<PAGE>

                                                                      EXHIBIT 13



                      1997 ANNUAL REPORT TO STOCKHOLDERS



NOTE: Attached hereto are the incorporated pages from the Company's 1997 Annual
                            Report to Stockholders.




                                     -47-

<PAGE>

<TABLE>
<CAPTION>



FINANCIAL AND OTHER INFORMATION SECTION
--------------------------------------------------------------------------------
<S>                                                             <C>
Selected Consolidated Financial and Operating Data              18

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

Management's Discussion and Analysis of Results
of Operations and Financial Condition                           20

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

Report of Independent Public Accountants                        25

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

Financial Statements                                            26

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

Notes to Consolidated Financial Statements                      32

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

Officers and Directors                                          43

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

Related Stockholder Matters and
Market for the Company's Common Stock                           44

--------------------------------------------------------------------------------
</TABLE>

                                                                              17
<PAGE>

First Commonwealth, Inc.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
--------------------------------------------------------------------------------

The selected consolidated statement of income data and balance sheet data as of,
and for, the years ended December 31, 1997, 1996 and 1995 are derived from, and
are qualified by reference to, the consolidated financial statements of the
Company audited by Arthur Andersen LLP, independent public accountants,
appearing elsewhere in this Annual Report. The selected consolidated statement
of income data and balance sheet data as of, and for, the years ended December
31, 1994 and 1993 are derived from audited financial statements of the Company
not included herein. The selected consolidated financial information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and the Company's consolidated
financial statements and related notes appearing elsewhere in this Annual
Report. The selected operating data has been derived from the accounting records
of the Company and has not been audited.

<TABLE>
<CAPTION>
                                                                                              Year Ended December 31,
                                                                                              -----------------------
                                                                                  1997       1996(3)     1995      1994      1993
                                                                                  ----       ------      ----      ----      ----
                                                                        (in thousands, except for per share and operating data)
<S>                                                                            <C>          <C>       <C>       <C>        <C>
Consolidated Statement of Income Data:
Subscriber revenue.........................................................    $ 56,594     $ 44,099  $ 33,315  $ 22,077   $ 17,337
Benefit coverage expenses..................................................      37,932       27,873    20,286    12,321      9,429
                                                                               --------     --------  --------  --------   --------
Gross margin...............................................................      18,662       16,226    13,029     9,756      7,908
Selling, general and administrative expense................................      13,550       12,273     9,883     7,458      6,263
                                                                               --------     --------  --------  --------   --------
Operating income...........................................................       5,112        3,953     3,146     2,298      1,645
Interest income, net.......................................................         495          642       194        59         32
                                                                               --------     --------  --------  --------   --------
Income before income taxes.................................................       5,607        4,595     3,340     2,357      1,677
Provision for income taxes.................................................       2,284        1,864     1,336     1,009        672
                                                                               --------     --------  --------  --------   --------
Net income.................................................................    $  3,323     $  2,731  $  2,004  $  1,348   $  1,005
                                                                               ========     ========  ========  ========   ========
Basic earnings per share (1)...............................................    $   0.92     $   0.79  $   0.69  $   0.48   $   0.36
                                                                               ========     ========  ========  ========   ========
Diluted earnings per share (1).............................................    $   0.89     $   0.76  $   0.67  $   0.47   $   0.36
                                                                               ========     ========  ========  ========   ========
Selected Operating Data:
Members at end of period:
Managed Care...............................................................     450,400      341,600   265,800   215,700    181,800
Indemnity/PPO..............................................................      65,300       56,200    36,700    11,600     11,300
Fee Income.................................................................      76,600       34,000     6,100    NC (2)      NC(2)
                                                                               --------     --------  --------  --------   --------
   Total Members...........................................................     592,300      431,800   308,600   227,300    193,100
                                                                               ========     ========  ========  ========   ========

</TABLE>
                         See notes on following page.

18
<PAGE>

First Commonwealth, Inc.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA--continued

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

                                                                         Year Ended December 31,
                                                                         ----------------------
                                                               1997    1996(3)      1995     1994     1993
                                                               ----    ------       ----     ----     ----
<S>                                                           <C>      <C>         <C>      <C>      <C>
                                                         (in thousands, except for per share and operating data)
Consolidated Balance Sheet Data (at end of period):
Total current assets.......................................   $16,554  $21,023     $16,889   $5,716   $3,941
Total assets...............................................    31,896   34,454      19,111    7,217    5,203
Total current liabilities..................................     8,325   14,331       7,280    3,977    3,276
Total liabilities..........................................     8,573   14,498       7,405    4,077    3,414
Preferred stock............................................        --       --          --      892      892
Stockholders' equity.......................................    23,323   19,956      11,706    2,248      898
</TABLE>


(1)  Earnings per share reflects the conversion of all outstanding shares of
     Series B Preferred Stock upon the consummation of initial public offering
     in November 1995. See Note 2 of the Notes to Consolidated Financial
     Statements.

(2)  1994 and 1993 members are not comparable.

(3)  Reflects results of the acquisition of Smileage Dental Services, Inc. from
     July 18, 1996. Balance sheet data (but not income or operating data) as of
     December 31, 1996 includes amounts relating to Champion Dental Services,
     Inc., which was acquired as of December 31, 1996.

                                                                              19
<PAGE>

First Commonwealth, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
--------------------------------------------------------------------------------

The following discussion and analysis of the Company's consolidated results of
operations and consolidated financial condition should be read in conjunction
with the Selected Consolidated Financial and Operating Data and the Company's
consolidated financial statements, including the notes thereto appearing
elsewhere in this Annual Report.

Overview
--------------------------------------------------------------------------------
The Company began operations in the Chicago area in 1988 and has grown to be a
leading provider of managed dental benefits in the upper Midwest, including the
metropolitan areas of Chicago, Milwaukee, St. Louis, Detroit and Indianapolis.
As of December 31, 1997, the Company had 450,400 members in its managed care
plans, 65,300 members in its fully insured indemnity/PPO plans, and 76,600
members eligible to access the Company's PPO network and covered under its
administrative services only ("ASO") arrangements. In 1992, the Company began
marketing indemnity plans as part of its Managed Choice/SM/ products. Since the
introduction of Managed Choice/SM/ products in 1992, the Company has experienced
significant enrollment growth in this product line, particularly among large
employers. In January 1996, the Company introduced its new PPO product (Managed
Choice/SM/ Triple Option), which integrates a managed component, the PPO option,
into the Company's indemnity plans. The Indemnity/PPO revenue line includes
revenue from both indemnity business that includes the PPO component as well as
indemnity business that does not include the PPO component. The PPO component
was available to approximately 19% of the Company's Indemnity/PPO members as of
December 31, 1997. The Company's Managed Choice/SM/ products enable the Company
to completely replace an employer's existing indemnity plan with the Company's
combined managed care and indemnity/PPO plan.

Acquisitions
--------------------------------------------------------------------------------
Effective July 18, 1996, the Company completed the acquisition of Smileage
Dental Services, Inc. ("Smileage"), a Wisconsin-based dental HMO administrator,
which provided services to approximately 50,000 members, and an associated
reinsurance transaction, for an aggregate purchase price (including transaction
costs) of $5.6 million. The acquisition was financed through the issuance of the
Company's common stock.

Effective December 31, 1996, the Company completed the acquisition of Champion
Dental Services, Inc. ("Champion"), a Missouri-based prepaid dental plan, which
provided services to approximately 60,000 members, for an aggregate purchase
price (including transaction costs) of $5.6 million. The acquisition was
financed through proceeds from the Company's initial public offering and was
paid in cash on January 2, 1997.

Both acquisitions offer managed care products that are typically at a lower
gross margin level than what the Company has experienced in the past.

Revenues
--------------------------------------------------------------------------------
The Company's annual revenues have increased from $33.3 million in 1995 to $56.6
million in 1997. Revenues increased to $56.6 million for 1997 from $44.1 million
for 1996. Revenue growth for 1997 has been strong both in dollar and percentage
terms, primarily as the result of the addition of new managed care and
indemnity/PPO members as well as the full year effect of the acquisition of
Smileage in July 1996 and the acquisition of Champion. The Company believes that
the rate of revenue growth in its current markets will decline from historical
levels primarily as a result of its higher revenue base.

The Company's product pricing varies based on the type of plan, the services
provided and the member copayment (or coinsurance). In addition, pricing varies
by marketplace based on employer and employee preference and competition.
Pricing also may vary as a result of different pricing terms of the plans in
effect at companies when acquired by the Company. As a result, per member
pricing can fluctuate based on product mix, shifting marketplace preferences and
acquisition timing. As contracts are renewed, the Company will seek to improve
profitability on lower margin plans by increasing pricing, by offering plans
with additional services at higher prices and margins, and by offering higher
margin plans with fewer services at lower costs.

The largest source of Company revenue is derived from members enrolled in
managed care plans. From 1995 to 1997, the Company's revenue from its managed
care products grew from $25.7 million to $43.5 million. This increase is
primarily attributable to managed care enrollment growth and, to a lesser
degree, a shift toward managed care products with higher benefit and premium
levels, as well as the acquisition of Smileage and Champion in 1996. In 1995 and
1997, managed care enrollment accounted for approximately 77% of total revenue.


20
<PAGE>

First Commonwealth, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION--continued
--------------------------------------------------------------------------------

The second largest source of Company revenue is generated from indemnity/PPO
plan premiums. From 1995 to 1997, the Company's revenue from its indemnity/PPO
products grew from $6.9 million to $12.2 million. For 1997, revenue from
indemnity/ PPO enrollment accounted for approximately 22% of total revenue
compared to approximately 21% of total revenue in 1995. The Company believes
that revenue from indemnity/PPO enrollment will continue to increase in the
future.

The third largest source of revenue is fee income which is generated from the
Company's PPO network rental program and ASO arrangements. Under the network
rental program, PPO network providers offer services according to a reduced fee
schedule negotiated by the Company. The Company charges its PPO groups a monthly
fee for each member eligible to access under such reduced fee arrangements. The
Company does not make any payments to its PPO network providers on behalf of the
eligible members access under such reduced fee arrangements. Under the Company's
ASO arrangements, the Company provides claims payments and related services for
self-insured employers' indemnity plans. Under these arrangements the Company
does not assume any of the underwriting risk for the indemnity claims.

Benefit Coverage Expenses
--------------------------------------------------------------------------------
From 1995 to 1997, total benefit coverage expenses increased from $20.3 million
to $37.9 million. Between 1995 and 1997, total benefit coverage expenses as a
percentage of revenues increased from 60.9% to 67.0% of total revenue. This
increase is largely the result of increases in the benefit coverage expenses of
the Company's managed care products (primarily associated with the Company's
acquisitions) and increases in benefit coverage expenses associated with
indemnity/PPO plans.

Gross Margin
--------------------------------------------------------------------------------
From 1995 to 1997, gross margin increased from $13.0 million to $18.7 million.
Between 1995 and 1997, gross margin as a percentage of total revenue decreased
from 39.1% to 33.0% of total revenue. This change is due to a decline in the
gross margin of the Company's managed care products, primarily due to the lower
gross margin on the managed care products sold in the Wisconsin and Missouri
marketplaces, and the decrease in the gross margin on the Company's
indemnity/PPO products in 1997. The Company believes that the decline in gross
margin percentage by product line should cease in the near future as a result of
price increases passed on to both the indemnity/PPO and managed care clients.
Overall gross margin percentages will vary if the mix of the Company's
indemnity/PPO and managed care business changes from current levels.

Selling, General and Administrative
--------------------------------------------------------------------------------
Selling, general and administrative ("SG&A") expenses as a percent of revenues
declined from 29.7% in 1995 to 23.9% in 1997. The change is primarily the result
of economies of scale in meeting the administrative needs of increased
enrollment due to the relatively fixed nature of certain SG&A expenses, higher
revenues relative to the SG&A expenses associated with indemnity/PPO plans, and
cost containment moves by the Company in 1997 to offset the decline in gross
margin. This decrease in SG&A expenses as a percentage of revenue from 1995
through 1997 to a large degree offsets the decreases in the gross margin
percentage during that period. The Company does not expect SG&A expenses as a
percentage of revenue to decline further in the near future.

Year 2000 Issue
--------------------------------------------------------------------------------
The Company is currently in the process of evaluating its information technology
infrastructure for Year 2000 compliance and should be substantially completed by
the end of 1998. The Company does not expect the cost to modify its information
technology infrastructure to be Year 2000 compliant to be material to its
financial condition or results of operations. The Company does not currently
have any information concerning the Year 2000 compliance status of its
customers. In the event that any of the Company's significant customers do not
successfully and timely achieve Year 2000 compliance, the Company does not
believe that its business or operations would be adversely affected.

                                                                              21
<PAGE>

First Commonwealth, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION--continued
--------------------------------------------------------------------------------

Results of Operations
--------------------------------------------------------------------------------
The following tables set forth certain information from the Company's
consolidated statements of income for the periods indicated. In the opinion of
management, these tables have been prepared on the same basis as the audited
consolidated financial statements appearing elsewhere in this Annual Report and
fairly present the results of operations of the Company for the periods covered
thereby.

<TABLE>
<CAPTION>

                                            Year Ended December 31,
                                          ---------------------------
                                             1997      1996      1995
                                             ----      ----      ----
                                                (in thousands)
<S>                                        <C>      <C>       <C>
Consolidated Statement of Income Data:
Subscriber revenue
  Managed care.........................   $43,509   $32,807    $25,739
  Indemnity/PPO........................    12,204    10,629      6,893
  Fee income...........................       881       663        683
                                          -------   -------    -------
       Total subscriber
       revenue.........................    56,594    44,099     33,315
                                          -------   -------    -------
Benefit coverage expenses
  Managed care.........................    27,468    19,555     14,835
  Indemnity/PPO........................    10,464     8,318      5,451
  Fee income...........................        --        --         --
                                          -------   -------    -------
       Total benefit
       coverage expenses...............    37,932    27,873     20,286
                                          -------   -------    -------
Gross margin
  Managed care.........................    16,041    13,252     10,904
  Indemnity/PPO........................     1,740     2,311      1,442
  Fee income...........................       881       663        683
                                          -------   -------    -------
       Total gross margin..............   $18,662   $16,226    $13,029
                                          =======   =======    =======
</TABLE>


Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Total subscriber revenue increased by $12.5 million, or 28.3%, to $56.6 million
in 1997 from $44.1 million in 1996. Of this increase, $3.3 million, or 26.4%,
was attributable to the operations added through the acquisition of Champion.
The remaining $9.2 million increase was a 20.9% increase in revenues and was
primarily attributable to increased enrollment in the Company's managed care and
indemnity/PPO dental plans, as well as a full year effect of the Smileage
transaction. Managed care revenue increased $10.7 million over the same period,
primarily due to an increase in new members and $3.3 million from Champion.
Indemnity/PPO revenue increased $1.6 million to $12.2 million in 1997 from $10.6
million in 1996, primarily as a result of adding new indemnity/PPO plan members.

Total gross margin increased by $2.5 million, or 15.4%, to $18.7 million in 1997
from $16.2 million in 1996. Total gross margin as a percentage of revenue was
33.0% in 1997 as compared to 36.8% in 1996. This percentage decline was the
result of the lower gross margin from the Champion and Smileage acquisitions as
well as from a decrease in gross margin in the Company's indemnity/PPO plans.
Managed care gross margin as a percentage of revenue was 36.9% in 1997 as
compared to 40.4% in 1996. This percentage decline was primarily the result of
revenue acquired through the two acquisitions which had a combined gross margin
percentage of 28.0% as compared with the existing managed care business which
had a gross margin percentage of 40.0%. The level of indemnity/PPO gross margin
as a percentage of revenue decreased to 14.3% in 1997 from 21.7% in 1996. This
decline in indemnity/PPO gross margin was the result of increased expenses in
the Company's indemnity/PPO plans, primarily attributable to higher utilization
patterns.

22
<PAGE>

First Commonwealth, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION--continued
--------------------------------------------------------------------------------
SG&A expenses increased by $1.3 million, or 10.6%, to $13.6 million for 1997
from $12.3 million in 1996. As a percentage of revenue, SG&A expenses dropped to
23.9% for 1997 from 27.8% for 1996. The change is primarily the result of
economies of scale in meeting the administrative needs of increased enrollment
due to the relatively fixed nature of certain SG&A expenses, higher revenues
relative to the SG&A expenses associated with indemnity/PPO plans, and cost
containment moves by the Company in 1997 to offset the decline in gross margin.
Included in the SG&A total is $265,000 and $64,000, respectively, for 1997 and
1996, for the amortization of goodwill associated with the acquisitions.

Operating income increased by $1.2 million, or 29.3%, to $5.1 million for 1997
from $3.9 million in 1996. As a percentage of revenue, operating income was 9.0%
in 1997 and 1996.

The effective tax rate for 1997 was 40.7% compared to 40.6% for 1996.

Net income increased by $592,000, or 21.9%, to $3.3 million for 1997 from $2.7
million for 1996.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
--------------------------------------------------------------------------------
Total subscriber revenue increased by $10.8 million, or 32.4%, to $44.1 million
in 1996 from $33.3 million in 1995. Of this increase, $3.6 million, or 33.3%,
was attributable to the operations added through the acquisition of Smileage and
the associated reinsurance transaction. The remaining $7.2 million increase was
a 21.6% growth in revenues and was primarily attributable to increased
enrollment in the Company's managed care and indemnity/PPO dental plans. Managed
care revenue increased $7.1 million over the same period, primarily due to the
$3.6 million from Smileage and from an increase in new members. Indemnity/PPO
revenue increased $3.7 million to $10.6 million in 1996 from $6.9 million in
1995, primarily as a result of adding new indemnity/PPO plan members.

Total gross margin increased by $3.2 million, or 24.5%, to $16.2 million in 1996
from $13.0 million in 1995. Total gross margin as a percentage of revenue was
36.8% in 1996 as compared to 39.1% in 1995. This percentage decline was
primarily the result of a shift in the Company's product mix toward a higher
percentage of overall revenues being generated by the Company's indemnity/PPO
products, which have a relatively lower percentage gross margin than the
Company's managed care products. Managed care gross margin as a percentage of
revenue was 40.4% in 1996 as compared to 42.4% in 1995. This percentage decline
was primarily the result of revenue acquired through the Smileage transaction
which has a gross margin percentage of 22.2% as compared with the existing
managed care business which had a gross margin percentage of 42.6%. The level of
indemnity/PPO gross margin as a percentage of revenue increased to 21.7% in 1996
from 20.9% in 1995. This improved indemnity/PPO gross margin is the result of
increased premium rates charged for the Company's indemnity/PPO plans.

SG&A expenses increased by $2.4 million, or 24.2%, to $12.3 million for 1996
from $9.9 million in 1995. As a percentage of revenue, SG&A expenses dropped to
27.8% for 1996 from 29.7% for 1995. The change is primarily the result of
economies of scale in meeting the administrative needs of increased enrollment
due to the relatively fixed nature of certain SG&A expenses as well as higher
revenues relative to the SG&A expenses associated with indemnity/PPO plans.
Commissions to independent brokers increased 34.1% primarily due to higher
revenue. As a percentage of total revenue, commissions for 1996 declined to 4.3%
from 5.3% for 1995 as a result of a higher proportion of direct sales and lower
commissions associated with the Company's growing indemnity/PPO business. In
1996, included in the SG&A total is $64,000 for the amortization of goodwill
associated with the acquisition of Smileage.

Operating income increased by $807,000, or 25.7%, to $4.0 million for 1996 from
$3.1 million in 1995. As a percentage of revenue, operating income was 9.0% in
1996 as compared to 9.4% in 1995. The percentage decline was due primarily to
the decrease in the overall percentage gross margin which was partially offset
by lower SG&A expenses as a percentage of revenue.

The effective tax rate for 1996 was 40.6% compared to 40.0% for 1995. The tax
rate for 1996 was higher primarily as the result of the non-deductibility of the
amortization of goodwill from the Smileage acquisition.

Net income increased by $727,000, or 36.3%, to $2.7 million for 1996 from $2.0
million for 1995.

                                                                              23
<PAGE>

First Commonwealth, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION--continued
--------------------------------------------------------------------------------

Liquidity and Capital Resources
--------------------------------------------------------------------------------
The Company's historical operating cash requirements have been met principally
through operating cash flows. The primary uses of cash have been for operating
activities and capital investments in the business. The acquisition of Champion
was financed through proceeds from the Company's initial public offering and was
paid in cash on January 2, 1997. The Company believes that cash generated from
operations will be adequate to finance its anticipated operating needs for the
foreseeable future.

Cash flow (used in) provided by operations was ($0.6) million, $3.7 million and
$4.2 million for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company primarily receives premium payments in advance of disbursing managed
care dentist capitation payments and indemnity/PPO claims payments. Cash
balances in excess of current needs are invested in interest-bearing accounts or
cash equivalents. Cash flow provided by operations consist primarily of
subscriber premiums and investment income net of capitation payments to network
dentists, claims paid, brokers' commissions, general and administrative expenses
and income taxes. In 1997, $2.0 million was transferred to restricted cash for
the formation of an insurance company. Excluding cash transferred to restricted
funds, cash flow provided by operations was $1.5 million, $4.1 million, and $4.7
million for the years ended December 31, 1997, 1996, and 1995, respectively.

Capital expenditures were $682,000 for 1997 mainly for computer system
enhancements, furniture, and leasehold improvements. Capital expenditures were
$745,000 and $765,000 for the years ended December 31, 1996 and 1995
respectively, primarily for office furniture and new computer systems.

Cash provided by (used in) financing activities was $43,000, ($45,000), and
($103,000) (excluding the $6.6 million net proceeds received from the initial
public offering) for the years ended December 31, 1997, 1996 and 1995, primarily
for payments on capital leases and dividends on preferred stock.

As of December 31, 1997, the Company had cash and cash equivalents of $9.0
million and no debt outstanding. As of December 31, 1996, included in other
current liabilities is a payable to the parent of Champion for the $5.5 million
purchase price. In addition, the Company has a committed unsecured line of
credit (the "Credit Agreement") available which expires June 30, 1998. Pursuant
to this Credit Agreement, the Company may borrow up to $5 million at the rate of
LIBOR plus one-half percent. To the extent the Company makes acquisitions, a
portion of the purchase price may be financed through borrowings.

Under applicable insurance laws of the states in which the Company conducts
business, the Company's subsidiaries operating in the particular state are
required to maintain a minimum level of net worth and reserves. The Company may
be required from time to time to invest funds in one or more of its subsidiaries
to meet regulatory requirements, or to expand its operations into new geographic
areas. In addition, applicable laws generally limit the ability of the Company's
subsidiaries to pay dividends to the extent that required regulatory capital or
surplus would be impaired.

Impact of Inflation
--------------------------------------------------------------------------------
The Company does not believe the impact of inflation has significantly affected
the Company's operations.

24
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------


To the Stockholders and Board of Directors
of First Commonwealth, Inc.:

We have audited the accompanying consolidated balance sheets of FIRST
COMMONWEALTH, INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31,
1997, 1996 and 1995, and the related consolidated statements of income, changes
in stockholders' equity and cash flows for the years then ended. 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 generally accepted auditing
standards. 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 First Commonwealth, Inc. and
Subsidiaries as of December 31, 1997, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.



ARTHUR ANDERSEN LLP


Chicago, Illinois
February 11, 1998

                                                                              25
<PAGE>

First Commonwealth, Inc. and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
As of December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>

ASSETS                                                          1997           1996           1995
------                                                          ----           ----           ----
<S>                                                      <C>           <C>           <C>
CURRENT ASSETS:
  Cash and cash equivalents...........................   $ 9,047,214    $15,817,498    $12,680,153
  Accounts receivable, net of allowances of
       $334,012, $289,554 and $197,316 at
       December 31, 1997, 1996 and 1995,
       respectively...................................     3,443,661      3,010,585      1,751,376
  Other receivables...................................       163,329        220,819         52,091
  Deposit under reinsurance agreement.................       752,284        696,564        431,522
  Prepaid expenses....................................     2,288,559        408,447      1,289,973
  Deferred tax asset..................................       859,000        869,000        665,000
  Income taxes receivable.............................            --             --         19,000
                                                         -----------    -----------    -----------
       Total current assets...........................    16,554,047     21,022,913     16,889,115
                                                         -----------    -----------    -----------
PROPERTY AND EQUIPMENT, at cost.......................     4,029,771      3,347,829      2,464,782
  Less Accumulated depreciation.......................    (2,319,790)    (1,725,450)    (1,086,279)
                                                         -----------    -----------    -----------
       Property and equipment, net....................     1,709,981      1,622,379      1,378,503
                                                         -----------    -----------    -----------
OTHER ASSETS:
  Restricted cash equivalents and government
  securities on deposit, at cost which
  approximates market.................................     3,263,820      1,222,022        798,744
  Goodwill and other intangibles, net of
  accumulated amortization of $328,442 and $63,814
  at December 31, 1997 and 1996, respectively.........    10,264,298     10,482,110             --
  Deposits and other..................................       103,495        104,554         44,700
                                                         -----------    -----------    -----------
       Total other assets.............................    13,631,613     11,808,686        843,444
                                                         -----------    -----------    -----------
       Total assets...................................   $31,895,641    $34,453,978    $19,111,062
                                                         ===========    ===========    ===========

</TABLE>
The accompanying notes to consolidated financial statements are an integral part
                           of these balance sheets.

26
<PAGE>

First Commonwealth, Inc. and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS--continued
--------------------------------------------------------------------------------
As of December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY                          1997         1996          1995
------------------------------------                      -----------   -----------  -----------
<S>                                                       <C>           <C>          <C>
CURRENT LIABILITIES:
  Accounts payable--trade...............................  $    88,399   $   338,000  $   364,349
  Accounts payable--dental service providers............      394,946       347,529      399,206
  Claims liability......................................    1,604,329     1,579,669    1,257,681
  Accrued payroll and related costs.....................      485,166       739,292      846,263
  Other accrued expenses................................      355,429       648,000      760,555
  Deferred subscriber revenue...........................    4,444,468     4,448,953    3,262,791
  Payable under reinsurance agreement...................      752,427       627,789      389,254
  Income taxes payable..................................      200,327       101,472           --
  Other current liabilities (Note 2)....................           --     5,500,000           --
                                                          -----------   -----------  -----------
       Total current liabilities........................    8,325,491    14,330,704    7,280,099
DEFERRED TAX LIABILITY..................................      247,300       167,157      125,157
                                                          -----------   -----------  -----------
       Total liabilities................................    8,572,791    14,497,861    7,405,256
                                                          -----------   -----------  -----------

STOCKHOLDERS' EQUITY:
  Common stock ($.001 par value; 15,000,000 shares
       authorized, 3,636,951 shares in 1997, 3,600,996
       shares in 1996 and 3,365,375 shares in 1995
       issued and outstanding)..........................        3,637         3,601        3,365
  Capital in excess of par value........................   13,251,815    13,206,633    7,676,536
  Retained earnings.....................................   10,080,858     6,757,451    4,025,905
  Less 495 shares and 425 shares of common stock
       held in treasury at December 31, 1997
       and 1996, respectively, at cost..................      (13,460)      (11,568)          --
                                                          -----------   -----------  -----------
       Total stockholders' equity.......................   23,322,850    19,956,117   11,705,806
                                                          -----------   -----------  -----------
       Total liabilities and stockholders' equity.......  $31,895,641   $34,453,978  $19,111,062
                                                          ===========   ===========  ===========
</TABLE>



The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.

                                                                              27
<PAGE>

First Commonwealth, Inc. and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                    1997         1996         1995
                                    ----         ----         ----
<S>                              <C>          <C>          <C>
SUBSCRIBER REVENUE.............  $56,594,410  $44,098,529  $33,315,410

BENEFIT COVERAGE EXPENSES......   37,932,044   27,872,976   20,286,131
                                 -----------  -----------  -----------
   Gross margin................   18,662,366   16,225,553   13,029,279

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE.........   13,549,645   12,272,835    9,883,288
                                 -----------  -----------  -----------

   Operating income............    5,112,721    3,952,718    3,145,991

INTEREST INCOME, net...........      494,686      642,828      193,531
                                 -----------  -----------  -----------

   Income before income taxes..    5,607,407    4,595,546    3,339,522

PROVISION FOR INCOME TAXES.....    2,284,000    1,864,000    1,336,000
                                 -----------  -----------  -----------

NET INCOME.....................  $ 3,323,407  $ 2,731,546  $ 2,003,522
                                 ===========  ===========  ===========

BASIC EARNINGS PER SHARE.......  $      0.92  $     0 .79  $      0.69
                                 ===========  ===========  ===========

DILUTED EARNINGS PER SHARE.....  $      0.89  $     0 .76  $      0.67
                                 ===========  ===========  ===========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

28
<PAGE>

First Commonwealth, Inc. and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                              Capital                                             Total
                                                              -------                                             -----
                                       Common Stock          in Excess   Retained         Treasury Stock       Stockholders'
                                       ------------          ---------   --------         --------------       -------------
                                    Shares       Dollars       of Par    Earnings     Shares          Dollars     Equity
                                    ------       -------     ---------   --------     ------          -------     ------
<S>                               <C>          <C>          <C>        <C>            <C>            <C>        <C>
BALANCE, December 31, 1994......  1,049,000    $    1,049   $  175,801 $ 2,071,443        --         $     --   $ 2,248,293
   Preferred dividends..........         --            --           --     (49,060)       --               --       (49,060)
   Net income...................         --            --           --   2,003,522        --               --     2,003,522
   Conversion of preferred
   shares.......................  1,784,000         1,784      890,216          --        --               --       892,000
   Stock issued.................    532,375           532    6,610,519          --        --               --     6,611,051
                                  ---------     ---------   ----------   ---------    ------         --------   -----------
BALANCE, December 31, 1995......  3,365,375         3,365    7,676,536   4,025,905        --               --    11,705,806
   Net income...................         --            --           --   2,731,546        --               --     2,731,546
   Stock issued.................    235,621           236    5,530,097          --        --               --     5,530,333
   Treasury stock purchased.....         --            --           --          --      (425)         (11,568)      (11,568)
                                  ---------     ---------   ----------   ---------    ------         --------   -----------
BALANCE, December 31, 1996......   3,600,996         3,601   13,206,633   6,757,451     (425)         (11,568)   19,956,117
   Net income...................          --            --           --   3,323,407       --               --     3,323,407
   Stock issued.................      35,955            36       45,182          --       --               --        45,218
   Treasury stock purchased.....          --            --           --          --      (70)          (1,892)       (1,892)
                                   ---------    ----------  ----------- -----------   ------         --------   -----------

BALANCE, December 31, 1997......  3,636,951    $    3,637  $13,251,815 $10,080,858      (495)        $(13,460)  $23,322,850
                                  =========    ==========  =========== ===========    ======         ========   ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                                                              29
<PAGE>

First Commonwealth, Inc. and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>

                                                       1997           1996           1995
                                                    -----------    -----------    -----------
<S>                                                <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Cash received from subscribers.................  $ 55,767,127   $ 43,124,110   $ 34,107,857
  Cash paid to providers of care.................   (26,593,902)   (15,202,299)   (13,984,854)
  Cash paid to employees, brokers and suppliers..   (15,887,165)   (14,465,535)    (9,385,336)
  Claims paid....................................   (10,300,714)    (8,063,681)    (4,581,969)
  Interest paid..................................            --           (514)        (4,995)
  Interest received..............................       459,212        624,373        179,154
  Income taxes paid..............................    (1,993,502)    (1,911,500)    (1,662,677)
  Cash transferred to restricted funds...........    (2,035,911)      (373,158)      (436,107)
                                                   ------------   ------------   ------------
       Net cash (used in) provided by
       operating activities......................      (584,855)     3,731,796      4,231,073
                                                   ------------   ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment, net........      (681,939)      (745,509)      (765,418)
  Purchase of short-term investments.............      (517,130)    (5,161,968)            --
  Proceeds from sale of short-term investments...       517,130      5,097,314             --
  Cash received in acquisition...................            --        432,326             --
  Cost of acquisitions...........................    (5,546,816)      (171,680)            --
                                                   ------------   ------------   ------------
       Net cash used in investing activities.....    (6,228,755)      (549,517)      (765,418)
                                                   ------------   ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of common stock.......................        45,218          7,010      6,611,051
  Principal payments on capital leases...........            --        (26,996)       (61,425)
  Purchase of treasury stock.....................        (1,892)       (11,568)            --
  Payments of preferred dividends................            --        (13,380)       (41,540)
                                                   ------------   ------------   ------------
       Net cash provided by (used in)
       financing activities......................        43,326        (44,934)     6,508,086
                                                   ------------   ------------   ------------
       Net (decrease) increase in cash and
       cash equivalents..........................    (6,770,284)     3,137,345      9,973,741

CASH AND CASH EQUIVALENTS,
beginning of year................................    15,817,498     12,680,153      2,706,412
                                                   ------------   ------------   ------------
CASH AND CASH EQUIVALENTS,
end of year......................................  $  9,047,214   $ 15,817,498   $ 12,680,153
                                                   ============   ============   ============

</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

30
<PAGE>

First Commonwealth, Inc. and Subsidiaries
--------------------------------------------------------------------------------
RECONCILIATIONS OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>

                                                                1997         1996          1995
                                                            -----------   ----------   -----------
<S>                                                         <C>           <C>          <C>
Net income...............................................   $ 3,323,407   $2,731,546   $ 2,003,522
Adjustments to reconcile net income to net cash
provided by operating activities--
  Depreciation and amortization..........................       858,965      648,247       411,927
  Loss on sale of equipment..............................            --           --        60,420
  (Increase) decrease in assets--
       Accounts receivable, net..........................      (433,076)  (1,109,339)     (187,929)
       Other receivables.................................        57,490     (149,728)      (19,523)
       Deposit under reinsurance agreement...............       (55,720)    (265,042)     (431,522)
       Prepaid expenses..................................    (1,880,112)     881,526      (187,719)
       Deferred tax asset................................        10,000     (154,000)     (446,410)
       Income taxes receivable...........................            --           --        73,249
       Restricted cash equivalents and
       government securities on deposit..................    (2,041,798)    (373,158)     (436,107)
       Deposits and other................................         1,059      (59,854)        8,771
  Increase (decrease) in current liabilities-
       Accounts payable--trade...........................      (249,601)     (26,349)      215,602
       Accounts payable--dental service providers........        47,417      (67,676)      106,003
       Claims liability..................................        24,660      321,988       869,967
       Accrued payroll and related costs.................      (254,126)     (78,972)      254,486
       Other accrued expenses............................      (292,571)     (91,022)      491,512
       Deferred subscriber revenue.......................        (4,485)   1,186,160     1,002,910
       Payable under reinsurance agreement...............       124,638      238,535       389,254
       Income taxes payable..............................        98,855       56,934            --
  Increase in long-term liabilities-
       Deferred tax liability............................        80,143       42,000        52,660
                                                             ----------   ----------   -----------
Net cash (used in) provided by operating activities......    $ (584,855)  $3,731,796   $ 4,231,073
                                                             ==========   ==========   ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                                                              31
<PAGE>

First Commonwealth, Inc. and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995


1. ORGANIZATION
--------------------------------------------------------------------------------
The accompanying consolidated financial statements include the accounts of First
Commonwealth, Inc. ("FC Inc."), First Commonwealth of Illinois, Inc. ("FCI"),
First Commonwealth Limited Health Services Corporation ("LHSC"), First
Commonwealth Health Services Corporation ("HSC"), First Commonwealth Reinsurance
Company ("FCRC"), First Commonwealth Insurance Company ("FC Insurance"), First
Commonwealth Limited Health Service Corporation ("LHSCWI"), Smileage Dental
Services, Inc. ("SDS") and First Commonwealth of Missouri, Inc. ("FCMO"),
formerly Champion Dental Services, Inc. ("CDS"). These companies are
collectively referred to hereinafter as "the Company".

As discussed in Note 15, FC Inc. completed the acquisitions of SDS on July 18,
1996, and CDS on December 31, 1996. Included in the consolidated statement of
income for the year ended December 31, 1996, are the results of SDS since its
acquisition. SDS's and CDS's balance sheets are also included in the
accompanying consolidated balance sheet beginning December 31, 1996.

The Company is a provider of managed dental benefits in the upper Midwest,
including the metropolitan areas of Chicago, Milwaukee, Detroit and
Indianapolis, and with the acquisition of CDS, St. Louis. The Company provides
dental care coverage and/or arranges for dental care services to be provided to
its subscribers primarily on a prepaid basis. The Company also provides
indemnity/Preferred Provider Organization dental coverage and administrative
claim services.

FC Inc. operates as an Illinois and Michigan licensed Third Party Administrator
("TPA"). As a TPA, FC Inc. provides administrative and marketing services to
certain subsidaries pursuant to management agreements. It also provides claim
processing services for self-funded employers.

FCI is an Illinois corporation and is a wholly owned subsidiary of FC Inc. FCI
operates as a Preferred Provider Administrator which directly contracts with
general dentists and specialists. These provider arrangements are made available
to LHSC, LHSCWI, FCMO and HSC, as well as health maintenance organizations and
self-funded employers. In making these provider arrangements available, FCI does
not undertake any underwriting risk.

LHSC is an Illinois for-profit corporation and is a wholly owned subsidiary of
FC Inc. LHSC is licensed under the Illinois Limited Health Service Organization
Act ("LHSO Act"). LHSC is also licensed by the Indiana Department of Insurance
as a Limited Service Health Maintenance Organization. LHSC has entered into a
Provider Agreement with FCI whereby FCI arranges for dental care services to
LHSC's subscribers through FCI's network of private practice dentists.
Consistent with its authority under the LHSO Act, LHSC also provides
reimbursement for covered dental care provided outside of this network. In
providing such services, LHSC undertakes underwriting risk. The LHSO Act
requires, among other provisions, that LHSC meet certain net worth and deposit
requirements discussed in Note 4. It is management's opinion that LHSC was in
compliance with these provisions as of December 31, 1997, 1996 and 1995.

HSC is an affiliated Illinois corporation, licensed under the Voluntary Health
Services Plans Act (the "VHSP Act"). In accordance with the VHSP Act, HSC is
operated and conducted not for profit and is also governed by the provisions of
the General Not for Profit Corporation Act. HSC was initially capitalized by FC
Inc. through the purchase of a subordinated note. That note and accrued interest
thereon (both of which are eliminated in consolidation) may be repaid, in whole
or in part, only from HSC's earned surplus, subject to the written approval of
the Director of the Illinois Department of Insurance. Certain officers and
trustees of HSC are common to the officers and directors of the Company.
Consistent with its authority under the VHSP Act, HSC provides reimbursement to
its members for covered dental care. The VHSP Act requires, among other
provisions, that HSC not expend more than 20% of its annual subscriber revenue
for administrative costs and 10% for marketing costs. It is management's opinion
that HSC was in compliance with these provisions as of December 31, 1997, 1996
and 1995.

FCRC was incorporated in Arizona during 1994 and is a wholly owned subsidiary of
FC Inc. It is licensed by the Arizona Department of Insurance as a domestic life
and disability reinsurer.

32
<PAGE>

First Commonwealth, Inc. and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--continued
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995


FC Insurance was incorporated in Illinois during 1997 and is a wholly owned
subsidiary of FC Inc. It is currently licensed as a domestic life, accident and
health insurer with the intent to underwrite indemnity dental business and is
awaiting additional licensure under the LHSO Act. As of December 31, 1997, it
had not yet commenced business.

LHSCWI was incorporated in Wisconsin in 1996 and is a wholly owned subsidiary of
FC Inc. LHSCWI is licensed to operate as a Limited Service Health Organization
under chapter 611 of the Wisconsin insurance statutes ("Statutes") and is
registered with the Office of the Commissioner of Insurance of Wisconsin. The
Statutes require, among other provisions, that LHSCWI meet certain net worth and
deposit requirements discussed in Note 4. It is management's opinion that LHSCWI
was in compliance with these provisions as of December 31, 1997.

SDS, a wholly owned subsidiary of FC Inc., is a Wisconsin based dental health
maintenance organization administrator.

FCMO is a Missouri corporation and is a wholly owned subsidiary of FC Inc. FCMO
is a St. Louis, Missouri based prepaid dental plan corporation organized under
Section 379.900RSMo.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

Principles of Consolidation

The accompanying financial statements include all the accounts of the Company.
All material intercompany transactions and balances have been eliminated in
consolidation.

HSC, a not-for-profit company managed by FC Inc., has been included in the
accompanying consolidated financial statements. HSC's financial position and
results of operations are not material to the Company's financial statements.

Cash and Cash Equivalents

For purposes of these statements, the Company considers all cash and short-term
investments with original maturities of less than 90 days to be cash and cash
equivalents.

Accounts Receivable and Deferred Subscriber Revenue

The Company invoices most of its subscriber groups prior to the month in which
the groups' members will be entitled to service. The Company records these
invoices as accounts receivable on the date the invoices are sent and also
records as deferred subscriber revenue those amounts either invoiced or received
in advance of the period of service.

Revenue Recognition

Subscriber revenue collected for dental care is recognized as revenue in the
period in which the member is entitled to service. Related costs for dental care
are expensed in the period the Company is obligated to provide such service.

Prepaid Expenses

The Company pays its providers to render covered dental care to eligible
enrolled subscribers and dependents. Payment is typically made during the month
prior to the month in which the subscribers and dependents become eligible for
coverage. This payment is recorded as a prepaid expense at December 31, 1997 and
1995.

                                                                              33
<PAGE>

First Commonwealth, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--continued
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995

Property and Equipment

Depreciation is calculated using the straight-line method over the assets'
estimated useful lives which are as follows:

Leasehold improvements                5 years or life of lease
Furniture                            10 years
Office equipment                      5 years
Computer equipment
and software                          3 years

Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                  December 31
                                       ----------------------------------
                                          1997        1996        1995
                                          ----        ----        ----
<S>                                    <C>         <C>         <C>
Leasehold improvements                 $  433,409  $  422,231  $  349,658
Furniture                                 830,220     780,967     562,400
Office equipment                          567,954     513,566     442,668
Computer equipment and software         2,198,188   1,631,065   1,110,056
                                       ----------  ----------  ----------
    Total property and equipment       $4,029,771  $3,347,829  $2,464,782
                                       ==========  ==========  ==========
</TABLE>

Goodwill

The excess of cost over fair value of net assets acquired resulting from the SDS
and CDS acquisitions, accounted for using the purchase method, is being
amortized using the straight-line method over 40 years.

Accounts Payable--Dental Service Providers

The Company records payables to dental service providers for certain services
not included in the monthly prepayment to such providers discussed above.

Other Current Liabilities

Other current liabilities at December 31, 1996, represents the Company's
liability relating to its acquisition of CDS. This amount was paid on January 2,
1997.

Claims Liability

The Company provides indemnity dental coverage for certain customers and records
a liability for incurred but not reported and unpaid claims related to this
coverage. Generally, this liability is estimated based on the age of existing
claims and the Company's historical lag with respect to the reporting and
payment of such claims. Changes in these estimates are reflected in the results
of operations in the period in which such changes occur.

Reinsurance Activity

Effective January 1, 1995, LHSC entered into an agreement with a third party
insurer ("Insurer") whereby LHSC ceded certain losses on indemnity insurance
policies to the Insurer. Concurrent with the execution of this agreement,
Insurer entered into an agreement with FCRC whereby Insurer ceded certain losses
related to LHSC policies to FCRC. In 1997, a separate independent third party
insurer was inserted into the agreement between Insurer and FCRC. The Company
has effectively retained all insurance risk on these LHSC losses ceded to
Insurer. Accordingly, LHSC accounts for net payments to Insurer as deposits and
records a claims liability for all incurred and unpaid losses on such policies.
FCRC records a payable to Insurer for amounts Insurer has deposited with FCRC.
The Company does not recognize any revenue from these reinsurance arrangements.

In addition, in 1997, FC Inc., acting as agent for Insurer and according to a
fronting arrangement, began selling managed care and indemnity dental insurance
policies in the state of Michigan. According to the same agreement, Insurer
ceded all managed care and indemnity dental insurance policies in Michigan to
the same separate independent third party insurer who ceded these policies to
FCRC.

34
<PAGE>

First Commonwealth, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--continued
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995

Earnings Per Share

In 1997, the Company adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Under
SFAS No. 128, primary earnings per share is replaced by "Basic" earnings per
share ("EPS"), which excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. "Diluted" EPS, which is computed similarly to fully
diluted EPS, reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. All prior-period EPS information (including interim EPS) has been
restated to conform with the provisions of SFAS No. 128.

The following table reconciles the numerators (Net income) and denominators
(Share) of the basic and diluted earnings per share computations.
<TABLE>
<CAPTION>

                                      1997        EPS         1996        EPS        1995         EPS
                                      ----                    ----                   ----
<S>                                <C>            <C>      <C>           <C>      <C>             <C>
Net income                         $3,323,407              $2,731,456              $2,003,522
                                   ==========              ==========              ==========
Basic Shares/EPS (1)                3,617,994    $0.92      3,470,871    $0.79      2,898,174   $0.69
                                                 =====                   =====                  =====
Effect of dilutive common
stock options                         109,340                 128,694                  95,145
                                   ----------              ----------              ----------
Diluted Shares/EPS                  3,727,334    $0.89      3,599,565    $0.76      2,993,319   $0.67
                                   ==========    =====     ==========    =====     ==========   =====
</TABLE>

Notes: (1) In 1995, reflects the number of shares of common stock into which the
Series B Preferred Stock were converted upon the occurrence of the initial
public offering for the period prior to the initial public offering.

Options to purchase shares of common stock outstanding during 1997 and 1996 that
were not included in the computation of diluted EPS because the options'
exercise price was greater than the average market price of the common shares
are summarized in the following table.
<TABLE>
                                                          1997        1996
                                                          ----        ----
<S>                                                     <C>         <C>
Weighted average shares under option                    17,875      31,167

Weighted average option price                          $ 16.78     $ 23.10

Weighted average contractual life (in years)               8.6         9.4
</TABLE>

Subsequent to December 31, 1997, the Company issued 61,000 options to various
key employees at the option price of $11.25 per share.

3. USE OF ESTIMATES AND ASSUMPTIONS
--------------------------------------------------------------------------------
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.


4. REGULATORY REQUIREMENTS AND RESTRICTED FUNDS
--------------------------------------------------------------------------------
The State of Illinois statutes and related regulations of the Illinois
Department of Insurance require LHSC, which is licensed under the LHSO Act, to
maintain a minimum net worth of $500,000. LHSC maintains a deposit with the
State of $200,000 in accordance with the State of Illinois requirements.

The State of Indiana statutes and related regulations of the Indiana Department
of Insurance require LHSC, which is licensed as a Limited Service Health
Maintenance Organization, to maintain a $50,000 deposit with the State.

                                                                              35
<PAGE>

First Commonwealth, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--continued
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995

The State of Arizona statutes and related regulations of the Arizona Department
of Insurance require FCRC, which is licensed as a domestic life and disability
reinsurer, to maintain a minimum of $100,000 deposited in trust with the State
and a minimum surplus of $25,000. FCRC is required to maintain a trust account
equal to the amount of claims payable on all insurance ceded. At December 31,
1997, 1996 and 1995, balances of $632,767, $705,867 and $450,374, respectively,
were required in the trust account.

The State of Illinois statutes and related regulations of the Illinois
Department of Insurance require HSC, which is licensed under the VHSP Act, to
maintain a contingency reserve in contributed capital of $19,037, $15,674 and
$11,939 at December 31, 1997, 1996 and 1995.

The State of Wisconsin insurance statutes require, among other provisions, that
LHSCWI maintain a minimum capital of $100,000, apply a ten percent compulsory
surplus factor to Point of Service/Indemnity ("POS") premium, and limits POS
business to ten percent of total premium volume. LHSCWI has a certificate of
deposit for $102,682 at a Wisconsin bank and had POS business of $189,788 in
1997 and none in 1996.

The State of Missouri statutes and related regulations of the Missouri
Department of Insurance require FCMO, which is licensed as a Prepaid Dental Plan
Corporation, to maintain a $50,000 deposit with the state and to maintain a
maximum net worth of $150,000.

The State of Illinois statutes and related regulations of the Illinois
Department of Insurance require FC Insurance to maintain a minimum net worth of
$1.5 million. FC Insurance maintains a deposit with the State of $1.6 million in
accordance with State requirements.

It is management's opinion that the Company was in compliance with these
provisions at December 31, 1997, 1996 and 1995.

Interest income earned on restricted funds is included in interest income, net
in the consolidated statements of income.

5. CLAIMS LIABILITY
--------------------------------------------------------------------------------
The Company's claims liability, claims incurred and payments related to
indemnity/PPO policies for the years ended December 31, 1997, 1996 and 1995, are
as follows:
<TABLE>
<CAPTION>
                                                     December 31
                                       ---------------------------------------
                                           1997         1996           1995
                                           ----         ----           ----
<S>                                    <C>           <C>           <C>
Claims liability, beginning of year    $ 1,579,669   $ 1,257,681   $   387,714
Add-- Claims incurred                   10,506,867     8,341,669     5,451,936
Less-- Claims payments--
  Current year                          (9,042,693)   (7,274,355)   (4,421,539)
  Prior years                           (1,439,514)     (745,326)     (160,430)
                                       -----------   -----------   -----------
Claims liability, end of year          $ 1,604,329   $ 1,579,669   $ 1,257,681
                                       ===========   ===========   ===========
</TABLE>

6. Lease Obligations
--------------------------------------------------------------------------------
The Company leases office space and various office equipment which are accounted
for as operating leases. Rental costs under the operating lease agreements
approximated $617,000, $486,000 and $350,000 for the years ended December 31,
1997, 1996 and 1995, respectively.

Minimum future obligations under operating leases in effect at December 31,
1997, are:

Years ending December 31-

  1998             $322,409
  1999              310,796
  2000               47,138
                   --------
       Total       $680,343
                   ========

36
<PAGE>

First Commonwealth, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--continued
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995



7. Income Taxes
--------------------------------------------------------------------------------
The current and deferred components of the provision for taxes are as follows:
<TABLE>
<CAPTION>
                                                     December 31
                                        -------------------------------------
                                           1997         1996          1995
                                           ----         ----          ----
<S>                                     <C>          <C>           <C>

Current provision                       $2,195,000    $1,962,000   $1,706,000
Deferred provision
  (benefit)                                 89,000       (98,000)    (370,000)
                                        ----------    ----------   ----------
Total tax provision                     $2,284,000    $1,864,000   $1,336,000
                                        ==========    ==========   ==========
</TABLE>
A reconciliation of the effective tax rate from statutory U.S. federal income
tax rate of 34% for 1997, 1996 and 1995, is as follows:
<TABLE>
                                        1997       1996      1995
                                        ----       ----      ----
<S>                                     <C>        <C>       <C>
Statutory rate                           34%        34%       34%

State tax, net of
federal benefit                           5          5         5

Goodwill and other
permanent items                           2          2         1
                                        ----       ----      ----
Effective tax rate                       41%        41%       40%
                                        ====       ====      ====
</TABLE>

As of December 31, 1997, 1996 and 1995, total net current deferred tax assets
were $859,000, $869,000 and $665,000, respectively, and total net noncurrent
deferred tax liabilities were $247,300, $167,157 and $125,157, respectively. The
temporary differences that give rise to deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
                                                     December 31
                                        -------------------------------------
                                           1997         1996          1995
                                           ----         ----          ----
<S>                                     <C>          <C>           <C>
Claims liability                        $ 608,804    $ 616,100    $ 490,500
Allowance for
doubtful accounts                         130,265      112,900       54,400
Vacation accrual                           52,566       54,700       39,500
Miscellaneous                              67,365       85,300       80,600
                                        ---------    ---------    ---------
   Total current
   tax asset                              859,000      869,000      665,000
                                        ---------    ---------    ---------
Accumulated amortization                  (80,103)          --           --
Accumulated
depreciation and other                   (167,197)    (167,157)    (125,157)
                                        ---------    ---------    ---------
   Total noncurrent
      tax liability                      (247,300)    (167,157)    (125,157)
                                        ---------    ---------    ---------
        Total                           $ 611,700    $ 701,843    $ 539,843
                                        =========    =========    =========
</TABLE>

                                                                              37
<PAGE>

First Commonwealth, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--continued
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995


8. Sources of Revenue (Unaudited)
--------------------------------------------------------------------------------
The following table shows the percentage of revenue attributable to each type of
product offered:
<TABLE>
<CAPTION>
                     1997    1996    1995
                     ----    ----    ----
<S>                  <C>     <C>     <C>
Managed care          77%     74%     77%
Indemnity/PPO         22      24      21
Fee income             1       2       2
                     ----    ----    ----
  Total              100%    100%    100%
                     ====    ====    ====
</TABLE>


9. Significant Customers
--------------------------------------------------------------------------------
There are no customers that account for a significant amount of the Company's
subscriber revenue in the years ended December 31, 1997 and 1996 and 1995.


10. Line of Credit
--------------------------------------------------------------------------------
The Company has a committed unsecured line of credit (the "Credit Agreement")
available with a Chicago bank that expires June of 1998, which to date has not
been utilized. Pursuant to this Credit Agreement, the Company may borrow up to
$5 million at the rate of LIBOR plus one-half percent.

11.    Preferred Stock
--------------------------------------------------------------------------------
During 1995, the Board of Directors and stockholders of the Company approved an
amendment and restatement of its Restated Certificate of Incorporation to, among
other things, authorize 1,000,000 shares of preferred stock, $.001 par value,
which may be issued from time to time in one or more series with such rights,
preferences and qualifications as the Company's Board of Directors may
determine. The Board of Directors has designated 150,000 shares of the preferred
stock as Series A Junior Participating Preferred Stock. There are no shares
issued or outstanding of the Series A Junior Participating Preferred Stock.

6% Series B Preferred Stock
Concurrent with the closing of the initial public offering discussed in Note 12,
each share of 6% Series B Preferred Stock ("Series B Stock") was converted into
2,000 shares of common stock in accordance with the Series B Stock conversion
features. Following the offering, no shares of Series B Stock were issued or
authorized for issuance. While outstanding, the Series B Stock had voting rights
equal to the number of common shares into which such shares could be converted.
The Series B Stockholders were able to elect two of six directors. The Series B
Stock was also entitled to certain dividend rights.

12. Common stock
--------------------------------------------------------------------------------
In November, 1995, the Company completed an initial public offering of 530,000
shares of its common stock at $15 per share. As discussed in Note 11, concurrent
with the initial public offering, each share of Series B Stock was converted
into 2,000 shares of common stock.

The holder of each share of common stock is entitled to one vote on each matter
submitted to a vote to the stockholders of the Company.

38
<PAGE>

First Commonwealth, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--continued
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995


The Company has two incentive plans, a 1987 Statutory-Nonstatutory Stock Option
Plan ("1987 Plan") and a 1995 Long-Term Incentive Plan ("1995 Plan"), which were
approved by the Board of Directors and stockholders. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation cost for the Company's two stock option plans been determined based
on the fair value at the grant date for awards in 1997, 1996 and 1995 consistent
with the provisions of SFAS No. 123, the Company's net income (in thousands) and
diluted earnings per share would have been reduced to the pro forma amounts of
$3,268 and $0.88 in 1997, $2,645 and $0.73 in 1996 and $1,987 and $0.66 in 1995.

The weighted average grant-date fair values of options granted in 1997, 1996 and
1995 were $6.80, $12.25 and $8.14, respectively. The fair value of each option
grant was estimated on the date of the grant using the Black-Scholes option
pricing model with the following weighted average assumptions for options issued
in 1997, 1996 and 1995, respectively: risk-free interest rates of 6.8%, 6.5% and
5.8%; expected lives of 7 years; expected volatility of 41% in 1997 and 42% in
1996 and 1995; and no expected dividends.

Under the 1987 Plan, the Company can award up to 250,000 options to key
employees, granted at a price equal to the fair market value at the date of the
grant as determined by the Board of Directors or the Stock Option Compensation
Committee, and vesting ratably over a period of two to four years from the date
of the grant. The Company had granted 248,125 total options as of December 31,
1997, 1996 and 1995, to key employees and directors at option prices ranging
from $.50 to $15.00 per share. Of the total options granted, 133,375, 148,950
and 134,959 had vested and were exercisable as of December 31, 1997, 1996 and
1995, respectively, and 87,925, 60,675 and 51,375 of the total options, granted
and vested had been exercised as of December 31, 1997, 1996 and 1995,
respectively.

In connection with the initial public offering, the Company adopted the 1995
Long-Term Incentive Plan (the "1995 Plan"). Under the 1995 Plan, the Company may
grant incentive stock options or nonqualified stock options. The 1995 Plan also
provides for the grant of stock appreciation rights, bonus stock awards which
are vested upon grant, stock awards which may be subject to a restriction period
and specified performance measures, and performance shares. A total of 200,000
shares of common stock have been reserved for issuance under the 1995 Plan.
Subsequent to December 31, 1997, the Board of Directors has approved increasing
the shares from 200,000 to 350,000, subject to shareholders' approval.

Under the 1995 Plan, options are granted at a price equal to the fair market
value at the date of the grant as determined by the Board of Directors and vest
ratably over a period of one to four years from the date of the grant. As of
December 31, 1997, 1996 and 1995, the Company had granted 94,000, 105,500 and
39,000, respectively, total options to key employees and directors at option
prices ranging from $11.75 to $28.625 per share. Of the total options granted,
38,813 and 11,000 had vested and were exercisable as of December 31, 1997 and
1996, respectively. In addition, 77,238 and 42,000 options were rescinded as of
December 31, 1997 and 1996, respectively and in 1995, in connection with the
initial public offering, stock bonus awards totaling 1,865 shares of common
stock were granted to non-officer employees.

A summary of the status of the Company's two stock option plans at December 31,
1997, 1996 and 1995 and changes during the years then ended is presented in the
table on the following page.


                                                                              39
<PAGE>

First Commonwealth, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--continued
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>

                                       1997                        1996                        1995
                                       ----                        ----                        ----
                                           Weighted                    Weighted                    Weighted
                                           Average                     Average                     Average
                             Shares      Option Price     Shares     Option Price     Shares     Option Price
                             ------      ------------     ------     ------------     ------     ------------
<S>                          <C>         <C>              <C>        <C>              <C>        <C>
Outstanding at beginning
  of year                    289,950        $ 7.90        235,750       $ 4.15        191,250       $ 1.31
    Granted                   94,000         12.26        105,500        22.06         49,000        15.00
    Exercised                (29,012)         1.56         (9,300)        0.75         (2,375)        1.15
    Forfeited                (16,238)        10.36         (2,000)       21.81         (2,125)        1.49
    Cancelled                (61,000)        20.47        (40,000)       24.12             --           --
                             -------                      -------                     -------
Outstanding at end of year   277,700          7.08        289,950         7.90        235,750         4.15
                             =======                      =======                     =======
Exercisable at end of year   172,188          4.38        159,950         2.43        134,959         1.19
                             =======                      =======                     =======
</TABLE>

Of the 277,700 total options outstanding at December 31, 1997, 146,500 have
option prices between $.50 and $1.70, with a weighted average option price of
$1.39 and a weighted average remaining contractual life of three years. 133,375
of these options are exercisable at December 31, 1997, with a weighted average
option price of $1.36.

Of the total options outstanding at December 31, 1997, 71,700 have option prices
of $11.75, with a weighted average remaining contractual life of ten years.
11,063 of these options are exercisable at December 31, 1997, with a weighted
average option price of $11.75.

Of the total options outstanding at December 31, 1997, 57,500 have option prices
between $15.00 and $17.00, with a weighted average option price of $14.85 and a
weighted average remaining contractual life of eight years. 25,750 of these
options are exercisable at December 31, 1997, with a weighted average option
price of $15.00.

The remaining 2,000 options outstanding at December 31, 1997, have option prices
of $28.625, with a weighted average remaining contractual life of eight years.
These options are exercisable at December 31, 1997.

During 1995, the Board of Directors adopted a stockholders rights plan. Under
the stockholders rights plan, each share of common stock will have associated
with it one preferred share purchase right (a "Right"). Under certain
circumstances, each Right would entitle the holders thereof to purchase one one-
hundredth of a share of Series A Junior Participating Preferred Stock for a
price of $40 per one one-hundredth of a share. The Rights are not presently
exercisable and are transferable only with the related shares of common stock.

The Rights would become exercisable at the specified exercise price upon the
occurrence of certain events, including the acquisition of 15% or more of the
Company's common stock by a person or group, as defined. The Rights may be
redeemed, as a whole, at a redemption price of $.01 per Right, subject to
adjustment, at the direction of the Board of Directors, at any time prior to the
occurrence of certain events. In addition, in certain circumstances, the Board
of Directors may direct the exchange of shares of common stock (or preferred
shares) for all or any part of the Rights at the exchange rate of one share of
common stock (or one one-hundredth of a preferred share) per Right, subject to
adjustment.

40
<PAGE>

First Commonwealth, Inc. and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--continued
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995



13. Quarterly Financial Data (unaudited)
--------------------------------------------------------------------------------
(in thousands, except per share data)

<TABLE>
<CAPTION>
                               Quarter
                  ----------------------------------
                    First   Second    Third   Fourth
                  -------  -------  -------  -------
<S>               <C>      <C>      <C>      <C>
1997
----
Subscriber
revenue           $13,463  $13,856  $14,519  $14,756
Gross margin        4,700    4,733    4,573    4,656
Net income            760      798      882      883
Basic earnings
per common
share                 .21      .22      .24      .24
Diluted earnings
per common
share                 .20      .21      .24      .24


1996
----
Subscriber
revenue           $ 9,773  $10,019  $11,786  $12,521
Gross margin        3,747    3,799    4,220    4,460
Net income            669      698      667      697
Basic earnings
per common
share                 .20      .21      .19      .19
Diluted earnings
per common
share                 .19      .20      .18      .19


1995
----
Subscriber
revenue           $ 7,934  $ 8,204  $ 8,528  $ 8,649
Gross margin        3,100    3,197    3,291    3,441
Net income            501      532      513      458
Basic earnings
per common
share                 .18      .19      .18      .16
Diluted earnings
per common
share                 .18      .19      .18      .14

</TABLE>

                                                                              41
<PAGE>

First Commonwealth, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--continued
--------------------------------------------------------------------------------
For the years ended December 31, 1997, 1996 and 1995


14. RETIREMENT PLAN
--------------------------------------------------------------------------------
The Company has a 401(k) salary deferral plan in which all employees of the
Company who have completed at least ninety days of service are eligible to
participate. Under the plan, the Company provides a matching contribution of
$.50 for every dollar an employee invests in the plan up to an annual maximum of
2% of the employee's compensation for the year. The Company may make additional
discretionary contributions to the plan. The Company incurred 401(k)
contributions expense of $91,949, $58,937 and $44,427 during the years ended
December 31, 1997, 1996 and 1995, respectively.

15. BUSINESS COMBINATIONS
--------------------------------------------------------------------------------
Effective July 18, 1996, the Company completed the acquisition of SDS and an
associated reinsurance transaction, for an aggregate purchase price (including
transaction costs) of $5.6 million. The acquisition was financed through the
issuance of 231,399 shares of the Company's common stock. The acquisition
resulted in the excess of cost over fair value of net assets acquired of
approximately $5.6 million.

Effective December 31, 1996, the Company completed the acquisition of CDS for an
aggregate purchase price (including transaction costs) of $5.6 million. The
acquisition was financed through proceeds from the Company's initial public
offering and was paid in cash on January 2, 1997. The acquisition resulted in
the excess of cost over fair value of net assets acquired of approximately $4.9
million.

The acquisitions of SDS and CDS were accounted for using the purchase method of
accounting with SDS's results of operations included in the accompanying
consolidated statement of income for the year ended December 31, 1996 from the
effective date of the acquisition.

Unaudited pro forma combined results of operations of the Company for the years
ended December 31, 1996 and 1995 for the acquisitions are as follows: Revenues
(in thousands) for the years ended December 31, 1996 and 1995 would be $50,860
and $42,058, respectively; Net income (in thousands) for the years ended
December 31, 1996 and 1995 would be $2,856 and $2,444, respectively; and Diluted
Net Income per share for the years ended December 31, 1996 and 1995 would be
$0.77 and $0.66, respectively. This pro forma information has been prepared
assuming the acquisitions of SDS and CDS and the Company's initial public
offering had occurred as of January 1, 1995.

The pro forma results include the historical accounts of the Company and the
historical accounts of the acquired businesses and pro forma adjustments
including the amortization of the excess purchase price over the fair value of
the net assets acquired, the reduction of salaries and expenses which will not
be incurred on an ongoing basis, and the applicable income tax effects of these
adjustments. The pro forma results of operations are not necessarily indicative
of actual results which may have occurred had the operations of the acquired
companies been combined in prior periods.

42
<PAGE>

OFFICERS AND DIRECTORS
--------------------------------------------------------------------------------
Officers

Christopher C. Multhauf
  Chairman and Chief Executive Officer

David W. Mulligan
  President and Chief Operating Officer, Secretary

Gregory D. Stobbe
  Senior Vice President, Operations

Mark R. Lundberg
  Vice President, Sales

Scott B. Sanders
  Chief Financial Officer and Treasurer,
  Assistant Secretary

Directors

Christopher C. Multhauf
  Chairman and Chief Executive Officer

David W. Mulligan
  President and Chief Operating Officer, Secretary

Richard M. Burdge, Sr.
  Executive Vice President-Retired,
  CIGNA Corporation

William J. McBride
  Chairman,
  Novaeon, Inc.;
  President-Retired,
  Value Health, Inc.,
  a managed healthcare company

Jackson W. Smart, Jr.
  Chairman and Chief Executive Officer-Retired,
  MSP Communications, Inc., a radio
  broadcasting company

                                                                              43
<PAGE>

RELATED STOCKHOLDER MATTERS AND MARKET FOR THE COMPANY'S COMMON STOCK
--------------------------------------------------------------------------------

Form 10-K
A copy of the Form 10-K, which is filed with the Securities and Exchange
Commission, will be sent free to any shareholder upon written request. Write to:
     Mr. Scott B. Sanders
     Chief Financial Officer, Assistant Secretary
     444 N. Wells Street, Suite 600
     Chicago, IL 60610

Transfer Agent & Registrar
     First Chicago Trust Co. of New York

Analyst Contacts
Security analyst inquiries are welcomed. Please call:
     Mr. Scott B. Sanders
     Chief Financial Officer
     (312) 644-1800

Annual Meeting
     May 5, 1998
     Chicago, Illinois

Dividend Policy
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings to finance the growth and development of
its business and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. Any payment of cash dividends in the future will
depend upon the financial condition, capital requirements and earnings of the
Company, limitations on dividend payments by susidiaries of the Company under
applicable state laws requiring the maintenance of specified levels of capital
and surplus and such other factors as the Board of Directors may deem relevant.

Stock Trading and Common Stock Prices
The Company's Common Stock trades on the Nasdaq Stock Market/SM/ under the
symbol FCWI. At February 28, 1998, there were 154 registered shareholders and
the Company believes there are at least 400 round lot shareholders of beneficial
interest.

The following table sets forth the high and low closing prices by quarter for
1996 and 1997.
<TABLE>
<CAPTION>
1996
----
Quarter ending                    High          Low
--------------                   ------        ------
<S>                              <C>           <C>
March 31                         $27.00        $24.00
June 30                          $29.00        $24.25
September 30                     $29.00        $20.75
December 31                      $24.50        $16.50

1997
----
Quarter ending
--------------
March 31                         $21.25        $14.75
June 30                          $19.50        $11.25
September 30                     $20.50        $14.75
December 31                      $15.25        $11.25
</TABLE>
44