EXHIBIT 13

INCORPORATED BY REFERENCE, PAGE 16 OF THE COMPANY'S 2001 ANNUAL
 REPORT TO SHAREHOLDERS

SELECTED FINANCIAL DATA
(All amounts in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                   Years Ended December 31
                                        2001               2000               1999               1998               1997
<S>                                 <C>                 <C>                <C>                <C>                <C>
OPERATING DATA

Total policy revenue                 $   46,491         $   44,537         $   41,686         $   38,239         $   35,194
Net investment & other income            62,669             63,876             56,905             53,088             50,642
Net realized (losses) gains
  on investments                    (    19,646)             6,960              4,333              4,883              5,201
                                     ----------         ----------         ----------         ----------         ----------
Total revenues                       $   89,514         $  115,373         $  102,924         $   96,210         $   91,037
                                     ----------         ----------         ----------         ----------         ----------
Total benefits & expenses                85,327             76,550             67,998             62,269             60,834
                                     ----------         ----------         ----------         ----------         ----------
Income before income taxes           $    4,187         $   38,823         $   34,926         $   33,941         $   30,203
Provision for federal income taxes        1,449             13,433             11,601             11,856             10,643
                                     ----------         ----------         ----------         ----------         ----------
Net income                           $    2,738         $   25,390         $   23,325         $   22,085         $   19,560
                                     ----------         ----------         ----------         ----------         ----------
Net income per share                 $     0.29         $     2.69         $     2.47         $     2.34         $     2.07
                                     ----------         ----------         ----------         ----------         ----------
Operating income (1)                 $   15,509         $   20,866         $   20,509         $   18,911         $   16,179
                                     ----------         ----------         ----------         ----------         ----------
Operating income per share (1)       $     1.64         $     2.21         $     2.17         $     2.00         $     1.71
                                     ----------         ----------         ----------         ----------         ----------

FINANCIAL POSITION

Total assets                         $1,120,483         $1,020,343         $  954,532         $  917,606         $  832,534

Shareholders' equity                 $  205,759         $  195,720         $  171,103         $  182,531         $  160,380

Book value per share                 $    21.77         $    20.71         $    18.11         $    19.32         $    16.97

Dividends declared per share         $     0.78         $     0.72         $     0.66         $     0.60         $     0.54

Average number of
  shares outstanding                      9,450              9,450              9,450              9,450              9,450

<FN>
(1) Operating income excludes net realized gain (loss) on investments and related federal income taxes.
</FN>

</TABLE>

                                       42
<PAGE>
INCORPORATED BY REFERENCE, PAGE 17 AND 18 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

Management's Discussion and Analysis of Financial Condition & Results of
 Operations


The following  discussion and analysis  should be read in  conjunction  with the
financial  statements  and related  notes found on pages 27-45,  as they contain
important  information  that is helpful in evaluating  the  Company's  operating
results and financial condition.

Overview

Erie  Family  Life  Insurance  Company  (the  Company)  is a  Pennsylvania  life
insurance company formed to underwrite and sell nonparticipating  individual and
group life insurance policies,  including universal life. The Company also sells
individual  and group  annuities and  disability  income  policies.  The Company
markets its products through  independent  Agents  throughout ten states and the
District  of  Columbia. The Company  is owned  21.6  percent  by Erie  Indemnity
Company,  53.5 percent by Erie Insurance Exchange and the remaining 24.9 percent
by public shareholders.

Results of Operations

Financial overview

Net  income  decreased  to  $2,738,486,   or  $0.29  per  share,  in  2001  from
$25,390,415, or $2.69 per share, in 2000. While policy revenue continued to grow
by $1,953,066 in 2001, net realized capital losses of $19,646,317 contributed to
the decline in net income in 2001. Developments over the past year in the equity
markets,  along with the recent  bankruptcy  filing of Enron Corporation and its
related  legal  entities,  gave rise to  declines  in value of  certain  Company
investments.  As part of a proactive year-end tax planning strategy, the Company
sold these impaired  securities and other  investments in a loss position in the
fourth quarter 2001.

Net income, excluding realized capital gains (losses) and related federal income
taxes, totaled $15,508,592, or $1.64 per share, in 2001 compared to $20,866,329,
or $2.21 per share, in 2000.

Revenues

Analysis of policy revenue

Total policy revenue  increased by 4.4 percent to  $46,490,779  in 2001.  Direct
premiums on traditional life insurance  policies increased  $4,356,310,  or 12.5
percent,  in 2001 and $2,631,232,  or 8.2 percent,  in 2000. First year premiums
contributed  $1,309,331,  or 30.0  percent,  and  renewal  premiums  contributed
$3,046,979,  or 70.0  percent,  to the  growth  in  2001.  Policies  in force on
traditional  products  increased  3.3 percent to 171,440 in 2001 from 165,992 in
2000.  This growth in  traditional  life  insurance is primarily  related to the
Company's ERIE Flagship Term product, which was introduced in late 1999.

In  the  third  quarter  of  2001,   the  Company  rolled  out  its  two  newest
products--ERIE  Target  Term and ERIE  Flagship  Term 2.  The ERIE  Target  Term
product  has a minimum  face  amount of  $100,000  and offers a very low initial
premium with rates guaranteed for 10 years on all  plans. Under  the reinsurance
treaty for this new product,  the reinsurer  assumes 90 percent of all insurance
up to $3,000,000  (the  Company's  retention  limit is $300,000) and assumes all
insurance  above that amount.  The ERIE  Flagship Term 2, now Erie Family Life's
most  comprehensive  term insurance plan for  individuals  desiring  substantial
coverage,  offers a  minimum  face  amount of  $100,000  and  replaced  the ERIE
Flagship  Term  product for new policy  sales after  October 1, 2001.  Under the
reinsurance  treaty for this product,  the  reinsurer  assumes 50 percent of all
insurance up to $600,000 (the Company's retention limit is $300,000) and assumes
all insurance above that amount.

Total  reinsurance  premiums ceded amounted to $8,058,210 and $4,712,354 in 2001
and 2000,  respectively.  The increase in ceded  premium  resulted from improved
sales  volume  of the new term plans, ERIE Target Term and ERIE Flagship Term 2.
The  reinsurance  premiums  ceded  on  these newer life insurance products alone
amounted to $4,061,762 and $1,156,630 in 2001 and 2000, respectively.

Universal life products generated premium,  net of reinsurance,  of $11,008,475,
$10,187,578  and $9,522,851 in 2001,  2000 and 1999,  respectively.  Policies in
force on universal  life  products  increased 4.8 percent to 44,572 in 2001 from
42,521 in 2000.  Reinsurance  arrangements  for universal  life products did not
change from 1999 to 2001.

Total annuity and universal  life deposits  were  $81,992,509,  $62,258,450  and
$78,906,813 in 2001, 2000 and 1999, respectively.  First-year and single annuity
deposits,  excluding  deposits for structured  settlements  and deposits for the
Erie Insurance Group  Retirement Plan,  increased  $19,959,055 to $39,752,995 in
2001 from $19,793,940 in 2000. The Company's ability to attract deposits depends
in large part on the relative  attractiveness  of its products compared to other
investment  alternatives.  Generally,  the  volatility of the equity markets and
lower  interest  rates in 2001 had a positive  effect on the Company's  sales of
fixed  annuities,   which  provide  stable  returns,  principal  protection  and
competitive interest rates.
                                       43
<PAGE>

INCORPORATED BY REFERENCE, PAGE 18 AND 19 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

Life  insurance in force  continues to grow,  totaling $18.9 billion at December
31,  2001,  an  increase  of $2.4  billion,  or 14.5  percent,  over 2000.  Life
insurance in force after  consideration of reinsurance  increased 6.3 percent to
$14.8 billion.

Analysis of investment-related income

Net  investment  income  increased  $1,705,240,  or 2.9  percent,  in  2001  and
$4,195,995,  or 7.6 percent,  in 2000. The growth of net  investment  income was
negatively  affected  by  the decline in yields from the portfolio. The ratio of
net  investment income to mean invested assets,  excluding limited partnerships,
was 7.2, 7.5 and 7.3 for 2001, 2000 and 1999, respectively.

The Company recognized net realized losses on investments of $19,646,317 in 2001
and  net  realized  gains  of  $6,960,133  and  $4,333,318  in  2000  and  1999,
respectively.   The  Company  sold   investments  that  it  considered  to  have
other-than-temporary  declines  in  value  in the fourth quarter 2001. The sales
were  part  of  a   proactive  year-end  tax   planning  strategy  producing  an
anticipated  recovery  of  approximately  $6.7  million of federal  income taxes
paid  in  1998, 1999 and 2000.  The  2001  net losses  include  $16,355,738  and
$4,918,559 of net losses from the sale of common stocks and bonds, respectively.
Included  in  the   2001  net  losses  are  $4.6  million  related  to  sales of
securities  of Enron Corporation and its related legal entities.

The Company's equity in earnings of limited  partnerships  decreased to $736,177
in 2001 from  $3,436,981 in 2000. The decrease in 2001 was largely the result of
reduced  profitability  of the Company's  investments  in private equity limited
partnerships.  Private equity net losses from these partnerships were $1,093,112
in 2001 compared to private equity  partnership  net income of $515,214 in 2000.
In December  2001,  the Company sold its interest in the private  equity limited
partnerships to the Erie Insurance Exchange for $24,090,207,  the estimated fair
value at the date of sale, recognizing a net realized gain of $1,144,000. During
the first half of 2002, the sale price of the  partnerships  will be adjusted to
reflect their current actual market value as of the date of the sale.

Benefits and expenses

Analysis of policy-related benefits and expenses

Net death benefits on life insurance  policies  increased 3.7 percent in 2001 to
$13,338,164 compared to $12,868,899 in 2000 and $10,231,135 in 1999. Included in
the 2001 death benefits is one claim  amounting to $300,000,  net of reinsurance
recoverable,  related to the September 11th terrorist attacks on the Pentagon in
Washington,D.C. This is the only claim  reported to the  Company  related to the
September 11th attacks.

Total  interest  credited  on annuity  and  universal  life  deposits  increased
$2,304,411, or 5.8 percent, in 2001 and $3,377,546, or 9.3 percent, in 2000. The
increase in interest  expense was  primarily due to increases in net annuity and
universal life deposits.  At December 31, 2001,  annuity  deposits  totaled $637
million,  an increase of 9.0 percent from December 31, 2000,  and universal life
deposits  totaled $122  million,  an increase of 13.4 percent from  December 31,
2000.  The interest  rate credited on universal  life deposits  ranged from 6.00
percent to 6.75 percent in 2001 and 2000. The rate credited on annuity  deposits
ranged from 5.00 percent to 6.25 percent in 2001 and 2000.

Surrender and other  benefits  increased by $1,427,511 to $2,262,302 in 2001 and
increased by $174,397 to $834,791 in 2000.  The increase in 2001  resulted  from
changes  in  the  Company's  share  of the  Pennsylvania  Employees  Group  Life
Insurance (PEGLI) pool. During 2001, the results from the Company's share of the
PEGLI pool resulted in an increase in benefits of $984,686 compared to decreases
of $420,000 in 2000 and $467,133 in 1999. The change in the  Company's  share of
the PEGLI pool is subject to fluctuations  inherent in the  underwriting of life
insurance  products.  PEGLI  is  a  voluntary  reinsurance  pool  that  provides
reinsurance coverage to primary insurers who insure Commonwealth of Pennsylvania
employees upon their  retirement.  Beginning  July 1, 2000, the Company  stopped
receiving  new business  from the PEGLI pool.  Information  will  continue to be
provided to the Company on an annual  basis to  determine  its share of the pool
assets and  liabilities  until the  remaining  balances  have run off over time.
Surrender  and other  benefits also  includes  life  surrender benefits, matured
endowments, disability benefits and interest on death benefits.

The liability for future life policy  benefits is computed  considering  various
factors such as anticipated mortality, future investment yields, withdrawals and
anticipated  credit for reinsurance.  The increase in future life policy benefit
expense increased  $1,344,787,  or 30.5 percent, in 2001 and decreased $455,764,
or 9.4 percent,  in 2000. The balance  reflects the significant  increase in new
business issued.


                                       44
<PAGE>
INCORPORATED BY REFERENCE, PAGE 19 AND 20 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

Generally,  the costs  incurred  by the Company to acquire  business,  including
underwriting,  commission and bonus costs,  are  capitalized  and deferred.  For
traditional  products,  these costs are amortized and charged  against  earnings
over the premium  paying  period of the related  policies in  proportion  to the
ratio of the annual premium revenue to the total  anticipated  premium  revenue.
For  interest-sensitive  products such as universal  life and  annuities,  these
costs are  amortized  in  proportion  to  future  anticipated  profits  on these
products.  The amortization of deferred policy acquisition costs (DAC) increased
$673,523,  or 13.1 percent, in 2001 and $331,960,  or 6.9 percent, in 2000. This
increase in DAC amortization  reflects policy growth,  anticipated gross profits
and persistency experienced.

Analysis of other expenses

Total  operating  expenses,  excluding  taxes,  licenses and fees,  increased to
$13,841,936   in  2001  compared  to  $11,162,836  in  2000  and  $9,330,979  in
1999. Certain operating  expenses  of the  Company  are  paid by Erie  Indemnity
Company,  management company of the Erie Insurance Group, and reimbursed monthly
by the  Company. Additionally, a portion of Erie Insurance Group common overhead
expenses attributable to the Company are also reimbursed monthly. These expenses
comprise a majority of the Company's general expenses.

General  expenses,  a component of total operating  expenses,  include wages and
salaries,  Employee benefits,  data processing expenses,  occupancy expenses and
other office and general administrative expenses of the Company. Certain general
expenses of the Company,  related to the  acquisition  and  underwriting  of new
policies,  are deferred as DAC. Medical  inspection and exam fees related to new
business  production,  wages,  salaries  and Employee  benefits of  underwriting
personnel,  and  salaries,  Employee  benefits  and bonuses paid to branch sales
Employees for the production of life and annuity business, are all deferred.

General expenses, net of DAC, increased $2,223,831, or 24.2 percent, in 2001 and
increased  $2,076,449,  or 29.2 percent,  in 2000.  The 2001  increase  includes
$711,152  for  the  Company's  share  of  the  severance  benefit  accrual,  not
considered  as part of the DAC,  for the former  President  and Chief  Executive
Officer of the Erie Insurance  Group, who retired January 18, 2002. In addition,
medical inspection and exam fees increased $639,826 to $2,952,516 in 2001. These
and other  expenses  relating to new business are normally  capitalized  as DAC.
However,  a smaller percentage of these expenses were capitalized in 2001 due to
the anticipated  narrower profit margins produced by the new ERIE Flagship Term,
ERIE Flagship Term 2 and ERIE Target Term products.

Another  component of total  operating  expenses is  commissions  to independent
Agents. Direct commission costs include new and renewal commissions,  production
bonuses and promotional  incentives to Agents. These direct commission  expenses
are reported on the Statements of Operations  net of  commissions  received from
reinsurers. The reported  expense is also  affected by the amount of  commission
expenses  capitalized  as DAC.  Commissions,  which  vary  with and are  related
primarily  to the  production  of new  business,  have  been  deferred  and  are
capitalized  as  DAC.  Most  first-year  and  incentive   commissions  and  some
second-year commissions qualify for deferral as DAC.

Commission  expense,  net of  DAC,  increased  $455,269,  or  23.1  percent,  to
$2,424,645 in 2001 from  $1,969,376 in 2000.  Commissions  on renewal  premiums,
most of which are not capitalized as DAC, increased  $318,573,  or 11.1 percent,
to $3,202,556 in 2001 from $2,883,983 in 2000. This increase is due primarily to
the increase in the renewal  premiums for the ERIE Flagship  Term  product.  The
reinsurance  allowance on renewal premiums ceded are significantly less than the
100 percent allowance received on first year premiums.

Financial Condition

Reserve liabilities

The Company's primary commitment is its obligation to meet the payment of future
policy benefits under the terms of its life insurance and annuity contracts.  To
meet these future  obligations,  the Company establishes life insurance reserves
based upon the type of policy,  the age of the insured,  and the number of years
the policy has been in force. The Company also establishes annuity and universal
life reserves  based on the amount of  Policyholder  deposits  (less  applicable
policy  charges) plus interest earned on those  deposits. There were no material
differences  between  the  carrying  value  and  fair  value  of  the  Company's
investment-type  policies at December 31, 2001. These life insurance and annuity
reserves  are  supported  primarily  by the  Company's  long-term,  fixed income
investments as the underlying  policy reserves are generally also of a long-term
nature.

Investments

The Company's  investment  strategies and portfolios are structured to match the
features  of the  life  insurance  and  annuity  products  sold by the  Company.
Annuities and life insurance  policies are long-term  products;  therefore,  the
Company's  investment  strategy  takes  a  long-term   perspective   emphasizing
investment  quality,   diversification  and  superior  investment  returns.  The
Company's  investments  are managed on a total return  approach  that focuses on
current income and capital appreciation.

                                       45
<PAGE>

INCORPORATED BY REFERENCE, PAGE 20 TO 22 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

The Company  reviews the investment  portfolio to evaluate  positions that might
incur  other-than-temporary  declines in value. For investment holdings, general
economic  conditions  and/or  conditions  specifically  affecting the underlying
issuer or its industry are  considered  in evaluating  impairment  in value.  In
addition to specific  factors,  the primary factors  considered in the Company's
review of investment  valuation are the length of time the market value is below
cost and the amount the market value is below cost.

For common equity  securities that have declined more than 20 percent below cost
for a period  exceeding six months,  there is a presumption of  impairment.  The
Company  considers  market   conditions,   industry   characteristics   and  the
fundamental operating results of the issuer before deciding to sell the position
or  recognize  impairment  in value.  For  common  equity  securities  that have
declined more than 20 percent below cost for a period  exceeding 12 months,  the
position is recognized as impaired and recognized as realized losses through the
Statements of Operations.

For fixed maturity investments,  the Company individually analyzes all positions
that have declined  more than 20 percent  below cost for a period  exceeding six
months. The Company considers market conditions,  industry  characteristics  and
the fundamental  operating  results of the issuer to determine if the decline is
due to  changes in credit  quality or other  issues  affecting  the  investment.
Positions  that have  incurred  market  price  decline of over 20 percent  for a
period  greater  than six  months,  where  the  creditworthiness  of the  issuer
indicates a decline that is other-than-temporary,  are either sold or recognized
as impaired, and reflected as a charge to the Company's operations.

If the Company's  policy for determining  the recognition of impaired  positions
were different, the Company's financial position and results of operations could
be  significantly   impacted.   Management  believes  its  investment  valuation
philosophy and accounting practices result in appropriate and timely measurement
of value and recognition of impairment.

Mortgage loans and limited partnership investments have the potential for higher
returns  but  also  carry  more  risk,  including  less  liquidity  and  greater
uncertainty of rate of return.

At  December  31,  2001,  the  Company's   investment  portfolio  consisting  of
marketable  short-term  investments,  investment-grade  bonds, common stocks and
preferred stocks totaled $936 million,  or 83.5 percent, of total  assets. These
resources  provide  the  liquidity  the  Company  requires  to  meet  known  and
unforeseen  demands on its funds.  At December 31,  2001,  84.0 percent of total
invested assets were invested in fixed  maturities.  Preferred stock  represents
5.9 percent, or $51.0 million, and common stock represents 6.0 percent, or $52.7
million,  of total  invested  assets at December  31,  2001,  while real estate,
policy loans,  mortgage  loans and limited  partnerships  make up 4.1 percent of
total invested assets.

Distribution  of Invested Assets
at December 31,

                                             Carrying Value
                                             (In thousands)

                                        2001      %           2000      %
                                       ------    ---         ------    ---
Fixed maturities available-
 for-sale                            $ 730,270   84.0      $ 683,651   77.6
Equity securities:
  Preferred  stock                      51,003    5.9         64,393    7.3
  Common stock                          52,672    6.0         73,525    8.3
Limited partnerships                    18,249    2.1         42,074    4.8
Other invested  assets                  17,529    2.0         17,426    2.0
                                     ---------  -----      ---------  -----
Total invested assets                $ 869,723  100.0      $ 881,069  100.0
                                     =========  =====      =========  =====


Fixed maturities

The Company's fixed  maturities at December 31, 2001,  consist of investments in
bonds and notes. It is the Company's objective that the fixed maturity portfolio
be of very high  quality and  well-diversified  within each market  sector.  The
portfolio  is  managed  with  the goal of  achieving  reasonable  returns  while
limiting exposure to risk.

Proceeds from the sale of fixed  maturity  positions  totaled  $218.5 million in
2001 and were much higher than in 2000 and 1999.  Overall pricing  conditions of
the fixed maturity  market  improved in 2001. This generally  favorable  pricing
environment was accompanied by a record number of credit quality  downgrades and
defaults in the  marketplace.  The Company's 2001 sales of fixed maturities were
executed to further improve the credit quality of the Company's fixed maturities
portfolio in the aforementioned market conditions of 2001.


                                       46
<PAGE>

INCORPORATED BY REFERENCE, PAGE 22 AND 23 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

The Company's fixed maturity  investments consist 96.5 percent, or $704 million,
of high or highest quality investment grade bonds (Baa/BBB or better).  Included
in this  investment-grade category are $394 million of bonds characterized as of
the highest quality or Class 1 securities as defined by the National Association
of Insurance Commissioners (NAIC). The below-investment-grade  category consists
of $25  million of medium  quality  bonds,  and $1 million of bonds rated at low
quality or below.  Generally,  the fixed  maturity  securities  in the Company's
portfolio are rated by external rating agencies.  If not externally  rated, they
are rated by the Company on a basis consistent with the basis used by the rating
agencies.

Management   believes   that   having  all  fixed   maturities   classified   as
available-for-sale securities will allow the Company to meet its liquidity needs
and  provide  greater  flexibility  for its  investment  managers  to respond to
changes in market conditions or strategic  direction.  Securities  classified as
available-for-sale  are carried at market value with unrealized gains and losses
included in shareholders'  equity. At December 31, 2001 and 2000, net unrealized
gains (losses) on fixed maturities  available-for-sale  amounted to $7.7 million
and ($7.4) million, respectively, net of deferred taxes.

Equity securities

Equity securities consist of common and nonredeemable preferred stocks which are
carried on the Statements of Financial Position at market value. At December 31,
2001 and 2000, common and nonredeemable  preferred stock held by the Company had
net  unrealized  gains of $11.0 million and $6.8 million,  respectively,  net of
deferred  taxes.  As  with  the  bond  portfolio,  the  Company's  nonredeemable
preferred stock portfolio provides a source of highly predictable current income
that is very competitive with high-grade bonds. These securities are diversified
within  each  market  sector and  support  the  investment  return  provided  to
Policyholders.  The nonredeemable  preferred stocks consist of $44.2 million, or
86.6 percent, of the highest or high quality, and $6.8 million, or 13.4 percent,
of medium quality,  as defined by the NAIC. The common stock portfolio  provides
diversification,  income  and  capital  appreciation  opportunities  to meet the
earnings objectives of the Company.

Limited partnership investments

The Company's limited partnership investments at December 31, 2001, include U.S.
and foreign  real estate and fixed  income  investments.  During  2001,  limited
partnership  investments  decreased  $23,825,395 to  $18,248,709.  In the fourth
quarter of 2001, the Company sold its  investments in its private equity limited
partnership  holdings  to the  Erie  Insurance  Exchange  for  $24,090,207,  the
estimated fair value at the date of sale.  However,  this estimate is subject to
subsequent  adjustment to actual  market value at December 31, 2001,  which will
occur in 2002.

Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk

The  Company's  exposure  to  market  risk  for  changes  in  interest  rates is
concentrated  in the  investment  portfolio. The Company  monitors this exposure
through  periodic  reviews of asset and liability  positions.  Estimates of cash
flows and the impact of interest rate  fluctuations  relating to the  investment
portfolio are monitored regularly.

Principal  cash flows and related  weighted-average  interest  rates by expected
maturity  dates for  financial  instruments  sensitive to interest  rates are as
follows:


December 31, 2001                  Principal                  Weighted-average
(Dollars in thousands)             cash flows                   interest rate

Fixed maturities:
2002                                $ 27,102                        7.0%
2003                                  41,615                        7.3%
2004                                  27,768                        7.5%
2005                                  43,103                        7.1%
2006                                  73,723                        6.2%
Thereafter                           504,249                        7.6%
                                   =========
Total                              $ 717,560
                                   ---------
Market value                       $ 730,270
                                   =========


                                       47
<PAGE>

INCORPORATED BY REFERENCE, PAGE 23 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

December 31, 2000                  Principal                  Weighted-average
(Dollars in thousands)             cash flows                  interest rate

Fixed maturities and
short-term bonds:
2001                               $  35,925                        6.5%
2002                                  54,105                        7.1%
2003                                  62,217                        7.1%
2004                                  43,089                        8.0%
2005                                  57,330                        7.4%
Thereafter                           453,210                        8.0%
                                   =========
Total                              $ 705,876
                                   ---------
Market value                       $ 695,646
                                   =========

Actual  cash  flows  may  differ  from  those  stated  as a result  of calls and
prepayments.

Equity price risk

The Company's portfolio of marketable equity securities, which is carried on the
Statements of Financial  Position at estimated fair value, has exposure to price
risk.  This risk is  defined  as the  potential  loss in  estimated  fair  value
resulting from an adverse change in prices.  The Company's  objective is to earn
competitive relative returns by investing in a portfolio of high-quality, liquid
securities.  Portfolio characteristics are analyzed regularly and market risk is
actively  managed  through a variety of techniques.  The Company's  holdings are
diversified across industries, and concentrations in any one company or industry
are limited by parameters  established  by Company  management  and the Board of
Directors.

Liquidity and Capital Resources

General considerations and analysis

Liquidity is a measure of the  Company's  ability to secure  enough cash to meet
its contractual obligations and operating needs.  Generally,  insurance premiums
are  collected  prior to claims and  benefit  disbursements  and these funds are
invested to provide  necessary cash flows in future  years. The Company's  major
sources of cash from  operations  are life  insurance  premiums  and  investment
income. The net positive  cash flow is used to fund Company  commitments  and to
build the investment  portfolio,  thereby increasing future investment  returns.
Net cash provided by operating  activities in 2001 was $18.0 million compared to
$14.0  million  in 2000 and  $11.8  million  in 1999.  The  Company's  liquidity
position remains strong.  Invested assets,  cash and cash equivalents  increased
9.0 percent to $980 million at December 31, 2001.

Annuity  and  universal  life  deposits,  which do not  appear as revenue on the
financial  statements,  are a source of funds.  Net cash provided by annuity and
universal   life  deposits  in  2001  were  $52.8  million  and  $14.4  million,
respectively.  These  deposits do not involve a mortality or morbidity  risk and
are  accounted  for using  methods  applicable  to  comparable  interest-bearing
obligations of other types of financial institutions.  This method of accounting
records deposits as a liability rather than as revenue.

The  Company's  commitments  for  expenditures  as of  December  31,  2001,  are
primarily for policy death benefits, policy surrenders and withdrawals,  general
operating  expenses,  federal  income taxes and  dividends to  shareholders.  In
addition,  the Company has outstanding  commitments to invest up to $9.0 million
in limited  partnerships at December 31, 2001. These  commitments will be funded
as  required  through  the  end  of the  respective  investment  periods,  which
typically  span 3 to 5  years  and  principally  expire  in  2005.  All  Company
commitments  are met by cash flows from policy  revenue,  annuity and  universal
life  deposits and  investment  income.  Management  believes its cash flow from
operations  and its liquid  assets and  marketable  securities  will  enable the
Company to meet foreseeable cash requirements. As an added measure of liquidity,
the Company has  arranged  for a $10  million  line of credit with a  commercial
bank. There were no borrowings under this credit line in 2001, 2000 and 1999.


                                       48
<PAGE>

INCORPORATED BY REFERENCE, PAGE 24 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

Regulatory considerations

Risk-based capital

The  Commonwealth of  Pennsylvania  follows the statutory  accounting  practices
minimum Risk-Based  Capital (RBC) requirements for domestic insurance  companies
that were  developed by the NAIC.  The NAIC  standard set for measuring RBC is a
method of calculating the minimum amount of capital appropriate for an insurance
company to support its overall business  operations in consideration of its size
and risk profile.  The RBC formula is used by the state insurance  regulators as
an early  warning tool to  identify,  for the purpose of  initiating  regulatory
action,  insurance companies that potentially are inadequately  capitalized.  In
addition, the formula defines minimum capital standards that will supplement the
current  system of low fixed  minimum  capital  and  surplus  requirements  on a
state-by-state basis. At December 31, 2001, the Company  substantially  exceeded
the minimum risk-based capital levels that require regulatory action.

Surplus note

A surplus  note in the amount of $15  million  was issued by the  Company to the
Erie  Indemnity  Company  during  1995.  Interest  on this note is charged at an
annual rate of 6.45 percent.  All payments of interest and principal on the note
may be repaid only out of unassigned surplus of the Company, subject to approval
of the Pennsylvania Insurance  Commissioner.  The note will be payable on demand
on or  after  December  31,  2005.  Payment  of  principal  and/or  interest  is
subordinated to payment of all other liabilities of the Company.

Factors That May Affect Future Results

Geographic expansion

The  Company  continues  to seek  quality  growth  by  expanding  its  operating
territories. The expansion into new operating territories offers the opportunity
for growth in  premiums. Over the last several years,  geographic  expansion has
made a contribution  to the premium  growth rate of the Company.  On December 6,
2001, the Erie Insurance Group, of which the Company is a member,  announced its
intention  to  expand  its marketing territory into Minnesota. Minnesota will be
the 11th state served by the Company, in addition to the  District of  Columbia.
Beginning in the third quarter of 2004,  the Company  intends to write all lines
of life,  health and annuity  products it  currently  offers in this  state. The
Company  anticipates that such expansion will continue to contribute  positively
to its growth and profitability.

Federal chartering

Congress  is  considering  legislation  that would  create an  optional  federal
charter for insurers. The "Insurance Industry Modernization Act" would establish
an Office of National Insurers within the Treasury  Department. The office would
have the power to charter,  license and  regulate  "national  insurers"  and its
director  would be required to establish a Division of Consumer  Affairs  within
the office.  The proposed  legislation would repeal the  McCarran-Ferguson  Act,
except for the sharing of historical  loss data and activities  associated  with
participation in mandatory residual market and workers' compensation mechanisms.

Federal  chartering  has the  potential  to create an uneven  playing  field for
insurers. Federally chartered companies could be subject to different regulatory
requirements  than  state-chartered insurers  in the  areas  of  market  conduct
oversight,  solvency  regulation,  guaranty fund  participation  and premium tax
burdens.  If this occurs,  federally chartered insurers may obtain a competitive
advantage over state  licensed  carriers.  The federal  proposal also raises the
specter of a matrix of regulation and costly, duplicative or conflicting federal
and state requirements. Finally, the partial repeal of McCarran-Ferguson poses a
threat  to  industry  practices,  which  are  currently  exempt  from  antitrust
scrutiny.

Privacy

The insurance  industry  continues to address  compliance issues required by the
Gramm Leach Bliley Financial  Services  Modernization  Act (GLBA) and the Health
Insurance  Portability and Accountability Act (HIPAA). The GLBA places limits on
how insurers may use and disclose  consumer  information.  It also  requires all
financial  institutions to adopt internal policies and procedures to protect the
privacy and security of consumer  information  and to deliver an annual  privacy
notice to all  customers.  Following  delivery  of these  notices  in July 2001,
consumer  groups  complained  that the  notices  were  legalistic,  complex  and
generally not "consumer friendly." In response,  the NAIC organized a task force
to study the adoption of simplified  model language for insurer privacy notices.
The NAIC has also  proposed  model  regulation  that  addresses  the security of
consumer information and provides standards for insurance departments to measure
compliance with privacy laws.


                                       49
<PAGE>

INCORPORATED BY REFERENCE, PAGE 24 AND 25 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

In February  2001,  the  Department  of Health and Human  Services  (HHS) issued
regulations under HIPAA requiring health plans, health care providers and health
care  clearinghouses  ("covered  entities")  to adopt  privacy  policies for the
protection  of health  information.  Regulations  have also been  adopted to set
standards  for the  electronic  transfer  of health  information.  Although  the
Company's insurance  operations are not directly subject to the regulations,  we
will be required to comply if we elect to engage in the  electronic  transfer of
information to and from covered entities.

Interest rate environment

The Company's  deposit-type  products  compete with a wide variety of investment
options. Among other factors affecting the investment decisions of policyholders
and  potential   policyholders  are  general   investment   market   conditions,
particularly  the market  interest rate  environment.  Changes in interest rates
affect pricing and the relative attractiveness of interest-sensitive  investment
options,  which  bears  directly  on the  ability of the  Company to attract new
policyholders and retain existing holders of annuity, universal life and certain
permanent life insurance products.

Term insurance pricing environment

In response to the intensely  competitive  environment  for term life insurance,
the Company  began selling two new  competitively  priced term products in 2001:
ERIE Target Term and ERIE Flagship Term 2. These products are heavily  reinsured
and  have  reduced  profit  margins  resulting  in  product  offerings  that are
extremely competitive.  ERIE Target Term and ERIE Flagship Term 2 replace higher
margin term  products the Company  previously  marketed.  Continued  competitive
pricing  of term  products  may  require  the  Company to adjust  term  premiums
further,  which  could  have the effect of  lowering  the  profitability  of the
Company.

eCommerce program and related infrastructure expenditures

Emerging technologies are increasingly  facilitating  transactions between firms
and their  customers.  Electronic  transactions  between life insurers and their
customers  or  potential  customers  are becoming  more  generally  accepted and
utilized.  In 2001, the Erie Insurance Group,  including the Company,  began the
development of several eCommerce  initiatives in support of the Group's business
model  of  distributing   insurance  products  exclusively  through  independent
Agents. These initiatives include customer interaction systems that are intended
to improve service and  efficiency,  as well as result in increased  sales.  The
eCommerce   program   also   includes   significant    information    technology
infrastructure  expenditures.  The cost of these  initiatives  will be allocated
among member companies of the Erie Insurance Group, including the Company. There
was minimal impact on the Company's  earnings in 2001 related to this effort. It
is  estimated  that the  after-tax  effect on net income on the  Company for the
eCommerce  program  costs will be a reduction  in  after-tax  earnings per share
between $0.05 and $0.07 per share for 2002.

Terrorist actions

The Company is exposed to direct losses arising from possible  future  terrorist
actions. Additionally, current and future proposed federal measures might affect
the way the  life  insurance  industry  handles  losses  from  potential  future
terrorist  actions.  These proposals may include the  establishment of a federal
reinsurance  program for losses from terrorist  actions and possible  changes to
the tax laws governing insurance companies.

The Company's substantial portfolio of equity and fixed income investments could
also be affected by potential future terrorist actions that may affect the level
of economic activity as well as investor confidence in the U.S. capital markets.


"Safe Harbor"  Statement Under the Private  Securities  Litigation Reform Act of
1995:  Certain  forward-looking  statements  contained  herein involve risks and
uncertainties. Many factors could cause future results to differ materially from
those discussed. Examples of such factors include but are not limited to: better
(or worse) mortality rates, terrorist actions,  changes in insurance regulations
or legislation  that  disadvantage the Company in the marketplace and recession,
economic  conditions  or stock market  changes  affecting  pricing or demand for
insurance products or ability to generate investment income and returns.  Growth
and profitability  have been, and will be,  potentially  materially  affected by
these and other factors.


                                       50
<PAGE>

INCORPORATED BY REFERENCE, PAGE 25 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

Market for the Registrant's Common Stock and Related Shareholder Matters

Currently  there is no market on which the  Registrant's  stock is  traded.  The
Company had 971 shareholders of record of common stock on December 31, 2001.

Date dividends declared                       Dividends declared per share

February 14, 2001                                       $ 0.195
April 24, 2001                                            0.195
June 12, 2001                                             0.195
September 11, 2001                                        0.195
                                                        -------
                                                        $ 0.780

March 7, 2000                                           $ 0.180
April 25, 2000                                            0.180
June 13, 2000                                             0.180
October 10, 2000                                          0.180
                                                        -------
                                                        $ 0.720


                                       51
<PAGE>


                       Index to Graphs included in of The
                      Management's Discussion and Analysis



Graph #1               LIFE INSURANCE INFORCE (BILLIONS)

                       2001 - $18.9
                       2000 - $16.5
                       1999 - $14.4


Graph #2               DIVERSIFICATION OF FIXED MATURITIES
                       AT DECEMBER 31, 2001 - CARRYING/MARKET VALUE

                       U.S. Industrial & Miscellaneous                 58%
                       U.S. Banks, Trusts and Insurance Companies      19%
                       Public Utilities                                10%
                       Foreign                                          8%
                       U.S. Treasuries                                  4%
                       Special Revenue                                  1%



Graph #3               QUALITY* OF BOND PORTFOLIO
                       AT DECEMBER 31, 2001 - CARRYING/MARKET VALUE

                        Highest                                        54%
                        High                                           42%
                        Medium                                          3%
                        Low or below                                    1%

                        * As rated by the NAIC


Graph #4               DIVERSIFICATION OF EQUITY SECURITIES
                       AT DECEMBER 31, 2001 - CARRYING/MARKET VALUE


                       (1) U.S. Industrial & Miscellaneous             44%
                       (2) Foreign Banks & Insurance                   36%
                       (2) Foreign Industrial & Miscellaneous           4%
                       (2) U.S. Industrial & Miscellaneous              9%
                       (1) U.S. Banks & Insurance                       6%
                       (1) Public Utilities                             1%




                       (1)  Common Stock
                       (2)  Preferred Stock


                                       52
<PAGE>

INCORPORATED BY REFERENCE, PAGE 27 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

Report of Management

The  management of Erie Family Life  Insurance  Company is  responsible  for the
preparation of information  included in the financial  statements in this Annual
Report  to  Shareholders.   The  financial  statements  have  been  prepared  in
conformity with Generally Accepted  Accounting  Principles.  The balances in the
financial statements are developed from the financial records of the Company and
reflect  estimates using judgment where amounts cannot be measured  precisely or
for transactions not yet complete.

The Company's system of internal control is designed to safeguard Company assets
from  unauthorized  use or disposition and to provide for proper  authorization,
execution  and  recording of Company  transactions.  Company  personnel  design,
maintain and monitor  internal  control on an ongoing  basis.  In addition,  the
Company's  internal  auditors  review and report on the  functioning  of various
aspects of internal control.

The Audit  Committee of the Board of Directors,  composed of outside  directors,
meets  periodically  with  the  Company's  management,   internal  auditors  and
independent  auditors  to  review  the work of each and to  inquire  as to their
assessment of the performance of Company  financial  personnel.  The independent
auditors  and  internal  auditors  have  full  and  free  access  to  the  Audit
Committee, without the  presence  of  management,  to  discuss  results  of work
performed and communicate other appropriate matters.

/s/ Jan R. Van Gorder, Esq.
Jan R.Van Gorder, Esq.
Acting President and
Chief Executive Officer
February 7, 2002

/s/ Philip A. Garcia
Philip A.Garcia
Executive Vice President and
Chief Financial Officer
February 7, 2002

/s/ Timothy G. NeCastro
Timothy G. NeCastro
Senior Vice President
and Controller
February 7, 2002


                                       53
<PAGE>

INCORPORATED BY REFERENCE, PAGE 28 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders
Erie Family Life Insurance Company
Erie, Pennsylvania

We have audited the accompanying Statements of Financial Position of Erie Family
Life  Insurance  Company  as of  December  31,  2001 and 2000,  and the  related
Statements of  Operations,  Shareholders'  Equity and Cash Flows for each of the
three years in the period ended December 31, 2001.  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 financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Erie Family Life  Insurance
Company as of December 31, 2001 and 2000,  and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2001
in conformity with accounting principles generally accepted in the United States
of America.

/s/Malin, Bergquist & Company, LLP
Malin, Bergquist & Company, LLP
Erie, Pennsylvania
February 7, 2002


                                       54
<PAGE>

INCORPORATED BY REFERENCE, PAGE 29 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS


<TABLE>
<CAPTION>

                      ERIE FAMILY LIFE INSURANCE COMPANY

                            STATEMENTS OF OPERATIONS
                  Years Ended December 31, 2001, 2000 and 1999
                  (Dollars in thousands, except per share data)


                                                              2001             2000             1999
                                                            --------         --------         --------
<S>                                                        <C>               <C>              <C>
Revenues
   Policy revenue
     Life premiums                                          $ 43,693         $ 41,975         $ 39,052
     Group and other premiums                                  2,798            2,562            2,634
                                                            --------         --------         --------
       Total policy revenue                                 $ 46,491         $ 44,537         $ 41,686

   Net investment income                                      61,181           59,476           55,279
   Net realized (losses) gains on investments              (  19,646)           6,960            4,333
   Equity in earnings of limited partnerships                    736            3,437              934
   Other income                                                  752              963              692
                                                            --------         --------         --------
       Total revenues                                       $ 89,514         $115,373         $102,924

Benefits and expenses
   Death benefits                                           $ 13,338         $ 12,869         $ 10,231
   Interest on annuity deposits                               35,284           33,686           31,202
   Interest on universal life deposits                         6,889            6,182            5,289
   Surrender and other benefits                                2,263              835              660
   Increase in future life policy benefits                     5,748            4,402            4,858
   Amortization of deferred policy
     acquisition costs                                         5,818            5,145            4,813
   Commissions                                                 2,425            1,969            2,214
   General expenses                                           11,417            9,194            7,117
   Taxes, licenses and fees                                    2,145            2,268            1,614
                                                            --------         --------         --------
       Total benefits and expenses                          $ 85,327         $ 76,550         $ 67,998
                                                            --------         --------         --------
       Income before income taxes                           $  4,187         $ 38,823         $ 34,926

Provision for federal income taxes                             1,449           13,433           11,601
                                                            --------         --------         --------
       Net income                                           $  2,738         $ 25,390         $ 23,325
                                                            --------         --------         --------
       Net income per share                                 $   0.29         $   2.69         $   2.47
                                                            ========         ========         ========

<FN>
See accompanying notes to financial statements
</FN>

</TABLE>


                                       55
<PAGE>

INCORPORATED BY REFERENCE, PAGE 30 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

<TABLE>
<CAPTION>

                       ERIE FAMILY LIFE INSURANCE COMPANY

                        STATEMENTS OF FINANCIAL POSITION
                        As of December 31, 2001 and 2000
                             (Dollars in thousands)


   ASSETS                                                     2001              2000
                                                            ---------        ----------
<S>                                                        <C>               <C>
Invested assets:
   Fixed maturities at fair value
     (amortized cost of $718,500
     and $695,078, respectively)                           $  730,270        $  683,651
   Equity securities at fair value
     (cost of $86,758 and
     $127,389, respectively)                                  103,675           137,918
   Limited partnerships (cost of $18,691 and
     $35,504, respectively)                                    18,249            42,074
   Real estate                                                  1,293             1,376
   Policy loans                                                 8,879             7,766
   Real estate mortgage loans                                   7,357             8,284
                                                           ----------        ----------
       Total invested assets                               $  869,723        $  881,069

Cash and cash equivalents                                     110,503            17,955
Premiums receivable from policyholders                          5,089             4,609
Reinsurance recoverable                                         1,775               612
Other receivables                                                 374               392
Accrued investment income                                      11,520            12,038
Deferred policy acquisition costs                              92,015            84,723
Reserve credit for reinsurance ceded                           12,120             9,076
Prepaid federal income taxes                                    8,508               167
Other assets                                                    8,856             9,702
                                                           ----------        ----------
       Total assets                                        $1,120,483        $1,020,343
                                                           ==========        ==========


   LIABILITIES AND SHAREHOLDERS' EQUITY


LIABILITIES
   Policy liabilities and accruals:
     Future life policy benefits                           $   85,673        $   76,879
     Policy and contract claims                                 1,950             2,473
     Annuity deposits                                         636,850           584,174
     Universal life deposits                                  121,560           107,192
     Supplementary contracts not
       including life contingencies                               605               550
   Other policyholder funds                                     7,974             4,615
   Deferred income taxes                                       31,807            23,819
   Reinsurance premium due                                      1,741               894
   Accounts payable and accrued expenses                        7,412             5,297
   Note payable to Erie Indemnity Company                      15,000            15,000
   Due to affiliates                                            2,309             2,029
   Dividends payable                                            1,843             1,701
                                                           ----------        ----------
       Total liabilities                                   $  914,724        $  824,623
                                                           ----------        ----------


SHAREHOLDERS' EQUITY
   Common stock, $.40 par value per share;
     authorized 15,000,000 shares;
     9,450,000 shares issued and outstanding               $    3,780        $    3,780
   Additional paid-in capital                                     630               630
   Accumulated other comprehensive income                      18,359             3,687
   Retained earnings                                          182,990           187,623
                                                           ----------        ----------
       Total shareholders' equity                          $  205,759        $  195,720
                                                           ----------        ----------
       Total liabilities and shareholders' equity          $1,120,483        $1,020,343
                                                           ==========        ==========

<FN>
See accompanying notes to financial statements
</FN>

</TABLE>


                                       56
<PAGE>
INCORPORATED BY REFERENCE, PAGE 31 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

<TABLE>
<CAPTION>
                       ERIE FAMILY LIFE INSURANCE COMPANY

                            STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 2001, 2000 and 1999
                             (Dollars in thousands)

                                                             2001              2000             1999
                                                           ---------         ---------         ---------
<S>                                                        <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                               $  2,738          $ 25,390          $ 23,325
   Adjustments to reconcile net income to net
     cash provided by operating activities:
     Net amortization of bond and mortgage
       premium                                                   244               214               273
     Amortization of deferred policy acquisition
       costs                                                   5,818             5,145             4,813
     Real estate depreciation                                     83                83                83
     Software amortization                                       249               249                62
     Deferred federal income tax expense                          88             2,718             1,955
     Realized losses (gains) on investments                   19,646         (   6,960)        (   4,333)
     Equity in income of limited partnerships              (     736)        (   3,437)        (     934)
   Increase in premiums receivable                         (     480)        (     553)        (     225)
   Decrease (increase) in other receivables                       18         (     221)              184
   Decrease (increase) in accrued investment
     income                                                      518         (   1,142)        (     614)
   Increase in policy acquisition costs deferred           (  13,110)        (  12,280)        (  11,485)
   Decrease (increase) in other assets                           597         (   1,098)        (   2,948)
   Increase in reinsurance recoverables and
     reserve credits                                       (   4,207)        (   2,297)        (     828)
   Increase in future policy benefits and claims               8,271             7,718             5,294
   Increase (decrease) in other policyholder funds             3,359         (   1,008)        (   2,543)
   Increase in reinsurance premium due                           847               202               390
   (Increase) decrease in prepaid federal income
     taxes                                                 (   8,341)              591         (   1,370)
   Increase in accounts payable and
     due to affiliates                                         2,395               697               728
                                                            --------          --------          --------
       Net cash provided by operating activities            $ 17,997          $ 14,011          $ 11,827
                                                            --------          --------          --------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of investments:
     Fixed maturities                                      ($329,244)        ($101,624)        ($181,008)
     Equity securities                                     (  23,172)        (  37,253)        (  52,798)
     Mortgage loans                                                0                 0         (      66)
     Limited partnerships                                  (   9,513)        (   9,104)        (  10,927)
   Sales/maturities of investments:
     Sales of fixed maturities                               218,548            23,447            37,245
     Calls/maturities of fixed maturities                     74,480            40,442            71,703
     Equity securities                                        55,563            35,599            53,672
     Limited partnerships                                     28,206             3,614             1,192
   Principal payments received on mortgage loans                 927             1,691               162
   Loans made to policyholders                             (   2,185)        (   2,140)        (   1,568)
   Payments received on policy loans                           1,072             1,098               857
                                                            --------          --------          --------
       Net cash provided by (used in) investing
         activities                                         $ 14,682         ($ 44,230)        ($ 81,536)
                                                            --------          --------          --------
CASH FLOWS FROM FINANCING ACTIVITIES
   Annuity and supplementary contract deposits
     and interest                                           $105,138          $ 84,757          $ 98,327
   Annuity and supplementary contract surrenders
     and withdrawals                                       (  52,408)        (  69,831)        (  53,258)
   Universal life deposits and interest                       19,127            17,380            17,081
   Universal life surrenders                               (   4,759)        (   4,828)        (   3,795)
   Dividends paid to shareholders                          (   7,229)        (   6,662)        (   6,096)
                                                            --------          --------          --------
       Net cash provided by financing activities            $ 59,869          $ 20,816          $ 52,259
                                                            --------          --------          --------
Net increase (decrease) in cash and cash
   equivalents                                              $ 92,548         ($  9,403)        ($ 17,450)
Cash and cash equivalents at beginning of year                17,955            27,358            44,808
                                                            --------          --------          --------
Cash and cash equivalents at end of year                    $110,503          $ 17,955          $ 27,358
                                                            ========          ========          ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 Cash paid during the year for:
     Interest                                               $  1,175          $  1,192          $  1,199
     Income taxes                                              9,701            10,124            11,016

<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
                                       57
<PAGE>

INCORPORATED BY REFERENCE, PAGE 32 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

<TABLE>
<CAPTION>

                       ERIE FAMILY LIFE INSURANCE COMPANY

                       STATEMENTS OF SHAREHOLDERS' EQUITY
                  Years Ended December 31, 2001, 2000 and 1999
                  (Dollars in thousands, except per share data)

                                                                                          Accumulated
                                                 Total                                       Other
                                               Shareholders' Comprehensive   Retained    Comprehensive                Additional
                                                 Equity      Income (Loss)   Earnings     Income (Loss) Common Stock Paid-in Capital
                                               -----------   -------------  -----------  -------------  ------------ --------------
<S>                                            <C>            <C>            <C>            <C>            <C>            <C>
Balance, January 1, 1999                        $ 182,531                     $ 151,949      $  26,172     $   3,780      $    630
Comprehensive income
   Net income                                      23,325      $  23,325         23,325
   Unrealized depreciation of investments,
     net of tax                                (   28,516)    (   28,516)                   (   28,516)
                                                               ---------
Comprehensive loss                                            ($   5,191)
                                                               =========
Dividends declared,
   $.66 per share                              (    6,237)                   (    6,237)
                                                ---------                     ---------
Balance, December 31, 1999                      $ 171,103                     $ 169,037     ($   2,344)    $   3,780      $    630
                                                ---------                     ---------      ---------     ---------      --------
Comprehensive income
   Net income                                      25,390      $  25,390         25,390
   Unrealized appreciation of investments,
     net of tax                                     6,031          6,031                         6,031
                                                               ---------
Comprehensive income                                           $  31,421
                                                               =========
Dividends declared,
   $.72 per share                              (    6,804)                   (    6,804)
                                                ---------                     ---------
Balance, December 31, 2000                      $ 195,720                     $ 187,623      $   3,687     $   3,780      $    630
                                                ---------                     ---------      ---------     ---------      --------
Comprehensive income
   Net income                                       2,738      $   2,738          2,738
   Unrealized appreciation of investments,
     net of tax                                    14,672         14,672                        14,672
                                                               ---------
Comprehensive income                                           $  17,410
                                                               =========
Dividends declared,
   $.78 per share                              (    7,371)                   (    7,371)
                                                ---------                     ---------
Balance, December 31, 2001                      $ 205,759                     $ 182,990      $  18,359     $   3,780      $    630
                                                =========                     =========      =========     =========      ========

<FN>
See accompanying notes to financial statements
</FN>

</TABLE>


                                       58
<PAGE>

INCORPORATED BY REFERENCE, PAGE 33 AND 34 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS
              All dollar amounts are in thousands,  except per share data.

NOTE 1.         NATURE OF BUSINESS

                Erie  Family   Life   Insurance   Company   (the   Company),   a
                Pennsylvania-domiciled  life insurer, is engaged in the business
                of  underwriting  and selling  nonparticipating  individual  and
                group life insurance policies, including universal life, annuity
                products and disability income products. The Company markets its
                products  through  independent  agents  in ten  states  and  the
                District  of  Columbia  and  is  subject  to   supervision   and
                regulations  of the states in which it  operates.  A majority of
                the  Company's  business  is  written  in  Pennsylvania,   Ohio,
                Maryland and Virginia. See also Note 12.

                The Company is owned 21.6% by the Erie Indemnity  Company (EIC),
                53.5%  by  the  Erie  Insurance  Exchange   (Exchange)  and  the
                remaining  24.9%  by  public  shareholders.  The  Company  is an
                affiliate  of  EIC  and  the  Exchange.  EIC  is a  Pennsylvania
                business  corporation formed in 1925 to be the  attorney-in-fact
                for Erie Insurance Exchange, a Pennsylvania-domiciled reciprocal
                insurance  exchange.  EIC's principal business activity consists
                of  management  of the  affairs  of the  Exchange.  EIC  also is
                engaged in the property/casualty  insurance business through its
                wholly-owned   subsidiaries,   Erie  Insurance   Company,   Erie
                Insurance  Property  &  Casualty  Company,  and  Erie  Insurance
                Company of New York and through its  management of Flagship City
                Insurance Company (Flagship),  a subsidiary of the Exchange. The
                Company, EIC, the Exchange and their subsidiaries and affiliates
                operate collectively under the name Erie Insurance Group.

                As management  company of the Erie Insurance Group of companies,
                EIC  pays  operating  expenses  of  the  Company.   The  Company
                reimburses  EIC for  direct  expenses  and its  share of  common
                expenses.  The  Company  also  sells  a  significant  amount  of
                annuities to affiliated  companies of the Erie Insurance  Group.
                See also Note 7.

NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES

                Basis of presentation

                    The accompanying  financial statements have been prepared in
                    conformity  with generally  accepted  accounting  principles
                    that differ from statutory  accounting  practices prescribed
                    or permitted  for  insurance  companies by state  regulatory
                    authorities.

                Use of estimates

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

                    The  development of liabilities  for future policy  benefits
                    for  the  Company's  products  requires  management  to make
                    estimates and assumptions  regarding  mortality,  morbidity,
                    lapse, expense and investment experience. Such estimates are
                    primarily   based  on   historical   experience  and  future



                                       59
<PAGE>

INCORPORATED BY REFERENCE, PAGE 34 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS

NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                    expectations of mortality,  morbidity,  expense, persistency
                    and  investment  assumptions.  Actual  results  could differ
                    materially from those estimates.  Management monitors actual
                    experience,  and where  circumstances  warrant,  revises its
                    assumptions and the related future policy benefit estimates.

                Investments

                    Fixed  maturities  and  marketable   equity  securities  are
                    classified as available-for-sale.  Equity securities consist
                    of common and  non-redeemable  preferred  stock  while fixed
                    maturities consist of bonds, notes and redeemable  preferred
                    stock.  Available-for-sale  securities  are  stated  at fair
                    value,  with the  unrealized  gains and losses,  net of tax,
                    reported as a separate component of comprehensive income and
                    shareholders'  equity. There are no securities classified as
                    "trading" securities or "held-to-maturity" securities.

                    Realized  gains  and  losses  on  sales of  investments  are
                    recognized in income on the specific  identification method.
                    Investments  that have  declined in value below cost and for
                    which the decline is considered  to be  other-than-temporary
                    by  management  are  written  down to  estimated  realizable
                    value.  Such write-downs are made on an individual  security
                    basis and are recorded as a component of net realized  gains
                    (losses) on  investments  in the  Statements of  Operations.
                    Interest and dividend income is recorded as earned.

                    Mortgage  loans on  commercial  real estate are  recorded at
                    unpaid  balances,  adjusted for  amortization  of premium or
                    discount.  Valuation allowances, if needed, are provided for
                    impairment  in  net  realizable   value  based  on  periodic
                    valuations.

                    Limited  partnerships  include  U.S. and foreign real estate
                    and fixed income investments.  During 2001, the Company sold
                    its private equity limited partnerships to the Exchange. See
                    also Note 3. The private  equity limited  partnerships  were
                    carried  at their  estimated  market  values  in 2000.  Real
                    estate and fixed income  limited  partnerships  are recorded
                    using the equity method,  which  approximates  the Company's
                    share of the carrying value of the partnership.  The Company
                    has not guaranteed any of the partnership liabilities.

                Cash equivalents

                    The Company considers all highly liquid  investments with an
                    original  maturity of three months or less when purchased to
                    be cash  equivalents.  Cash  equivalents  total  $112,809 at
                    December 31, 2001,  and are comprised of investments in bank
                    money market funds.

                Deferred policy acquisition costs

                    The costs of acquiring new business, principally commissions
                    and certain costs of underwriting and issuing policies,  are
                    deferred  for  traditional  life  insurance.   These  costs,
                    including   underwriting  and  medical   examinations,   are
                    amortized  over  the  premium  paying  period of the related


                                       60
<PAGE>

INCORPORATED BY REFERENCE, PAGE 34 AND 35 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                    policies  in  proportion  to the total  anticipated  premium
                    revenue  stream.  Anticipated  premium  revenue is estimated
                    using  the  same  assumptions  as were  used  for  computing
                    liabilities for future policy benefits.  To determine if the
                    deferred policy acquisition costs are recoverable,  periodic
                    reviews are performed to verify  future policy  premiums and
                    anticipated investment income exceed related costs.

                    Universal life and annuity  deferred  acquisition  costs are
                    amortized  in  relation to the  present  value of  estimated
                    future gross profits on the contracts over a 20-year period.

                    Deferred policy acquisition costs are summarized as follows:

<TABLE>
<CAPTION>
                                                         2001              2000              1999
                                                      -----------      -----------       -----------
                    <S>                               <C>              <C>               <C>
                    Balance at beginning of year       $   84,723       $   77,588        $   70,916
                    Additions                              13,110           12,280            11,485
                    Amortization                      (     5,818)     (     5,145)      (     4,813)
                                                       ----------       ----------        ----------

                    Balance at end of year             $   92,015       $   84,723        $   77,588
                                                       ==========       ==========        ==========
</TABLE>

                Insurance liabilities

                    Liabilities  for life  insurance and  income-paying  annuity
                    future  policy  benefits are  computed  primarily by the net
                    level  premium  method with  assumptions  as to  anticipated
                    mortality,   withdrawals,   lapses  and  investment  yields.
                    Disability   income  reserves  are  calculated  as  two-year
                    preliminary term mid-terminal reserves plus unearned premium
                    reserves. Deferred annuity future policy benefit liabilities
                    are established at accumulated  values without reduction for
                    surrender   charges.   Reserves  for   universal   life  and
                    investment  contracts  are  based  on the  contract  account
                    balance, if future benefit payments in excess of the account
                    balance are not  guaranteed,  or the present value of future
                    benefit   payments  when  such   payments  are   guaranteed.
                    Variations  are  inherent  in such  calculations  due to the
                    estimates  and  assumptions  necessary in the  calculations.
                    Interest rate  assumptions  for  noninterest-sensitive  life
                    insurance  range from 3.5% to 4% on policies  issued in 1980
                    and prior years and 6% to 7.25% on  policies  issued in 1981
                    and subsequent years.  Mortality and withdrawal  assumptions
                    are based on tables typically used in the industry, modified
                    to reflect actual experience where appropriate.

                    Universal  life  and  annuity  deposits  are  credited  with
                    varying  interest rates  determined at the discretion of the
                    Company subject to certain minimums.  During 2001,  interest
                    rates  credited  ranged from 6.0% to 6.75% on universal life
                    deposits and 5.0% to 6.25% on annuity deposits.

                Liability for guaranty fund assessments

                    The Company may be required,  under the solvency or guaranty
                    laws of the various  states in which it is licensed,  to pay
                    assessments  up to  prescribed  limits to fund  policyholder
                    losses or liabilities of insolvent life insurance companies.
                    Certain  states  permit  these  assessments,  or  a  portion


                                       61
<PAGE>

INCORPORATED BY REFERENCE, PAGE 35 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                    thereof,  to  be  recovered  as  an offset to future premium
                    taxes.

                    Assessments   are  recognized  as  incurred  when  an  event
                    obligating  the Company has  occurred  and the amount can be
                    reasonably  estimated.  When the  assessment  is  subject to
                    credit  against  future  premium  taxes and such credits are
                    reasonably   believed  to  be   recoverable,   an  asset  is
                    established.  The  asset is  reduced  when the  credits  are
                    realized under applicable state law.

                    The  Company's  estimated  liability  for guaranty  fund and
                    other assessments was $614 and $202 at December 31, 2001 and
                    2000,  respectively.  The estimated asset for credit against
                    future  premium  taxes was $486 and $47 at December 31, 2001
                    and 2000, respectively.

                Recognition of premium revenues and losses

                    Premiums  on  traditional   life  insurance   contracts  are
                    reported as earned  revenue  when due.  Reserves  for future
                    policy benefits are established as premiums are earned.  For
                    universal life and annuity contracts,  deposits are recorded
                    in  the  policyholder  account,  which  is  classified  as a
                    liability.  Revenue is  recognized  as amounts are  assessed
                    against the policyholder  account for mortality coverage and
                    contract expenses. Disability income premiums are recognized
                    as revenue pro rata over the terms of the contracts.

                Reinsurance

                    The   Statements   of   Operations   are  reflected  net  of
                    reinsurance  activities.  Gross  revenue  and  benefits  and
                    expenses  incurred  are reduced  for amounts  expected to be
                    recovered   under   reinsurance   agreements.    Reinsurance
                    transactions  are  recorded  "gross"  on the  Statements  of
                    Financial Position.

                Income taxes

                    Provisions for income taxes include deferred taxes resulting
                    from changes in cumulative temporary differences between the
                    tax  bases  and  financial  statement  bases of  assets  and
                    liabilities.  Deferred  taxes are  provided  on a  liability
                    method  whereby  deferred  tax  assets  are  recognized  for
                    deductible   temporary    differences   and   deferred   tax
                    liabilities    are   recognized   for   taxable    temporary
                    differences.   Deferred  tax  assets  and   liabilities  are
                    adjusted for the effects of changes in tax laws and rates on
                    the date of enactment.

                Software development costs

                    Software   development   costs  have  been  capitalized  and
                    included in other assets.  Total software  development costs
                    are  being  amortized  on a  straight-line  basis  over  the
                    expected  useful life of the asset.  The  carrying  value of
                    this asset at  December  31,  2001 and 2000,  was $1,933 and
                    $2,183, respectively.


                                       62
<PAGE>

INCORPORATED BY REFERENCE, PAGE 35 AND 36 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                Earnings per share

                    Earnings per share amounts are based on the weighted average
                    number  of  common  shares  outstanding  during  each of the
                    respective years.

                Reclassification

                    Certain  amounts,   as  previously   reported  in  the  2000
                    financial  statements,  have been reclassified to conform to
                    the current year's financial statement presentation.


NOTE 3.         INVESTMENTS

                The following tables summarize the cost and market value of
                securities at December 31, 2001 and 2000.
<TABLE>
<CAPTION>

                                                                         Gross           Gross
                                                    Amortized         Unrealized       Unrealized        Estimated
                                                       Cost              Gains           Losses          Fair Value
December 31, 2001                                   ---------         ----------       ----------       -----------
<S>                                                <C>               <C>              <C>               <C>
Fixed Maturities:
Bonds:
   U. S. treasuries and
     government agencies                           $    26,239       $       423      $       139       $    26,523
   Special revenue                                       8,028               352                0             8,380
   Public utilities                                     71,906             1,803              925            72,784
   U. S. banks, trusts
     and insurance companies                           136,259             3,425              583           139,101
   U. S. industrial
     and miscellaneous                                 419,325             9,354            3,500           425,179
   Foreign                                              56,743             1,794              234            58,303
                                                   -----------       -----------      -----------       -----------

       Total fixed maturities                      $   718,500       $    17,151      $     5,381       $   730,270
                                                   ===========       ===========      ===========       ===========

Equity Securities:
Common stock:
   U. S. banks, trusts
     and insurance companies                       $     5,332       $       809      $        17       $     6,124
   U. S. industrial and miscellaneous                   30,605            15,996              413            46,188
   Public utilities                                        417                 0               57               360
Non-redeemable preferred stock:
   U. S. industrial and miscellaneous                    8,603               712                0             9,315
   Foreign                                              41,801             1,306            1,419            41,688
                                                   -----------       -----------      -----------       -----------

       Total equity securities                     $    86,758       $    18,823      $     1,906       $   103,675
                                                   ===========       ===========      ===========       ===========

       Total available-for-sale securities         $   805,258       $    35,974      $     7,287       $   833,945
                                                   ===========       ===========      ===========       ===========
</TABLE>


                                       63
<PAGE>

INCORPORATED BY REFERENCE, PAGE 37 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3.         INVESTMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                        Gross            Gross
                                                     Amortized        Unrealized       Unrealized        Estimated
                                                       Cost             Gains            Losses          Fair Value
December 31, 2000                                    ---------        ----------      -----------       -----------
<S>                                                <C>               <C>              <C>               <C>
Fixed Maturities:
Bonds:
   U. S. treasuries and
     government agencies                           $    12,114       $       835      $         6       $    12,943
   States and political
     subdivisions                                          195                 8                0               203
   Special revenue                                       9,458               271                0             9,729
   Public utilities                                     71,732             1,774            1,439            72,067
   U. S. banks, trusts
     and insurance companies                           125,125             2,162            4,163           123,124
   U. S. industrial
     and miscellaneous                                 401,160             5,645           13,105           393,700
   Foreign                                              67,630               489            4,394            63,725
                                                   -----------       -----------      -----------       -----------

       Total bonds                                 $   687,414       $    11,184      $    23,107       $   675,491

Redeemable preferred stock                               7,664               496                0             8,160
                                                   -----------       -----------      -----------       -----------

       Total fixed maturities                      $   695,078       $    11,680      $    23,107       $   683,651
                                                   ===========       ===========      ===========       ===========

Equity Securities:
Common stock:
   U. S. banks, trusts
     and insurance companies                       $     7,447       $       754      $        58       $     8,143
   U. S. industrial and miscellaneous                   53,931            20,867            9,810            64,988
   Foreign                                                 703                 0              309               394
Non-redeemable preferred stock:
   U. S. industrial and miscellaneous                   10,950               143              271            10,822
   Foreign                                              54,358               661            1,448            53,571
                                                   -----------       -----------      -----------       -----------

       Total equity securities                     $   127,389       $    22,425      $    11,896       $   137,918
                                                   ===========       ===========      ===========       ===========

       Total available-for-sale securities         $   822,467       $    34,105      $    35,003       $   821,569
                                                   ===========       ===========      ===========       ===========
</TABLE>


                                       64
<PAGE>

INCORPORATED BY REFERENCE, PAGE 37 AND 38 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3.         INVESTMENTS (CONTINUED)

              Components  of net  investment  income  follow for the years ended
              December 31:

<TABLE>
<CAPTION>
                                                      2001             2000              1999
                                                   ----------       ----------        ----------
              <S>                                  <C>              <C>               <C>
              Fixed maturities                     $   53,172       $   51,440        $   47,068
              Equity securities                         6,815            7,496             7,134
              Other                                     3,109            2,391             2,772
                                                   ----------       ----------        ----------

              Total investment income              $   63,096       $   61,327        $   56,974
              Investment expense                        1,915            1,851             1,695
                                                   ----------       ----------        ----------

              Net investment income                $   61,181       $   59,476        $   55,279
                                                   ==========       ==========        ==========
</TABLE>

              Components of realized gains and losses on  investments  reflected
              in operations for the years ended December 31 are included  below.
              One  equity  position,   in  the  computer  and  office  equipment
              industry, was written down to its net realizable value and charged
              to operations in 2001.

<TABLE>
<CAPTION>
                                                       2001            2000               1999
                                                    ----------      ----------        ----------
              <S>                                  <C>              <C>               <C>
              Realized gains:
                Fixed maturities                    $    8,583      $      671        $    1,755
                Equity securities                        1,657          11,514             5,218
                Limited partnerships                     4,715               0                 0
                Other, net                                  33               0                 0
                                                    ----------      ----------        ----------

                Total gains                         $   14,988      $   12,185        $    6,973
                                                    ----------      ----------        ----------

              Realized losses:
                Fixed maturities                    $   13,502      $      436        $      360
                Equity securities                       17,534           4,789             2,280
                Limited partnerships                     3,571               0                 0
                                                    ----------      ----------        ----------

                Total losses                        $   34,607      $    5,225        $    2,640
                                                    ----------      ----------        ----------

              Impairment charges:
                Equity securities                   $       27      $        0        $        0
                                                    ----------      ----------        ----------

                Net realized (losses) gains
                  on investments                   ($   19,646)     $    6,960        $    4,333
                                                    ==========      ==========        ==========
</TABLE>


                                       65
<PAGE>

INCORPORATED BY REFERENCE, PAGE 38 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3.         INVESTMENTS (CONTINUED)

              The components of equity in earnings of limited partnerships
              reported for the years ended December 31 are as follows:
<TABLE>
<CAPTION>

                                                                         2001            2000              1999
                                                                      ----------      -----------       -----------
                <S>                                                  <C>              <C>              <C>
                Private equity                                       ($    1,093)     $       515      ($        79)
                Real estate                                                1,390            1,926               906
                Fixed income                                                 439              996               107
                                                                      ----------      -----------       -----------
                  Equity in earnings of limited partnerships          $      736      $     3,437       $       934
                                                                      ==========      ===========       ===========
</TABLE>

              During the fourth quarter 2001,  the Company sold its  investments
              in  private  equity  limited  partnerships  to  the  Exchange  for
              $24,090, the estimated fair value at the date of sale, recognizing
              a gain of $1,144  from the sale.  During  the first  half of 2002,
              when actual  valuation  data is available,  the sales price of the
              partnerships will be adjusted to reflect their actual market value
              as of the date of sale.

              The  following  is a summary of fixed  maturities  at December 31,
              2001, by remaining term to contractual maturity:
<TABLE>
<CAPTION>
                                                               Amortized         Estimated
                                                               Cost             Fair Value
                <S>                                          <C>               <C>
                Due in one year or less                      $    27,111       $    27,382
                Due after one year through five years            186,454           190,401
                Due after five years through 10 years            241,580           244,632
                Due after 10 years through 20 years               91,167            93,426
                Due after 20 years                               172,188           174,429
                                                             -----------       -----------

                                                             $   718,500       $   730,270
                                                             ===========       ============
</TABLE>

                Bonds having a fair value of $1,885 at December  31, 2001,  were
                on deposit with various  regulatory  authorities  as required by
                law.  Bonds  having  a fair  value of  $16,625  are  pledged  as
                collateral  on a $10,000 line of credit with a bank.  There were
                no borrowings on the line during 2001 and 2000.

                Net unrealized  gains and losses on investments  are credited or
                charged directly to other comprehensive  income. At December 31,
                2001, net unrealized  gains on investments of $18,359  consisted
                of $35,974 in unrealized gains less $7,730 in unrealized  losses
                and deferred taxes of $9,885.


                                       66
<PAGE>

INCORPORATED BY REFERENCE, PAGE 38 AND 39 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS

NOTE 3.         INVESTMENTS (CONTINUED)

                Changes in unrealized gains (losses) include the following for
                the years ended December 31:
<TABLE>
<CAPTION>
                                                       2001             2000              1999
                                                    ----------       ----------        ----------
                  <S>                              <C>              <C>               <C>
                  Equity securities                 $    6,388      ($    6,892)       $    6,237
                  Fixed maturities                      23,197           11,355       (    51,830)
                  Limited partnerships             (     7,013)           4,816             1,723
                  Deferred federal income tax
                    (expense) benefit              (     7,900)     (     3,248)           15,354
                                                    ----------       ----------        ----------
                  Increase (decrease) in
                    unrealized gains (losses)       $   14,672       $    6,031       ($   28,516)
                                                    ==========       ==========        ==========
</TABLE>

                The Company participates in a securities lending program whereby
                certain  securities  from  its  portfolio  are  loaned  to other
                institutions  for short periods of time through a lending agent.
                The Company maintains control over the securities. A fee is paid
                to the Company by the borrower.  Revenue  received for the years
                ended  December  31,  2001 and  2000,  related  to this  program
                totaled $85 and $10, respectively. Collateral, comprised of cash
                and government securities,  that exceeds the market value of the
                loaned  securities  is  maintained  by the  lending  agent.  The
                Company has an indemnification  agreement with the lending agent
                in the event a  borrower  becomes  insolvent  or fails to return
                securities.  The  Company  had loaned  securities  with a market
                value of $46,949 and $27,561 and secured  collateral  of $48,959
                and $29,136 at December  31,  2001 and 2000,  respectively.  The
                borrower of the  securities  is not permitted to sell or replace
                the  security  on  loan.   The  Company   maintains  the  loaned
                securities on its  Statements  of Financial  Position as part of
                its invested assets.

NOTE 4.         FAIR VALUE OF FINANCIAL INSTRUMENTS

                Estimated fair value amounts of financial instruments  have been
                determined  using  available market  information and appropriate
                valuation  methodologies.  However,   considerable  judgment  is
                required in developing the estimates of fair value. Accordingly,
                these estimates  are not  necessarily  indicative of the amounts
                that could be realized  in a current  market  exchange.  Certain
                financial instruments,  including insurance contracts other than
                financial guarantees and investment  contracts,  are exempt from
                fair value disclosure  requirements.  The following  methods and
                assumptions  were  used  by  the  Company in estimating the fair
                value  of  each  class  of  financial instrument for which it is
                practicable to estimate that value:

                Cash and cash  equivalents:  The  carrying  amounts  approximate
                their fair value.

                Fixed maturities and equity  securities:  Fair values were based
                on quoted market prices, where available,  or dealer quotations.
                See Note 3 for fair value disclosures.

                Limited  partnerships:  Fair values of the fixed income  limited
                partnerships  were  provided to the Company by the  partnership.
                Real estate limited partnership fair values approximate carrying
                value.

                Policy loans and real estate  mortgage  loans:  For policy loans
                and real estate mortgage loans, carrying value is representative
                of estimated fair value.


                                       67
<PAGE>

INCORPORATED BY REFERENCE, PAGE 39 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS
                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 4.         FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

                Trading  assets and trading  liabilities:  The carrying value of
                these assets and  liabilities  arising in the ordinary course of
                business approximates their fair values.

                Annuity deposits:  Included in this category are annuity deposit
                contracts.  The  Company  retains  the right to change  interest
                rates  subject  to a one  year  guaranteed  interest  rate and a
                minimum interest rate provided in the policy.  As a result,  the
                carrying value of these contracts approximates their fair value.
                These annuity deposits totaled $490,067 at December 31, 2001.

                Annuity deposits include structured settlements,  contracts that
                the policyholder  cannot surrender at any time and for which the
                policyholder is locked into an interest rate for the duration of
                the  contract.  Fair values of these  contracts  were  estimated
                using discounted  projected cash flows based upon interest rates
                currently  being  offered  for similar  contracts  with the same
                remaining  maturities.  At December 31, 2001, the carrying value
                of structured  settlements  totaled $146,783 while the estimated
                fair value of these contracts totaled $152,890.

                Universal life deposits: The Company retains the right to change
                interest  rates on its  universal  life  deposits  subject  to a
                minimum interest rate provided in the policy.  As a result,  the
                carrying value of these contracts approximates their fair value.


NOTE 5.         COMPREHENSIVE INCOME

                Comprehensive  income is defined  as any  change in equity  from
                transactions and other events originating from nonowner sources.
                The  components  of other  comprehensive  income  follow for the
                years ended December 31:
<TABLE>
<CAPTION>

                                                                          2001             2000              1999
                                                                       -----------      -----------       -----------
                <S>                                                    <C>              <C>               <C>
                Unrealized holding gains (losses) arising
                  during period                                         $    2,926       $   16,239       ($   39,537)
                Less:  losses (gains) included in net income                19,646      (     6,960)      (     4,333)
                                                                        ----------       ----------        ----------
                Net unrealized holding gains (losses)
                  arising during period                                 $   22,572       $    9,279       ($   43,870)
                Income tax (expense) benefit related to
                  unrealized gains (losses)                            ($    7,900)     ($    3,248)       $   15,354
                                                                        ----------       ----------        ----------
                Other comprehensive income (loss), net
                  of tax                                                $   14,672       $    6,031       ($   28,516)
                                                                        ==========       ==========        ==========
</TABLE>


                                       68
<PAGE>

INCORPORATED BY REFERENCE, PAGE 39 AND 40 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS

NOTE 6.         LIABILITY FOR UNPAID POLICY AND CONTRACT CLAIMS

                Activity in the liability for unpaid policy and contract  claims
                is as follows:
<TABLE>
<CAPTION>

                                                          2001              2000            1999
                                                        ---------         --------        --------
                <S>                                    <C>               <C>             <C>
                Balance at January 1                    $   2,473         $  1,305        $  1,801
                Less reinsurance recoverables          (      168)       (     184)      (     449)
                                                        ---------         --------        --------

                Net balance at January 1                $   2,305         $  1,121        $  1,352

                Total death claims incurred                13,338           12,869          10,231
                Total death claims paid,
                  net of reinsurance recoveries            14,715           11,685          10,462
                                                        ---------         --------        --------

                Net balance at December 31              $     928         $  2,305        $  1,121
                Plus reinsurance recoverables               1,022              168             184
                                                        ---------         --------        --------

                Balance at December 31                  $   1,950         $  2,473        $  1,305
                                                        =========         ========        ========
</TABLE>
                The increase in death claims paid and  reinsurance  recoverables
                during 2001 result from the new traditional products the Company
                began  writing in late 1999 with higher face amounts and greater
                coinsurance percentages with the reinsurers. See also Note 10.


NOTE 7.         ANNUITY & UNIVERSAL LIFE DEPOSITS

                The Company offers, among other products,  annuity and universal
                life insurance.  The amount received as deposits for each of the
                years ended December 31 are as follows:
                                          2001          2000           1999
                                       ----------    ----------     ----------

                Deposits:
                  Universal life       $   12,238    $   11,198     $   11,792
                  Annuity                  69,754        51,060         67,115
                                       ----------    ----------     ----------

                    Total              $   81,992    $   62,258     $   78,907
                                       ==========    ==========     ==========

                The Erie Insurance Group Retirement Plan for Employees purchases
                from the Company individual annuities for some terminated vested
                Employees  or  beneficiaries   receiving  benefits.   These  are
                nonparticipating  annuity  contracts under which the Company has
                unconditionally  contracted  to provide  specified  benefits  to
                beneficiaries  in  return  for a fixed  premium  from the  plan.
                Annuity deposits in 2001, 2000 and 1999 included $4,513,  $5,627
                and  $5,322,  respectively,  of  deposits  on annuity  contracts
                purchased  by the  Erie  Insurance  Group  Retirement  Plan  for
                Employees.  Annuity  deposit  balances  outstanding  relating to
                pension  annuities sold to the Erie Insurance  Group  Retirement
                Plan are  $48,797  and  $46,212 at  December  31, 2001 and 2000,
                respectively.


                                       69
<PAGE>

INCORPORATED BY REFERENCE, PAGE 40 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 7.         ANNUITY & UNIVERSAL LIFE DEPOSITS (CONTINUED)

                The  Erie  Insurance  Group  affiliated  property  and  casualty
                insurance  companies  periodically  purchase  annuities from the
                Company in connection with the structured  settlement of claims.
                Structured  settlement annuities sold to affiliated property and
                casualty  companies of the Erie Insurance Group totaled $12,879,
                $16,168 and $23,312 in 2001,  2000 and 1999,  respectively.  The
                reserves held for  structured  settlement  annuities sold to the
                affiliated  property  and  casualty  insurance  companies  equal
                $171,006   and   $162,322  at   December   31,  2001  and  2000,
                respectively.


NOTE 8.         FEDERAL INCOME TAXES

                The provision for federal income taxes consists of the following
                for the years ended December 31:
                                        2001           2000            1999
                                     -----------    -----------     -----------

                  Currently due      $     1,361    $    10,715     $     9,646
                  Deferred                    88          2,718           1,955
                                     -----------    -----------     -----------

                    Total            $     1,449    $    13,433     $    11,601
                                     ===========    ===========     ===========

                A reconciliation  of the provision for income taxes with amounts
                determined by applying the statutory federal income tax rates to
                pre-tax income is as follows:
<TABLE>
<CAPTION>

                                                                          2001            2000              1999
                                                                       ---------       ----------        ----------
                  <S>                                                 <C>             <C>               <C>
                  Federal income taxes at statutory rates              $   1,465       $   13,588        $   12,224
                  Dividends received deduction and
                    tax-exempt interest                               (       33)     (        47)      (        85)
                  Other                                                       17      (       108)      (       538)
                                                                       ---------       ----------        ----------

                  Provision for federal income taxes                   $   1,449       $   13,433        $   11,601
                                                                       =========       ==========        ==========
</TABLE>

                Temporary  differences  between the financial statement carrying
                amounts and tax bases of assets and  liabilities  that give rise
                to deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                               2001              2000
                                                                            -----------       -----------
                <S>                                                         <C>               <C>
                Deferred policy acquisition costs                            $   28,030        $   25,805
                Liability for future life and annuity policy benefits       (     5,146)      (     4,030)
                Unrealized gains                                                  9,885             1,986
                Other                                                       (       962)               58
                                                                             ----------        ----------

                      Deferred income tax liability                          $   31,807        $   23,819
                                                                             ==========        ==========
</TABLE>


                                       70
<PAGE>

INCORPORATED BY REFERENCE, PAGE 40 AND 41 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                         NOTES TO FINANCIAL STATEMENTS


NOTE 9.         RELATED PARTY TRANSACTIONS

                Expense reimbursements

                    Reimbursements to EIC for operating  expenses paid on behalf
                    of the  Company  are made on a monthly  basis.  The  Company
                    reimburses  EIC when the  expenses  are paid.  The amount of
                    these   reimbursements  for  the  Company  totaled  $18,545,
                    $18,631 and $14,740 in 2001, 2000 and 1999, respectively.

                    The Employees of the Company  participate in the pension and
                    other Employee  benefit plans of EIC. The benefits are based
                    on years of service and salary.  Pension costs are funded by
                    EIC in amounts  sufficient  to at least  meet ERISA  minimum
                    funding  requirements.   The  Company,   through  EIC,  also
                    participates   in   certain   deferred    compensation   and
                    supplemental  pension plans for certain executive and senior
                    officers.  The  amounts  recorded  by the  Company  for  the
                    deferred  compensation and supplemental pension plan totaled
                    $553 and $711 at December  31, 2001 and 2000,  respectively,
                    which will be  reimbursed  to EIC as payments are made under
                    these  plans.   The  pension  and  related   benefit   costs
                    reimbursed  by the Company to EIC equaled  ($96),  ($72) and
                    $123 in 2001, 2000 and 1999, respectively

                Note payable to EIC

                    The  $15,000  surplus  note  payable  to EIC bears an annual
                    interest  rate of 6.45% and all  payments  of  interest  and
                    principal  of the note may be repaid only out of  unassigned
                    surplus of the  Company,  subject to prior  approval  of the
                    Pennsylvania Insurance Commissioner. Interest on the surplus
                    note is scheduled to be paid semi-annually. The note will be
                    payable  on demand on or after  December  31,  2005.  During
                    2001,  2000 and  1999,  the  Company  paid  interest  to EIC
                    totaling $968 in each year.

                Property and equipment

                    The Company  owns  certain real estate it leases to EIC. The
                    real estate is recorded net of accumulated  depreciation  of
                    $1,528  and   $1,445  at   December   31,   2001  and  2000,
                    respectively. Rentals paid to the Company totaled $354, $309
                    and  $303 in  2001,  2000  and  1999,  respectively.  Future
                    minimum rentals under this agreement are as follows:

                                      2002              $     390
                                      2003                    393
                                      2004                    400
                                      2005                    403
                                      2006                    367
                                      Thereafter              454
                                                        ---------

                                      Total             $   2,407
                                                        =========


                                       71
<PAGE>

INCORPORATED BY REFERENCE, PAGE 41 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS

NOTE 9.         RELATED PARTY TRANSACTIONS (CONTINUED)

                EIC purchases  certain  software  and  equipment  for use by the
                Company. Depreciation and applicable interest are charged to the
                Company throughout the estimated useful life of the asset and is
                included in general expenses.  Depreciation and interest charged
                the Company in 2001, 2000 and 1999  amounted  to $701,  $717 and
                $574, respectively.

NOTE 10.        REINSURANCE

                The Company has entered  into various  reinsurance  treaties for
                the purpose of ceding life  insurance  in force that exceeds the
                Company's desired retention limits. Reinsurance contracts do not
                relieve  the  Company  from its  obligations  to  policyholders.
                Failure of reinsurers to honor their obligations could result in
                losses to the  Company.  The  Company  evaluates  the  financial
                condition of its reinsurers and monitors  concentrations of risk
                to minimize its exposure to  significant  losses from  reinsurer
                insolvencies.  The  Company  considers  all of  its  reinsurance
                assets  to be  collectible,  therefore,  no  allowance  has been
                established for uncollectible amounts.

                Generally,  the Company's  retention  limit is $300 per life for
                individual  and  $200  per  life  for  group  coverage.  For its
                disability  income  product,  the Company has a 50%  coinsurance
                agreement with its reinsurer.  As of December 31, 2001 and 2000,
                $4.1 billion and $2.6 billion,  respectively,  of life insurance
                in force  was ceded to other  companies.  In 2001,  the  Company
                introduced two new products, ERIE Flagship Term2 and ERIE Target
                Term.  These  products are reinsured 50% and 90%,  respectively,
                with nonaffiliated reinsurers. Sales of ERIE Flagship Term, ERIE
                Flagship  Term2 and the ERIE  Target  Term in 2001  resulted  in
                increased ceded reinsurance balances in 2001.

                Policy  revenues,   benefits  and  expenses   reflected  in  the
                Statements  of  Operations  have been  reduced by the  following
                amounts due to reinsurance cessions:
<TABLE>
<CAPTION>

                                                    2001         2000          1999
                                                  ---------    ---------     ---------
                <S>                               <C>          <C>           <C>
                Policy revenue                    $   8,058    $   4,712     $   3,920

                Death benefits                        2,495        2,321         1,766

                Future life policy benefits           3,044        2,149           932

                Commissions                           3,886        2,344         1,567

</TABLE>

NOTE 11.        COMMITMENTS

                The Company  has  outstanding  commitments  to invest up to $9.0
                million in limited  partnerships  at December  31,  2001.  These
                commitments  will be funded as  required  through the end of the
                respective investment periods, which typically span 3 to 5 years
                and  expire  through  2005.  At  December  31,  2001,  the total
                commitment  to fund  limited  partnerships  that  invest in real
                estate  activities  and fixed  income  securities  totaled  $7.7
                million and $1.3 million,  respectively. One real estate limited
                partnership commitment is for $5.0 million.


                                       72
<PAGE>

INCORPORATED BY REFERENCE, PAGE 42 AND 43 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS

NOTE 12.        SEGMENT INFORMATION

                The  Company's  portfolio  of  traditional   insurance  includes
                permanent  life,  endowment and term policies,  including  whole
                life. The group and other category includes group life insurance
                and disability income products.  The corporate category includes
                investment income earned from surplus not specifically  attached
                to any one product type.

<TABLE>
<CAPTION>
                                                       Universal                   Group
                                        Traditional      Life      Annuities     & Other      Corporate     Total
                                        -----------  -----------  ----------     ---------    ----------  -----------
<S>                                     <C>          <C>          <C>           <C>          <C>          <C>
2001
Total policy revenue, net of
   reinsurance                          $    32,685  $    11,008  $         3    $   2,795    $        0  $    46,491
Total investment-related
  and other income (loss)                     5,975        7,372       39,786          152   (    10,262)      43,023
                                        -----------  -----------  -----------    ---------    ----------  -----------
     Total revenues                     $    38,660  $    18,380  $    39,789    $   2,947   ($   10,262) $    89,514
                                        -----------  -----------  -----------    ---------    ----------  -----------
Less: Total benefits and
   expenses                                  28,764       15,040       38,009        3,514             0       85,327
                                        -----------  -----------  -----------    ---------    ----------  -----------
   Income (loss) before
     income taxes                       $     9,896  $     3,340  $     1,780   ($     567)  ($   10,262) $     4,187
                                        ===========  ===========  ===========    =========    ==========  ===========

2000
Total policy revenue, net of
   reinsurance                          $    31,789  $    10,186  $         2    $   2,560    $        0  $    44,537
Total investment-related
  and other income                            6,355        7,471       42,794          150        14,066       70,836
                                        -----------  -----------  -----------    ---------    ----------  -----------
     Total revenues                     $    38,144  $    17,657  $    42,796    $   2,710    $   14,066  $   115,373
                                        -----------  -----------  -----------    ---------    ----------  -----------
Less: Total benefits and
   expenses                                  24,420       14,011       36,903        1,216             0       76,550
                                        -----------  -----------  -----------    ---------    ----------  -----------
   Income before income
     taxes                              $    13,724  $     3,646  $     5,893    $   1,494    $   14,066  $    38,823
                                        ===========  ===========  ===========    =========    ==========  ===========
1999
Total policy revenue, net of
   reinsurance                          $    29,529  $     9,523  $         5    $   2,629    $        0  $    41,686
Total investment-related
  and other income                            5,831        6,319       40,876          133         8,079       61,238
                                        -----------  -----------  -----------    ---------    ----------  -----------
     Total revenues                     $    35,360  $    15,842  $    40,881    $   2,762    $    8,079  $   102,924
                                        -----------  -----------  -----------    ----------   ----------  -----------
Less: Total benefits and
   expenses                                  19,779       11,175       34,484        2,560             0       67,998
                                        -----------  -----------  -----------    ---------    ----------  -----------
   Income before income
     taxes                              $    15,581  $     4,667  $     6,397    $     202    $    8,079  $    34,926
                                        ===========  ===========  ===========    =========    ==========  ===========

</TABLE>

               Investment-related income is allocated based on the fact that the
               fixed  maturities  and  preferred  stock  portfolios  support the
               insurance  product  segments  and the  common  stock and  limited
               partnership investments support the corporate line.

               The 2001  loss  reported  for the  corporate  line is a result of
               realized  losses on common stock of $16,356  experienced  for the
               year.  The reduction in income for annuities  from $5,893 in 2000
               to  $1,780  in 2001 is a result  of  interest  rate  fluctuations
               during the year, which produced lower profit margins in 2001 when
               compared to prior periods.


                                       73
<PAGE>

INCORPORATED BY REFERENCE, PAGE 43 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS

NOTE 12.        SEGMENT INFORMATION (CONTINUED)

                The 2001  increase in benefits and  expenses  for the  Company's
                Group product line related to changes in the Company's  share of
                the  Pennsylvania  Employees Group Life Insurance  (PEGLI) pool.
                During  2001,  the  change  in the  pool  asset  resulted  in an
                increase of benefit expense to the Company of $985.

NOTE 13.        STATUTORY INFORMATION

                The Company  prepares  its  statutory  financial  statements  in
                accordance   with   accounting   practices   prescribed  by  the
                Pennsylvania   Insurance   Department.    Prescribed   Statutory
                Accounting  Practices (SAP) include state laws,  regulations and
                general   administrative   rules,   as  well  as  a  variety  of
                publications   from  the  National   Association   of  Insurance
                Commissioners  (NAIC).  The NAIC  adopted  the  Codification  of
                Statutory Accounting Practices (Codification), effective January
                1,  2001,  as  the  NAIC-supported  basis  of  accounting.   The
                Codification   was  approved  with  a  provision   allowing  for
                prescribed or permitted accounting practices to be determined by
                each   states'   insurance   commissioner.   Accordingly,   such
                discretion  will  continue  to  allow  prescribed  or  permitted
                accounting  practices  that may differ from state to state.  The
                Codification    resulted    in   changes   to   the    Company's
                statutory-basis  financial  statements,  the most significant of
                which were the  recording  of statutory  deferred  taxes and the
                elimination  of the  cost of  collection  liability.  The  total
                cumulative adjustment increased the statutory surplus by $3,389.
                Accounting   principles  used  to  prepare  statutory  financial
                statements  differ  from  financial  statements  prepared on the
                basis of generally accepted accounting principles.

                The minimum  statutory  capital and surplus  requirements  under
                Pennsylvania law for stock life insurance companies (Section 386
                of the PA Insurance Code) amounts to $1,650. The Company's total
                statutory  capital  and  surplus  well  exceeded  these  minimum
                requirements, totaling $109.9 million at December 31, 2001.

                A  reconciliation   of  net  income  as  filed  with  regulatory
                authorities to net income reported in the accompanying financial
                statements for the years ended December 31, 2001, 2000 and 1999,
                follows:
<TABLE>
<CAPTION>
                                                                2001             2000              1999
                                                             ----------       ----------        ----------
                <S>                                         <C>              <C>               <C>
                Statutory net (loss) income                 ($    5,065)      $   19,058        $   14,372

                Reconciling items:
                  Policy liabilities and accruals                   831            3,035             3,743
                  Deferred policy acquisition costs,
                    net of amortization                           7,292            7,135             6,672
                  Investment valuation differences                2,084      (       686)              349
                  GAAP deferred taxes                       (        88)     (     2,718)      (     1,955)
                  Cost of collection                                  0            1,232               103
                  Deferred and uncollected premium          (     2,037)     (     2,503)      (     1,184)
                  Capitalized salaries and benefits                   0                0               953
                  Other                                     (       279)             837               272
                                                             ----------       ----------        ----------
                GAAP net income                              $    2,738       $   25,390        $   23,325
                                                             ==========       ==========        ==========
</TABLE>


                                       74
<PAGE>

INCORPORATED BY REFERENCE, PAGE 43 AND 44 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 13.        STATUTORY INFORMATION (CONTINUED)

                A  reconciliation   of   shareholders'   equity  as  filed  with
                regulatory  authorities to shareholders'  equity reported in the
                accompanying  financial  statements  as of December 31, 2001 and
                2000, follows:
<TABLE>
<CAPTION>
                                                                                       2001               2000
                                                                                    -----------       -----------
                <S>                                                                <C>               <C>
                Statutory shareholders' equity                                      $   109,870       $    96,479

                Reconciling items:
                  Asset valuation and interest
                    maintenance reserves                                                 33,324            44,987
                  Investment valuation differences                                       12,034      (      1,720)
                  Deferred policy acquisition costs                                      92,015            84,723
                  Surplus note                                                     (     15,000)     (     15,000)
                  Policy liabilities and accruals                                        14,056            13,225
                  Difference between statutory
                    and GAAP deferred taxes                                        (     33,574)     (     23,819)
                  Cost of collection                                                          0             1,985
                  Deferred and uncollected premiums                                (      8,899)     (      7,342)
                  Capitalized salaries and benefits, net of amortization                  1,933             2,183
                  Other                                                                       0                19
                                                                                    -----------       -----------

                GAAP shareholders' equity                                           $   205,759       $   195,720
                                                                                    ===========       ===========
</TABLE>

                The amount of dividends the Company can pay to its  shareholders
                without  the  prior  approval  of  the  Pennsylvania   Insurance
                Commissioner is limited by statute to the greater of: (a) 10% of
                its statutory  surplus as regards  policyholders as shown on its
                last annual statement on file with the commissioner,  or (b) the
                net income as  reported  for the period  covered by such  annual
                statement,  but shall not include pro rata  distribution  of any
                class of the insurer's own securities.  Accordingly, the maximum
                dividend  payout  which  may  be  made  in  2002  without  prior
                Pennsylvania   Commissioner   approval  is  $10,609.   Dividends
                declared to  shareholders  totaled  $7,371 in 2001 and $6,804 in
                2000.


                                       75
<PAGE>

INCORPORATED BY REFERENCE, PAGE 44 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS

NOTE 14.          QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

                  The  following  results are  unaudited.  In the opinion of the
                  Company's  management,  all  adjustments - consisting  only of
                  normal recurring  accruals - necessary for a fair presentation
                  of the interim periods presented have been included.
<TABLE>
<CAPTION>

                                                        First            Second            Third            Fourth
                                                       Quarter           Quarter          Quarter           Quarter
                                                     -----------       -----------      -----------       -----------
<S>                                                  <C>               <C>              <C>               <C>
2001
Total policy revenue                                  $   10,997        $   11,861       $   11,295        $   12,338
Net investment income                                     14,709            15,865           14,744            15,863
Net realized gains (losses) on investments                   594       (     1,067)     (     2,034)      (    17,139)
Equity in (losses) earnings of limited
partnerships                                         (       965)            1,767              614       (       680)
Other income                                                 191               178              317                66
                                                      ----------        ----------       ----------        ----------
   Total revenues                                     $   25,526        $   28,604       $   24,936        $   10,448
                                                      ==========        ==========       ==========        ==========

Income (loss) before income taxes                     $    5,261        $    8,642       $    3,861       ($   13,577)
Provision for federal income tax
 (expense) benefit                                   (     1,820)      (     2,985)     (     1,342)            4,698
                                                      ----------        ----------       ----------        ----------
   Net income (loss)                                  $    3,441        $    5,657       $    2,519       ($    8,879)
                                                      ==========        ==========       ==========        ==========
   Net income (loss) per share                        $     0.36        $     0.60       $     0.27       ($     0.94)
                                                      ==========        ==========       ==========        ==========
Comprehensive income (loss)                           $    9,136        $    7,295       $    5,854       ($    4,875)
                                                      ==========        ==========       ==========        ==========

<FN>
Net  realized  losses on  investments  in the fourth  quarter  of 2001  resulted
primarily from sales of fixed maturities and common stocks.
</FN>

2000
Total policy revenue                                  $   10,472        $   11,643       $   11,373        $   11,049
Net investment income                                     14,764            14,965           14,259            15,488
Net realized gains on investments                          2,249             1,603            1,628             1,480
Equity in earnings (losses) of limited
partnerships                                                 970             1,400            1,122       (        55)
Other income                                                 305               211              244               203
                                                      ----------        ----------       ----------        ----------
   Total revenues                                     $   28,760        $   29,822       $   28,626        $   28,165
                                                      ==========        ==========       ==========        ==========

Income before income taxes                            $    9,948        $    8,991       $    9,214        $   10,670
Provision for federal income tax expense             (     3,442)      (     3,111)     (     3,188)      (     3,692)
                                                      ----------        ----------       ----------        ----------
   Net income                                         $    6,506        $    5,880       $    6,026        $    6,978
                                                      ==========        ==========       ==========        ==========
   Net income per share                               $     0.69        $     0.62       $     0.64        $     0.74
                                                      ==========        ==========       ==========        ==========

Comprehensive income                                  $   19,605        $      139       $    8,886        $    2,791
                                                      ==========        ==========       ==========        ==========

</TABLE>


                                       76
<PAGE>

INCORPORATED BY REFERENCE, PAGE 45 OF THE COMPANY'S 2001 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
                                                        First            Second            Third            Fourth
                                                       Quarter           Quarter          Quarter           Quarter
                                                     -----------       -----------      -----------       -----------
<S>                                                  <C>               <C>              <C>               <C>
1999
Total policy revenue                                  $    9,844        $   10,978       $   10,176        $   10,688
Net investment income                                     13,184            13,772           13,824            14,499
Net realized gains (losses) on investments                   825             1,826            2,236       (       554)
Equity in earnings of limited partnerships                   186               158              314               276
Other income                                                 237               135              220               100
                                                      ----------        ----------       ----------        ----------
   Total revenues                                     $   24,276        $   26,869       $   26,770        $   25,009
                                                      ==========        ==========       ==========        ==========

Income before income taxes                            $    7,433        $    9,339       $    9,450        $    8,704
Provision for federal income tax expense             (     2,551)      (     3,460)     (     2,718)      (     2,872)
                                                      ----------        ----------       ----------        ----------
   Net income                                         $    4,882        $    5,879       $    6,732        $    5,832
                                                      ==========        ==========       ==========        ==========
   Net income per share                               $     0.52        $     0.62       $     0.71        $     0.62
                                                      ==========        ==========       ==========        ==========

Comprehensive (loss) income                          ($    2,086)      ($    4,831)     ($    4,162)       $    5,888
                                                      ==========        ==========       ==========        ==========

</TABLE>

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