<PAGE>   1
                       Securities and Exchange Commission
                             Washington, D. C. 20549

                                    FORM 10-K


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

         For the fiscal year ended December 31, 2000

                                       OR

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

For the transition period from             to


                         Commission File Number 2-39729

                      COTTON STATES LIFE INSURANCE COMPANY
                      ------------------------------------
             (Exact name of registrant as specified in its charter)


<TABLE>
<S>                                                                                       <C>
         GEORGIA                                                                              58-0830929
         -------                                                                          ------------------
(State of incorporation                                                                    (I.R.S. Employer
  and jurisdiction)                                                                       Identification No.)

244 PERIMETER CENTER PARKWAY, N.E., ATLANTA, GEORGIA                                             30346
----------------------------------------------------                                             -----
      (Address of principal executive offices)                                                 (Zip code)
</TABLE>

        Registrant's telephone number, including area code: (404)39l-8600

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                        EXEMPT-UNDER SECTION 12(g)(2)(G)

Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and has been subject to the filing requirements for at
least the past 90 days.
                      YES    [X]         NO [ ]

Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [X]

The aggregate market value of voting stock held by non-affiliates was
$43,756,380 based on the closing price of $10.31 on February 1, 2001, as
reported on the NASDAQ National Market.

As of February 1, 2001, there were 6,345,428 shares of registrant's common
stock outstanding.

The Exhibit Index is located on Page 50.

The total number of pages in this document is 55


<PAGE>   2


                                     PART I


ITEM 1.  BUSINESS

GENERAL

         Cotton States Life Insurance Company (the "Company") was organized
under the laws of the State of Georgia in 1955. The Company is currently
licensed to transact business in Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Virginia.

         The Company currently markets only individual life insurance, payroll
deduction life insurance, guaranteed-simplified issue life insurance and
individual annuities.

         In July of 1989, the Company formed CSI Brokerage Services, Inc.
("CSI"). CSI brokers insurance products for the Company's exclusive agents not
offered by the Company's affiliated property and casualty companies.

         In November of 1989, the Company acquired 60% of the outstanding
common stock of Cotton States Marketing Resources, Inc. ("CSMR"). During 1992,
the Company acquired the remaining 40% of CSMR's stock. CSMR brokers through
the Company's exclusive agents other insurance companies' life and accident and
health products not underwritten by the Company.


                                       2
<PAGE>   3


FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

         The Company's operations can be grouped into three major segments: (i)
individual life insurance, (ii) guaranteed issue and simplified issue life
insurance, and (iii) brokerage operations. These segments are differentiated
primarily by their respective methods of distribution and the nature of related
products, as the Company's operations in each segment are concentrated within
its southeastern states geographic market. Individual life insurance products
are distributed through the Company's multi-line exclusive agents, guaranteed
issue and simplified issue products are distributed through independent agents
as well as exclusive agents, and brokerage operations involve third party
products distributed through the Company's exclusive and independent agents.


<TABLE>
<CAPTION>
                                                         2000                    1999                    1998
                                                     ------------             ----------             ----------

<S>                                                  <C>                      <C>                    <C>
Individual life insurance:
       Premiums                                      $ 17,816,354             16,653,463             15,334,599
       Net investment income                            9,403,578              8,837,008              8,461,988
       Realized investment gains                          160,104                254,052                358,000
                                                     ------------             ----------             ----------
            Total revenue                              27,380,036             25,744,523             24,154,587

       Policyholder benefits                           13,337,303             12,173,031             10,429,767
       Operating expenses                               7,103,512              7,525,275              6,292,769
                                                     ------------             ----------             ----------
            Total benefits and expenses                20,440,815             19,698,306             16,722,536
                                                     ------------             ----------             ----------

            Operating profit                            6,939,221              6,046,217              7,432,051
                                                     ------------             ----------             ----------

Guaranteed and simplified life insurance:
       Premiums                                         8,106,634              5,843,177              3,794,585
       Net investment income                              540,200                316,301                159,182
       Realized investment gains                            9,670                  9,093                  6,735
                                                     ------------             ----------             ----------
            Total revenue                               8,656,504              6,168,571              3,960,502

       Policyholder benefits                            5,728,786              3,358,022              2,317,006
       Operating expenses                               2,368,914              1,616,158                890,787
                                                     ------------             ----------             ----------
            Total benefits and expenses                 8,097,700              4,974,180              3,207,793
                                                     ------------             ----------             ----------
            Operating profit                              558,804              1,194,391                752,709
                                                     ------------             ----------             ----------
Brokerage:
       Brokerage commissions                            4,197,173              3,828,087              3,214,216
       Net investment income                              147,003                 99,061                 62,698
       Realized investment gains                          236,160                211,483                103,180
                                                     ------------             ----------             ----------
            Total revenue                               4,580,336              4,138,631              3,380,094

       Operating expenses                               1,154,992              1,086,777              1,006,605
                                                     ------------             ----------             ----------
            Operating profit                            3,425,344              3,051,854              2,373,489
                                                     ------------             ----------             ----------
Combined operating profit                              10,923,369             10,292,462             10,558,249
Group life insurance and individual
       accident and health results                        (70,097)              (109,127)              (172,906)
                                                     ------------             ----------             ----------

Earnings before Federal income taxes                 $ 10,853,272             10,183,335             10,385,343
                                                     ============             ==========             ==========
</TABLE>


                                       3
<PAGE>   4


NARRATIVE DESCRIPTION OF BUSINESS SEGMENTS

(I)      INDIVIDUAL LIFE

         The major forms of individual life insurance offered by the Company
include universal life, graded premium whole life, participating whole life,
term insurance, various supplemental riders including, but not limited to,
accidental death, disability waiver and guaranteed insurability, and disability
income riders. These products are sold by the Company's 282 multi-line
exclusive agents in Alabama, Florida, Georgia, Kentucky and Tennessee.

         The Company offers its insurance through multi-line exclusive agents
who also write all lines of property and casualty insurance offered by Cotton
States Mutual Insurance Company ("Mutual") and its subsidiary, Shield Insurance
Company ("Shield"). See Item 13 of this report for an explanation of the
relationship between the Company, Mutual and Shield. Multi-line exclusive
agents are under contract to the Company, Mutual and Shield, and are paid on a
commission basis. The Company's multi-line exclusive agents are located in the
following states:


<TABLE>
<CAPTION>
                         NUMBER OF AGENTS
                           DECEMBER 31,
                       --------------------
                       2000            1999            STATE
                       ----            ----            -----
             <S>       <C>             <C>            <C>
                         48             53            Alabama
                         24             24            Florida
                        159            164            Georgia
                         30             27            Kentucky
                         21             15            Tennessee
                        ---            ---
             TOTAL      282            283
                        ===            ===
</TABLE>

         Unless the need for a medical examination is indicated by the
application or an investigation, the Company writes individual life insurance
based on age without requiring blood and specimen in the following maximum
amounts:


<TABLE>
<CAPTION>
             AGE GROUP                 MAXIMUM INSURANCE
             ---------                 -----------------
           <S>                         <C>
                  0-17                     $100,000
                 18-40                       74,999
                 41-50                       50,000
           51 and over                       25,000
</TABLE>

         As of December 31, 2000, less than 2.9% of the Company's individual
life premiums were represented by substandard risks. Substandard life insurance
risks are accepted by the Company at increased rates. The Company has no fixed
maximum on the size of substandard policies and will entertain any application
on which it can obtain suitable reinsurance.

         The Company, as do others in the insurance industry, reinsures with
other companies portions of the individual life insurance policies it
underwrites. Reinsurance enables an insurance company to write a policy in an
amount larger than the risk it desires to assume. A contingent liability exists
on insurance ceded to the reinsurer which might become a liability of the
Company in the event that the reinsurer fails to meet its obligations under the
reinsurance treaty.

         The Company presently retains, with respect to individual life
policies, no more than $100,000 of insurance on any one life, which may be
reduced, depending upon the age and the physical classification of the insured.
All accidental death riders are 100% reinsured.


                                       4
<PAGE>   5


(II)     GUARANTEED ISSUE AND SIMPLIFIED ISSUE WHOLE LIFE INSURANCE

         The Company offers Guaranteed Issue and Simplified Issue whole life
insurance through its multi-line agency force and approximately 3,900
independent agents. The independent agents sell these products in all states in
which the Company is licensed.

         Both plans are level-premium, cash value permanent life insurance
products issued from $2,500 to $25,000 face amounts. Both plans are frequently
used by individuals to cover final expenses. They are designed to be sold as
companion plans using a simple application and no medical exams or tests. If
all health questions can be answered "NO", the Simplified Issue policy may be
issued. Otherwise, the Guaranteed Issue policy will be issued.

         Guaranteed Issue whole life is available for issue ages 46-80. The
death benefit in policy years one to three is limited to a return of premium
plus 10%. However, the full death benefit is payable in all years in case of
accidental death. After three years, the full death benefit is payable for any
cause of death.

         Simplified Issue whole life is available for issue ages 0-80. The full
death benefit is payable from the issue date.

(III)    BROKERAGE

         The Company owns two brokerage subsidiaries, CSI and CSMR. CSI
provides the Company with commission income from brokerage agreements with
other property and casualty insurance carriers. These carriers supply the
Company's multi-line agents with property and casualty products that the
Company's affiliated property and casualty companies do not underwrite, such as
non-standard auto insurance, crop hail insurance, multi-peril crop insurance,
mobile home insurance, poultry house insurance and flood insurance.

         Sixty-two percent of CSI's brokerage revenues come from the sale of
non-standard auto insurance through two carriers. Twenty percent of CSI's
revenue comes from the sale of crop hail and multi-peril crop insurance through
one carrier.

         CSMR provides the Company with commission income from brokerage
agreements with other life and health insurance companies. These companies
supply the Company's multi-line agents with life and health products that the
Company does not choose to underwrite, such as individual major-medical
policies, impaired risk life insurance, first to die life insurance, group life
and health insurance. CSMR has contracted with approximately 3,900 independent
agents to write the Company's Guaranteed Issue and Simplified Issue whole life
insurance.

REGULATION

         The Company, like other insurance companies, is subject to regulation
and supervision by the states in which it transacts business. The insurance
laws of these states confer upon supervisory authorities broad administrative
powers relating to (i) the regulation and revocation of licenses to transact
business, (ii) the regulation of trade practices, (iii) the licensing of
agents, (iv) the approval of the form and content of policies and advertising,
(v) the depositing of securities for the benefit of policyholders, (vi) the
type and amount of investments permitted, and (vii) the maintenance of
specified reserves and capital for the protection of policyholders. In general,
insurance laws and regulations are designed primarily to protect policyholders
rather than shareholders.

         The Company is also required under these laws to file detailed annual
reports with the supervisory agencies in each of the states in which it does
business. Under the rules of the National Association of Insurance
Commissioners, the Company's records are examined periodically by one or more
of the state supervisory agencies.


                                       5
<PAGE>   6


EMPLOYEES

         In addition to its principal officers, the Company shares 118 salaried
employees with Shield and Mutual. The Company pays an allocated portion of the
shared employees' salaries, either based upon the Company's premium income in
relation to the premium income of Mutual and Shield or the actual time expended
on each company's affairs. The Company and its subsidiaries also have 34
salaried employees who work on a full-time basis in its home office, where all
administrative functions, such as underwriting, billing and collection of
premiums, are centralized and from which all sales activities are directed.
None of the Company's employees is subject to a collective bargaining
agreement.

COMPETITION

         The Company operates in a highly competitive industry. It competes
with a large number of stock and mutual insurance companies. Larger stock and
mutual insurance companies may have a competitive advantage in that they have
greater financial and human resources that enable them to offer more
diversified lines of coverage and develop new products faster.

         Mutual companies may also have an additional advantage compared to
stock insurers because all of their profits accrue to the policyholders.

         The Company has certain advantages that enable it to keep its premium
rates competitive with similar policies offered by competing companies. These
advantages are:

         1.       The Company offers most of its insurance through the same
                  agents who write property and casualty insurance for Mutual
                  and Shield. The sale of insurance through the same agents who
                  sell property and casualty insurance enables the Company to
                  incur less agency development and sales expense than is
                  customary in the industry;

         2.       Because the Company's agents can provide customers with
                  coverage for all major lines of individual insurance they may
                  utilize "account" selling. Account selling enables insureds
                  to contact one agent regarding their total insurance needs;
                  and

         3.       The Company shares certain facilities, equipment and
                  personnel with Mutual and Shield. The Company believes that
                  sharing these expenses has a favorable impact on the ratio of
                  expenses to premium income and enables the Company to enjoy
                  economies of scale.

         In order to keep pace with trends in the industry, the Company
introduces new products with premium rates and benefits that it believes are
competitive with the industry.

ITEM 2.  PROPERTIES

         The Company, Mutual and Shield occupy offices located at 244 Perimeter
Center Parkway, Atlanta, Georgia. The building is owned by a general
partnership composed of Mutual and Gold Kist Inc. ("Gold Kist"). The Company
has no ownership interest in the partnership. The facility consists of a
three-story office building containing approximately 260,000 square feet of
space of which the Company, Mutual and Shield share approximately 90,000 square
feet. The Company believes that the facility is suitable to its business.
Rental expense is allocated to the Company based on its proportionate share of
square footage occupied.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is a defendant in various actions incidental to the
conduct of its business. While the ultimate outcome of these matters cannot be
estimated with certainty, management does not believe the actions are
reasonably likely to result in a material loss to the Company.


                                       6
<PAGE>   7


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

         Not applicable.


                                    PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         On January 1, 2001, there were approximately 1,900 shareholders of the
Company's common stock. The stock (symbol "CSLI") is traded over-the-counter on
the NASDAQ National Market System. Price history as provided by NASDAQ and
dividends declared during the past two years are presented below:


<TABLE>
<CAPTION>
                                       Stock Price(1)          Dividend
                                    High           Low         Declared

<S>                                <C>             <C>           <C>
2000

         First Quarter             $ 9.00          7.00          .04
         Second Quarter              8.63          7.13          .04
         Third Quarter               9.81          8.00          .04
         Fourth Quarter             11.50          8.25          .04


1999

         First Quarter             $14.50         11.75          .04
         Second Quarter             12.50         10.38          .04
         Third Quarter              12.38          9.00          .04
         Fourth Quarter             10.38          7.50          .04
</TABLE>


(1)      The prices presented above are sale prices which represent price
         between broker-dealers and do not include mark-ups or mark-downs or
         any commission to the broker-dealer. Therefore, the prices presented
         above do not reflect prices in actual transactions.


                                       7
<PAGE>   8


ITEM 6.  SELECTED FINANCIAL DATA

                        TEN-YEAR SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>

                                               2000                1999              1998               1997               1996
                                           ------------        -----------        -----------        -----------        -----------
<S>                                        <C>                 <C>                <C>                <C>                <C>
AS OF DECEMBER 31
Total assets                               $211,300,570        190,516,318        180,773,289        165,337,309        148,824,187
Total liabilities                          $148,566,691          5,729,241        126,282,437        115,941,296        105,910,335
Total shareholders' equity                 $ 62,733,879         54,787,077         54,490,852         49,396,013         42,913,852
Book value per share                       $       9.89               8.66               8.56               7.72               6.71
Closing price per share                    $      11.50               8.63              14.88              15.25               7.60
YEARS ENDED DECEMBER 31
Premiums                                   $ 26,816,523         23,302,097         19,935,354         17,620,184         15,400,543
Net investment income, realized
     investment gains and brokerage
     income                                $ 14,693,886         13,555,085         12,365,999         11,308,794          9,458,474
Total revenue                              $ 41,510,409         36,857,182         32,301,353         28,928,978         24,859,017
Benefits and expenses                      $ 30,657,137         26,673,847         21,916,010         20,451,884         18,735,863
Net income                                 $  7,606,215          7,327,945          7,240,585          6,304,558          4,832,577

Basic net income per share                 $       1.20               1.16               1.13                .99                .76
Diluted net income per share               $       1.18               1.14               1.10                .96                .74
Dividends per share                        $       .160               .160               .160               .126               .102


<CAPTION>
AS OF DECEMBER 31                              1995                1994              1993               1992               1991
                                           ------------        -----------        -----------        -----------        -----------
<S>                                        <C>                 <C>                <C>                <C>                <C>
Total assets                               $139,381,979        124,412,468        116,237,515        111,133,117        102,258,764
Total liabilities                          $ 99,694,942         90,855,648         85,285,402         82,346,176         75,210,219
Total shareholders' equity                 $ 39,687,037         33,556,820         30,952,113         28,786,941         27,048,545
Book value per share                       $       6.23               5.28               5.10               4.74               4.46
Closing price per share                    $       4.80               3.63               3.20               2.77               2.77

YEARS ENDED DECEMBER 31
Premiums                                   $ 15,061,541         15,128,529         13,535,407         14,475,370         13,758,303
Net investment income, realized
     investment gains and brokerage
     income                                $  8,814,035          7,597,136          7,271,267          7,111,110          7,069,597
Total revenue                              $ 23,875,576         22,725,665         20,806,674         21,586,480         20,827,900
Benefits and expenses                      $ 18,548,121         18,333,697         18,149,664         19,122,882         19,182,874
Net income                                 $  4,070,871          3,303,024          2,435,355          2,108,597          1,292,026

Basic net income per share                 $        .64                .54                .40                .33                .21
Diluted net income per share               $        .63                .51                .39                .33                .20
Dividends per share                        $       .072               .060               .051               .068               .119
</TABLE>


Note:    All share and per share amounts have been adjusted for the following
         stock splits:

      October 1995                      five-for-four
      April 1997                        five-for-four
      January 1998                      three-for-two


                                       8
<PAGE>   9


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                           FORWARD-LOOKING STATEMENTS

Statements made in the following discussion that state the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent the Company's
beliefs concerning future levels of sales and redemption of the Company's
products, investment spreads and yields, or the earnings and profitability of
the Company's activities.

Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which are subject to change. These uncertainties and contingencies
could cause actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Whether or not
actual results differ materially from forward-looking statements may depend on
numerous foreseeable and unforeseeable developments. Some may be national in
scope, such as general economic conditions, changes in tax law and changes in
interest rates. Some may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation. Others
may relate to the Company specifically, such as credit, volatility and other
risks associated with the Company's investment portfolio. Investors are also
directed to consider other risks and uncertainties discussed in documents filed
by the Company with the Securities and Exchange Commission. If the Company's
assumptions and estimates are incorrect or do not come to fruition, or if the
Company does not achieve all of these key factors, then the Company's actual
performance could vary materially from the forward-looking statements made
herein. The Company disclaims any obligation to update forward-looking
information.

                             RESULTS OF OPERATIONS
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                2000          1999      INCREASE       1998      INCREASE
                                              -------        ------     --------      ------     --------
<S>                                           <C>            <C>        <C>           <C>        <C>
PREMIUMS
Guaranteed and simplified
    issue life insurance                      $ 8,107         5,843        39%         3,795         54%

Individual life insurance:
    Traditional life                            6,057         5,848         4%         5,573          5%
    Universal life                             11,759        10,805         9%         9,762         11%
                                              -------        ------        --         ------        ---
       Total individual life insurance         17,816        16,653         7%        15,335          9%
                                              -------        ------        --         ------        ---
Other Lines                                       894           806        11%            --
                                                                                                    805
       TOTAL PREMIUMS                         $26,817        23,302        15%        19,935         17%
                                              =======        ======        ==         ======        ===
</TABLE>

Guaranteed and simplified issue life insurance premiums continued to show
significant growth as a result of higher production by the Company's independent
agency force which increased 44% to approximately 3,900 agents under contract at
December 31, 2000 after increasing by 42% the previous year. This product is
also distributed by the Company's multi-line exclusive agents and is available
for purchase over the Internet at the Company's home page
(www.cottonstatesinsurance.com).

Individual life insurance products are principally sold by the Company's
exclusive agent producers. Growth in Individual life premiums largely reflects
the popularity of universal life payroll deduction products. The exclusive
agency force of 282 as of December 31, 2000 compares to 283 as of the same date
in 1999 and 272 in 1998.

Other premiums consist of the Company's participation in a Federally sponsored
group life pool and income from a closed block of individual accident and health
business.


                                       9
<PAGE>   10


INVESTMENT INCOME

Investment income increased 9% in 2000 and 5% in 1999 reflecting growth in the
average investment portfolio. The annualized average yield increased to 7.0%
compared to 6.7% for 1999 and 1998.


BROKERAGE COMMISSIONS

Exclusive agents sell products that the Cotton States Group does not underwrite
(both life and property and casualty) but are provided through the Company's
brokerage operations, and for which the Company receives override commission.
Growth in brokerage income for the year increased 10% due primarily to increased
sales of non-standard automobile policies. Brokerage commissions increased 19%
in 1999 due to a new affiliation with an additional non-standard automobile
insurance carrier at higher override commission rates.

BENEFITS AND CLAIMS

Life benefits and claims, including reserve increases on traditional life and
guaranteed and simplified issue products are as follows:


<TABLE>
<CAPTION>
                                                       2000                      1999                     1998
                                             -----------------------    ----------------------   ----------------------
                                             BENEFITS AND     % OF      BENEFITS AND    % OF     BENEFITS AND    % OF
                                                CLAIMS       PREMIUM       CLAIMS      PREMIUM      CLAIMS      PREMIUM
                                             ------------    -------    ------------   -------   ------------   -------
<S>                                          <C>             <C>        <C>            <C>       <C>            <C>
BENEFITS AND CLAIMS
(dollars in thousands)
Guaranteed and                                 $ 5,729         71%         3,358         57%        2,317         61%
    simplified issue

Individual life insurance
    Traditional life                             4,261         70%         4,305         74%        3,538         64%
    Universal life                               3,878         33%         3,136         29%        2,441         25%
                                               -------        ---         ------        ---         -----        ---
    Total individual life insurance              8,139         46%         7,441         45%        5,979         39%
                                               -------        ---         ------        ---         -----        ---

Other benefits and claims                          932        104%           901        111%          959        118%
                                               -------        ---         ------        ---         -----        ---
        TOTAL BENEFITS AND CLAIMS              $14,800         55%        11,700         50%        9,255         46%
                                               =======                    ======                    =====
</TABLE>

Benefits and claims as a percentage of premium fluctuate within a normal range
reflecting volatility in mortality, changes in mix of business, and age of
policyholders. Other benefits and claims consist of participation in a Federally
sponsored group life pool and benefits on a closed block of individual accident
and health business.

INTEREST CREDITED TO POLICYHOLDERS

Interest credited to universal life contracts increased 10% reflecting growth in
business. The annual interest rate credited to policyholders of universal life
contracts was 6.2% for 2000, 1999, and 1998.

AMORTIZATION OF POLICY ACQUISITION COSTS AND OPERATING EXPENSES

The amortization of policy acquisition costs decreased slightly from 1999 levels
as the result of the periodic adjustment of actuarial assumptions to reflect
current experience. For the year 2000, this adjustment represented the slow down
in amortization as a result of higher estimated future profits resulting from
expected improvement in mortality levels of universal life products from initial
expectations. The after tax effect on net earnings for the period ended December
31, 2000 was $429,000.


                                      10
<PAGE>   11


Operating expense as a percentage of premiums decreased to 28% for the year
compared to 31% in 1999 and 32% in 1998. The Company continues to realize
increasing cost efficiencies from recently implemented digital imaging and
automated policy processing technologies.

INCOME TAX EXPENSE

The effective tax rate for 2000 was 30% compared to 28% in 1999 and 30% in 1998.
The 2 percentage point increase is the result of larger pretax income relative
to the allowable small life company deduction.


<TABLE>
<CAPTION>
                                                                                  PERCENTAGE                   PERCENTAGE
                                                        2000           1999    INCREASE/DECREASE   1998     INCREASE/DECREASE
NET INCOME                                              ----           ----    -----------------   ----     -----------------
(Dollars in thousands)

<S>                                                     <C>            <C>     <C>                 <C>      <C>

      Operating income:
      Guaranteed and simplified issue                     385            853         (55)%           520          64%
                                                        -----          -----                       -----
      Individual life insurance:
           Traditional                                  1,055            765          38%            794          (4)%
           Universal life                               3,696          3,404           9%          4,209         (19)%
                                                        -----          -----         ---           -----         ---
                Total individual life insurance         4,751          4,169          14%          5,003         (17)%
                                                        -----          -----         ---           -----
      Brokerage operations                              2,235          2,044           9%          1,583          29%
                                                        -----          -----                       -----
      Other Lines                                         (49)           (80)         39%           (120)         33%
                                                        -----          -----                       -----

                Total operating income                  7,322          6,986           5%          6,986          --

      Realized gains                                      284            342         (17)%           254          35%
                                                        -----          -----                       -----

                Net Income                              7,606          7,328           4%          7,240           1%
                                                        =====          =====                       =====
</TABLE>


Continued strong growth and cost efficiencies accounted for the increase in
operating income for the year. Income from brokerage operations increased
reflecting higher override commissions generated by an increased volume of
business.

                        LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW

Premiums and investment income are the Company's major sources of cash flow used
to meet its short-term and long-term cash requirements. Short-term obligations
consist primarily of operating expenses and policyholder benefits. The Company
has been able to meet these funding requirements out of operating cash flow.

The Company's principal long-term obligations are fixed contractual obligations
incurred in the sale of its life insurance products. The premiums billed for
these products are based on conservative and actuarially sound assumptions as to
mortality, persistency and interest. The Company believes these assumptions will
produce revenues sufficient to meet its future contractual benefit obligations
and operating expenses, and provide an adequate profit margin to finance future
growth without entry into the debt or equity markets.


                                      11
<PAGE>   12


INVESTMENTS

Since December 31, 1999, there has not been a material change in mix or credit
quality of the Company's investment portfolio. All bond purchases have been
available for sale and over 93% of the holdings at December 31, 2000 and 1999
are rated "A" or better. Due to the improvement in bond market conditions, the
Company experienced an increase in the market value of bonds of approximately
$2,471,000 for the fourth quarter and $3,299,000 year to date 2000.

MORTGAGE LOANS

The Company's mortgage loan policy limits the amounts of loans to no more than
80% of the value on residential loans and no more than 75% of the value on
commercial loans. The Company grants loans only to employees (excluding officers
and directors) and agents.

The geographic distribution of the loan portfolio is:


<TABLE>
<CAPTION>
                                                                              BOOK VALUE
          NUMBER OF LOANS                                               (DOLLARS IN THOUSANDS)
--------------------------------                                  --------------------------------
DECEMBER 31,        DECEMBER 31,                                  DECEMBER 31,        DECEMBER 31,
   2000                1999                STATE                     2000                 1999
------------       -------------           -----                  ------------        ------------

<S>                <C>                    <C>                     <C>                 <C>
    3                    3                Alabama                    $  130                 146
    6                    6                Florida                       354                 385
   36                   47                Georgia                     1,614               2,368
   --                   --                                           ------               -----
   45                   56                                           $2,098               2,899
   ==                   ==                                           ======               =====
</TABLE>


Two loans representing $113,000 in principal are over 30 days delinquent. The
loan-to-value ratio on delinquent loans is 31%.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CREDIT RISK

Credit risk is the risk that issuers of securities owned by the Company will
default, or other parties, including reinsurers, which owe the Company money,
will not pay. The Company attempts to minimize these risks by following a
conservative investment strategy and by contracting with reinsuring companies
that meet high standards for rating criteria and other qualifications. The
Company invests principally in government, governmental agency and high quality
corporate bonds having an A rating or better. The fixed maturity portfolio had
an average rating of AA- at December 31, 2000.

INTEREST RATE RISK

Interest rate risk is the risk that interest rates will change and cause a
decrease in the value of an insurer's investments. The Company's fixed maturity
investments are subject to interest rate risk. The Company seeks to manage the
impact of interest rate fluctuation through cash flow modeling, which attempts
to match the maturity schedule of its assets with expected payout of its
liabilities. Liabilities for interest sensitive products are carried at full
account value. The fixed maturity portfolio at December 31, 2000 and December
31, 1999 had an effective duration of 4.8 years and 5.1 years, respectively.


                                      12
<PAGE>   13


The table below summarizes the Company's interest rate risk and shows the effect
of a hypothetical 100 and 200 basis point increase/decrease in interest rates on
the market values of the fixed investment portfolio. The selection of 100 and
200 basis point increases/decreases in interest rates should not be construed as
a prediction by the Company's management of future market events, but rather, to
illustrate the potential impact of such events. These calculations may not fully
capture the impact of the changes in the ratio of long-term rates to short-term
rates.


<TABLE>
<CAPTION>
                                                                                                                    HYPOTHETICAL
                                                                                                                     PERCENTAGE
                                                                                                ESTIMATED FAIR        INCREASE
                                                                                                  VALUE AFTER       (DECREASE) IN
                                                                       ESTIMATED CHANGE IN       HYPOTHETICAL       SHAREHOLDERS'
                                                  ESTIMATED VALUE        INTEREST RATES            CHANGE IN        EQUITY BEFORE
                                                 DECEMBER 31, 2000     (BP-BASIS POINTS)        INTEREST RATES          TAXES
                                                 ----------------------------------------------------------------------------------
                                                 (dollars in thousands)
<S>                                              <C>                   <C>                      <C>                 <C>
Held for investment:
      U. S. Treasury securities and obligations                          200 bp decrease               1,509                N/A
      of U.S. government corporations                                    100 bp decrease               1,505                N/A
      and agencies                                    $1,501             100 bp increase               1,497                N/A
                                                                         200 bp increase               1,495

Debt securities issued by
      foreign governments                             $2,031             200 bp decrease               2,067                N/A
                                                                         100 bp decrease               2,049                N/A
                                                                         100 bp increase               2,013                N/A
                                                                         200 bp increase               1,996                N/A

Corporate securities                                 $11,682             200 bp decrease              12,207                N/A
                                                                         100 bp decrease              11,939                N/A
                                                                         100 bp increase              11,429                N/A
                                                                         200 bp increase              11,186                N/A

Available for sale:
      U.S. Treasury and obligations                                      200 bp decrease              11,079               1.32
      of U.S. government corporations                                    100 bp decrease              10,669               0.67
      and agencies                                   $10,249             100 bp increase               9,810              (0.70)
                                                                         200 bp increase               9,374              (1.39)

Corporate securities                                 $89,385             200 bp decrease              99,933              16.81
                                                                         100 bp decrease              94,659               8.41
                                                                         100 bp increase              84,362              (8.01)
                                                                         200 bp increase              79,705             (15.43)

Mortgage-backed securities                           $16,950             200 bp decrease              17,764               1.30
                                                                         100 bp decrease              17,425               0.76
                                                                         100 bp increase              16,308              (1.02)
                                                                         200 bp increase              15,606              (2.14)

Total fixed maturities                              $131,798             200 bp decrease             144,559              20.34
                                                    --------             100 bp decrease             138,246              10.28
                                                                         100 bp increase             125,419             (10.17)
                                                                         200 bp increase             119,362             (19.82)
</TABLE>


                                      13
<PAGE>   14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES

                         Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                    ----------------------------------
                                                                         2000                  1999
                                                                    -------------           ----------

<S>                                                                 <C>                     <C>
                            ASSETS
Investments:
  Fixed maturities, held for investment, at amortized
    cost                                                            $  15,057,092           16,076,877
  Fixed maturities, available for sale, at fair value                 116,584,243          102,772,134
  Equity securities, at fair value                                      3,776,423            2,623,214
  First mortgage loans on real estate                                   2,097,616            2,898,757
  Policy loans                                                          8,841,008            8,591,609
  Short-term investments                                                3,538,856            5,494,839
  Other invested assets                                                 1,000,000            1,000,000
                                                                    -------------          -----------
     Total investments                                                150,895,238          139,457,430
Cash                                                                    2,899,048              610,695
Accrued investment income                                               2,465,951            2,232,351
Amounts receivable, principally premiums                                3,315,912            2,443,015
Amount due from reinsurers                                              4,376,910            4,038,669
Deferred policy acquisition costs                                      46,856,705           41,263,817
Other assets                                                              490,806              470,341
                                                                    -------------          -----------
                                                                    $ 211,300,570          190,516,318
                                                                    =============          ===========

             Liabilities and Shareholders' Equity
Policy liabilities and accruals:
  Future policy benefits                                            $ 132,654,587          122,605,977
  Policy claims and benefits payable                                    2,298,224            1,455,077
                                                                    -------------          -----------
     Total policy liabilities and accruals                            134,952,811          124,061,054
Federal income taxes:
  Current                                                                 576,889              670,347
  Deferred                                                              5,689,282            3,435,378
Other liabilities                                                       7,347,709            7,562,462
                                                                    -------------          -----------
     Total liabilities                                                148,566,691          135,729,241
                                                                    -------------          -----------
Shareholders' equity:
  Common stock of $1 par value. Authorized 20,000,000
    shares; issued 6,754,504 shares                                     6,754,504            6,754,504
  Additional paid-in capital                                            1,496,417            1,528,178
  Accumulated other comprehensive income (loss), net of tax            (1,715,931)          (3,466,876)
  Retained earnings                                                    60,320,092           53,732,985
  Less:
    Unearned compensation - restricted stock                             (794,276)            (362,458)
    Treasury stock, at cost (409,076 shares in 2000 and
        427,145 shares in 1999)                                        (3,326,927)          (3,399,256)
                                                                    -------------          -----------
     Total shareholders' equity                                        62,733,879           54,787,077
                                                                    -------------          -----------

                                                                    $ 211,300,570          190,516,318
                                                                    =============          ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      14
<PAGE>   15


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES

                      Consolidated Statements of Earnings


<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                             -----------------------------------------------
                                                                 2000              1999              1998
                                                             -----------        ----------        ----------

<S>                                                          <C>                <C>               <C>
Revenue:
    Premiums                                                 $26,816,523        23,302,097        19,935,354
    Net investment income                                     10,090,780         9,252,370         8,787,048
    Realized investment gains                                    405,933           474,628           364,735
    Brokerage commissions                                      4,197,173         3,828,087         3,214,216
                                                             -----------        ----------        ----------
              Total revenue                                   41,510,409        36,857,182        32,301,353
                                                             -----------        ----------        ----------

Benefits and expenses:
    Benefits and claims                                       14,800,123        11,699,850         9,254,807
    Interest credited                                          5,198,089         4,736,078         4,456,965
    Amortization of deferred policy acquisition costs          3,214,110         3,041,566         1,809,619
    Operating expenses                                         7,444,815         7,196,353         6,394,619
                                                             -----------        ----------        ----------
              Total benefits and expenses                     30,657,137        26,673,847        21,916,010
                                                             -----------        ----------        ----------

              Income before Federal income taxes              10,853,272        10,183,335        10,385,343
                                                             -----------        ----------        ----------

Federal income taxes:
    Current                                                    2,114,917         1,764,630         1,546,986
    Deferred                                                   1,132,140         1,090,760         1,597,772
                                                             -----------        ----------        ----------
              Total Federal income taxes                       3,247,057         2,855,390         3,144,758
                                                             -----------        ----------        ----------

              Net income                                     $ 7,606,215         7,327,945         7,240,585
                                                             ===========         =========         =========

Basic income per share of
    common stock                                             $      1.20              1.16              1.13
                                                             ===========         =========         =========

Diluted income per share of
    common stock                                             $      1.18              1.14              1.10
                                                             ===========         =========         =========

Weighted-average number of shares used in
  computing income per share:

    Basic                                                      6,345,687         6,341,393         6,410,345
                                                             ===========         =========         =========
    Diluted                                                    6,466,069         6,444,202         6,562,370
                                                             ===========         =========         =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      15
<PAGE>   16


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES

                Consolidated Statements of Shareholders' Equity


<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                    ----------------------------------------------------
                                                                        2000                  1999               1998
                                                                    ------------           ---------           ---------

<S>                                                                 <C>                    <C>                 <C>
Common stock - balance at beginning and
   end of year                                                      $  6,754,504           6,754,504           6,754,504
                                                                    ------------           ---------           ---------
Additional paid-in capital:
   Balance at beginning of year                                        1,528,178           1,478,639           1,283,745
   Treasury shares issued (acquired)                                     (83,304)            (91,286)              9,894
   Tax benefit arising from issuance of
     restricted stock                                                     51,543             140,825             185,000
                                                                    ------------           ---------           ---------
   Balance at end of year                                              1,496,417           1,528,178           1,478,639
                                                                    ------------           ---------           ---------
Accumulated other comprehensive income (loss):
   Balance at beginning of year                                       (3,466,876)          1,779,920           1,285,556
                                                                    ------------           ---------           ---------
   Change in unrealized gains (losses):
     Unrealized gains (losses) during year                             3,313,133          (9,637,850)            848,053
     Deferred (taxes) benefit                                         (1,126,466)          3,276,869            (288,338)
     Deferred acquisition cost adjustment                               (435,722)          1,114,185             (65,351)
                                                                    ------------           ---------           ---------
     Other comprehensive income (loss)                                 1,750,945          (5,246,796)            494,364
                                                                    ------------           ---------           ---------
   Balance at end of year                                             (1,715,931)         (3,466,876)          1,779,920
                                                                    ------------           ---------           ---------
Retained earnings:
   Balance at beginning of year                                       53,732,985          47,420,827          41,204,889
   Net income                                                          7,606,215           7,327,945           7,240,585
   Dividends of $.16 per share in 2000,
     $.16 in 1999, and $.16 in 1998                                   (1,019,108)         (1,015,787)         (1,024,647)
                                                                    ------------           ---------           ---------
   Balance at end of year                                             60,320,092          53,732,985          47,420,827
                                                                    ------------           ---------           ---------

Unearned compensation - restricted stock:
   Balance at beginning of year                                         (362,458)           (317,860)           (188,850)
   Shares awarded                                                       (490,964)           (353,004)           (381,306)
   Compensation expense recorded                                          59,146             308,406             252,296
                                                                    ------------           ---------           ---------
   Balance at end of year                                               (794,276)           (362,458)           (317,860)
                                                                    ------------           ---------           ---------
Treasury stock:
   Balance at beginning of year                                       (3,399,256)         (2,625,178)         (1,132,681)
   Cost of shares purchased (24,000 in 2000,
     75,000 in 1999 and 89,354 shares in 1998)                          (145,945)         (1,007,156)         (1,581,678)
   Cost of shares issued (49,910 shares in 2000,
     43,502 shares in 1999 and 50,267 shares in 1998)                    218,274             233,078              89,181
                                                                    ------------           ---------           ---------
   Balance at end of year                                             (3,326,927)         (3,399,256)         (2,625,178)
                                                                    ------------           ---------           ---------

             Total shareholders' equity                             $ 62,733,879          54,787,077          54,490,852
                                                                    ============          ==========          ==========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      16
<PAGE>   17


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                     ----------------------------------------------------
                                                                         2000                 1999                1998
                                                                     ------------           ---------           ---------

<S>                                                                  <C>                    <C>                 <C>
Cash flows from operating activities:
    Net income                                                       $  7,606,215           7,327,945           7,240,585
    Adjustments to reconcile net income to net
       cash provided by operating activities:
         Increase in policy liabilities and accruals                   10,891,757          10,182,099           7,851,348
         (Increase) in deferred policy acquisition costs               (6,028,610)         (5,079,456)         (5,172,476)
         Change in liability for income taxes                           1,054,461           1,820,865           1,845,101
         Decrease (Increase) in amounts receivable
                 and amounts recoverable from reinsurers               (1,211,138)         (1,441,681)            578,902
         Decrease (Increase) in amounts due affiliates                   (466,547)            188,462            (241,389)
         Decrease (Increase) in deferred compensation accruals           (133,818)            141,321             111,535
         Decrease (Increase) in unearned policy charges                   (51,501)            117,790             428,383
         Other, net                                                        94,936             102,251             314,551
                                                                     ------------          ----------         -----------
                   Net cash provided by operating
                     activities                                        11,755,755          13,359,596          12,956,540
                                                                     ------------         -----------         -----------

Cash flows from investing activities:
    Purchase of fixed maturities available for sale                   (20,141,334)        (27,539,338)        (31,232,770)
    Purchase of equity securities                                      (2,636,020)         (3,236,452)                 --
    Purchase of other invested assets                                          --                  --          (1,000,000)
    Sale of fixed maturities available for sale                         3,403,849           8,059,060          14,950,214
    Sale of equity securities                                           1,496,638             704,605                  --
    Proceeds from maturities of fixed maturities
       held for investment                                              1,010,000             500,000           1,500,000
    Proceeds from maturity and redemption of
       fixed maturities available for sale                              6,154,391           7,751,371           8,090,844
    First mortgage loans originated                                            --            (178,000)                 --
    Principal collected on first mortgage loans                           801,141             810,971             684,234
    Net increase in policy loans                                         (249,399)           (435,857)           (179,649)
    Other, net                                                           (232,568)            (36,186)           (185,567)
                                                                     ------------         -----------         -----------
                   Net cash used in investing activities              (10,393,302)        (13,599,826)         (7,372,694)
                                                                     ------------         -----------         -----------

Cash flows from financing activities:
    Cash dividends paid                                                (1,019,108)         (1,015,787)         (1,024,647)
    Purchase of treasury stock                                           (145,945)         (1,007,156)         (1,581,678)
    Stock issued under executive compensation plans                       134,970             233,078              99,075
                                                                     ------------         -----------         -----------
                   Net cash used in financing activities               (1,030,083)         (1,789,865)         (2,507,250)
                                                                     ------------         -----------         -----------
                   Net increase (decrease) in cash and
                     cash equivalents                                     332,370          (2,030,095)          3,076,596

Cash and cash equivalents:
    Beginning of year                                                   6,105,534           8,135,629           5,059,033
                                                                     ------------         -----------         -----------
    End of year                                                      $  6,437,904           6,105,534           8,135,629
                                                                     ============         ===========         ===========
Supplemental disclosures of cash paid during
    the year - income taxes                                          $  2,156,832           1,034,326           1,299,657
                                                                     ============         ===========         ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      17
<PAGE>   18


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES

                Consolidated Statements of Comprehensive Income


<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                         -------------------------------------------------
                                                             2000               1999               1998
                                                         -----------          ---------          ---------

<S>                                                      <C>                  <C>                <C>
Net income                                               $ 7,606,215          7,327,945          7,240,585
                                                         -----------          ---------          ---------

Other comprehensive income (loss) before tax:
   Unrealized gains (losses) on securities
     available for sale                                    3,283,343         (8,998,293)         1,147,437
   Reclassification adjustment for realized gains
          included in net earnings                          (405,933)          (474,628)          (364,735)
                                                         -----------          ---------          ---------
             Total other comprehensive income
               (loss) before tax                           2,877,410         (8,523,665)           782,702

   Income tax expense (benefit) related to items
     of other comprehensive income (loss)                  1,126,466         (3,276,869)           288,338
                                                         -----------          ---------          ---------
             Other comprehensive income (loss),
               net of tax                                  1,750,944         (5,246,796)           494,364
                                                         -----------          ---------          ---------

             Total comprehensive income                  $ 9,357,159          2,081,149          7,734,949
                                                         ===========          =========          =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      18
<PAGE>   19


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                       December 31, 2000, 1999, and 1998


(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The accompanying consolidated financial statements have been prepared
         in conformity with accounting principles generally accepted in the
         United States of America ("GAAP"), which vary in certain respects from
         reporting practices prescribed or permitted by the Insurance
         Department of the State of Georgia. 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 the reported amounts of
         revenues and expenses during the reporting period. Accounts that the
         Company deem to be acutely sensitive to changes in estimates include
         deferred policy acquisition costs and future policy benefits. In
         addition, the Company must determine requirements for disclosure of
         contingent assets and liabilities as of the date of the financial
         statements based upon estimates. In all instances, actual results
         could differ from estimates.

         Following is a description of the most significant risks facing
insurers and how the Company mitigates those risks:

                  CREDIT RISK is the risk that issuers of securities owned by
                  the Company will default, or other parties, including
                  reinsurers which owe the Company money, will not pay. The
                  Company attempts to minimize this risk by adhering to a
                  conservative investment strategy and by contracting with
                  reinsuring companies that meet certain rating criteria and
                  other qualifications.

                  INTEREST RATE RISK is the risk that interest rates will
                  change and cause a decrease in the value of an insurer's
                  investments. The Company attempts to mitigate this risk by
                  attempting to match the maturity schedule of its assets with
                  the expected payout of its liabilities. To the extent that
                  liabilities come due more quickly than assets mature, an
                  insurer would have to sell assets prior to maturity and
                  recognize a gain or loss.

         The significant accounting policies are as follows:

                  CONSOLIDATION POLICY

                  The consolidated financial statements include the accounts of
                  the Company, and its wholly owned subsidiaries, CSI Brokerage
                  Services, Inc. ("CSI") and Cotton States Marketing Resources,
                  Inc. ("CSMR"). All significant intercompany balances and
                  transactions have been eliminated in consolidation.

                  RECOGNITION OF PREMIUMS

                  Premiums on traditional life and accident and health
                  insurance policies are recognized as income when due.
                  Premiums on universal life policies are recognized when
                  earned.

                  FUTURE POLICY BENEFITS

                  Future policy benefits on traditional individual life
                  insurance policies are computed using a net level premium
                  method based upon various assumptions as to investment
                  yields, withdrawals, morbidity, and mortality. Future policy
                  benefits on universal life insurance policies and annuities
                  represent the contract's accumulated account value.


                                      19
<PAGE>   20


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                       December 31, 2000, 1999, and 1998


                  DEFERRED POLICY ACQUISITION COSTS

                  The costs of acquiring most new individual life business are
                  deferred and amortized with interest over the premium-paying
                  period of the related policies. For traditional life
                  policies, such amounts are amortized in proportion to the
                  ratio of the annual premium income to the total anticipated
                  premium income. Such anticipated premium income is estimated
                  using the same assumptions used for computing future policy
                  benefits. For universal life policies, deferrable costs are
                  amortized in proportion to the ratio of the contract's annual
                  gross profits to total anticipated gross profits. First-year
                  excess expense charges are also deferred and accreted to
                  income in the same manner as deferrable costs are amortized.
                  Total anticipated gross profits are based on assumptions for
                  investment margins, surrender charges, mortality charges, and
                  level expense loads. The principal expenses deferred are
                  commissions and certain expenses of the product development,
                  policy issue, underwriting, and agency departments, all of
                  which vary with and are primarily related to the production
                  of new business. Policy acquisition costs deferred were
                  approximately $9,313,000 in 2000, $8,121,000 in 1999, and
                  $6,982,000 in 1998.

                  CASH AND CASH EQUIVALENTS

                  For purposes of presenting its statements of cash flows, the
                  Company considers all short-term investments to be cash
                  equivalents. Short-term investments have original maturity
                  dates of less than three months.

                  INVESTMENTS

                  The Company accounts for investments under the provisions of
                  Statement of Financial Accounting Standards ("SFAS") No. 115,
                  Accounting for Certain Investments in Debt and Equity
                  Securities.

                  Fixed maturities held for investment are stated at amortized
                  cost. Fixed maturities available for sale are stated at fair
                  value. The cost of securities sold is determined by the
                  identified certificate method. First mortgage loans are
                  stated at their aggregate unpaid balance. Policy loans are
                  stated at their aggregate unpaid balance and short-term
                  investments are stated at cost.

                  Investments deemed to have a loss in value which is other
                  than temporary are written down to their fair value.
                  Unrealized gains and losses on fixed maturities available for
                  sale are excluded from earnings and are reported within
                  shareholders' equity as a component of accumulated other
                  comprehensive income, net of deferred taxes and amounts
                  attributable to the Company's universal life and annuity
                  products.

                  INCOME TAXES

                  The Company, CSI and CSMR file a consolidated Federal income
                  tax return.

                  Deferred taxes are recognized for the tax consequences of
                  "temporary differences" by applying enacted statutory rates
                  applicable to future years to differences between the
                  financial statement carrying amounts and the tax bases of
                  existing assets and liabilities. The effect on deferred taxes
                  of a change in tax rates is recognized in income in the
                  period that includes the enactment date.


                                      20
<PAGE>   21


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                       December 31, 2000, 1999, and 1998


                  EARNINGS PER SHARE

                  Basic earnings per share are based on the weighted-average
                  number of common shares outstanding adjusted for the
                  following stock split effected in the form of a stock
                  dividend.

                        January 20, 1998            Three-for-two

                  The following table summarizes information relating to the
                  calculation of basic and diluted earnings per share of common
                  stock:


<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                           -------------------------------------------------------------------------------------------------
                                        2000                              1999                             1998
                           -------------------------------    -----------------------------     ----------------------------
                             INCOME             SHARES          INCOME           SHARES           INCOME          SHARES
                           (NUMERATOR)       (DENOMINATOR)    (NUMERATOR)     (DENOMINATOR)     (NUMERATOR)    (DENOMINATOR)
                           -----------       -------------    -----------     -------------     -----------    -------------

   <S>                     <C>               <C>              <C>             <C>               <C>            <C>
   Data for Basic
   EPS calculation         $7,606,215         6,345,687       $7,327,945         6,341,393      $7,240,585       6,410,345
       Effect of dilutive
         securities:
         Options                   --             2,655               --            35,953              --          70,768
         Restricted stock          --           117,727               --            66,856              --          81,257
                           ----------         ---------       ----------         ---------      ----------       ---------
   Data for Diluted
   EPS calculation         $7,606,215         6,466,069       $7,327,945         6,444,202      $7,240,585       6,562,370
                           ==========         =========       ==========         =========      ==========       =========
</TABLE>


                  RECENT ACCOUNTING PRONOUNCEMENTS

                  Financial Accounting Standards Board ("FASB") SFAS No. 133,
                  Accounting for Derivative Instruments and Hedging Activities,
                  as amended by SFAS No. 137 and 138, is effective for years
                  beginning January 1, 2001. The standard requires that all
                  derivatives be recorded as an asset or liability, at fair
                  value, regardless of the purpose or extent for holding the
                  derivative. If a derivative is not utilized as a hedge, all
                  gains and losses from the change in the derivative's
                  estimated fair value are recognized in earnings. All gains
                  and losses from the change in estimated fair value of certain
                  derivatives utilized as hedges are recognized in earnings or
                  other comprehensive income depending on the type of hedge
                  relationship. Due to the Company's limited use of derivative
                  financial instruments, the adoption of SFAS No. 133, as
                  amended, will not have a material impact on the Company's
                  consolidated financial position, results of operations or
                  cash flows.

                  Effective January 1, 2001, the State of Georgia adopted the
                  National Association of Insurance Commissioner's Codification
                  of Statutory Accounting Practices. Management has reviewed
                  the impact on the Company's statutory surplus and has
                  determined that the codification standards will not have a
                  material impact.


                                      21
<PAGE>   22


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                       December 31, 2000, 1999, and 1998



(2)      INVESTMENTS

         The amortized cost and estimated fair values of investments in debt
         and equity securities as of December 31, 2000 and 1999 are as follows:


<TABLE>
<CAPTION>
                                                                            2000
                                            -------------------------------------------------------------------
                                                                  GROSS             GROSS            ESTIMATED
                                              AMORTIZED         UNREALIZED        UNREALIZED           FAIR
                                                COST              GAINS             LOSSES             VALUE
                                            -----------         ----------        ----------         ----------

<S>                                         <C>                 <C>               <C>              <C>
Held for investment:
    U.S. Treasury securities and
      obligations of U.S. government
      corporations and agencies             $  1,499,749            1,661               --          1,501,410
    Debt securities issued by
      foreign governments                      1,997,221           33,509               --          2,030,730
    Corporate securities                      11,560,122          139,103           17,437         11,681,788
                                            ------------        ---------        ---------         ----------

           Total                            $ 15,057,092          174,273           17,437         15,213,928
                                            ============        =========        =========        ===========

Available for sale:
    U.S. Treasury securities and
      obligations of U.S. government
      corporations and agencies             $ 10,070,642          233,263           55,365         10,248,540
    Corporate securities                      93,023,780          932,663        4,570,878         89,385,565
    Mortgage-backed securities                16,718,625          245,121           13,608         16,950,138
                                            ------------        ---------        ---------         ----------

           Total                            $119,813,047        1,411,047        4,639,851        116,584,243
                                            ============        =========        =========        ===========

Equity securities                           $  3,671,233          506,060          400,870          3,776,423
                                            ============        =========        =========        ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                            1999
                                            -------------------------------------------------------------------
                                                                  GROSS             GROSS            ESTIMATED
                                              AMORTIZED         UNREALIZED        UNREALIZED           FAIR
                                                COST              GAINS             LOSSES             VALUE
                                            -----------         ----------        ----------         ----------

<S>                                         <C>                 <C>               <C>              <C>
Held for investment:
    U.S. Treasury securities and
      obligations of U.S. government
      corporations and agencies             $  1,498,783          4,502               --          1,503,285
    Debt securities issued by
      foreign governments                      1,994,887         20,793               --          2,015,680
    Corporate securities                      12,583,207         62,364          188,767         12,456,804
                                            ------------        -------        ---------        -----------

           Total                            $ 16,076,877         87,659          188,767         15,975,769
                                            ============        =======        =========        ===========

Available for sale:
    U.S. Treasury securities and
      obligations of U.S. government
      corporations and agencies             $  5,156,859          2,512          156,538          5,002,833
    Corporate securities                      86,908,334         64,094        6,161,734         80,810,694
    Mortgage-backed securities                17,235,051         41,206          317,650         16,958,607
                                            ------------        -------        ---------        -----------

           Total                            $109,300,244        107,812        6,635,922        102,772,134
                                            ============        =======        =========        ===========

Equity securities                           $  2,531,851        225,248          133,885          2,623,214
                                            ============        =======        =========        ===========
</TABLE>


                                      22
<PAGE>   23


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                       December 31, 2000, 1999, and 1998


         The amortized cost and estimated fair value of debt securities at
         December 31, 2000, by contractual maturity, are shown below. Expected
         maturities will differ from contractual maturities because borrowers
         may have the right to call or prepay obligations with or without call
         or prepayment penalties.


<TABLE>
<CAPTION>
                                                            AMORTIZED           ESTIMATED
                                                              COST              FAIR VALUE
                                                           ------------        -----------
          <S>                                              <C>                 <C>
          Held for investment:
              Due in one year or less                      $  3,502,899          3,523,740
              Due after one year through five years          11,554,193         11,690,188
                                                           ------------        -----------

                     Total                                 $ 15,057,092         15,213,928
                                                           ============        ===========

          Available for sale:
              Due in one year or less                      $  1,002,815            959,080
              Due after one year through five years          30,989,249         30,078,890
              Due after five years through 10 years          39,830,947         38,648,905
              Due after 10 years                             31,271,411         29,947,230
              Mortgage-backed securities                     16,718,625         16,950,138
                                                           ------------        -----------

                     Total                                 $119,813,047        116,584,243
                                                           ============        ===========
</TABLE>


         Bonds with amortized cost of $1,852,000 at December 31, 2000 were on
         deposit with state regulatory authorities in accordance with statutory
         requirements.

         Realized and unrealized gains and losses on investments for the years
         ended December 31, were as follows:


<TABLE>
<CAPTION>
                                                              2000                1999               1998
                                                          -----------         -----------         ----------
        <S>                                               <C>                 <C>                  <C>
        Realized gains (losses) on sales and
           redemptions of investments:
              Fixed maturities available for sale:
                Gross gains                               $    92,433             263,967            388,844
                Gross losses                                   (9,213)               (822)           (24,109)
                                                          -----------         -----------          ---------
                   Net realized gains                          83,220             263,145            364,735
                                                          -----------         -----------          ---------

              Equity securities:
                Gross gains                                   450,315             244,159                 --
                Gross losses                                 (127,602)            (32,676)                --
                                                          -----------         -----------          ---------
                   Net realized gains                         322,713             211,483                 --
                                                          -----------         -----------          ---------
                   Total                                      405,933             474,628            364,735
                                                          -----------         -----------          ---------
        Changes in unrealized gains (losses):
            Fixed maturities held for investment              257,944            (946,135)           340,823
            Fixed maturities available for sale             3,299,306          (9,729,213)           848,053
            Equity securities                                  13,827              91,363                 --
                                                          -----------         -----------          ---------
                   Net unrealized gains (losses)            3,571,077         (10,583,985)         1,188,876
                                                          -----------         -----------          ---------

                   Total realized and unrealized
                     gains (losses)                       $ 3,977,010         (10,109,357)         1,553,611
                                                          ===========         ===========          =========
</TABLE>


                                      23
<PAGE>   24


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                       December 31, 2000, 1999, and 1998




         Details of net investment income are as follows:


<TABLE>
<CAPTION>
                                                   2000              1999             1998
                                                -----------        ---------        ---------
<S>                                             <C>                <C>              <C>
Investment income:
    Fixed maturities held for investment        $ 1,052,274        1,104,486        1,181,695
    Fixed maturities available for sale           8,063,799        7,241,794        6,619,801
    Equity securities                                36,582            8,140               --
    First mortgage loans                            192,450          259,558          333,870
    Policy loans                                    616,130          600,219          576,800
    Short-term investments                          319,935          283,324          355,820
                                                -----------        ---------        ---------
           Total investment income               10,281,170        9,497,521        9,067,986

    Less investment expenses                        190,390          245,151          280,938
                                                -----------        ---------        ---------

           Net investment income                $10,090,780        9,252,370        8,787,048
                                                ===========        =========        =========
</TABLE>

(3)      DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were used to estimate the fair
         value of each class of financial instruments for which it is
         practicable to estimate that value:

                  CASH AND SHORT-TERM INVESTMENTS

                  The carrying amount of cash and short-term investments is a
                  reasonable estimate of fair value.

                  INVESTMENT SECURITIES

                  For investment securities (which include fixed maturities
                  held for investment, fixed maturities available for sale, and
                  equity securities), fair values are based on quoted market
                  prices or dealer quotes. If a quoted market price is not
                  available, fair value is estimated using quoted market prices
                  for similar securities.

                  MORTGAGE LOANS

                  The fair value of mortgage loans is estimated using the
                  quoted market prices for securities backed by similar loans,
                  adjusted for differences in loan characteristics.

                  POLICY LOANS

                  The carrying amount of policy loans is a reasonable estimate
                  of fair value.

                  UNIVERSAL LIFE AND ANNUITY BENEFITS

                  The carrying amount of universal life and annuity benefits is
                  a reasonable estimate of fair value since credited interest
                  approximates current market rates.



                                      24
<PAGE>   25


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                       December 31, 2000, 1999, and 1998



                  The estimated fair values and carrying value of the Company's
                  financial instruments at December 31, 2000 and 1999 are the
                  same except for investment securities which are detailed in
                  footnote (2) and mortgage loans as follows:


<TABLE>
<CAPTION>
                                        MORTGAGE LOANS
                                 ----------------------------
                                 CARRYING             FAIR
                                  AMOUNT              VALUE
                                ----------          ---------
           <S>                  <C>                 <C>
           2000                 $2,097,616          2,126,289
           1999                 $2,898,757          2,909,318
</TABLE>

(4)      FUTURE POLICY BENEFITS AND REINSURANCE

         The composition of future policy benefits, and the significant
         assumptions used in their development, are as follows:


<TABLE>
<CAPTION>
                                     FUTURE POLICY                                  ASSUMPTIONS
                                       BENEFITS           --------------------------------------------------------------------
                                ---------------------      YEARS
       LINE OF BUSINESS           2000         1999       OF ISSUE   INTEREST RATES        MORTALITY               WITHDRAWALS
       ----------------         --------     --------     --------   --------------        ---------               -----------
                                 (DOLLARS IN THOUSANDS)

       <S>                     <C>           <C>          <C>        <C>                  <C>                      <C>
       Life:
         Individual            $  3,632        3,932      l956-65     4%                  l955-60 Basic Table      Company
                                                                                          Select and Ultimate      experience

         Individual               8,059        8,353      l966-79     6.5% -  5%(A)       Same as above            Same as above

         Individual               5,498        5,447      l980-88     7.5% -  6%(A)       l965-70 Basic Table      Same as above
                                                                                          Select and Ultimate

         Individual              19,748       14,845      1989-00     7.5% -  6%(A)       1975-80 Basic Table      Same as above
                                                                                          Select and Ultimate

         Individual               4,611        4,392      Various     3.5% -  2.5%        Statutory                Same as above

         Annuities and                                                                    Accumulated              Same as above
            universal life       91,071       85,599      Various     6.25% - 4.5%        account value

       Group                          5            5      Various     --                  Unearned premiums        --
                               ---------     -------
                                132,624      122,573

       Accident and health -
         Individual                  31           33      Various     3%                  --                       --
                               --------      -------

             Total future
               policy
               benefits        $132,655      122,606
                               ========      =======
</TABLE>

         (A)      Interest rates are graded to the ultimate rate in 25 years.


                                      25
<PAGE>   26


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                       December 31, 2000, 1999, and 1998


         The Company participates in certain business assumed from federally
         sponsored group pools. Further, it is the Company's general policy to
         reinsure individual life insurance in excess of $100,000, group life
         insurance in excess of $55,000, major medical payments in excess of
         $75,000 annually per individual, accidental deaths, and certain
         disability income coverage.

         Amounts ceded under reinsurance agreements become liabilities of the
         Company should the reinsurers be unable to meet their obligations
         under the reinsurance agreements.

         The effect of reinsurance assumed and ceded on certain financial
         statement accounts is as follows:


<TABLE>
<CAPTION>
                                            2000                1999                 1998
                                       ------------          -----------         ----------
        <S>                            <C>                   <C>                 <C>
        Premiums:
            Direct premiums            $ 30,346,024          26,554,116          22,813,996
            Reinsurance assumed             766,213             667,688             672,153
            Reinsurance ceded            (4,295,714)         (3,919,707)         (3,550,795)
                                       ------------         -----------         -----------

                   Net premiums        $ 26,816,523          23,302,097          19,935,354
                                       ============         ===========         ===========


        Benefits and claims:
            Reinsurance assumed        $    751,279             660,555             662,918
                                       ============         ===========         ===========
            Reinsurance ceded          $  4,230,022           4,381,820           2,966,909
                                       ============         ===========         ===========
</TABLE>

(5)      INCOME TAXES

         Deferred income taxes reflect the net tax effects of temporary
         differences between the carrying values of assets and liabilities for
         financial reporting purposes and Federal income tax purposes. The net
         deferred tax liability at December 31, 2000 and 1999 is composed of
         the tax-effected temporary differences related to the following
         amounts:


<TABLE>
<CAPTION>
                                                        2000              1999
                                                    -----------        ----------

<S>                                                 <C>                <C>
Deferred tax assets:
    Fixed maturities available for sale             $ 1,097,793         2,219,557
    Life insurance reserves                           5,840,261         5,145,152
    Unearned mortality and expense charges              860,596           854,378
    Postretirement health benefits liability             84,945            95,673
    Deferred compensation                               145,834           191,332
    Other, net                                          280,477           205,445
                                                    -----------        ----------
           Total deferred tax assets                  8,309,906         8,711,537
                                                    -----------        ----------

Deferred tax liabilities:
    Equity securities                                    35,765            31,064
    Deferred policy acquisition costs                13,808,705        12,001,739
    Due and unpaid premiums                              95,963            80,717
    Other, net                                           58,755            33,395
                                                    -----------        ----------
           Total deferred tax liabilities            13,999,188        12,146,915
                                                    -----------        ----------

           Net deferred tax liability               $ 5,689,282         3,435,378
                                                    ===========        ==========
</TABLE>


                                      26
<PAGE>   27


             COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                       December 31, 2000, 1999, and 1998


         SFAS No. 109, Accounting for Income Taxes specifically identifies
         certain temporary differences for which deferred tax liabilities are
         not recognized unless it becomes apparent that those temporary
         differences will reverse in the foreseeable future. The Company has
         not recorded a deferred tax liability for one such item entitled
         "policyholders' surplus" created by Federal income tax regulations in
         effect prior to 1984. Certain untaxed income accumulated in this
         special memorandum tax account will become taxable if distributions,
         other than stock dividends, are made in excess of certain amounts
         accumulated in another special memorandum tax account entitled
         "shareholders' surplus." The balance in the "policyholders' surplus"
         account at December 31, 2000 was $4,203,000.

         The balance in the "shareholders' surplus" account at December 31,
         2000 was $50,571,000. The Company does not anticipate any of the
         "policyholders' surplus" account becoming taxable in the foreseeable
         future.

         In assessing the deferred tax assets, management considers whether it
         is more likely than not that some portion or all of the deferred tax
         assets will not be realized. Management considers the scheduled
         reversal of deferred tax liabilities, projected future taxable income,
         and tax planning strategies in making this assessment. Management has
         concluded that it is more likely than not that all of its deferred tax
         assets are realizable. Therefore, no valuation allowance was
         established at December 31, 2000, 1999, and 1998.

         Federal income tax expense is less than amounts determined by
         multiplying earnings before Federal income taxes by the Federal tax
         rate of 35%. The reason for such difference and the tax effect of each
         are as follows:


<TABLE>
<CAPTION>
                                                        2000                1999               1998
                                                     -----------         ----------         ----------

        <S>                                          <C>                 <C>                <C>
        Federal income tax expense at
            statutory rate                           $ 3,798,645          3,564,167          3,634,870
        Special deductions available to small
            Life insurance companies                    (559,193)          (572,553)          (584,724)
        Surtax exemption                                 (92,163)           (87,946)           (92,581)
        Other, net                                        99,768            (48,278)           187,193
                                                     -----------         ----------         ----------

                   Total Federal income taxes        $ 3,247,057          2,855,390          3,144,758
                                                     ===========         ==========         ==========
</TABLE>

(6)      POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

         The Company has a plan which provides for postretirement health care
         and life insurance benefits for certain employees. These benefits
         include major medical insurance with deductible and coinsurance
         provisions. The Company accrues benefits on a current basis and the
         plan is not funded. The components of the net periodic postretirement
         benefit cost for the years ended December 31 are as follows:


<TABLE>
<CAPTION>
                                                                     2000          1999            1998
                                                                   -------        -------         -------

        <S>                                                        <C>            <C>             <C>
        Service cost                                               $ 2,575            394             439
        Interest cost                                                9,634         12,541          13,808
        Amortization of unrecognized gain                          (12,209)       (12,609)         (9,425)
                                                                   -------        -------         -------

                   Net periodic postretirement benefit cost        $    --            326           4,822
                                                                   =======        =======         =======
</TABLE>


                                      27
<PAGE>   28

              COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 2000, 1999, and 1998

         The following tables set forth the plan's funded status, reconciles the
         amounts shown in the Company's balance sheet, and reconciles the
         accumulated postretirement benefit obligation at December 31, 2000 and
         1999:

<TABLE>
<CAPTION>
                                                                      2000             1999
                                                                    ---------        --------
           <S>                                                      <C>              <C>
           Accumulated postretirement benefit obligation:
               Retirees                                             $ 141,832         126,767
               Other active participants                               10,676           9,538
                                                                    ---------        --------
           Accumulated postretirement benefit
               obligation in excess of plan assets                    152,508         136,305

           Unrecognized net gain                                       97,330         145,087
                                                                    ---------        --------

           Accrued postretirement benefit liability                 $ 249,838         281,392
                                                                    =========        ========

           Accrued postretirement benefit liability
               at beginning of year                                 $ 281,392         302,178
           Net periodic cost                                               --             326
           Amounts paid by Company                                    (31,554)        (21,112)
                                                                    ---------        --------
           Accrued postretirement benefit liability
               at end of year                                       $ 249,838         281,392
                                                                    =========        ========

           Accumulated postretirement benefit obligation
               at beginning of year                                 $ 136,305         162,417
           Service cost                                                 2,575             394
           Interest cost                                                9,634          12,541
           Amounts paid by Company                                    (31,554)        (21,112)
           Actuarial  loss (gain)                                      35,548         (17,935)
                                                                    ---------        --------
           Accumulated postretirement benefit obligation
               at end of year                                       $ 152,508         136,305
                                                                    =========        ========
</TABLE>

         The postretirement benefit obligation was determined by application of
         the terms of the plan using various actuarial assumptions. Health care
         costs are projected to increase at annual rates of 5% in 2000 and
         thereafter. A 1% annual increase in these assumed cost trend rates
         would increase the accumulated postretirement benefit obligation at
         December 31, 2000 by approximately $5,896 and the service and interest
         cost components of the net periodic postretirement benefit cost for
         2000 by approximately $457. A 1% annual decrease in these assumed cost
         trends would decrease the accumulated postretirement benefit obligation
         at December 31, 2000 by approximately $5,312 and the service and
         interest components of the net periodic postretirement benefit cost by
         $412. The assumed discount rate used in determining the accumulated
         postretirement obligation was 7.50% at December 31, 2000 and 7.75% at
         December 31, 1999.

(7)      TRANSACTIONS WITH AFFILIATES

         Cotton States Mutual Insurance Company ("Mutual"), through its wholly
         owned subsidiary, Shield Insurance Company ("Shield"), controls
         approximately 33% of the Company's outstanding common stock. Most
         officers and directors of the Company hold similar positions with these
         affiliates.


                                       28
<PAGE>   29

              COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 2000, 1999, and 1998

         Certain general expenses are allocated to the Company from its
         affiliates. These expenses, such as salaries, advertising, rents, etc.,
         represent the Company's share of expenses initially paid by Mutual and
         are allocated based on specific identification or, if undeterminable,
         generally on the basis of each company's premium. Expenditures
         allocated to the Company amounted to $3,386,739 in 2000, $2,957,431 in
         1999, and $2,779,136 in 1998. At December 31, 2000 and 1999, the
         Company owed Mutual $393,926 and $507,187, respectively.

         The Company expensed pension costs of $61,645 in 2000, $63,354 in 1999,
         and $36,148 in 1998 and 401(k) matching costs of $43,838 in 2000,
         $36,451 in 1999, and $42,805 in 1998.

         Rent for use of software of $106,000 in 2000, 1999, and 1998, has been
         charged to the affiliated companies.

(8)      STOCK-BASED COMPENSATION

         The Company has various stock option plans for the Company's officers
         and key employees, as well as directors. The Company accounts for its
         various stock-based compensation as expense, recorded on the grant date
         only to the extent that the current market price of the underlying
         stock exceeds the exercise price on the grant date.

         Under the employee plan, options may be granted to purchase up to
         937,500 shares of the Company's common stock at a per share price of
         not less than 100% of fair market value at date of grant. Under the
         directors' plan, options are granted based on the level of directors'
         fees at a per share price of 50% of fair market value at date of grant.
         The employee and directors' options have a term of 10 years and are not
         subject to any vesting requirements. The weighted-average remaining
         contractual life on options outstanding at December 31, 2000 is four
         years. The weighted-average grant date fair value of options granted
         during 2000, 1999, and 1998 was $8.78, $16.19, and $15.81,
         respectively. A summary of options follows:

<TABLE>
<CAPTION>
                                              2000                   1999                 1998
                                      ---------------------  ---------------------  -------------------
                                                  WEIGHTED-              WEIGHTED-             WEIGHTED-     ALL YEARS
                                                  AVERAGE                AVERAGE               AVERAGE        RANGE OF
                                                  EXERCISE               EXERCISE              EXERCISE       EXERCISE
                                      OPTIONS      PRICE     OPTIONS      PRICE     OPTIONS     PRICE          PRICES
                                      -------     ---------  -------     ---------  -------    ---------     -----------
           <S>                        <C>         <C>        <C>         <C>        <C>        <C>         <C>
           Shares under option         70,535     $ 4.41      91,544     $ 3.82     107,673     $ 3.32     $ 1.92 - 7.63
           Options exercisable         70,535       4.41      91,544       3.82     107,673       3.32       1.92 - 7.63
           Options granted             17,541       4.13       8,736       7.44       8,949       7.63       1.92 - 7.63
           Options exercised           38,550       2.96      24,865       2.96      29,400       2.96           2.96
                                       ======                 ======                =======                  ===========
</TABLE>

         In addition to the stock options described above, the Company has
         awarded nontransferable, restricted shares of Company common stock to
         various key executives under key executive restricted stock bonus
         plans. The market value of the common stock at the date of issuance is
         recorded as compensation expense using the straight-line method over
         the vesting period of the awards. The Company awarded 63,225, 29,298,
         and 23,258 shares of restricted stock under such plans during 2000,
         1999, and 1998, respectively. The weighted-average grant date fair
         value of such shares was $7.04, $11.41, and $15.53, respectively.
         Aggregate compensation expense with respect to the foregoing restricted
         stock awards was $57,000, $308,000, and $252,000, in 2000, 1999, and,
         1998, respectively.

         In accordance with APB Opinion No. 25, $125,000, $373,000, and
         $320,000, in compensation expense has been recorded in 2000, 1999, and
         1998, respectively, for the various stock option and restricted stock
         awards granted in 2000, 1999, and 1998. Had the Company determined
         compensation cost based on the fair value at the grant date for its
         stock options and restricted stock awards under SFAS No. 123, the
         Company's net income, basic net income per share, and diluted net
         income per share would have been reduced to the pro forma amounts
         indicated below:


                                       29
<PAGE>   30

              COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 2000, 1999, and 1998

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                             -------------------------------------------
                                                2000             1999             1998
                                             -----------       ---------       ---------
           <S>                               <C>               <C>             <C>
           Net income:
               As reported                   $ 7,606,215       7,327,945       7,240,585
               Pro forma                       7,545,989       7,272,938       7,215,424

           Basic net income per share:
               As reported                          1.20            1.16            1.13
               Pro forma                            1.19            1.15            1.13

           Diluted net income per share:
               As reported                          1.18            1.14            1.10
               Pro forma                            1.17            1.13            1.10
</TABLE>

         The per share weighted-average fair value of stock options and
         restricted stock granted was estimated using an option pricing model
         with the following weighted-average assumptions: expected life of five
         years for options and seven years for restricted stock awarded in 1999
         and 1998, and three years for restricted stock awarded in 2000,
         expected dividend yield of 2.10% for 2000 grants and 1.35% for all
         other years, risk-free interest rate of 5.0% for 2000, 5.50% for 1999,
         and 1998, and an expected volatility of 58% for 2000 grants, 52% for
         1999 grants, and 67% for 1998 grants.

(9)      STATUTORY FINANCIAL STATEMENTS

         Accounting practices used to prepare statutory financial statements for
         regulatory filings of stock life insurance companies differ from GAAP.
         Material differences resulting from these accounting practices include:
         deferred policy acquisition costs, deferred Federal income taxes and
         statutory non-admitted assets are recognized under GAAP accounting;
         statutory investment valuation reserves are not recognized under GAAP
         accounting; premiums for universal life and investment-type products
         are recognized as revenues for statutory purposes and as deposits to
         policyholders' accounts under GAAP; different assumptions are used in
         calculating future policyholders' benefits; and different methods are
         used for calculating valuation allowances for statutory and GAAP
         purposes.

         Net income and shareholders' equity, as reported to regulatory
         authorities in conformity with statutory accounting practices for each
         of the years in the three-year period ended December 31, 2000 is as
         follows:

<TABLE>
<CAPTION>
                                                2000             1999             1998
                                             -----------      ----------      ----------
           <S>                               <C>              <C>             <C>
           Statutory net income              $ 8,109,372       2,686,569       3,071,087

           Statutory shareholders' equity    $33,330,254      28,607,689      27,736,410
</TABLE>

         The Georgia Insurance Code limits dividends in any one year to the
         greater of statutory earnings, excluding realized capital gains, or 10%
         of statutory surplus, unless the expressed permission of the Georgia
         Insurance Department is obtained. Dividend payments to shareholders are
         further limited by the Georgia Insurance Code to unassigned statutory
         surplus, which at December 31, 2000 was approximately $29,000,000. The
         excess of retained earnings determined in accordance with GAAP over
         unassigned statutory surplus is not available for payment of dividends.
         The Company may pay a dividend amounting to approximately $8,100,000 in
         2001 without approval.


                                       30
<PAGE>   31

              COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 2000, 1999, and 1998

(10)     LITIGATION

         The Company is a defendant in various actions incidental to the conduct
         of its business. While the ultimate outcome of these matters cannot be
         estimated with certainty, management does not believe the actions will
         result in any material loss to the Company.


                                       31
<PAGE>   32

              COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 2000, 1999, and 1998

(11)     BUSINESS SEGMENTS

         The Company's operations can be grouped into three major segments: (i)
         individual life insurance, (ii) guaranteed issue and simplified issue
         life insurance, and (iii) brokerage operations. These segments are
         differentiated primarily by their respective methods of distribution
         and the nature of related products, as the Company's operations in each
         segment are concentrated within its southeastern states geographic
         market. Individual life insurance products are distributed through the
         Company's multi-line exclusive agents, guaranteed issue and simplified
         issue products are distributed through independent agents as well as
         exclusive agents, and brokerage operations involve third party products
         distributed through the Company's exclusive and independent agents.

<TABLE>
<CAPTION>
                                                                 2000              1999            1998
                                                             ------------      -----------      -----------
           <S>                                               <C>               <C>              <C>
           Individual life insurance:
                Premiums                                     $ 17,816,354       16,653,463       15,334,599
                Net investment income                           9,403,578        8,837,008        8,461,988
                Realized investment gains                         160,104          254,052          358,000
                                                             ------------      -----------      -----------
                      Total revenue                            27,380,036       25,744,523       24,154,587

                Policyholder benefits                          13,337,303       12,173,031       10,429,767
                Operating expenses                              7,103,512        7,525,275        6,292,769
                                                             ------------      -----------      -----------
                      Total benefits and expenses              20,440,815       19,698,306       16,722,536
                                                             ------------      -----------      -----------
                   Operating profit                             6,939,221        6,046,217        7,432,051
                                                             ------------      -----------      -----------

           Guaranteed and simplified life insurance:
                Premiums                                        8,106,634        5,843,177        3,794,585
                Net investment income                             540,200          316,301          159,182
                Realized investment gains                           9,670            9,093            6,735
                                                             ------------      -----------      -----------
                      Total revenue                             8,656,504        6,168,571        3,960,502
                Policyholder benefits                           5,728,786        3,358,022        2,317,006
                Operating expenses                              2,368,914        1,616,158          890,787
                                                             ------------      -----------      -----------
                      Total benefits and expenses               8,097,700        4,974,180        3,207,793
                                                             ------------      -----------      -----------

                   Operating profit                               558,804        1,194,391          752,709
                                                             ------------      -----------      -----------

           Brokerage:
                Brokerage commissions                           4,197,173        3,828,087        3,214,216
                Net investment income                             147,003           99,061           62,698
                Realized investment gains                         236,160          211,483          103,180
                                                             ------------      -----------      -----------
                      Total revenue                             4,580,336        4,138,631        3,380,094
                Operating expenses                              1,154,992        1,086,777        1,006,605
                                                             ------------      -----------      -----------

                   Operating profit                             3,425,344        3,051,854        2,373,489
                                                             ------------      -----------      -----------

           Combined operating profit                           10,923,369       10,292,462       10,558,249
           Group life insurance and individual
                 accident and health results                      (70,097)        (109,127)        (172,906)
                                                             ------------      -----------      -----------

           Income before Federal income taxes                $ 10,853,272       10,183,335       10,385,343
                                                             ============      ===========      ===========
</TABLE>


                                       32
<PAGE>   33

                          INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND SHAREHOLDERS
COTTON STATES LIFE INSURANCE COMPANY:

We have audited the accompanying consolidated balance sheets of Cotton States
Life Insurance Company and subsidiaries (the "Company") as of December 31, 2000
and 1999, and the related consolidated statements of earnings, shareholders'
equity, cash flows, and comprehensive income for each of the years in the
three-year period ended December 31, 2000. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit 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 financial position of Cotton States Life
Insurance Company and subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.



    /s/KPMG LLP
    KPMG LLP
    Atlanta, Georgia
    February 21, 2001


                                       33
<PAGE>   34

MANAGEMENT'S REPORT TO SHAREHOLDERS OF COTTON STATES LIFE INSURANCE COMPANY AND
SUBSIDIARIES

The accompanying consolidated financial statements for Cotton States Life
Insurance Company and subsidiaries (the "Company") were prepared by management,
which is responsible for the objectivity and integrity of these statements. The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America and,
where appropriate, are based on management's best estimates and judgements.
Other financial data about the Company contained in this annual report is
consistent with that presented in the consolidated financial statements.

The Company's consolidated financial statements have been audited by independent
auditors, KPMG LLP. Their role is to audit the consolidated financial statements
in accordance with auditing standards generally accepted in the United States of
America and render an independent and professional opinion on management's
consolidated financial statements. The auditors' report on the Company's
consolidated financial statements appears on the previous page.

The Board of Directors, through its audit committee composed of outside
directors, monitors management's financial reporting. The independent auditors
have direct access to the audit committee and meet with the committee
periodically to discuss the scope of each audit, the results of the audit and
other matters which they believe should be brought to the committee's attention.



<TABLE>
           <S>                             <C>                                 <C>
           /s/   J. Ridley Howard          /s/  Roger W. Fisher                /s/  William J. Barlow
           ----------------------          --------------------                ----------------------
           J. Ridley Howard                Roger W. Fisher                      William J. Barlow, CPA
           Chairman of the Board,          Senior Vice President                Vice President/Controller
           President and Chief             Chief Financial Officer and          and Assistant Treasurer
           Executive Officer               Treasurer
</TABLE>


                                       34
<PAGE>   35

QUARTERLY RESULTS

The following is a summary of the unaudited quarterly results of operations for
the three years ended December 31, 2000.

<TABLE>
<CAPTION>
=========================================================================================================================

2000 quarter ended                                     March 31            June 30         September 30       December 31

-------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>               <C>                <C>
Premiums                                              $6,125,550          6,384,463          6,772,298          7,534,212
Net investment income, realized
  investment gains and brokerage income               $3,425,803          3,621,825          3,542,674          4,103,584
                                                      ----------         ----------         ----------         ----------
Total revenue                                         $9,551,353         10,006,288         10,314,972         11,637,796
                                                      ----------         ----------         ----------         ----------
Benefits and expenses                                 $7,127,072          7,056,698          7,353,474          9,119,893
                                                      ----------         ----------         ----------         ----------
Net income                                            $1,523,615          2,061,165          2,124,910          1,896,525
                                                      ===================================================================
=========================================================================================================================
Basic income per share of common stock                $      .24                .32                .34                .30
Diluted income per share of common stock              $      .24                .31                .33                .29
</TABLE>

<TABLE>
<CAPTION>
=========================================================================================================================

1999 quarter ended                                     March 31            June 30         September 30       December 31

-------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>               <C>                <C>
Premiums                                              $5,356,327          5,632,482          5,813,507          6,499,781
Net investment income, realized
  investment gains and brokerage income               $3,289,533          3,078,423          3,460,705          3,726,424
                                                      ----------         ----------         ----------         ----------
Total revenue                                         $8,645,860          8,710,905          9,274,212         10,226,205
                                                      ----------         ----------         ----------         ----------
Benefits and expenses                                 $6,829,999          6,316,498          6,555,077          6,972,273
                                                      ----------         ----------         ----------         ----------
Net income                                            $1,207,422          1,681,506          2,103,386          2,335,631
                                                      ==========         ==========         ==========         ==========
=========================================================================================================================
Basic income per share of common stock                $      .19                .26                .33                .37
Diluted income per share of common stock              $      .19                .26                .32                .36
</TABLE>

<TABLE>
<CAPTION>
=========================================================================================================================

1998 quarter ended                                     March 31            June 30         September 30       December 31

-------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>               <C>                <C>
Premiums                                              $4,632,037          4,872,303          5,165,923          5,265,091
Net investment income, realized
  investment gains and brokerage income               $2,909,654          2,969,254          3,213,171          3,273,920
                                                      ----------         ----------         ----------         ----------
Total revenue                                         $7,541,691          7,841,557          8,379,094          8,539,011
                                                      ----------         ----------         ----------         ----------
Benefits and expenses                                 $5,305,058          5,655,469          5,635,458          5,320,025
                                                      ----------         ----------         ----------         ----------
Net income                                            $1,556,251          1,572,097          2,023,381          2,088,856
                                                      ==========         ==========         ==========         ==========
=========================================================================================================================
Basic income per share of common stock                $      .25                .25                .31                .33
Diluted income per share of common stock              $      .24                .24                .30                .32

=========================================================================================================================
</TABLE>

Note - Failure of individual quarterly income per share to total annual income
per share results from the computation of weighted average number of shares on
an individual quarterly basis. Income per share amounts have been adjusted
January 1998 three-for-two stock split.

The fourth quarter results for the three years include participation in
federally sponsored group pools as follows:

<TABLE>
<CAPTION>
                                                        2000           1999             1998
                                                        ----           ----             ----

==============================================================================================
<S>                                                   <C>             <C>              <C>
Premiums                                              $766,213        667,688          672,153
Benefits                                              $751,279        660,555          662,918

==============================================================================================
</TABLE>

See previous discussion on Results of Operations.


                                       35
<PAGE>   36

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         NONE.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

IDENTIFICATION OF DIRECTORS

The By-laws of the Company provide that the Board of Directors shall be divided
into three classes with approximately one-third of the Board of Directors
elected each year. Each director is elected to hold office for a term of three
years or until his or her successor has been duly elected and has qualified or
until he or she attains the age of 72.

TERMS EXPIRING 2001 ANNUAL MEETING - NOMINATED FOR RE-ELECTION

--------------------------------------------------------------------------------
J. RIDLEY HOWARD
Director Since 1989
Age 53

Since 1998, Mr. Howard has been the Chairman of the Board of Directors of the
Company, Mutual, CSI, CSMR and Shield. He has served as President and Chief
Executive Officer since 1989. Mr. Howard held various other offices with the
Company and its affiliates prior to January 1, 1989. Mr. Howard is a member of
the Executive Committee of the Board of Directors of the Company.

--------------------------------------------------------------------------------
CAROL D. CHERRY
Director Since 1996
Age 53

Since 1976, Ms. Cherry has been Chairman of the Board of Directors of Shop'n
Chek, Inc., an international marketing service company providing clients with
information relative to the verbal and physical presentation of their products
and/or services at the retail level. From 1976 to 1998, Ms. Cherry was also the
President of Shop'n Chek, Inc. Ms. Cherry also is a member of the Compensation
Committee and the Investment Committee of the Board of Directors of the Company.
Ms. Cherry also is a member of the Board of Directors of Mutual, CSI, and Cherry
Convention Services, Inc.

--------------------------------------------------------------------------------
DARRELL D. PITTARD
Director Since 2001
Age 52

Since November 2000, Mr. Pittard has been the Managing Partner, Chairman and
Chief Executive Officer of Currahee Bridge Development, LLC, a mixed-use resort
development on Lake Hartwell, Georgia. From January 2000 through November 2000,
Mr. Pittard served as Executive Vice President, Branch Banking and Trust. From
1993 through 1999, Mr. Pittard was Chairman and Chief Executive Officer of
Premier Bancshares. Mr. Pittard is also a member of the Board of Directors of
Mutual, and Branch Banking and Trust Company, an affiliate of BB&T Corporation.

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


                                       36
<PAGE>   37

TERMS EXPIRING 2002 ANNUAL MEETING

--------------------------------------------------------------------------------
GAYLORD O. COAN
Director Since 1995
Age 65

Since 1995, Mr. Coan has been Chief Executive Officer of Gold Kist, Inc., where
he also serves as the Chairman of the Management Executive Committee. Mr. Coan
is Chairman of the Executive Committee and serves as a member of the Audit
Committee and the Compensation Committee of the Board of Directors of the
Company. Mr. Coan also is a member the Board of Directors of Mutual, SunTrust
Banks of Georgia, Inc., SunTrust Bank, Atlanta, Archer-Daniels-Midland Company,
and 1st Ag.

--------------------------------------------------------------------------------
E. JENNER WOOD, III
Director Since 1991
Age 49

Since October 2000, Mr. Wood has been President, SunTrust Bank, Atlanta. Prior
to his current position, Mr. Wood has been Executive Vice President, Trust and
Investment Services, of SunTrust Banks, Inc., a position he held from October
1993 to October 2000. Mr. Wood was the Executive Vice President, Trust and
Investment Management, of SunTrust Bank, Atlanta prior to October, 1993. Mr.
Wood is Chairman of the Audit Committee and serves as a member of the Executive
Committee of the Board of Directors of the Company. Mr. Wood also is a member of
the Board of Directors of Mutual, CSI, Oxford Industries and Crawford & Company.

--------------------------------------------------------------------------------
MATHEWS D. SWIFT
Director Since 1997
Age 53

Since 1998, Mr. Swift has been the President and Chief Operating Officer of W.
C. Bradley Co., Real Estate Division and President of Developers-Investors,
Inc., a subsidiary of W. C. Bradley Co. From 1986 to 1997, Mr. Swift was the
Vice President and General Manager of W. C. Bradley Co., Real Estate Division.
Mr. Swift serves as a member of the Audit Committee and the Investment Committee
of the Board of Directors. Mr. Swift also is a member of the Board of Directors
of Mutual, CSMR, Swift-Illges Foundation, Northstar Industries, Inc., and serves
as a director of the Advisory Board of Columbus Bank & Trust Company, an
affiliate of Synovus Financial Corporation.

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


                                       37
<PAGE>   38

TERMS EXPIRING 2003 ANNUAL MEETING

--------------------------------------------------------------------------------
ROBERT C. McMAHAN
Director Since 1987
Age 60

Since 1994, Mr. McMahan has been President and Chief Executive Officer of Golden
Point Group, Inc. Mr. McMahan was President and CEO of Fernbank, Inc., d/b/a
Fernbank Museum of Natural History through November, 1994. Mr. McMahan was Vice
Chairman of First Union National Bank of Georgia through September 1993. Mr.
McMahan was Chairman, Chief Executive Officer and a director of DF Southeastern
Inc., prior to January 15, 1993 and of Decatur Federal Savings & Loan
Association prior to March 1, 1993, and was President of each entity prior to
April, 1989. Mr. McMahan is Chairman of the Compensation Committee and serves as
a member of the Executive Committee of the Board of Directors of the Company.
Mr. McMahan also is a member of the Board of Directors of Mutual, CSMR, First
Union National Bank of Georgia, Golden Point Group, Inc., Media Team Link, Inc.,
and Integration Solutions Group, LLC.

--------------------------------------------------------------------------------
THOMAS A. HARRIS
Director Since 1995
Age 52

Since 1987, Mr. Harris has been the President and Chief Executive Officer of
Merchant Capital Investments, Inc., a Montgomery, Alabama investment and
merchant banking firm. Mr. Harris is Chairman of the Investment Committee and a
member of the Executive Committee and the Audit Committee of the Board of
Directors of the Company. Mr. Harris also serves on the Board of Directors of
Mutual, Corral Southeast, and the Capital Partnership.

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

There are no family relationships among the directors or between any director
and any executive officer of the Company. All directors have served continuously
since their first election or appointment.


                                       38
<PAGE>   39

OTHER INFORMATION ABOUT THE BOARD AND ITS COMMITTEES

         During 2000, the Board of Directors held four meetings. Each Director
attended at least 75% of the aggregate meetings of the Board of Directors and
meetings of committees of which he or she was a member. The Board of Directors
has four standing committees. Certain information regarding the function of the
Board's committees, and the number of meetings held by each committee during
2000 is presented below.

AUDIT COMMITTEE

         The Audit Committee annually reviews and recommends to the Board of
Directors the certified public accounting firm to be engaged as independent
auditors of the Company for the next calendar year. Management is responsible
for the Company's internal controls, financial reporting process and compliance
with the laws and regulations and ethical business standards. The independent
accountants are responsible for performing an independent audit of the financial
statements and to issue a report thereon. The Committee's responsibility is to
monitor and oversee these processes. Each member of the Audit Committee is
independent, as such term is defined under applicable NASD rules. During 2000,
the Audit Committee held three meetings.

COMPENSATION COMMITTEE

         The Compensation Committee periodically reviews the compensation and
other benefits provided to officers of the Company and advises the Board of
Directors with respect to compensation for the officers of the Company. During
2000, the Compensation Committee held three meetings.

INVESTMENT COMMITTEE

         The Investment Committee reviews the Company's investments and advises
the Board of Directors with respect to such investments. During 2000, the
Investment Committee held four meetings.

EXECUTIVE COMMITTEE

         The Executive Committee is authorized to act on behalf of the Board of
Directors on all matters that may arise between regular meetings of the Board of
Directors upon which the Board of Directors would be authorized to act,
including the nomination of directors. During 2000, the Executive Committee held
five meetings.

IDENTIFICATION OF EXECUTIVE OFFICERS

         The executive officers of the Company, their respective ages and all
positions and offices with the Company held by each are as follows:

<TABLE>
<CAPTION>
                                           YEAR ELECTED
      NAME                   AGE           AS AN OFFICER         POSITION OR OFFICE
      ----                   ---           -------------         ------------------
<S>                          <C>           <C>                   <C>
J. Ridley Howard             53                1984              Chairman of the Board/President
                                                                 and Chief Executive Officer

Robert L. Fincher            58                1979              Senior Vice President

Roger W. Fisher              48                2000              Senior Vice President, Chief Financial Officer/Treasurer

Norma Y. Christopher         51                1987              Vice President and Actuary
</TABLE>

         J. Ridley Howard was elected Chairman of the Board of Directors of the
Company, Mutual, Shield, CSI, and CSMR, effective January 1, 2000. Mr. Howard
continues to hold the offices of President and Chief Executive Officer of the
Company, Mutual, Shield, CSI, and CSMR, which he has held since 1989.


                                       39
<PAGE>   40

         Robert L. Fincher holds the office of Senior Vice President with the
Company, Mutual and Shield, and has held that position during the previous five
years.

         Roger W. Fisher holds the office of Senior Vice President, Chief
Financial Officer and Treasurer with the Company, Mutual, Shield, CSI, and CSMR,
which he has held since April 2000. Mr. Fisher previously served as Senior Vice
President at Horace Mann Educators Group from 1998 through March 2000. From 1995
through 1997, Mr. Fisher was Vice President-Controller at Horace Mann Educators
Group.

         Officers are elected at the meeting of the Board of Directors following
the Annual Meeting of Shareholders to serve for one year or until their
successors are elected.

ITEM 11. EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                           LONG TERM COMPENSATION
                                                                                       ---------------------------------
                                                   ANNUAL COMPENSATION(1)
                                            --------------------------------------
NAME AND                                                                                 RESTRICTED         ALL OTHER
PRINCIPAL POSITION                          YEAR          SALARY           BONUS       STOCK AWARDS(2)   COMPENSATION(3)
------------------                          ----         --------         --------     ---------------   ---------------

=========================================================================================================================
<S>                                         <C>          <C>              <C>          <C>               <C>
J. Ridley Howard                            2000         $ 46,873         $104,700         $253,037         $  735
  CEO                                       1999           42,370           83,723          203,015            558
                                            1998           32,400          115,255          205,145            513

Robert L. Fincher                           2000         $ 26,818         $ 51,303         $ 79,046         $  735
  Senior Vice President                     1999           24,697           40,612           50,875            558
                                            1998           18,630           57,405           60,108            513

Roger W. Fisher(4)                          2000         $ 16,548               --         $ 73,088             --
  Senior Vice President,                    1999               --               --               --             --
  CFO/Treasurer                             1998               --               --               --             --

Norma Y. Christopher                        2000         $123,000         $ 21,987         $ 13,698         $5,976
  Vice President and Actuary                1999          117,500           18,744           10,895          5,000
                                            1998          111,000           24,920           11,799          5,700
</TABLE>

(1)      The salaries of certain executive officers of the Company are prorated
         among the Company, Mutual and Shield, based upon the premium income of
         each entity. Ms. Christopher's compensation is allocated entirely to
         the Company. Total compensation of the Company's executive officers for
         2000 from all affiliated corporations was $1,619,938 of which the
         Company paid $713,206.

(2)      The aggregate restricted stock holdings at the end of 2000 for Messrs.
         Howard, Fincher, and Fisher were 63,656 18,581, and 17,386 shares with
         values of $732,042, $213,681, and $199,939 respectively, based upon the
         value of the Company's Common Stock at December 31, 2000. Dividends on
         stock awards are paid at the same rate as paid to all share owners.

(3)      This amount equals the Company's 401(k) matching contribution, which is
         allocated on the same prorated basis as salaries.

(4)      Mr. Fisher joined the Company in April 2000.


                                       40
<PAGE>   41

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                                       AND
                          FISCAL YEAR END OPTION VALUES

         The following table shows stock options exercised by the named
executive officer during 2000, including the aggregate value of gains on the
date of exercise. In addition, this table includes the number of shares covered
by both exercisable and non-exercisable options as of December 31, 2000. Also
reported are the values for "In-the-Money" options, which represent the positive
spread between the exercise price of any such existing options and the year end
price of the Common Stock of the Company.

<TABLE>
<CAPTION>
                                                                           NUMBER OF
                                                                           SECURITIES           VALUE OF
                                                                           UNDERLYING          UNEXERCISED
                                                                           UNEXERCISED        IN-THE-MONEY
                                    NUMBER OF          VALUE               OPTIONS AT         OPTIONS AT
                                     SHARES           REALIZED              12/31/00           12/31/00
                                   ACQUIRED ON          UPON               EXERCISABLE/       EXERCISABLE/
NAME                                EXERCISE          EXERCISE            UNEXERCISABLE      UNEXERCISABLE
----------------------------------------------------------------------------------------------------------
<S>                                <C>               <C>                  <C>                <C>
J. Ridley Howard                      10,769         $   52,256                0/0              $ 0/0

Robert L. Fincher                     22,887         $  111,059                0/0              $ 0/0

Roger W. Fisher                            0         $        0                0/0              $ 0/0

Norma Y. Christopher                   4,894         $   23,748                0/0              $ 0/0
</TABLE>

COMPENSATION PURSUANT TO PLANS

PENSION PLAN

         The Company is a participating employer in the Cotton States Employee
Retirement Income Plan (the "Plan"), which is a qualified pension plan sponsored
jointly with Mutual. The Plan covers all of the Company's salaried employees.

         The Plan provides a retirement income benefit at age 65 which is based
on the employee's number of years of service (maximum 35 years) and average
earnings during the five consecutive years (in the last ten years of employment)
in which the earnings are highest. Age 65 retirement benefit is derived as the
sum of (i) the product of the number of years of service times 85% of average
earnings and (ii) the product of the number of years of service times 55% of
"excess average earnings." Excess average earnings is the amount, if any, by
which the average earnings for a participant exceeds the 35 year average maximum
social security taxable wage base for all persons born in the same year as the
participant. The Plan also provides an early retirement benefit after age 55,
with no reduction in benefit entitlement due to age, when the sum of the
employee's age and years of credited service equals or exceeds 80. If the
employee has not obtained 80 points at retirement, the benefits are reduced 5%
for each year the retiree's age is less than 65. The Plan also contains a death
benefit for the surviving spouse of an employee (who had at least five years of
credited service) which is equal to 50% of the deceased employee's accrued
benefit. If the death occurs after termination from employment and prior to an
early retirement date, the spouse's benefit is reduced as for early retirement
income benefits. Accrued benefits under the Plan vest after the employee accrues
five years of service.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

         The Company adopted the Cotton States Supplement Executive Retirement
Plan ("SERP") effective January 1, 1992 in order to provide for a supplement
pension plan to replace pension benefits which were affected as a result of
amendments to the Internal Revenue Code of 1986, as amended ("IRC").


                                       41
<PAGE>   42

The SERP is an agreement between the Company and employees meeting the
qualification provisions of the SERP in which the Company provides benefits in
excess of the limitations on benefits imposed by the IRC regarding highly
compensated employees. The SERP also replaces the pension accruals set forth
under the Plan as a result of the new benefit formulas mandated by the IRC which
resulted in amendments to the Plan. The SERP incorporates all of the terms and
conditions of the Plan and future amendments to the Plan.

         The following table sets forth the estimated annual benefits payable
upon retirement at age 65 under the plans.

                  PENSION PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                  INCOME ANNUAL BENEFITS PAYABLE UPON RETIREMENT AT AGE 65

<TABLE>
<CAPTION>
  FINAL AVERAGE REMUNERATION FROM
   THE COMPANY AND MUTUAL FOR THE                             YEARS OF SERVICE WITH THE
        HIGHEST FIVE YEARS                                       COMPANY AND MUTUAL
  -------------------------------   ---------------------------------------------------------------------------
                                       15               20               25              30               35
                                    -------          -------         --------         --------         --------
  <S>                               <C>              <C>             <C>              <C>              <C>
             $125,000                27,128           36,171           45,213           54,256           54,886

             $150,000                33,378           44,504           55,630           66,756           67,136

             $175,000                39,628           52,837           66,047           79,256           79,386

             $200,000                45,878           61,171           76,463           91,756           91,756

             $225,000                52,128           69,504           87,880          104,256          104,256

             $250,000                58,378           77,837           97,297          116,756          116,756

             $300,000                70,878           94,504          118,130          141,756          141,756

             $350,000                83,378          111,171          139,963          166,756          166,756

             $400,000                95,878          127,837          159,797          191,756          191,756

             $450,000               108,378          144,504          180,630          216,756          216,756

             $500,000               120,878          161,171          201,463          241,756          241,756
</TABLE>

         The benefits reflected in the preceding table are in addition to an
employee's social security benefits. The Company has allocated its proportionate
share of retirement costs for the officers it shares with Mutual and Shield.

         Officers named in the summary Compensation Table have been credited
with the following years of service: J. Ridley Howard, 19 years; Roger W.
Fisher, 1 year; Robert L. Fincher, 39 years; and Norma Y. Christopher, 13 years.

         The estimated annual retirement benefits under the plans for all
executive officers of the Company as a group from the participating companies
aggregate $362,456. This estimate assumes no change from 2000 salaries,
retirement at age 65, and continuous employment with the Company. Estimated
annual retirement benefits under the plans attributable solely to service with
the Company cannot be stated due to the allocation of service and compensation
among the Company and its affiliates.

         The Company is allocated its proportionate share of retirement costs
for the officers it shares with Mutual and Shield.


                                       42
<PAGE>   43

INCENTIVE SAVINGS PLAN

         The Company participates in the Cotton States Incentive Savings and
Investment 401(k) Plan (the "401(k) Plan"). The 401(k) Plan is a qualified
savings incentive plan sponsored by the same companies that sponsor the
Company's Plan. The 401(k) Plan is open to all employees who have completed one
year of service and have reached their twenty-first birthday. Eligible employees
may contribute from 2% to 10% of their compensation to the 401(k) Plan. The
Company makes its matching contribution based only on the first 6% of an
employee's compensation, which is not to exceed a maximum contribution of
$10,500 per employee. The match is based on the return on equity of the
sponsoring companies. The Company's contribution will not be less than 20% nor
more than 60% of the employees contribution eligible for matching. Employees are
fully vested in the Company's contribution after five years of service.
Employees are not permitted to withdraw their account before age 59 1/2 except
in the event of death, disability, termination of employment or financial
hardship.

INCENTIVE STOCK OPTIONS

         The Company has a qualified incentive stock option plan for its
officers and key employees and those of its subsidiaries, CSI and CSMR (the "ISO
Plan"). During 2000, no options were granted under the ISO Plan.

         During 2000, 38,550 options were exercised pursuant to the ISO Plan. At
December 31, 2000, there were no options outstanding.

DIRECTORS' DISCOUNTED STOCK OPTION PLAN

         The Company has a Directors' Discounted Stock Option Plan (the "DSOP").
The DSOP is designed to assist the Company in attracting, retaining and
compensating highly qualified individuals who are not employees of the Company
for service as members of the Board and to provide them with a proprietary
interest in the common stock of the Company. The Board believes the DSOP will be
beneficial to the Company and its shareholders by encouraging and enabling
non-employee directors to have a personal financial stake in the Company, in
addition to emphasizing their common interest with the shareholders in
increasing the value of the common stock of the Company in the long term.

         The DSOP provides for automatic yearly grants of options to purchase
shares of common stock of the Company to each director who elects to participate
in the DSOP. Each director who is not an employee of the Company or any of its
subsidiaries or affiliates may participate by filing with the Company an
irrevocable election to receive the grant of a stock option in lieu of part or
all of the fees which the director would have been entitled to receive for the
immediately preceding year for his or her service on the Board. Options will be
granted automatically on the date of the annual meeting of the Board as to any
director who, prior to the date of such annual meeting, has filed with the
Company an irrevocable election to participate in the DSOP.

         The number of shares of common stock of the Company subject to each
option granted to a director shall be determined by dividing (i) the director's
fee due to a director, by (ii) the fair market value of the common stock of the
Company on the date of grant, minus the option exercise price. The fair market
value of the common stock of the Company under the DSOP shall be the closing
price as reported on the Nasdaq National Market and the option exercise price
for each option granted shall be 50% of the fair market value, to be paid in
cash by the director upon exercise. All options granted under the DSOP will
expire ten years after the date of grant, subject to DSOP provisions relating to
the retirement of the director because of death, disability, or age. That
portion of an option granted under the DSOP which is attributable to any portion
of the directors' fees which is not earned due to termination as a director,
shall automatically abate and be canceled. In the event of the death of the
holder of any unexercised option, all of the holder's outstanding options will
become immediately exercisable upon the date of death by his or her legal
representative. No option may be exercised under the DSOP before the 12 month
anniversary of the date of grant.

         A total of 281,250 shares of Company common stock is reserved for
issuance under the DSOP (subject to adjustment for subsequent stock splits,
stock dividends and certain other changes in the common stock of the Company).
The Company has granted 56,118 options under the DSOP, including 17,541 options
to be granted automatically at the 2001 Annual Meeting. Upon the exercise of an
option, the Company will issue authorized but previously unissued shares.


                                       43
<PAGE>   44

If an option issued under the DSOP is terminated or canceled without having been
exercised, the shares which were not purchased thereunder will again become
available for issuance under the DSOP.

         Adjustments will be made in the number of shares subject to the DSOP
and in the purchase price of outstanding options in the event of any change in
the number of shares of common stock of the Company outstanding as a result of a
stock split or stock dividend, recapitalization, merger, consolidation, or other
similar corporate change.

PERFORMANCE SHARE AWARDS PLAN

         The Company has a Performance Share Awards Plan (the "PAR Plan"). The
PAR Plan is designed to reward employees of the Company, its subsidiaries and
affiliates for services performed on behalf of the Company, to stimulate
employees' efforts on behalf of the Company, to encourage such employees to
remain with the Company, and to provide them with an ownership interest in the
common stock of the Company. The Board believes the PAR Plan will be beneficial
to the Company and its shareholders by encouraging and enabling employees to
have a personal financial stake in the Company.

         The PAR Plan authorizes the Compensation Committee of the Board of
Directors to grant awards of shares of common stock of the Company to employees
of the Company designated by the Compensation Committee. The Compensation
Committee may grant performance share awards in shares of the common stock if
the performance of the Company, or any subsidiary, division or affiliate of the
Company selected by the Compensation Committee meets certain goals established
by the Compensation Committee during an award period. The Compensation Committee
would determine the goals, the maximum payment value of an award, and the length
of an award. In order to receive payment, a recipient of a performance share
award must remain in the employ of the Company until the completion of the award
period.

         An aggregate of 281,250 shares of common stock of the Company are
subject to the PAR Plan. Adjustments will be made in the number of shares
subject to an award in the event of any change in the number of shares of common
stock outstanding as a result of a stock split or stock dividend,
recapitalization, merger, consolidation, or other similar corporate change. The
Company has granted 211,870 shares under the PAR Plan of which 0 vested in 2000.
In the event of a change of control of the Company, as defined in the PAR Plan,
all awards granted prior to the change of control shall immediately vest and the
shares subject to the award shall be issued to the recipient of the award.

         Awards granted under the PAR Plan provide the recipients with the right
to acquire shares of Common Stock as follows:

<TABLE>
<CAPTION>
         NUMBER OF SHARES       DATE GRANTED        EARLIEST VESTING        LATEST VESTING
         ----------------       ------------        ----------------        --------------
         <S>                    <C>                 <C>                     <C>
              23,256               2/25/98               2/23/01               2/23/05
              29,298               2/24/99               2/24/02               2/24/06
              63,225               2/22/00               2/23/03               2/23/07
</TABLE>


                                       44
<PAGE>   45

As of December 31, 2000, the following executive officers had been granted
awards to receive shares pursuant to the PAR Plan:

<TABLE>
<CAPTION>
                                         NUMBER OF SHARES VESTED
                NAME 1                     INCLUDING DIVIDENDS           NUMBER OF SHARES UNVESTED
                ------                   -----------------------         -------------------------
         <S>                             <C>                             <C>
         J. Ridley Howard                          0                                63,656

         Robert L. Fincher                         0                                18,581

         Roger W. Fisher                           0                                17,386

         Norma Y. Christopher                      0                                 3,480
</TABLE>

OTHER COMPENSATION

         Each executive officer is provided the use of one automobile by the
Company, Mutual and Shield, but is required to reimburse the Company, Mutual and
Shield for the personal use of the automobile. Officers are reimbursed for club
dues. The Company, Mutual and Shield are allocated these expenses under the same
formula on which salaries are prorated. The total cost of these expenses does
not exceed 10% of any executive officer's salary and bonus compensation.

COMPENSATION OF DIRECTORS

         During 2000, no director of the Company received any remuneration from
the Company in his capacity as a director except for fees, or options to receive
common stock in lieu of fees pursuant to the DSOP, and reimbursement for
expenses incurred in connection with attending directors' and committee
meetings. No director received cash compensation in excess of $23,600 for his
services as a director during 2000. Each director, other than J. Ridley Howard
is paid an annual stipend of $7,000. Mr. Howard did not receive an annual
stipend in 2000. In addition, each director was paid $850 plus travel expenses
for each meeting of directors and $700 for each committee meeting of directors
attended. Each committee member, other than J. Ridley Howard, receives an
additional $1,400 as an annual stipend and each committee chairman receives
$2,000 as an annual stipend. The aggregate directors' fees for 2000 totaled
$171,390. There were no retirement benefits accrued or set aside during the year
for any director for his services as director. Upon reaching the mandatory
retirement age of 72, directors of the Company become directors emeritus and
receive stipends ranging from $600 to $11,000 annually for periods ranging from
15 years to life after the date of retirement. In February, 2000, the Board of
Directors eliminated the retirement stipends for any director retiring after
that date.

         In addition to the director compensation payable by the Company as
disclosed above, directors who are not employees of the Company are eligible to
participate in the Directors' Discounted Stock Option Plan ("DSOP") which was
approved by the shareholders of the Company at the 1996 annual meeting. The
DSOP, which is administered by the Compensation Committee, permits the grant of
stock options to directors of the Company who are not employees of the Company
at an exercise price less than market value at the date of grant as an
alternative to the payment of retainer and meeting fees in cash to the
directors. Fractional shares are paid in cash. During 2000, directors of the
Company deferred fees in exchange for remuneration in the form of stock options
in lieu of cash as follows:

<TABLE>
<CAPTION>
                                                            OPTION                OPTIONS
                                        FEES               PRICE PER               TO BE              EXPIRATION
NAME                                  DEFERRED               SHARE                GRANTED                DATE
----                                  --------             ---------              -------              ---------
<S>                                   <C>                  <C>                    <C>                  <C>
Cherry, Carol D                       $  9,050               $4.313                2,259               01/02/11
Coan, Gaylord O                       $ 22,900               $4.313                5,307               01/02/11
Harris, Thomas A                      $ 11,800               $4.313                2,733               01/02/11
McMahan, Robert C                     $ 20,100               $4.313                4,983               01/02/11
Swift, Mathews D                      $  9,050               $4.313                2,259               01/02/11
</TABLE>


                                       45
<PAGE>   46

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The members of the Compensation Committee of the Board of Directors
during the fiscal year were Messrs. McMahan and Coan and Ms. Cherry. None of
these directors are or have been officers or employees of the Company or its
subsidiaries. No executive officer of the Company serves on the board of any
other company other than an affiliate of the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         The table below sets forth certain information about persons or
entities known by the Company to own beneficially more than 5% of the Company's
common stock, as of December 31, 2000. Except as noted below, the Company
believes that each of the persons or entities listed has sole investment and
voting power with respect to the shares included in the table.

<TABLE>
<CAPTION>
                                                                                              PERCENT
NAME AND ADDRESS                                     NUMBER OF SHARES OWNED(1)                OF CLASS
----------------                                     -------------------------                --------
<S>                                                  <C>                                      <C>
Shield Insurance Company                                    2,102,385(2)                         33.1
244 Perimeter Center Parkway
Atlanta, Georgia  30346

Marvin Schwartz                                               477,982                             7.5
605 Third Avenue
New York, New York 10158

Fidelity Management & Research Company,
  a wholly owned subsidiary of
  FMR Corporation
82 Devonshire Street
Boston, Massachusetts 02109                                   572,300                             9.0
</TABLE>

(1)      Under the rules of the U. S. Securities and Exchange Commission, a
         person is deemed to be beneficial owner of a security if he or she has
         or shares the power to vote or to direct the voting of such security,
         or the power to dispose or to direct the disposition of such security.
         A person is also deemed to be a beneficial owner of any securities that
         such a person has the right to acquire beneficial ownership of within
         60 days as well as any securities owned by such person's spouse,
         children or relatives living in the same household. Accordingly, more
         than one person may be deemed to be a beneficial owner of the same
         securities.

(2)      Shield is a wholly owned subsidiary of Mutual. The Board of Directors
         of Mutual is identical to the Board of Directors of the Company.


                                       46
<PAGE>   47

SECURITY OWNERSHIP OF MANAGEMENT

         The following table sets forth certain information about beneficial
ownership of the Company's common stock of each director and executive officer
of the Company and directors and officers as a group as of December 31, 2000.
All shares are owned outright without shared voting and investment power except
as set forth below.

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER:                                   AMOUNT AND NATURE OF
DIRECTORS                                                   BENEFICIAL OWNERSHIP    PERCENT OF CLASS
-------------------------                                   --------------------    ----------------
<S>                                                         <C>                     <C>
Carol D. Cherry                                                     675(1)                *

Gaylord O. Coan                                                     500(2)                *

Thomas A. Harris                                                  5,187(3)                *

J. Ridley Howard                                                 81,994(4)                1.3

Robert C. McMahan                                                 2,109(5)                *

Darrell D. Pittard                                                1,000                   *

Mathews D. Swift                                                    875(6)                *

E. Jenner Wood, III                                               1,405                   *

EXECUTIVE OFFICERS

Robert L. Fincher                                                32,459(7)                *

Roger W. Fisher                                                  10,000(8)                *

Norma Y. Christopher                                             16,503(9)                *

ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP (10)
(15 persons)                                                    166,134                   2.6
</TABLE>

(*)      Less than 1% not applicable

(1)      Does not include options to acquire 4,628 shares previously granted or
         options to acquire 2,259 shares to be granted automatically at the 2001
         Annual Meeting under the DSOP.

(2)      Does not include options to acquire 13,056 shares previously granted or
         options to acquire 5,307 shares to be granted automatically at the 2001
         Annual Meeting under the DSOP.

(3)      Does not include options to acquire 8,157 shares previously granted or
         options to acquire 2,733 shares to be granted automatically at the 2001
         Annual Meeting under the DSOP.

(4)      Does not include 63,656 shares plus accrued dividends awarded under the
         PAR Plan that have not vested.

(5)      Does not include options to acquire 8,911 shares previously granted or
         options to acquire 4,983 shares to be granted automatically at the 2001
         Annual Meeting under the DSOP.

(6)      Does not include options to acquire 3,825 shares preciously granted or
         options to acquire 2,259 shares to be granted automatically at the 2001
         Annual Meeting under the DSOP.

(7)      Does not include 18,581 shares plus accrued dividends awarded under the
         PAR Plan that have not vested.

(8)      Does not include 17,386 shares plus accrued dividends awarded under the
         PAR plan that have not vested.

(9)      Does not include 3,480 shares plus accrued dividends awarded under the
         PAR plan that have not vested.


                                       47
<PAGE>   48

(10)     Does not include 115,779 shares plus accrued dividends awarded under
         the PAR Plan that have not vested which would increase the percentage
         of outstanding shares for all officers and directors as a group to
         4.4%. Also does not include options to acquire 38,578 shares previously
         granted or options to acquire 17,541 shares to be granted automatically
         at the 2001 Annual Meeting under the DSOP.

CHANGES IN CONTROL

         None.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH MANAGEMENT AND OTHERS

         Shield, which is wholly owned by Mutual, owns 2,102,385 shares or 33.1%
of the outstanding common stock of the Company. See Item 12.

         Certain general expenses are allocated to the Company by Mutual. These
expenses such as salaries, advertising, rents, and related expenses, represent
the Company's share of expenses initially paid by Mutual and are allocated based
on specific identification or, if indeterminable, generally on the basis of each
company's premium income. Expenditures allocated to the Company amounted to
$3,386,739 in 2000. See Item 1.

         Gaylord O. Coan, a director of the Company, is CEO of Gold Kist, where
he also serves as the Chairman of the Management Executive Committee. Gold Kist
owns no stock of the Company. The Company shares offices with Mutual and Shield
in a building owned by a partnership of Mutual and Gold Kist. The Company is not
a partner in the partnership which owns the building and has no equity interest
in the building.

         Gaylord O. Coan, a director of the Company, serves as a director of
SunTrust Banks, Inc. E. Jenner Wood, III, a director of the Company, serves as
an executive officer of SunTrust Bank, Atlanta. SunTrust Banks, Inc. received
fees from the Company in 2000 for services rendered as the transfer agent of the
Company. SunTrust Bank, Atlanta, a subsidiary of SunTrust Banks, Inc., received
fees from the Company in 2000 for investment and custodial services and leases
of computer hardware.


                                       48
<PAGE>   49

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS

         The following consolidated financial statements and independent
auditors' report are incorporated by reference to Part II, Item 8 of this
report:

           Independent Auditors' Report
           Consolidated Balance Sheets, December 31, 2000 and 1999
           Consolidated Statements of Earnings, Years ended
                December 31, 2000, 1999 and 1999
           Consolidated Statements of Shareholders' Equity, Years ended
                December 31, 2000, 1999 and 1998
           Consolidated Statements of Cash Flows, Years ended
                December 31, 2000, 1999 and 1998
           Consolidated Statements of Comprehensive Income, Years ended
                December 31, 2000, 1999 and 1998
           Notes to Consolidated Financial Statements


                                       49
<PAGE>   50

FINANCIAL STATEMENT SCHEDULES

         The following consolidated financial statement schedules and
independent auditors' report thereon are included herein:

           Independent Auditors' Report on Financial Statement Schedules
           Schedule I - Consolidated Summary of Investments,
             December 31, 2000
           Schedule IV - Reinsurance, Years ended December 31, 2000,
             1999 and 1998
           Schedule V - Supplementary Insurance Information, Years
             ended December 31, 2000, 1999 and 1998

         All other schedules are omitted as the required information is
inapplicable, or the information is presented in the consolidated financial
statements or related notes.

EXHIBITS

<TABLE>
<S>      <C>
3.1      Amended and Restated Articles of Incorporation of the Registrant
         (incorporated by reference to Exhibit 3 to the Registrant's Annual
         Report on Form 10-K for the year ended December 31, 1994, File No.
         95074277).

3.2      Bylaws, as amended, of the Registrant (incorporated by reference to
         Exhibit 3 to the Registrant's Annual Report on Form 10-K for the year
         ended December 31, 1994, File No. 95074227).

10.1.1   Amended and Restated Directors' Discounted Stock Option Plan
         (incorporation by reference to Exhibit 10.1.1 to the Registrant's
         Annual Report on form 10-K for the year ended December 31, 1999, File
         No. 2-39729).

10.2     Performance Shares Awards Plan (incorporated by reference to Exhibit
         10.2 to the Registrant's Registration Statement on Form S-8,
         Registration No. 333-00795).

10.3.1   Amended and Restated 1983 Incentive Stock Option Plan (incorporated by
         reference to Exhibit 10.3.1 to the Registrant's Annual Report on Form
         10-K for the year ended December 31, 1999, File No. 2-39729).

10.3.2   Form of Incentive Stock Option Agreement pursuant to the 1983 Incentive
         Stock Option Plan (incorporated by reference to Exhibit 10.3.2 to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         1999, File No. 2-39729).

21.      Subsidiaries of the Registrant.
</TABLE>

         All other exhibits are omitted as the required documents are
inapplicable.

REPORT ON FORM 8-K

         No report on Form 8-K was filed for the fourth quarter of 2000.


                                       50
<PAGE>   51

THE BOARD OF DIRECTORS AND SHAREHOLDERS
COTTON STATES LIFE INSURANCE COMPANY

Under date of February 21, 2001, we reported on the consolidated balance sheets
of Cotton States Life Insurance Company and subsidiaries (the "Company") as of
December 31, 2000 and 1999, and the related consolidated statements of earnings,
shareholders' equity, cash flows, and comprehensive income for each of the years
in the three year period ended December 31, 2000, as contained in the 2000
annual report to shareholders. Those consolidated financial statements and our
report thereon are included in the annual report on Form 10-K for the year 2000.
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement schedules as
listed in Item 14. The financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.



/s/KPMG LLP
KPMG LLP
Atlanta, Georgia

February 21, 2001


                                       51
<PAGE>   52

                                                                      SCHEDULE I

              COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                       CONSOLIDATED SUMMARY OF INVESTMENTS
                                DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                                                            Amount at Which
                                                                                            Fair             Shown on the
Type of Investments                                                   Cost                 Value             Balance Sheet
-------------------                                              -------------          ------------        ----------------
<S>                                                              <C>                    <C>                 <C>
Fixed maturities, held for investment:
    Bonds:
       United States government and government
         agencies and authorities                                $   1,499,749             1,501,410             1,499,749
       Foreign governments                                           1,997,221             2,030,730             1,997,221
       Public utilities                                              3,345,212             3,336,596             3,345,212
       All other corporate bonds                                     8,214,910             8,345,192             8,214,910
                                                                 -------------          ------------          ------------

         Total fixed maturities held for investment                 15,057,092            15,213,928            15,057,092

Fixed maturities, available for sale:
    Bonds:
       United States government and government
         agencies and authorities                                   26,789,267            27,198,678            27,198,678
       Foreign governments                                           2,870,498             3,049,680             3,049,680
       Public utilities                                             15,472,632            15,007,510            15,007,510
       All other corporate bonds                                    74,680,650            71,328,375            71,328,375
                                                                 -------------          ------------          ------------

         Total fixed maturities available for sale                 119,813,047           116,584,243           116,584,243

Equity securities                                                    3,671,233             3,776,423             3,776,423

First mortgage loans on real estate                                  2,097,616             2,126,289             2,097,616

Policy loans                                                         8,841,008             8,841,008             8,841,008

Short-term investments                                               3,538,856             3,538,856             3,538,856

Other investments                                                    1,000,000             1,000,000             1,000,000
                                                                 -------------          ------------          ------------

        Total investments                                        $ 154,018,852           151,080,747           150,895,238
                                                                 =============          ============          ============
</TABLE>

See accompanying independent auditors' report.


                                       52
<PAGE>   53

                                                                     SCHEDULE IV

              COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                                   REINSURANCE
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                                                                       PERCENTAGE
                                                                CEDED TO           ASSUMED                             OF AMOUNT
                                              GROSS               OTHER           FROM OTHER            NET             ASSUMED
                                             AMOUNT             COMPANIES        COMPANIES(1)         AMOUNT           TO NET(1)
                                         --------------       -------------      ------------       -------------      ----------
<S>                                      <C>                  <C>                <C>                <C>                <C>
YEAR ENDED DECEMBER 31, 2000

     Life insurance in force             $4,794,431,000       1,251,895,000       780,840,000       4,223,376,000         18.1
                                         --------------       -------------       -----------       -------------         ----

     Premiums:
         Life insurance                      30,194,291           4,264,239           766,213          26,696,265
         Accident/health insurance              151,733              31,475                --             120,258
                                         --------------       -------------       -----------       -------------
               Total                     $   30,346,024           4,295,714           766,213          26,816,523
                                         ==============       =============       ===========       =============


YEAR ENDED DECEMBER 31, 1999

     Life insurance in force             $4,444,114,000       1,113,206,000       733,058,000       4,063,966,000         18.0
                                         --------------       -------------       -----------       -------------         ----

     Premiums:
         Life insurance                  $   26,382,782           3,886,199           667,688          23,164,271
         Accident/health insurance              171,334              33,508                --             137,826
                                         --------------       -------------       -----------       -------------
               Total                     $   26,554,116           3,919,707           667,688          23,302,097
                                         ==============       =============       ===========       =============


YEAR ENDED DECEMBER 31, 1998             $4,130,933,000       1,013,619,000       725,749,000       3,843,063,000         18.9
                                         --------------       -------------       -----------       -------------         ----

     Life insurance in force

     Premiums:
         Life insurance                  $   22,636,479           3,507,295           672,153          19,801,337
         Accident/health insurance              177,517              43,500                --             134,017
                                         --------------       -------------       -----------       -------------
               Total                     $   22,813,996           3,550,795           672,153          19,935,354
                                         ==============       =============       ===========       =============
</TABLE>

(1)      All reinsurance assumed results from participation in Federally
         sponsored group pools.

See accompanying independent auditors' report.


                                       53
<PAGE>   54

                                                                      SCHEDULE V

              COTTON STATES LIFE INSURANCE COMPANY AND SUBSIDIARIES
                       SUPPLEMENTARY INSURANCE INFORMATION
                           DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                  DEFERRED                               POLICY
                                   POLICY             FUTURE           CLAIMS AND
                                 ACQUISITION          POLICY            BENEFITS
                                   COSTS             BENEFITS           PAYABLE
                                ------------        -----------        ----------
<S>                             <C>                 <C>                <C>
Segment

At December 31, 2000

         Individual             $ 46,856,705        132,612,776        2,083,581
         Group                            --             41,811          214,643
                                ------------        -----------        ---------
              Total             $ 46,856,705        132,654,587        2,298,224
                                ============        ===========        =========
At December 31, 1999

         Individual             $ 41,263,817        122,562,510        1,249,914
         Group                            --             43,467          205,163
                                ------------        -----------        ---------
              Total             $ 41,263,817        122,605,977        1,455,077
                                ============        ===========        =========
</TABLE>

See accompanying independent auditors' report.


                                       54
<PAGE>   55

                                   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.

COTTON STATES LIFE INSURANCE COMPANY

<TABLE>
<S>                                                 <C>                                     <C>
J. Ridley Howard             02/21/01               Roger W. Fisher      02/21/01           William J. Barlow       02/21/01
-------------------------------------               ------------------------------          ---------------------------------
                               DATE                                         DATE                                       DATE
Chairman of the Board of Directors/                 Senior Vice President                   Vice President/Controller
President and Chief Executive Officer               Chief Financial Officer and             and Assistant Treasurer
                                                    Treasurer
</TABLE>

         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>
<S>                                         <C>                 <C>                                         <C>
Carol Cherry                                02/21/01            Robert McMahan                              02/21/01
----------------------------------------------------            ----------------------------------------------------
Director                                      DATE              Director                                      DATE



Gaylord Coan                                 2/21/01            Darrell Pittard                             02/21/01
----------------------------------------------------            ----------------------------------------------------
Director                                      DATE              Director                                      DATE



Thomas Harris                               02/21/01            Mathews Swift                               02/21/01
----------------------------------------------------            ----------------------------------------------------
Director                                      DATE              Director                                      DATE



J. Ridley Howard                            02/21/01            Jenner Wood, III                            02/21/01
----------------------------------------------------            ----------------------------------------------------
Director                                      DATE              Director                                      DATE
</TABLE>


                                       55