------------------

NET INCOME                                                    $  2,317,109    $ 2,151,639       $ 4,761,637    $ 3,802,390
                                                              ============    ===========       ===========    ===========




















See notes to condensed financial statements`

`PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
                                                       CONDENSED BALANCE SHEETS

                                                                                  JUNE 30                    DECEMBER 31
                                                                                    2001                        2000
                                                                              ---------------------       ---------------------
                                                                                (Unaudited)
ASSETS
   Investments:
     Fixed maturities, at market
       (amortized cost:  2001 - $442,143,960; 2000 - $428,392,599)              $439,316,268                $418,756,679
     Mortgage loans on real estate                                                 2,971,433                   3,215,344
     Policy loans                                                                 54,051,505                  54,465,893
     Short-term investments                                                        5,000,000                   4,000,000
                                                                              --------------             ---------------
       Total investments                                                         501,339,206                 480,437,916
   Cash                                                                            1,947,277                   1,165,410
   Accrued investment income                                                       8,996,805                   8,914,306
   Accounts and premiums receivable, net of allowance for
     uncollectible amounts                                                         6,117,587                   1,952,449
   Reinsurance receivables                                                        20,662,348                  23,136,896
   Deferred policy acquisition costs                                             122,712,441                 128,228,360
   Other assets                                                                       21,883                      27,333
   Assets related to separate accounts
     Variable Annuity                                                              8,989,339                   9,037,035
                                                                             ---------------             ---------------
                                                                                $670,786,886                $652,899,705
                                                                                ============                ============
LIABILITIES
   Policy liabilities and accruals:
     Future policy benefits and claims                                          $456,333,539                $452,212,971
     Unearned premiums                                                             7,530,152                   8,154,233
                                                                             ---------------              --------------
                                                                                 463,863,691                 460,367,204
   Annuity deposits                                                               32,082,717                  28,059,246
   Other policyholders' funds                                                      5,803,798                   5,794,289
   Other liabilities                                                              20,213,254                  21,209,531
   Deferred income taxes                                                          13,016,008                   9,063,941
   Liabilities related to separate accounts
     Variable Annuity                                                              8,989,339                   9,037,035
                                                                             ---------------              --------------
                                                                                 543,968,807                 533,531,246
                                                                               -------------                ------------

COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B

SHARE-OWNERS' EQUITY
   Preferred Stock, $1.00 par value, shares authorized and
     issued:  2,000                                                                    2,000                       2,000
   Common Stock, $10.00 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                 101,386,324
   Retained earnings                                                              23,509,970                  18,748,333
   Accumulated other comprehensive income (loss):
     Net unrealized gains (losses) on investments (net of income
       tax:  2001 - $(312,423); 2000 - $(1,759,798))                                (580,215)                 (3,268,198)
                                                                             ---------------             ---------------
                                                                                 126,818,079                 119,368,459
                                                                               -------------               -------------
                                                                                $670,786,886                $652,899,705
                                                                                ============                ============










See notes to condensed financial statements`

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

                                                                                                    SIX MONTHS ENDED
                                                                                                        JUNE 30
                                                                                             ---------------------------------

                                                                                                    2001             2000
                                                                                                    ----             ----

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                               $    4,761,637   $    3,802,390
   Adjustments to reconcile net income to net cash provided by operating activities:
     Realized investment gains                                                                    (611,280)
     Amortization of deferred policy acquisition costs                                           3,533,157        3,548,372
     Capitalization of deferred policy acquisition costs                                          (690,107)        (402,469)
     Deferred income tax                                                                         2,658,136        2,002,785
     Interest credited to universal life and investment products                                15,061,287       16,790,620
     Policy fees assessed on universal life and investment products                            (18,286,723)     (19,303,459)
     Change in accrued investment income and other receivables                                  (1,773,089)       4,701,319
     Change in policy liabilities and other policyholders' funds
       of traditional life and health products                                                   2,557,594        3,022,166
     Change in other liabilities                                                                  (996,276)        (582,460)
     Other (net)                                                                                     5,450           14,867
                                                                                        ------------------ ----------------
   Net cash provided by operating activities                                                     6,219,786       13,594,131
                                                                                           ---------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES
   Maturities and principal reductions of investments
     Investments available for sale                                                            216,467,309      190,994,466
     Other                                                                                         667,061          240,079
   Sale of available for sale investments                                                       48,615,511
   Cost of investments acquired
     Investments available for sale                                                           (279,385,109)    (218,123,072)
     Other                                                                                                         (116,493)
                                                                                    ----------------------  ---------------
   Net cash used in investing activities                                                       (13,635,228)     (27,005,020)
                                                                                             -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Investment product deposits and change in universal life deposits                            21,058,020       26,998,960
   Investment product withdrawals                                                              (12,860,711)     (14,671,392)
                                                                                             -------------    -------------
   Net cash provided by financing activities                                                     8,197,309       12,327,568
                                                                                           ---------------    -------------

INCREASE (DECREASE) IN CASH                                                                        781,867       (1,083,321)
CASH AT BEGINNING OF PERIOD                                                                      1,165,410        4,021,839
                                                                                           ---------------  ---------------
CASH AT END OF PERIOD                                                                       $    1,947,277   $    2,938,518
                                                                                            ==============   ==============






















See notes to condensed financial statements`

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

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

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.

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 and other providers of financial  services  involving sales practices,  alleged agent misconduct,  failure to properly  supervise representatives,  and other matters.  Increasingly  these
lawsuits have resulted in the award of substantial  judgments that are  disproportionate  to the actual  damages,
including  material amounts of punitive damages.  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.  In addition,  in some class action and other lawsuits,  companies
have made material settlement payments.  The Company,  like other financial service companies,  in the ordinary course of business,  is
involved in such litigation or,  alternatively,  in arbitration.  Although the outcome of any such litigation or arbitration  cannot be
predicted,  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.

PLC,  through its  subsidiaries,  operates  seven  divisions  each having a  strategic  focus which can be grouped  into three
general  categories:  life insurance,  specialty  insurance products,  and retirement savings and investment  products.  The 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 and the cumulative effect of change in accounting principle.  There are no asset adjustments.

`Operating Segment Income for the
                                                                     Six Months Ended June 30, 2001
                                              ----------------------------------------------------------------------------
                                                                                 Dental                         Financial
                                               Acquisitions                     Benefits                       Institutions
                                               ------------                     --------                       ------------

Premiums and policy fees                         $21,898,439                    $883,482                         $1,717,366
Reinsurance ceded                                 (8,058,932)                   (424,086)                            84,341
                                                ------------                    --------                         ----------
   Net of reinsurance ceded                       13,839,507                     459,396                          1,801,707
Net investment income                             14,671,180                       2,531                            307,863
Other income                                             244
                                                ------------                    --------                         ----------
       Total revenues                             28,510,931                     461,927                          2,109,570
                                                ------------                    --------                         ----------
Benefits and settlement expenses                  15,215,332                     384,359                          1,142,805
Amortization of deferred policy
   acquisition costs                               3,087,180                                                        335,873
Other operating expenses                           4,246,176                      43,642                             39,008
                                               -------------                    --------                         ----------
       Total benefits and expenses                22,548,688                     428,001                          1,517,686
                                                ------------                    --------                         ----------
Income before income tax                           5,962,243                      33,926                            591,884

                                                                          Corporate
                                                 Investment                  and
                                                   Products                 Other            Adjustments          Total
                                                 ------------           -------------        -----------          -----

Premiums and policy fees                         $    66,385                                                    $24,565,672
Reinsurance ceded                                                                                                (8,398,677)
                                                 -----------                                                   ------------
   Net of reinsurance ceded                           66,385                                                     16,166,995
Net investment income                                499,363              $1,021,692                             16,502,629
Realized investment gains                                                                      $  611,280           611,280
Other income                                           2,238                                                          2,482
                                                 -----------             ------------          -----------     ------------
       Total revenues                                567,986               1,021,692              611,280        33,283,386
                                                 -----------             ------------          -----------     ------------
Benefits and settlement expenses                     954,515                                                     17,697,011
Amortization of deferred policy
   acquisition costs                                 110,104                                                      3,533,157
Other operating expenses                              97,829                 (78,178)                             4,348,477
                                                 -----------             ------------          -----------      ------------
       Total benefits and expenses                 1,162,448                 (78,178)                            25,578,645
                                                 -----------             ------------          -----------      ------------
Income (loss) before income tax                     (594,462)              1,099,870              611,280         7,704,741
Income tax expense                                                                              2,658,136         2,658,136
Cumulative effect of change in
   accounting principle                                                                          (284,968)         (284,968)
                                                                                                               ------------
       Net income                                                                                              $  4,761,637
                                                                                                               ============



                                                                    Operating Segment Income for the
                                                                      Six Months Ended June 30, 2000
                                            -------------------------------------------------------------------------------------------
                                                                                 Dental                       Financial
                                             Acquisitions                       Benefits                      Institutions
                                             ------------                       --------                      ------------

Premiums and policy fees                        $23,128,582                      $600,189                       $1,410,202
Reinsurance ceded                                (7,984,613)                     (300,093)
                                               ------------                     ---------                      -----------
   Net of reinsurance ceded                      15,143,969                       300,096                        1,410,202
Net investment income                            14,639,975                         3,291                          292,471
Other income
                                               ------------                     ---------                      -----------
       Total revenues                            29,783,944                       303,387                        1,702,673
                                               ------------                     ---------                      -----------
Benefits and settlement expenses                 15,252,408                       160,146                        1,176,459
Amortization of deferred policy
   acquisition costs                              3,195,766                                                        352,606
Other operating expenses                          5,271,398                         2,675                           24,894
                                              -------------                     ---------                      -----------
       Total benefits and expenses               23,719,572                       162,821                        1,553,959
                                               ------------                     ---------                      -----------
Income before income tax                          6,064,372                       140,566                          148,714


                                                                          Corporate
                                               Investment                      and
                                                 Products                     Other         Adjustments           Total
                                               ------------               -------------     -----------           -----

Premiums and policy fees                          $ 48,112                                                     $25,187,085
Reinsurance ceded                                                                                               (8,284,706)
                                                 ---------                                                     -----------
   Net of reinsurance ceded                         48,112                                                      16,902,379
Net investment income                              551,887                  $(23,432)                           15,464,192
Other income                                         8,399                                                           8,399
                                                 ---------                 ---------                           -----------
       Total revenues                              608,398                   (23,432)                           32,374,970
                                                 ---------                  --------                           -----------
Benefits and settlement expenses                   477,115                                                      17,066,128
Amortization of deferred policy
   acquisition costs                                                                                             3,548,372
Other operating expenses                           522,033                   134,295                             5,955,295
                                                 ---------                  --------                           -----------
       Total benefits and expenses                 999,148                   134,295                            26,569,795
                                                 ---------                  --------                           -----------
Income (loss) before income tax                   (390,750)                 (157,727)                            5,805,175
Income tax expense                                                                            $2,002,785         2,002,785
                                                                                                               -----------
       Net income                                                                                             $  3,802,390
                                                                                                              ============`

`Operating Segment Assets
                                                                   June 30, 2001
                                            ----------------------------------------------------------------------------------------
                                                                                 Dental                        Financial
                                                Acquisitions                    Benefits                      Institutions
                                                ------------                   ---------                      ------------

Investments and other assets                     $461,306,235                  $4,019,751                      $10,323,684
Deferred policy acquisition costs                 119,224,319                                                    1,545,389
                                                -------------                  ----------                    -------------
       Total assets                              $580,530,554                  $4,019,751                      $11,869,073
                                                 ============                  ==========                      ===========


                                                                                Corporate
                                                Investment                            and
                                                  Products                          Other                         Total
                                                ------------                   -------------                     -----

Investments and other assets                      $32,376,111                    $40,048,664                   $548,074,445
Deferred policy acquisition costs                   1,942,733                                                   122,712,441
                                                -------------                  -------------                  -------------
       Total assets                               $34,318,844                    $40,048,664                   $670,786,886
                                                  ===========                  =============                   ============


                                                                     Operating Segment Assets
                                                                       December 31, 2000
                                            -------------------------------------------------------------------------------------------
                                                                               Dental                          Financial
                                               Acquisitions                   Benefits                        Institutions
                                               ------------                   -----------                     ------------

Investments and other assets                    $453,999,198                   $4,034,632                      $11,462,251
Deferred policy acquisition costs                124,984,368                                                     1,596,654
                                               -------------                  -----------                     ------------
       Total assets                             $578,983,566                   $4,034,632                      $13,058,905
                                                ============                   ==========                      ===========


                                                                             Corporate
                                               Investment                       and
                                                 Products                      Other                               Total
                                               ------------                  ------------                       -----------

Investments and other assets                    $25,799,102                   $29,376,162                      $524,671,345
Deferred policy acquisition costs                 1,647,338                                                     128,228,360
                                               ------------                  -------------                     ------------
       Total assets                             $27,446,440                   $29,376,162                      $652,899,705
                                               ============                  =============                     ============`

Financial
statements prepared in conformity with accounting principles generally accepted
in the United States of America (i.e., GAAP) differ in some respects from the
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. At June 30, 2001, and for the six months then ended, the Company
had share-owners equity and net income prepared in conformity with
statutory reporting practices of $42.6 million and $9.6 million, respectively.

The
National Association of Insurance Commissioners (NAIC) has adopted
the Codification of Statutory Accounting Principles (Codification).
The Codification changes current statutory accounting rules in several areas and
was effective January 1, 2001. The adoption of the Codification resulted in an
increase in the Companys statutory capital of approximately $3 million on
January 1, 2001.

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

`THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                        JUNE 30                         JUNE 30
                                                             -----------------------------------------------------------------


                                                                 2001             2000             2001            2000
                                                                 ----             ----             ----            ----

Net income                                                     $2,317,109       $2,151,639        $4,761,637     $3,802,390
Increase (decrease) in net unrealized gains
   on investments (net of income tax:
   three months: 2001 - $(540,486); 2000 - $(179,823)
   six months: 2001 - $1,507,879; 2000 - 2,361,629)            (1,003,760)        (333,957)        2,800,347      4,385,883
Reclassification adjustment for amounts
   included in net income (net of income tax:
   three months: 2001 - $18,607
   six months: 2001 - $(213,948))                                  34,557                           (397,332)
Transition adjustment on derivative financial
   instruments (net of income tax:
   six months: 2001 - $153,444)                                                                      284,968
                                                       -----------------------------------      ------------------------------
Comprehensive income                                           $1,347,906       $1,817,682        $7,449,620     $8,188,273
                                                               ==========       ==========        ==========     ==========`

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.

On
January 1, 2001, the
Company adopted Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS
Nos. 137 and 138, requires the Company to record all derivative financial
instruments at fair value on the balance sheet. Changes in fair value of a
derivative instrument are reported in net income or other comprehensive income,
depending on the designated use of the derivative instrument. The adoption of
SFAS No. 133 resulted in a cumulative after-tax charge to net income of $0.3
million and a cumulative after-tax increase to other comprehensive income of
$0.3 million on January 1, 2001. The charge to net income and increase to other
comprehensive income primarily resulted from the recognition of derivative
instruments embedded in the Company's corporate bond portfolio.
Prospectively, the adoption of SFAS No. 133 may introduce volatility into the
Company's reported net income and other comprehensive income depending
on future market conditions and the Company's hedging activities.

The
Company occasionally may
purchase a financial instrument that contains a derivative instrument that is
"embedded" in the financial instrument. If the economic
characteristics of the embedded financial instrument are not clearly and closely
related to the host contract, it would meet the definition of a derivative
instrument. Any embedded derivative is then separated from the host contract and
is carried at fair value on the Company's balance sheet.

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

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

On
July 10, 2001, PLC
announced that it had entered into an agreement to sell substantially all of its
Dental Benefits Division to Fortis, Inc. for approximately $300 million. PLC anticipates that
the transaction will close in the fourth quarter of 2001, and will be accounted
for as discontinued operations. The transaction is subject to regulatory
approval and certain customary closing conditions. PLC will realize a pretax
gain on the sale, but will incur income tax expense and exit costs that will result in a loss
after income tax of approximately $23.9 million.  The sale of the Dental Benefits Division
is not expected to have a material adverse effect on the Company's
financial position or results of operations.

# 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. 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 49
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 each having a strategic focus
which can be grouped into three general categories: life insurance, specialty
insurance products, and retirement savings and investment products. The life
insurance category includes the Individual Life, West Coast, and Acquisitions
Divisions. The specialty insurance products category includes the Dental
Benefits and Financial Institutions Divisions. The retirement savings and
investment products category includes the Stable Value Products and Investment
Products Divisions.

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, 2001, the Company was involved in the businesses of
four of PLCs seven divisions: the Acquisitions Division, the Dental
Benefits 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 expectations of
future events and/or results. All statements based on future expectations rather
than on historical facts are forward-looking statements that involve a number of
risks and uncertainties, and the Company cannot give assurance that such
statements will prove to be correct. Please refer to Exhibit 99 herein for more
information about factors which could affect future results.

The following discussion
and analysis primarily relates to the six months ended June 30, 2001, as it compares to the same period last year.
Unless otherwise noted, the general factors discussed also apply to the quarter ended June 30, 2001, as it compares to the same
quarter last year.
Where needed for a more complete understanding of the Company's operating results, information related to the quarters ended
June 30, 2001 and 2000 have been provided.  It is management's opinion that quarterly operating results for insurance enterprises
are not necessarily indicative of results  to be achieved in succeeding quarters, and that a review of operating results over
a longer period yields a better understanding of the Company's performance.

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

`SIX MONTHS                      PERCENTAGE
                                                                    ENDED                         INCREASE/
                                                                   JUNE 30                        (DECREASE)
                                                    -----------------------------------------------------------

                                                            2001                  2000
                                                            ----                  ----

         Premiums and policy fees                         $16,166,995          $16,902,379              (4.4)%
         Net investment income                             16,502,629           15,464,192               6.7
         Realized investment gains                            611,280                                     -
         Other income                                           2,482                8,399             (70.4)
                                                     ----------------     ----------------
                                                          $33,283,386          $32,374,970
                                                          ===========          ===========`

Premiums
and policy fees, net of
reinsurance (premiums and policy fees) decreased $0.7
million or 4.4% in the first six months of 2001 over the first six months of
2000. Premiums and policy fees in the Acquisitions Division are expected to
decline with time unless new acquisitions are made. No acquisitions were made in
this Division in 2000 or the first six months of 2001, therefore decreases in
older acquired policies resulted in a decrease of $1.3 million in the first six
months of 2001 as compared with the first six months of 2000. This decrease was
partially offset by increases in premiums and policy fees in both the Dental
Benefits and Financial Institutions Divisions. Premiums and policy fees related
to the Investment Products Division remained relatively unchanged in the first
six months of 2001 as compared to the same period in 2000.

Net
investment income in the first six months of 2001 increased by $1.0 million as
compared to the corresponding period of the preceding year primarily due to
increases in the average amount of invested assets. The Company could experience
significant realized investment losses were it to make adjustments to its
existing fixed maturity portfolio.

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.

Realized
investment gains were approximately $0.6 million in the first six months of
2001. There were no realized investment gains (losses) in the first six months
of 2000.

The
Company reported an insignificant amount of other income in the first six months
of 2001 and 2000.

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
                                                       SIX MONTHS ENDED JUNE 30

                                                                                             2001               2000
                                                                                             ----               ----
Operating Income (Loss)1
     Acquisitions                                                                        $5,962,243          $6,064,372
     Dental Benefits                                                                         33,926             140,566
     Financial Institutions                                                                 591,884             148,714
     Investment Products                                                                   (594,462)           (390,750)
     Corporate and Other                                                                  1,099,870            (157,727)
                                                                                         ----------         ------------
           Total operating income                                                         7,093,461           5,805,175
                                                                                         ----------          ----------

Realized Investment Gains
     Unallocated Realized Investment Gains                                                  611,280
                                                                                        -----------   -----------------
           Total net                                                                        611,280
                                                                                        -----------   -----------------

Income (Loss) Before Income Tax
     Acquisitions                                                                         5,962,243           6,064,372
     Dental Benefits                                                                         33,926             140,566
     Financial Institutions                                                                 591,884             148,714
     Investment Products                                                                   (594,462)           (390,750)
     Corporate and Other                                                                  1,099,870            (157,727)
     Unallocated Realized Investment Gains                                                  611,280
                                                                                        -----------  ------------------
Total income before income tax                                                           $7,704,741          $5,805,175
                                                                                         ==========          ==========

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

Pretax operating  income from the  Acquisitions  Division was $6.0 million in the first six months of 2001 as compared to $6.1
million in the same period of 2000.  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. The increase in investment
income on invested assets  allocated to the Division and the decrease in operating  expenses  partially offset the decrease in premiums
and policy fees.

The  Dental  Benefits  Division  had an  insignificant  amount of pretax  income  in the first six  months of 2001 and  pretax
earnings of $0.1 million in the first six months of 2000.

The Financial  Institutions  Division's  pretax  operating income was $0.6 million in the first six months of 2001 as compared
to $0.2  million in the same  period of 2000.  The  increase  in  operating  income was  primarily  due to an increase in sales for the
period.

The Investment  Products  Division began  marketing  certain  annuity  products in the state of New York in the latter part of
1998.  The  Division  had pretax  operating  losses of $0.6 million in the first six months of 2001 and $0.4 million in the same period
of 2000.  The amortization of deferred acquisition costs and an increase in settlement costs contributed to the loss.

The Corporate and Other segment  consists of net  investment  income and expenses not identified  with the preceding  business
segments.  Pretax  operating  income from this  segment was $1.1  million in the first six months of 2001 as compared to a $0.2 million
loss in the first six months of 2000.

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

`SIX MONTHS
                      ENDED                                             ESTIMATED EFFECTIVE
                     JUNE 30                                             INCOME TAX RATES
                  ---------------                                      ---------------------

                        2000                                                    34.5%
                        2001                                                    34.5`

The
effective income tax rate for the full year of 2000 was 34.5%. Managements
estimate of the effective income tax rate for 2001 is approximately 34.5%.

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

`NET INCOME
                                                              ----------------------------------------------------------
                    SIX MONTHS                                                             PERCENTAGE
                      ENDED                                                                 INCREASE/
                     JUNE 30                                       TOTAL                   (DECREASE)
                  ---------------                             ----------------           --------------

                        2000                                      $3,802,390                   (17.8)%
                        2001                                       4,761,637                    25.2`

Compared
to the same period in 2000, net income in the first six months of 2001 increased
$1.0 million, reflecting increases in the Financial Institutions Division and
the Corporate and Other segment, which were partially offset by decreases in the
Acquisitions, Investment Products and Dental Benefits Divisions and a charge to
earnings related to the cumulative effect of a change in accounting principle.

## PART II

Item 6.                Exhibits and Reports on Form 8-K

(a)          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
|----- | --------------- | ---------------------------------------------
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|Date: | August 14, 2001 | /s/ Jerry W. Defoor                          
|      |                 | Jerry W. DeFoor                              
|      |                 | Vice President and Controller                
|      |                 | and Chief Accounting Officer                 
|      |                 | (Duly authrorized officer)