INCORPORATED BY REFERENCE, PAGE 20 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

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

                                                                   Years Ended December 31
                                       2000              1999               1998               1997               1996
<S>                                 <C>               <C>                <C>                <C>                <C>
OPERATING DATA

Total policy revenue                $   44,537        $   41,686         $   38,239         $   35,194         $   31,116
Net investment & other income           63,876            56,905             53,088             50,642             46,617
Net realized gains on investments        6,960             4,333              4,883              5,201              4,987
                                    ----------        ----------         ----------         ----------         ----------
Total revenues                      $  115,373        $  102,924         $   96,210         $   91,037         $   82,720
                                    ----------        ----------         ----------         ----------         ----------
Total benefits & expenses               76,550            67,998             62,269             60,834             56,077
                                    ----------        ----------         ----------         ----------         ----------
Income from operations              $   38,823        $   34,926         $   33,941         $   30,203         $   26,643
Provision for federal income taxes      13,433            11,601             11,856             10,643              8,977
                                    ----------        ----------         ----------         ----------         ----------
Net income                          $   25,390        $   23,325         $   22,085         $   19,560         $   17,666
                                    ----------        ----------         ----------         ----------         ----------
Net income per share                $     2.69        $     2.47         $     2.34         $     2.07         $     1.87
                                    ----------        ----------         ----------         ----------         ----------

FINANCIAL POSITION

Total assets                        $1,020,343        $  954,532         $  917,606         $  832,534         $  740,651

Shareholders' equity                $  195,720        $  171,103         $  182,531         $  160,380         $  132,631

Book value per share                $    20.71        $    18.11         $    19.32         $    16.97         $    14.03

Dividends declared per share        $     0.72        $     0.66         $     0.60         $     0.54         $     0.50

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


</TABLE>


                                       38
<PAGE>


INCORPORATED BY REFERENCE, PAGE 21 AND 22 OF THE COMPANY'S 2000 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 29-43,  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.  Beginning  late in 2000,  the  Company  began
issuing its first  accident and health  product,  a mortgage  disability  income
policy.  The Company markets its products through  independent Agents throughout
nine states and the District of Columbia.  The  Company's  shares are 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  increased  to  $25,390,415,  or  $2.69  per  share,  in  2000  from
$23,324,697,  or $2.47 per share,  in 1999,  an increase of 8.9 percent.  Strong
investment gains and solid premium growth  contributed to the financial  results
of 2000.  Life insurance in force  increased by more than $2.1 billion to almost
$16.5 billion at December 31, 2000.

Revenues

Analysis of policy revenue

Total policy revenue increased by $2,851,088,  or 6.8 percent, to $44,536,724 in
2000. Premiums on traditional life insurance policies increased  $2,631,232,  or
8.2  percent,  for the year  ended  December  31,  2000 and  $2,430,867,  or 8.2
percent,  for the year ended December 31, 1999. Policies in force on traditional
products  increased  4.3  percent  to  165,992  in 2000  from  159,126  in 1999.
Contributing to this growth in traditional  life insurance was the  introduction
of the Company's new  life  insurance  product  late  in 1999, the ERIE Flagship
Term(SM). This new insurance product is designed for sale of policy face amounts
of $300,000 and above and complements the Company's Term Protector(R)  Series of
life insurance products. ERIE Flagship Term, before consideration of reinsurance
ceded, contributed almost $2.2 million to total direct life premiums in 2000.

ERIE Flagship  Term is, by design,  more  competitively  priced at larger policy
face amounts.  As such,  the Company's  reinsurance  premiums  ceded and related
commission  and expense  allowance has increased for the year 2000 when compared
with 1999.  Under the  reinsurance  treaty for this new 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 after that amount. The total dollar
retention  amount  on this  product  is the same as the other  traditional  life
insurance policies the Company currently offers. The reinsurance premiums ceded,
which are netted  against the direct life  premiums,  for the ERIE Flagship Term
product amounted to $1.2 million for the year ended December 31, 2000.

Universal life products generated premium,  net of reinsurance,  of $10,187,578,
$9,522,851  and  $8,657,657 in 2000,  1999 and 1998,  respectively.  Policies in
force on universal  life  products  increased 4.4 percent to 42,521 in 2000 from
40,716 in 1999.

Total annuity and universal  life deposits  were  $62,258,450,  $78,906,813  and
$67,420,294  in 2000,  1999 and 1998,  respectively.  Of the total  decrease  in
deposits  of  $16,648,363  for 2000,  annuities  comprised  $16,054,315  of that
decline.  The annuity product offerings include investment features that compete
with  numerous  other  investment  alternatives   commercially  available.   The
Company's ability to attract policyholders depends in large part on the relative
attractiveness  of its  products  compared  to those other  available  products.
Factors such as the interest rate  environment  and the performance of the stock
market influence this ability.

Annuity deposits recorded in connection with annuity contracts  purchased by the
Erie Insurance  Group  Retirement  Plan for retired vested  Employees  receiving
benefits were $5,626,892, $5,321,738 and $6,413,460 for the years ended December
31, 2000,  1999 and 1998,  respectively.  Also included in annuity  deposits are
annuities purchased by affiliated  property/casualty insurance companies for use
in connection  with the structured  settlement of insurance  claims.  Structured
settlement  annuity  deposits sold to Erie Insurance Group  affiliate  companies
totaled  $16,167,642,  $23,312,225  and  $17,883,171  in 2000,  1999  and  1998,
respectively.


                                       39
<PAGE>


INCORPORATED BY REFERENCE, PAGE 22 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

Analysis of investment-related income

Net investment income increased $4.2 million, or 7.6 percent, for the year ended
December 31, 2000 and $3.3 million, or 6.4 percent,  for the year ended December
31, 1999. The ratio of net investment income to mean invested assets,  excluding
limited  partnerships,  was  7.5,  7.3,  and  7.2  for  2000,  1999,  and  1998,
respectively.  The increase in income generated by the investment  portfolio was
due to  increased  levels  of  investment  from  cash  flows  of  the  Company's
operations and annuity and universal life deposits combined with slightly better
returns.  Net cash  provided in 2000 from annuity  deposits and  universal  life
deposits was $14.9 million and $12.6 million, respectively.

During  2000,  1999 and  1998,  the  Company  generated  net  realized  gains on
investments of $6,960,133,  $4,333,318 and $4,882,586,  respectively,  primarily
from the sale of equity securities and fixed maturity investments.

The Company's  equity in earnings of limited  partnerships  increased  over $2.5
million to $3,436,981 for the year ended December 31, 2000. The increase in 2000
was primarily the result of increased limited partnership investments during the
year.

Benefits and expenses

Analysis of policy-related benefits and expenses

Net death benefits on life insurance  policies increased 25.8 percent in 2000 to
$12,868,899  compared  to  $10,231,135  in 1999 and  $8,459,035  in  1998.  This
increase is consistent with the increase in face amount of life insurance issued
by the Company.  The total face amount of life insurance in force increased $2.1
billion from December 31, 1999.  The  Company's  mortality  experience  has been
favorable over the long term and management believes its underwriting philosophy
and practices are sound.

Total  interest  credited  on annuity  and  universal  life  deposits  increased
$3,377,546, or 9.3 percent, for the year ended December 31, 2000 and $1,968,737,
or 5.2 percent,  for the year ended December 31, 1999. This increase in interest
expense was the result of an increase in the credited  interest  rate on annuity
deposits  during  the first  quarter  of 2000  combined  with the $27.5  million
increase in deposits for the year ended December 31, 2000. At December 31, 2000,
annuity deposits totaled $584 million,  an increase of 2.6 percent from December
31, 1999, and universal life deposits totaled $107 million,  an increase of 13.3
percent from December 31, 1999.  The interest  rate  credited on universal  life
deposits  ranged from 6.00  percent to 6.75  percent in 2000 and 1999.  The rate
credited on annuity  deposits  ranged from 5.00  percent to 6.25 percent in 2000
and 5.00 percent to 5.75 percent in 1999.

Surrender  and other  benefits  increased  by $174,397 to $834,791  for the year
ended December 31, 2000 and decreased by $155,614 to $660,394 for the year ended
December 31, 1999. Surrender and other benefits include life surrender benefits,
matured endowments,  disability benefits, interest on death benefits and changes
in the  Company's  share of the  Pennsylvania  Employees  Group  Life  Insurance
(PEGLI) pool. 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 this 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. During 2000, the change in
the  Company's  share of the PEGLI pool  resulted  in a decrease  in benefits of
$420,000  compared to decreases  of $467,133 in 1999 and  $279,584 in 1998.  The
change in the  Company's  share of the PEGLI  pool is  subject  to  fluctuations
inherent in the underwriting of life insurance products.

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 decreased $455,764, or 9.4 percent, for the year ended December 31, 2000
and increased $684,999,  or 16.4 percent,  for the year ended December 31, 1999.
The  increase in future  policy  benefits in 2000 was less than the  increase in
future policy benefits in 1999 because of a significant change in the mix of new
business (see previous discussion on ERIE Flagship Term).

Generally,  the costs  incurred  by the Company to acquire  business,  including
underwriting,  commission and bonus costs,  are  capitalized  and deferred.  For
traditional  and  disability  income  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 $331,960,  or 6.9 percent,  for the year ended
December 31, 2000 and $417,024,  or 9.5 percent, for the year ended December 31,
1999.


                                       40
<PAGE>


INCORPORATED BY REFERENCE, PAGE 22 AND 23 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

Analysis of other expenses

Total  operating  expenses,  excluding  taxes,  licenses and fees,  increased to
$11,162,836  in 2000  compared to  $9,330,979  in 1999 and  $9,322,391  in 1998.
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 policy acquisition costs (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  $2,076,449,  or 29.2 percent,  for the
year ended  December 31, 2000 and decreased  $428,083,  or 5.7 percent,  for the
year ended  December 31, 1999.  In 1999,  the  CyberLife  policy  administration
system was placed into  production.  Certain  expenses,  including  salaries and
benefits  associated with the  implementation of CyberLife,  were capitalized in
accordance  with SOP 98-1 and therefore not charged  against income in 1999. The
capitalization of these costs ended in 1999 when the system was placed into use.
In addition, amortization of the capitalized costs of the CyberLife system began
late in 1999,  when the  system was placed  into  production.  CyberLife-related
charges  amounted to $830,000 in 2000 and $215,000 in 1999, as the system was in
production only part of 1999. General expenses, aside from CyberLife,  increased
6.5 percent for the year ended December 31, 2000.

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 decreased  $244,399,  or 11.0 percent,  to $1,969,376 in 2000
from $2,213,775 in 1999. In 1999, the Company participated in the Erie Insurance
Group promotional incentive contest. The estimated contest costs to the Company,
net of  deferrals,  were charged to  commission  expense in 1999.  There were no
similar charges to commission expense in 2000.

Taxes,  licenses and fees increased $654,077 to $2,268,068 in 2000 and increased
$1,032,638 in 1999.  Contributing  to the 1999 increase is $954,000  included in
1998  for a  refund  due the  Company  from the  Pennsylvania  Life  and  Health
Insurance  Guaranty  Association  (PLHIGA)  resulting  from a  recalculation  of
annuity   assessments  paid  in  previous  years.  The  original  refund  amount
anticipated  in 1998 was  $1,044,330.  This amount was recognized as an asset on
the  Company's  Statement of Financial  Condition and has been reduced each year
for premium tax recoveries  from the original  assessments  paid by the Company.
The remaining  amount related to this assessment  refund is $651,357 at December
31, 2000.  Currently,  the PLHIGA  recalculation  of annuity  assessments is the
subject  of a  pending  dispute  through  an  administrative  hearing  with  the
Pennsylvania Insurance Department.  At this time, there is uncertainty as to the
outcome  of  this  dispute.  Management  believes  the  recorded  asset  is  not
materially different from recoveries that will ultimately be realized.

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.  At December 31, 2000,
there was no material  difference  between the carrying  value and fair value of
the  Company's  investment-type  policies.  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.


                                       41
<PAGE>


INCORPORATED BY REFERENCE, PAGE 23 TO 25 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

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.

At  December  31,  2000,  the  Company's   investment  portfolio  consisting  of
marketable  short-term  investments,  investment-grade  bonds, common stocks and
preferred stocks totaled $813 million, or 79.7 percent,  of total assets.  These
resources  provide  the  liquidity  the  Company  requires  to  meet  known  and
unforeseen  demands on its funds.  At December 31,  2000,  77.6 percent of total
invested assets were invested in fixed  maturities.  Preferred stock  represents
7.3 percent, or $64.4 million, and common stock represents 8.3 percent, or $73.5
million,  of total  invested  assets at December  31,  2000,  while real estate,
policy loans,  mortgage  loans and limited  partnerships  make up 6.8 percent of
total invested assets.  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.  Consequently,  these
investments are kept to a minimum under the Company's investment policies.

Distribution  of Invested Assets
at December 31,

                                             Carrying Value
                                             (In thousands)

                                        2000      %           1999      %
                                       ------    ---         ------    ---
Fixed maturities available-
 for-sale                            $ 683,651   77.6      $ 628,877   76.9
Equity securities:
Preferred  stock                        64,393    7.3         58,700    7.2
Common stock                            73,525    8.3         83,395   10.2
Limited partnerships                    42,074    4.8         28,331    3.5
Other invested  assets                  17,426    2.0         18,157    2.2
                                     ---------  -----      ---------  -----
Total invested assets                $ 881,069  100.0      $ 817,460  100.0
                                     =========  =====      =========  =====


Fixed maturities

The Company's  fixed  maturities  consist of investments in bonds and redeemable
preferred stock. 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.

The Company's fixed maturity  investments consist 96.1 percent, or $657 million,
of "high" or "highest" quality  investment grade bonds and redeemable  preferred
stock (Baa/BBB or better).  Included in this investment-grade  category are $371
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 consisted of $20 million of "medium"
quality  bonds,  and $7  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, 2000 and 1999, net unrealized
losses on fixed maturities available-for-sale amounted to $7.4 million and $14.8
million, respectively, net of deferred taxes.


                                       42
<PAGE>


INCORPORATED BY REFERENCE, PAGE 25 AND 26 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

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,
2000 and 1999, common and nonredeemable  preferred stock held by the Company had
net  unrealized  gains of $6.8 million and $11.3 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 $60.4 million, or
93.8 percent,  of the  "highest" or "high"  quality,  and $4.0  million,  or 6.2
percent, of "medium" quality, as defined by the NAIC. The common stock portfolio
provides   liquidity,   diversification,   income   and   capital   appreciation
opportunities to meet the earnings objectives of the Company.

Limited partnership investments

The Company's limited  partnership  investments include U.S. and foreign private
equity,  real  estate  and  fixed  income  investments.   During  2000,  limited
partnership  investments increased $13,743,229 to $42,074,104.  Fixed income and
real estate limited partnerships, which comprise 38 percent of the total limited
partnerships, produce a predictable earnings stream while private equity limited
partnerships,  which  comprise  62 percent of the total,  tend to provide a less
predictable earnings stream.

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 31,2000                      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
                                      ==========

December 31,1999                      Principal            Weighted-average
(Dollars in thousands)                cash flows            interest rate
                                     ------------          ------------------
Fixed maturities:
2000                                  $    7,654                 7.2%
2001                                      30,925                 6.1%
2002                                      56,105                 7.0%
2003                                      60,293                 7.1%
2004                                      34,270                 7.8%
Thereafter                               460,606                 7.9%
                                      ----------
Total                                 $  649,853
                                      ==========
Market Value                          $  628,877
                                      ==========

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


                                       43
<PAGE>


INCORPORATED BY REFERENCE, PAGE 26 AND 27 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

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 2000 was almost  $17.5  million
compared to $12.8  million in 1999,  and $19.8  million in 1998.  The  Company's
liquidity  position  remains strong as invested assets  increased 7.8 percent to
$881 million at December 31, 2000.

Annuity  and  universal  life  deposits,  which do not  appear as revenue on the
financial  statements,  are a source of funds.  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, 2000 are primarily
for policy death benefits, policy surrenders and withdrawals,  general operating
expenses, federal income taxes and dividends to shareholders.  These 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 2000, 1999 and 1998.

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, 2000, 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.


                                       44
<PAGE>

INCORPORATED BY REFERENCE, PAGE 27 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

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 March 7, 2000,
the Erie  Insurance  Group,  of which the  Company is a  member,  announced  its
intention to expand its marketing  territory into  Wisconsin.  Wisconsin will be
the tenth state served by the Company,  in addition to the District of Columbia.
In Wisconsin, the Company intends to write all lines of life, health and annuity
products it currently offers.  The Company  anticipates that such expansion will
continue to contribute positively to its growth and profitability.

Financial services reform

Federal  legislative  initiatives on financial  services reform,  begun in 1997,
culminated  in  the  enactment  of  Senate  Bill  900,  the  Financial  Services
Modernization  Act,  which  significantly  changes the way insurance  companies,
banks and securities  firms are regulated.  The  elimination of some  regulatory
barriers to banks entering the insurance market,  privacy initiatives concerning
the consumer data held by financial institutions and the interjection of federal
government  agencies into the traditionally  state-regulated  insurance industry
may  materially  change the  environment  under  which  insurance  products  are
marketed.

Additionally,  current and proposed  future federal  measures may affect the way
the life insurance  industry  distributes,  prices and services their  products.
These proposals may include  possible  changes to laws governing the taxation of
insurance companies and life insurance products.

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
investors and retain  existing  holders of annuity,  universal  life and certain
permanent life insurance products.

Electronic commerce

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  over time.  The extent to which  electronic  commerce  will affect the
marketplace in which the Company  competes will be better  understood over time.
The Company has developed and will continue to develop means to utilize emerging
technologies in a manner consistent with its business model.


"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, 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.  Growth and profitability have been and
will be potentially materially affected by these and other factors.


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 1,015 shareholders of record of common stock on December 31, 2000.

Date Dividends Declared                           Dividends Declared per Share

March 7, 2000                                                $ .180
April 25, 2000                                                 .180
June 13, 2000                                                  .180
October 10, 2000                                               .180
                                                             ------
                                                             $ .720

March 4, 1999                                                $ .165
April 27, 1999                                                 .165
June 15, 1999                                                  .165
September 14, 1999                                             .165
                                                             ------
                                                             $ .660

                                       45
<PAGE>




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


Graph #1               DIVERSIFICATION OF FIXED MATURITIES
                       AT DECEMBER 31, 2000 - CARRYING/MARKET VALUE

                       U.S. Industrial & Miscellaneous                 61%
                       U.S. Banks, Trusts and Insurance Companies      17%
                       Public Utilities                                10%
                       Foreign                                          9%
                       U.S. Treasuries                                  2%
                       States Political Subdivisions &
                        Special Revenue                                 1%


Graph #2               QUALITY* OF BOND PORTFOLIO
                       AT DECEMBER 31, 2000 - CARRYING/MARKET VALUE

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

        * As rated by the NAIC


Graph #3               DIVERSIFICATION OF EQUITY SECURITIES
                       AT DECEMBER 31, 2000 - CARRYING/MARKET VALUE


                       (1) U.S. Industrial & Miscellaneous             47%
                       (2) Foreign Banks & Insurance                   27%
                       (2) Foreign Industrial & Miscellaneous          12%
                       (2) U.S. Industrial & Miscellaneous              8%
                       (1) U.S. Banks & Insurance                       5%
                       (1) Foreign Industrial & Miscellaneous           1%



                       (1)  Common Stock
                       (2)  Preferred Stock


                                       46
<PAGE>


INCORPORATED BY REFERENCE, PAGE 29  OF THE COMPANY'S 2000 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/ Stephen A. Milne
Stephen A. Milne
President and
Chief Executive Officer
February 5, 2001

/s/ Philip A. Garcia
Philip A. Garcia
Executive Vice President and
Chief Financial Officer
February 5, 2001

/s/ Timothy G. NeCastro
Timothy G. NeCastro
Senior Vice President
and Controller
February 5, 2001



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,  2000 and 1999,  and the  related
Statements of  Operations,  Shareholders'  Equity and Cash Flows for each of the
three years in the period ended December 31, 2000.  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, 2000 and 1999,  and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2000
in conformity with accounting principles generally accepted in the United States
of America.

/s/ Brown, Schwab, Bergquist & Co.
Brown, Schwab, Bergquist & Co.
Erie, Pennsylvania
February 5, 2001




                                       47
<PAGE>


INCORPORATED BY REFERENCE, PAGE 30 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

<TABLE>
<CAPTION>
                       ERIE FAMILY LIFE INSURANCE COMPANY

                            STATEMENTS OF OPERATIONS
                  Years Ended December 31, 2000, 1999 and 1998
                 (Dollars in thousands, except per share data)


                                                           2000            1999            1998
                                                       ----------      ----------      -----------
<S>                                                    <C>             <C>             <C>
Revenues
   Policy revenue
     Life premiums                                     $   41,975      $   39,052      $   35,733
     Group and other premiums                               2,562           2,634           2,506
                                                       ----------      ----------      ----------
       Total policy revenue                            $   44,537      $   41,686      $   38,239

   Net investment income                                   59,476          55,279          51,967
   Net realized gains on investments                        6,960           4,333           4,883
   Equity in earnings of limited partnerships               3,437             934             362
   Other income                                               963             692             759
                                                       ----------      ----------      ----------
       Total revenues                                  $  115,373      $  102,924      $   96,210

Benefits and expenses
   Death benefits                                      $   12,869      $   10,231      $    8,459
   Interest on annuity deposits                            33,686          31,202          29,870
   Interest on universal life deposits                      6,182           5,289           4,652
   Surrender and other benefits                               835             660             816
   Increase in future life policy benefits                  4,402           4,858           4,173
   Amortization of deferred policy
     acquisition costs                                      5,145           4,813           4,396
   Commissions                                              1,969           2,214           1,777
   General expenses                                         9,194           7,117           7,545
   Taxes, licenses and fees                                 2,268           1,614             581
                                                       ----------      ----------      ----------
       Total benefits and expenses                     $   76,550      $   67,998      $   62,269
                                                       ----------      ----------      ----------
       Income from operations                          $   38,823      $   34,926      $   33,941

Provision for federal income taxes                         13,433          11,601          11,856
                                                       ----------      ----------      ----------
       Net income                                      $   25,390      $   23,325      $   22,085
                                                       ----------      ----------      ----------
       Net income per share                            $     2.69      $     2.47      $     2.34
                                                       ==========      ==========      ==========

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

</TABLE>


                                       48
<PAGE>


INCORPORATED BY REFERENCE, PAGE 31 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

<TABLE>
<CAPTION>
                       ERIE FAMILY LIFE INSURANCE COMPANY

                        STATEMENTS OF FINANCIAL POSITION
                        As of December 31, 2000 and 1999
                             (Dollars in thousands)


   ASSETS                                                        2000             1999
                                                              -----------      -----------
<S>                                                           <C>             <C>
Invested assets:
   Fixed maturities at fair value
     (amortized cost of $695,078
     and $651,659, respectively)                              $   683,651      $  628,877
   Equity securities at fair value
     (cost of $127,389 and
     $124,674, respectively)                                      137,918         142,095
   Limited partnerships                                            42,074          28,331
   Real estate                                                      1,376           1,458
   Policy loans                                                     7,766           6,724
   Real estate mortgage loans                                       8,284           9,975
                                                              -----------      ----------
       Total invested assets                                  $   881,069      $  817,460

Cash and cash equivalents                                          17,955          27,358
Premiums receivable from policyholders                              4,609           4,056
Reinsurance recoverable                                               612             464
Other receivables                                                     392             171
Accrued investment income                                          12,038          10,896
Deferred policy acquisition costs                                  84,723          77,588
Reserve credit for reinsurance ceded                                9,076           6,927
Prepaid federal income taxes                                          167             758
Other assets                                                        9,702           8,854
                                                              -----------      ----------
       Total assets                                           $ 1,020,343      $  954,532
                                                              ===========      ==========

   LIABILITIES AND SHAREHOLDERS' EQUITY


LIABILITIES
   Policy liabilities and accruals:
     Future life policy benefits                              $    76,879      $   70,329
     Policy and contract claims                                     2,473           1,305
     Annuity deposits                                             584,174         569,218
     Universal life deposits                                      107,192          94,640
     Supplementary contracts not
       including life contingencies                                   550             581
   Other policyholder funds                                         4,615           5,623
   Deferred income taxes                                           23,819          17,853
   Reinsurance premium due                                            894             692
   Accounts payable and accrued expenses                            5,297           5,116
   Note payable to Erie Indemnity Company                          15,000          15,000
   Due to affiliate                                                 2,029           1,513
   Dividends payable                                                1,701           1,559
                                                              -----------      ----------
       Total liabilities                                      $   824,623      $  783,429
                                                              -----------      ----------
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 (loss)                    3,687     (     2,344)
   Retained earnings                                              187,623         169,037
                                                              -----------      ----------
       Total shareholders' equity                             $   195,720      $  171,103
                                                              -----------      ----------
       Total liabilities and shareholders' equity             $ 1,020,343      $  954,532
                                                              ===========      ==========
<FN>
See accompanying notes to financial statements
</FN>

</TABLE>


                                       49
<PAGE>

INCORPORATED BY REFERENCE, PAGE 32 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

<TABLE>
<CAPTION>
                       ERIE FAMILY LIFE INSURANCE COMPANY

                            STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 2000, 1999 and 1998
                             (Dollars in thousands)


                                                                  2000           1999           1998
                                                              -----------     -----------    -----------
<S>                                                           <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                  $   25,390      $   23,325     $   22,085
   Adjustments to reconcile net income to net
     cash provided by operating activities:
     Net amortization of bond and mortgage
       premium                                                        214             273            453
     Amortization of deferred policy acquisition
       costs                                                        5,145           4,813          4,396
     Real estate depreciation                                          83              83             83
     Software amortization                                            249              62              0
     Deferred federal income tax expense                            2,718           1,955          3,755
     Realized gains on investments                            (     6,960)    (     4,333)   (     4,883)
   Increase in premiums receivable                            (       553)    (       225)   (       359)
   (Increase) decrease in other receivables                   (       221)            184    (       172)
   Increase in accrued investment income                      (     1,142)    (       614)   (         9)
   Policy acquisition costs deferred                          (    12,280)    (    11,485)   (    10,745)
   Increase in other assets                                   (     1,098)    (     2,948)   (     2,789)
   Increase in reinsurance recoverables and
     reserve credits                                          (     2,297)    (       828)   (     1,171)
   Increase in future life policy benefits and
     claims                                                         7,718           5,294          4,877
   (Decrease) increase in other policyholder funds            (     1,008)    (     2,543)         1,571
   Increase (decrease) in reinsurance premium
     due                                                              202             390    (       123)
   Decrease (increase) in prepaid federal income
     taxes                                                            591     (     1,370)           759
   Increase in accounts payable and
     due to affiliate                                                 697             728          2,076
                                                               ----------      ----------     ----------
       Net cash provided by operating activities               $   17,448      $   12,761     $   19,804
                                                               ----------      ----------     ----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of investments:
     Fixed maturities                                         ($  101,624)    ($  181,008)   ($  138,282)
     Equity securities                                        (    37,253)    (    52,798)   (    61,358)
     Mortgage loans                                                     0     (        66)   (       160)
     Limited partnerships                                     (    11,755)    (    12,618)   (     9,537)
   Sales/maturities of investments:
     Fixed maturities                                              63,889         108,947         98,877
     Equity securities                                             35,599          53,672         51,509
     Limited partnerships                                           2,828           1,950          1,048
   Principal payments received on mortgage loans                    1,691             162            139
   Loans made to policyholders                                (     2,140)    (     1,568)   (     1,549)
   Payments received on policy loans                                1,098             857            636
                                                               ----------      ----------     ----------
       Net cash used in investing activities                  ($   47,667)    ($   82,470)   ($   58,677)
                                                               ----------      ----------     ----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Increase in annuity deposits and supplementary
     contracts                                                 $   14,926      $   45,069     $   34,459
   Increase in universal life deposits                             12,552          13,286         12,464
   Dividends paid to shareholders                             (     6,662)    (     6,096)   (     5,529)
                                                               ----------      ----------     ----------
       Net cash provided by financing activities               $   20,816      $   52,259     $   41,394
                                                               ----------      ----------     ----------
Net (decrease) increase in cash and cash
   equivalents                                                ($    9,403)    ($   17,450)    $    2,521
Cash and cash equivalents at beginning of year                     27,358          44,808         42,287
                                                               ----------     -----------     ----------
Cash and cash equivalents at end of year                       $   17,955      $   27,358     $   44,808
                                                               ==========      ==========     ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 Cash paid during the year for:
     Interest                                                  $    1,192      $    1,199     $    1,115
     Income taxes                                                  10,124          11,016          7,342

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

</TABLE>


                                       50
<PAGE>


INCORPORATED BY REFERENCE, PAGE 33 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

<TABLE>
<CAPTION>
                       ERIE FAMILY LIFE INSURANCE COMPANY

                       STATEMENTS OF SHAREHOLDERS' EQUITY
                 Years Ended  December 31, 2000, 1999  and  1998
                  (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, 1998                         $ 160,380                    $ 135,534    $ 20,436       $  3,780      $    630
Comprehensive income
   Net income                                       22,085     $   22,085        22,085
   Other comprehensive income, net of tax            5,736          5,736                     5,736
                                                               ----------
Comprehensive income                                           $   27,821
                                                               ----------
Dividends declared,
   $.60 per share                               (    5,670)                  (    5,670)
                                                 ---------                    ---------
Balance, December 31, 1998                       $ 182,531                    $ 151,949    $ 26,172       $  3,780      $    630
                                                 ---------                    ---------    ---------      --------      --------

Comprehensive loss
   Net income                                       23,325     $   23,325        23,325
   Other comprehensive loss, 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
   Other comprehensive income, 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
                                                 =========                    =========    =========      ========      ========
<FN>
See accompanying notes to financial statements
</FN>

</TABLE>


                                       51
<PAGE>


INCORPORATED BY REFERENCE, PAGE 34 OF THE COMPANY'S 2000 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  insurer,  is engaged in the  business of
                underwriting and selling  nonparticipating  individual and group
                life insurance  policies,  including  universal life and annuity
                products.  During 2000, the Company issued its first  disability
                income  product.   This  product  is  designed  to  protect  the
                Policyholder's  mortgage  if the  insured  becomes  disabled  by
                providing  the owner  with  income  to  maintain  home  mortgage
                payments for the duration of the loan.  The Company  markets its
                products  through  independent  agents  in nine  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 10).

                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.  In 2000, the Exchange
                purchased 29,985 shares of the Company's common stock increasing
                its ownership to 5,055,562 shares.

                EIC is the  attorney-in-fact  for the  Exchange.  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
                6).

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
                    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.



                                       52
<PAGE>


INCORPORATED BY REFERENCE, PAGE 34 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                Investments

                    Fixed  maturities  and  marketable   equity  securities  are
                    classified as available-for-sale.  Equity securities consist
                    of common and 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, including
                    losses  from  declines  in  value  of  specific   securities
                    determined  by management  to be  other-than-temporary,  are
                    recognized in income on the specific  identification method.
                    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  private
                    equity,  real  estate  and  fixed  income  investments.  The
                    private  equity  limited  partnerships  invest  in  small-to
                    medium-sized   companies.   The   private   equity   limited
                    partnerships  are carried at their estimated  market values.
                    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.

                Fair value of financial instruments

                    Fair values of  available-for-sale  securities  are based on
                    quoted market prices, where available, or dealer quotations.
                    The carrying value of receivables and liabilities arising in
                    the  ordinary  course of  business  approximates  their fair
                    values.

                Cash equivalents

                    The  Company   considers  all  highly   liquid   investments
                    purchased with an original  maturity of three months or less
                    to be cash  equivalents.  Carrying amounts  approximate fair
                    value   because  of  the   short-term   maturity   of  these
                    investments.




                                       53
<PAGE>


INCORPORATED BY REFERENCE, PAGE 34 AND 35 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                Deferred policy acquisition costs

                    The costs of acquiring new business, principally commissions
                    and certain  costs of 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  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.  The amount of costs to be deferred
                    would be reduced to the extent  future  policy  premiums and
                    anticipated  investment  income  would  not  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>

                                                        2000           1999           1998
                                                    -----------   -----------    ------------

                    <S>                             <C>           <C>           <C>
                    Balance at beginning of year     $   77,588    $   70,916    $    64,567
                    Additions                            12,280        11,485         10,745
                    Amortization                    (     5,145)  (     4,813)  (      4,396)
                                                     ----------    ----------     ----------

                    Balance at end of year           $   84,723    $   77,588    $    70,916
                                                     ==========    ==========    ===========
</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.
                    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.

                    Annuities   are  credited   with  varying   interest   rates
                    determined  at the  discretion  of the  Company  subject  to
                    certain  minimums.   During  2000,  deposits  to  individual
                    annuities  earned  interest  at rates  ranging  from 5.0% to
                    6.25%,  which was an  increase  from 1999 rates that  ranged
                    from 5.0% to 5.75%.  Management  believes  the fair value of
                    annuity and universal life deposits approximates the amounts
                    recorded   in  the   financial   statements,   since   these
                    obligations  are generally  subject to fluctuating  interest
                    rates.




                                       54
<PAGE>


INCORPORATED BY REFERENCE, PAGE 35 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

                    Assessments   are  recognized   when  they  are  imposed  or
                    information  indicates  it is probable  one will be imposed,
                    and 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 judged to
                    be  recoverable,  it may be  capitalized  and amortized on a
                    basis  consistent  with the  credits  to be  realized  under
                    applicable state law. The Company's  estimated liability for
                    guaranty  fund  and  other  assessments  was $155 and $14 at
                    December 31, 2000 and 1999, 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.  The costs capitalized during 1999
                    totaled $953.  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,   2000  and  1999  was  $2,183  and   $2,432,
                    respectively.


                                       55
<PAGE>


INCORPORATED BY REFERENCE, PAGE 36 OF THE COMPANY'S 2000 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  1999
                    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, 2000 and 1999.
<TABLE>
<CAPTION>
                                                                         Gross            Gross
                                                    Amortized          Unrealized        Unrealized       Estimated
                                                       Cost               Gains           Losses          Fair Value
                                                   -----------       -----------      -----------       -----------
<S>                                                <C>               <C>              <C>               <C>
December 31, 2000
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>


                                       56
<PAGE>


INCORPORATED BY REFERENCE, PAGE 37 OF THE COMPANY'S 2000 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, 1999                                  -----------       -----------      -----------       -----------
<S>                                                <C>               <C>              <C>               <C>
Fixed Maturities:
Bonds:
   U. S. treasuries and
     government agencies                           $     9,390       $        75      $        63       $     9,402
   States and political
     subdivisions                                        2,055                45                0             2,100
   Special revenue                                       6,860               220                0             7,080
   Public utilities                                     61,886               765            2,939            59,712
   U. S. banks, trusts
     and insurance companies                           113,616               615            4,740           109,491
   U. S. industrial
     and miscellaneous                                 396,128             2,257           16,077           382,308
   Foreign                                              59,724               295            3,313            56,706
                                                   -----------       -----------      -----------       -----------
       Total bonds                                 $   649,659       $     4,272      $    27,132       $   626,799

Redeemable preferred stock                               2,000                78                0             2,078
                                                   -----------       -----------      -----------       -----------
       Total fixed maturities                      $   651,659       $     4,350      $    27,132       $   628,877
                                                   ===========       ===========      ===========       ===========

Equity Securities:
Common stock:
   U. S. banks, trusts
     and insurance companies                       $     9,188       $     2,150      $       561       $    10,777
   U. S. industrial and miscellaneous                   50,646            26,021            4,985            71,682
   Foreign                                               1,241                 0              305               936
Non-redeemable preferred stock:
   U. S. banks, trusts and
     insurance companies                                25,889               274            1,814            24,349
   U. S. industrial and miscellaneous                   24,837                 0            2,390            22,447
   Foreign                                              12,873                 0              969            11,904
                                                   -----------       -----------      -----------       -----------
       Total equity securities                     $   124,674       $    28,445      $    11,024       $   142,095
                                                   ===========       ===========      ===========       ===========

       Total available-for-sale securities         $   776,333       $    32,795      $    38,156       $   770,972
                                                   ===========       ===========      ===========       ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                2000           1999            1998
                                            -----------    -----------     -----------
              <S>                           <C>            <C>             <C>
              Fixed maturities              $    51,440    $    47,068     $    42,068
              Equity securities                   7,496          7,134           8,120
              Other                               2,391          2,772           3,306
                                            -----------    -----------     -----------
              Total investment income       $    61,327    $    56,974     $    53,494
              Investment expense                  1,851          1,695           1,527
                                            -----------    -----------     -----------
              Net investment income         $    59,476    $    55,279     $    51,967
                                            ===========    ===========     ===========
</TABLE>


                                       57
<PAGE>


INCORPORATED BY REFERENCE, PAGE 37 AND 38 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3.       INVESTMENTS (CONTINUED)

              Sources of realized gains and losses on investments reflected in
              operations follow for the years ended December 31:

<TABLE>
<CAPTION>
                                                           2000           1999            1998
                                                        -----------    -----------     ------------
              <S>                                       <C>            <C>             <C>
              Realized gains:
                Fixed maturities                        $       671    $     1,755     $     1,936
                Equity securities                            11,514          5,218           3,657
                Other, net                                        0              0             180
                                                        -----------    -----------     -----------
                Total gains                             $    12,185    $     6,973     $     5,773
                                                        -----------    -----------     -----------
              Realized losses:
                Fixed maturities                        $       436    $       360     $       207
                Equity securities                             4,789          2,280             683
                                                        -----------    -----------     -----------
                Total losses                            $     5,225    $     2,640     $       890
                                                        -----------    -----------     -----------
                Net realized gains on investments       $     6,960    $     4,333     $     4,883
                                                        ===========    ===========     ===========
</TABLE>


              The components of equity in earnings of limited partnerships
              reported for the years ended  December  31  are as follows:
<TABLE>
<CAPTION>
                                                                   2000          1999           1998
                                                                -----------   -----------    -----------
                <S>                                             <C>          <C>            <C>
                Private equity                                  $       515  ($        79)  ($        66)
                Real estate                                           1,926           906            388
                Fixed income                                            996           107             40
                                                                -----------   -----------    -----------
                  Equity in earnings of limited partnerships    $     3,437   $       934    $       362
                                                                ===========   ===========    ===========
</TABLE>

              The cost of limited  partnerships  included in the  Statements  of
              Financial  Position at  December  31, 2000 and 1999 is $35,504 and
              $26,577,  respectively.  These  limited  partnerships  have a fair
              value of $42,074  and  $28,331,  at  December  31,  2000 and 1999,
              respectively.

              The  following  is a summary of fixed  maturities  at December 31,
              2000, by remaining term to contractual maturity:
<TABLE>
<CAPTION>
                                                              Amortized        Estimated
                                                                 Cost          Fair Value
                                                             -----------     -----------
                <S>                                          <C>             <C>
                Due in one year or less                      $    23,842     $    23,597
                Due after one year through five years            216,894         216,768
                Due after five years through ten years           129,837         126,225
                Due after ten years                              324,505         317,061
                                                             -----------     -----------
                                                             $   695,078     $   683,651
                                                             ===========     ===========
</TABLE>


                                       58
<PAGE>


INCORPORATED BY REFERENCE, PAGE 38 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3.         INVESTMENTS (CONTINUED)

                Bonds having a fair value of $1,984 at December 31, 2000 were on
                deposit with various regulatory  authorities as required by law.
                Bonds  having a fair value of $15,795 are pledged as  collateral
                on a  $10,000  line  of  credit  with  a  bank.  There  were  no
                borrowings on the line during 2000 and 1999.

                Net unrealized  gains and losses on investments  are credited or
                charged directly to other comprehensive  income. At December 31,
                2000,  net unrealized  gains on investment  securities of $3,687
                consisted  of  $40,898  in  unrealized  gains  less  $35,225  in
                unrealized losses and deferred taxes of $1,986.

                Changes in unrealized gains (losses) include the following for
                the years ended December 31:
<TABLE>
<CAPTION>
                                                       2000           1999           1998
                                                    -----------    -----------    -----------
                  <S>                               <C>            <C>            <C>
                  Equity securities                 ($    6,892)    $    6,237     $    2,129
                  Fixed maturities                       11,355    (    51,830)         6,664
                  Limited partnerships                    4,816          1,723             31
                  Deferred federal income tax
                    (expense) benefit               (     3,248)        15,354    (     3,088)
                                                     ----------     ----------     ----------
                  Increase (decrease) in
                    unrealized gains (losses)        $    6,031    ($   28,516)    $    5,736
                                                     ==========     ==========     ==========
</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.  A fee is paid to the
                Company by the borrower.  The borrower of the  securities is not
                permitted to sell or repledge the securities on loan. Collateral
                that  exceeds  the  market  value of the  loaned  securities  is
                maintained   by  the   lending   agent.   The   Company  has  an
                indemnification agreement with the lending agents in the event a
                borrower  becomes  insolvent or fails to return  securities.  At
                December  31,  2000,  the Company had loaned  securities  with a
                market value of $27,561, secured by collateral of $29,136.

NOTE 4.         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>
                                                                          2000             1999              1998
                                                                       -----------      -----------       -----------
                <S>                                                    <C>              <C>               <C>
                Unrealized holding gains (losses) arising
                  during period                                         $   16,239      ($   39,537)       $   13,707
                Less:  reclassification adjustment for gains
                  included in net income                                     6,960            4,333             4,883
                                                                        ----------       ----------        ----------
                Net unrealized holding gains (losses)
                  arising during period                                 $    9,279      ($   43,870)       $    8,824
                                                                        ----------       ----------        ----------
                Income tax (expense) benefit related to
                  unrealized gains (losses)                            ($    3,248)      $   15,354       ($    3,088)
                                                                        ----------       ----------        ----------
                Other comprehensive income (loss), net
                  of tax                                                $    6,031      ($   28,516)       $    5,736
                                                                        ==========       ==========        ==========
</TABLE>


                                       59
<PAGE>


INCORPORATED BY REFERENCE, PAGE 39 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 5.         LIABILITY FOR UNPAID POLICY AND CONTRACT CLAIMS

                Activity in the liability for unpaid policy and contract  claims
                is as follows:
<TABLE>
<CAPTION>
                                                         2000            1999         1998
                                                       ---------      ----------    ----------
                <S>                                   <C>            <C>            <C>
                Balance at January 1                   $   1,305      $    1,801     $  2,050
                Less reinsurance recoverables         (      184)    (       449)   (     163)
                                                       ---------      ----------     --------
                Net balance at January 1               $   1,121      $    1,352     $  1,887

                Total death claims incurred               12,869          10,231        8,459
                Total death claims paid,
                  net of reinsurance recoveries           11,685          10,462        8,994
                                                       ---------      ----------     --------
                Net balance at December 31             $   2,305      $    1,121     $  1,352
                Plus reinsurance recoverables                168             184          449
                                                       ---------      ----------     --------
                Balance at December 31                 $   2,473      $    1,305     $  1,801
                                                       =========      ==========     ========
</TABLE>

NOTE 6.         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:

                                        2000             1999         1998
                                     -----------     ----------    -----------

                Deposits:
                  Universal life     $    11,198    $    11,792    $    10,692
                  Annuity                 51,060         67,115         56,728
                                     -----------    -----------    -----------
                                     $    62,258    $    78,907    $    67,420
                                     ===========    ===========    ===========

                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
                non-participating  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 2000, 1999 and 1998 included $5,627,  $5,322
                and  $6,413,  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  $46,212  and  $42,131 at  December  31, 2000 and 1999,
                respectively.

                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 $16,168,
                $23,312 and $17,883, in 2000, 1999 and 1998,  respectively.  The
                reserves held for  structured  settlement  annuities sold to the
                affiliated  property  and  casualty  insurance  companies  equal
                $162,322   and   $149,920  at   December   31,  2000  and  1999,
                respectively.


                                       60
<PAGE>


INCORPORATED BY REFERENCE, PAGE 39 AND 40 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 7.         FEDERAL INCOME TAXES

                The provision for federal income taxes consists of the following
                for the years ended December 31:

                                 2000          1999          1998
                              -----------   -----------   -----------

                  Current     $    10,715   $     9,646   $     8,101
                  Deferred          2,718         1,955         3,755
                              -----------   -----------   -----------
                              $    13,433   $    11,601   $    11,856
                              ===========   ===========   ===========

                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>
                                                                         2000            1999            1998
                                                                       ---------      ----------      -----------
                  <S>                                                 <C>             <C>             <C>
                  Federal income taxes at statutory rates              $    13,588     $   12,224      $   11,879
                  Dividends received deduction and
                    tax-exempt interest                               (         47)   (        85)    (       182)
                  Other                                               (        108)   (       538)            159
                                                                       -----------     ----------      ----------
                  Provision for federal income taxes                   $    13,433     $   11,601      $   11,856
                                                                       ===========     ==========      ==========
</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,
                                                                                2000           1999
                                                                             -----------    -----------
                <S>                                                         <C>             <C>
                Deferred policy acquisition costs                            $    25,805     $   23,538
                Liability for future life and annuity policy benefits       (      4,030)   (     5,577)
                Unrealized gains (losses)                                          1,986    (     1,262)
                Other                                                                 58          1,154
                                                                             -----------     ----------
                      Deferred income tax liability                          $    23,819     $   17,853
                                                                             ===========     ==========
</TABLE>

NOTE 8.         RELATED PARTY TRANSACTIONS

                Expense reimbursements

                    Reimbursements to EIC for operating  expenses paid on behalf
                    of the  Company are made on a monthly  basis.  The amount of
                    these   reimbursements  for  the  Company  totaled  $18,631,
                    $14,740 and $14,305 in 2000, 1999 and 1998, 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. These pension and related benefit costs reimbursed
                    by the Company to EIC equaled ($72),  $123 and $181 in 2000,
                    1999 and 1998,  respectively.  The 2000 balance reflects the
                    Company's share of a plan credit relating to a change in the
                    discount rate assumption used in the pension calculation.


                                       61
<PAGE>


INCORPORATED BY REFERENCE, PAGE 40 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 8.         RELATED PARTY TRANSACTIONS (CONTINUED)

                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
                    2000,  1999 and  1998,  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
                    $1,445  and   $1,362  at   December   31,   2000  and  1999,
                    respectively.  Rentals paid to the Company  under this lease
                    agreement  totaled  $309,  $303 and  $343 in 2000,  1999 and
                    1998,  respectively.   Future  minimum  rentals  under  this
                    agreement are as follows:

                                      2001             $     312
                                      2002                   318
                                      2003                   321
                                      2004                   328
                                      2005                   331
                                      Thereafter             791
                                                       ---------
                                      Total            $   2,401
                                                       =========

                    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  included in general  expenses.  Depreciation  and
                    interest charged the Company in 2000, 1999 and 1998 amounted
                    to $717, $574 and $384, respectively.

NOTE 9.         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.

                The  Company's   retention   limit  is  $300,000  per  life  for
                individual  and  group  coverage.   For  its  disability  income
                product,  the Company has a 50%  coinsurance  agreement with its
                reinsurer.  As of December  31, 2000 and 1999,  $2.6 billion and
                $1.4 billion respectively,  of life insurance in force was ceded
                to other companies. Sales of Erie Flagship Term in 2000 resulted
                in the increase in ceded reinsurance  balances.  The Company had
                assumed $33.4 million of life  insurance in force as of December
                31,  1999,  all of which  pertained to  Pennsylvania  Employees'
                Group Life  Insurance.  During 2000, the state  recaptured  this
                assumed  business,  thus, the Company no longer  participates in
                this  pool  insuring  the  Pennsylvania  Employees'  Group  Life
                Insurance.



                                       62
<PAGE>


INCORPORATED BY REFERENCE, PAGE 40 AND 41 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 9.         REINSURANCE (CONTINUED)

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

                                                    2000          1999          1998
                                                  ---------     ---------     ----------
                <S>                               <C>           <C>           <C>
                Policy revenue                    $   5,023     $   3,920     $   4,054

                Death benefits                        2,321         1,766         1,490

                Future life policy benefits           2,149           932           953

                Commissions                           2,344         1,567         1,654
</TABLE>


NOTE 10.        SEGMENT INFORMATION

                The  Company's  portfolio  of  Traditional   insurance  includes
                permanent  life,  endowment and term policies,  including  whole
                life. The Group and Other category  presented in the table below
                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>
2000
Total policy revenue, net of
   reinsurance                          $    31,787  $    10,186  $         2   $    2,562   $         0  $    44,537
Total investment-related
   and other income                           6,693        7,823       45,059          158        11,103       70,836
                                        -----------  -----------  -----------   ----------   -----------  -----------
     Total revenues                     $    38,480  $    18,009  $    45,061   $    2,720   $    11,103  $   115,373
                                        -----------  -----------  -----------   ----------   -----------  -----------
Less: Total benefits and
   expenses                                  24,420       14,011       36,903        1,216             0       76,550
                                        -----------  -----------   ----------   ----------   -----------  -----------
   Income from operations,
      before taxes                      $    14,060  $     3,998  $     8,158   $    1,504   $    11,103  $    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                           5,657        6,147       39,653          129         9,652       61,238
                                        -----------  -----------  -----------   ----------   -----------  -----------
     Total revenues                     $    35,186  $    15,670  $    39,658   $    2,758   $     9,652  $   102,924
                                        -----------  -----------  -----------   -----------  -----------  -----------
Less: Total benefits and
   expenses                                  19,779       11,175       34,484        2,560             0       67,998
                                        -----------  -----------  -----------   ----------   -----------  -----------
   Income from operations,
     before taxes                       $    15,407  $     4,495  $     5,174   $      198   $     9,652  $    34,926
                                        ===========  ===========  ===========   ==========   ===========  ===========

</TABLE>


                                       63
<PAGE>


INCORPORATED BY REFERENCE, PAGE 41 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

<TABLE>
<CAPTION>
                                                       Universal                 Group &
                                        Traditional       Life     Annuities      Other       Corporate      Total
                                        -----------  -----------  -----------   ----------   -----------  -----------
<S>                                     <C>          <C>          <C>           <C>          <C>          <C>
1998
Total policy revenue, net of
   reinsurance                          $    27,225  $     8,508  $         0   $    2,506   $         0  $    38,239
Total investment-related
  and other income                            4,953        5,336       36,739           75        10,868       57,971
                                        -----------  -----------  -----------   ----------   -----------  -----------
     Total revenues                     $    32,178  $    13,844  $    36,739   $    2,581   $    10,868  $    96,210
                                        -----------  -----------  -----------   ----------   -----------  -----------
Less: Total benefits and
   expenses                                  19,074       11,627       30,216        1,352             0       62,269
                                        -----------  -----------   ----------   ----------   -----------  -----------
   Income from operations,
     before taxes                       $    13,104  $     2,217  $     6,523   $    1,229   $    10,868  $    33,941
                                        ===========  ===========  ===========   ==========   ===========  ===========
</TABLE>


NOTE 11.        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).  Accounting  principles  used to  prepare
                statutory financial  statements differ from financial statements
                prepared  on  the  basis  of   generally   accepted   accounting
                principles.

                In 1998,  the NAIC  completed  a  process  to  codify  statutory
                accounting   practices   for   certain   insurance   enterprises
                (Codification).  These codified statutory accounting  principles
                will be effective  beginning  January 1, 2001. The  Codification
                will  result  in  changes  to  the   Company's   statutory-basis
                financial  statements,  however, the impact will not be material
                to the Company's statutory surplus.

                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, 2000, 1999 and 1998,
                follows:
<TABLE>
<CAPTION>

                                                                    2000         1999           1998
                                                               -----------   -----------    -----------
                <S>                                            <C>           <C>            <C>
                Statutory net income                            $   19,058    $   14,372     $   13,787

                Reconciling items:
                  Policy liabilities and accruals                    3,035         3,743          2,344
                  Deferred policy acquisition costs,
                    net of amortization                              7,135         6,672          6,349
                  Investment valuation differences             (       686)          349          2,360
                  Deferred taxes                               (     2,718)  (     1,955)   (     3,755)
                  Capitalized salaries and benefits                      0           953          1,541
                  Other                                        (       434)  (       809)   (       541)
                                                                ----------    ----------     ----------
                GAAP net income                                 $   25,390    $   23,325     $   22,085
                                                                ==========    ==========     ==========
</TABLE>


                                       64
<PAGE>


INCORPORATED BY REFERENCE, PAGE 42 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 11.        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, 2000 and
                1999, follows:
<TABLE>
<CAPTION>
                                                                                       2000             1999
                                                                                    ----------       ----------
                <S>                                                                <C>              <C>
                Statutory shareholders' equity                                      $   96,479       $  99,181

                Reconciling items:
                  Asset valuation and interest
                    maintenance reserves                                                44,987          45,084
                  Investment valuation differences                                 (     1,720)     (   25,824)
                  Deferred policy acquisition costs                                     84,723          77,588
                  Surplus note                                                     (    15,000)     (   15,000)
                  Policy liabilities and accruals                                       13,225          10,190
                  Deferred taxes                                                   (    23,819)     (   17,853)
                  Deferred and uncollected premiums                                (     7,342)     (    5,458)
                  Capitalized salaries and benefits, net of amortization                 2,495           2,495
                  Other                                                                  1,692             700
                                                                                    ----------       ---------
                GAAP shareholders' equity                                           $  195,720       $ 171,103
                                                                                    ==========       =========
</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
                percent 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
                2001  without  prior  Pennsylvania   Commissioner   approval  is
                $19,058.  Dividends  declared to shareholders  totaled $6,804 in
                2000 and $6,237 in 1999.



                                       65
<PAGE>

INCORPORATED BY REFERENCE, PAGE 42 AND 43 OF THE COMPANY'S 2000 ANNUAL REPORT TO
SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 12.          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>
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 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 from operations                                $    9,948      $    8,991      $    9,214       $   10,670
Provision for federal income taxes                         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
                                                      ==========      ==========      ==========       ==========

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 from operations                                $    7,433      $    9,339      $    9,450       $    8,704
Provision for federal income taxes                         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
                                                      ==========      ==========      ==========       ==========

1998
Total policy revenue                                  $    8,981      $    9,833      $    9,494       $    9,931
Net investment income                                     12,805          12,931          12,451           13,780
Net realized gains on investments                          1,836             866             775            1,406
Equity in earnings of limited partnerships           (        15)             65             124              188
Other income                                                 164             226             238              131
                                                      ----------      ----------      ----------       ----------
  Total revenues                                      $   23,771      $   23,921      $   23,082       $   25,436
                                                      ==========      ==========      ==========       ==========

Income from operations                                $   10,017      $    8,617      $    5,910       $    9,397
Provision for federal income taxes                         3,519           3,053           2,247            3,037
                                                      ----------      ----------      ----------       ----------
  Net income                                          $    6,498      $    5,564      $    3,663       $    6,360
                                                      ==========      ==========      ==========       ==========
  Net income per share                                $     0.69      $     0.59      $     0.39       $     0.67
                                                      ==========      ==========      ==========       ==========

Comprehensive income (loss)                           $    8,754      $    7,877     ($    2,464)      $   13,654
                                                      ==========      ==========      ==========       ==========

</TABLE>

                                       66