<PAGE>

                                 SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

        X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

                              EXCHANGE ACT OF 1934

           For the Fiscal Year Ended December 31, 1998 [Fee Required]
                                       or
          ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

  For the transition period from _____________to_____________ [No Fee Required]

Commission File No. 0-16880

--------------------------------------------------------------------------------
                            BNL FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

      IOWA                                                42-1239454
 (State of incorporation)                     (IRS Employer Identification No.)

 2100 West William Cannon, Suite L
         Austin, TX                                          78745
 (Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code: (512) 383-0220

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

Securities  registered  pursuant to Section  12(b) of the Act:  None  Securities
registered pursuant to Section 12(g) of the Act:

                           Common Stock, No Par Value
                                (Title of Class)

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 __

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. _____

BNL Financial Corporation revenues for fiscal year 1998 were $21,919,618.

The estimated  aggregate market value of the voting stock held by non-affiliates
of the Registrant as of December 31, 1998, was  approximately  $3,743,508  based
upon the  market  value of such  stock  sold as of such date (see also Item 5 of
Form 10-KSB regarding the limited trading market for the Company's shares).

As of December  31, 1998,  the  Registrant  had  outstanding  23,173,149  shares
(excluding  treasury  shares)  of Common  Stock,  no par value  (which  includes
10,694,790 shares owned by affiliates of the Registrant).

                       DOCUMENTS INCORPORATED BY REFERENCE

 Location in Form 10-KSB                                  Incorporated Document

Transitional Small Business Disclosure Format Yes ___  No _X__

Total # of pages including cover page ___







<PAGE>


================================================================================


                                                  PART 1


                                             ITEM 1. BUSINESS

General

BNL  Financial  Corporation  (the  "Company"  or  "Registrant")  is an insurance
holding   company   incorporated   in  Iowa  in  January  1984.   The  Company's
administrative offices are located at 2100 West William Cannon, Suite L, Austin,
Texas 78745; its telephone number is (512) 383-0220

The Company has four wholly owned subsidiaries, BNL Equity Corporation ("BNLE"),
Brokers National Life Assurance Company ("BNLAC"), BNL Brokerage Corporation and
Consumers Protective  Association (formerly National Dental Benefit Association,
Inc.)  Consumers  Protective  Association  is an inactive  association  that was
purchased for the purpose of marketing services to members,  including insurance
products.

                     ------------------------------------------------
                    |                                               |  
                    |          BNL Financial Corporation            |  
                    |                                               |  
                     ------------------------------------------------
                                          |                               
                     ------------------------------------------------
                    |                                               | 
                    |            BNL Equity Corporation             |      
                    |                                               | 
                     ------------------------------------------------
                                          |
                     ------------------------------------------------
                    |                                               |   
                    |  Brokers National Life Assurance Company      | 
                    |                                               | 
                     ------------------------------------------------
                                          |
                     ------------------------------------------------
                    |                                               |  
                    |         BNL Brokerage Corporation             |  
                    |                                               |
                     ------------------------------------------------

 Industry Segments

The operations of the Company are conducted  through  BNLAC,  which in 1998 sold
life and  accident  and health  insurance  policies in 27 states.  In 1987 BNLAC
began selling  insurance in Iowa, and in 1992, BNLAC expanded its sales to other
states. The Company has no foreign operations.

BNLAC is licensed in 26 states to offer life and accident  and health  insurance
on an  individual  and group basis.  Most of BNLAC's  premium  revenues are from
sales of group dental insurance sold primarily on a payroll  deduction basis. In
February  1999,  the  Company  was  notified  that the State of  Washington  had
increased its paid-in  capital stock from  $1,200,000 to  $2,400,000.  Insurance
sales in Washington  are less than 1% of total premium and  management  believes
that it was not in the  Company's  best  interest to invest  additional  surplus
funds at this time. Therefore,  the Company voluntarily withdrew its Certificate
of Authority from the State of Washington.

The Company conducts business in the industry segment "life, accident and health
insurers".  Financial information relating thereto is contained below, in Item 6
and the Exhibits attached to this Report.

Sales and Marketing

The Company markets its products through  independent agents and brokers.  BNLAC
emphasizes the  development of specialized or "niche" life and health  insurance
products.  BNLAC offers an accidental  death life  insurance  policy,  a payroll
deductible  10-year level term policy,  level term family insurance policy and a
hospital  indemnity  policy with its line of dental  insurance  policies.  These
products are all designed to be sold as group or payroll deduction policies.

                                      I-1

<PAGE>
<TABLE>

Statistics by line of business are as follows (gross before reinsurance):
<CAPTION>
   
                                                                       1998                1997
                                                                 -----------------    ---------------
<S>                                                              <C>                  <C>
I. Annual Premiums and Annuity Deposits In Force:
Ordinary Life Insurance                                                $340,000              $371,000
Individual Annuities(1)                                                 216,000               249,000
Group Dental Insurance                                               24,778,000            14,912,000
Miscellaneous A&H insurance                                              84,000                59,000
                                                                 -----------------    ---------------

          Total                                                     $25,418,000           $15,591,000
                                                                 =================    ===============


II. Collected Premiums and Annuity Deposits:
Ordinary Life Insurance                                                $368,000              $362,000
Individual Annuities(1)                                                 258,000               276,000
Group Dental Insurance                                               20,294,000            10,877,000
Miscellaneous A&H insurance                                              61,000                58,000
                                                               -----------------    ------------------

          Total                                                     $20,981,000           $11,573,000
                                                               =================    ==================

III. Amount of Insurance:
Ordinary Life Insurance                                             $35,000,000           $37,000,000
Accidental Death Insurance                                          111,000,000           119,000,000
                                                               -----------------    ------------------

          Total                                                    $146,000,000          $156,000,000
                                                               =================    ==================

(1) Classified as a deposit liability on the financial statements.
</TABLE>

Premiums collected by state are reflected in the following table:
<TABLE>
<CAPTION>

                                                                                 Group Dental &
        State                 Life Premiums                Annuity              Accidental Death                 Total
-----------------------    --------------------      --------------------     ----------------------      --------------------
<S>                        <C>                      <C>                       <C>                         <C>  

Arkansas                                30,300                         -                  1,922,296                 1,952,596

Indiana                                 12,060                         -                  1,884,699                 1,896,759

Michigan                                 4,457                         -                  1,876,844                 1,881,301

Iowa                                   259,439                   258,012                  1,353,654                 1,871,105

Georgia                                  6,992                         -                  1,538,361                 1,545,353

Minnesota                               13,514                         -                  1,503,293                 1,516,807

Mississippi                              4,580                         -                  1,365,689                 1,370,269

Utah                                     3,197                         -                  1,259,324                 1,262,521

All Other States                        33,218                         -                  7,650,678                 7,683,896
                           ====================      ====================     ======================      ====================

Total                                 $367,757                  $258,012                $20,354,838               $20,980,607
                           ====================      ====================     ======================      ====================

</TABLE>


On December 31, 1998, BNLAC had 2,847 general agents and brokers in 26 states to
market its policies compared to 1,964 agents and brokers on December 31, 1997.

On all of its products except the dental policies,  BNLAC pays as commissions to
agents a  relatively  large  portion of the first  year's  premiums  and smaller
portions of subsequent premiums. For the dental policies,  commissions are level
in all years. These practices are common in the industry.  There is considerable
                                      I-2
<PAGE>
competition   for   insurance   agents   and   BNLAC   competes   with   larger,
well-established  life  insurance  companies  for the services of agents.  BNLAC
believes  it is  able  to  attract  competent  agents  by  offering  competitive
compensation,  efficient  service  to agents  and  customers  and by  developing
products to fill special needs within the marketplace.

Reinsurance

BNLAC  reinsures  with  other  insurance  companies  portions  of the  risks  it
underwrites  on sales of life and  accident  and health  insurance.  Reinsurance
enables BNLAC, as the "ceding  company," to reduce the amount of its risk on any
particular  policy and to write policies in amounts larger than it could without
such agreements.

The reinsurer receives a portion of the profit on the reinsured policies.  BNLAC
remains directly liable to  policyholders to perform all policy obligations, and
bears the contingent risk of the reinsurer's insolvency.

Before submitting an application for a policy to the reinsurer, BNLAC determines
whether the applicant is insurable,  but BNLAC rejects any application  which is
not accepted by the reinsurer.

BNLAC  reinsurers its life insurance  under  agreements  which are classified as
either "automatic" or "facultative."  Under an "automatic" treaty, the reinsurer
agrees  that it will  assume  liability  automatically  for the excess  over the
ceding company's  retention  limits on any application  acceptable to the ceding
company. Under a "facultative" treaty, the reinsurer retains the right to accept
or reject any reinsurance submitted after reviewing each application.

A. Life and Accident Insurance.

BNLAC reinsures its "Family  Shield"  accidental  death life insurance  policies
with Business Mens Assurance Company (BMA), Kansas City, Mo., under an automatic
treaty where BMA assumes  liability  for all risks over  $25,000.  The rating by
A.M. Best Company of Business Mens  Assurance  Company was "A"  (Excellent)  for
1997.

All other BNLAC life insurance  products in excess of $35,000 are reinsured with
BMA under an automatic treaty up to $175,000 and under a facultative  treaty for
amounts over $175,000.

The following chart shows life insurance in force net of reinsurance for each of
the five years ended December 31.

<TABLE>
<CAPTION>
                                              Gross                                                         Net
                                            Insurance          Reinsurance          Reinsurance          Insurance
                                            In Force              Ceded               Assumed             In Force
                                         ----------------    -----------------    ----------------    -----------------
     <S>                                 <C>                 <C>                  <C>                 <C>    

           Life Insurance
                1998                         $34,877,000          $13,684,000          $9,229,000          $30,422,000
                1997                          36,828,000           11,971,000           8,226,000           33,083,000
                1996                          33,796,000           11,091,000           7,252,000           29,957,000
                1995                          35,310,000           11,486,000           6,631,000           30,455,000
                1994                          36,280,000           11,188,000           5,624,000           30,716,000


     Accidental Death Insurance
                1998                        $114,000,000         $107,250,000                  $0           $6,750,000
                1997                         119,000,000          112,250,000                   0            6,750,000
                1996                         148,000,000          139,725,000                   0            8,275,000
                1995                         180,000,000          164,426,000                   0           15,574,000
                1994                         208,000,000          190,350,000                   0           17,650,000

</TABLE>

B. Group Dental Insurance.

Prior to January 1, 1995,  group dental  insurance  was  reinsured  with UniLife
Insurance  Company  ("UniLife")  of San  Antonio,  Texas  under  a  quota  share
reinsurance  agreement  whereby  UniLife  assumed 90% of the risk and profits on
each of these policies.  BNLAC received a fee for ceding 90% of the premiums and
UniLife performed all the administrative  functions related to these policies at
no cost to BNLAC. The agreement amount was modified in 1995 to reduce the amount
of risk ceded and to impose certain claim administration fees on BNLAC.

On November 1, 1995, the agreement was terminated and BNLAC began  administering
and retaining 100% on the group dental business.
                                      I-3
<PAGE>
The  following  chart shows group dental  insurance  premiums  collected  net of
reinsurance for each of the five years ended December 31.
<TABLE>
<CAPTION>


                                              Gross                                     Net
                                            Premiums             Premiums            Premiums              Ceding
       Group Dental Insurance               Collected             Ceded              Collected              Fees
                                         ----------------    -----------------    ---------------- --- ----------------
                <S>                      <C>                 <C>                  <C>                  <C> 

                1998                         $20,294,000                   $0         $20,294,000                   $0
                1997                          10,877,000                    0          10,877,000                    0
                1996                           6,926,000                    0           6,926,000                    0
                1995                           4,159,000            1,655,000           2,504,000                    0
                1994                           2,640,000            2,376,000             264,000              180,000
</TABLE>

The following chart shows group dental  insurance claims paid net of reinsurance
and  incurred  loss  ratios for each of the five years  ended  December  31. The
incurred loss ratio represents the ratio of incurred claims to premiums earned.
<TABLE>
<CAPTION>

                                              Gross               Ceded                 Net               Incurred
       Group Dental Insurance              Claims Paid            Claims            Claims Paid            Loss %
       ----------------------              ----------------    -----------------    ----------------     ----------------
       <S>                                 <C>                 <C>                  <C>                  <C>        
                1998                         $14,859,000                   $0         $14,859,000                 78.4%
                1997                           7,842,000                    0           7,842,000                 75.7
                1996                           4,653,000                    0           4,653,000                 73.6
                1995                           2,719,000            1,211,000           1,508,000                 72.5
                1994                           1,822,000            1,639,000             183,000                 74.8

</TABLE>
In 1998 BNLAC began marketing a hospital indemnity policy that is reinsured on a
50% quota share basis with European  Specialty  (North America) Limited ("ESG").
ESG is not  licensed in  Arkansas.  The  reinsurance  agreement  requires ESG to
maintain  a deposit  or letters  of credit in a  qualified  institution  for the
benefit of BNLAC in an amount equal to BNLAC's  reserve  credit on the reinsured
portion of the business.

Investments

BNLAC invests its available funds in certificates of deposit,  US Government and
Agency  bonds,  corporate  bonds  and other  investment  grade  securities.  The
earnings from such  investments  represent a substantial part of BNLAC's income.
For each of the five years ended  December  31,  BNLAC's net  investment  income
(rounded  to the  nearest  thousand)  and ratio of net  return on mean  invested
assets were as follows:


                       Net             Net Return on
                    Investment         Mean Invested
    Year              Income              Assets
--------------    ---------------    ------------------
    1998                $777,937            6.6%
    1997                 790,000            7.1
    1996                 757,000            6.8
    1995                 734,000            6.6
    1994                 674,000            6.5

For  information   concerning  realized  and  unrealized  gains  and  losses  on
securities see Note 4 of the Notes to Consolidated  Financial  Statements,  page
E-8.

As of December 31, 1998,  BNLAC and the Company  owned taxable  municipal  bonds
(the  "bonds") of three  issuers who used the  proceeds to invest in  guaranteed
investment  contracts of Executive Life Insurance  Company  ("Executive  Life").
Executive Life was placed under  rehabilitation by the California  regulators in
1991. At that time all interest payments on the bonds were discontinued.

On March 31,  1991 the  Company  reduced  the book  value of the bonds to 25% of
their $700,000 face value (approximate market value at that time) and recorded a
loss of $522,282.

In 1993, a  rehabilitation  plan was approved for Executive Life. As of December
31, 1998, the Company and BNLAC had received  $569,305 of the original  $700,000
principal and $177,775  interest on the bonds since 1991. No further recovery of
principal and interest on these bonds is expected.

Special  Factors  Relating to Accounting and  Regulatory  Reporting of Insurance
Companies

State  insurance laws and  regulations  govern the accounting  practices and the
form of financial  reports of  insurance  companies  filed with state  insurance
regulatory  agencies.  Most states have adopted the uniform rules established by
the  National  Association  of  Insurance  Commissioners.  Reports  prepared  in
accordance with statutory  accounting practices reflect primarily the ability of
an  insurance  company  to meet  its  obligations  to  policyholders  and do not
necessarily  reflect  its  going-concern  value.  Certain  statutory  accounting
practices differ from generally accepted accounting principles as applied to the
Company's audited financial statements.

Life  insurance  company  revenues are  generated  primarily  from  premiums and
investment  income.  Commissions  and other  sales cost may exceed the amount of
first year  premiums  but are  generally  lesser in later policy  years.  Policy
lapses and surrenders tend to occur more frequently in the earlier years after a
policy is sold.  Statutory  Accounting rules for insurance companies require all
acquisition  costs to be expensed  immediately  and not spread over the expected
duration of the policies. This makes it difficult for a new or growing insurance
company to show net profits.

Statutory  accounting  practices also require that a relatively large portion of
premiums be held as reserves for the protection of policyholders.  The amount of
such reserves is based upon actuarial  calculations  and the annual  increase in
reserves  is  treated  as an  expense.  Such  calculations  must be  based  upon
conservative  assumptions  as to  mortality  costs and  earnings.  Premiums  are
earnings  only  to  the  extent  that  they  exceed  reserve   requirements  and
commissions.   BNLAC  calculates  reserves  using  the  Commissioner's   Reserve
Valuation  Method.  This method provides a lower reserve in the early years of a
policy to partially offset the higher  first-year costs of the policy.  Although
such  reserves  are  treated as  liabilities  and are not  available  for use in
operations,  a company  is free to  invest  such  reserves  in  accordance  with
applicable state laws.  Interest earned on invested reserves is operating income
to the life  insurance  company  to the  extent  that it  exceeds  the  interest
required to be added to the reserves.

The Company's  consolidated  financial statements are required to be prepared in
conformity with generally accepted accounting principles. The objective of these
financial statements is to provide reliable financial information about economic
resources and obligations of a business  enterprise and changes in net resources
resulting  from its business  activities,  measured as a going  concern.  To the
extent that the accounting practices prescribed or permitted by state regulatory
authorities differ from generally accepted  accounting  principles,  appropriate
adjustments will be made, including (but not limited to) the following:

     a) Premiums are reported as earned over the premium paying period. Benefits
        and expenses are associated  with earned premiums so as to result in the
        matching of  expenses  with the  related  premiums  over the life of the
        contracts.  This is  accomplished  through the provision for liabilities
        for  future  policy  benefits  and  the  deferral  and  amortization  of
        acquisition costs.

     b)  Certain  assets  designated  as  "non-admitted  assets"  for  statutory
         purposes are reinstated to the accounts.

     c) The asset valuation  reserve is reclassified as retained earnings rather
        than as a liability.  The interest  maintenance  reserve is reclassified
        from a liability to investment income.

     d) Deferred  federal  income taxes are  provided for income and  deductions
        which are  recognized  in the financial  statements at a different  time
        than  for  federal   income  tax   purposes.   These  items   (temporary
        differences) relate primarily to different methods of calculating policy
        reserves,  treatment of acquisition  costs,  and recognition of deferred
        and uncollected premiums.

     e) Premium  payments  received on annuities are not reported as revenue but
        are recorded as increases to a deposit  liability  account.  The profits
        are then deferred over the life of the policy  instead of being realized
        when the payments are received.

     f) Realized gains and losses from the sale of investments are  reclassified
        to a separate  component  of summary of  operations.  Taxes  thereon are
        included in the tax provision.

     g) Investments in fixed maturity securities that are available for sale are
        carried at fair value with the  unrealized  appreciation  (depreciation)
        recorded to shareholders' equity.
                                      I-5
<PAGE>
The  ability  of BNLAC to pay  dividends  to the  Company  is  restricted  under
Arkansas insurance laws.

Competition

The life and health insurance business is highly competitive, and BNLAC competes
in many instances with individual  companies and groups of affiliated  companies
that have  substantially  greater financial  resources,  larger sales forces and
more widespread agency and brokerage  relationships than BNLAC. Certain of these
companies  operate on a mutual basis which may give them an advantage over BNLAC
since their profits accrue to the policyholders rather than the shareholders. In
1997 BNLAC was  assigned an A. M. Best's  financial  performance  rating of "B-"
(fair).

BNLAC focuses its marketing efforts on sales of its products to small and medium
size groups of employees,  association members and others. These groups range in
size from three to approximately 1,350 persons. BNLAC also sells its products to
individuals. BNLAC is a small insurance company which has no identifiable market
share. BNLAC is not ranked according to its size or volume of sales.

BNLAC  competes for the services of agents and brokers in several  ways.  First,
the Company's  dental  insurance  products are attractive to brokers and general
agents  because  they  can be sold  as an  "add-on"  to  other  group  insurance
products.  Second, BNLAC strives to provide a high level of service to agents by
offering products that meet their clients' needs and by providing individualized
service in the  administration  of such  products.  Finally,  BNLAC  attempts to
structure the levels of premiums, benefits and commissions on insurance products
to compare favorably with competitors.

Insurance Regulations

BNLAC is  subject to  regulation  and  supervision  by the states in which it is
admitted to transact business.  Each state has an insurance department which has
broad  administrative  and  supervisory  powers to grant and revoke  licenses to
transact business,  regulate trade practices,  establish guaranty  associations,
license agents,  approve policy forms,  regulate premium rates for some lines of
business,   establish  reserve   requirements,   regulate  competitive  matters,
prescribe  the form and content of required  financial  statements  and reports,
determine the  reasonableness  and adequacy of statutory capital and surplus and
regulate the type and amount of investments permitted.

Most states have also enacted  legislation  which  regulates  insurance  holding
company systems,  including acquisitions,  extraordinary dividends, the terms of
surplus notes,  the terms of affiliate  transactions  and other related matters.
BNLAC is registered as a holding company system pursuant to such  legislation in
Arkansas and BNLAC routinely reports to other jurisdictions.

Recently,  increased  scrutiny  has been  placed upon the  insurance  regulatory
framework. A number of state legislatures have considered or enacted legislative
proposals  that  alter,  and in many  cases  increase,  the  authority  of state
agencies to regulate  insurance  companies  and this could result in the federal
government assuming some role in the regulation of the insurance  industry.  The
Subcommittee  on Oversight  and  Investigations  of the  Committee on Energy and
Commerce of the US House of  Representatives  has made  inquiries  and conducted
hearings as part of a broad study of the regulation of US insurance companies.

The National  Association of Insurance  Commissioners  (NAIC), an association of
state  regulators and their staffs,  attempts to coordinate the state regulatory
process and  continually  re-examines  existing laws and  regulations  and their
application to insurance companies. Recently, this re-examination has focused on
insurance  interpretations  of existing law, the development of new laws and the
implementation of non-statutory  guidelines.  The NAIC has formed committees and
appointed  advisory groups to study and formulate  regulatory  proposals on such
diverse  issues as the use of surplus  debentures,  accounting  for  reinsurance
transactions and the adoption of risk-based  capital ("RBC") rules. In addition,
in  connection  with its  accreditation  of states to conduct  periodic  company
examinations,  the NAIC  has  encouraged  states  to adopt  model  NAIC  laws on
specific  topics,  such as holding  company  regulations  and the  definition of
extraordinary  dividends.  It is not  possible to predict  the future  impact of
changing state and federal regulation on operations of BNLAC.

The NAIC has  adopted  model RBC  requirements,  to  evaluate  the  adequacy  of
statutory  capital and surplus in relation to  investment  and  insurance  risks
associated  with: (i) asset quality;  (ii) mortality and morbidity;  (iii) asset
and liability  matching;  and (iv) other  business  factors.  The RBC formula is
designed to be used by the states as an early warning tool to identify  possible
weakly capitalized companies for the purpose of initiating regulatory action. In
addition,  the  formula  defines  a new  minimum  capital  standard  which  will
supplement  the  prevailing  system of low fixed  minimum  capital  and  surplus
requirements on a state-by -state basis.
                                      I-6
<PAGE>
RBC requirements  provide for four different levels of regulatory  attention
depending on the ratio of a company's  total  adjusted  capital  (defined as the
total of its statutory  capital,  surplus,  asset  valuation  reserve and 50% of
apportioned  dividends) to its RBC. The "Company Action Level" is triggered if a
company's total adjusted  capital is less than 100% but greater than or equal to
75% of its RBC,  or if total  adjusted  capital  is less  than 125% of RBC and a
negative  trend has  occurred.  The trend  test  calculates  the  greater of any
decreases in the margin (i.e.,  the amount in dollars by which a company's total
adjusted  capital  exceeds its RBC)  between the current year and the prior year
and  between  the  current  year and the  average of the past three  years,  and
assumes  that the decrease  could occur again in the coming  year.  If a similar
decrease  in the margin in the coming  year would  result in an RBC of less than
95%, then Company Action Level would be triggered.  At the Company Action Level,
a company must submit a  comprehensive  plan to the regulatory  authority  which
discusses  proposed  corrective  actions to improve  its capital  position.  The
"Regulatory  Action Level" is triggered if a company's total adjusted capital is
less than 75% but  greater  than or equal to 50% of its RBC.  At the  Regulatory
Action Level the regulatory  authority will perform a special examination of the
company and issue an order specifying  corrective actions that must be followed.
The  "Authorized  Control  Level" is  triggered  if a company's  total  adjusted
capital is less than 50% but  greater  than or equal to 35% of its RBC,  and the
regulatory  authority may take any action it deems necessary,  including placing
the company under regulatory control. The "Mandatory Control Level" is triggered
if a  company's  total  adjusted  capital  is less than 35% of its RBC,  and the
regulatory  authority  is  mandated  to place the  company  under  its  control.
Calculations  using the NAIC  formula at December  31, 1998  indicated  that the
ratios of total adjusted capital to RBC for BNLAC would have been  significantly
above the Company Action Level.

As part of their  routine  regulatory  process,  approximately  once every three
years,   insurance   departments  conduct  detailed   examinations   ("triennial
examinations")  of the  books,  records  and  accounts  of  insurance  companies
domiciled in their states.  Such triennial  examinations are generally conducted
in cooperation with the departments of other states under guidelines promulgated
by the NAIC.

The Arkansas  Insurance  Department  in February  1997  conducted  the triennial
statutory  examination for the three-year  period ending December 31, 1995. As a
result of the  examination,  the Company was  required to  establish a custodial
arrangement with an Arkansas bank for certain securities, and to reclassify from
1996 to 1995 an estimated  expense of $99,000 for dental claims incurred but not
reported.

BNLAC's  management  is not aware of any failure to comply with any  significant
insurance regulatory requirement to which BNLAC is subject at this time.

Personnel

As of  February  28,  1999,  BNLAC had four  executive  officers,  36  full-time
administrative personnel and 2 part-time employees. BNLAC's administrative staff
supervises services for the agency force, policy  underwriting,  policy issuance
and service, billing and collections,  life claims,  accounting and bookkeeping,
preparation of reports to regulatory  authorities and other matters. The Company
has not  experienced  any work  stoppages or strikes and considers its relations
with its employees and agents to be excellent.  None of the Company's  employees
is presently  represented by a union. BNLAC uses a third party  administrator to
process dental claims.

                                            ITEM 2. PROPERTIES

Neither the Company, BNLE or BNLAC own any real estate.

BNLAC  leases 288 square feet of office  space in Des Moines,  IA at a rental of
$584 per month ($7,008 per year).  The rent includes the services of a secretary
that is shared with other tenants of the building.

The Company leases 12,150 square feet of office space in Austin,  Texas, under a
seven year,  triple net lease.  The annual base  rentals are  $121,944  and will
increase to $127,944 in 2000. The initial term of the lease will expire in 2005.
The  Company  may renew the lease for  another ten years at the rate of $126,000
for the first five years and  $129,000  for the second five  years.  The Company
also has a lease for office  space in Austin  which it no longer  occupies.  The
Company  has a  sublease  on this  space  until  May 1,  1999 when the lease and
sublease expire.

BNLE leases  office space in Sherwood,  Arkansas at a rental of $1,200 per month
($14,400 per year). BNLAC shares 50% of the rental cost.

The Company  owns the  furniture  and  equipment  used in the  operation  of its
business.
                                      I-7

<PAGE>

                                        ITEM 3. LEGAL PROCEEDINGS

On April  30,  1996,  Myra Jo  Pearson  and Paul  Pearson  filed a class  action
complaint in the Circuit Court of Pulaski County, Arkansas (3rd Division) naming
the Company,  BNL Equity  Corporation  and several  officers of the Company,  as
defendants.  The  plaintiffs  have  alleged  that the  defendants  violated  the
Arkansas  Securities  Act in  several  respects  in  connection  with the public
offerings of securities made by United Arkansas  Corporation  ("UAC") (now known
as BNL Equity Corporation) during the period from January 1989 until May, 1992

The  Company  retained  the  firm of  Friday,  Eldredge  & Clark,  Little  Rock,
Arkansas,  to handle the defense of the action on behalf of all  defendants.  On
March 3, 1998, the plaintiffs  filed a Second Amended Class Action  Complaint in
which they dropped  certain claims,  including  allegations of common law fraud,
fraudulent concealment,  tolling of the statute of limitations,  and the request
for punitive damages.

The first issue determined in the case concerned the procedural issue of whether
the lawsuit would be certified as a class  action,  with the class of plaintiffs
including all Arkansas  purchasers who  participated in the public  offerings of
securities by UAC during the stated time frame.  A hearing was held on the issue
of whether the class would be certified on June 8, 1998,  and on August 27, 1998
the Court  entered a ruling  certifying  the class.  The Company  believes  that
serious  errors  were made in  certifying  the class,  and the Company is in the
process of filing an appeal of the certification order.

The  certification  of the class  does not have any  impact  on the  substantive
issues to be litigated, including whether or not any material misrepresentations
or omissions  were made in the  offerings  in  question,  whether the claims are
barred by the applicable statute of limitations, and other issues. If the effort
to certify the action as a class  action had  failed,  the  Company's  potential
liability,  if any,  would have been  limited to the named  plaintiffs,  Myra Jo
Pearson,  Paul Pearson and James Stillwell.  Since the class has been certified,
the potential liability, if any, extends to all members of the class.

The Company continues to believe strongly that the case is without merit.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's  Annual  Meeting of  Shareholders  was held on May 20, 1998 in Des
Moines, Iowa. At the annual meeting,  the following  individuals were elected to
the Company's  Board of Directors.  The number of shares voted for each director
is set forth next to his name.
<TABLE>
<CAPTION>
<S>                        <C>                  <C>                   <C>                 <C>                         <C>
Wayne E. Ahart             (13,954,247)         Hayden Fry            (13,949,321)         C. James McCormick         (13,952,825)

C. Donald Byrd             (13,959,449)         John Greig            (13,960,651)         Robert R. Rigler           (13,953,365)

Kenneth Tobey              (13,960,451)         Roy Keppy             (13,951,823)         Chris Schenkel             (13,951,865)

Barry N. Shamas            (13,955,909)         Thomas Landry         (13,951,325)         L.Stanley Schoelerman      (13,958,651)

Cecil Alexander            (13,952,825)         Roy Ledbetter         (13,952,627)         Orville Sweet              (13,960,451)

Richard Barclay            (13,952,825)         John E. Miller        (13,960,651)

Eugene A. Cernan           (13,951,325)         James A. Mullins      (13,960,651)


A total of 111,594 shares were voted against all directors.
</TABLE>

The  shareholders  ratified  the  selection  of  Smith,  Carney  &  Co.,  as the
Corporation's  independent auditors for the fiscal year 1998.  13,913,496 shares
were voted in favor; 54,261 were voted against; and 105,488 shares abstained.

                                      I-8

<PAGE>

================================================================================
================================================================================
                                             

                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS

Market for Stock

During 1998 the stock of the Company was traded by  Starmont  Capital  Ltd.  Des
Moines, Iowa on a workout basis. There has been a limited trading market for the
Company's  securities  during 1998.  During the year there were a total of eight
stock sales all at a price of $.30 a share.  Starmont  Capital has  discontinued
trading stock on a workout basis.

In connection with an offering of common stock and preferred stock by BNL Equity
Corporation  (formerly  United Arkansas  Corporation)  organizers of the Company
received  5,563,212  shares  which  are held in  escrow.  These  shares  will be
released from escrow on August 1, 1999.

Holders

As of  December  31,  1998,  there  were  4,716  shareholders  of  record of the
Company's common stock.

Dividends

The Company has not declared  any  dividends on its common stock to date and has
no present plans to pay any dividends in the foreseeable  future.  The Company's
ability to declare and pay  dividends in the future will be  dependent  upon its
earnings and the cash needs for expansion. In addition,  payment of dividends by
BNLAC is regulated under Arkansas insurance laws.

Transfer Agent and Registrar

Regions Bank, Little Rock, Arkansas, is the Registrar and Transfer Agent for the
Company's common stock.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Liquidity and Capital Resources

At December 31, 1998, the Company had liquid assets of $2,426,963 in cash, money
market savings accounts,  and short-term  certificates of deposit;  all of which
can readily be converted to cash.

The major components of operating cash flows are premiums,  annuity deposits and
investment  income. In 1998, BNLAC collected $21 million of premiums and annuity
deposits (gross before  reinsurance) and $807,342 of investment income.  Another
source  of cash flow is from the sale of  investments  which  produced  gains of
$57,563 in 1998.

The  Company's  investments  are  primarily in U.S.  Government  and  Government
Agencies  ($9,171,893)  and other  investment  grade bonds ($834,315) which have
been marked to market and classified as available for sale. The Company does not
hedge its investment income through the use of derivatives.

Management  believes that liquid assets along with investment and premium income
exceed the Company's long and short-term  liquidity  needs. The Company does not
plan to borrow money for operations.

The  Company  conducts  its  insurance   operations  through  its  wholly  owned
subsidiary,  BNLAC. At December 31, 1998 BNLAC had statutory capital and surplus
of $3,995,706.  In 1997, BNL Financial  Corporation  contributed $500,000 to the
paid in surplus of BNLAC and BNL Equity Corporation contributed $250,000.  BNLAC
is required to maintain minimum levels of statutory  capital and surplus,  which
differ  from state to state,  as a  condition  to  conducting  business in those
states  in which it is  licensed.  The  State of  Arkansas,  which is the  legal
domicile of BNLAC,  requires a minimum of $2,300,000 in capital and surplus. The
highest requirement in any state in which BNLAC is licensed is $3,000,000.  Some
states in which BNLAC is licensed have increased  these  requirements to as much
as  $5,000,000,  but, in general,  BNLAC may continue to operate under the lower
minimum  requirements  in effect when it first became licensed in the applicable
state. BNLAC voluntarily  withdrew its license in the state of Washington due to
an increased minimum capital requirement in that state of $2,400,000. Management
monitors these developments to maintain compliance with the requirements of each
state. For additional information, see Note 2 to the financial statements.
                                      II-1
<PAGE>
Results of Operations

Premium  income for 1998 was  $21,054,713  compared to  $11,532,718  in 1997, an
increase of  $9,521,995.  This  increase is due to the  increase in group dental
insurance premiums written during 1998.

Net  investment  income was $807,342 in 1998 and $859,749 in 1997.  The decrease
was due to the receipt of interest of $17,253 in 1997, compared to $282 in 1998,
on certain taxable municipal bonds that had been in default since 1991 (see Note
4). Management  believes no additional interest or principal will be received on
these.  The remainder of the decrease was primarily due to lower  interest rates
and the reinvestment of bonds called for redemption in short-term lower yeilding
investments.

Realized gains were $57,563 in 1998 compared to $75,754 in 1997.  Realized gains
included $1,815 and $42,328 for 1998 and 1997, respectively, of partial payments
of principal on certain taxable municipal bonds that had been marked down to 25%
of par value in 1991.  The balance of the  realized  gains in 1998 and 1997 were
due to gains on bonds  sold in the  normal  course of the  Company's  investment
activity.

Increases  (decrease) in liability  for future  policy  benefits were $39,224 in
1998 compared to ($39,601) for the same period in 1997.  The increase of $78,825
is  primarily  due to an  increase  in  unearned  premium  on the  group  dental
insurance.

Policy benefits and other  insurance costs were  $18,971,791 in 1998 compared to
$10,221,754  in  1997.  The  increase  was  due to an  increase  in  claims  and
commissions  resulting  from the  increase in  insurance  business in force.  In
addition,  the claims ratio on dental  insurance,  which represents the ratio of
claims incurred to premium received, was 78.4% for 1998 compared 75.7% in 1997.

Amortization  of  deferred  policy  acquisition  costs was  $53,778  in 1998 and
$40,972 in 1997.  The increase  resulted from an adjustment to the  amortization
schedule to reflect the increase in lapsed life policies during 1998.

Operating expenses were $3,431,929 in 1998 and $2,780,237 in 1997. This increase
was primarily due to increases in data  processing  expense,  payroll and claims
administrative  expense  - all of  which  relate  to  the  increased  volume  of
insurance in force. Despite this increase, the amount of such expenses expressed
as a percentage of premiums (on a statutory  basis)  declined from 20.5% in 1997
to 14.5% in 1998.

Taxes,  other than on income were  $669,648 for 1998 and $396,471 for 1997.  The
increase  was due to the  premium  taxes  on the  increased  insurance  premiums
collected.

The consolidated net operating loss for 1998 was $1,246,752 compared to $931,612
in 1997.  The  increase was due to the increase in the claims ratio on the group
dental business and reflects a trend in this industry. The Company has addressed
the issue by modifying  new business  rates and benefits and further  increasing
renewal rates.

Accounting Developments

The Company was required to adopt SFAS # 130 "Reporting Comprehensive Income" on
January  1,  1998.  This rule  requires  the  Company to report the year to date
change in unrealized gains or losses on its investments as comprehensive  income
on the Statement of Income.  Unrealized  gains or losses  reported in the equity
section of the balance sheet have been renamed  "accumulated other comprehensive
income."  For the year ended  December 31, 1998 other  comprehensive  income was
$37,760  compared  to  $212,209  for the same  period in 1997.  The  decrease in
comprehensive  income in 1998 was due to a smaller  increase in market  value of
the bond portfolio in 1998 versus 1997.

Market Risk

The Company's conservative investment philosophies minimize market risk and risk
of default  by  investing  in high  quality  debt  instruments,  with  staggered
maturity  dates.  The Company does not hedge  investment risk through the use of
derivative financial instruments.  The market value of the Company's investments
in debt  instruments  varies  with  changes in  interest  rates.  A  significant
increase  in  interest  rates  could  cause  decreases  in the market  values of
investments  and have a negative  effect on  comprehensive  income and  decrease
surplus.

The "Year 2000" Issue

The "Year 2000" (or "Y2K") Issue is the  inability of  computers  and  computing
technology to recognize  correctly the Year 2000 date change.  The problem arose
because many software  programs were written using two digits for the year (e.g.
98) rather than four digits (e.g. 1998). These systems automatically assume that
the first two  digits  are "1" and "9",  which  will  cause  these  programs  to
misinterpret dates occurring after December 31, 1999.
                                      II-2
<PAGE>

The Company has 3 primary sources of computer data. They are:
1.   VIP  Systems,  Inc.  (VIP) -  Independent  provider of  mainframe  computer
     support  for all of the  Company's  data  except  dental  insurance  claims
     payments.

2.   ASO North  America,  Inc. (ASO) - Third Party  Administrator  (TPA) for the
     Company's dental insurance claims payments and claims records.

3.  In-house  programs  which  provide a majority  of the  Company's  management
    reports.

The Y2K compliance status of each of these three systems is as follows:

VIP
All VIP  application  software  programs  were  originally  written  with an
8-digit date field,  including 4 digits for the year  designation.  As a result,
VIP  has  represented  to the  Company  that  its  application  software  is Y2K
compliant. VIP is in the process of converting its existing application software
to PC based hardware using Windows NT operating system (which is Y2K compliant).
The conversion  process includes testing for Y2K compliance and is scheduled for
completion  by  mid-1999.  On August 1, 1999,  VIP will decide which system (the
current  mainframe system or the new PC system) will be in use at year end 1999.
BNL will perform final Y2K  compliance  verification  tests at that time.  VIP's
mainframe  computer  used an operating  system that was not Y2K  compliant.  VIP
recently acquired and implemented all necessary  program  "patches"  required to
make its mainframe  operating  system Y2K  compliant.  On January 12, 1999,  VIP
informed the Company that tests have been  performed  without  problems and that
the mainframe and operating system are Y2K compliant. 

ASO 
In December  1998,  ASO  completed  the first of a two step  conversion to a Y2K
compliant  computer  system.  The second  step will be a system  upgrade  and is
scheduled for  completion by July 1, 1999.  ASO has  represented to BNL that the
upgrade  is  fully  Y2K  compliant.   BNL  will  perform  final  Y2K  compliance
verification  tests  when the  upgrade  has been  installed.  In the  event  the
verification tests fail, the Company's backup alternative is to retain a new TPA
that is Y2K compliant.

In-House Programs
The Company's  Internal Systems  Management (ISM) department  implemented a year
2000  strategy in January 1998 to evaluate  all  hardware  and in-house  program
software to determine  their Y2K readiness.  The ISM  department  identified the
following hardware and software problems:
1.   Computer system board BIOS's would not understand year 2000 date.
2.   Some  computers  were  still  using  operating  systems  that  were not Y2K
     compliant.
3.   Internal network software was not Y2K compliant.
4.   Internal databases had some Y2K issues.

The ISM  department  evaluated  these problems and by January 1999 had taken the
following actions to correct the problems identified:
1.   Replaced  all computer  system  boards with boards Y2K approved by National
     Software Testing Laboratories.
2.   Upgraded all computers to a Y2K compliant operating system.
3.   Converted the internal network to new network software with all appropriate
     upgrades.
4.   Upgraded the internal database with millennium edition software.
                                      II-3
<PAGE>
Full  scale  testing  has been  performed  in a year  2000  environment  with no
problems  being  found.  As of February  1, 1999 the  Company's  ISM  department
believes that in-house programs are Y2K compliant.

The cost incurred to date by the Company to correct the Y2K problem has not been
material.  The Company does not expect to incur any additional material costs to
become  compliant  nor does it  foresee  a need for any  substantial  amount  of
in-house staff training.

                           ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  information  on pages E-1  through  E-15  attached to this Report is hereby
incorporated by reference.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

None


                                      II-4


<PAGE>



================================================================================
                                                  
                                                 PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>

                                               
                                              First Became
                                               Director or
           Name                   Age        Executive Officer                           Position
----------------------------    --------    ---------------------    -----------------------------------------------
<S>                             <C>         <C>                      <C>  

Wayne E. Ahart                    58                1984                   Chairman of the Board and Director

C. Donald Byrd                    57                1984                Vice Chairman of the Board and Director

Kenneth Tobey                     40                1994                         President and Director

Barry N. Shamas                   51                1984                 Executive Vice President, Treasurer and
                                                                                        Director

Cecil Alexander                   62                1994                                Director

Richard Barclay                   61                1994                                Director

Eugene A. Cernan                  64                1994                                Director

Hayden Fry                        69                1984                                Director

John Greig                        63                1984                                Director

Roy B. Keppy                      75                1984                                Director

Tom Landry                        73                1984                                Director

Roy Ledbetter                     68                1994                                Director

John E. Miller                    69                1994                                Director

James A. Mullins                  64                1984                                Director

C. James McCormick                73                1984                                Director

Robert R. Rigler                  75                1989                                Director

Chris Schenkel                    74                1994                                Director

L. Stan Schoelerman               73                1984                                Director

Orville Sweet                     74                1984                                Director
---------------------------- -- -------- -- ---------------------
</TABLE>

The  term  of  office  of  each  director  expires  at  the  annual  meeting  of
shareholders upon election and qualification of such director's  successor.  The
Company's  executive  officers  serve at the pleasure of the Board of Directors.
The above officers and directors serve in the same capacity for BNLAC.

Identification of Certain Significant Employees

         Not applicable.

Family Relationships

         No family relationship exists between any director or executive officer
of the Company.

                                     III-1
<PAGE>
Business Experience

The following is a brief description of the business  experience during the past
five years of the directors and executive officers of the Company.

Wayne E. Ahart has served as  Chairman  of the Board of BNL since 1984 and BNLAC
since 1986. He has served as Chairman of the Board of BNLE since 1988 and served
as Chairman  of the Board of United  Arkansas  Life from 1990 to 1994.  Prior to
that time, Mr. Ahart served as Board Chairman of: Investors Trust,  Inc. ("ITI")
and  its  subsidiary,  Investors  Trust  Assurance  Company  ("ITAC"),  both  of
Indianapolis,     Indiana    (1973-1987);     Liberty    American    Corporation
("LAC")(President  since 1981) and its  subsidiary  Liberty  American  Assurance
Company ("LAAC"),  both of Lincoln,  Nebraska (1975-1987);  (President) American
Investors Corporation ("AIC") and its subsidiary, Future Security Life Insurance
Company ("FSL"), both of Austin, Texas (1980-1987). Mr. Ahart has been owner and
Chairman of the Board of Lone Star Pizza Garden Inc. from 1986 to the present.

C. Don Byrd has been Vice  Chairman  of the Board of BNL,  BNLE and BNLAC  since
August 1, 1994.  Mr.  Byrd was  President  and a Director of BNL and BNLAC since
1984 and 1986,  respectively.  Mr. Byrd was Agency  Director of FSL from 1983 to
1984 and  Regional  Director of AIC 1981 to 1983.  He was an agent and  Regional
Director of ITI and ITAC from 1974 to 1981.

Kenneth  Tobey has been  President and director of BNLAC and BNL since August 1,
1994.  Mr.  Tobey has  served as  President  of BNLE  since  1988 and  served as
president of United  Arkansas  Life from 1990 to 1994. He served as Assistant to
the  President  and Training  Director of BNLAC from 1986 to 1988.  From 1981 to
1986, Mr. Tobey served in various  capacities for AIC and FSL,  including Agent,
Regional Manager, Executive Sales Director and Assistant to the President.

Barry N. Shamas has served as Executive vice-president,  Secretary and Treasurer
of BNLE  since 1988 and United  Arkansas  Life from 1990 to 1994.  From 1984 and
1986,  respectively,  he has served as Executive  Vice President and Director of
BNL and  BNLAC,  which  positions  he  presently  holds.  He served  in  various
capacities for ITI and ITAC,  including  Executive Vice  President,  Senior Vice
President,  Treasurer and  Financial  Vice  President  beginning in 1976 through
1987. Mr. Shamas served as Executive Vice President,  Secretary/Treasurer and as
Director of AIC and FSL from 1980 and 1983, respectively,  until 1987. From 1978
through  1987,  Mr.  Shamas  served as a Director and a member of the  Executive
Committee of LAC and LAAC.

Cecil L.  Alexander is currently  Vice  President of Public Affairs for Arkansas
Power & Light Company,  where he has been employed since 1980.  Prior to joining
the AP&L  Executive  Staff,  Mr.  Alexander  served for 16 years in the Arkansas
General   Assembly,   and  during   1975-76,   was   Speaker  of  the  House  of
Representatives.  Since 1971 Mr.  Alexander has been involved in the real estate
business as a partner in Heber  Springs  Realty.  He is a past  president of the
Cleburne  County  Board of Realtors and has served on the  governmental  affairs
committee of the Arkansas Association of Realtors. Alexander is currently on the
Board of Directors of Mercantile  Bank of Heber Springs,  the Board of Directors
of the Arkansas Tourism  Development  Foundation,  and the Board of Directors of
Baptist Foundation.

Richard L. Barclay,  a Certified Public  Accountant,  has been engaged in public
accounting  since  1961.  He is a Partner  in the firm of Beall,  Barclay & Co.,
Certified Public  Accountants in Rogers,  Arkansas and an Executive  Director of
the Policy and Budget  committee for the Arkansas  office of the governor.  From
1961 to 1997,  he was a  Partner  in the firm of  Barclay,  Yarborough  & Evans,
Certified Public Accountants in Rogers, Arkansas. He is a member of the Arkansas
Society  of  Certified  Public  Accountants  and of the  American  Institute  of
Certified  Public  Accountants.  He  was a  member  of  the  Arkansas  House  of
Representatives  from 1977 until  1991.  He  presently  serves as a Director  of
Federal  Savings Bank,  Rogers,  Arkansas;  and Vice  President,  Arkansas State
Chamber of Commerce.

Eugene A.  Cernan has been  President  and  Chairman  of the Board of The Cernan
Corporation,  since 1981. In addition,  he recently became Chairman of the Board
of Johnson Engineering  Corporation which provides the National  Aeronautics and
Space Administration (NASA) with Flight Crew Systems Development. Captain Cernan
retired from the U. S. Navy in 1976 after  serving 20 years as a naval  aviator,
13 of which were dedicated to direct involvement with the U. S. Space Program as
a NASA  astronaut.  Captain Cernan was the pilot on the Gemini 9 mission and the
second  American  to walk in  space;  lunar  module  pilot  of  Apollo  10;  and
Spacecraft  Commander of Apollo 17, which  resulted in the  distinction of being
the last man to have left his footprints on the surface of the moon. In 1973, he
served as a Senior United  States  Negotiator  in  discussions  with USSR on the
Apollo-Soyuz  Mission. Mr. Cernan served as Executive  Consultant- Aerospace and
Government  of Digital  Equipment  Corporation  from 1986 to 1992,  and he was a
Director and Vice  President-International  of Coral Petroleum,  Inc.,  Houston,
Texas from 1976 to 1981.  Captain  Cernan is  presently  a  Director  of Up With
People, an international  educational foundation for young men and women; United
States  Space  Foundation;   the  Young  Astronaut  Council;   Alaska  Aerospace
Development  Corporation,  International  MicroSpace;  and  Johnson  Engineering
Corporation.  Captain Cernan is also on the President's  Engineering  Committee,
Purdue  University  and is a member of the Board of  Trustees of the U. S. Naval
Aviation  Museum,  NFL Alumni  and Major  League  Baseball  Players  Alumni.  In
addition,  Captain Cernan has served as a consultant commentator to ABC News. He
served on the Board of AIC and FSL from 1980 and 1983, respectively, to 1987.
                                     III-2
<PAGE>

Hayden Fry was Head Football  Coach at the University of Iowa from 1979 to 1998.
He was Head Football Coach at North Texas State University from 1973 to 1978 and
at Southern Methodist  University from 1962 to 1972. He was named Football Coach
of the Year in the Big Ten (1981,  1990,  1991), the Missouri Valley  Conference
(1973),  and the Southwest  Conference (1962, 1966 and 1968). He is on the Board
of Advisors of Wilson  Sporting  Goods (1962 to date);  the Board of Trustees of
Pop  Warner  Football  (1962  to  date);  and  the  American   Football  Coaches
Association  (1983  to date)  and is the 1993  President.  He was  President  of
Hawkeye  Marketing  Group  from  1979 - 1984.  He is a  member  of the  Board of
Directors of the PPI Group.

John Greig has been  President of Greig and Co. since 1967.  He is a Director of
Boatmen's  Bank of Iowa,  NW.,  Estherville,  Iowa. He has been President of the
Iowa Cattlemen's Association (1975-1976) and a member of the Executive Committee
of the National Cattlemen's Association (1975-1976). He was a member of the Iowa
Board  of  Regents  from  1985  to  1991.  He  was  elected  as  an  Iowa  State
Representative in 1993.

Roy Keppy has operated his grain and livestock  farming  operation in Davenport,
Iowa since  1946.  In 1982,  he and his son founded  Town and  Country  Meats in
Davenport and he currently  serves as its Vice  President.  He was a Director of
Eldridge Cooperative Elevator Company for 33 years, retiring in 1982, serving as
President for 6 years. He is now a Director of First State Bank N.A., Davenport,
Iowa. He is a past Chairman of the National Livestock and Meat Board, and was on
its Board of  Directors  from 1970 to 1986.  He was on the Board of Directors of
the  National  Pork  Producers  from 1965 to 1972,  serving as its  President in
1970-1971.

Thomas W.  Landry was Head Coach of the Dallas  Cowboys,  1960 to 1989.  He is a
member  of the  National  Board  of  Trustees  of the  Fellowship  of  Christian
Athletes.  He serves as a Director of Dallas Theological Seminary. He was on the
Board of Directors of Continental Life Insurance  Company for four years. He has
served as Texas State Chairman of the American Cancer Society.  Mr. Landry is an
Advisory  Member of the Board of  Directors  of  Southwest  Baptist  Theological
Seminary,  Chairman of the Dallas International Sports Commission,  and a member
of the Board of Advisors of Alexander Proudfoot Company.

Roy E. Ledbetter  presently  serves as President and Chief Executive  Officer of
Highland Industrial Park, a division of Highland Resources, Inc. in East Camden,
Arkansas.  He holds a Bachelor  of Science  Degree in  Education  from  Southern
Arkansas  University at Magnolia,  a Masters  Degree in Education from Henderson
State  University  at  Arkadelphia  and an AMP from Harvard  Business  School at
Boston. In 1966, Mr. Ledbetter joined Highland  Resources,  Inc. and coordinated
organization of Southern Arkansas  University  Technical Branch; was promoted to
division Manager (1972), Vice President and Division Manager (1975), Senior Vice
President  (1980),  and  President in 1984.  He is past  President of the Camden
Chamber of Commerce; was 1977 Camden Jaycee's Man of the Year; was awarded first
annual Camden Area Chamber of Commerce  Community  Service Award in 1983; served
on Education Standards Committee of the State of Arkansas;  and presently serves
on the Boards of East Camden and  Highland  Railroad,  Shumaker  Public  Service
Corporation,  Merchants and Planters Bank of Camden, and First United Bancshares
of El Dorado.

C.  James  McCormick  is  Chairman  of the Board of  McCormick,  Inc.,  Best Way
Express, Inc., and President of JAMAC Corporation, all of Vincennes, Indiana. He
is also Vice  Chairman  of Golf Hosts,  Inc. He is the owner of CJ Leasing.  Mr.
McCormick  is  Chairman  of the  Board of  Directors  and CEO of First  Bancorp,
Vincennes,  Indiana;  First Vice  Chairman of  Vincennes  University  and a Life
Director  of the  Indiana  Chamber  of  Commerce;  and a member  of the  Indiana
President's Organization and the Indiana Automobile Dealers Association. He is a
former  Chairman  of  the  Board  of the  American  Trucking  Associations.  Mr.
McCormick is a Past Chairman of the National Board of Trustees of The Fellowship
of Christian Athletes.

John  E.  Miller  has  been  a  member  of  the  State  of  Arkansas   House  of
Representatives  since  1959.  He  has  been  self-employed  in  the  insurance,
abstract,  real estate, heavy construction and farming business for more than 20
years.  He  presently  serves on the Board of  Directors  of Calico Rock Medical
Center,  Easy K Foundation,  National Conference of Christians and Jews, Council
of State Governments,  Southern Legislative Conference, State Advocacy Services,
Lions  World  Services  for the Blind,  State  Board of Easter  Seals,  Williams
Baptist College Board of Trustees,  and Izard County Chapter of the American Red
Cross.

James A. Mullins has owned and operated Prairie Flat Farms,  Corwith, Iowa since
1969.  He was a director  of the Omaha  Farm  Credit  Bank from 1985 to 1994,  a
director of the Federal Farm Credit Banks Funding Corporation from 1986 to 1994,
and director of the US Meat Export  Federation  from 1988 to 1995.  He served as
Chairman of the Foreign Trade Committee,  National Cattlemen's Association (1988
- 1993).  He was Chairman of the US Meat Export  Federation  until 1994.  He was
Chairman of the  National  Livestock & Meat Board in 1983;  Chairman of the Beef
Industry Council in 1979 and 1980; and Chairman of the Omaha Farm Credit Bank in
1988 and 1989.

Robert R.  Rigler has been  Chairman of the Board of  Security  State Bank,  New
Hampton,  Iowa since 1989; he served as its President and CEO from 1968 to 1989.
Mr. Rigler was Iowa Superintendent of Banking from 1989 to 1991. He was a member
of the  Iowa  Transportation  Commission  from  1971 to 1986 and  served  as its
Chairman  from 1973 to 1986.  He was a member of the Iowa State Senate from 1955
to 1971 and served as a Majority and Minority Floor Leader.

Chris  Schenkel is presently a semi  retired  television  sportscaster  with ABC
Sports.  From 1965 to 1997 he was a  full-time  television  sportscaster  of ABC
Sports,  New York, New York. He also served as Spokesperson for  Owens-Illinois,
Toledo,  Ohio, from 1976 to present, for whom he speaks as voice on commercials,
personal appearances,  conventions and shows. Mr. Schenkel served as Chairman of
the Board of  Directors  of Counting  House Bank,  North  Webster,  Indiana from
1974-1982. He also served as a director of ITI and ITAC from 1978 to 1986 and on
the Board of Haskell Indian Junior College, Lawrence, Kansas.
                                     III-3

<PAGE>

L. Stanley  Schoelerman  has been  President  and a partner of Petersen  Sheep &
Cattle Co., Spencer,  Iowa since 1964. He was a Director of Home Federal Savings
& Loan, Spencer,  Iowa, from 1969 to 1988; and Honeybee  Manufacturing,  Everly,
Iowa, from 1974 to 1986. He was President of  Topsoil-Schoenewe,  Everly,  Iowa,
from 1974 to 1986. Mr.  Schoelerman  was  Commissioner of the Iowa Department of
Transportation  from 1974 to 1978 and was a member of the National Motor Carrier
Advisory Board of the Federal Highway Administration from 1981 to 1985.

Orville Sweet served as a Visiting  Industry  Professor at Iowa State University
from 1989 to 1990 and is President of Sweet and  Associates,  a consulting  firm
for agricultural  organizations.  He was Executive Vice President of the 100,000
member National Pork Producers Council,  Des Moines, Iowa, from 1979 to 1989. He
was President of the American Polled Hereford Association, Kansas City, Missouri
in 1963-79.  He is past President of the US Beef Breeds Council and the National
Society of Livestock Records  Association and was a Director of the Agricultural
Hall of Fame and the US Meat Export  Federation.  He is a member of the American
Society  of Animal  Science.  He has  served  as a member  of the USDA  Advisory
Council Trade Policy,  the State  Department  Citizens Network and the Executive
Committee of the Agricultural Council of America.

                                     ITEM 10. EXECUTIVE COMPENSATION

Executive Compensation

The following  table sets forth certain  information  regarding  remuneration of
executive  officers in excess of $100,000  during the three years ended December
31.
<TABLE>
<CAPTION>
                                        SUMMARY COMPENSATION TABLE

                                                                                       Long Term Compensation
                                           Annual Compensation                 Awards        Payouts
            (A)                 (B)       (C)          (D)         (E)           (F)            (G)          (H)           (I)
                                                                  Other                      
                                                                 Annual       Restricted                                All Other
     Name and Principal                                        Compensation     Stock       Options/SARs     LTIP      Compensation
          Position             Year      Salary      Bonus $        $         Award(s) $        (#)       Payouts $         $
----------------------------- ------- ------------- ---------- ------------ --------------- ------------ ------------- ------------
<S>                           <C>     <C>           <C>        <C>          <C>             <C>          <C> 
Wayne E. Ahart, CEO            1998     $125,000       $0        $8,605           $0             -            $0           $0

             "                 1997     $125,000       $0        $8,927           $0             -            $0           $0

             "                 1996     $125,000       $0        $9,375           $0             -            $0           $0
</TABLE>
The total  number of  executive  officers  of the  Company is four and the total
remuneration paid to all executive officers as a group is $379,252.  The Company
does not have employment agreements with any of its officers.

Compensation of Directors

Each director  receives a fee of $100 plus  reasonable  travel expenses for each
meeting of the Board of  Directors  attended.  No  director  receives  any other
remuneration in the capacity of director.

Benefit Plans

In 1994, the Board of Directors and  stockholders  approved the 1994 Brokers and
Agents'  Nonqualified  Stock Option Plan. This plan was established as incentive
to sales persons of BNLAC.  Initially  250,000 shares were  available  under the
plan.  On November  17, 1997 the Board of  Directors  authorized  an  additional
500,000  shares.  The  option  period  may not  exceed a term of 5 years and the
duration  of the  plan  is ten  years.  A  four-member  committee  of  Directors
administers  the plan.  During  1998 and 1997 the  Company  granted  255,575 and
208,050 stock options respectively, with an exercise price of $.50 per share. At
December  31,  1998,  there were 565,350  options  outstanding.  No options were
exercised  in 1998 or 1997.  Under the fair  value  method,  total  compensation
recognized for grant of stock options was $0. The fair value of options  granted
is  estimated at $1,650 and $1,500 in 1998 and 1997  respectively.  These values
were  computed  using a binomial  method as  prescribed  in SFAS 123 and certain
assumptions  include risk free interest rate of 6.0%,  expected life of 3 years,
expected   volatility  of  11%  and  no  expected  dividends  due  to  statutory
limitations. The estimated weighted average remaining life of the options is 2.2
years.

In May 1997, the Board of Directors  approved a stock bonus plan for the benefit
of certain officers of the  corporation.  The plan provides for a bonus based on
consolidated  after-tax profits subject to specified  limits.  The bonus amount,
net of taxes,  will be used to purchase stock in the Company on the open market.
No stock  bonus will be granted  until the Company  has  consolidated  after-tax
profits.
                                     III-4
<PAGE>

On January 1, 1997 the Brokers  National Life Employee Pension Plan was adopted.
The plan is a qualified  retirement  plan under the Internal  Revenue Code.  All
employees are eligible who have  attained age 21 and have  completed one year of
service.  Employer  contributions are discretionary,  however the Company is not
contributing at this time.

Indebtedness of Management

No officer, director or nominee for director of the Company or associate of such
person was  indebted to the  Company at any time during the year ended  December
31,  1998,  other  than for  ordinary  travel  and  expense  advances  and other
reimbursable expenses, if any.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

The  following  table  reflects  the  persons  known  to the  Company  to be the
beneficial  owners  of more than 5% of the  Company's  voting  securities  as of
December 31, 1998:
<TABLE>
<CAPTION>
                                                                         Amount and Nature of
                                                                         Beneficial Ownership         Percent of Class as of
  Title of Class             Name and Address of Beneficial Owner               (1)                   December 31, 1998
-------------------          --------------------------------------    --------------------------    -------------------------
<S>                          <C>                                       <C>                           <C>

Common Stock                 Wayne E. Ahart                                  4,845,505(2)(3)                  20.91%
                             #14 Club Estates Parkway
                             Austin, Texas 78738

Common Stock                 Barry N. Shamas                                 2,801,816(5)                     12.09%
                             1095 Hidden Hills Dr.
                             Dripping Springs, Texas 78620

Common Stock                 Universal Guaranty Life Insurance               2,216,776(2)                      9.57%
                             Company
                             5250 S. Sixth St. Rd.
                             Springfield, Illinois 62705

Common Stock                 C. Donald Byrd                                  1,452,719(4)                      6.27%
                             631 47th Street
                             W. Des Moines, IA 37076

     (1)To the Company's  knowledge,  all shares are beneficially  owned by, and
        the sole  voting  and  investment  power is held by the  persons  named,
        except as otherwise indicated.

     (2)Wayne E. Ahart and Commonwealth  Industries,  Inc. ("CIC"),  a parent of
        Universal Guaranty Life Insurance Company ("UGL"), have agreed: (a) that
        if Mr. Ahart sells his shares of the Company to a third party, Mr. Ahart
        or the third party must also purchase UGL's shares of the Company at the
        same price and on the same  terms;  and (b) in the event UGL  receives a
        bona fide offer to purchase its shares of the  Company,  Mr. Ahart has a
        first  right of refusal to  purchase  such  shares on the same terms and
        conditions.

     (3)Includes  2,400,000 shares held in the name of National Iowa Corporation
        and 2,178,926 shares held in the name of Arkansas National  Corporation,
        both of which are controlled by Mr. Ahart.

     (4)All of Mr.  Byrd's shares are subject to a right of first refusal of the
        Company to acquire said shares on the same terms and  conditions  as any
        proposed sale or other transfer by Mr. Byrd.

     (5)Includes  1,400,000  shares held in the name of Life Industries of Iowa,
        Inc.,  and  1,335,171  shares  held in the name of  Arkansas  Industries
        Corporation, both of which are controlled by Mr.
        Shamas.
</TABLE>

Security Ownership of Management

The following  table sets forth,  as of December 31, 1998,  certain  information
concerning  the  beneficial  ownership  of the  Company's  Common  Stock by each
director of the Company and by all directors and officers as a group:
<TABLE>
<CAPTION>
                                     III-5

<PAGE>

                                                                    Amount and Nature of         Percent of Class as of
Title of Class                  Name of Beneficial Owner          Beneficial Ownership (1)         December 31, 1998
-----------------------    -----------------------------------    -------------------------    ---------------------------
<S>                        <C>                                    <C>                          <C>     
     Common Stock          Wayne E. Ahart                                 4,845,505(2)                    20.91%

          "                Barry N. Shamas                                2,801,816(4)                    12.09%
 
          "                C. Donald Byrd                                 1,452,719(3)                     6.27%

          "                Kenneth Tobey                                    761,762                        3.29%

          "                Cecil Alexander                                   37,088                         .16%

          "                Richard Barclay                                   46,088                         .20%

          "                Eugene A. Cernan                                  37,088                         .16%

          "                Hayden Fry                                        69,047                         .30%

          "                John Greig                                        50,102                         .22%

          "                Roy Keppy                                         51,001                         .22%

          "                Tom Landry                                        87,088                         .38%

          "                Roy Ledbetter                                     37,088                         .16%

          "                John E. Miller                                    37,088                         .16%

          "                C. James McCormick                               137,084(5                       .59%

          "                James A. Mullins                                  50,000                         .22%

          "                Robert R. Rigler                                   3,295                         .01%

          "                Chris Schenkel                                    37,088                         .16%

          "                L. Stanley                                        50,000                         .22%
                           Schoelerman

          "                Orville Sweet                                     50,000                         .22%

          "                All executive officers and
                           directors as a group (19 persons)             10,640,947                        45.92%
----------------------- -- -----------------------------------

     (1)To the Company's  knowledge,  all shares are beneficially  owned by, and
        the persons  named,  except as otherwise  indicated hold the sole voting
        and investment power.

     (2)Includes  2,400,000 shares held in the name of National Iowa Corporation
        and 2,178,926 shares held in the name of Arkansas National  Corporation,
        both of which are controlled by Mr. Ahart.

     (3)All of Mr.  Byrd's shares are subject to a right of first refusal of the
        Company to acquire said shares on the same terms and  conditions  as any
        proposed sale or other transfer by Mr. Byrd.

     (4)Includes  1,400,000  shares held in the name of Life Industries of Iowa,
        Inc.,  and  1,335,171  shares  held in the name of  Arkansas  Industries
        Corporation, both of which are controlled by Mr.Shamas.

     (5)Includes  10,000  shares  held in the  name of C.  James  McCormick  and
        90,000  shares  divided  equally  among  and  held in the  names  of Mr.
        McCormick's four children.

</TABLE>


                         Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None
                                     III-6
<PAGE>



================================================================================
                                      

                                                 PART IV



ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  1.  Financial Statements

The information required by this section is set forth on page E-2 of this Report
and is incorporated herein by reference.



     2.  Financial Statement Schedules Included in item 14(a)

                                                               Page Number Form
                                                                   10-KSB
                                                            --------------------

Report of Independent Accountants on Financial Statement Schedule   E-15

<TABLE>
<CAPTION>

     3.  Exhibits

    No.                                Description                                          Page or Method of Filing
-------------    --------------------------------------------------------    -------------------------------------------------------
<S>              <C>                                                         <C> 

    3.1          Articles of Incorporation of BNL Financial                  Incorporated by reference to Exhibits 3.1 of the
                 Corporation, dated January 27, 1984 and Amendment to        Company's Annual Report on Form 10-K for the period
                 Articles of Incorporation of BNL Financial                  ending December 31, 1993.
                 Corporation, dated November 13, 1987.

    3.2          Bylaws of BNL Financial Corporation                         Incorporated by reference to Exhibit 3.2 of the
                                                                             Company's Registration Statement No. 33-70318

    4.1          Instruments defining the rights of security holders,        Incorporated by reference to Exhibit 4 of the
                 including indentures                                        Company's Registration Statement No. 2-94538 and
                                                                             Exhibits 3.5 and 4 of Post-Effective Amendment No. 3
                                                                             thereto.

    4.2          Articles of Incorporation of BNL Financial                  Filed herewith as Exhibit I.
                 Corporation, dated January 27, 1984 and Amendment to
                 Articles of Incorporation on BNL Financial
                 Corporation, dated November 13, 1987.

    10.1         Form of Agreement  between  Commonwealth  Industries         Filed with 10-QSB for the period ended September 30
                 Corporation, American Investors Corporation and Wayne        1994.
                 E. Ahart regarding rights to purchase shares of the
                 Company.


    10.2         Agreement dated December 21, 1990 between Registrant        Filed with 10-QSB for the period ended March 31, 1996.
                 and C. Donald Byrd granting Registrant right of first
                 refusal as to future transfers of Mr. Byrd's shares of
                 the Company's common stock.

    10.3         Subscription Agreement dated March 2, 1994.                 Incorporated by reference to S-4 Registration
                                                                             Statement No. 33-70318.

    10.4         Stock Escrow Agreement dated February 28, 1994.             Incorporated by reference to S-4 Registration
                                                                             Statement No. 33-70318.

    10.5         Merger Agreement between United Arkansas Corporation        Incorporated by reference to S-4 Registration
                 and USSA Acquisition Inc. dated February 11, 1994.          Statement No. 33-70318.
                                      IV-1
<PAGE>

    10.6         Merger Agreement between Iowa Life Assurance Company        Filed with 10-QSB for the period ended March 31, 1994.
                 and United Arkansas Life Assurance dated March 2, 1994.

    10.7         Office lease dated March 24, 1994, between Iowa Life        Filed with 10-QSB for the period ended September 30, 
                 Assurance Company and Enclave KOW, Ltd., for premises       1994.
                 in Austin, Texas.

    10.8         Amendment Number Two to the Quota Share Reinsurance         Filed with Form 8-K dated January 18, 1995.
                 Agreement dated 8/10/91 between Registrant and UniLife
                 Insurance Co. of San Antonio, Texas

    10.9         Office lease  assumption and assignment  agreement  dated   Filed herewith as Exhibit II 
                 September  1,  1998, between  Brokers National Life
                 Assurance Company, Walgreen Corporation and Charles
                 H. Morrison for premises in Austin

   10.10         Sublease dated January 20, 1999 between Brokers             Filed herewith as Exhibit III
                 National Life Assurance Company and PRG, Inc.

     11          Statement re computation of per share earnings.             Reference is made to the explanation of the
                                                                             computation of per share earnings as shown in Note 1
                                                                             to the Notes to Consolidated Financial Statements
                                                                             filed herewith under item 14(a)(1) above which clearly
                                                                             describes the same.

     12          Statements re computation of ratios.                        Not applicable.

     16          Letter Re Change in Certifying Accountant                   Filed with Form 8-K dated September 14, 1995.

     22          Subsidiaries of Registrant                                  Filed herewith.

</TABLE>


(b) Reports on Form 8-K

On September 25, 1998, the Company filed a Form 8-K that disclosed the Court had
entered a ruling on August 27, 1998, certifying the lawsuit mentioned in Part 2,
Item 1 as a class action  suit.  The class of  plaintiffs  includes all Arkansas
purchasers who  participated in the public offerings of securities by UAC during
the stated time frame.  The Company  believes  that serious  errors were made in
certifying the class,  and the Company has filed an appeal of the  certification
order.

                                      IV-2

<PAGE>

                                               SIGNATURES



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this Report to be signed on its
behalf by the undersigned,  thereunto duly authorized,  on the 31st day of March
1999.



                                                      BNL FINANCIAL CORPORATION





                                                        /S/ Wayne E. Ahart
--------------------------------------------------------------------------------
                                   By:  Wayne E.  Ahart,  Chairman  of the Board



Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated:

<TABLE>
<CAPTION>



                 Signature                                         Title                                  Date
                                                                        
---------------------------------------------  --------------------------------------------     --------------------------
<S>                                             <C>                                             <C> 


             /S/ Wayne E. Ahart
                                                                                                         3/31/99
---------------------------------------------                                                   --------------------------
               Wayne E. Ahart                         Chairman of the Board, Director
                                                       (Principal Executive Officer)


             /S/ C. Donald Byrd
                                                                                                         3/14/99
---------------------------------------------                                                   --------------------------
               C. Donald Byrd                     Vice Chairman of the Board and Director


             /S/ Kenneth Tobey
                                                                                                         3/6/99
---------------------------------------------                                                   --------------------------
               Kenneth Tobey                               President and Director


            /S/ Barry N. Shamas
                                                                                                         3/31/99
---------------------------------------------                                                   --------------------------
              Barry N. Shamas                     Executive Vice President, Treasurer and
                                                     Director (Principal Financial and
                                                            Accounting Officer)


               /S/ Hayden Fry
                                                                                                        03/15/99
---------------------------------------------                                                   --------------------------
                 Hayden Fry                                       Director
                                      IV-3
<PAGE>



---------------------------------------------                                                   --------------------------
                 John Greig                                       Director


               /S/ Roy Keppy
                                                                                                         3/7/99
---------------------------------------------                                                   --------------------------
                 Roy Keppy                                        Director


               /S/ Tom Landry
                                                                                                         3/4/99
---------------------------------------------                                                   --------------------------
                 Tom Landry                                       Director


           /S/ C. James McCormick
                                                                                                         3/7/99
---------------------------------------------                                                   --------------------------
             C. James McCormick                                   Director


            /S/ James A. Mullins
                                                                                                         3/8/99
---------------------------------------------                                                   --------------------------
              James A. Mullins                                    Director


            /S/ Robert R. Rigler
                                                                                                         3/12/99
--------------------------------------------                                                   --------------------------
              Robert R. Rigler                                    Director


          /S/ Stanley Schoelerman
                                                                                                        3/20/99
---------------------------------------------                                                   --------------------------
            Stanley Schoelerman                                   Director


             /S/ Orville Sweet
                                                                                                         3/6/99
---------------------------------------------                                                   --------------------------
               Orville Sweet                                      Director


            /S/ Cecil Alexander
                                                                                                         3/5/99
---------------------------------------------                                                   --------------------------
              Cecil Alexander                                     Director


            /S/ Richard Barclay
                                                                                                         3/8/99
---------------------------------------------                                                   --------------------------
              Richard Barclay                                     Director
                                      IV-4
<PAGE>

            /S/ Eugene A. Cernan
                                                                                                         3/7/99
---------------------------------------------                                                   --------------------------
              Eugene A. Cernan                                    Director


             /S/ Roy Ledbetter
                                                                                                         3/5/99
---------------------------------------------                                                   --------------------------
               Roy Ledbetter                                      Director


             /S/ John E. Miller
                                                                                                         3/8/99
---------------------------------------------                                                   --------------------------
               John E. Miller                                     Director


             /S/ Chris Schenkel
                                                                                                         3/8/99
---------------------------------------------                                                   --------------------------
               Chris Schenkel                                     Director

                                      IV-5
</TABLE>

<PAGE>


BNL Financial Corporation - 1998 Form 10-KSB
===============================================================================
===============================================================================
                                                  







                                       ANNUAL REPORT ON FORM 10-KSB



                                          ITEM 14 (a) AND 14 (d)



                                           FINANCIAL STATEMENTS



                                   FOR THE YEAR ENDED DECEMBER 31, 1998



                                BNL FINANCIAL CORPORATION AND SUBSIDIARIES



                                             DES MOINES, IOWA


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









                                 Financial Statements Required by Item 8 




<TABLE>
<CAPTION>
                                                                                                        Page Number of 1998
                                                                                                            Form 10-KSB
                                                                                                      -------------------------

<S>                                                                                                  <C>                      
Consolidated Balance Sheet, December 31, 1998 and 1997                                                          E-2

Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 1998 and 1997    E-3

Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1998                 E-4
and 1997

Consolidated Statement of Cash Flows for the years ended December 31, 1998 and 1997                             E-5

Notes to Consolidated Financial Statements                                                                      E-6

Report of Independent Accountants on Financial Statements                                                       E-15
</TABLE>



                                      E-1
<PAGE>








================================================================================




<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997

-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                    December 31,           December 31,
ASSETS                                                                  1998                   1997
                                                                 ------------------     ------------------
<S>                                                              <C>                    <C>

Cash and cash equivalents                                               $ 2,426,963              $ 714,539
Investments available for sale, at fair value (amortized cost
  $9,692,368; 11,507,730;  respectively )                                10,006,208             11,765,947
Investment in equity securities, common stock
   at market  (cost $108,123)                                                 2,573                 20,438
                                                                  ------------------     ------------------
               Total Investments, Including Cash and
                     Cash Equivalents                                    12,435,744             12,500,924

Accrued investment income                                                   195,652                225,042
Furniture and equipment, net                                                325,717                261,312
Deferred policy acquisition costs                                           379,917                433,695
Premium and policy loans                                                    132,050                 87,961
Receivable from reinsurer                                                    33,531                 26,677
Premiums due and unpaid                                                     611,786                355,793
Other assets                                                                213,379                256,449
                                                                  ------------------     ------------------

               Total Assets                                             $14,327,776            $14,147,853
                                                                  ==================     ==================

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Liabilities for future policy benefits                               $ 1,398,633            $ 1,352,555
   Policy claims payable                                                  2,508,175              1,368,630
   Annuity deposits                                                       3,259,195              3,336,323
   Deferred annuity profits                                                 521,212                615,737
   Premium deposit funds                                                    114,841                127,697
   Supplementary contracts without life contingencies                       129,944                 56,031
   Advanced and unallocated premium                                         352,999                328,814
   Commissions payable                                                      310,303                184,677
   Other liabilities                                                        528,507                364,429
                                                                  ------------------     ------------------

               Total Liabilities                                          9,123,809              7,734,893
                                                                  ------------------     ------------------

Commitments and contingencies (Note 6)
Shareholders' Equity:
   Common stock, $.02 stated value, 45,000,000 shares
      Authorized; 23,311,944 shares issued and outstanding                  466,239                466,239
   Additional paid-in capital                                            14,308,230             14,308,230
   Accumulated other comprehensive income                                   208,289                170,530
   Accumulated deficit                                                  (9,714,686)            (8,467,934)
   Treasury stock, at cost, 138,795 shares                                 (64,105)               (64,105)
                                                                  ------------------     ------------------

               Total Shareholders' Equity                                 5,203,967              6,412,960
                                                                  ------------------     ------------------

               Total Liabilities and Shareholders' Equity               $14,327,776            $14,147,853
                                                                  ==================     ==================

------------------------------------------------------------------------------------------------------------------------------------
                         The accompanying notes are an integral part of the consolidated financial statements.
                                                                  E-2
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the years ended December 31, 1998 and 1997

------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                                  Year Ended December 31,
                                                                         -----------------------------------------
                                                                               1998                   1997
                                                                         ------------------    ------------------
<S>                                                                      <C>                   <C>

Income:
   Premium income                                                                  $21,054,713            $11,532,718
   Net investment income                                                               807,342                859,749
   Realized gains                                                                       57,563                 75,754
                                                                             ------------------    -------------------

                Total Income                                                        21,919,618             12,468,221
                                                                             ------------------    -------------------

Expenses:
   Increase (decrease) in liability for future policy benefits                          39,224               (39,601)
   Policy benefits and other insurance costs                                        18,971,791             10,221,754
   Amortization of deferred policy acquisition costs                                    53,778                 40,972
   Operating expenses                                                                3,431,929              2,780,237
   Taxes, other than on income                                                         669,648                396,471
                                                                             ------------------    -------------------

                Total Expenses                                                      23,166,370             13,399,833
                                                                             ------------------    -------------------

                Loss from Operations before
                     Income Taxes                                                  (1,246,752)              (931,612)

   Provision for income taxes                                                             -                      -
                                                                             ------------------    -------------------

                Net Loss                                                           ($1,246,752)             ($931,612)
                                                                             ==================    ===================

Net loss per common share (basic and diluted)                                          $(0.05)                $(0.04)
                                                                             ==================    ===================

Weighted average number of fully
    paid common shares                                                              23,311,944             23,311,944
                                                                             ==================    ===================

Other comprehensive income, net of tax:
     Unrealized gains on securities:
          Unrealized holding gains arising during period                             $  95,323              $ 287,963
       Reclassification adjustment for gains included
           in net income                                                              (57,563)               (75,754)
                                                                             ------------------    -------------------

                Other comprehensive income                                              37,760                212,209
                                                                             ------------------    -------------------

                Comprehensive Loss                                                ($1,208,992)             ($719,403)
                                                                             ==================    ===================




------------------------------------------------------------------------------------------------------------------------------------
                         The  accompanying  notes  are an  integral  part of the consolidated financial statements.

                                                                  E-3

</TABLE>
<PAGE>

<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1998 and 1997

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


<CAPTION>
                                                                                                         Accumulated
                                                                  Additional                                Other
                                      Common Stock                  Paid-In          Accumulated        Comprehensive   Treasury
                              -------------------------------
                                 Shares            Amount           Capital             Deficit            Income         Stock
                              --------------    -------------    ---------------    ----------------     ----------- ---------------
<S>                           <C>               <C>              <C>                <C>                  <C>         <C>

Balance, January 1, 1997        23,311,944         $466,239        $14,308,230         ($7,536,322)       ($41,679)        ($64,105)

Accumulated other                                                                                                              
     Comprehensive income         -                    -                -                    -             212,209           -    

Net loss                          -                    -                -                 (931,612)           -              -    
                            --------------    -------------     --------------    -----------------    ------------    ------------

Balance, December 31, 1997      23,311,944          466,239         14,308,230          (8,467,934)        170,530          (64,105)

Accumulated other                                                                                                              
     Comprehensive income        -                     -                -                    -              37,759           -

Net loss                         -                     -                -               (1,246,752)            -             -

                             ==============    =============     ==============    =================    ============    ============

Balance, December 31, 1998      23,311,944         $466,239        $14,308,230         ($9,714,686)        $208,289        ($64,105)
                             ==============    =============     ==============    =================    ============    ============

























------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.

                                                                  E-4
</TABLE>


<PAGE>


<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998 and 1997
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                Year Ended December 31,
                                                                                          ----------------------------------
                                                                                                1998               1997

                                                                                          ---------------    ---------------
<S>                                                                                       <C>                <C> 
Cash flows from operating activities:
     Net loss                                                                                ($1,246,752)         ($931,612)
     Adjustments to reconcile net loss to net cash
      Used in operating activities:
        Realized gains on investments                                                            (57,563)           (79,833)
        Realized (gains) losses on sale of furniture and equipment                                    --              4,079

        Depreciation                                                                                           
                                                                                                  96,670             95,159
        Amortization of deferred acquisition costs,
           organization costs and state licenses acquired                                         56,887             44,082
        Accretion of bond discount                                                                 3,647)            (4,145)
        Deferred policy acquisition costs                                                        (53,778)           (40,972)
        Change in assets and liabilities:
               Decrease (increase) in receivable from reinsurer                                   (6,854)             1,785
               Decrease (increase) in accrued investment income                                   29,390             (2,941)
               Increase (decrease) in liability for future policy benefits                        46,078            (29,725)
               Increase in policy claims payable                                               1,139,545            552,130
               Decrease  in annuity deposits and deferred profits                               (171,654)          (154,047)
               Decrease in premium deposit funds                                                 (12,856)           (50,212)
               Other, decrease                                                                   109,485            286,860
                                                                                           ---------------    ---------------

                    Net Cash Used in Operating Activities                                        (75,049)          (309,392)
                                                                                           ---------------    ---------------

Cash flows from investing activities:
     Proceeds from sales of investments                                                          249,000          1,322,816
     Proceeds from maturity or redemption of investments                                      10,427,683          3,274,836
     Proceeds from sale of furniture and equipment                                                    --                201
     Purchase of furniture and equipment                                                        (163,012)           (95,706)
     Purchase of fixed maturity securities                                                    (8,800,110)        (4,166,500)
                                                                                           ---------------    ---------------

                     Net Cash Provided By Investing Activities                                 1,713,561            335,647
                                                                                           ---------------    ---------------

Cash flows from financing activities:
     Net payments on supplementary contracts                                                      73,912            (14,485)
                                                                                           ---------------    ---------------

                      Net Cash Provided By (Used In) Financing activities                         73,912            (14,485)
                                                                                           ---------------    ---------------

Net increase in cash and cash equivalents                                                      1,712,424             11,770

Cash and cash equivalents, beginning of period                                                   714,539            702,769
                                                                                           ---------------    ---------------

Cash and cash equivalents, end of period                                                      $2,426,963           $714,539
                                                                                           ===============    ===============






-----------------------------------------------------------------------------------------------------------------------------------
                         The  accompanying  notes  are an  integral  part of the consolidated financial statements.

-----------------------------------------------------------------------------------------------------------------------------------
                                                                 E-5
 </TABLE>
<PAGE>


--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.  Summary of Significant Accounting Policies:

The  consolidated  financial  statements  include the accounts of BNL  Financial
Corporation and its wholly owned subsidiaries,  BNL Equity Corporation,  Brokers
National Life Assurance Company (BNLAC), BNL Brokerage  Corporation and National
Dental Benefits  Association  Inc.(NDB).  Subsequent to year end the name of NDB
was  changed  to  Consumers   Protective   Association,   Inc.  All  significant
intercompany balances have been eliminated.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

The Company's  principal  activity is the sale of individual  and group life and
accident and health insurance within the United States. The Company's plan is to
utilize dental  insurance to attract agents who will market other BNLAC products
along  with  dental.  The  significant  premium  growth is  primarily  due to an
increase  in sales of dental  insurance  for which the  maximum  annual risk per
policy is $2,000.  See Note 10. The  Company is licensed to sell in 27 states as
of December 31,  1998.  See Note 13.  Substantially  all of the  Company's  life
insurance in force is nonparticipating business.

Premiums  from  accident  and health  insurance  are reported as earned when due
since these policies are short duration contracts.

Benefits  and expenses are  associated  with earned  premiums so as to result in
recognition  over the life of the policy.  Such  recognition is  accomplished by
means of the provision for future policy  benefits and  amortization of deferred
policy acquisition costs.

Costs of  acquiring  new business  and certain  expenses of policy  issuance and
underwriting  have been deferred;  these deferred policy  acquisition  costs are
being amortized over the  premium-paying  period of the policies  (maximum of 30
years) in  proportion  to the ratio of annual  premium  revenue to total premium
revenue  anticipated.  As  described  in Note 11,  lapse rate  assumptions  were
revised to reflect actual  experience and reduce the deferred  acquisition costs
to correspond to remaining active policies.

Liability  for  future  policy  benefits  for  traditional  and  limited-payment
contracts has been  determined  primarily by the net level premium  method using
the 1975 through 1980 Select and Ultimate Mortality Table,  interest assumptions
starting  at 7%  graded  to 5% at the end of the  sixteenth  year and  estimated
future withdrawals based upon Linton Tables B or C.

For annuity  contracts  without mortality risk, net premium deposits and benefit
payments are recorded as  increases or decreases in a liability  account  rather
than as revenue and expense.  Expenses  incurred and fees charged upon  issuance
are deferred and recognized in  relationship  to the amount of funds held.  This
deferred  annuity  profit  is  being  amortized  based on  lapse  and  mortality
assumptions  (maximum of 30 years) which were revised as described in Note 11 to
reflect  actual  experience.  Increases  in the  liability  account for interest
credited to  contracts  are charged to expense.  The interest  rate  assumptions
ranged from 5.5% to 6.75% during 1998 and 1997.

The liability for policy claims  payable is composed of claims  reported but not
paid and claims incurred but not reported. The Company has developed a procedure
for  calculating  incurred but not reported  dental  claims based on prior years
claims using dates incurred,  reported to the insurance company and subsequently
paid.

The Company classifies its fixed maturity  investments as investments  available
for sale.  Such  securities  may be sold prior to maturity  due to changes  that
might occur in market interest rates, changes in the security's prepayment risk,
the Company's  liquidity  needs,  and similar  factors,  including the Company's
asset/liability management strategy.  Investments available for sale are carried
at fair  value.  Unrealized  gains and  losses  resulting  from  changes  in the
valuation  of  fixed  maturity   securities  are  recorded  as  a  component  of
comprehensive  income.  Realized  gains or  losses  on sale of  investments  are
determined on a specific identification basis.  Investments in equity securities
are carried at fair value.

Cash equivalents are carried at amortized cost, which  approximates  fair value.
Cash equivalents  represent US Treasury Bills and other  short-term  securities.
For purposes of the  Statement of Cash Flows,  the Company  considers all highly
liquid short-term  investments to be cash equivalents.  For purpose of cash flow
disclosures,  there have been no material  federal income taxes or interest paid
for 1998 or 1997.

Furniture  and  equipment  are  recorded  at cost.  Maintenance  and repairs are
charged to expense as incurred.  Provision for depreciation is made on the basis
of estimated useful lives of 3 to 10 years utilizing the  straight-line  method.
Accumulated  depreciation totaled $473,767 and $377,098 at December 31, 1998 and
1997,  respectively.  Depreciation expense was $96,670 and $95,159 for the years
ended December 31, 1998 and 1997, respectively.

                                       E-6

<PAGE>

1.  Summary of Significant Accounting Policies (continued):

Other assets include agents' balances reduced by allowance for doubtful accounts
of $47,816 and $130,513 at December 31, 1998 and 1997, respectively.  Reductions
in the  allowance  account  were  a  credit  to bad  debt  expense  recorded  in
operations of ($13,389) and ($11,678) for the years ended  December 31, 1998 and
1997, respectively.

Other assets also include the cost of 26 state licenses acquired in 1991 as part
of the Statesmen Life Insurance Company acquisition. Such licenses are amortized
over  the  related   estimated   life  of  the  license  (40  years)  using  the
straight-line method.  Amortization expense of approximately $3,109 was recorded
for each of the years ended December 31, 1998 and 1997.

The Company accounts for the 1994 brokers and agents stock option plan using the
fair value method as required by SFAS # 123. Under this method the fair value of
the options granted is recorded as expense at the date of grant. See Note 9.

Certain  amounts for the year ended December 31, 1997 have been  reclassified to
conform   with  the   presentation   of   December   31,   1998   amounts.   The
reclassifications  have no effect on net income for the year ended  December 31,
1997.

Net loss per share is based on net loss divided by the weighted  average  number
of fully paid shares.

Effective January 1, 1998 the company adopted statement of accounting  standards
#130,  "Reporting  Comprehensive  Income".  Under SFAS # 130,  enterprises  that
provide a full set of  financial  statements  that  report  financial  position,
results of  operations,  and cash flows should  report  comprehensive  income in
addition to net income on the Statement of Operations.

2.  Shareholders' Equity:

At  December  31, 1998 and 1997,  shareholders'  equity  includes  approximately
$4,630,000 and $5,481,000 respectively,  of BNLAC net assets,  substantially all
of which are restricted  from  distribution  to the parent  company  without the
prior approval of the Arkansas Insurance Department.

BNLAC reports to state  regulatory  authorities on a statutory  accounting basis
that  differs  from  the  basis  used  herein.  Due  to an  Arkansas  regulatory
requirement  associated with the  redomestication in 1994, BNLAC must maintain a
minimum of $2,300,000 in capital and surplus. Additionally,  each state in which
BNLAC is licensed  has  statutory  minimum  capital  requirements  required  for
maintaining its license to sell.  Minimum capital and surplus  requirements vary
from $300,000 to as much as $3,000,000 in the states in which BNLAC is licensed.
The two states with the greatest capital and surplus requirements  accounted for
less than four  percent of gross  income in 1998.  The ability of the Company to
continue  its  premium  growth and to  continue  marketing  its  products in its
current market areas is dependent on management's  efforts to maintain  adequate
capital and surplus  requirements  considering  recent loss  trends.

The states periodically  increase minimum capital  requirements,  often allowing
companies with existing  Certificates of Authority to continue doing business in
the state under the previous existing requirements (grand fathering).  States in
which BNLAC is licensed to do business have increased minimum requirements to as
much as $5,000,000.  Management actively monitors these developments to maintain
compliance  with the  requirements  of each state. In February 1999, the Company
was notified  that the State of Washington  had  increased  its paid-in  capital
stock requirements from $1,200,000 to $2,400,000.  Insurance sales in Washington
are less than 1% of total premium and management believes that it was not in the
Company's  best  interest  to  invest  additional  surplus  funds at this  time.
Therefore,  the Company  voluntarily  withdrew its Certificate of Authority from
the State of Washington.

Capital and  surplus and net loss of BNLAC as reported on a statutory  basis are
as follows:
<TABLE>
<CAPTION>

                                                              December 31,
                                               -----------------------------------------
                                                       1998                  1997
<S>                                                 <C>                   <C>

Capital and surplus                                 $3,995,706            $5,136,292

Net loss                                            ($999,128)            ($645,603)
</TABLE>

The following is a  reconciliation  of consolidated  net loss and  shareholders'
equity per the financial  statements included herein to BNLAC unconsolidated net
loss and capital and surplus on a statutory basis:



                                       E-7
<PAGE>

2.       Shareholders' Equity (continued):
<TABLE>
<CAPTION>
                                                          December 31, 1998                           December 31, 1997
                                               -----------------------------------------  ------------------------------------------
                                                 Income/Loss        Capital and Surplus     Income/Loss        Capital and Surplus
                                               -----------------  ----------------------  -----------------  ----------------------
<S>                                            <C>                <C>                     <C>                <C>                
Consolidated Reporting Under
  Generally Accepted Accounting Principles         ($1,246,752)              $5,203,966         ($931,612)              $6,412,960
Less Parent Company and BNL Equity                      355,625                 573,992            246,986                 931,904
                                               -----------------  ----------------------  -----------------  ----------------------

Brokers National Life Assurance Company               (891,127)               4,629,974          (684,626)               5,481,056
                                               -----------------  ----------------------  -----------------  ----------------------
                                            
Deferred Acquisition Costs                              $53,778              $(379,917)            $40,972              $(433,695)
Reserve and Premium Adjustments                        (27,103)                 158,229            (8,305)                 192,191
Interest Maintenance Reserve/AVR                       (32,547)               (379,454)             16,691               (344,286)
Unrealized appreciation of  securities                     -                  (307,667)                -                 (258,502)
Annuity Deposits and Related Adjustments              (150,845)                 521,211           (27,600)                 615,736
Other                                                    48,716               (246,670)             17,265               (116,208)
                                               -----------------  ----------------------  -----------------  ----------------------

   BNLAC Statutory Basis                             ($999,128)              $3,995,706         ($645,603)              $5,136,292
                                               =================  ======================  =================  ======================
</TABLE>

3.  Income Taxes:

The Company follows Statement of Financial  Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, which prescribes the liability method of accounting
for deferred income taxes.  Under the liability  method,  companies  establish a
deferred  tax  liability  or asset  for the  future  tax  effects  of  temporary
differences  between  book and tax basis of assets and  liabilities.  Changes in
future tax rates will result in immediate adjustments to deferred taxes.

The total net operating loss carryovers at December 31, 1998 were  approximately
$9,500,000 for income tax reporting. The net operating loss carryovers expire in
years 2000 - 2011. The Company and its  Subsidiaries  will file separate  income
tax returns for 1998.

A deferred tax asset of $3,570,000  resulted from net operating loss  carryovers
and temporary  differences  primarily related to the life insurance  subsidiary.
The Company has  recognized a  corresponding  valuation  allowance of $3,570,000
against the  deferred tax asset.  This  represents a net increase of $430,000 in
the deferred tax asset for 1998 and corresponding  valuation  allowance over the
previous  year.  The Company  recognized  no current or deferred  tax expense or
benefit.

4.  Investments:

The amortized  cost and estimated  market value of investments in fixed maturity
securities are as follows:
<TABLE>
<CAPTION>
                                                                               Gross            Gross           
                                                                             Unrealized        Unrealized       Estimated
December 31, 1998                                        Amortized Cost         Gains            Losses        Market Value
                                                        ---------------    --------------    -------------    --------------
<S>                                                     <C>                <C>               <C>              <C>

US Treasury securities and obligations of
  US government corporations and agencies                   $8,870,176          $309,243        ($22,104)        $9,157,315
Obligations of states and political subdivisions               297,725            15,835          -                 313,560
Corporate securities                                           310,841             7,859          (1,055)           317,645
Mortgage-backed  securities
     GNMA                                                       14,257               321          -                  14,578
Public utility bonds                                           199,369             4,141            (400)           203,110
                                                        ---------------    --------------    -------------    --------------

Totals                                                      $9,692,368          $337,399        ($23,559)       $10,006,208
                                                        ===============    ==============    =============    ==============

                                       E-8


<PAGE>



4. Investments (continued):

                                                                               Gross            Gross           
                                                                             Unrealized        Unrealized       Estimated
December 31, 1997                                       Amortized Cost         Gains            Losses         Market Value
                                                        ---------------    --------------    -------------    --------------

US Treasury securities and obligations of
  US government corporations and agencies                  $10,779,985          $292,058        ($33,380)       $11,038,663
Obligations of states and political subdivisions               297,588               162          (4,500)           293,250
Corporate securities                                           310,607             3,282          (2,813)           311,076
Mortgage-backed  securities
     GNMA                                                       20,205               -            (1,397)            18,808
Public utility bonds                                            99,345             4,805             -              104,150
                                                        ---------------    --------------    -------------    --------------

Totals                                                     $11,507,730          $300,307        ($42,090)       $11,765,947
                                                        ===============    ==============    =============    ==============
</TABLE>

The amortized  cost and estimated  fair value of  investments  in fixed maturity
securities  at  December  31,  1998 by  contractual  maturity  are shown  below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay  obligations with or without call or prepayment
penalties  and because  most  mortgage-backed  securities  provide for  periodic
payments throughout their life.
<TABLE>
<CAPTION>
                                                               December 31, 1998
                                                       ----------------------------------
                                                                            Estimated
                                                       Amortized Cost      Market Value
                                                       ---------------    ---------------
<S>                                                    <C>                <C>

Due in one year or less                                     $ 999,094        $ 1,004,140
Due after one year through five years                         873,731            895,030
Due after five years through ten years                      2,698,257          2,698,900
Due after ten years                                         5,107,029          5,393,560
                                                       ---------------    ---------------
                                                            9,678,111          9,991,630
Mortgage-backed securities                                     14,257             14,578
                                                       ---------------    ---------------

                                                           $9,692,368        $10,006,208
                                                       ===============    ===============
</TABLE>

Proceeds from sales and maturities of  investments in fixed maturity  securities
for the years ended December 31, 1998 and 1997 were  $10,676,683 and $4,597,652,
respectively.  Gross gains of $57,618  and  $80,143 and gross  losses of $55 and
$310 were realized on those December 31, 1998 and 1997 sales, respectively.

Investment in equity  securities at December 31, 1998 and 1997 represents common
stock investments as follows:
<TABLE>
<CAPTION>
                                              1998                             1997
                                                                         
                                       Cost          Market Value         Cost       Market Value
                                   -------------    -------------    ------------    -------------
<S>                                <C>              <C>              <C>             <C>

Banks, trusts and
     insurance companies                $2 ,423             $813          $2,423             $438
Industrial, savings
     and loans and other                105,700            1,760         105,700           20,000
                                   -------------    -------------    ------------    -------------

                                       $108,123           $2,573        $108,123          $20,438
                                   =============    =============    ============    =============
</TABLE>




                                       E-9


<PAGE>



4. Investments (continued):

Net  investment  income for the years  ended  December  31,  1998 and 1997 is as
follows:

                                                          December 31,
                                                -------------------------------
                                                     1998             1997
                                                 -------------    -------------

Interest on debt securities and
     cash investments                                $827,902         $878,594
Dividends on equity securities                        -                -
                                                 -------------    -------------

                                                      827,902          878,594
Investment expenses                                  (20,560)         (18,845)
                                                 -------------    -------------

Net investment income                                $807,342         $859,749
                                                 =============    =============


Net realized gains and losses are summarized below:

                                                          December 31,
                                                 ------------------------------
                                                     1998             1997
                                                 -------------    -------------

Debt securities                                       $57,563          $79,833
Equity securities                                     -                -
                                                 -------------    -------------

                                                      $57,563          $79,833
                                                 =============    =============


Included  in 1998 and 1997  realized  gains on debt  securities  is  $1,815  and
$42,328,  respectively,  of gains on taxable  municipal  bonds that were written
down  in 1991  to 25% of par  value  ($700,000)  for a  total  realized  loss of
$522,282. The taxable municipal bonds were of three issuers whereby the proceeds
of the securities  were invested in guaranteed  investment  contracts  (GICs) of
Executive Life Insurance  Company  (Executive  Life).  Executive Life was placed
under  rehabilitation  by  the  California   regulators  in  1991.  In  1993,  a
rehabilitation  plan was  approved  and each year  thereafter  the  Company  has
received  a  portion  of the  principal  in  excess  of the book  value and back
interest on the bonds.  As of December 31, 1998 the Company has received a total
of $748,895 from the rehabilitation plan.

5.  Fair Value of Financial Instruments
<TABLE>
<CAPTION>
                                                                      1998                                     1997
                                                        ---------------- ----------------        ---------------- ----------------
                                                           Carrying           Fair                  Carrying           Fair
Assets                                                      Amount            Value                  Amount            Value
                                                        ---------------- ----------------        ---------------- ----------------
<S>                                                     <C>              <C>                     <C>              <C>

Cash and Cash Equivalents
       (Note 1)                                             $ 2,426,963      $ 2,426,963    (a)        $ 714,539        $ 714,539(a)
Investments-fixed maturity, available for sale                                                    
       (Note 4 & Note 1)                                     10,006,208       10,006,208    (b)       11,765,947       11,765,947(b)
Investments -equity securities
       (Note 4 & Note 1)                                          2,573            2,573    (b)           20,438           20,438(b)
Other financial instruments-Assets                              327,702          327,702    (a)          313,363          313,363(a)
                                                        ---------------- ----------------        ---------------- ----------------

Total financial instruments-Assets                          $12,763,446      $12,763,446             $12,814,287      $12,814,287
                                                        ================ ================        ================ ================




                                      E-10


<PAGE>



5.  Fair Value of Financial Instruments (continued):
                                                                      1998                                     1997
                                                        ---------------- ----------------        ---------------- ----------------
                                                           Carrying           Fair                  Carrying           Fair
Liabilities                                                 Amount            Value                  Amount            Value
                                                        ---------------- ----------------        ---------------- ----------------

Premium deposit funds                                         $ 114,841        $ 114,841    (a)        $ 127,697        $ 127,697(a)
Supplementary contracts without life contingencies
       (Note 1)                                                 129,944          129,944    (a)           56,031           56,031(a)
Annuity deposits
       (Note 1)                                               3,259,195        3,259,195    (a)        3,336,323        3,336,323(a)
                                                        ---------------- ----------------        ---------------- ----------------

Total financial instruments-Liabilities                      $3,503,980       $3,503,980              $3,520,051       $3,520,051
                                                        ================ ================        ================ ================
</TABLE>

(a) The  indicated  assets and  liabilities  are  carried at book  value,  which
approximate fair value.
(b) Fair value of  investments is based on quoted market price or dealer quotes,
    when available. If quotes are not available, fair values are based on quoted
    prices of comparable instruments.

6.  Commitments and Contingencies:

The  Company,  BNL Equity  Corporation  and several  officers in the Company are
defendants in a pending class action lawsuit alleging  violation of the Arkansas
Securities Act. The Company  expects to obtain a favorable  judgment in the case
and believes the action is frivolous and that substantial  evidence exists which
directly  refutes  the  allegations.  However,  the  ultimate  outcome  of  this
litigation is unknown at the present time.  Accordingly,  no provisions  for any
liability that might result have been made in the financial  statements.  In the
opinion of management,  the existing litigation is without merit and the Company
intends to seek sanctions against appropriate parties to the extent permitted by
law.

The Company has entered into noncancelable operating leases for office space and
equipment. Future minimum payments under the leases are as follows:
                                           1999                         $181,000
                                           2000                          158,000
                                           2001                          147,000
                                           2002                          141,000
                                           Thereafter                    347,000
                                                                  --------------
                                           Total                        $974,000
                                                                  ==============

Related lease cost  incurred for the years ended  December 31, 1998 and 1997 was
$146,917 and $113,455, respectively.

The  Company's  wholly  owned  insurance  subsidiary  might be subject to losses
related to guarantee fund assessments.  Such assessments result from liquidation
of troubled  insurers by state  regulators.  The assessment to BNLAC, if any, is
not  reasonably  estimable,  nor  expected  to  have a  material  effect  on the
financial statements.

Cash deposits in excess of federally insured limits are  approximately  $889,162
at December 31, 1998.

For information  regarding minimum capital requirements to maintain a license to
sell in various states, see Note 2.

7. Liability for Unpaid Claims 

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

                                               1998                     1997
                                         --------------           --------------
Balance at January 1                         $1,368,630                 $816,500
  Less reinsurance recoverable                    --                       5,161
                                         --------------           --------------
Net Balance at January 1                      1,368,630                  811,339
                                         --------------           --------------


                                      E-11
<PAGE>

7. Liability for Unpaid Claims (continued): 
                                               1998                     1997
                                         --------------           --------------
Incurred related to:
   Current year                             $16,120,733               $8,387,011
   Prior years                                 (42,064)                   11,846
                                         --------------           --------------
Total Incurred                               16,078,669                8,398,857
                                         --------------           --------------

Paid related to:
   Current year                              13,640,558                7,017,720
   Prior years                                1,298,566                  823,846
                                         --------------           --------------
Total Paid                                   14,939,124                7,841,566
                                         --------------           --------------

Net Balance at December 31                    2,508,175                1,368,630
   Plus reinsurance recoverable                    -                        -
                                         ==============           ==============
Balance at December 31                       $2,508,175               $1,368,630
                                         ==============           ==============

8.  Reinsurance:

Liability  for  future  policy  benefits  is  reported  before  the  effects  of
reinsurance.  Reinsurance  receivable  (including  amounts  related to insurance
liabilities)  is  reported  as  assets.   Estimated  reinsurance  receivable  is
recognized in a manner consistent with the liabilities related to the underlying
reinsurance  contracts.  Such amounts have been  presented  in  accordance  with
Statement  of  Financial  Standards  No.  113,  "Accounting  and  Reporting  for
Reinsurance  of Short  Duration  and Long  Duration  Contracts."  The Company is
liable if the reinsuring  companies are unable to meet their  obligations  under
the reinsurance agreements.

The Company  retains a maximum of $35,000 on any one risk for its life insurance
policies and reinsures the remainder with Business Mens Assurance  Company.  The
rating by A.M. Best Company of Business Mens Assurance Company, the primary life
reinsurer, was "A" (Excellent) for 1997.

The Company began  marketing a new Hospital  Indemnity  Plan in 1998 and retains
50% of the  risk.  The  remaining  risk  is born by a  reinsurer  considered  an
unauthorized  reinsurer  under  Arkansas  statutes.  The  reinsurance  agreement
requires the reinsurer to maintain a deposit or letters of credit in a qualified
institution  for the benefit of the Company,  in an amount equal to  liabilities
(insurance  reserves)  associated  with the  reinsured  risk,  as is required by
Arkansas  statute for  allowance of  accounting  recognition  of the decrease in
risk.

Following is a summary of reinsurance for December 31, 1998 and 1997:
                                   
<TABLE>
<CAPTION>                                                                                              
                                                                                                                      Percentage
                                                                 Ceded To          Assumed                             Of Amount
                                                                  Other          From Other                            Assumed To
December 31, 1998                           Gross Amount       Companies         Companies         Net Amounts           Net
                                           ---------------    -------------    --------------     --------------     -------------
<S>                                        <C>                <C>              <C>                <C>                <C>

Life Insurance in force  (in thousands)         $  34,877          $13,684           $ 9,229          $  30,422         30.3%
                                           ===============    =============    ==============     ==============     =============

Premiums-life insurance                         $ 350,829          $61,432           $25,654           $315,051          8.0%
Premiums-accident and health                   20,507,123           29,133           -               20,477,990           -
                                           ---------------    -------------    --------------     --------------     -------------
Total insurance premiums                      $20,857,952          $90,565           $25,654        $20,793,041          0.1%
                                           ===============    =============    ==============     ==============     =============

December 31, 1997

Life Insurance in force (in thousands)          $  36,828          $11,971           $ 8,226          $  33,083         24.9%
                                           ===============    =============    ==============     ==============     =============

Premiums-life insurance                         $ 383,798          $57,362           $22,938          $ 349,374          6.6%
Premiums-accident and health                   11,087,724           28,748           -               11,058,976           -
                                           ===============    =============    ==============     ==============     =============
Total insurance premiums                      $11,471,522          $86,110           $22,938        $11,408,350          0.2%
                                           ===============    =============    ==============     ==============     =============
</TABLE>





                                      E-12


<PAGE>

9.  Benefit Plans for Certain Brokers/Agents and Employees

In 1994, the Board of Directors and  stockholders  approved the 1994 Brokers and
Agents'  Nonqualified  Stock Option Plan. This plan was established as incentive
to sales persons of BNLAC.  Initially  250,000 shares were  available  under the
plan.  On November  17, 1997 the Board of  Directors  authorized  an  additional
500,000  shares.  The option  period may not exceed a term of five years and the
duration  of the  plan  is ten  years.  A  four-member  committee  of  Directors
administers  the plan.  During  1998 and 1997 the  Company  granted  255,575 and
208,050 stock options,  respectively,  with an exercise price of $.50 per share.
There were 565,350  stock options  outstanding  at December 31, 1998. No options
have been exercised  since  inception of the plan.  Under the fair value method,
total compensation  recognized for grant of stock options was $0. The fair value
of  options  granted  is  estimated  at  $1,650  and  $1,500  in 1998 and  1997,
respectively.  These values were computed using a binomial  method as prescribed
in SFAS 123 and certain  assumptions  include risk free  interest  rate of 6.0%,
expected life of 3.0 years, expected volatility of 11% and no expected dividends
due to statutory  limitations.  The estimated weighted average remaining life of
the options is 2.2 years.  The options do not have a dilutive effect on earnings
per share at this time, but may have such an effect in the future. See Note 1.

In May 1997, the Board of Directors  approved a stock bonus plan for the benefit
of certain officers of the  corporation.  The plan provides for a bonus based on
consolidated  after-tax profits subject to specified  limits.  The bonus amount,
net of taxes,  will be used to purchase stock in the Company on the open market.
No stock bonus will be granted  unless the Company  has  consolidated  after-tax
profits.

The Brokers National Life Employee Pension Plan was adopted January 1, 1997. The
plan is a  qualified  retirement  plan  under the  Internal  Revenue  Code.  All
employees are eligible who have  attained age 21 and have  completed one year of
service.  Employer contributions are discretionary;  however, the Company is not
contributing at this time.

10.  Concentrations

The majority of the Company's  premium income growth and gross income  continues
to be generated by the dental insurance  products.  This concentration makes the
Company  increasingly  dependent  upon the success of this block of business and
any economic factors and risks unique to dental insurance. See Note 1.

11.  Change in Accounting Estimate

Actuarial  estimates relating to the amortization of deferred  acquisition costs
and deferred liability reserves  associated with an annuity product were revised
in 1998 after it was  determined  that lapse  rate  assumptions  used to compute
these  deferrals  were  significantly  different  from actual lapse  rates.  The
cumulative  effect of this  change in  estimate  was  recorded  as a $72,104 net
increase to current year income as is required by generally accepted  accounting
principles.  Of this current  adjustment,  $68,951 is the amount  applicable  to
prior years.

12.  The Offering 

As a condition of the public offering,  an escrow  agreement,  with an effective
date of February 28, 1994,  prohibits sale or transfer of the organizers' shares
until any one of the following conditions is satisfied:

a.   The  Company  has net  earnings  per share per year,  after tax and  before
     extraordinary  items,  of $1.86 for any three  years  following  the public
     offering.

b.   A tender  offer or an offer to merge or  otherwise  acquire  the  Company's
     common  stock at a per  share  price of at least  $3.34 per share of common
     stock and having a market value at the effective  date of the tender offer,
     merger, or other acquisition of at least $3.71 per share of common stock.

c.   At any time after  February 28, 1995, the public market price exceeds $3.25
     for a term of 90 trading days and for 30 consecutive  trading days prior to
     a request for termination of the escrow.

d.   If insurance business in force reaches the following levels: $100,000,000 -
     50% of escrowed  shares will be  released.  $125,000,000  - 25% of escrowed
     shares will be released.  $150,000,000  - remaining 25% of escrowed  shares
     will be released.


                                      E-13

<PAGE>


12.  The Offering (continued):

e.   All escrowed  shares will be released August 1, 1999, if they have not been
     released prior to that time.

13.  Subsequent Events

No events have  occurred  subsequent  to the close of the books on December  31,
1998, which have a material effect on the financial condition of the Company.










































                                      E-14



<PAGE>


--------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS

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




To the Board of Directors and Shareholders
BNL Financial Corporation and Subsidiaries

We have audited the  accompanying  Consolidated  Balance Sheets of BNL Financial
Corporation  and  Subsidiaries  as of December 31, 1998 and 1997 and the related
Consolidated  Statements  of Operations  and  Comprehensive  Income,  Changes in
Shareholders' Equity and Cash Flows for the years then ended. These consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of BNL
Financial Corporation and Subsidiaries as of December 31, 1998 and 1997, and the
consolidated  results of their operations and their  consolidated cash flows for
the  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.






Oklahoma City, Oklahoma                                 SMITH, CARNEY & CO., p.c
February 13, 1999



















                                      E-15
<PAGE>


Exhibit I

                            ARTICLES OF INCORPORATION

                                       OF

                            BNL FINANCIAL CORPORATION

                                    Formerly
                             UNITED IOWA CORPORATION



         I, the  undersigned  person,  acting as  incorporator  of a corporation
organized under Chapter 496A, Code of Iowa (1983), as amended,  hereby adopt the
following Articles of Incorporation for such corporation:

                                    ARTICLE I

         The name of the Corporation is United Iowa Corporation.

                                   ARTICLE II

         The  Corporation  shall  have  unlimited  power to engage in and do any
lawful act concerning any and all lawful business for which a corporation may be
organized under this Act.

                                   ARTICLE III

         The  aggregate  number  of  shares  which the  Corporation  shall  have
authority to issue is  twenty-one  million  (21,000,000)  shares  consisting  of
twenty  million  (20,000,000)  shares  of  Common  Stock of no par value and one
million  (1,000,000)  shares of Preferred Stock,  $2.00 par value. The Preferred
Stock may be issued  from  time to time in one or more  series of any  number of
shares,  provided that the aggregate number of shares  outstanding of all series
shall not exceed the total number of shares of Preferred Stock authorized by the
Article.

         Authority is hereby vested in the Board of Directors  from time to time
to authorize the issuance of the Preferred  Stock of any series and to state and
express,  in the resolution or resolutions  creating and providing for the issue
of shares of any series,  the designations,  voting powers, if any,  preferences
and  relative   participating,   optional  or  other  special   rights  and  the
qualifications, limitations, and restrictions thereof of such series to the full
extent now or hereafter permitted by the laws of the State of Iowa in respect of
the matters set forth in the following clauses (a) through (h), inclusive:

         (a) The  designation of the series and the number of shares which shall
constitute  such  series,  which number may be altered from time to time by like
action of the Board of Directors in respect of shares then unissued.

         (b)  The  annual  dividend  rate on the  shares  of  that  series,  the
conditions upon which and the time or times when such dividends are payable, the
preference  to, or the  relation  to, the  payment of the  dividends  payable on
shares of such series to the  dividends  payable on shares of any other class or
classes or any other series of stock, whether such dividends shall be cumulative
or non cumulative  and, if cumulative,  the dates from which dividends on shares
of such series shall be cumulative.

         (c) The  redemption  price or prices,  if any, and the time or times at
which,  the terms and  conditions  upon which,  shares of such  series  shall be
redeemable.

         (d)  The  rights  of  shares  of  such  series  upon  the  liquidation,
dissolution  or  winding up of, or upon any  distribution  of the assets of, the
Corporation  and the preference to, or the relation to, such rights of shares of
such series to the rights on any other  class or classes or any other  series of
stock of the Corporation.

         (e) The voting rights, if any, of such series in addition to the voting
rights prescribed by law, and the terms of exercise of such voting rights.

         (f) The rights, if any, of the holders of such shares of such series to
convert such shares into,  or to exchange  such shares for,  shares of any other
class or  classes  of stock of the  Corporation  and the price or process or the
rates of exchange and the  adjustments at which such shares shall be convertible
or  exchangeable,  and any other  terms and  conditions  of such  conversion  or
exchange.

         (g) The  requirement  of any  sinking or  purchase  fund or funds to be
applied to the purchase or  redemption  of shares of such series and, if so, the
amount of such fund or funds and the manner of application.

         (h) Any other preferences and relative participating, optional or other
special  rights of shares of such  series  and  qualifications,  limitations  or
restrictions thereof.

                                   ARTICLE IV

         The address of the initial registered office of the Corporation is 1300
Untied  Central  Bank  Building,  Des Moines,  Iowa  50309,  and the name of its
registered agent is Marshall J. Hunzelman.

                                    ARTICLE V

         The number of Directors  constituting the initial Board of Directors is
(1) and the names and  addresses  of the persons  who are to serve as  Directors
until the first annual  meeting of  stockholders  or until their  successors are
elected and shall qualify are:



                  Name                                                 Address

         Marshall J. Hunzelman                     1300 United Central Bank Bld.
                                                      Des Moines, Iowa   50309

                                   ARTICLE VI

         The name and address of the incorporator is:

                              Marshall J. Hunzelman
                        1300 United Central Bank Building
                             Des Moines, Iowa 50309

                                   ARTICLE VII

         Deeds,  mortgages,  and leases for an initial  stated  term of five (5)
years or more shall be executed by the  President or a Vice  President and shall
be  countersigned  or  attested  by the  Secretary  or an  Assistant  Secretary.
Mortgage  releases,  leases  for an  initial  stated  term of less than five (5)
years,  and other  instruments  affecting  or  relating  to real  estate but not
amounting to a conveyance or mortgage thereof may be executed by any one or more
of the officers of the Corporation.

                                  ARTICLE VIII

         No shareholder of this corporation  shall have any pre-emptive right to
acquire unissued shares or securities convertible into such shares or carrying a
right to subscribe to or acquire shares.

                                   ARTICLE IX
         The effective  date of this  incorporation  shall be at the time of the
filing of the Articles and its existence shall be perpetual.


                            /S/ Marshall J. Hunzelman
                                Marshall J. Hunzelman, Incorporator





STATE OF IOWA    )
                            )  SS.
COUNTY OF  POLK)

         On this 27th_ day of  January,  1984,  before me,  the  undersigned,  a
Notary  Public in and for the State of Iowa,  personally  appeared  Marshall  J.
Hunzelman,  to me  personally  known to be the  identical  person  whose name is
subscribed to and who executed the foregoing  Articles of Incorporation  and who
acknowledged the execution thereof to be his free and voluntary act and deed.

         WITNESS MY HAND and notarial seal at Des Moines, Iowa, the day and year
last above written.

                                      ------------------------------------
                                     Notary Public in and for the State of Iowa





(file with Secretary of State of Iowa January 27, 1984)

<PAGE>



                              ARTICLES OF AMENDMENT
                                     TO THE
                          ARTICLES OF INCORPORATION OF
                           BNL FINANCIAL CORPORATION
                                   (Formerly)
                            UNITED IOWA CORPORATION

         COME NOW,  the  undersigned  President  and  Secretary  of United  Iowa
Corporation  and hereby make and execute  these  Articles  of  Amendment  to the
Articles of Incorporation of said corporation;

1.   The name of the  corporation is United Iowa  Corporation  and the effective
     date of incorporation was January 27, 1984.

2.   The Articles of Incorporation  have been amended by adding the following as
     new Article X:
         "A director of this Corporation  shall not be personally  liable to the
         Corporation  or its  shareholders  for  monetary  damages for breach of
         fiduciary duty as a director, except for liability ( i ) for any breach
         of  the  director's   duty  of  loyalty  to  the   Corporation  or  its
         shareholders , ( i i ) for acts or omissions not in good faith or which
         involve intentional misconduct of a knowing violation of law, ( i i i )
         for any  transaction  from  which  the  director  derived  an  improper
         personal  benefit  , or ( i v ) under  Section  496A.44  of the Code of
         Iowa."

3.   The date of the adoption of the  amendment by its  shareholders  was August
     11, 1987 .

4.   As of the record date there were 10,579,958 shares outstanding and entitled
     to vote on the amendment.

5.   At the meeting, these shares were voted as follows:

                           FOR                       AGAINST
                           8,557,734                        0

6.   The amendment shall become  effective on the date on which the Secretary of
     State of the State of Iowa issues a Certificate of Amendment.

         Dated this 25th day of September, 1987.

                                    UNITED  IOWA  CORPORATION

                                    By  /S/  C. Don Byrd
                                        Its  President

                                    By_/S/  Linda E. Leedom
                                        Its  Secretary

         COMES NOW, C. Donald Byrd and States that he is the duly authorized and
acting President of United Iowa Corporation and acknowledges  that the foregoing
Articles of Amendment have been executed by him on behalf of said corporation as
his and its voluntary act and deed.

                                       /S/  C. Don Byrd
                                       C. Donald  Byrd

STATE  OF  IOWA      )
                             )  ss.
COUNTY OF POLK    )

         On  this  _25th_  day of  September,  A.D.  ,  1987 ,  before  me,  the
undersigned  , a  Notary  Public  in and  for  said  County  , in  said  State ,
personally  appeared C. Donald Byrd , to me personally known , who , being by me
duly sworn , did say that he is the  President of said  corporation  : that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors:  and that the said C. Donald Byrd as such officer , acknowledged  the
execution  of  said  instrument  to be  the  voluntary  act  and  deed  of  said
corporation , by it and by him voluntarily executed.

                                       /S/  Marshall Huntzelman
                                      Notary  Public  in  and  for  the
                                               State  of  Iowa

<PAGE>

EXHIBIT II
                       ASSIGNMENT AND ASSUMPTION AGREEMENT

         By this Assignment and Assumption  Agreement  ("Assignment"),  WALGREEN
CO., an Illinois corporation ("Assignor"),  does hereby transfer, assign and set
over unto BROKERS  NATIONAL  LIFE  ASSURANCE  COMPANY,  an Arkansas  corporation
('Assignee"), all of Assignor's right, title and interest in and to that certain
lease dated September 27, 1985, by and between CHARLES H. MORRISON,  Trustee, of
Travis County,  Texas  ("Landlord"),  and Assignor as tenant,  together with all
modifications,  supplements and extensions  thereof,  if any (collectively,  the
"Lease"),  covering the premises  commonly  known as 2100 William  Cannon Drive,
Austin,  Texas, and legally  described on Exhibit "A" attached hereto,  to which
Landlord  consents  upon  the  conditions  herein  contained,  all for  good and
valuable   consideration  the  sufficiency  and  receipt  of  which  are  hereby
acknowledged by the parties hereto, and the covenants and conditions hereinafter
provided.

         TO HAVE AND TO HOLD the same  unto the  Assignee,  its  successors  and
assigns forever.

         1 This Assignment shall become effective upon the date of its execution
("Effective Date").

         2. Except as expressly  provided  herein,  Assignee hereby accepts this
Assignment and assumes performance of all of the covenants,  agreements,  terms,
provisions, conditions, limitations and other obligations accruing or to be paid
or  performed  on the part of the  Assignor  under  the  Lease  on or after  the
Effective  Date.  Assignor shall not be bound by any  modifications  made to the
Lease subsequent to the date of this Assignment.

         3. Assignor hereby  indemnities  and agrees to hold harmless  Assignee,
its  successors  and  assigns,  from  and  against  any  and all  damage,  loss,
liability, claim, cost, expense, action and causes of action (including, without
limitation,  reasonable  attorney's  fees and  costs)  incurred  by or  asserted
against  Assignee,  its successors  and assigns,  arising from and in connection
with the Lease which are  attributable  to acts,  omissions or events  occurring
prior to the Effective Date.

         4. Assignee hereby  indemnifies  and agrees to hold harmless  Assignor,
its  successors  and  assigns,  from  and  against  any  and all  damage,  loss,
liability, claim. cost, expense, action and causes of action (including, without
limitation,  reasonable  attorneys'  fees and  costs)  incurred  by or  asserted
against  Assignor,  its successors  and assigns,  arising from and in connection
with the Lease which are attributable to acts,  omissions or events occurring on
or subsequent to the Effective Date.

        5.        (a)    Assignor shall pay to Landlord the sum of nine thousand
seven hundred fifty dollars ($9,750.00) (the "Sum") per month, during the period
commencing on the Effective  Date and  continuing to and including the date that
is one hundred fifty (150) days  thereafter  (the  "Period").  Such Sum shall be
payable on the first day of each month during the Period, in advance,  and shall
be  properly  apportioned  for  any  period  less  than a full  calendar  month;
provided,  however,  that if the Effective Date is not the first day of a month,
then such Sum  payable  hereunder  for the such  first  partial  month  shall be
payable within five (5) days of said Effective Date.

                  (b)  Notwithstanding  anything contained in this Assignment to
the  contrary,  Assignor  shall  remain  responsible  for  the  payment  of  any
additional  charges  payable to Landlord under the Lease which may accrue during
the period.

                  (c)  Except  as  indicated  in  Paragraph  5(b)  above,   this
Paragraph 5 shall not be deemed to place any  obligations  upon Assignor for the
payment of any rent or other  charges under the Lease which may accrue after the
Effective Date.

         6. Except with respect to William P.  Skinner,  Broker (the  "Broker"),
each of the parties  represents  and  warrants  that it has engaged no broker or
finder and that no claims for brokerage  commissions or finder's fees will arise
in  connection  with the  execution of this  Assignment  and each of the parties
agrees to  indemnify  the other  against  and hold it  harmless  from  liability
arising  from any  such  claim  arising  as a  result  of its acts or  omissions
(including,  without  limitation,  the  cost of  attorneys'  fees in  connection
therewith).  Pursuant  to a separate  agreement  between  Assignor  and  Broker,
Assignor has agreed to pay Broker a commission for its services.

         7. This  Assignment  shall inure to the benefit of and shall be binding
upon the parties hereto, their successors, transferees and assigns.

         8. In all other respects, said Lease and all of the terms thereof shall
remain unmodified and shall continue in full force and effect.

         9. If the  parties  hereto  are  comprised  of more then one  person or
entity, the obligations imposed upon such parties under this Assignment shall be
joint and several.

         10. The parties  hereto have been afforded a full and fair  opportunity
to seek advice from legal counsel and such parties  acknowledge  that Assignor's
attorney represents Assignor and not the Assignee.

         11. The submission of this  Assignment to Assignee and the Landlord for
examination and execution shall not bind Assignor in any manner,  nor constitute
an offer by Assignor,  and no agreement or other  obligation  of Assignor  shall
arise until such time as this  Assignment is fully executed and delivered by the
parties hereto.

         12. All  provisions  of this  Assignment  have beer  negotiated  by the
parties hereto at arm's length and no party hereof shall be deemed the scrivener
of this  Assignment.  This Assignment  shall not be construed for or against any
party hereto by reason of authorship or alleged authorship of any provision.

IN WITNESS WHEREOF,  Assignor and Assignee have caused the Assignment to be duly
executed this 18th day of August 1998.

                                  WALGREEN CO.
               Witnesses:

                  L. M. Martin              By  John A. Rubino
                  Vice President

                                                     Attest
                  Kim Evans                                Nancy J Godfrey
                  Assistant Secretary



                                            BROKERS NATIONAL LIFE ASSURANCE  CO.
               Witnesses:

               Jeff Drees                   By Barry N. Shamas
                                               Exec. Vice President

               Tammy Barr                   Attest
                                                Wayne E. Ahart
                                                Chairman of the Board








                                 LEASE AMENDMENT
This Lease Amendment  ("Amendment")  is made by and between CHARLES H. MORRISON,
Trustee,  of Travis  County,  Texas  ("Landlord"),  and  BROKERS  NATIONAL  LIFE
ASSURANCE COMPANY, an Arkansas corporation("Tenant").

         WITNESSETH:

         WHEREAS,  by a Lease dated September 27, 1985, by and between Landlord,
and WALGREEN CO., an Illinois corporation  ("Walgreens") (to all right title and
interest of which Tenant has succeeded by an Assignment and Assumption Agreement
dated July,  1998),  as modified by a consent  letter dated November 18, 1987, a
consent  letter  dated May 14,  1992,  and a consent  letter  dated July 30,1996
(collectively,  the  "Lease"),  covering  the  premises  commonly  known as 2100
William  Cannon Drive,  Austin,  Texas ("Leased  Premises"),  which is contained
within a building which is part of a shopping center ("Shopping Center"); and

     WHEREAS,  Landlord  and Tenant  desire to modify said Lease as  hereinafter
provided;

         NOW, THEREFORE, in consideration of the of the covenants and conditions
hereinafter provided, and other good and valuable consideration, the sufficiency
of which is  hereby  acknowledged  by the  parties  hereto,  it is agreed by and
between Landlord and Tenant as follows:

         1. This  Amendment  shall be effective  upon the date of its  execution
Landlord and Tenant ("Effective Date").

         2. In  consideration  of the  execution  hereof.  Tenant  shall  pay to
Landlord a sum of  $37,500.00,  payable no more than  thirty (30) days after the
Effective Date. Furthermore,  in addition to all monetary obligations payable to
Landlord under the Lease,  commencing  upon the Effective Date and continuing to
and including  February 28, 2006 (the "Period"),  Tenant shall pay to Landlord a
monthly sum ("Fee") of four hundred and twelve dollars ($412.00), payable on the
first day of each  calendar  month during such period.  If the term of the Lease
should terminate prior to the expiration of the Period,  and such termination is
due to a default  by  Tenant,  then upon such  termination  Tenant  shall pay to
Landlord a monetary  amount  equal to the sum of the Fees which  would have been
payable to Landlord  hereunder  for the  remainder  of the period,  but for such
termination.  In no event, including, but not limited to, a default of the Lease
by Tenant.  shall  Walgreens  be  obligated  to pay the Fees  described  in this
Paragraph 2.

         3. From and after the Effective Date,  Article 2(a)(2) of the Lease and
all  references to said Article  and/or to percentage  rents payable to Landlord
pursuant to said Article  throughout the Lease  (including,  but not limited to,
references in Articles 13, 19, and 22) shall be deleted.

         4. Landlord covenants,  represents and warrants that Landlord has legal
title to the entire  Shopping  Center and has the right to make this  Agreement.
Tenant,  upon the payment of rent and the keeping of agreements  under the Lease
(as amended herein) on its part to be kept or performed, shall have peaceful and
uninterrupted  possession of the Leased  Premises  during the continuance of the
Lease. Landlord covenants, represents and warrants that at the time of execution
of this  Agreement,  neither the  Shopping  Center,  nor any portion  thereof is
subject  to any  mortgage,  deed  of  trust,  assignment  or  other  encumbrance
prohibiting this Agreement.

         5.  This  instrument  shall  also  bind  and  benefit,  as the case may
require.  the  heirs,  legal  representatives,  assigns  and  successors  of the
respective parties.

         6. In all other  respects,  the Lease and all of the  applicable  terms
thereof shall remain unmodified and shall continue in full force and effect.

         7 Landlord has been afforded a full and fair opportunity to seek advice
from legal counsel and Landlord  acknowledges that Tenant's attorney  represents
Tenant and not Landlord.

         8. The  submission of this  Agreement to Landlord for  examination  and
execution  shall  not bind  Tenant in any  manner,  nor  constitute  an offer by
Tenant,  and no agreement or other  obligation  of Tenant shall arise until such
time as this Agreement is fully executed and delivered by Landlord and Tenant.

         9. All  provisions  of this  Agreement  have  been  negotiated  by both
parties at arm's length and neither  party shall be deemed the scrivener of This
Agreement.  This Agreement shall not be construed for or against either party by
reason of authorship or alleged authorship of any provision.

                  10. If either of the parties  hereto is comprised of more then
one person or entity,  the obligations  imposed upon such party(ies)  under this
Amendment shall be joint and several.


         IN WITNESS  WHEREOF,  Landlord and Tenant have executed this  Amendment
under seal, as of the 20 day of August, 1998.


         CHARLES H. MORRISON, Trustee

           By /s/ Charles H. Morrison


         BROKERS NATIONAL LIFE ASSURANCE COMPANY


         By  /s/ Barry N. Shamas
         Title:  Exec. V.P.



<PAGE>

Exhibit III
                               SUBLEASE AGREEMENT



         THIS  SUBLEASE  is made as of the  20th day of  January,  1999 , by and
between Brokers National Life Assurance  Company  ("Sublessor" and "Tenant") and
PRG, Inc. ("Sublessee").

         For  valuable   consideration  given  and  received  to  Sublessee  and
Sublessee hereby agree to all of the terms and provisions set out below:

         1.  Premises.  Sublessor  hereby  subleases to Sublessee  and Sublessee
hereby leases from Sublessor  Office all of suite 200  containing  approximately
5588 square feet of rentable space on the 2nd ( ) floor  ("Subleased  Premises")
in the #301  Buildings  ("Building")  located  at 301 Camp  Craft Road , Austin,
Texas 78746 .

         2.  Prime  Lease.   Sublessor  and  Sublessee   hereby   recognize  and
acknowledge that the premises to be sublet hereunder are subject to that certain
Lease by and between the Sublessor,  as Tenant,  Enclave KOW, LTD , as Landlord,
dated 03/24/1994  ("Prime  Lease").  This Sublease shall at all times and in all
respects remain subordinate to the Prime Lease.

         3. Term.  The term of this sublease  shall  commence on the 20th day of
January,  1999 , and  terminate at midnight on the 31st day of May, 1999 . Under
no circumstances shall this Sublease extend beyond the expiration of the term of
the Prime lease which is  currently  the 1st day of June,  1999,  or the earlier
termination,  surrender, or forfeiture of the Prime Lease, regardless of whether
the Prime Lease expires by its own terms, is terminated for Tenant's default, is
terminated by agreement of Landlord and Tenant, or is terminated, surrendered or
forfeited for any other reason.  Sublessor  shall advise  Sublessee of any early
termination  of this  Sublease  no less  than  fifteen  (15)  days  prior to the
effective date of termination.

         4. Rent. As rental for the Sublease and use of the  Subleased  Premises
("Base Rental'),  Sublessee will pay Sublessor,  the sum of $6,250.00* per month
on the first day of each calendar month,  monthly in advance, for each and every
month during the term of this  Sublease.  If the Sublease term does not commence
on the first day of the calendar month, Sublessee will pay in advance a pro rata
part of such sum as  rental  for such  partial  month.  During  the term of this
Sublease,  Sublessee  shall be liable to Sublessor for its pro rata share of any
increase in the Basic Rental  payable  under the Prime Lease or for its pro rata
share of any costs or expenses charged to the Sublessor pursuant to the terms of
the Prime Lease.  Sublessee's  expenses  will be  apportioned  for the Subleased
Premises only. * For four (4) months beginning 02/01/1999.

         5. Use.  Sublessee  will use the Subleased  Premises for general office
purposes and for no other use or purpose  without the prior  written  consent of
Sublessor, which may be granted or withheld in a Sublessor's sole discretion and
judgement.

         6. Incorporation of Terms.  Except as otherwise  provided herein,  this
Sublease shall be subject to all the terms, covenants,  and conditions contained
in the Prime Lease, and Sublessee agrees to be and shall be abound by all of the
provisions  of the  Prime  Lease,  except  for  the  provisions  specifying  the
premises,  the amount of rent and security deposit,  as if all the terms of said
Prime Lease were set forth herein verbatim; provided, however, that for purposes
of this Sublease only,  Sublessor shall be substituted in the place of Landlord,
and Sublessee  shall be substituted in place of Tenant,  and Subleased  Premises
shall be substituted in place of Premises, wherever in said Prime Lease of terms
"Landlord" and "Tenant" and "Premises" appear.

         7.  Limitation  of  Liability  and  Indemnity.   Neither  Landlord  nor
Sublessor  shall be liable or responsible to Sublessee for any loss or damage to
any  property  or  person  occasioned  by  theft,  act  of  God,  public  enemy,
injunction, riot, strike,  insurrection,  war, court order, requisition or order
of governmental body or authority,  or for any damage or inconvenience  that may
arise through  repair or  alteration of any part of the Building,  or failure to
make  any  such  repairs.  Sublessee  agrees  that it will  indemnify  and  hold
Sublessor and Landlord harmless from all sums, claims, and actions of every kind
by reason of any breach,  violation or  nonperformance of any term or conditions
on the part of the  Sublessee  under  this  Agreement.  Additionally,  Sublessee
agrees to idemnify and hold  Sublessor  and Landlord  harmless  from all claims,
actions,  damages,  liabilities,  and expenses  asserted  against the  Sublessor
and/or  Landlord  on  account of injury to person or damage to  property  to the
extent  that any such  damage or injury may be  caused,  either  proximately  or
remotely, by and act or omission,  whether negligent or not, of Sublessee or any
of its agents,  servants,  employees,  contractors,  patrons, or invitees (while
such  invitees are on the  Subleased  Premises) or of any other person  entering
upon the Subleased Premises under or with the expressed or implied invitation of
Sublessee,  or if any such  injury or damage  may in any other way arise from or
out of the  occupancy or use of  Sublessee,  its  Sublessor  and Landlord of the
Subleased  Premises  only,  and no right  of  action  shall  accrue  under  this
paragraph to any third party by of  subrogation  or  otherwise.  Notwithstanding
anything to the contrary  contained in the Sublease,  Sublessor will  indemnify,
defend and hold Sublessee  harmless from claims for personal  injury,  death, or
property  damages  occurring in or about the Subleased  Premises or the Premises
which are caused by the  negligence  or willful  misconduct  of  Sublessor,  its
agents, employees, contractors, or invitees.

         8. Assignment. No assignment of subletting of the Subleased Premises or
any part thereof shall be made by Sublessee  without  Sublessor's  prior written
consent, which shall not be unreasonably withheld, conditioned or delayed.

         9.  Consent.  The  parties  hereto  acknowledge  that,  pursuant to the
provisions  of Paragraph 8 of the Prime Lease,  any Sublease  requires the prior
written  consent of Landlord.  Accordingly,  unless  Landlord shall manifest its
consent to this Sublease as designated  below,  this Sublease shall terminate by
Sublessor  at any time if required by the  Landlord,  upon  written  notice from
Sublessor to  Sublessee;  whereupon  all rights and  obligations  of the parties
hereunder shall terminate.

         10.  Tenant  Improvements.  Sublessor  has made no  representations  or
warranties as to the condition of the Premises.  Sublessee  accepts the Premises
in its current "as-is" condition.

         IN WITNESS  HEREOF,  the  Sublessor  and  Sublessee  have executed this
Sublease as of the date and year first written above.

SUBLESSOR:                                           SUBLESSEE:


Brokers National Life Assurance Company     Publishers Resource Group, Inc.

By:   /s/ Barry N. Shamas                     By:    /s/ Aileen H. Krassner
Name: Barry N. Shamas                       Name: Aileen H. Krassner
Title:Executive V.P.                       Title:    President



                               LANDLORD'S CONSENT

         The foregoing Sublease Agreement has been consented to by the Landlord
this day of                        .

             LANDLORD:


                  By:     /s/ Peter B. Hall
                Name: Peter B. Hall
                 Its:     President






<PAGE>