<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                               __________________

                                   FORM 10-K
                   For Annual and Transition Reports Pursuant
         to Sections 13 or 15(d) of the Securities Exchange Act of 1934

[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

                  For the fiscal year ended December 31, 1999

[ ]  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 0-29788

                     SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

             (Exact Name of Registrant as Specified in Its Charter)

            Cayman Islands                            Not Applicable
   (State or Other Jurisdiction of         (I.R.S. Employer Identification No.)
    Incorporation or Organization)
          P.O. Box 10657 APO
   Grand Pavilion Commercial Centre
          802 West Bay Road
      George Town, Grand Cayman
  Cayman Islands, British West Indies                 Not Applicable
(Address of Principal Executive Offices)                (Zip Code)

       Registrant's telephone number, including area code: (345) 949-2800


          Securities Registered Pursuant to Section 12(b) of the Act:

                             Name of Each Exchange
       Title of Each Class    on Which Registered
       -------------------    -------------------
           None

     Securities Registered Pursuant to Section 12(g) of the Act:

                              Ordinary Shares, par value $.01 per share

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes   X  No

Indicate by check mark if 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. [_]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 24, 2000 was $122,356,393.00

As of March 24, 2000, Registrant had 16,046,740 Ordinary Shares outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE.


  List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).

  Certain information required by Items 10, 11, 12 and 13 of Form 10-K is
incorporated by reference into Part III hereof from the registrant's proxy
statement for its 2000 Annual Meeting of Shareholders, which is expected to be
filed with the Securities and Exchange Commission (the "Commission") within 120
days of the close of the registrant's fiscal year ended December 31, 1999.

_____________________

_____________________
<PAGE>

                               Table of Contents
<TABLE>
<CAPTION>

<S>                                                                                               <C>
PART I...........................................................................................  1
 Item 1:   BUSINESS..............................................................................  1
 Item 2:   PROPERTY..............................................................................  5
 Item 3:   LEGAL PROCEEDINGS.....................................................................  5
 Item 4:   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.................................  5
PART II..........................................................................................  6
 Item 5:   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.................  6
 Item 6:   SELECTED FINANCIAL DATA...............................................................  6
 Item 7:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.  6
 Item 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................ 14
 Item 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................... 14
 Item 9:   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.. 14
PART III......................................................................................... 15
 Item 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................... 15
 Item 11:  EXECUTIVE COMPENSATION................................................................ 15
 Item 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 15
 Item 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 15
PART IV.......................................................................................... 16
 Item 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K...................... 16
           Consolidated Financial Statements..................................................... 17
           Report Of Management.................................................................. 18
           Report of Independent Auditors........................................................ 19
           Consolidated Balance Sheets........................................................... 20
           Consolidated Statements of Income..................................................... 21
           Consolidated Statements of Comprehensive Loss......................................... 22
           Consolidated Statements of Shareholders' Equity....................................... 23
           Consolidated Statements of Cash Flows................................................. 24
           Notes to Consolidated Financial Statements............................................ 25
Exhibit Index.................................................................................... 40
</TABLE>
<PAGE>

                                     PART I

Item 1:  BUSINESS

General
--------

Scottish Annuity & Life Holdings, Ltd. ("Scottish Holdings", "we", "us", "our",
or "the Company") completed its initial public offering ("IPO") on November 30,
1998. Scottish Holdings, and its wholly owned subsidiary, Scottish Annuity &
Life Insurance Company (Cayman) Ltd. ("Scottish Insurance") were formed in 1998
as offshore companies principally to provide reinsurance of life and annuity
products and to issue customized variable life insurance products to high net
worth individuals and families. The Scottish Annuity Company (Cayman) Ltd.
("Scottish Annuity") , a Cayman Islands insurance company providing customized
variable annuity products to high net worth individuals and families, was
acquired by Scottish Holdings during 1999. Harbourton Reassurance, Inc.
("Harbourton"), a Delaware insurance company which is licensed in 15 states and
admitted as a reinsurer in an additional 8 states, was also acquired during 1999
to provide us with a U.S. based platform to provide reinsurance products. We are
in the process of changing Harbourton's name to Scottish Re (U.S.), Inc.

In our reinsurance activities we seek to reinsure lines of business that are
subject to significant reserve or capital requirements under regulatory and
rating agency guidelines. We believe that, in response to heightened regulatory
and rating agency scrutiny, insurers are increasingly seeking reinsurance as a
means to improve earnings, risk-based capital or other financial ratios. We
focus our reinsurance activities principally on accepting risk from U.S.
insurers, although we also expect to target opportunities in the United Kingdom,
Western Europe, Canada and Australia. In fiscal year 1999, our revenues from
reinsurance activities were derived from the U.S.

We provide both onshore and offshore solutions to primary insurers seeking non-
traditional and traditional life reinsurance of annuity and life insurance
business. Non-traditional reinsurance involves the transfer of investment risks
associated with blocks of new and existing annuity type contracts, such as
deferred annuities, payout annuities, funding agreements and similar contracts.

Our traditional life reinsurance will focus on assuming risks associated with
primary life insurance policies, both in force and new business. We expect to
reinsure the following risks: (i) mortality and ancillary morbidity, (ii)
investment, (iii) persistency, and (iv) expense. We will write reinsurance
predominantly on a direct basis with primary life insurance companies, covering
individual term life insurance policies, whole life insurance policies,
universal life insurance policies, and joint and survivor insurance policies. We
will limit our net liability on any one ordinary life risk up to $1.0 million.

Through our variable products business, we are responding to what we believe are
increasing demands of high net worth individuals and families for customized
products for use as part of sophisticated estate planning strategies.  For us,
high net worth generally means individuals and families with a liquid net worth
in excess of $10 million.

We offer both variable universal life insurance policies and variable annuities.
Variable life insurance offers a death benefit and a cash value component which
is placed in a separate account and invested on behalf of the policyholder by a
money manager.  As a Cayman Islands insurance company, we have the flexibility
to offer policies that permit the use of private independent money managers to
manage the separate accounts and who utilize investment strategies not typically
available in variable products issued to the general public. We will also seek
to leverage our expertise with respect to variable life insurance products by
offering structured life insurance products, such as corporate-owned life
insurance, which target the deferred compensation market.

Products Offered

Reinsurance

Reinsurance is an arrangement under which an insurance company, called the
reinsurer, agrees to indemnify another insurance company, called the ceding
company or cedent, for all or a portion of the insurance risks underwritten by
the ceding company.  It is standard industry practice for primary insurers to
reinsure portions of their insurance risks with other insurance companies.  This
practice permits primary insurers to write insurance policies in amounts larger
than they would be willing or able to retain.  Reinsurers may also purchase
reinsurance, or "retrocession" coverage, to limit their own risk exposure.  We
expect to assume risks from both primary insurers as well as reinsurers.

We are focusing our reinsurance activities principally on the reinsurance of
life insurance and annuity type products. For these products, we write
reinsurance generally as coinsurance or modified coinsurance, whereby we assume
all or a proportionate share of the liability for the reinsured business. Under
coinsurance, ownership of the assets supporting the reserves is transferred to
the reinsurer, whereas in modified coinsurance arrangements, the ceding company
retains ownership of the assets supporting the reserves. Under a coinsurance or
modified coinsurance arrangement, the reinsurer will generally share
proportionately in all material risks inherent in the underlying policies.

When we reinsure life insurance products, the reinsurance may also be structured
on a yearly renewable term basis. Under the yearly renewable term structure,
premium rates are generally adjusted annually based on the age and underwriting
classification of each insured and the age of the policies and the reinsurer
assumes only the mortality risk associated with the underlying policies.

The reinsurer, under such treaties, agrees to indemnify the primary insurer for
all or a portion of the risks associated with the underlying insurance policy in
exchange for a reinsurance premium payable to the reinsurer.  We may also enter
into retrocessional reinsurance arrangements with other reinsurers, which
operate in a manner similar to the underlying reinsurance treaty described
above. Under retrocessional reinsurance arrangements, the reinsurer transfers a
portion of the risk associated with the underlying insurance policy to the
retrocessionaires. Each retrocessionaire in our current ordinary life pool
reinsures a percentage of each risk that is retroceded to the pool. Each of the
domestic participants in the pool is rated "A" or better by A.M. Best Company,
Inc. ("A.M. Best").

Our reinsurance agreements will be written on an automatic treaty basis.  The
reinsurance may be solicited directly by us or through reinsurance
intermediaries.  An automatic treaty provides for a ceding company to cede
contractually agreed-upon risks on specific blocks of business to a reinsurer.
In addition, the reinsurance may be written on either:

     1)   a proportional basis under which a specified percentage of each risk
          in the reinsured class of risk is assumed by the reinsurer from the
          ceding company with the reinsurer receiving its proportion of the
          underlying premiums in proportion to such assumed risk;

     2)   or an excess of loss basis under which the reinsurer indemnifies the
          ceding company up to a contractually-specified amount for a portion of
          claims exceeding a specified retention amount in consideration of non-
          proportional premiums being paid.

                                                                               1
<PAGE>

Variable Life Insurance and Annuities

Variable life insurance and annuity products are "separate account" products
under which the net premiums paid, after deducting expenses, including the costs
of insurance, are placed in a separate account for the policyholder's benefit.
Under Cayman Islands Law, assets held in a separate account are not subject to
claims of the insurance company's general creditors. The cash values of this
separate account are invested for the policyholder by a private independent
money manager. Variable life insurance offers flexible premiums and a minimum
death benefit in addition to providing a return linked to an underlying
portfolio held in a separate account. Variable annuities provide tax-deferred
growth of the contractholder's investment until earnings are withdrawn or
periodic annuity payments begin.

We do not provide any investment management or advisory services to any variable
life policyholder. Our revenues earned from these policies consist of amounts
assessed during the period against policyholders' separate account balances for
mortality and expense fees and policy administration and surrender charges. Our
variable life insurance and annuity contracts have no guaranteed rate of return
on the cash values. The cash value varies based on the investment results on the
policy's assets managed by the policy's private independent money manager.

Marketing

Under our marketing plan with respect to variable life insurance and annuity
policies, we rely primarily on referrals by financial advisors, investment
managers, private bankers, attorneys and other intermediaries in the U.S. to
generate clients. None of these intermediaries represent us as agents or in any
other capacity, nor do they receive any commissions or other remuneration from
us for activities undertaken in the U.S.

Our marketing plan with respect to our reinsurance business seeks to capitalize
on the relationships developed by our executive officers and marketing staff
with members of the actuarial profession and senior insurance company
executives, at both primary insurers and other reinsurers.  We target potential
ceding insurers that we believe would benefit from our reinsurance products
based on our analysis of publicly available information and other industry data.
In addition, reinsurance transactions are often placed by reinsurance
intermediaries, brokers and consultants.  A significant component of our
marketing program involves working with such third party marketers in an effort
to maintain a high degree of visibility in the reinsurance marketplace.

Underwriting

  Reinsurance

The principal risk associated with our fixed annuity reinsurance activities is
investment risk.  Specifically, we are subject to the following:

  .  asset value risk, which is the risk that invested assets supporting the
     reinsured business will decrease in value;

  .  credit risk, relating to the uncertainty associated with the continued
     ability of a given obligor to make timely payments of principal and
     interest;

  .  reinvestment risk, which is the risk that interest rates will decline and
     funds reinvested will earn less than is necessary to match anticipated
     liabilities; and

  .  disintermediation risk, which is the risk that we may have to sell assets
     at a loss to provide for policyholder withdrawals or to satisfy liabilities
     not otherwise properly matched.

We may also be subject to mortality risk with respect to the fixed annuities we
reinsure, although our exposure to such risk is expected to be generally
immaterial as compared to the investment risk associated with these products.

We may assume all of the liabilities under the fixed annuity contracts we
reinsure, although, in certain circumstances, we may require the ceding company
to retain a portion of such liabilities, typically not to exceed 10%.

We also reinsure various forms of life insurance products, including universal,
variable, term and whole life insurance.  The primary risk under life insurance
policies is mortality risk.  Our Underwriting Guidelines with respect to
reinsurance limit such risk to $1,000,000 per insured and we intend to reinsure,
or retrocede, any liability for amounts in excess of $1,000,000 per insured in
order to comply with such guidelines.  Universal life insurance and similar
interest-rate sensitive policies provide life insurance with adjustable rates of
return based on applicable interest rates in effect from time to time.  As a
consequence, the risks reinsured by us may also include investment risks similar
to those for fixed annuities.  As with annuities, all life insurance policies
are subject to surrender risk.

                                                                               2
<PAGE>

  Variable Life Insurance

The principal risk associated with our variable life insurance policies is
mortality risk. The death benefit provided by our variable life insurance
policies varies based on the investment return of the underlying separate
account of policy assets invested by the policy's private independent money
manager. The difference between the value of the assets in the underlying
separate account and the policy's stated death benefit, known as the "net amount
at risk", represents a general liability. Fees are charged, based on the "net
amount at risk", and increase with the age of the insured. In accordance with
generally accepted accounting principles ("GAAP") no reserves are required other
than the deposit liability as the Company fees are based on its expected
mortality for the period charged. Mortality risk tends to be more stable when
spread across large numbers of insureds. We expect that our variable life
insurance policies, which provide substantial death benefits given expected
initial premiums of at least $1.0 million for single premium policies and
$500,000 for multiple premium policies, will be held by a relatively small
number of high net worth policyholders. Consequently, our associated mortality
risk exposure will be greater in the aggregate, and our probability of loss less
predictable, than an insurer with a broader risk pool. Therefore, pursuant to
our Underwriting Guidelines, we reinsure all of the mortality risk associated
with our variable life insurance business. Our Underwriting Guidelines provide
that any reinsurer to whom we cede business must have a financial strength
rating of at least "A-" or higher from A.M. Best or an equivalent rating by
another major rating agency.

Investment Portfolio

  General

We seek to generate attractive levels of investment income through a
professionally managed investment portfolio.  If we are unable to effectively
manage our investment portfolio and the risks associated with such investments,
our ability to support our variable life insurance and reinsurance businesses,
and our results of operations and financial condition, will be adversely
affected.

  Investment Guidelines

Our investment activities are governed by the Investment Guidelines as approved
by the Board of Directors.  Our investment portfolio, excluding assets
transferred and invested as part of any reinsurance transaction, principally
consists of fixed income securities with a weighted average investment rating of
"A". Although a fixed income security rated "A" by Standard & Poor's is somewhat
susceptible to the adverse effects of changes in circumstances and economic
conditions, however, the issuer's capacity to meet its financial commitment on
the security is still strong.  We do not invest in any fixed income securities
in emerging markets or which are not rated by a major rating agency.  The
Investment Guidelines provide that we may purchase, among other things,
securities issued by the United States government and its agencies and
instrumentalities, securities issued by foreign governments if rated "A" or
better by at least one major rating agency, certain asset backed securities,
preferred stocks, mortgage backed securities and corporate debt securities
(which may include convertible debt securities, but may not include payment-in-
kind corporate securities), including fixed income securities that are rated
below investment grade. The Investment Guidelines also provide that the fixed
income investment portfolio may not be leveraged and that purchases of
securities on margin and short sales may not be made without approval of the
Board of Directors.

We are exposed to two primary sources of investment risk on fixed income
investments: credit risk, relating to the uncertainty associated with the
continued ability of a given obligor to make timely payments of principal and
interest, and interest rate risk, relating to the market price and/or cash flow
variability associated with changes in market interest rates.  We seek to manage
credit risk through industry and issuer diversification and asset allocation and
interest rate risk through interest rate swaps and other hedging techniques.

Our investments in fixed income securities that are rated below investment
grade, are subject to greater risks than our investments in investment grade
securities. The risk of loss of principal or interest through default is greater
with lower-rated securities because they are usually unsecured and are often
subordinated to an issuer's other obligations. Additionally, issuers of these
securities frequently have higher debt levels which makes them more susceptible
to adverse economic developments, individual corporate developments and rising
interest rates could impair their ability to meet their financial commitments.
Consequently, the market price of these securities may be quite volatile, and
the risk of loss is greater. As a result, the Investment Guidelines provide that
no more than 15% of our investment portfolio may be invested in fixed income
securities that are rated below investment grade.

We will manage the investment risks on the assets received from reinsurance
transactions by matching anticipated payout patterns of the reinsurance
liabilities.   We invest such assets principally in fixed income and, to a
lesser extent, equity securities.  We may invest in foreign denominated
securities to manage currency risk if the reinsurance transaction has a foreign
currency component.  We may also enter into interest rate swap and other hedging
transactions in an effort to manage interest rate risks associated with such
transactions.  Although the total investment in derivatives may be substantial,
any use of derivatives is expected to be incidental to our efforts to manage
interest rate risk rather than a speculative investment.  Any investment in
equity securities (expected to be typically not more than 10% of the assets
transferred to us in a reinsurance transaction) will be made in an effort to
enhance our overall return on such assets.

                                                                               3
<PAGE>

  Investment Managers

Our portfolio is managed by General Re-New England Asset Management, Inc. ("Gen
Re") and Prudential Investment Corporation. Gen Re manages approximately 89% of
our investment portfolio and Prudential Investment Corporation manages the
balance.

We expect that one or both of the Investment Managers will manage the investment
of any assets transferred to us in any reinsurance transaction.

  Investment Oversight

Our Board of Directors, from time to time, reviews our investment portfolio and
the performance of our investment managers. The Board of Directors can approve
exceptions to our Investment Guidelines and periodically reviews our Investment
Guidelines in light of prevailing market conditions. The investment managers and
our Investment Guidelines may be changed from time to time as a result of such
reviews.

Competition and Ratings

The insurance and reinsurance industries are highly competitive. Most of the
companies in such industries are significantly larger, and have operating
histories and access to significantly greater financial and other resources than
we do.

Our variable products primarily compete with those issued by U.S. insurance
companies.  To the extent that our variable products provide for management of
the underlying separate accounts by private independent money managers, our
variable products compete with mutual funds and other investment or savings
vehicles.  We believe that the most important competitive factor affecting the
marketability of our variable products is the degree to which these products
meet customer expectations, in terms of low expenses, returns (after fees and
expenses) and customer service.

Competition in the reinsurance business is based on price, ratings, perceived
financial strength and service. Because we currently rely on a small number of
clients in both our variable products and reinsurance businesses and expect to
continue to do so for the near future, such businesses are more susceptible to
the adverse effects of competition.

Insurance ratings are used by prospective purchasers of insurance policies as
well as insurers and reinsurance intermediaries as an important means of
assessing the financial strength and quality of insurers and reinsurers.  In
addition, a ceding company's own rating may be adversely affected by an
unfavorable rating or the lack of a rating of its reinsurer.  Duff & Phelps has
assigned a rating of "A" and A.M. Best has assigned a Best Rating of "A-"
(Excellent). These ratings have been assigned to Scottish Insurance and
Harbourton. Duff & Phelps assigns an "A" rating to companies that it
characterizes as having, in its opinion, high claims paying ability, average
protection factors and an expectation of variability in risk over time due to
economic or underwriting conditions.  A.M. Best assigns an "A- " (Excellent)
rating to companies that have, in its opinion, on balance, excellent financial
strength, operating performance and market profile, as well as strong abilities
to meet their ongoing obligations to policyholders. These ratings represent each
rating agency's opinion of Scottish Insurance's and Harbourton's ability to meet
its obligations to its policyholders. Scottish Annuity is unrated.

Employees

We currently employ forty-five full time employees.

Regulation

  Cayman Islands

Scottish Holdings is a holding company owning all of the outstanding Ordinary
Shares of Scottish Insurance, Scottish Annuity, and Harbourton (through a
Delaware holding company).  Scottish Insurance and Scottish Annuity are subject
to regulation as licensed insurance companies under Cayman Islands law.

Scottish Insurance holds an unrestricted Class B insurance license under Cayman
Islands Insurance Law and may therefore carry on an insurance business from the
Cayman Islands, but may not engage in any Cayman Islands domestic insurance
business.

Scottish Annuity holds an unrestricted Class B license under Cayman Islands
Insurance Law and may therefore carry on an insurance business from the Cayman
Islands, but may not engage in any Cayman Islands domestic insurance business.

                                                                               4
<PAGE>

Unless specifically exempted, a Cayman Islands insurance company must engage a
licensed insurance manager operating in the Cayman Islands to provide insurance
expertise and oversight. Scottish Insurance has been exempt from this
requirement and Scottish Annuity has engaged International Risk Management
(Cayman) Ltd. as its licensed insurance manager in the Cayman Islands. It is
anticipated that Scottish Annuity will also be exempted from this requirement
during 2000.

In addition, under the Insurance Law, Cayman Islands insurance companies
carrying on long term business (which includes the writing of life insurance
policies) must hold all receipts in respect of its long-term business and
earnings thereon in a separate long-term business fund. Payments from such long-
term business fund may not be made directly or indirectly for any purpose other
than those of the insurer's long-term business. Every Cayman Islands insurance
company carrying on long-term business may establish any number of separate
accounts in respect of premiums paid to it to provide (i) annuities on human
life and (ii) contracts of insurance on human life, and such respective premiums
shall be kept segregated one from the other and independent of all other funds
of the Cayman Islands insurer, and, notwithstanding the provisions of any other
written law to the contrary, are not chargeable with any liability arising from
any other business of the insurer. The scope and the validity of the Cayman
Islands law regarding separate accounts has not been tested in the courts of the
Cayman Islands.

  United States and Other Jurisdictions

Scottish Holdings, Scottish Insurance, and Scottish Annuity are not licensed to
do business in any jurisdiction other than the Cayman Islands. The insurance
laws of each state of the United States and of many foreign countries regulate
the sale of insurance and reinsurance within their jurisdictions by alien
insurers, such as Scottish Insurance and Scottish Annuity, that are not admitted
to do business within such jurisdictions. With some exceptions, the sale of
insurance within a jurisdiction where the insurer is not admitted to do business
is prohibited.

Scottish Insurance and Scottish Annuity conduct their insurance and reinsurance
business through their executive offices in the Cayman Islands, and their
personnel will not solicit, advertise, underwrite, settle claims or conduct
other insurance or reinsurance activities in the United States or in any other
jurisdiction where such activities are prohibited. All of Scottish Insurance's
and Scottish Annuity's insurance, reinsurance, and annuity contracts are
negotiated, executed, and issued, and all premiums will be received, at their
offices in George Town, Grand Cayman or in such other offices outside the United
States as Scottish Insurance or Scottish Annuity may establish or designate.

Harbourton is a Delaware domestic life insurer.  In total, Harbourton is
licensed in 15 states and is also an authorized reinsurer in 8 additional
states.  As such, Harbourton is subject to individual state regulation and the
requirements set forth by the National Association of Insurance Commissioners.
Harbourton's principal office, which had been located in Aurora, Colorado prior
to the acquisition by Scottish Holdings, has been relocated to Charlotte, North
Carolina.

Item 2:  PROPERTY

We currently lease approximately 7,500 square feet of office space in George
Town, Grand Cayman where our executive and principal offices are located.  The
base term of the lease is seven years.  We also lease approximately 8,000 square
feet of office space in Charlotte, North Carolina where Harbourton's principal
offices are located.  We also currently lease approximately 400 feet of office
space in Denver, Colorado where Harbourton currently has temporary offices.
Theses offices will be closed prior to July 2000.   We believe that these
properties are adequate to meet our needs for the foreseeable future.

Item 3:  LEGAL PROCEEDINGS

The Company is not currently involved in any litigation or arbitration.

Item 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

Scottish Holdings did not submit any matter to a vote of securities holders
during the fourth quarter of the year covered by this Form 10-K.

                                                                               5
<PAGE>

                                    PART II

Item 5:  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

A.  Market for the Ordinary Shares

The Ordinary Shares, par value $0.01 per share, of Scottish Holdings are quoted
on the Nasdaq Stock Market National Market under the symbol "SCOT". The
Ordinary Shares commenced trading on November 24, 1998.  The high and low bid
prices for the Ordinary Shares are shown below:


<TABLE>
<CAPTION>
                                                  High          Low
                                              --------------------------
     <S>                                       <C>          <C>
     November 24 - December 31, 1998                14.500        11.375
     January 1 - March 31, 1999                     14.063         8.750
     April 1 - June 30, 1999                        10.875         9.250
     July 1 - September 30, 1999                    12.375         9.625
     October 1 - December 31, 1999                  10.125         7.813
     January 1 - March 24, 2000                      9.000         7.688
</TABLE>

As of March 24, 2000, Scottish Holdings had approximately twenty-six record
holders of its Ordinary Shares. Approximately 14,180,250 Ordinary Shares are
held in street name. Scottish Holdings did not pay any dividends in 1998. Cash
dividends of $0.05 were paid each quarter by Scottish Holdings in 1999.

Item 6:  SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
Consolidated Financial Statements, including the related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."


<TABLE>
<CAPTION>
                                                          (Stated in United States Dollars)
                                                      December 31, 1999        December 31, 1998
                                                  -------------------------------------------------
<S>                                                <C>                      <C>
Statement of Income Data:
   Total revenues                                             $ 22,465,011             $  1,338,151
   Total expenses including tax benefit                       $ 13,590,292             $    901,830
   Net income                                                 $  8,874,719             $    436,321
Per Share Data:
   Basic and diluted earnings per share                       $       0.50             $       0.12
   Book value per share                                       $      13.63             $      13.57
   Market value per share                                     $      8.188             $     13.750
   Cash dividends per share                                   $       0.20             $       --

Actual number of ordinary shares outstanding                    16,046,740               18,568,440

Balance Sheet Data:
   Total investments                                          $546,806,744             $178,520,719
   Total assets                                               $856,634,487             $254,346,239
   Total liabilities                                          $637,973,406             $  2,286,060
   Total shareholders' equity                                 $218,661,081             $252,060,179
</TABLE>

Item 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

General

Scottish  Holdings is an insurance holding company, and our principal assets
include the ownership of Scottish Insurance, Harbourton and Scottish Annuity.
Scottish Holdings was  formed on May 12, 1998, and Scottish Insurance was formed
on June 3, 1998, under the laws of the Cayman Islands.  We commenced our
insurance operations on November 30, 1998, immediately following our IPO.
Harbourton was acquired effective as of September 30, 1999 and Scottish Annuity
was acquired on December 31, 1999.

                                                                               6
<PAGE>

Results of operations

The following table summarizes our net income:
<TABLE>
<CAPTION>
                                                                                             Period from
                                                                  Year ended               May 12, 1998* to
                                                               December 31, 1999           December 31, 1998
Revenues
<S>                                                        <C>                         <C>
  Net premium & reinsurance fees                                          $    21,311                  $        -
  Interest income, net                                                     24,068,240                   1,142,501
  Variable life fees                                                           21,438                           -
  Insurance administration fees                                               992,528                     209,886
  Realized losses on securities, net                                       (2,638,506)                    (14,236)
                                                         --------------------------------------------------------
        Total revenues                                                     22,465,011                   1,338,151
                                                         --------------------------------------------------------

Benefits and expenses
  Interest credited and other policy benefits                               7,200,135                           -
  Acquisition expenses and other insurance expenses                         2,225,613                           -
  Operating Expenses                                                        4,205,930                     901,830
                                                         --------------------------------------------------------
       Total benefits and expenses                                         13,631,678                     901,030
                                                         --------------------------------------------------------

                                                         --------------------------------------------------------
       Net income before benefit for
           federal income taxes                                             8,833,333                     436,321
                                                         --------------------------------------------------------
Benefit for federal income taxes
        Current                                                                    --                         --
        Deferred                                                              (41,386)                        --
                                                         --------------------------------------------------------
                                                                              (41,386)                        --
                                                         --------------------------------------------------------
        Net income                                                        $ 8,874,719                  $  436,321
                                                         ========================================================

Basic and diluted net income per oridnary share                                 $0.50                       $0.12
                                                         ========================================================
</TABLE>
*Date of incorporation

Overview

Our net income of $8,874,719 or $0.50 per share was driven by revenues
from our investment portfolio and insurance administration fees.  Our investment
income in 1999 included $14,344,530 earned on our surplus and $9,723,710 earned
in relation to our reinsurance activities.  Comparisons to the prior period are
not meaningful because of our limited period of operations after our November
1998 IPO.

Investments

Our investment portfolio is managed by two professional investment managers,
Prudential Investment Corporation and Gen Re. Our investment guidelines are
designed to diversify the portfolio to maximize investment income while
minimizing risk. At December 31, 1999, the portfolio had an average quality
rating of AA, an average duration of 2.98 years and an average book yield of
6.79%. At December 31, 1998, the portfolio had an average quality rating of AA+,
an average duration of 3.67 years and an average book yield of 5.50%. Our fixed
maturity portfolio increased from $178,520,719 to $546,806,744 principally as a
result of the reinsurance transactions and acquisition of Harbourton. The
duration of our portfolio was reduced from 3.67 years to 2.98 years as
investments of short duration were acquired to match the duration of liabilities
acquired through our reinsurance operations. The realized loss of $2,638,506
recorded for the year was due to portfolio restructuring. As at December 31,
1999 we had unrealized depreciation of $15.7 million, a result of the effect
of the current interest rate environment on our fixed income portfolio.

Insurance operations

Our business consists of two lines of business, variable life insurance and
annuities, and life and annuity reinsurance.  Prior to the acquisition of
Scottish Annuity, we provided a variety of insurance administration, accounting
and other services to Scottish Annuity.

During 1999, we wrote our first variable life insurance contracts and entered
into several reinsurance treaties.   The first treaty was a coinsurance
transaction involving group long term disability claims for which we have
established a reserve for policyholder benefits of approximately $104 million.
This transaction involves a closed block of existing claims that were in effect
as of June 1, 1999.  The block consists of approximately 1,500 claimants who are
receiving disability income payments.  No additional claimants may be added.
Further, our liability is limited to income benefit payments only and does not
include any health, medical or other types of payments.

Under our second reinsurance agreement, we contracted  to reinsure up to $400
million of group funding agreement business.  This transaction was structured so
that reserves would be transferred in four separate $100 million tranches.
Additionally, closing each tranch is subject to final approval by both parties.
We closed on the two first tranches in July and August.  Subsequently, in mutual
agreement with the ceding company, we elected to delay taking down the third and
fourth tranches.  This decision does not reflect the quality of the reinsured
business, but rather came as a result of adverse conditions in the overall
market that were outside our control and that of the ceding company.  As of

                                                                               7
<PAGE>

December 31, 1999, we have not taken down the third and fourth tranches.  As of
year end, the business reinsured has perfomed as we had expected and, if market
conditions permit, we will consider taking down the final two tranches.

On October 15, 1999 we closed our acquisition of Harbourton. Harbourton provides
us with a United States platform to write reinsurance business. Harbourton is
licensed in 15 states and the District of Columbia and is an authorized
reinsurer in an additional 8 states. Harbourton has approximately $83 million of
annuity reinsurance in force as of year end 1999. Subsequent to year end, we
have hired 26 reinsurance professionals to expand the reinsurance operations of
Harbourton. While we expect to write short duration annuity reinsurance business
in Harbourton, the principal focus of new business in Harbourton will be
traditional life reinsurance. In addition, we are in the process of changing the
name of Harbourton to "Scottish Re (U.S.), Inc.". We expect to have all required
regulatory approvals for the name change by the end of the second quarter of
2000.

In the fourth quarter we executed a letter of intent with Lincoln National Life
Insurance Company, under which, beginning in February 2000, Scottish Insurance
will reinsure a 50% share of the new fixed annuity business written by Lincoln
and sold through financial institutions. The business, which is managed by First
Penn-Pacific Life Insurance Company, is expected to generate $150 million of
reinsurance reserves during 2000. The treaty has subsequently been executed,
reinsuring business sold on or after February 15, 2000. However no assurance can
be given that these expectations can be achieved.

Effective December 31, 1999 we acquired ownership of Scottish Annuity, which has
approximately $250 million of variable annuity business.  We had previously
provided insurance administration and accounting services to Scottish Annuity
under an administration agreement.

Outlook

Our business consists of two lines of business, variable life insurance and
annuity products, and annuity and life reinsuance. Both lines of business are
designed to capitalize on our offshore location, which allows us to offer unique
product features and competive pricing. During the past year, we entered into
several reinsurance agreements and we are pricing and underwriting several more.
In addition, the variable products business is beginning to grow more rapidly as
we develop relationships with independent insurance brokers.

Capital Resources and Liquidity

At December 31, 1999, total capitalization was $218,661,081. In the third
quarter we completed a stock repurchase program. At its conclusion, we had
repurchased 2,529,700 shares for $24,999,234.

On October 15, 1999 we completed our acquisition of Harbourton for $25,183,372.
On December 31, 1999 we acquired Scottish Annuity for $11,601,464.  We currently
have no material commitments for capital expenditures and do not anticipate
incurring material indebtedness other than letters of credit, which may be
required in the ordinary course of our planned reinsurance business.

During the year, we paid quarterly dividends of $928,822 or $0.05 per share, to
the shareholders of record as at June 7, 1999 and September 6, 1999. We also
paid $802,337 or $0.05 per share to shareholders of record as at December 6,
1999.

We expect that our cash and investments, together with cash generated from our
businesses, will provide sufficient sources of liquidity and capital to meet our
needs for the next several years.  In addition, we have access to a combined $70
million through available lines and letters of credit, none of which have been
utilized to date.

Year 2000 Risk

Many computer programs used only two digits to identify a year in the date
field prior to December 31, 1999. These programs, if not corrected, could have
failed or created erroneous results by or at the year 2000. This "Year 2000"
Issue was believed to affect virtually all companies and organizations,
including us.  Because most of our computer hardware and software is less than
three years old, we believed that our exposure with respect to our own computer
systems to Year 2000-related problems was not significant, and we encountered no
Year 2000 related problems.  We are continuing to monitor our systems and those
of our primary suppliers of data.

Changes in Accounting Standards

The Financial Accounting Standards Board's Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities", was issued in June 1998 and
requires adoption no later than fiscal quarters of fiscal years beginning after
June 15, 2000. The new standard establishes accounting and reporting standards
for derivative instruments. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted

                                                                               8
<PAGE>

transaction. We have not yet completed our evaluation of the effect this
standard will have on us.  We do not currently own any securities that would be
subject to this statement.

Forward Looking Statements

Some of the statements contained in this report are not historical facts and are
forward-looking within the meaning of the Private Securities Litigation Reform
Act.  Forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the actual results to differ materially from
the forward-looking statements.  When used, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "plan," "intend" and similar
expressions identify forward-looking statements.  These forward-looking
statements involve risks and uncertainties including, but not limited to, the
following: our ability to execute the business plan; changes in the general
economic conditions including the performance of the financial markets and
interest rates; changes in insurance regulations or taxes; changes in rating
agency policy; the loss of key executives; trends in the insurance and
reinsurance industries; government regulations; trends that may affect our
financial condition or results of operations; and the declaration and payment of
dividends.  Potential investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties. Actual results may differ materially from those included within
the forward-looking statements as a result of various factors. Factors that
could cause or contribute to such differences include, but are not limited to,
those described in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and under the heading "Risk
Factors of Investing in our Ordinary Shares" set forth below. We assume no
obligation to update any forward-looking statement to reflect actual results or
changes in or additions to the factors affecting such forward-looking
statements.

RISK FACTORS OF INVESTING IN OUR ORDINARY SHARES

Investing in our Ordinary Shares involves a high degree of risk.  Potential
investors should consider carefully the following risk factors, in addition to
the other information set forth in this Form 10-K, prior to investing in the
Ordinary Shares.

When used, the words "may," "will," "expect," "anticipate," "continue,"
"estimate," "project," "plan," "intend" and similar expressions identify
forward-looking statements regarding among other things: (i) our business and
growth plans; (ii) our relationship with third-party service providers and
clients; (iii) trends in the insurance and reinsurance industries; (iv)
government regulations; (v) trends that may affect our financial condition or
results of operations; and (vi) the declaration and payment of dividends.
Potential investors are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties.
Actual results may differ materially from those included within the forward-
looking statements as a result of various factors.  Factors that could cause or
contribute to such differences include, but are not limited to, those described
below and under the heading "Management's Discussion and Analysis of Financial
Condition and Plan of Operations" and elsewhere in this Form 10-K.

Our Variable Life & Annuity Insurance Business Is Dependent Upon Referral
Sources.

We will not be successful in our variable life and annuity insurance business if
we cannot get clients from referrals by financial advisors, investment managers,
private bankers, attorneys and other intermediaries in the United States and
elsewhere. Since Scottish Insurance and Scottish Annuity are not licensed or
registered to do business in the U.S., these referral sources may not act as our
agent, nor can they be compensated by us for any activities in the U.S. As a
result, we cannot assure you that we will be able to effectively implement our
insurance plans.

We can, however, pay non-U.S. referral sources for activities undertaken outside
the U.S. We expect to compensate referral sources based on a percentage of the
revenue received from referrals.  Subject to any regulatory limitations, we may
provide referrals to persons or entities that provide referrals to us. We cannot
assure you that we will receive a significant amount of referrals or, if so,
that any referrals will result in actual sales of variable life and annuity
insurance policies.

Our Ability to Develop Our Reinsurance Business is Dependent Upon Building
Relationships.

We will not be successful in our non-traditional annuity and life reinsurance
businesses if we cannot develop business primarily through relationships with
reinsurance intermediaries, insurance consultants, members of the actuarial
profession and senior insurance company executives.

Our Reinsurance Business Targets a Competitive Market.

The Scottish Insurance business plan for reinsurance activities provides that
one of our principal targets is reinsuring blocks of in-force fixed annuities
issued by insurers that are no longer actively writing these contracts or that
want to lessen the reserve and capital requirements associated with these
contracts. Another principal target is reinsuring new issues of fixed annuities.
Reinsurance of new business can be used to increase capacity, lessen reserve and
capital requirements, improve the competativeness of the product, improve the
return to the insurance company, or some combination of the above.

                                                                               9
<PAGE>

The Harbourton business plan primarily targets reinsurance of mortality risk
associated with life insurance products issued by U.S. direct writers.  While
sales of life reinsurance have increased dramatically in recent years, the
market is also well-established and competitive.

As the business targets of both Scottish Insurance and Harbourton are addressed
by several domestic and international reinsurers, we cannot be certain that it
will meet our expectation.

Our Ability to Develop Our Business Plan is Dependent Upon Maintaining Our
Claims-Paying Ability Rating.

Potential purchasers of insurance policies, insurers, reinsurers and insurance
and reinsurance intermediaries use insurance ratings to assess the financial
strength and quality of insurers and reinsurers.  In addition, an unfavorable
rating or the lack of a rating will adversely affect a company purchasing
reinsurance.  Although Duff & Phelps has assigned Scottish Insurance and
Harbourton a claims-paying ability rating of "A" and A.M. Best has assigned both
companies a rating of "A-" (Excellent), we cannot assure you that we will be
able to maintain these ratings.  If we are unable to maintain these ratings, we
cannot assure you that we will be able to obtain similar claims-paying ability
ratings from other major rating agencies.

Changes in U.S. Tax Laws With Respect to Variable Annuities and Life Insurance
Could Adversely Affect Our Product Sales

The tax treatment afforded annuity and life insurance products (both variable
and non-variable) by United States tax law is in many respects more favorable
than the tax treatment of certain other investment alternatives, and is
therefore a primary competitive feature of such products. Any material change in
the current tax treatment of annuity or life insurance products, including the
imposition of a "flat tax" or national sales tax in lieu of the current United
States federal income tax structure, could adversely affect the market for
variable annuities or life insurance products. In addition, elimination of the
federal estate tax has been proposed from time to time. Were the federal estate
tax to be eliminated, the sale of life insurance products could be adversely
affected.

The Clinton Administration's Fiscal Year 2000 Budget Proposal contains
provisions that, if enacted into law, could adversely affect the sale of
variable products.  First, the Proposal would require the reporting of payments
of more than $10,000 made to entities in "identified tax havens."  It is not
known if the Cayman Islands will be treated as an identified tax haven, but if
so purchasers of variable policies issued by Scottish Insurance or Scottish
Annuity will be required to provide certain information to the IRS.

Second, the Proposal would require insurance companies to report to the IRS
items of income and gain with respect to a "private separate account."  Although
the reporting requirements that would be imposed under this proposal would
generally not apply to insurers that do not do business in the United States,
the proposal indicates that the IRS might take the position that a United States
taxpayer that is the owner of a variable contract that is based on a "private
separate account" (i.e., the separate account supports only a small number of
insurance or annuity contracts) will be treated as the owner of the assets held
in the separate account for federal income tax purposes.

Third, the Proposal would reduce or eliminate the tax advantages of
"corporate-owned life insurance."

Finally, the Proposal would eliminate the "Crummey" rule, pursuant to which
certain gifts to trusts for the payment of life insurance premiums are treated
as present interests that are eligible for the annual exclusion from the gift
tax. The elimination of this rule would eliminate the primary and most efficient
method of making premium payments by insurance trusts. Because we expect that
insurance trusts will purchase our variable life insurance policies, or such
policies will be contributed to trusts, to provide liquidity for estate taxes
and to effect the transfer of assets from one generation to another, adoption of
this proposal could adversely affect the sales of these policies, which could
adversely affect our results of operation and our financial condition.

In its most recent business plan, the IRS announced that it intends to issue
guidance as to whether an annuity that is issued by an insurer that is not an
"insurance company subject to tax under Subchapter L" (the provisions of the
United States Internal Revenue Code that apply to insurance companies that do
business in the United States) will be subject to the favorable tax treatment
generally afforded annuity contracts, or instead will be treated as "debt
instruments" that are not eligible for tax deferral.  Were the IRS to adopt a
rule or regulation treating annuities issued by Scottish Insurance or Scottish
Annuity, which do not do business in the United States, as debt instruments, the
market for such annuities could be adversely affected.

Governmental Regulation Could Adversely Affect Our Business.

Scottish Insurance and Scottish Annuity.

Scottish Insurance and Scottish Annuity are licensed as unrestricted Class B
insurers and are subject to regulation and supervision by the Cayman Islands
Monetary Authority. They are not registered or licensed to do business in any
jurisdiction in the United States or any other country. Generally, the sale of
insurance within a jurisdiction where the insurer is not admitted to do business
is prohibited. Under the operating guidelines, Scottish Insurance and Scottish
Annuity do not operate in the United States or, to the extent prohibited, in any
other country. We can give no assurance that inquiries or challenges to our
insurance activities will not be raised in the future. Scottish Insurance's
variable life insurance products have customized features that are not typically
available from a company subject to those laws. If Scottish Insurance were to
become subject to those laws, our business, results of operations and financial
condition would likely be materially adversely affected.

In the past, federal and state governments have proposed to regulate foreign
insurers. While none of these proposals has been adopted, we cannot assure you
that federal or state legislation will not be enacted subjecting our business to
supervision and regulation in the United States.

Our Reinsurance Business Could Be Adversely Affected By Uncertainties of Letters
of Credit or Other Collateral Amounts.

Because many jurisdictions do not allow insurance companies to take credit for
reinsurance obtained from unlicensed or non-admitted insurers on their statutory
financial statements unless appropriate security measures are in place, we
anticipate that our reinsurance clients will typically require us to post a
letter of credit or provide other collateral through a funds withheld or trust
arrangement.  If we are unable to obtain a letter of credit facility on
commercially acceptable terms or are unable to arrange for such other
collateral, our ability to operate our reinsurance business will be severely
limited.

                                                                              10
<PAGE>

Our Products Carry With Them Inherent Insurance Industry Risks And Risks
Specific to Our Business Plan.

Life Reinsurance--Mortality Risk.

The principal risk associated with our planned life reinsurance business is
mortality risk.  Harbourton will reinsure various forms of life insurance
products including term life, universal life and traditional life insurance.
Mortality risk typically is more stable when spread across large numbers of
insureds.  As our life reinsurance business grows, we will initially have a
relatively small number of lives covered and as a result, our mortality risk
exposure is likely to be larger, and our probability of loss less predictable,
than an insurer with a larger risk pool.  As a result, we cannot assure you that
our actual mortality experience will be consistent with our pricing expectation.
Mortality risk is also a factor in our variable life insurance product, however,
currently we reinsure 100% of the mortality risk on all variable life policies.

Fixed Annuity and Life Reinsurance--Investment Risk.

The principal risk associated with our fixed annuity reinsurance activities is
investment risk. Specifically, we are subject to the following risks:

      .  the risk that invested assets supporting the reinsured business will
         decrease in value;

      .  the credit risk that the continued ability of a given obligor to make
         timely payments of principal and interest;

      .  the risk that interest rates will decline and funds reinvested will
         earn less than expected; and

      .  the risk that we may have to sell assets at a loss to provide for
         policyholder withdrawals.

Universal life insurance and similar policies sensitive to interest rates
provide life insurance with adjustable rates of return based on applicable
interest rates in effect from time to time.  As a result, the risks with respect
to reinsuring those kinds of policies may also include investment risks similar
to those for fixed annuities.  In addition, like annuities, life insurance
policies and variable annuities are subject to surrender risk.

Reinsurance Business--Ceding Insurer Risk.

An additional risk associated with our reinsurance business is the risk that the
ceding insurer will be unable to pay to us amounts due because of its own
financial difficulties. We can give no assurance that the ceding insurers will
be able to pay amounts due to us, which could have a material adverse effect on
our business, results of operations or financial condition. In addition, we can
give no assurance that the ceding companies will maintain appropriate interest
crediting rates with respect to fixed annuities or interest rate-sensitive life
insurance policies.

Our Business is Dependent on Our Ability To Manage Risks In Our Investment
Activities.

Our fixed income investments are subject to the following two primary sources of
investment risk:

      .  credit risk, relating to the continued ability of a given obligor to
         make timely payments of principal and interest; and

      .  interest rate risk, relating to the market price and/or cash flow
         variability associated with changes in market interest rates.

We cannot assure you we will be able to effectively manage these risks.  If we
are unable to effectively manage these risks, our ability to support our planned
variable insurance and reinsurance businesses, and our results of operations and
financial condition, will be adversely affected.

In addition, under our investment guidelines, we can invest up to 15% of our
investment portfolio in below investment grade fixed income securities. While
any investment carries some risk, the risks of investing in lower-rated
securities are greater than the risks of investing in investment grade
securities.

In addition, we seek to invest the assets transferred to us to match our
anticipated reinsurance liabilities.  We expect to invest these assets in fixed
income and, to a lesser extent, equity securities.  We may invest in foreign
denominated securities to manage currency risk if the coinsurance transaction
involves foreign currency. We may also enter into interest rate swaps and other
hedging transactions in an effort to manage interest rate risks. We can not
assure you that we will successfully structure our investments so as to match
our anticipated reinsurance liabilities.  If our calculations are incorrect, or
if we improperly structure our investments to match these liabilities, we could
be forced to sell investments before they mature at a significant loss with the
result that our assets may not be adequate to meet our needed reserves, which
could adversely affect our business, results of operations and financial
condition.

                                                                              11
<PAGE>

Our Success May Be Affected by Foreign Currency Fluctuations.

Our functional currency is the United States dollar.  However, because a portion
of our planned business, including premiums, may be in currencies other than
United States dollars and because we may maintain a small portion of our
investment portfolio in investments denominated in currencies other than United
States dollars, we may have losses if we do not properly manage or otherwise
hedge, our currency risks.

We Have Limited Experience Competing With Established Companies in the Life
Insurance and Reinsurance Industry.

The life insurance and reinsurance industries are highly competitive and most of
the companies in these industries are significantly larger, have operating
histories and have access to significantly greater financial and other resources
than we do. We have limited experience competing with these companies.

Our Business Would Be Adversely Affected by the Imposition of or Increases in
United States Taxes.

As Cayman Islands companies, Scottish Insurance and Scottish Annuity, we operate
in a manner so that we are not subject to United States tax, other than
withholding tax on certain investment income from United States sources.
However, the Internal Revenue Service could contend that we are conducting
business in the United States. If the Internal Revenue Service were to prevail
in that contention, we would be subject to United States tax at regular
corporate rates on taxable income that is effectively connected with United
States business plus an additional 30% "branch profits" tax on the income
remaining after the regular tax, which could adversely affect our results of
operation.

Harbourton is a U.S. licensed insurance company and is therefore subject to
United States tax at regular corporate tax rates on taxable income.  Any
increase in United States taxes on income in Harbourton could adversely affect
our results of operation.



                                                                              12
<PAGE>

Insurance and reinsurance premiums that will be paid to Scottish Insurance and
Scottish Annuity will be subject to a U.S. excise tax to the extent the
underlying risks are located in the United States. In addition, our investment
income from United States sources could be subject to withholding tax. These
taxes could be increased and other taxes could be imposed on our business, which
could also adversely affect our results of operation.

Owners of Our Ordinary Shares May in Certain Circumstances Be Exposed to Adverse
Personal United States Tax Risks.

Controlled Foreign Corporation Rules.  Each "United States shareholder" of a
"controlled foreign corporation" who owns shares in the controlled foreign
corporation on the last day of its taxable year generally must include in his
gross income for United States federal income tax purposes his pro-rata share of
the controlled foreign corporation's "subpart F income," even if the subpart F
income has not been distributed.  For these purposes, any United States person
who owns directly or indirectly 10% or more of our ordinary shares will be
considered to be a "United States shareholder."  In general, a foreign insurance
company such as our subsidiary, Scottish Insurance, is treated as a controlled
foreign corporation only if such "United States shareholders" collectively own
more than 25% of the total combined voting power or total value of our stock for
an uninterrupted period of 30 days or more during any year.  We believe that,
because of the anticipated dispersion of our share ownership among holders and
because of the restrictions in our Articles of Association on transfer, issuance
or repurchase of our ordinary shares, our shareholders will not be subject to
treatment as "United States shareholders" of a controlled foreign corporation.
In addition, because under the Articles of Association no single shareholder
will be permitted to exercise 10% or more of our total combined voting power,
our shareholders should not be viewed as "United States shareholders'" of a
controlled foreign corporation for purposes of these rules. There can be no
assurance, however, that these rules will not apply to our shareholders.

Related Person Insurance Income Risks.  If our related person insurance income,
determined on a gross basis, were to equal or exceed 20% of our gross insurance
income in any taxable year, and direct or indirect insureds and persons related
to such insureds were directly or indirectly to own more than 20% of the voting
power or value of our capital stock, a United States person who directly or
indirectly owns our Ordinary Shares on the last day of the taxable year may be
required to include in his income for United States federal income tax purposes
the shareholder's pro-rata share of our related person insurance income for the
taxable year, determined as if this income were distributed proportionately to
the United States person at that date.  Related person insurance income is
generally underwriting premium and related investment income attributable to
insurance or reinsurance policies where the direct or indirect insureds are
United States shareholders or are related to United States shareholders of the
insurance company issuing the policies.

If we have related person insurance income, and all United States persons own
25% or more of the voting power or value of our shares, any shareholder who is a
United States person who owns 10% or more of our shares and disposes of the
shares would have any gain from the disposition generally treated as ordinary
income to the extent of the shareholder's portion of our undistributed earnings
and profits that were accumulated during the period that the shareholder owned
the shares. The shareholder also will be required to follow certain reporting
requirements, regardless of the amount of shares owned by the shareholder. These
rules should not apply to sales of our shares because we are not directly
engaged in the insurance business and because proposed United States Treasury
regulations applicable to this situation appear to apply only in the case of
shares of corporations that are directly engaged in the insurance business. We
can give no assurances however, that the IRS will interpret the proposed
regulations in this manner or that the proposed regulations will not be
promulgated in final form in a manner that would cause these rules to apply to
dispositions of Ordinary Shares.

Passive Foreign Investment Company Risks. You will have adverse United States
federal income tax consequences if we are deemed a "passive foreign investment
company."  In general, a foreign corporation is a passive foreign investment
company if 75% or more of its income constitutes "passive income" or 50% or more
of its assets produces passive income.  "Passive income" generally includes
interest, dividends and other investment income.  However, "passive income" does
not include income "derived in the active conduct of an insurance business by a
corporation which is predominantly engaged in an insurance business." This
exception is intended to ensure that income derived by a bona fide insurance
company is not treated as passive income, except to the extent this income is
attributable to financial reserves in excess of the reasonable needs of the
insurance business.  Because we intend to continue to be in the insurance
business and do not intend to have financial reserves in excess of the
reasonable needs of our insurance business, we do not expect to be a "passive
foreign investment company."  We can give no assurance, however, that the IRS or
a court will agree in this view.

Our Ability to Pay Dividends Is Dependent on the Success of Our Subsidiaries and
Regulatory Constraints.

We are a holding company engaged in the variable insurance and reinsurance
business through our wholly owned subsidiaries, Scottish Insurance, Scottish
Annuity, and Harbourton. Our principal source of income is  dividends paid to us
by our subsidiaries. The payment of dividends is at the discretion of our Board
of Directors and depends largely on the ability of our subsidiaries to pay
dividends to us. Scottish Insurance and Scottish Annuity are subject to Cayman
Islands regulatory constraints which also affect their ability to pay dividends
to us. Specifically, Scottish Insurance and Scottish Annuity must keep enough
capital to support its variable insurance and reinsurance businesses and comply
with restrictions under Cayman Islands insurance corporate law. Accordingly,
there is no assurance that dividends will be declared or paid in the future.

Our Articles of Association Contain Substantial Limitations on Ownership,
Transfers and Voting Rights.

Except as described below with respect to the purchase and sale of our shares on
the Nasdaq National Market, our Articles of Association require our directors to
decline to register any transfer of our shares if they believe that the transfer
would result in a person (or any group of which such person is a member)
beneficially owning, directly or indirectly, 10% or more of our outstanding
shares.  Similar restrictions apply to our issuance and repurchase of shares.
The directors also may, in their absolute discretion, decline to register the
transfer of any shares if they believe that the transfer may expose us, any
subsidiary or shareholder or any person insured or reinsured or proposing to be
insured or reinsured by us to adverse tax or regulatory treatment or if they
believe that registration of the transfer under any federal or state securities
law or under the laws of any other jurisdiction is required and the registration
has not been done.  A transferor of Ordinary Shares will be deemed to own the
shares for dividend, voting and reporting purposes until a transfer of the
shares has been registered on our Register of Members.  We are authorized to
request information from any holder or potential acquirer of our shares as
necessary and may decline to register any transaction if we do not receive
complete and accurate information.

Our directors will not decline to register any transfer of our shares executed
on the Nasdaq National Market.  However, if any transfer results in the
transferee (or any group) beneficially owning, directly or indirectly, 10% or
more of any class of shares or causes our directors to have reason to believe
that a transfer may expose us, any subsidiary or shareholder thereof or any
person insured or reinsured or proposing to be insured or reinsured to adverse
tax or regulatory treatment in any jurisdiction, under our Articles of
Association, the directors have the power to deliver a notice to the transferee
demanding that the transferee surrender to an agent, designated by the
directors, certificates representing the shares and any dividends or
distributions that the transferee has received as a result of owning the shares.
A transferee who has resold the shares before receiving this notice will be
required to transfer to the agent the proceeds of the sale, to the extent such
proceeds exceed the amount that the transferee paid for such shares, together
with any dividends or distributions that the transferee received from us.  As
soon as practicable after receiving the shares and any dividends or
distributions that the transferee received, the agent will use its best efforts
to sell the shares and any non-cash dividends or distributions to the extent
tradeable as market securities in an arm's-length transaction on the Nasdaq
National Market.  After applying the proceeds from such sale toward reimbursing
the transferee for the price paid for such shares, the agent will pay any
remaining proceeds and any cash dividends and distributions to organizations
described in Section 501(c)(3) of the Code that the directors designate.  The
proceeds of any such sale by the agent or the surrender of dividends  or
distributions will not inure to our benefit or the agent's benefit, but the
amounts may be used to reimburse expenses incurred by the agent in performing
its duties.

In addition, the Articles of Association generally provide that any person (or
any group) holding 10% or more of the total voting rights of all of our
outstanding capital shares, will have the voting rights of its voting shares
reduced so that the person (or group) may not exercise more than approximately
9.9% of the total voting rights.  Because of the attribution provisions of the
U.S. tax code and the rules of the Securities and Exchange Commission regarding
determination of beneficial ownership, this requirement may have the effect of
reducing the voting rights of a shareholder whether or not the shareholder
directly holds of record 10% or more of the voting shares.  The directors also
have the authority to request from any shareholder certain information for the
purpose of determining whether such shareholder's voting rights are to be
reduced.  If the shareholder fails to respond to the notice, or submits
incomplete or inaccurate information, the directors (or their designee) have the
discretion to disregard all votes attached to the shareholder's Ordinary Shares.

                                                                              13
<PAGE>

Our Articles of Association and Cayman Islands Confidentiality Laws Have Anti-
takeover Effects.

Our Articles of Association contain provisions that make it more difficult to
acquire control of us by means of a tender offer, open market purchase, a proxy
fight or otherwise, including by reason of the limitation on transfers of
Ordinary Shares and voting rights described above.  While these provisions are
designed to encourage persons seeking to acquire control to negotiate with our
Board of Directors, they could have the effect of discouraging a potential
purchaser from making a tender offer or otherwise attempting to obtain control.
Cayman Islands law restricts disclosure of, among other things, shareholder
lists.  Accordingly, such laws may make the acquisition of control by means of a
tender offer or proxy fight more difficult.

Item 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our qualitative discussion about market risk is contained in the following
sections:

      .  Business--Underwriting;

      .  Business--Investment Portfolio;

      .  Management's Discussion and Analysis of Financial Condition and Results
         of Operations;

      .  Risk Factors of Investing in Our Ordinary Shares--Our Products Carry
         With Them Inherent Industry Risks and Risks Specific to Our Business
         Plan;

      .  Risk Factors of Investing in Our Ordinary Shares--Our Business is
         Dependent on Our Ability to Manage Risks in Our Investment Activities;
         and

      .  Risk Factors of Investing in Our Ordinary Shares--Our Success May be
         Affected by Foreign Currency Fluctuations.

Quantitative

Market risk relates to those financial instruments that are sensitive to changes
in interest rates, foreign exchange rates and equity price. Scottish Holdings'
portfolio is principally composed of fixed maturity bond investments. These
investments, by their nature, are subject to market value changes in relation to
interest rate changes.

Interest Rate Risk

Scottish Holdings could incur losses on securities if it were required to
liquidate during periods of volatile movements in interest rates. The Company
attempts to mitigate its exposure to adverse interest rate movement through
asset/liability duration matching exercises, and by staggering the maturities of
its fixed income investments to assure sufficient liquidity to meet its
obligations and to address reinvestment risk considerations.

Sensitivity Anaylsis

Scottish Holdings regularly conducts various analyses to gauge the financial
impact of changes in interest rates on its financial condition.

Quantitative Disclosure of Interest Rate Risk

The following table represents a summary of the par values of the Company's
financial investments at their expected maturity dates, the weighted average
coupons by those maturity dates and the estimated fair value of those
instruments for the period ended December 31, 1999.  The expected maturity
categories take into consideration par amortization (for mortgage backed
securities), call features and sinking fund features.

The estimated market value of available-for-sale securities is based on bid
quotations from security dealers or on bid prices published in news quote
services.  December 31, 1999 market interest rates were used as discounting
rates in the estimation of fair value.

(Dollars in millions, except average interest rate)
<TABLE>
<CAPTION>
                                            Expected Maturity Date                             TOTAL
                                --------------------------------------------------             FAIR
Fixed Maturities (US $)         2000    2001    2002    2003    2004    Thereafter    TOTAL    VALUE
                                ----    ----    ----    ----    ----    ----------    -----    -----
<S>                            <C>     <C>     <C>     <C>     <C>      <C>          <C>      <C>
Principal Amount               19.14   38.85   37.04   43.87   46.12       377.09    562.11   546.81
Book Value                     19.11   38.87   37.21   43.84   46.25       377.61    562.89
Average Interest Rate (%)       6.55    7.06    6.66    6.65    6.68         7.12      6.99     7.62
</TABLE>

Item 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this item is set forth in "Item 14: Exhibits,
Financial Statements and Reports on Form 8-K".

Item 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
       FINANCIAL DISCLOSURE

There are no changes in or disagreements with accountants on accounting and
financial disclosure for the fiscal year ended December 31, 1999.

                                                                              14
<PAGE>

                                   PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

     The information required by this item 10 will be set forth in the Company's
Proxy Statement for its 2000 Annual Meeting of Shareholders (the "2000 Proxy
Statement") under the captions "Proposal for Election of Directors," "Principal
Shareholders and Management Ownership" and "Section 16(a) Beneficial Ownership
Reporting Compliance" and is incorporated herein by reference.

Item 11.  EXECUTIVE COMPENSATION

     The information required by this Item 11 will be set forth in the 2000
Proxy Statement under the captions "Management Compensation" and "Report on
Executive Compensation" and is incorporated herein by reference.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item 12 will be set forth in the 2000
Proxy Statement under the caption "Principal Shareholders and Management
Ownership" and is incorporated herein by reference.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item 13 will be set forth in the 2000
Proxy Statement under the caption "Certain Transactions" and is incorporated
herein by reference.

                                                                              15
<PAGE>

                                    PART IV

Item 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

  (a)  Documents filed as part of this report:

       (1)  Consolidated Financial Statements of Scottish Annuity & Life
            Holdings, Ltd.:
            Report of Management
            Report of Independent Auditors
            Consolidated Balance Sheets
            Consolidated Statements of Income
            Consolidated Statements of Comprehensive Loss
            Consolidated Statements of Shareholders' Equity
            Consolidated Statements of Cash Flows
            Notes to Consolidated Financial Statements

       (2)  Consolidated Financial Statement Schedules
            All financial statement schedules are omitted because they are
            either not applicable or the required information is included in the
            balance sheet or notes thereto appearing elsewhere in this
            Registration Statement.

       (3)  Exhibits

Except as otherwise indicated, the following Exhibits are filed herewith and
made a part hereof:

Exhibit
Number                                 Description of Document
-------     -----------------------------------------------------------------
  3.1       Memorandum of Association of the Company (incorporated herein by
            reference to Exhibit 3.1 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

  3.2       Articles of Association of the Company (incorporated herein by
            reference to Exhibit 3.2 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

  4.1       Specimen Ordinary Share Certificate (incorporated herein by
            reference to Exhibit 4.1 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

  4.2       Form of Amended and Restated Class A Warrant (incorporated herein by
            reference to Exhibit 4.2 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

  4.3       Form of Amended and Restated Class B Warrant (incorporated herein by
            reference to Exhibit 4.3 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

  4.4       Form of Securities Purchase Agreement for the Class A Warrants
            (incorporated herein by reference to Exhibit 3.2 to the Company's
            Registration Statement on Form S-1 filed with the Securities
            Exchange Commission on June 19, 1998, as amended).

  4.5       Form of Warrant Purchase Agreement for the Class B Warrants
            (incorporated herein by reference to Exhibit 4.5 to the Company's
            Registration Statement on Form S-1 filed with the Securities
            Exchange Commission on June 19, 1998, as amended).

  4.6       Form of Registration Rights Agreement for the Class A Warrants
            (incorporated herein by reference to Exhibit 4.6 to the Company's
            Registration Statement on Form S-1 filed with the Securities
            Exchange Commission on June 19, 1998, as amended).

  4.7       Form of Registration Rights Agreement for the Class B Warrants
            (incorporated herein by reference to Exhibit 4.7 to the Company's
            Registration Statement on Form S-1 filed with the Securities
            Exchange Commission on June 19, 1998, as amended).

  4.8       Form of Securities Purchase Agreement between the Company and the
            Shareholder Investors  (incorporated herein by reference to Exhibit
            4.10 to the Company's Registration Statement on Form S-1 filed with
            the Securities Exchange Commission on June 19, 1998, as amended).

  4.9       Form of Registration Rights Agreement between the Company and the
            Shareholder Investors  (incorporated herein by reference to Exhibit
            4.11 to the Company's Registration Statement on Form S-1 filed with
            the Securities Exchange Commission on June 19, 1998, as amended).

  4.10      Form of Securities Purchase Agreement between the Company and the
            Non-Shareholder Investors (incorporated herein by reference to
            Exhibit 4.12 to the Company's Registration Statement on Form S-1
            filed with the Securities Exchange Commission on June 19, 1998, as
            amended).

  4.11      Form of Registration Rights Agreement between the Company and the
            Non-Shareholder Investors (incorporated herein by reference to
            Exhibit 4.13 to the Company's Registration Statement on Form S-1
            filed with the Securities Exchange Commission on June 19, 1998, as
            amended).

  10.1      Employment Agreement dated June 18, 1998 between the Company and
            Michael C. French (incorporated herein by reference to Exhibit 10.1
            to the Company's Registration Statement on Form S-1 filed with the
            Securities Exchange Commission on June 19, 1998, as amended).

 10.2       Second Amended and Restated 1998 Stock Option Plan effective October
            22, 1998 (incorporated herein by reference to Exhibit 10.3 to the
            Company's Registration Statement on Form S-1 filed with the
            Securities Exchange Commission on June 19, 1998, as amended).

 10.3       Form of Stock Option Agreement in connection with 1998 Stock Option
            Plan (incorporated herein by reference to Exhibit 4.6 to the
            Company's Registration Statement on Form S-1 filed with the
            Securities Exchange Commission on June 19, 1998, as amended).

 10.4       Agreement dated June 30, 1998 between the Company and International
            Risk Management (Cayman) Ltd. (incorporated herein by reference to
            Exhibit 10.8 to the Company's Registration Statement on Form S-1
            filed with the Securities Exchange Commission on June 19, 1998, as
            amended).

 10.5       Amended and Restated Insurance Administration, Services and Referral
            Agreement dated as of October 1, 1998 between the Company and The
            Scottish Annuity Company (Cayman) Ltd. (incorporated herein by
            reference to Exhibit 10.9 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

 10.6       Employment Agreement dated July 20, 1998 between the Company and
            Henryk Sulikowski (incorporated herein by reference to Exhibit 10.10
            to the Company's Registration Statement on Form S-1 filed with the
            Securities Exchange Commission on June 19, 1998, as amended).

 10.7       Form of Indemnification Agreement between the Company and each of
            its directors and officers (incorporated herein by reference to
            Exhibit 10.12 to the Company's Registration Statement on Form S-1
            filed with the Securities Exchange Commission on June 19, 1998, as
            amended).

 10.8       Investment Management Agreement dated October 22, 1998 between the
            Company and Pacific Investment Management Company (incorporated
            herein by reference to Exhibit 10.13 to the Company's Registration
            Statement on Form S-1 filed with the Securities Exchange Commission
            on June 19, 1998, as amended).

 10.9       Investment Management Agreement dated October 22, 1998 between the
            Company and General Re-New England Asset Management, Inc.
            (incorporated herein by reference to Exhibit 10.14 to the Company's
            Registration Statement on Form S-1 filed with the Securities
            Exchange Commission on June 19, 1998, as amended).

 10.10      Agreement dated October 23, 1998 between the Company and Westport
            Partners (Bermuda), Ltd. (incorporated herein by reference to
            Exhibit 10.15 to the Company's Registration Statement on Form S-1
            filed with the Securities Exchange Commission on June 19, 1998, as
            amended).

 10.11      Investment Management Agreement dated October 22, 1998 between the
            Company and The Prudential Investment Corporation (incorporated
            herein by reference to Exhibit 10.16 to the Company's Registration
            Statement on Form S-1 filed with the Securities Exchange Commission
            on June 19, 1998, as amended).

 10.12      Form of Omnibus Registration Rights Agreement (incorporated herein
            by reference to Exhibit 10.17 to the Company's Registration
            Statement on Form S-1 filed with the Securities Exchange Commission
            on June 19, 1998, as amended).

 10.13      Investment Advisory Service between the Company and Prudential
            Securities Corporation (incorporated herein by reference to Exhibit
            10.15 to the Company's Registration Statement on Form 10-K filed
            with the Securities Exchange Commission on March 30, 1999).

 10.14      1999 Stock Option Plan.

 10.15      Form of Stock Options Agreement in connection with 1999 Stock Option
            Plan.

 10.16      Employment Agreement dated March 08, 2000 between the Company amd
            Scott E. Willkomm.

 21.1       Subsidiaries of Registrant.

 24.1       Powers of Attorney.

 27.1       Financial Data Schedule.


  (b)  Reports on Form 8-K

       (1)  The Company filed a Report on Form 8-K on November 1, 1999 to report
            that the Company acquired, through a wholly owned subsidiary, all of
            the issued and outstanding shares of common stock of Harbourton
            Reassurance, Inc.

       (2)  The Company filed a Report on Form 8-K/A on December 22, 1999 to
            file the financial statements of Harbourton Reassurance, Inc. and
            the Pro Forma Combined Condensed Financial Statements.






                                                                              16
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

                       Consolidated Financial Statements

 For the Year Ended December 31, 1999 and the Period from May 12, 1998 (date of
                      incorporation) to December 31, 1998
                      with Report of Independent Auditors

                                                                              17
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

                              Report of Management

Management of the Company has primary responsibility for preparing the
accompanying consolidated financial statements and for their integrity and
objectivity.  The consolidated financial statements included in this report were
prepared in accordance with accounting principles generally accepted in the
United States applied on a consistent basis. The consolidated financial
statements include amounts that are based on management's best estimates and
judgements. Management also prepared the other information presented in the
annual report and is responsible for its accuracy and consistency with the
consolidated financial statements.

Management of the Company has established and maintains a system of internal
controls designed to provide reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition and the prevention and detection of fraudulent
financial reporting.

The Company's consolidated financial statements have been audited by independent
auditors. The independent auditors had unrestricted access to each member of
management in conducting their audit. Management has made available to the
independent auditors all of the Company's financial records and related data, as
well as the minutes of shareholders' and directors' meetings. Management
believes that all representations made to the independent auditors during their
audits were valid and appropriate.

The Audit Committee of the Board of Directors is comprised of certain directors
who are neither employees nor officers of the Company. The Audit Committee meets
periodically with management and independent auditors regarding independent
audit scope, timing, results and to discuss other auditing and financial
reporting matters. The independent auditors have direct access to and meet
privately with the Audit Committee.



Scott Willkomm
President



Bruce J. Crozier
Senior Vice President
and Chief Financial Officer

                                                                              18
<PAGE>

                         Report of Independent Auditors


To the Shareholders and Board of Directors
Scottish Annuity & Life Holdings, Ltd.

We have audited the accompanying consolidated balance sheets of Scottish Annuity
& Life Holdings, Ltd. and subsidiaries (the "Company") as of December 31, 1999
and 1998, and the related consolidated statements of income, comprehensive loss,
shareholders' equity, and cash flows for the year ended December 31, 1999 and
for the period from May 12, 1998 (date of incorporation) through December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Scottish Annuity & Life Holdings, Ltd. and subsidiaries at December 31, 1999 and
1998, and the consolidated results of their operations and their cash flows for
the year ended December 31, 1999 and for the period from May 12, 1998 (date of
incorporation) to December 31, 1998 in conformity with accounting principles
generally accepted in the United States of America.


                                        /s/ Ernst & Young


George Town, Grand Cayman
British West Indies
March 22, 2000



                                                                              19
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

                          Consolidated Balance Sheets

                       (Stated in United States Dollars)
<TABLE>
<CAPTION>
                                                                 December 31
                                                             1999            1998
                                                        --------------  --------------
<S>                                                     <C>             <C>
Assets
Fixed maturity investments                               $546,806,744    $178,520,719
Cash and cash equivalents                                  29,000,653      69,610,299
Receivables:
   Reinsurance premiums                                       298,295               -
   Risk fees                                                  861,552               -
   Due from investment brokers                                109,891       3,060,543
   Accrued interest                                         5,554,355       2,883,009
   Policy loans                                               536,420               -
Deferred acquisition costs                                  1,919,528               -
Present value of inforce business                          10,619,599               -
Other assets                                                  740,116         271,669
Goodwill                                                      200,000               -
Deferred tax benefit                                        2,218,077               -
Current income tax receivable                                 196,905               -
Fixed assets and leasehold improvements, net                1,026,820               -
Segregated assets                                         256,545,532               -
                                                         ------------    ------------
   Total assets                                          $856,634,487    $254,346,239
                                                         ============    ============

Liabilities
Reserves for future policy benefits                      $365,478,762   $           -
Accounts payable and accrued expenses                       4,347,648       1,959,160
Due to related party                                       11,601,464         326,900
Segregated liabilities                                    256,545,532               -
                                                         ------------    ------------
   Total Liabilities                                      637,973,406       2,286,060

Shareholders' Equity
Share capital:
   Issued and fully paid: 16,046,740 ordinary shares
   (18,568,440 ordinary shares December 31,1998)
   par value $0.01 per share                                  160,467         185,684
   Additional paid in capital                             227,534,287     252,291,320
Accumulated other comprehensive loss
   Unrealized depreciation of investments                 (15,684,732)       (853,146)
Retained Earnings                                           6,651,059         436,321
                                                         ------------    ------------
   Total shareholders' equity                             218,661,081     252,060,179
                                                         ------------    ------------
   Total liabilities and shareholders' equity            $856,634,487    $254,346,239
                                                         ============    ============
</TABLE>

See accompanying notes to consolidated financial statements

                                                                              20
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

                       Consolidated Statements of Income

                       (Stated in United States Dollars)
<TABLE>
<CAPTION>


                                                  Year Ended       The Period
                                                 December 31,    Ended December
                                                     1999          31, 1998 *
                                                 -----------      -----------
<S>                                             <C>            <C>
Revenues
Investment income, net                           $24,068,240      $ 1,142,501
Insurance administration fees                        992,528          209,886
Variable life fees                                    21,438                -
Premiums and reinsurance fees, net                    21,311                -
Realized losses on securites, net                 (2,638,506)         (14,236)
                                                 -----------      -----------
  Total revenues                                  22,465,011        1,338,151
                                                 -----------      -----------

Benefits and expenses
Interest credited and other policy benefits        7,200,135                -
Acquisition costs & other insurance expenses       2,225,613                -
Operating expenses                                 4,205,930          901,830
                                                 -----------      -----------
  Total benefits and expenses                     13,631,678          901,830
                                                 -----------      -----------

 Net income before benefit                       -----------      -----------
  for federal income taxes                         8,833,333          436,321
                                                 -----------      -----------
Benefit for federal income taxes
  Current                                                  -                -
  Deferred                                           (41,386)               -
                                                 -----------      -----------
                                                     (41,386)               -
                                                 -----------      -----------
Net income                                       $ 8,874,719      $   436,321
                                                 ===========      ===========

Earnings per share

Basic and diluted net income                     $      0.50      $      0.12
                                                 ===========      ===========

</TABLE>
* the period from May 12, 1998 (date of incorporation) to December 31, 1998

See accompanying notes to consolidated financial statements

                                                                              21
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

                 Consolidated Statements of Comprehensive Loss

                       (Stated in United States Dollars)
<TABLE>
<CAPTION>

                                            Year Ended        The Period
                                           December 31,     Ended December
                                              1999            31, 1998 *
                                           ------------    ---------------
<S>                                        <C>            <C>
Net income                                 $  8,874,719        $ 436,321
Other comprehensive loss
 Unrealized depreciation on investments     (17,470,092)        (867,382)
 Add: reclassification adjustment
  for losses included in net income           2,638,506           14,236
                                           ------------        ---------
 Unrealized depreciation on investments     (14,831,586)        (853,146)
                                           ------------        ---------
Comprehensive loss                         $ (5,956,867)       $(416,825)
                                           ============        =========
</TABLE>
* the period from May 12, 1998 (date of incorporation) to December 31, 1998

See accompanying notes to consolidated financial statements

                                                                              22
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

                Consolidated Statements of Shareholders' Equity

                       (Stated in United States Dollars)
<TABLE>
<CAPTION>

                                             Year Ended      The Period
                                            December 31,    Ended December
                                                1999          31, 1998 *
                                            ------------     ------------
<S>                                         <C>            <C>
Share:
  Beginning of period                         18,568,440                -
  Issuance of founder shares                           -        1,500,000
  Repurchase of shares                        (2,529,700)      (1,100,000)
  Issuance to executive officers                   8,000                -
  Sales to direct investors                            -        1,418,440
  Initital public offering                             -       16,750,000
                                            ------------     ------------
  End of period                               16,046,740       18,568,440
                                            ============     ============
Share capital:
  Beginning of period                       $    185,684   $            -
  Issuance of founder shares                           -           15,000
  Repurchase of shares                           (25,297)         (11,000)
  Issuance to executive officers                      80                -
  Sales to direct investors                            -           14,184
  Initial public offering                              -          167,500
                                            ------------     ------------
  End of period                                  160,467          185,684
                                            ------------     ------------
Additional paid in capital:
  Beginning of period                        252,291,320                -
  Issuance of founder shares                           -          485,000
  Issuance of Class A warrants                         -          100,000
  Issuance of Class B warrants                         -          302,000
  Issuance of warrants                                 -           11,000
  Repurchase of shares                       (24,973,937)               -
  Issuance to executive officers                  87,920                -
  Sales to direct investors                            -       19,985,816
  Initial public offering                              -      231,407,504
  Issuance of equity options                     128,984                -
                                            ------------     ------------
End of period                                227,534,287      252,291,320
                                            ------------     ------------
Accumulated other comprehensive loss:
  Beginning of period                           (853,146)               -
  Unrealized depreciation on investments     (14,831,586)        (853,146)
                                            ------------     ------------
End of period                                (15,684,732)        (853,146)
                                            ------------     ------------
Retained earnings:
  Beginning of period                            436,321                -
  Net income                                   8,874,719          436,321
  Dividends paid                              (2,659,981)               -
                                            ------------     ------------
End of period                                  6,651,059          436,321
                                            ------------     ------------
Total shareholders' equity                  $218,661,081     $252,060,179
                                            ============     ============
</TABLE>

* the period from May 12, 1998 (date of incorporation) to December 31, 1998

See accompanying notes to consolidated financial statements

                                                                              23
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

                     Consolidated Statements of Cash Flows

                       (Stated in United States Dollars)
<TABLE>
<CAPTION>

                                                          Year Ended      The Period
                                                         December 31,   Ended December
                                                            1999          31, 1998 *
                                                        -------------   ---------------
<S>                                                     <C>             <C>
Operating activities
Net income                                              $   8,874,719    $     436,321
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
 Net realized losses on securities                          2,638,506           14,236
 Non cash salaries and professional fees                      128,984                -
 Depreciation                                                  94,856            1,598
 Amortization of deferred acquisition costs                   165,389                -
 Net change in policy benefit reserves                      1,097,944                -
 Changes in assets and liabilities, net of effects
  of acquisitions:
  Reinsurance premiums receivable                             230,766                -
  Policy loans                                                 26,199                -
  Other receivables                                           279,306       (5,943,552)
  Deferred acquisition costs                               (2,084,917)               -
  Other assets                                               (464,788)        (271,669)
  Goodwill                                                   (200,000)               -
  Deferred tax benefit                                        (41,386)               -
  Accounts payable and accrued expenses                    (2,588,719)       1,959,160
  Due to related party                                     11,274,564          326,900
                                                        -------------    -------------
Net cash provided by (used in) operating activities        19,431,423       (3,477,006)
                                                        -------------    -------------
Investing Activities
Cash acquired, net of payments for acquisitions            60,939,073                -
Purchase of securities                                   (846,767,542)    (179,388,101)
Proceeds on sales of securities                           475,246,053                -
Purchase of fixed assets & leasehold improvements          (1,121,676)          (1,598)
                                                        -------------    -------------
Net cash used in investing activities                    (311,704,092)    (179,389,699)
                                                        -------------    -------------
Financing activities
Deposits to insurance accounts                            305,653,734                -
Withdrawals from insurance accounts                       (26,419,496)               -
Issuance of company stock                                      88,000                -
Net cost of repurchase of company stock                   (24,999,234)               -
Dividends paid                                             (2,659,981)               -
Issuance of share capital                                           -      252,075,004
Issuance of Class A warrants                                        -          100,000
Issuance of Class B warrants                                        -          302,000
                                                        -------------    -------------
Net cash provided by financing activities                 251,663,023      252,477,004
                                                        -------------    -------------
Net change in cash and cash equivalents                   (40,609,646)      69,610,299
Cash and cash equivalents, beginning of period             69,610,299                -
                                                        -------------    -------------
Cash and cash equivalents, end of period                $  29,000,653    $  69,610,299
                                                        =============    =============
</TABLE>
* the period from May 12, 1998 (date of incorporation) to December 31, 1998

See accompanying notes to consolidated financial statements

                                                                              24
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

                   Notes to Consolidated Financial Statements

                               December 31, 1999

1.   Organization, business, and basis of presentation

Organization

Scottish Annuity & Life Holdings, Ltd. ("Scottish Holdings") was incorporated as
an exempted company with limited liability on May 12, 1998 under the laws of the
Cayman Islands. Scottish Holdings has been organized to provide annuity
contracts and insurance policies, as discussed below, through its wholly-owned
subsidiaries, Scottish Annuity & Life Insurance Company (Cayman) Ltd. ("Scottish
Insurance"), The Scottish Annuity Company (Cayman) Ltd. ("Scottish Annuity"),
Scottish Holdings, Inc. ("SHI"), and Harbourton Reassurance, Inc. ("Harbourton")
(collectively referred to as the "Company", and additionally referred to as
"we", "our", and "us").  Prior to June 24, 1998, Scottish Holdings, Ltd.
("SHL"), a Cayman Islands company, owned all Ordinary Shares of Scottish
Holdings.  On July 8, 1998, Scottish Insurance received an unrestricted Class
'B' insurer's license under the insurance laws of the Cayman Islands.  Scottish
Holdings' initial public offering of its Ordinary Shares (the "IPO") was
completed on November 30, 1998. Scottish Annuity was acquired by Scottish
Holdings on December 31, 1999.  The Company operates as an insurance company
and engages in writing deferred variable annuities with a fixed annuity option
with persons who are not resident in the Cayman Islands. Scottish Annuity also
operates under the provision of an unrestricted Class `B' insurer's license
under the insurance laws of the Cayman Islands. Scottish Holdings also acquired
Harbourton (a U.S. based reinsurer) effective on September 30, 1999. Harbourton
provides us with a United States platform to write insurance business.
Harbourton is licensed in 15 states and the District of Columbia and is an
authorized reinsurer in an additional 8 states.

Business

Our business activities currently consists of fee income from the administration
of variable annuities for Scottish Annuity (prior to its acquistion) and
includes life and annuity reinsurance and sales of variable life insurance
policies.

Variable life insurance is a separate account product where the net premium is
placed in a separate account for the policyholder that is not subject to the
claims of the Company's general creditors. Our product is targeted towards high
net worth individuals or families generally worth more than $10 million. A
private money manager manages the cash values. We do not provide any investment
management or advisory services to any individual variable life policyholder. We
also offer variable life insurance products to corporate customers in the form
of corporate owned life insurance, bank owned life insurance, and trust-owned
life insurance. These types of policies are primarily used in connection with
certain deferred compensation and bonus plans for executives. We also offer
variable life insurance policies under a group policy that is owned by an
employer to fund employee benefits.

Traditional reinsurance of life and annuity business is an arrangement under
which an insurance company (the reinsurer) agrees to insure (assume risks of)
another insurance company (the ceding company or cedent) for all or a portion of
the insurance underwritten by the ceding company. Our reinsurance activities
primarily focus on group and individual life and annuity type contracts.

Basis of presentation

Accounting Principles - Our consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP") and all amounts are reported in United States dollars.  We
follow the accounting standards established by the Financial Accounting
Standards Board and the American Institute of Certified Public Accountants.

Consolidation - We consolidate our results and have eliminated all significant
intercompany transactions.

                                                                              25
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (Continued)

1. Organization, business, and basis of presentation (continued)

Estimates, risks and uncertainties - The preparation of consolidated financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported on the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Our most significant assumptions are for assumed reinsurance
liabilities. We review and revise these estimates as appropriate. Any
adjustments made to these estimates are reflected in the period the estimates
are revised.

2.    Summary of significant accounting policies

As previously stated the consolidated financial statements are prepared in
accordance with GAAP.  The following are the significant accounting policies
adopted by the Company:

Investments - Fixed maturities are classified as available for sale, and
accordingly, we carry these investments at fair values on our consolidated
balance sheets.  The cost of fixed maturities is adjusted for prepayments and
the amortization of premiums and discounts.  The unrealized appreciation
(depreciation) is the difference between fair value and amortized cost and is
recorded directly to equity with no impact to net income.  The change in
unrealized appreciation (depreciation) is included in accumulated other
comprehensive loss, unrealized depreciation on investments.

Short-term investments are carried at cost, which approximates fair value.

Realized gains (losses) on securities are determined on a specific
identification method which means that we track the cost of each security
purchased so that we are able to identify and record a gain or loss when it is
subsequently sold.  In addition, declines in fair value that are determined to
be other than temporary are included in realized gains (losses).

Investment transactions are accounted for on a trade date basis.  Interest is
recorded on the accrual basis.

Insurance administration fees - We collected insurance administration fees for
the administration of a variable annuity book of business, which was written by
Scottish Annuity.  These fees are recognized ratably over the year based on the
fair value of the underlying investments.  (See note 11 for further discussion.)

Due from brokers - Due from brokers includes amounts receivable from our brokers
for investment transactions that have not settled at year end.

Organizational and offering expenses - All formation and organization costs
incurred have been expensed in the period ending December 31, 1998. All offering
costs incurred in connection with the IPO, including certain amounts payable for
investment banking and financial advisory services, have been deducted from the
gross proceeds of the IPO.

Cash and cash equivalents - Cash and cash equivalents include fixed deposits
with an original maturity, when purchased, of three months or less. Cash and
cash equivalents are recorded at face value, which approximates fair value.

Policy revenues and related expenses - Our policy revenues are generated from
reinsurance and variable life activities. The reinsurance revenues are derived
from interest sensitive life products and traditional life reinsurance. The
premium on interest sensitive products is reported as a deposit on the
consolidated balance sheet with a corresponding liability.  Revenues are
reported periodically for the mortality, policy administration and surrender
charges.  The related policy benefits and claims expenses include benefit claims
incurred in excess of deposits and interest credited to the policyholder for the
period.  The premiums from traditional reinsurance transactions are included in
revenues over the premium paying period of the underlying policies.  The related
policy benefits and expenses are provided against the revenues to recognize
profits over the estimated lives of the policies. Variable life insurance
policies are also interest sensitive products and are reported like the
reinsurance interest rate sensitive products except that the assets are reported
in a separate account for the benefit of the policyholder.

                                                                              26
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (Continued)

2. Summary of significant accounting policies (continued)

Deferred policy acquisition costs - The costs of acquiring new business such as
commissions, certain internal expenses related to policy issuance and
underwriting departments, and certain variable selling expenses are capitalized
and amortized in future periods.  For variable life insurance and reinsurance of
investment type fixed annuity contracts and reinsured variable annuity
contracts, deferred policy acquisition costs will be amortized over the expected
average life of the contracts as a constant percentage of the present value of
estimated gross profits arising principally from investment results, mortality
and expense margins, and surrender charges based on historical and anticipated
future experience, which will be updated at the end of each accounting period.
In computing amortization, interest will accrue to the unamortized balance of
capitalized acquisition costs at the rate used to discount expected gross
profits.

The effect on the amortization of deferred policy acquisition costs of revisions
to estimated gross profits will be reflected in earnings in the period such
estimated gross profits are revised.

For reinsured fixed immediate annuity policies and traditional life insurance
contracts, deferred policy acquisition costs are charged to expense using
assumptions consistent with those used in computing policy reserves. Assumptions
as to anticipated premiums are estimated at the date of the policy issuance and
are consistently applied during the life of the policies. Deviations from
estimated experience are reflected in earnings in the period such deviations
occur. For these policies, the amortization periods generally are for the
estimated lives of the policies.

When the liabilities for future policy benefits plus the present value of
expected future gross premiums for a policy are insufficient to provide for
expected future benefits and expenses for that policy, a premium deficiency
reserve will be established by a charge to income.

Present value of inforce business - The present value of the inforce business
will be amortized over the expected life of the business at the time of
acquisition. The amortization each year will be a function of the gross profits
each year in relation to the total gross profits expected over the life of the
business, discounted at the assumed net credit rate.

Fixed assets and leasehold improvements - Fixed assets and leasehold
improvements are recorded at cost and are depreciated over their estimated
useful lives using the straight-line method.

Policyholders' benefit liabilities - The liabilities for interest sensitive
products equal the accumulated account values of the policies or contracts as of
the valuation date.

Liabilities for future benefits under traditional life insurance contracts
reinsured are estimated using actuarial assumptions for mortality, morbidity,
terminations, investment yields, and expenses applicable at the time the
insurance contracts were entered into. Benefit liabilities for fixed annuities
during the accumulation period equal their account values and, after
annuitization equal the accumulated present value of expected future payments.

Separate account assets and liabilities - Separate account investments are
recorded at the net asset values of the underlying funds invested in plus
separate cash and cash equivalent balances, less separate account fees payable
to the Company. The funds in the separated accounts are not part of the
Company's general funds and are not available to meet the general obligations of
the Company.

Separate account liabilities are the amounts set aside to pay the deferred
variable annuities. They consist of the initial premiums paid after
consideration of the net investment gains/losses attributable to each separate
account, less fees and withdrawals.

Separate account fees - Scottish Annuity charges separate account fees quarterly
in advance. Such fees are recognized into income ratably. Separate account fees
consist of Mortality, Expense and Distributions Risk Charges, Set-Up, and
Maintenance and Supervisory Fees based on total assets in each contract holder's
separate account. During 1996, Scottish Annuity ceased charging Maintenance and
Supervisory Fees to substanially all contract holders and added an annual flat
fee for contract administration. In addition, a contract holder may be charged a
fee upon a partial or total surrender of the policy.

Fair value of financial instruments - The fair value of the consolidated balance
sheets which qualify as financial instruments under Statement of Financial
Accounting Standards ("SFAS") No. 107 "Disclosure About Fair Value of Financial
Instruments", approximates the carrying amount presented in the consolidated
financial statements.

                                                                              27
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (Continued)

2. Summary of significant accounting policies (continued)

Accounting Standards - The Financial Accounting Standards Board has issued the
following accounting standard that will affect us.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June 1998 and requires adoption no later than fiscal quarters of
fiscal years beginning after June 15, 2000. The new standard establishes
accounting and reporting standards for derivative instruments. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction.

We have not yet completed our evaluation of the effect this standard will have
on us.

3.   Business Acquisitions

SHI, a wholly owned subsidiary was formed on August 18, 1999, for the sole
purpose of the purchase of Harbourton for a purchase price of $25,183,372.  This
transaction provides us with a United States platform to write insurance
business. Harbourton is licensed in 15 states and the District of Columbia and
is an authorized reinsurer in an additional 8 states.

On December 31, 1999, Scottish Holdings entered into an agreement with SHL to
purchase all the outstanding shares of Scottish Annuity. Scottish Holdings paid
SHL $11,601,464, subject to adjustment for the value of its net assets per its
year end audited financial statements. Scottish Annuity operates as a life
insurance company and engages in writing deferred variable annuities with a
fixed annuity option with persons who are not resident in the Cayman Islands. It
does not provide any investment management or advisory services.

The acquisitions described above were accounted for by the purchase method of
accounting. In accordance with Accounting Principles Board ("APB") Opinion No.
16, "Business Combinations", the accompanying consolidated statements of
income do not include any revenues or expenses related to these acquisitions
prior to the respective closing dates.

The following unaudited consolidated pro forma information utilizes our audited
information for 1999 and 1998 and unaudited information for Scottish Annuity and
Harbourton for the same periods.  The proforma data assumes that both
acquisitions had occurred on January 1, 1999 and May 12, 1998 respectively.
<TABLE>
<CAPTION>
                                                 Year ended December     Period from May 12, 1998* to
                                                      31, 1999               December 31, 1998
                                             --------------------------------------------------------
<S>                                            <C>                      <C>
Revenues                                           $        25,661,173             $       5,899,127
Net income (loss)                                  $         5,859,259             $      (2,124,277)
Net income (loss) per share                        $              0.33             $           (0.59)
</TABLE>

* Date of incorporation

These unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
would have actually resulted had the acquisitions been in effect on January 1,
1999 or May 12, 1998 or of future results of operations.

4.   Information Concerning Business Segments

We record segmental reporting in accordance with SFAS No.131 "Disclosures about
Segments of an Enterprise and Related Information". The reportable lines of
business offer different products and services. The Company's main lines of
business are Reinsurance and Variable Products. Reinsurance and Variable
Products activities have been defined in Note 1.

                                                                              28
<PAGE>

                     Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (Continued)

4.   Information Concerning Business Segments (continued)

The segmental reporting for the lines of business is as follows:

<TABLE>
<CAPTION>

                                                                              December 31, 1999
                                                -------------------------------------------------------------------------------
                                                                      Variable
                                                   Reinsurance         Products            Other                 Total
                                                -------------------------------------------------------------------------------
<S>                                             <C>                 <C>                <C>                    <C>
REVENUES
Premiums and reinsurance fees, net              $     21,311         $        -        $          -           $     21,311
Investment income, net                             9,723,710                  -          14,344,530             24,068,240
Realized gains (losses) on securities                191,213                  -          (2,829,719)            (2,638,506)
Variable products fees                                     -             21,438                   -                 21,438
Insurance administration fees                              -            992,528                   -                992,528
                                                -------------------------------------------------------------------------------
        Total revenues                             9,936,234          1,013,966          11,514,811             22,465,011

BENEFITS AND EXPENSES
Interest credited and other policy benefits        7,200,135                  -                   -              7,200,135
Acquisition costs and other
 insurance expenses                                1,905,048            320,565                   -              2,225,613
Operating expenses                                    70,854             10,519           4,124,557              4,205,930
                                                -------------------------------------------------------------------------------
        Total benefits and expenses                9,176,037            331,084           4,124,557             13,631,678
Benefit for federal income taxes
  Current                                                  -                  -                   -                      -
  Deferred                                           (41,386)                 -                   -                (41,386)
                                                -------------------------------------------------------------------------------
        Net income                              $    801,583         $  682,882        $  7,390,254           $  8,874,719
                                                ===============================================================================
</TABLE>

Our activities for the period ended December 31, 1998 were limited to investment
income on capital and operating expenses not specifically allocated to a line of
business and therefore, no comparative information has been provided. For 1999,
the "Other" category includes investment income and realized losses on capital
and operating expenses not specifically allocated to a line of business.

Assets as of December 31, 1999 for the Reinsurance and Variable Products lines
of business were $407,057,362 and $268,174,719, respectively. Assets of
$181,402,406 were not specifically allocated to a line of business. Deferred
acquisition costs for the Reinsurance line was $1,851,893 and for the Variable
line was $67,635. Present value of inforce business for the Reinsurance line was
$119,599 and for the Variable line was $10,500,000. Reserves for future policy
benefits relate to the Reinsurance line of business. Segregated assets and
liabilities relate to the Variable Products line of business. As of December 31,
1998, all assets and liabilities were not specifically allocated to a line of
business.

5.   Earnings per Ordinary Share

We calculate earnings per ordinary share in accordance with SFAS No. 128
"Earnings per Share" (EPS).  Basic EPS excludes the dilutive effect of options
and warrants.  Diluted EPS includes the dilutive effect of these securities
under the treasury stock method.

The weighted-average number of shares is determined by the number of days the
shares have been outstanding over the accounting period.

The dilutive impact of our warrants and options is not material and therefore,
has no effect on EPS.

                                                                              29
<PAGE>

                    Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (Continued)

5.  Earnings per Ordinary Shares (continued)

<TABLE>
<CAPTION>
                                                                        Year Ended                Period
                                                                         December             ended December
                                                                         31, 1999               31, 1998*
                                                                      ----------------------------------------
<S>                                                                   <C>                   <C>
Net income                                                              $  8,874,719         $   436,321

Weighted average number of shares outstanding                             17,919,683           3,586,788
Basic and diluted net income per ordinary share                         $       0.50         $      0.12

Actual shares outstanding                                                 16,046,740          18,568,440

</TABLE>
*  the period from May 12, 1998 (date of incorporation) to December 31, 1998

At December 31, 1998, the Company had a relatively small number of shares
outstanding from the date of incorporation through the initial public offering
on November 30, 1998.  As a result, the weighted average number of shares
outstanding for the period ended December 31, 1998 and the related EPS are not
meaningful, in the opinion of management.

6.   Fixed Maturities

The amortized cost, gross unrealized appreciation and depreciation, and
estimated fair values of our fixed maturity investments are as follows:

<TABLE>
<CAPTION>
                                                                December 31, 1999

                                                        Gross Unrealized    Gross Unrealized   Estimated Fair
                                      Amortized Cost      Appreciation         Depreciation        Value
                                      ----------------------------------------------------------------------
<S>                                   <C>                    <C>              <C>             <C>
U.S. treasury securities and
 obligations of U.S. government
 agencies                              $ 21,375,543           $     646       $ (2,072,729)    $  19,303,460

U.S. corporate securities               190,641,123             112,606         (7,226,609)      183,527,120
Mortgage and asset backed
 securities                             350,474,810             113,767         (6,612,413)      343,976,164
                                      -----------------------------------------------------------------------
                                      $ 562,491,476           $ 227,019       $(15,911,751)    $ 546,806,744
                                      =======================================================================

                                                                December 31, 1998

                                                        Gross Unrealized    Gross Unrealized   Estimated Fair
                                      Amortized Cost      Appreciation         Depreciation        Value
                                      ----------------------------------------------------------------------
U.S. treasury securities and
 obligations of U.S. government
 agencies                              $ 77,060,078           $     885       $   (632,945)    $  76,428,018

U.S. corporate securities                64,174,716             106,203           (256,058)       64,024,861
Mortgage and asset backed
 securities                              38,139,071              23,992            (95,223)       38,067,840
                                      -----------------------------------------------------------------------
                                      $ 179,373,865           $ 131,080       $   (984,226)    $ 178,520,719
                                      =======================================================================
</TABLE>

                                                                              30
<PAGE>

                    Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (Continued)

6.    Fixed Maturities (continued)

The contractual maturities of the fixed maturities are as follows.  Actual
maturities may differ as a result of calls and prepayments.

<TABLE>
<CAPTION>
                                                       December 31, 1999
                                             -----------------------------------
                                                Amortized          Estimated
                                                   Cost           Fair Value
                                             -----------------------------------
<S>                                          <C>                <C>
Due in one year or less                      $    4,196,759       $   4,200,585
Due in one year through five years              102,304,343         100,215,581
Due in five years through ten years              79,773,425          75,975,816
Due after ten years                              25,742,139          22,438,598
                                             -----------------------------------
                                                212,016,666         202,830,580
Mortgage and asset backed securities            350,474,810         343,976,164
                                             -----------------------------------
                                             $  562,491,476       $ 546,806,744
                                             ===================================

                                                       December 31, 1998
                                             -----------------------------------
                                                Amortized          Estimated
                                                   Cost            Fair Value
                                             -----------------------------------
Due in one year or less                      $    2,500,000       $   2,500,000
Due in one year through five years               77,113,324          76,730,208
Due in five years through ten years              30,084,831          30,049,753
Due after ten years                              31,536,639          31,172,918
                                             -----------------------------------
                                                141,234,794         140,452,879
Mortgage and asset backed securities             38,139,071          38,067,840
                                             -----------------------------------
                                             $  179,373,865       $ 178,520,719
                                             ===================================
</TABLE>

Gross gains and gross losses for the periods are as follows:

<TABLE>
<CAPTION>
                                              Year Ended
                                              December 31,    Period from May 12, 1998*
                                                 1999          to December 31, 1998
                                            --------------    -------------------------
<S>                                         <C>                <C>
Gross realized gains                        $    765,011          $     88,368
Gross realized losses                       $  3,403,517          $    102,604
</TABLE>
* Date of incorporation

At December 31, 1999 and 1998, investments owned by the Company for which no
readily available market quotation exists were valued at $8,647,037 and $nil,
respectively. Our investment manager obtains prices for these investments from a
third party source. The realizable value of the securities may differ from the
amount recorded in the consolidated balance sheets.

7.  Present Value of Inforce Business

Total amortization of the present value of inforce business was $ nil for the
year ended December 31, 1999 and $ nil for the period ended December 31, 1998.
Based on the amortization method and expected gross profits, the following chart
provides the percentage of the present value of inforce business that we expect
to amortize each year for the next 5 years:

<TABLE>
<CAPTION>
                                Percent Amortized
                Year            In the Year
                ----            -----------------
                <S>             <C>
                2000                    0.64%
                2001                    1.96%
                2002                    3.41%
                2003                    5.13%
                2004                    7.18%
</TABLE>

8.  Reserves

Activity in the liability for unpaid claims and claim adjustment expense is
summarized below.
<TABLE>
<CAPTION>
                                                        Year Ended
                                                        December 31,
                                                            1999
                                                        ------------
<S>                                                     <C>
Balance at the beginning of the year                    $         -
Liabilities assumed                                      105,653,734
                                                        ------------
                                                         105,653,734
                                                        ------------
Adjustments to reserves                                   (1,861,689)
Amortization of discount                                   3,497,514
                                                        ------------
Total incurred liabilities                                 1,635,825
                                                        ------------
                                                         107,289,559
Benefits paid in the current year                         12,133,782
                                                        ------------
Balance at the end of the year                          $ 95,155,777
                                                        ============
</TABLE>

During the year, the Company reinsured a closed block of long-term disability
claims. Our adjustment to reserves reflects changes in the estimates underlying
the initial reserves and improvements in our case management.

As of December 31, 1999, the unpaid claims and claim adjustment liability for
these contracts is included in reserves for future policy benefits.

We had no reserves for future policy benefits for the period ended December 31,
1998.

The Company has entered into a reinsurance funding agreement that features put
options for the ultimate insureds. If executed, these options would require the
Company to repay liabilities within seven or thirty days. Total liabilities
subject to the put options total $185,714,286. The Company holds marketable
securities to meet these obligations.

9.  Shareholders' Equity

Effective June 24, 1998, SHL transferred to its shareholders all of its ordinary
shares in Scottish Holdings by way of a distribution.  On October 22, 1998, we
paid nominal consideration and issued 900,000 Class A warrants to reacquire and
cancel 1,100,000 of our issued and outstanding ordinary shares.

On November 30, 1998, we closed our IPO of 16,750,000 ordinary shares for
proceeds received net of underwriting discounts and commissions totaling
$235,375,000. Simultaneous with the initial closing of the IPO, direct sales of
1,418,440 ordinary shares and 400,000 Class A warrants were made to Direct
Investors for net proceeds of $20,000,000.

                                                                              31
<PAGE>

                    Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (Continued)

9.  Shareholders' Equity (continued)

Common shares

We are authorized to issue 100,000,000 ordinary shares of par value $0.01 each.

At December 31, 1998, 18,568,440 ordinary shares were outstanding. In January
1999, 8,000 shares were issued as non-monetary compensation to an executive
officer.

On September 1, 1999, it was agreed by the directors of the Company to enter
into a share repurchase program. This was completed November 2, 1999, resulting
in 2,529,700 shares being repurchased for a total amount of $24,999,234.

As at December 31, 1999, 16,046,740 ordinary shares were outstanding.

Preferred shares

We are authorized to issue 50,000,000 preferred shares of par value $0.01 each.
At the balance sheet dates there were no preferred shares issued or outstanding.

Warrants

In connection with our initial capitalization, we issued Class A warrants to
purchase an aggregate of 1,550,000 ordinary shares to related parties. The
aggregate consideration of $100,000 paid for these warrants is reflected as
additional paid-in-capital.  The Class A warrants were issued on June 9, 1998 at
the initial stage of the development of our business plan when the feasibility
of proceeding with the offering was uncertain. The consideration paid for the
Class A warrants was determined to be fair value in the judgement of management
in light of such uncertainty.  Effective September 3, 1998, the Class A warrant
agreements were superseded by Amended and Restated Class A warrant agreements
with no material impact on the operation of the agreements. The exercise price
of the Class A warrants is $15 per share of the Company's ordinary shares.  The
Class A warrants become exercisable in equal amounts over a three-year period
commencing on the first anniversary of the consummation of the Offering.  The
Class A warrants will expire on the tenth anniversary of the consummation of the
Offering.

We entered into Warrant Purchase Agreements whereby The Roman Arch Fund L.P. and
The Roman Arch Fund II L.P. purchased an aggregate of 200,000 Class B warrants
for an aggregate purchase price of $302,000 which is reflected as additional
paid-in-capital. Class B Warrants are exercisable at  $15 per ordinary share, in
equal amounts over a three-year period commencing one year after the Offering
and expire ten years after the consummation of the Offering.  Management is of
the view that the agreed sale price of the Class B Warrants represented fair
value at the time of purchase. The Roman Arch Fund L.P. and the Roman Arch Fund
II L.P. are each limited partnerships and affiliates of Prudential Securities
Incorporated, one of the underwriters of the IPO, and make investments for the
benefit of limited partners who are employees of Prudential Securities
Incorporated.

The Class B warrants were issued after our business plan underwent further
development and we were in a position to proceed with the Offering.  As a
result, the Class B warrants were issued for greater consideration. Effective
September 3, 1998, the Class B warrant agreements were superseded by Amended and
Restated Class B warrant agreements with no material impact on the operation of
the agreements.  As of December 31, 1999, no Class A or Class B warrants have
been executed.

We have entered into an agreement with Westport Partners (Bermuda), Ltd.
("Westport"), a developer and administrator of insurance products for
international insurance brokers, insurance companies and corporations, pursuant
to which Westport will provide non-exclusive distribution services with respect
to the Company's variable life insurance products. In addition, Westport may be
retained to provide administration services for certain variable life insurance
products that the Company issues.

For its distribution activities, we are authorized to issue up to 750,000 Class
C warrants to Westport at an exercise price equal to $15 per ordinary share. The
warrants are issuable over a four-year period beginning on January 1, 2000 and
on each anniversary thereafter in an amount to be determined by a formula, as
defined, in the agreement. The Class C warrants, if issued, will be for a term
expiring ten years from the date of the Offering. We apply the fair value method
of SFAS Statement No. 123, "Accounting for Stock-Based Compensation," in
accounting for these warrants.  No Class C warrants had been issued as of
December 31, 1999.

                                                                              32
<PAGE>

                    Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (Continued)

10.  Stock Option Plan

The Company has two stock option plans (the "1998 Plan" and the "1999 Plan")
which allows us to grant non-statutory options, subject to certain restrictions,
to certain eligible employees, non-employee Directors, advisors and consultants.
The minimum exercise price of the options will be equal to the fair market
value, as defined in the Plan, of our ordinary shares at the date of grant. The
term of the options shall not be more than ten years from the date of grant.
Unless otherwise provided in the option agreement, the options shall become
exercisable in three equal annual installments, commencing on the first
anniversary of the grant date.

Option activity under the 1998 Plan is as follows:

<TABLE>
<CAPTION>
                                                                                    Weighted Average
                                     Shares Available        Number of             Exercise Price of
                                         for Grant             Shares             Options Outstanding
                                   --------------------------------------------------------------------
<S>                                  <C>                    <C>                  <C>
Balance, May 12, 1998*                                  -                    -                 $      -
Authorized                                      1,600,000                    -                        -
Granted                                        (1,070,000)           1,070,000                  15.0000
Exercised                                               -                    -                        -
Canceled                                                -                    -                        -
Unvested shares repurchased                             -                    -                        -
                                   --------------------------------------------------------------------
Balance, December 31, 1998                        530,000            1,070,000                  15.0000
Authorized                                              -                    -                        -
Granted                                          (545,600)             545,600                  15.0000
Exercised                                               -                    -                        -
Canceled                                          233,333             (233,333)                 15.0000
Unvested shares repurchased                             -                    -                        -
                                   --------------------------------------------------------------------
Balance, December 31, 1999                        217,733            1,382,267                  15.0000
                                   ====================================================================

</TABLE>
* Date of incorporation

Option activity under the 1999 Plan is as follows:
<TABLE>
<CAPTION>
                                                                                   Weighted Average
                                     Shares Available        Number of            Exercise Price of
                                         for Grant            Shares             Options Outstanding
                                   -------------------------------------------------------------------
<S>                                  <C>                    <C>                 <C>
Balance, December 31, 1998                              -                    -                 $     -
Authorized                                        750,000                    -                       -
Granted                                          (325,000)             325,000                  8.0625
Exercised                                               -                    -                       -
Canceled                                                -                    -                       -
Unvested shares repurchased                             -                    -                       -
                                   -------------------------------------------------------------------
Balance, December 31, 1999                        425,000              325,000                  8.0625
                                   ===================================================================
</TABLE>

In addition to the Company's stock option plans, 750,000 options were authorized
to be issued to new employees of our U.S. operations by the Board of Directors
at an exercise price to be determined on the date of the grant. The term of the
options shall be seven years from the date of grant. The options shall become
exercisable in three equal annual installments, commencing on the first
anniversary of the grant date. Of the 750,000 options authorized, 586,000 have
been granted to new employees of our U.S. operations, pursuant to a resolution
of the Board of Directors, at an exercise price equal to the fair market value
of our ordinary shares at the date of the grant. The options that have been
granted are reflected in the pro forma and outstanding options calculations
below.

Subsequent to year end, 300,000 options under the 1998 Plan were canceled and
400,000 options were granted to our President under the 1998 Plan.

We have adopted the disclosure provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for employee stock options. Since the exercise
price of the stock options equals or exceeds the market price of the underlying
stock on the date of grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if we accounted for the employee stock
options under the fair value method of that Statement.

                                                                              33
<PAGE>

                    Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (continued)

10.  Stock Option Plan (continued)

The Binomial option-pricing model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable.  In addition, option valuation models require the input of highly
subjective assumptions including the expected price volatility.  Because our
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.  Our pro forma
information follows:
<TABLE>
<CAPTION>
                                                                              Period from
                                                           Year ended         May 12, 1998*
                                                           December 31,       to December
                                                               1999            31, 1998
                                                      --------------------------------------
<S>                                                     <C>                <C>
Net income - as reported                                       $8,874,719           $436,321
Net income - pro forma                                         $7,037,799           $331,699
Basic and diluted net income per share - as reported           $     0.50           $   0.12
Basic and diluted net income per share - pro forma             $     0.39           $   0.09
</TABLE>
* Date of incorporation

The fair value for the options was estimated at the date of grant using the
Binomial option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
                                                               1999                1998
                                                      ---------------------------------------
<S>                                                     <C>                 <C>
Expected dividend yield                                             2.44 %              1.33 %
Risk free interest rate                                             6.44 %              5.52 %
Expected volatility                                                0.667                0.22
</TABLE>

The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
                               Options Outstanding                                             Options Exercisable
----------------------------------------------------------------------------------     ---------------------------------
                                            Weighted Average          Weighted                              Weighted
    Range of            Number           Remaining Contractual        Average               Number          Average
 Exercise  Prices     Outstanding           Life (in Years)        Exercise Price         Exercisable    Exercise Price
----------------------------------------------------------------------------------     ---------------------------------
<S>                <C>                  <C>                       <C>                    <C>            <C>
$ 8.00 -  8.20                 911,000                      8.06          $ 8.0861                   -          $      -
$ 12.00 - 15.00              1,382,267                      8.99          $15.0000             267,333          $15.0000
                 -----------------------------------------------------------------     ---------------------------------
                             2,293,267                      8.62          $11.5503             267,333          $15.0000
                 -----------------------------------------------------------------     ---------------------------------
</TABLE>

The following table summarizes information concerning outstanding and
exercisable options at December 31, 1998:
<TABLE>
<CAPTION>
                               Options Outstanding                                             Options Exercisable
----------------------------------------------------------------------------------     ---------------------------------
                                            Weighted Average          Weighted                              Weighted
    Range of             Number          Remaining Contractual        Average               Number          Average
 Exercise  Prices     Outstanding           Life (in Years)        Exercise Price         Exercisable    Exercise Price
----------------------------------------------------------------------------------     ---------------------------------
<S>                <C>                  <C>                       <C>                    <C>            <C>
$ 12.00 - 15.00              1,070,000                      9.92          $15.0000                   -    $            -
                 -----------------------------------------------------------------     ---------------------------------
</TABLE>

As of December 31, 1999, options for 203,267 ordinary shares, exercisable at a
price of $15 per share, have been granted to certain non-employee participants
in the Plan (160,000 at December 31, 1998). The Company applies the fair value
method of SFAS No. 123, in accounting for stock options granted to non-employees
who provide services to the Company.

Note 11: Pension Contributions

The Company has a defined contribution retirement plan covering substantially
all employees. Company contributions to the plan are two times the employee
contribution. Employee contributions are defined by legislation in the Cayman
Islands, and vary between 2% and 5% of salary. Amounts charged to operations
under this plan were $114,759 for the year ended December 31, 1999 and $ nil for
the period ended December 31, 1998.

12.  Taxation

There is presently no taxation imposed on income or capital gains by the
Government of the Cayman Islands. If any taxation were to be enacted, Scottish
Holdings and Scottish Insurance have been granted exemptions therefrom until
2018 and Scottish Annuity has been granted exemptions therefrom until 2014.
These companies operate in a manner such that they will owe no United States tax
other than premium excise taxes and withholding taxes on certain investment
income.

Both Harbourton and SHI are U.S. corporations and therefore are liable for
Federal Income Tax. The valuation allowances for December 31, 1999 are related
primarily to the tax benefit of the unrealized depreciation on securities and
realized capital loss carryforwards of Harbourton.


                                                                              34
<PAGE>

                    Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (continued)

12. Taxation (continued)

Undistributed earnings of the Company's foreign subsidiaries are considered to
be indefinitely reinvested and, accordingly, no provision for U.S. federal
withholding taxes has been provided thereon. Upon distribution of current or
accumulated earnings and profits in the form of dividends or otherwise, the
Company would be subject to U.S. withholding taxes at a 30% rate.

At December 31, 1999, the Company has net operating loss carryforwards of
approximately $3.3 million for income tax purposes that expire in years 2012
through 2014. The Company also has capital loss carryforwards of approximately
$3.7 million for income tax purposes that expire in years 2002 through 2004.
Those carryforwards resulted primarily from the Company's 1999 acquisition of
Harbourton. For financial reporting purposes, a valuation allowance of
approximately $1.2 million has been recognized to offset the deferred tax assets
related to the capital loss carryforwards acquired. When realized, the tax
benefit for those items will be applied to reduce intangible value related to
the acquisition of Harbourton.

Significant components of our deferred tax assets and liabilites are as
follows:

Deferred tax assets
        Net operating losses                           $ 1,126,031
        Capital losses                                   1,258,717
        Alternative minimum tax credits                     20,083
        Unrealized depreciation on investments             366,211
        Accrued market discount                             82,985
        Negative proxy deferred acquisition costs          993,732
                                                       ------------
Total deferred tax assets                                 3,847,759
Valuation allowance                                      (1,624,928)
                                                       ------------
Deferred tax assets net of valuation allowance            2,222,831
Deferred tax liabilities:
        Reserves for future policy benefits                   4,754
                                                       ------------
Total deferred tax liabilities                                4,754
                                                       ------------
Net deferred tax asset                                  $ 2,218,077
                                                       ============

For the year ended December 31, 1999 we have income tax benefits from operations
as follows:

Current tax benefit                                    $          -
Deferred tax benefit                                        (41,386)
                                                       ------------
Total tax benefit                                       $   (41,386)
                                                       ------------

Income tax expenses attributable to continuing operations differs from the
amount of income tax expense that would result from applying the federal
statutory rates to pretax income from operating due to the following:

Pretax GAAP income at 34%                               $ 3,003,333
Income not subject to tax at 34%                         (3,095,668)
Other                                                        50,949
                                                       ------------
        Tax benefit                                     $   (41,386)
                                                       ============

                                                                              35
<PAGE>

                    Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (continued)

13.  Statutory Requirements and Dividend Restrictions

Under The Insurance Law of the Cayman Islands, Scottish Insurance and Scottish
Annuity must each maintain a minimum net capital worth of $240,000.

Our ability to pay dividends depends on the ability of Scottish Insurance and
Scottish Annuity pay dividends to Scottish Holdings. While we are not subject to
any significant legal prohibitions on the payment of dividends, Scottish
Insurance and Scottish Annuity will be subject to Cayman Islands regulatory
constraints, which affect its ability to pay dividends. Scottish Insurance and
Scottish Annuity are prohibited from declaring or paying a dividend if such
payment would reduce their net capital worth below $240,000.

14.  Related Parties

Scottish Annuity agreement - Prior to our acquisition of Scottish Annuity,
Scottish Insurance entered into an Insurance Administration, Services and
Referral Agreement (the "Agreement") with Scottish Annuity effective October 1,
1998. Scottish Insurance provided Scottish Annuity with a variety of insurance
administration, accounting and other services.  Scottish Insurance received
compensation equal to 0.50% per annum of the quarterly separate account value of
each annuity contract issued by Scottish Annuity subject to a minimum of
US$25,000 per year

In addition, pursuant to this agreement (i) Scottish Annuity refrained from the
direct or indirect offer or sale of any life insurance products and refered only
to Scottish Insurance any opportunity or inquiry that it received to issue and
sell any life insurance products, and (ii) Scottish Insurance refrained from the
direct or indirect offer or sale of any variable annuity products and refered
only to Scottish Annuity any opportunity or inquiry that it received to issue
and sell any variable annuity products.

The agreement remained in effect until December 31, 1999.

Purchase of Scottish Annuity - On December 31, 1999 Scottish Holdings purchased
all of the outstanding shares of Scottish Annuity from SHI. Our Chief Executive
Officer and certain members of our board of directors own 95% of SHI. The
purchase price paid was assessed for fairness by an independent party and
therefore, management believes it represents a value that would have been
reached at arms-length.

DC Planning agreement - We entered into a consulting services agreement with DC
Planning, an insurance consulting firm that develops life insurance products and
acts as a consultant on insurance matters for high net worth families, trust
companies and other fiduciaries.  Under the terms of the agreement, DC Planning
provided certain consulting services to the Company, including with respect to
the development and implementation of its business plan. This agreement ceased
with the death of Howard Shapiro who was the managing partner of DC Planning.

15.  Credit Arrangements

At December 31, 1999 the Company had in place a $50 million revolving line of
credit with a U.S. bank.  Under the agreement, the Company has the option to
borrow at a predetermined interest rate of 40 basis points over LIBOR.   The
terms of the agreement expire on December 22, 2000 but are renewable with the
agreement of both parties.

Additionally, the Company has entered into a stand-by letter of credit agreement
the terms of which allow the Company to issue letters of credit up to $25
million dollars.  The terms of the stand-by letter of credit agreement expire
July 13, 2000. In January, 2000, the amount available to the Company was reduced
to $20 million to reflect the availability of credit under the revolving letter
of credit.

As of December 31, 1999 and 1998, the Company had not utilized either of the
above credit facilities.

                                                                              36

<PAGE>

                    Scottish Annuity & Life Holdings, Ltd.

            Notes to Consolidated Financial Statements (continued)

16.  Quarterly Financial Data (Unaudited)

Quarterly financial data for the year ended December 31, 1999 is as follows:

<TABLE>
<CAPTION>
                                                                          1999
                                                  ------------------------------------------------------
                                                     March 31      June 30    September 30   December 31
                                                  ------------------------------------------------------
<S>                                                <C>          <C>           <C>            <C>
REVENUES
Premiums and reinsurance fees, net                  $        -   $        -    $         -    $   21,311
Investment income, net                               3,321,252    4,124,756      7,145,693     9,476,539
Realized losses on securities, net                    (963,914)    (518,911)    (1,014,444)     (141,237)
Insurance administration and
  variable life fees                                   225,785      250,495        267,998       269,688
                                                  ------------------------------------------------------
               Total revenues                        2,583,123    3,856,340      6,399,247     9,626,301
BENEFITS AND EXPENSES
Interest credited and other policy benefits                  -      319,666      2,660,664     4,219,805
Acquisition costs and other
  insurance expenses                                   255,100      423,517        570,537       976,459
Operating expenses                                     710,898      922,350        902,944     1,669,738
                                                  ------------------------------------------------------
    Total benefits and expenses                        965,998    1,665,533      4,134,145     6,866,002
    Net income before benefit for income taxes       1,617,125    2,190,807      2,265,102     2,760,299
Deferred benefit for federal income taxes                    -            -              -       (41,386)
                                                  ------------------------------------------------------
    Net Income                                      $1,617,125   $2,190,807    $ 2,265,102    $2,801,685
                                                  ======================================================

EARNINGS PER SHARE
                                                  ------------------------------------------------------
  Basic and diluted net income                      $     0.09   $     0.12    $      0.12    $     0.18
                                                  ======================================================

</TABLE>


Quarterly financial data for the period ended December 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                                                               1998
                                                   ---------------------------------------------------------------
                                                       June 30             September 30           December 31
                                                   ---------------------------------------------------------------
<S>                                                <C>                <C>                    <C>
REVENUES
Premiums and reinsurance fees, net                   $              -  $                  -  $                   -
Investment income, net                                          1,501                     -              1,126,764
Insurance administration and
  variable life fees                                                -                     -                209,886
                                                   ---------------------------------------------------------------
        Total revenues                                          1,501                     -              1,336,650
BENEFITS AND EXPENSES
Interest credited and other policy benefits                         -                     -                      -
Acquisition costs and other
  insurance expenses                                                -                     -                      -
Operating expenses                                             22,578                98,153                781,099
                                                   ---------------------------------------------------------------
        Total benefits and expenses                            22,578                98,153                781,099
                                                   ---------------------------------------------------------------
        Net (loss) income                                    $(21,077)             $(98,153)            $  555,551
                                                   ===============================================================
EARNINGS PER SHARE
                                                   ---------------------------------------------------------------
  Basic and diluted net (loss) income                         $(0.01)             $  (0.07)                  $0.08
                                                   ===============================================================
</TABLE>

                                                                              37
<PAGE>

                                   SIGNATURES

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

                 SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

                 By:     /s/ Michael C. French
                         --------------------------------
                             Michael C. French
                             Chief Executive Officer

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

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

/s/ Michael C. French              Chief Executive Officer and         April 3, 2000
------------------------           Director (Principal Executive
    Michael C. French              Officer)


/s/ Bruce J. Crozier               Senior Vice President-Chief         April 3, 2000
------------------------           Financial Officer and Secretary
   Bruce J. Crozier                (Principal Financial Officer
                                   and Principal Accounting Officer)

           *                       Director                            April 3, 2000
------------------------
        Sam Wyly

           *                       Director                            April 3, 2000
------------------------
     Michael Austin

           *                       Director                            April 3, 2000
------------------------
   R. Duke Buchan III

           *                       Director                            April 3, 2000
------------------------
    Robert M .Chmely

           *                       Director                            April 3, 2000
------------------------
     David Matthews

           *                       Director                            April 3, 2000
------------------------
  Bill Caulfeild-Browne

           *                       Director                            April 3, 2000
------------------------
  Charles J. Wyly, Jr.
</TABLE>

                                                                              38
<PAGE>

* The undersigned, by signing his name hereto, does hereby sign this Annual
Report on Form 10-K pursuant to the Powers of Attorney executed on behalf of
the above-named officers and directors of the Registrant and contemporaneously
filed herewith with the Securities and Exchange Commission.

                        /s/ Michael C. French
                        ---------------------
                         Michael C. French
                         Attorney-in-Fact

                                                                              39
<PAGE>

                                 EXHIBIT INDEX
                                 -------------


 EXHIBIT
SEQUENTIAL
  NUMBER
 PAGE NO.                                        DESCRIPTION OF DOCUMENT
----------                                       -----------------------
--------------------------------------------------------------------------------

  3.1       Memorandum of Association of the Company (incorporated herein by
            reference to Exhibit 3.1 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

  3.2       Articles of Association of the Company (incorporated herein by
            reference to Exhibit 3.2 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

  4.1       Specimen Ordinary Share Certificate (incorporated herein by
            reference to Exhibit 4.1 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

  4.2       Form of Amended and Restated Class A Warrant (incorporated herein by
            reference to Exhibit 4.2 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

  4.3       Form of Amended and Restated Class B Warrant (incorporated herein by
            reference to Exhibit 4.3 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

  4.4       Form of Securities Purchase Agreement for the Class A Warrants
            (incorporated herein by reference to Exhibit 3.2 to the Company's
            Registration Statement on Form S-1 filed with the Securities
            Exchange Commission on June 19, 1998, as amended).

  4.5       Form of Warrant Purchase Agreement for the Class B Warrants
            (incorporated herein by reference to Exhibit 4.5 to the Company's
            Registration Statement on Form S-1 filed with the Securities
            Exchange Commission on June 19, 1998, as amended).

  4.6       Form of Registration Rights Agreement for the Class A Warrants
            (incorporated herein by reference to Exhibit 4.6 to the Company's
            Registration Statement on Form S-1 filed with the Securities
            Exchange Commission on June 19, 1998, as amended).

  4.7       Form of Registration Rights Agreement for the Class B Warrants
            (incorporated herein by reference to Exhibit 4.7 to the Company's
            Registration Statement on Form S-1 filed with the Securities
            Exchange Commission on June 19, 1998, as amended).

  4.8       Form of Securities Purchase Agreement between the Company and the
            Shareholder Investors  (incorporated herein by reference to Exhibit
            4.10 to the Company's Registration Statement on Form S-1 filed with
            the Securities Exchange Commission on June 19, 1998, as amended).

  4.9       Form of Registration Rights Agreement between the Company and the
            Shareholder Investors  (incorporated herein by reference to Exhibit
            4.11 to the Company's Registration Statement on Form S-1 filed with
            the Securities Exchange Commission on June 19, 1998, as amended).

  4.10      Form of Securities Purchase Agreement between the Company and the
            Non-Shareholder Investors (incorporated herein by reference to
            Exhibit 4.12 to the Company's Registration Statement on Form S-1
            filed with the Securities Exchange Commission on June 19, 1998, as
            amended).

  4.11      Form of Registration Rights Agreement between the Company and the
            Non-Shareholder Investors (incorporated herein by reference to
            Exhibit 4.13 to the Company's Registration Statement on Form S-1
            filed with the Securities Exchange Commission on June 19, 1998, as
            amended).

  10.1      Employment Agreement dated June 18, 1998 between the Company and
            Michael C. French (incorporated herein by reference to Exhibit 10.1
            to the Company's Registration Statement on Form S-1 filed with the
            Securities Exchange Commission on June 19, 1998, as amended).

 10.2       Second Amended and Restated 1998 Stock Option Plan effective October
            22, 1998 (incorporated herein by reference to Exhibit 10.3 to the
            Company's Registration Statement on Form S-1 filed with the
            Securities Exchange Commission on June 19, 1998, as amended).

 10.3       Form of Stock Option Agreement in connection with 1998 Stock Option
            Plan (incorporated herein by reference to Exhibit 4.6 to the
            Company's Registration Statement on Form S-1 filed with the
            Securities Exchange Commission on June 19, 1998, as amended).

 10.4       Agreement dated June 30, 1998 between the Company and International
            Risk Management (Cayman) Ltd. (incorporated herein by reference to
            Exhibit 10.8 to the Company's Registration Statement on Form S-1
            filed with the Securities Exchange Commission on June 19, 1998, as
            amended).

 10.5       Amended and Restated Insurance Administration, Services and Referral
            Agreement dated as of October 1, 1998 between the Company and The
            Scottish Annuity Company (Cayman) Ltd. (incorporated herein by
            reference to Exhibit 10.9 to the Company's Registration Statement on
            Form S-1 filed with the Securities Exchange Commission on June 19,
            1998, as amended).

 10.6       Employment Agreement dated July 20, 1998 between the Company and
            Henryk Sulikowski (incorporated herein by reference to Exhibit 10.10
            to the Company's Registration Statement on Form S-1 filed with the
            Securities Exchange Commission on June 19, 1998, as amended).

 10.7       Form of Indemnification Agreement between the Company and each of
            its directors and officers (incorporated herein by reference to
            Exhibit 10.12 to the Company's Registration Statement on Form S-1
            filed with the Securities Exchange Commission on June 19, 1998, as
            amended).

 10.8       Investment Management Agreement dated October 22, 1998 between the
            Company and Pacific Investment Management Company (incorporated
            herein by reference to Exhibit 10.13 to the Company's Registration
            Statement on Form S-1 filed with the Securities Exchange Commission
            on June 19, 1998, as amended).

 10.9       Investment Management Agreement dated October 22, 1998 between the
            Company and General Re-New England Asset Management, Inc.
            (incorporated herein by reference to Exhibit 10.14 to the Company's
            Registration Statement on Form S-1 filed with the Securities
            Exchange Commission on June 19, 1998, as amended).

 10.10      Agreement dated October 23, 1998 between the Company and Westport
            Partners (Bermuda), Ltd. (incorporated herein by reference to
            Exhibit 10.15 to the Company's Registration Statement on Form S-1
            filed with the Securities Exchange Commission on June 19, 1998, as
            amended).

 10.11      Investment Management Agreement dated October 22, 1998 between the
            Company and The Prudential Investment Corporation (incorporated
            herein by reference to Exhibit 10.16 to the Company's Registration
            Statement on Form S-1 filed with the Securities Exchange Commission
            on June 19, 1998, as amended).

 10.12      Form of Omnibus Registration Rights Agreement (incorporated herein
            by reference to Exhibit 10.17 to the Company's Registration
            Statement on Form S-1 filed with the Securities Exchange Commission
            on June 19, 1998, as amended).

 10.13      Investment Advisory Service between the Company and Prudential
            Securities Corporation (incorporated herein by reference to Exhibit
            10.15 to the Company's Registration Statement on Form 10-K filed
            with the Securities Exchange Commission on March 30, 1999).

 10.14      1999 Stock Option Plan.

 10.15      Form of Stock Options Agreement in connection with 1999 Stock Option
            Plan.

 10.16      Employment Agreement dated March 08, 2000 between the Company amd
            Scott E. Willkomm.

 21.1       Subsidiaries of Registrant.

 24.1       Powers of Attorney.

 27.1       Financial Data Schedule.

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