<PAGE>   1
 
================================================================================
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                           -------------------------
 
                                   FORM 10-Q
 
[X]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
 
COMMISSION FILE NUMBER 0-20882
 
                        STANDARD MANAGEMENT CORPORATION
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<C>                                            <C>
                   INDIANA                                    NO. 35-1773567
          (State of incorporation)                   (IRS employer identification no.)
</TABLE>
 
                             9100 KEYSTONE CROSSING
                          INDIANAPOLIS, INDIANA 46240
                    (Address of principal executive offices)
 
                                 (317) 574-6200
                                  (Telephone)
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
 
     As of May 14, 1997, the Registrant had outstanding 5,010,143 shares of
common stock.
 
================================================================================
<PAGE>   2
 
                        STANDARD MANAGEMENT CORPORATION
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                                 PAGE
                                                                                 ----
    <S>          <C>                                                             <C>
    PART I.      FINANCIAL INFORMATION:
    Item 1.      Financial Statements
                 Consolidated Balance Sheets --
                 March 31, 1997 (Unaudited) and December 31, 1996
                 (Audited)...................................................      3
                 Consolidated Statements of Operations --
                 For the Three Months Ended March 31, 1997 and 1996
                 (Unaudited).................................................      4
                 Consolidated Statements of Shareholders' Equity --
                 For the Three Months Ended March 31, 1997 and 1996
                 (Unaudited).................................................      5
                 Consolidated Statements of Cash Flows --
                 For the Three Months Ended March 31, 1997 and 1996
                 (Unaudited).................................................      6
                 Notes to Consolidated Financial Statements (Unaudited)......      7
    Item 2.      Management's Discussion and Analysis of Financial Condition
                 and Results of Operations...................................     10
    PART II.     OTHER INFORMATION:
    Item 6.      Exhibits and Reports on Form 8-K............................     19
    Signatures...............................................................     20
    Exhibit 11 -- Statement re: Computation of Per Share Earnings --
                 For the Three Months Ended March 31, 1997 and 1996
                 (Unaudited).................................................
</TABLE>
 
                                        2
<PAGE>   3
 
                        PART I -- FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                        STANDARD MANAGEMENT CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                 MARCH 31,     DECEMBER 31,
                                                                   1997            1996
                                                                 ---------     ------------
                                                                (UNAUDITED)     (AUDITED)
<S>                                                             <C>            <C>
ASSETS
Investments:
  Securities available for sale:
    Fixed maturity securities, at fair value (amortized
     cost: $355,284 in 1997 and $349,151 in 1996)...........     $345,526        $347,310
    Equity securities, at fair value (cost: $121 in 1997 and
     $58 in 1996)...........................................          130              62
  Mortgage loans, at unpaid principal balances..............        2,983           3,035
  Policy loans, at unpaid principal balances................        9,617           9,903
  Real estate, at depreciated cost..........................          541             546
  Other invested assets.....................................        1,141             865
  Short-term investments, at cost, which approximates fair
    value...................................................       12,833           8,417
                                                                 --------        --------
      Total investments.....................................      372,771         370,138
Cash........................................................        1,345           5,113
Accrued investment income...................................        6,398           6,198
Amounts due and recoverable from reinsurers.................       69,242          68,811
Deferred policy acquisition costs...........................       21,811          18,078
Present value of future profits, less accumulated
  amortization of $3,813 in 1997 and $3,520 in 1996.........       23,843          24,181
Excess of acquisition cost over net assets acquired, less
  accumulated amortization of $341 in 1997 and $314 in
  1996......................................................        2,233           2,260
Other assets................................................        4,905           5,463
Assets held in separate accounts............................      134,865         128,546
                                                                 --------        --------
      Total assets..........................................     $637,413        $628,788
                                                                 ========        ========
LIABILITIES, REDEEMABLE SECURITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Future policy benefits:
    Interest-sensitive annuities and other financial
     products...............................................     $340,423        $333,633
    Traditional life insurance..............................       88,110          87,106
                                                                 --------        --------
      Total future policy benefits..........................      428,533         420,739
  Policy claims and other policyholders' benefits and
    funds...................................................        4,390           4,585
                                                                 --------        --------
                                                                  432,923         425,324
  Accounts payable and accrued expenses.....................        6,054           6,189
  Obligations under capital lease...........................          518             637
  Notes payable.............................................       20,198          20,060
  Deferred federal income taxes.............................        1,559           3,334
  Excess of net assets acquired over acquisition cost, less
    accumulated amortization of $4,186 in 1997 and $3,839 in
    1996....................................................        2,428           2,775
  Liabilities related to separate accounts..................      134,865         128,546
                                                                 --------        --------
      Total liabilities.....................................      598,545         586,865
Class S Cumulative Convertible Redeemable Preferred Stock,
  par value $10 per share:
  Authorized 300,000 shares; issued and outstanding 159,439
    shares in 1997 and 159,889 shares in 1996, redemption
    value of $10 per share plus accumulated and unpaid
    dividends...............................................        1,795           1,757
Shareholders' Equity:
  Preferred Stock, no par value:
    Authorized 700,000 shares; none issued and
     outstanding............................................           --              --
  Common Stock, no par value:
    Authorized 20,000,000 shares; issued 5,752,499 shares...       40,481          40,481
  Treasury stock, at cost, 727,356 shares in 1997 and
    728,229 shares in 1996 (deduction)......................       (3,524)         (3,528)
  Unrealized loss on securities available for sale..........       (4,335)           (746)
  Foreign currency translation adjustment...................          583             691
  Retained earnings.........................................        3,868           3,268
                                                                 --------        --------
      Total shareholders' equity............................       37,073          40,166
                                                                 --------        --------
      Total liabilities, redeemable securities and
       shareholders' equity.................................     $637,413        $628,788
                                                                 ========        ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                        3
<PAGE>   4
 
                        STANDARD MANAGEMENT CORPORATION
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
          (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                ---------------------------
                                                                  1997              1996
                                                                  ----              ----
<S>                                                             <C>               <C>
Revenues:
  Premium income............................................    $   1,897         $   1,499
  Net investment income.....................................        7,199             4,660
  Net realized investment gains.............................          174               238
  Gain on disposal of subsidiaries..........................           --               886
  Policy charges............................................        1,439               525
  Amortization of excess of net assets acquired over
     acquisition cost.......................................          347               347
  Management fees and similar income from separate
     accounts...............................................          471               385
  Other income..............................................          492               316
                                                                ---------         ---------
     Total revenues.........................................       12,019             8,856
Benefits and expenses:
  Benefits and claims.......................................        2,389               827
  Interest credited on interest-sensitive annuities and
     other
     financial products.....................................        3,994             2,645
  Salaries and wages........................................        1,452             1,208
  Amortization..............................................          825               447
  Other operating expenses..................................        1,876             2,115
  Interest expense and financing costs......................          530               123
                                                                ---------         ---------
     Total benefits and expenses............................       11,066             7,365
Income before federal income taxes, extraordinary gain on
  early redemption of redeemable preferred stock and
  preferred stock dividends.................................          953             1,491
Federal income tax expense (credit).........................          310            (1,174)
                                                                ---------         ---------
Income before extraordinary gain on early redemption of
  redeemable preferred stock and preferred stock
  dividends.................................................          643             2,665
Extraordinary gain on early redemption of redeemable
  preferred stock, net of $-- federal income tax............           --               101
                                                                ---------         ---------
NET INCOME..................................................          643             2,766
Preferred stock dividends...................................           42                46
                                                                ---------         ---------
Earnings available to common shareholders...................    $     601         $   2,720
                                                                =========         =========
Earnings per share:
  Income before extraordinary gain on early redemption of
     redeemable preferred stock and preferred stock
     dividends..............................................    $     .12         $     .46
  Extraordinary gain on early redemption of redeemable
     preferred stock........................................           --               .02
                                                                ---------         ---------
  NET INCOME................................................          .12               .48
  Preferred stock dividends.................................          .01                --
                                                                ---------         ---------
  Earnings available to common shareholders.................    $     .11         $     .48
                                                                =========         =========
Weighted average number of shares outstanding:
  Common shares.............................................    5,024,173         5,025,325
  Common equivalent shares..................................      291,346         1,045,620
                                                                ---------         ---------
                                                                5,315,519         6,070,945
                                                                =========         =========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                        4
<PAGE>   5
 
                        STANDARD MANAGEMENT CORPORATION
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
          (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED MARCH 31,
                                                        --------------------------------------------
                                                             AMOUNTS                  SHARES
                                                        ------------------    ----------------------
                                                         1997       1996        1997         1996
                                                         ----       ----        ----         ----
<S>                                                     <C>        <C>        <C>          <C>
Common Stock:
  Balance, beginning and end of period................  $40,481    $39,808    5,752,499    5,459,573
Treasury stock (at cost):
  Balance, beginning of period........................   (3,528)    (2,621)    (728,229)    (502,025)
     Treasury stock acquired..........................       --     (2,089)          --     (423,026)
     Reissuance of treasury stock in connection with
       exercise of stock options......................        4         --          873           --
                                                        -------    -------    ---------    ---------
  Balance, end of period..............................   (3,524)    (4,710)    (727,356)    (925,051)
                                                        -------    -------    ---------    ---------
Unrealized gain (loss) on securities:
  Balance, beginning of period........................     (746)     2,582
     Change in unrealized gain (loss) on securities
       available for sale, net........................   (3,589)    (3,331)
                                                        -------    -------
  Balance, end of period..............................   (4,335)      (749)
                                                        -------    -------
Foreign currency translation adjustments:
  Balance, beginning of period........................      691      1,159
     Translation adjustments for the period...........     (108)       (22)
                                                        -------    -------
  Balance, end of period..............................      583      1,137
                                                        -------    -------
Retained earnings (deficit):
  Balance, beginning of period........................    3,268       (686)
     Net income.......................................      643      2,766
     Loss on reissuance of treasury stock.............       (1)        --
     Preferred stock dividend.........................      (42)       (46)
                                                        -------    -------
  Balance, end of period..............................    3,868      2,034
                                                        -------    -------
Total shareholders' equity and common shares
  outstanding.........................................  $37,073    $37,520    5,025,143    4,534,522
                                                        =======    =======    =========    =========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                        5
<PAGE>   6
 
                        STANDARD MANAGEMENT CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                       (UNAUDITED, DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                              ------------------
                                                                1997      1996
                                                                ----      ----
<S>                                                           <C>        <C>
OPERATING ACTIVITIES
Net income..................................................  $    643   $ 2,766
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Amortization of deferred policy acquisition costs.........       330       135
  Policy acquisition costs deferred.........................    (1,735)     (557)
  Deferred federal income taxes.............................        90       (43)
  Depreciation and amortization.............................       303       113
  Future policy benefits and reinsurance recoverable........       937     2,060
  Policy claims and other policyholders' benefits and
     funds..................................................      (151)     (168)
  Net realized investment gains.............................      (174)     (238)
  Accrued investment income.................................      (200)     (112)
  Extraordinary gain on early redemption of redeemable
     preferred stock........................................        --      (101)
  Other.....................................................       368    (1,439)
                                                              --------   -------
     NET CASH PROVIDED BY OPERATING ACTIVITIES..............       411     2,416
FINANCING ACTIVITIES
Borrowings..................................................        --     2,300
Repayments on long term debt and capital lease obligation...      (135)      (97)
Premiums received on interest-sensitive annuities and other
  financial products credited to policyholder account
  balances, net of premiums ceded...........................    12,068     3,987
Return of policyholder account balances on
  interest-sensitive annuities and other financial products,
  net of premiums ceded.....................................    (5,641)   (3,806)
Redemption of redeemable preferred stock....................        (4)     (173)
Reissuance of treasury stock in connection with exercise of
  stock options.............................................         4        --
Purchase of Common Stock for treasury.......................        --    (2,089)
                                                              --------   -------
     NET CASH PROVIDED BY FINANCING ACTIVITIES..............     6,292       122
INVESTING ACTIVITIES
Fixed maturity securities available for sale:
  Purchases.................................................   (45,886)  (57,522)
  Sales.....................................................    35,369    36,779
  Maturities................................................     4,422     1,223
Short-term investments, net.................................    (4,416)    5,154
Other investments, net......................................        40    (3,641)
Proceeds from sale of First International Life Insurance
  Company, less cash transferred to seller of $265..........        --    11,228
                                                              --------   -------
     NET CASH USED BY INVESTING ACTIVITIES..................   (10,471)   (6,779)
                                                              --------   -------
Net increase (decrease) in cash.............................    (3,768)   (4,241)
Cash at beginning of period.................................     5,113     5,762
                                                              --------   -------
Cash at end of period.......................................  $  1,345   $ 1,521
                                                              ========   =======
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                        6
<PAGE>   7
 
                        STANDARD MANAGEMENT CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
NOTE 1 -- BASIS OF PRESENTATION
 
     The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
The results of operations for the interim periods shown in this report are not
necessarily indicative of the results that may be expected for the fiscal year.
This is particularly true in the life insurance industry, where mortality
results in interim periods can vary substantially from such results over a
longer period. In the opinion of management, the information contained herein
reflects all adjustments necessary to make the results of operations for the
interim periods a fair statement of such operations. All such adjustments are of
a normal recurring nature.
 
     The nature of the insurance business of Standard Management Corporation and
its consolidated subsidiaries ("the Company") requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
 
     The consolidated financial statements as of and for the quarter ended March
31, 1997 include the assets and liabilities and results of operations of Shelby
Life Insurance Company ("Shelby Life") which was acquired and merged into
Standard Life Insurance Company of Indiana ("Standard Life"), a wholly-owned
subsidiary of Standard Management Corporation ("SMC"), the unconsolidated parent
company, effective November 1, 1996.
 
     For further information, refer to the consolidated financial statements and
footnotes thereto included in the Annual Report on Form 10-K of SMC for the
fiscal year ended December 31, 1996.
 
NOTE 2 -- COMMON STOCK
 
     SMC declared a 5% stock dividend on shares of its Common Stock for
shareholders of record on May 17, 1996 which was distributed on June 21, 1996.
All applicable number of shares and per share amounts included in the
consolidated financial statements and notes have been retroactively adjusted to
reflect this stock dividend for all periods presented.
 
NOTE 3 -- REDEEMABLE PREFERRED STOCK
 
     In connection with the class action lawsuit settlement in March 1995,
300,000 shares designated as Class S Cumulative Convertible Redeemable Preferred
Stock ("Class S Preferred Stock"), $10.00 per share par value, were issued
February 8, 1996. The Class S Preferred Stock is redeemable in February 2003,
has an 11% annual cumulative dividend payable in February 2003, and is
convertible into Common Stock at $7.62 per share until February 1998 and $10.00
per share thereafter, subject to adjustment under a formula intended to protect
against dilution.
 
     SMC may voluntarily redeem the Class S Preferred Stock prior to February
2003 at par value plus accumulated and unpaid dividends. In February 1996, SMC
instituted a program to repurchase from time to time up to 300,000 shares of its
Class S Preferred Stock in the open market or private negotiated transactions.
As of March 31, 1997, SMC has repurchased and retired 140,561 shares of Class S
Preferred Stock on the open market at a cost of $953. This repurchase resulted
in an extraordinary gain on early redemption of redeemable preferred stock of
$-- and $101 for the three months ended March 31, 1997 and 1996, respectively.
 
                                        7
<PAGE>   8
 
                        STANDARD MANAGEMENT CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
          (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
NOTE 4 -- NET UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE
 
     The components of the balance sheet caption "Unrealized loss on securities
available for sale" in shareholders' equity are summarized as follows:
 
<TABLE>
<CAPTION>
                                                              MARCH 31,   DECEMBER 31,
                                                                1997          1996
                                                              ---------   ------------
<S>                                                           <C>         <C>
Fair value of securities available for sale.................  $345,656      $347,372
Amortized cost of securities available for sale.............   355,405       349,209
                                                              --------      --------
     Gross unrealized loss on securities available for
      sale..................................................    (9,749)       (1,837)
Adjustments for:
  Deferred policy acquisition costs.........................     3,025           696
  Present value of future profits...........................       149            20
  Deferred federal income tax recoverable...................     2,240           375
                                                              --------      --------
     Net unrealized loss on securities available for sale...  $ (4,335)     $   (746)
                                                              ========      ========
</TABLE>
 
NOTE 5 -- INCOME TAXES
 
     The effective consolidated federal income tax expense (credit) rate for the
Company was 33% for the first quarter of 1997, compared to (79)% for the first
quarter of 1996. The large credit in 1996 is primarily due to tax benefits of
$1,420 related to the sale of First International Life Insurance Company ("First
International") (see Note 6).
 
NOTE 6 -- DISPOSAL OF SUBSIDIARIES
 
     On March 18, 1996, Standard Life completed the sale of a duplicate charter
associated with its wholly-owned subsidiary, First International, to Guardian
Insurance and Annuity Co., Inc. ("GIAC"), a subsidiary of The Guardian Group,
New York, New York. Standard Life received proceeds of approximately $11,493,
including $1,500 for the charter and licenses associated with First
International and $1,800 of reinsurance ceding commissions. Standard Life
realized a net pretax gain of $1,042 and a tax benefit of $1,420 on this sale or
$2,462 ($.41 per share) for the three months ended March 31, 1996. In addition,
First International, Standard Life and GIAC have entered into a series of other
agreements that include provisions for Standard Life to retain the economic
interest in certain First International policies and administer First
International policies in force at the date of sale.
 
     In an unrelated matter, the Company decided in February 1996 to terminate
the reinsurance agreement between Standard Reinsurance of North America Ltd.
("Standard Reinsurance") and Salamandra Joint-Stock Insurance Company in Ukraine
("Salamandra"), and not to renew the Barbados license of Standard Reinsurance
due to an insignificant amount of reinsurance premium volume. This resulted in
the termination of Standard Reinsurance operations and the write-off of the
Company's investment in Standard Reinsurance and certain intangible assets of
Standard Reinsurance amounting to $156 ($.03 per share) for the three months
ended March 31, 1996.
 
     The combined effect of the gain on sale of First International and related
contracts, and the Standard Reinsurance write-offs, was an increase in revenues
of $886 and a tax benefit of $1,420, for net income effect of approximately
$2,306 ($.38 per share) for the three months ended March 31, 1996.
 
                                        8
<PAGE>   9
 
                        STANDARD MANAGEMENT CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
          (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
NOTE 7 -- PENDING ACQUISITION
 
     The Company has entered into an Agreement and Plan of Merger dated as of
December 19, 1996, as amended February 17, 1997 and further amended May 7, 1997,
with Savers Life Insurance Company ("Savers Life"). Savers Life offers
retirement products, major medical insurance and Medicare supplement insurance
through 5,000 independent brokers, primarily in North Carolina, South Carolina
and Virginia. The Company will pay approximately $14,200 plus acquisition costs
for the approximately $80,000 asset company, with shareholders of Savers Life
initially receiving $8.00 for each share of Savers Life Common Stock, consisting
of Common Stock and an election of up to $1.50 per share in cash. The proposed
acquisition is subject to certain conditions including SMC and Savers Life
shareholder approval and approval by applicable regulatory authorities. The
acquisition is expected to close during the second quarter of 1997.
 
NOTE 8 -- RECENTLY ISSUED ACCOUNTING STANDARDS
 
     In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
per Share." SFAS No. 128 is required to be adopted on December 31, 1997. At that
time, the Company will be required to change the method currently used to
compute earnings per share and to restate prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options and stock warrants will be excluded. The impact is expected to
result in an increase in primary earnings per share for the first quarter ended
March 31, 1997 and 1996 of $.01 and $.07 per share, respectively. The impact of
SFAS No. 128 on the calculation of fully diluted earnings per share for these
quarters is not expected to be material.
 
                                        9
<PAGE>   10
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
GENERAL
 
     The following discussion highlights the material factors affecting the
results of operations and the significant changes in balance sheet items of the
Company on a consolidated basis for the periods listed as well as the Company's
liquidable and capital resources. This discussion should be read in conjunction
with the consolidated financial statements and notes thereto included in this
document, as well as the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
 
RESULTS OF OPERATIONS
 
Three Months Ended March 31, 1997 and 1996
 
     Operating Income. The income from operations (before net realized
investment gains and gain on disposal of subsidiaries) was $528,000 in the first
three months of 1997, compared to $214,000 for the comparable period in 1996.
The change resulted primarily from operations in the United States producing
income from operations of $174,000 compared to a loss from operations of
$(17,000) for the first three months of 1997 and 1996, respectively. The
increase is primarily due to an increase in interest spreads on an increasing
asset base due to annuity sales in 1996. The income from international
operations also increased to $354,000 for the first quarter of 1997 compared to
$231,000 for the first quarter of 1996. The international operating gains
resulted primarily from increased management fees on an increasing separate
account asset base due to portfolio sales in 1996 and higher service fees levied
on certain transactions.
 
     Premium Income. Premium income is composed of premiums, including renewal
premiums, received on ordinary life insurance policies. The Company's new
product sales are composed primarily of annuity products. Under GAAP, deposits
from interest-sensitive annuities and other financial products are not recorded
as revenues. GAAP premium income for the first quarter of 1997 was $1,897,000,
an increase of $398,000 or 27% from $1,499,000 for the first quarter of 1996.
This increase is mainly attributable to the inclusion of Shelby Life in the
results of operations for periods after November 1, 1996. The inclusion of
Shelby Life's premium income of $511,000 in the first quarter of 1997 more than
offsets the decline in premiums from the cession of a portion of First
International's life insurance business and the regular policy lapses,
surrenders and expiries in the Company's closed blocks of business.
 
     Net premium deposits received from the sales of interest-sensitive
annuities and other financial products (which are not recorded as revenues) were
$12,068,000 compared to $3,987,000 for the first quarter of 1997 and 1996,
respectively. The increase in premium deposits is partially due to an increase
in gross domestic premium deposits. Gross domestic premium deposits received
from interest-sensitive annuities and financial products were $14,230,000 for
the three months ended March 31, 1997 compared to $6,288,000 for the three
months ended March 31, 1996. The increase in gross premium deposits is the
continuing result of an aggressive marketing campaign implemented by Standard
Life with the introduction of attractive new annuity products and the effects of
increasing first year crediting rates approximately 1% commencing during the
second quarter of 1996. Also contributing to the increase in premiums is the
continued development of the Company's distribution system through marketing
support from Standard Marketing Corporation ("Standard Marketing") and an
increase in the agency base achieved through the recruitment of larger managing
general agencies and expanding geographical concentration into the Mid-South and
California. Since the Company's operating income is primarily a function of its
investment spreads, mortality experience, and operating expenses, a change in
annuity premium deposits in a single period does not directly cause operating
income to change, although continued increases or decreases in annuity premiums
may affect the growth rate of total assets on which investment spreads are
earned.
 
     The Company also decreased the quota-share portion of business ceded
pursuant to a reinsurance agreement from 70% to 50% at September 1, 1995, which
was further decreased to 25% effective April 1, 1996. Premium deposits ceded
pursuant to this reinsurance agreement reduced net premium deposits by
$2,162,000 in the first quarter of 1997 compared to $2,301,000 in the first
quarter of 1996.
 
                                       10
<PAGE>   11
 
     Net Investment Income. Net investment income increased $2,539,000 or 55% to
$7,199,000 for the first quarter of 1997 from $4,660,000 for the comparable
period of 1996. The increase primarily resulted from an increase in the average
annualized yield of the Company's investment portfolio to 7.65% from 7.09% for
the first quarter of 1997 and 1996, respectively, and the increase in total
invested assets (amortized cost) of approximately 58% from December 31, 1995 to
March 31, 1997, most of which (approximately $100,000,000) occurred in the
fourth quarter of 1996 due to the acquisition of Shelby Life.
 
     Net Realized Investment Gains. Net realized investment gains decreased
$64,000 or 27% to $174,000 from $238,000 for the first quarter of 1997 and 1996,
respectively. Net realized investment gains fluctuate from period to period and
arise when securities are sold in response to changes in the investment
environment which provide opportunities to maximize return on the investment
portfolio without adversely affecting the quality and overall yield of the
investment portfolio. The pretax net unrealized loss on the Company's fixed
maturity portfolio decreased to $9,749,000 at March 31, 1997 from $1,837,000 at
December 31, 1996. In the absence of decreases in interest rates, the Company
may be unable to realize gains on its investment portfolio at the levels of
prior years or could recognize losses from sales of securities prior to
maturity.
 
     Gain on Disposal of Subsidiaries. On March 18, 1996, the Company completed
the sale of a duplicate charter associated with First International to GIAC. The
Company received sale proceeds of $11,493,000, including $1,500,000 for the
charter and licenses associated with First International and $1,800,000 of
reinsurance ceding commissions. In addition, First International, Standard Life
and GIAC have entered into a series of other agreements that include provisions
for Standard Life to retain the economic interest in certain First International
policies and administer First International policies in force at the date of
such sale.
 
     In an unrelated matter, the Company decided in February 1996 to terminate
the reinsurance agreement between Standard Reinsurance and Salamandra, and not
to renew the Barbados license of Standard Reinsurance. This resulted in a first
quarter 1996 write-off of the Company's investment in Standard Reinsurance and
certain intangible assets of Standard Reinsurance amounting to $156,000.
 
     The combined effect of the pre-tax gain on the sale of First International
and related contracts, and the Standard Reinsurance write-offs, was $886,000
pre-tax and $2,306,000 after-tax in the first quarter of 1996.
 
     Policy Charges. Policy charges, which represent the amounts assessed
against policyholder account balances for the cost of insurance, policy
administration and surrenders, increased $914,000 or 174% to $1,439,000 for the
quarter ended March 31, 1997 compared to $525,000 for the quarter ended March
31, 1996. The increase in policy charges resulted from an increase in policy
charges for Standard Life's universal life insurance products of $499,000 due to
the inclusion of Shelby Life in the results of operations for periods after
November 1, 1996 and an increase in policy surrender charges on flexible premium
deferred annuities ("FPDAs") of $261,000.
 
     Amortization of Excess of Net Assets Acquired Over Acquisition
Cost. Amortization of excess of net assets acquired over acquisition cost
("negative goodwill") is recorded to amortize into earnings the negative
goodwill recorded in connection with the acquisition of Standard Management
International in 1993. The negative goodwill is being amortized on a
straight-line basis over five years. Amortization of negative goodwill was
$347,000 for each of the three months ended March 31, 1997 and 1996.
 
     Management Fees and Similar Income From Separate Accounts. Management fees
and similar income from separate accounts consist of the investment management
fees earned by Standard Management International on its separate account assets
and investment contracts. Management fees and similar income from separate
accounts increased $86,000 or 22% to $471,000 for the first quarter of 1997 from
$385,000 for the first quarter of 1996. This increase is due primarily to an
increase in the value of assets held in separate accounts from $122,705,000 at
December 31, 1995 to $134,865,000 at March 31, 1997 and to higher service fees
being levied on certain transactions.
 
     Other Income. Other income increased $176,000 or 56% to $492,000 for the
first quarter of 1997 compared to $316,000 for the comparable 1996 period. The
increase resulted primarily from experience refund adjustments recorded in the
first quarter of 1997 related to reinsurance agreements with GIAC.
 
                                       11
<PAGE>   12
 
     Benefits and Claims. Benefits and claims include life insurance and payout
annuity benefits paid and changes in policy reserves. Benefits and claims
increased $1,562,000 or 189% to $2,389,000 for the first quarter of 1997 from
$827,000 for the first quarter of 1996. The increase resulted primarily from the
inclusion of Shelby Life (approximately $612,000 in the first quarter of 1997)
in the results of operations for periods after November 1, 1996. Throughout the
Company's history, it has experienced both periods of higher and lower benefit
claims. Such volatility is not uncommon in the life insurance industry and, over
extended periods of time, periods of higher claims experience tend to be offset
by periods of lower claims experience.
 
     Interest Credited on Interest-Sensitive Annuities and Other Financial
Products. Interest credited on interest-sensitive annuities and other financial
products was $3,994,000 for the first quarter of 1997, an increase of $1,349,000
or 51% from $2,645,000 for the comparable prior year period. The increase
resulted primarily from the inclusion of interest credited of $942,000 from
Shelby Life products in the first quarter of 1997, increases in interest
credited rates on new annuity sales commencing in the second quarter of 1996 and
the increases in the growth in policy reserves for FPDAs from sales. At March
31, 1997, the weighted average interest credited rate for Standard Life's
annuities and other financial product liabilities was 5.31% compared to 5.26% at
March 31, 1996.
 
     Salaries and Wages. Salaries and wages were $1,452,000 for the first
quarter of 1997, an increase of $244,000 or 20% from $1,208,000 for the
comparable prior year period. This fluctuation was caused primarily by an
increase in the number of employees in 1997.
 
     During the first quarter of 1997, the chief financial officer was appointed
Indiana Commissioner of Insurance. In connection with that appointment, the
Company accepted his resignation as an officer and director of the Company
effective as of April 15, 1997. Such former officer's employment agreement
contained a provision to the effect that, following a termination of his
employment with the Company under certain circumstances, he would be entitled to
receive a lump sum payment equal to the amount determined by multiplying the
number of shares of Common Stock subject to unexercised stock options previously
granted by the Company and held by him on the date of termination, whether or
not such options were then exercisable, by the highest per share fair market
value of the Common Stock on any day during the six month period ending on the
date of termination. Upon payment of such amount, such unexercised stock options
would be deemed to have been surrendered and canceled. Such former officer has
asserted to the Company that he is entitled to such a lump sum payment by virtue
of his voluntarily leaving the Company's employment to assume his duties as
Indiana Commissioner of Insurance. The Company has disputed this claim and the
matter is under discussion between the Company and such former officer.
 
     Amortization. Amortization expense includes charges to operations for the
amortization of deferred acquisition costs, the present value of future profits,
the excess of cost over net assets acquired and subsidiary organization costs.
Amortization expense increased $378,000 or 85% to $825,000 for the first quarter
of 1997 from $447,000 for the first quarter of 1996. The increase in current
year amortization expense resulted primarily from increased amortization of
$181,000 of deferred acquisition costs from the emergence of gross profits from
business sold in recent years and increased surrenders and their corresponding
increase in the amortization of deferred acquisition costs and from the
amortization of present value of future profits $225,000 in the first quarter of
1997 for the acquisition of Shelby Life.
 
     Other Operating Expenses. Other operating expenses decreased $239,000 or
11% to $1,876,000 for the first quarter of 1997 from $2,115,000 for the first
quarter of 1996. The decrease in other operating expenses resulted primarily
from eliminating in 1997 the additional cost to convert the operations and
expand the marketing effort in Dixie National Life incurred in the first quarter
of 1996.
 
     Interest Expense and Financing Costs. Interest expense and financing costs
increased $407,000 or 330% to $530,000 in 1997 from $123,000 in 1996. The
increase in interest expense and financing costs during 1997 resulted primarily
from increased borrowing of $10,100,000 on the amended Revolving Line of Credit
Agreement with a bank (the "Amended Credit Agreement") and borrowing of
$4,000,000 from an insurance company in connection with the acquisition of
Shelby Life.
 
                                       12
<PAGE>   13
 
     Federal Income Taxes. Federal income tax expense (credit) was $310,000 for
the first quarter of 1997, compared to $(1,174,000) for the first quarter of
1996. The large credit in 1996 is primarily due to tax benefits of $1,420,000
related to the sale of First International.
 
     Extraordinary Gain on Early Redemption of Redeemable Preferred
Stock. Extraordinary gains are recorded on the early redemption of the Class S
Preferred Stock for the amount by which the Company is able to repurchase the
Class S Preferred Stock below its book value, plus accrued and unpaid dividends.
The Company may continue to repurchase these shares if holders of the Class S
Preferred Stock are willing to sell at a discount to book value. The Company
recorded no extraordinary gain for the first three months of 1997 compared to
$101,000 for the three months ended March 31, 1996.
 
     Common and Common Equivalent Shares. The weighted average number of common
and common equivalent shares for the quarter ended March 31, 1996 included
1,045,620 common equivalent shares that were not included in this calculation
for the comparable quarter in 1997. These additional common equivalent shares
were included in the 1996 calculation due to the increase in net income in the
first quarter of 1996 from the sale of First International. Such additional
common equivalent shares are not included in any other reporting period. The
inclusion of the additional common equivalent shares in the first quarter 1996
calculations had the effect of decreasing earnings per share for the period by
$.07.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     SMC is an insurance holding company. The liquidity requirements of SMC are
met primarily from management fees, equipment rental fees and payments for other
charges and dividends and interest on surplus debentures received from SMC's
subsidiaries as well as SMC's working capital. These are SMC's primary source of
funds to pay operating expenses and meet debt service obligations. The payment
of dividends and interest on surplus debentures and management and other fees by
Standard Life to SMC is subject to restrictions under the insurance laws of
Indiana, Standard Life's jurisdiction of domicile. These internal sources of
liquidity have been supplemented in the past by external sources such as lines
of credit and revolving credit agreements and long-term debt and equity
financing in the capital markets.
 
     The Company reported on a consolidated GAAP basis net cash provided by
operations of $411,000 and $2,416,000 for the three months ended March 31, 1997
and 1996, respectively and $1,726,000 and $6,331,000 for the years ended
December 31, 1996 and 1995, respectively. Although deposits received on the
Company's interest-sensitive annuities and other financial products are not
included in cash flow from operations under GAAP, such funds are available for
use by the Company. Cash provided by operations plus net deposits received, less
net account balances returned to policyholders on interest-sensitive annuities
and other financial products, resulted in positive cash flow of $6,838,000 and
$2,597,000 for the three months ended March 31, 1997 and 1996, respectively and
$26,717,000 and $6,003,000 for the years ended December 31, 1996 and 1995,
respectively. Cash generated on a consolidated basis is available to SMC only to
the extent that it is generated at the SMC level or is available to SMC through
dividends, interest, management fees or other payments from subsidiaries.
 
     In April 1993, SMC instituted a program to repurchase its common stock from
time to time. The purpose of the stock repurchase program is to enhance
shareholder value. SMC had repurchased 979,453 shares of its common stock for
$4,747,000 as of March 31, 1997. The repurchases in 1996 have been paid through
additional borrowings under the Amended Credit Agreement. At March 31, 1997, SMC
is authorized to purchase an additional 772,644 shares under this program.
 
     In February 1996, SMC instituted a program to repurchase from time to time
up to 300,000 shares of its Class S Preferred Stock in the open market or
privately negotiated transactions. As of March 31, 1997, SMC had repurchased and
retired 140,561 shares of its Class S Preferred Stock for $953,000.
 
     At April 30, 1997, SMC had "parent company only" cash and short-term
investments of $632,000, which amount does not include the dividend received
from Standard Life on May 1, 1997 of $1,000,000. These funds are available to
SMC for general corporate purposes. SMC's "parent company only" operating
expenses (not including interest expense) were $517,000 and $774,000 for the
three months ended March 31, 1997 and
 
                                       13
<PAGE>   14
 
1996, respectively and $3,470,000 and $2,793,000 for the years ended December
31, 1996 and 1995, respectively.
 
     Pursuant to the management services agreement with SMC, Standard Life paid
SMC a monthly fee of $150,000 during 1996 for certain management services
related to the production of business, investment of assets and evaluation of
acquisitions. The management service agreement between Standard Management and
Standard Life for 1997 has been renegotiated to increase the monthly fee to
$166,667 (annual fee of $2,000,000). This amended management service agreement
has been approved by the Commissioner of the Indiana Department of Insurance.
Pursuant to the management services agreement with Standard Life, Dixie National
Life paid fees of $1,524,000 for the year ended December 31, 1996. The
Mississippi Department of Insurance has approved a decrease of the monthly
payment to $83,333 (annual fee of $1,000,000) from Dixie National Life to
Standard Life in 1997. Both of these agreements provide that they may be
modified or terminated by the Indiana and Mississippi Departments of Insurance
in the event of financial hardship of Standard Life or Dixie National Life.
 
     Pursuant to the management services agreement with SMC, Premier Life
(Luxembourg), a wholly-owned subsidiary of Standard Management International,
paid SMC a management fee of $25,000 per quarter during 1997 and 1996 for
certain management and administrative services. The agreement provides that it
may be modified or terminated by either SMC or Premier Life (Luxembourg). SMC
does not plan to modify this agreement in 1997.
 
     At April 1, 1995, SMC sold its property and equipment to an unaffiliated
leasing/financing company for $1,396,000 and subsequently entered into a capital
lease obligation whereby SMC pays a monthly rental amount of $45,000. SMC
charges a monthly equipment rental fee to its subsidiaries for this equipment
and additional equipment purchased after April 1, 1995. The amount of the rental
fee income received from SMC's subsidiaries was $329,000 for the three months
ended March 31, 1997.
 
     The Amended Credit Agreement permits SMC to borrow up to $16,000,000 in the
form of a seven-year reducing revolving loan arrangement, which may be extended
to seven years at the discretion of the bank. SMC has agreed to pay a non-use
fee of .50% per annum on the unused portion of the commitment. In connection
with the original and Amended Credit Agreement, SMC issued warrants to the bank
to purchase 61,500 shares of Common Stock. Borrowings under the Amended Credit
Agreement may be used for contributions to surplus of insurance subsidiaries,
acquisition financing, and repurchases of Class S Preferred and Common Stock.
The debt is secured by a Pledge Agreement of all of the issued and outstanding
shares of common stock of Standard Life and Standard Marketing. Interest on the
borrowing under the Amended Credit Agreement is determined, at the option of
SMC, to be: (i) a fluctuating rate of interest based on the corporate base rate
announced by the bank from time to time plus one percent per annum, or (ii) a
rate at LIBOR plus 3.25%. Annual principal repayments of $2,667,000 begin in
November 1998 and conclude in November 2003. Indebtedness incurred under the
Amended Credit Agreement is subject to certain restrictions and covenants
including, among other things, certain minimum financial ratios, minimum
statutory surplus requirements for the insurance subsidiaries, minimum
consolidated equity requirements for the Company and certain investment and
indebtedness limitations. At March 31, 1997, SMC was in compliance with all
restrictions and covenants in the Amended Credit Agreement. At March 31, 1997,
SMC had borrowed $16,000,000 under the Amended Credit Agreement at a weighted
average interest rate of 8.849%. The Company anticipates increasing the Amended
Credit Agreement to $20,000,000 to finance the acquisition of Savers Life.
 
     In connection with the acquisition of Shelby Life, SMC borrowed $4,000,000
from an insurance company pursuant to a subordinated convertible debt agreement
which is due in December 2003 and requires interest payments in cash at 12% per
annum, or, if SMC chooses, in non-cash additional subordinated convertible debt
notes at 14% per annum until December 31, 2000. The subordinated convertible
notes are convertible into Common Stock at the rate of $6.00 per share through
November 1997, and $5.75 per share thereafter. SMC may prepay the subordinated
convertible debt with not less than 30 days' notice at any time. The
subordinated convertible debt agreement contains terms and financial covenants
substantially similar to those in the Amended Credit Agreement.
 
                                       14
<PAGE>   15
 
     Assuming the continuation of current level of debt under the Amended Credit
Agreement ($16,000,000) and current interest rates at March 31, 1997 (weighted
average rate of 8.849%) and assuming SMC elects the non-cash interest payment
option under the subordinated convertible debt, annual debt service in 1997
would be approximately $1,416,000 in interest paid on the Amended Credit
Agreement. In addition, SMC has 1997 obligations under a capital lease of
$539,000.
 
     From the funds borrowed by SMC pursuant to the Amended Credit Agreement and
the subordinated convertible debt agreement, $13,000,000 was loaned to Standard
Life pursuant to an Unsecured Surplus Debenture Agreement ("Surplus Debenture")
which requires Standard Life to make quarterly interest payments to SMC at a
variable corporate base rate plus 2% per annum, and annual principal payments of
$1,000,000 per year beginning in 2007 and concluding in 2019. The interest and
principal payments are subject to quarterly approval by the Indiana Department
of Insurance, depending upon satisfaction of certain financial tests relating to
levels of Standard Life's capital and surplus and general approval of the
Indiana Commissioner of Insurance. SMC currently anticipates these quarterly
approvals will be granted. Assuming the approvals are granted and the December
31, 1996 interest rate of 10.25% continues in 1997, SMC will receive interest
income of $1,332,500 from its Surplus Debenture receivable for 1997.
 
     Dividends from Standard Life to SMC are limited by laws applicable to
insurance companies. As an Indiana domiciled insurance company, Standard Life
may pay a dividend or distribution from its surplus profits, without the prior
approval of the Indiana Commissioner of Insurance, if the dividend or
distribution, together with all other dividends and distributions paid within
the preceding twelve months, does not exceed the greater of (i) net gain from
operations or (ii) 10% of surplus, in each case as shown in its preceding annual
statutory financial statements. Also, regulatory approval is required when
dividends to be paid exceed unassigned statutory surplus. For the year ended
December 31, 1996, Standard Life reported statutory net gain from operations of
$1,427,000, statutory surplus of $22,969,666 and unassigned statutory surplus of
$1,139,659. Standard Life anticipates paying dividends of approximately
$1,600,000 in 1997 and the approval of the Indiana Commissioner of Insurance may
be required. Standard Life paid a dividend of $1,000,000 on May 1, 1997.
 
     SMC anticipates the available cash from its existing working capital, plus
anticipated 1997 dividends, management fees, rental income and interest income
on its Surplus Debenture, will be more than adequate to meet its anticipated
"parent company only" cash requirements for 1997.
 
     SMC has a note receivable of $2,858,000 from an affiliate and a note
payable of $2,858,000 to a different affiliate. This note receivable and note
payable are eliminated in the consolidated financial statements.
 
     The Company's shareholder's equity was $37,073,000 at March 31, 1997
compared to $40,166,000 at December 31, 1996 reflecting a decrease in the value
of the Company's invested assets as a result of the general rise in interest
rates during the quarter which generally caused the fair value of fixed maturity
securities to decrease. Book value per share decreased to $7.38 at March 31,
1997 from $7.99 at December 31, 1996. The pretax net unrealized loss on the
Company's fixed maturity portfolio was $9,749,000 at March 31, 1997 compared to
$1,837,000 at December 31, 1996. In the absence of decreases in interest rates
the Company may be unable to realize gains on its investment portfolio at the
levels of prior years or could recognize losses from sales of securities prior
to maturity. The change in market value of the Company's fixed maturity
securities is not expected to have a significant effect on results of operations
because the Company has the present intent and practice to hold most of its
available-for-sale fixed maturity securities to maturity and the Company's
asset/liability management activity is designed to monitor and adjust for the
effects of changes in market interest rates.
 
     U.S. Insurance Operations. The principal liquidity requirements of Standard
Life are its contractual obligations to policyholders, dividend, rent,
management fee and Surplus Debenture interest payments to SMC and other
operating expenses. The primary source of funding for these obligations has been
cash flow from premium income, net investment income, investment sales and
maturities and sales of FPDAs. These sources of liquidity for Standard Life
significantly exceed scheduled uses. Liquidity is also affected by unscheduled
benefit payments including death benefits and policy withdrawals and surrenders.
The amount of withdrawals and surrenders is affected by a variety of factors
such as renewal interest crediting rates, interest
 
                                       15
<PAGE>   16
 
rates for competing products, general economic conditions, Standard Life's A.M.
Best's ratings (currently rated "B" ("Adequate")) and events in the industry
that affect policyholders' confidence.
 
     The policies and annuities issued by Standard Life contain provisions that
allow policyholders to withdraw or surrender their policies under defined
circumstances. These policies and annuities generally contain provisions which
apply penalties or otherwise restrict the ability of policyholders to make such
withdrawals or surrenders. Standard Life closely monitors the surrender and
policy loan activity of its insurance products and manages the composition of
its investment portfolios, including liquidity, in light of such activity.
 
     Changes in interest rates may affect the incidence of policy surrenders and
other withdrawals. In addition to the potential impact on liquidity,
unanticipated withdrawals in a changing interest rate environment could
adversely affect earnings if the Company were required to sell investments at
reduced values in order to meet liquidity demands. The Company manages the asset
and liability portfolios in order to minimize the adverse earnings impact of
changing market interest rates. The Company seeks assets which have duration
characteristics similar to the liabilities which they support. The Company also
prepares cash flow projections and performs cash flow tests under various market
interest rate scenarios to assist in evaluating liquidity needs and adequacy.
The Company's U.S. insurance subsidiaries currently expect available liquidity
sources and future cash flows to be adequate to meet the demand for funds.
 
     Statutory surplus is computed according to rules prescribed by the National
Association of Insurance Commissioners ("NAIC"), as modified by the Indiana
Department of Insurance, or the states in which the insurance subsidiaries do
business. Statutory accounting rules are different from GAAP and are intended to
reflect a more conservative perspective. With respect to new business, statutory
accounting practices require that: (i) acquisition costs (primarily commissions
and policy issue costs) and (ii) reserves for future guaranteed principal
payments and interest in excess of statutory rates, be expensed in the year the
new business is written. These items cause a reduction in statutory surplus
("surplus strain") in the year written for many insurance products. The Company
designs its products to minimize such first-year losses, but certain products
continue to cause a statutory loss in the year written. For each product, the
Company controls the amount of new premiums written in order to manage the
effect of such surplus strain. The Company's long-term growth goals contemplate
continued growth in its insurance businesses. To achieve these growth goals,
Standard Life will need to increase statutory surplus. Additional statutory
surplus may be secured through various sources such as internally generated
statutory earnings, equity sales or infusions by SMC with funds generated
through debt or equity offerings or mergers with other life insurance companies.
If additional capital is not available from one or more of these sources, the
Company believes that it could reduce surplus strain through the use of
reinsurance or through reduced writing of new business.
 
     Standard Life produced statutory net income of $209,000 and $3,291,000 for
the three months ended March 31, 1997 and year ended December 31, 1996,
respectively. As a result, SMC has not made cash capital contributions to
Standard Life during 1997 and 1996 to maintain adequate levels of statutory
capital and surplus. In March 1996, Standard Life sold its subsidiary, First
International, and realized an increase in statutory capital and surplus of
approximately $4,951,000 from the statutory gain on the sale and related
reinsurance transactions.
 
     Commencing January 1, 1995, Standard Life began to reinsure a portion of
its annuity business. The primary purposes of the reinsurance agreement were to
limit the net loss arising from large risks, maintain the Company's exposure to
loss within capital resources and provide additional capacity for future growth.
Furthermore, the reinsurance agreement has allowed the Company to write volumes
of business that it would not otherwise have been able to write due to
regulatory restrictions based on its ratio of surplus to liabilities as
determined by regulatory authorities in the State of Florida. By reinsuring a
portion of the annuity business, the liability growth is slowed, thereby
avoiding the erosion of surplus that occurs in periods of increasing sales. If
the Company's ratio of surplus to liabilities falls below 4%, the State of
Florida could prohibit the Company from writing new business in Florida.
Standard Life's largest annuity reinsurer at March 31, 1997, Winterthur Life Re
Insurance Company ("Winterthur"), is rated "A" ("Excellent") by A.M. Best. From
September 1, 1995 to March 31, 1996 approximately 50% of certain of Standard
Life's annuity business produced was
 
                                       16
<PAGE>   17
 
ceded. Standard Life decreased the quota-share portion of business ceded to 25%
at April 1, 1996 to reflect the reduced need for additional capital and increase
current earnings potential. This reduction was possible since the surplus strain
experienced by Standard Life was not as great as originally anticipated as a
result of lower than expected sales in 1995 and the increase in surplus
resulting from the sale of First International. Winterthur limits dividends and
other transfers by Standard Life to SMC or affiliated companies in certain
circumstances.
 
     Management believes that operational cash flow of Standard Life will be
sufficient to meet its anticipated needs for 1996. As of March 31, 1997,
Standard Life had statutory capital and surplus for regulatory purposes of
$23,843,391 compared to $22,969,666 at December 31, 1996. The increase is
primarily due to an increase in admitted goodwill under statutory accounting
practices in connection with the acquisition of Dixie National Life. As the life
insurance and annuity business produced by Standard Life and Dixie National Life
increases, Standard Life expects to continue to satisfy statutory capital and
surplus requirements through statutory profits, through the continued
reinsurance of a portion of its new business, and through additional capital
contributions by SMC. During 1997 and 1996, SMC did not make any capital
contributions to Standard Life, other than the Common Stock associated with the
Shelby Life acquisition. Net cash flow from operations on a statutory basis of
Standard Life, after payment of benefits and operating expenses, was $5,875,000
and $6,856,000 for the three months ended March 31, 1997 and 1996, respectively
and $17,921,000 and $4,263,000 for the years ended December 31, 1996 and 1995,
respectively. If the need arises for cash which is not readily available,
additional liquidity could be obtained from the sale of invested assets.
 
     State insurance regulatory authorities impose minimum risk-based capital
requirements on insurance enterprises that were developed by the NAIC. The
formulas for determining the amount of RBC specify various weighting factors
that are applied to financial balances or various levels of activity based on
the perceived degree of risk. Regulatory compliance is determined by a ratio
(the "RBC Ratio") of the enterprise's regulatory total adjusted capital, as
defined by the NAIC, to its authorized control level RBC, as defined by the
NAIC. Enterprises below specific trigger points or ratios are classified within
certain levels, each of which requires specified corrective action. Each of
SMC's insurance subsidiaries has an RBC Ratio that is at least 400% of the
minimum RBC requirements; accordingly, the subsidiaries meet the RBC
requirements.
 
     Standard Life's acquisition of Shelby Life, and merger of Shelby Life into
Standard Life, effective November 1, 1996 is anticipated to have a positive
effect on Standard Life's liquidity and cash flows. Shelby Life ceased writing
new business effective November 1, 1996, thus reducing the surplus strain
normally associated with the issuance of new policies. The anticipated profits
from Shelby Life's book of business are expected to exceed the related interest
expense connected with the $13,000,000 of Surplus Debentures issued by Standard
Life in connection with the acquisition of Shelby Life. The statutory net income
of Shelby Life was $1,660,885 for the year ended December 31, 1995 and $851,472
for the ten months ended October 31, 1996.
 
     International Operations. The consolidated balance sheet of the Company at
March 31, 1997 includes a $2,428,000 credit representing the negative goodwill
on the purchase of Standard Management International which will be amortized
into future earnings. This amortization is a non-cash credit to the Company
statements of operations.
 
     Standard Management International dividends are limited to its accumulated
earnings without regulatory approval. Standard Management International and
Premier Life (Luxembourg) were not permitted to pay dividends in 1996 and 1995
due to accumulated losses. Premier Life (Bermuda) did not pay dividends in 1996
and 1995. SMC does not anticipate any dividends from these companies in 1997.
 
     Due to the nature of unit-linked products issued by Standard Management
International, which represent over 90% of the Standard Management International
portfolio, the investment risk rests with the policyholder. Investment risk for
Standard Management International exists where Standard Management International
makes investment decisions with respect to the remaining traditional business
and for the assets backing certain actuarial and regulatory reserves. The
investments underlying these liabilities mostly represent short-term investments
and fixed maturity securities. These short-term investments and fixed maturity
securities are
 
                                       17
<PAGE>   18
 
normally only bought and/or disposed of on the advice of independent consulting
actuaries who perform an annual analysis comparing anticipated cash flows on the
insurance portfolio with the cash flows from the fixed maturity securities. Any
resulting material mismatches are then covered by adjusting the securities in
the investment portfolio as appropriate.
 
FACTORS THAT MAY AFFECT FUTURE RESULTS
 
     Mergers, Acquisitions and Consolidations. The U.S. insurance industry has
experienced an increasing number of mergers, acquisitions, consolidations and
sales of certain business lines. These consolidations have been driven by a need
to reduce costs of distribution and overhead and maintain business in force.
Additionally, increased competition, regulatory capital requirements and
technology costs have also contributed to the level of consolidation in the
industry. These forces are expected to continue as is the level of industry
consolidation.
 
     Foreign Currency Risk. Standard Management International policyholders
invest in assets denominated in a broad range of currencies. Policyholders
effectively bear the currency risk, if any, as these investments are matched by
policyholder separate account liabilities. Therefore, their investment and
currency risk is limited to premiums they have paid. Policyholders are not
permitted to invest directly into options, futures and derivatives. Standard
Management International could be exposed to currency fluctuations if currencies
within the conventional investment portfolio or certain actuarial reserves are
mismatched. The assets and liabilities of this portfolio and the reserves are
continually matched by the company and at regular intervals by the independent
actuary. In addition, Premier Life (Luxembourg)'s shareholder's equity is
denominated in Luxembourg francs. Premier Life (Luxembourg) does not hedge its
translation risk, but this is currently being reviewed to protect the Company
against currency fluctuations. At March 31, 1997, there was an unrealized gain
from foreign currency translation adjustment of $583,000.
 
     Uncertainties Regarding Intangible Assets. Included in the consolidated
financial statements as of March 31, 1997 are certain assets that are valued for
financial statement purposes primarily on the basis of assumptions established
by management. These assets include deferred acquisition costs, present value of
future profits, costs in excess of net assets acquired and organization and
deferred debt issuance costs. The total value of these assets reflected in the
March 31, 1997 consolidated balance sheet aggregated $45,873,000 or 7.2% of
total assets. The Company has established procedures to periodically review the
assumptions utilized to value these assets and determine the need to make any
adjustments in such values in the consolidated financial statements. The Company
has determined that the assumptions utilized in the initial valuation of these
assets are consistent with the current operations of the Company as of March 31,
1997.
 
     Regulatory Environment. Currently, prescribed or permitted statutory
accounting principles ("SAP") may vary between states and between companies. The
NAIC is in the process of codifying SAP to promote standardization of methods
utilized throughout the industry. Completion of this project might result in
changes in statutory accounting practices for the Company; however, it is not
expected that such changes would materially impact the Company's statutory
capital requirements.
 
     Recently Issued Accounting Standards. In February 1997, the FASB issued
SFAS No. 128, "Earnings per Share." SFAS No. 128 is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options and stock warrants will be excluded. The
impact is expected to result in an increase in primary earnings per share for
the first quarter ended March 31, 1997 and March 31, 1996 of $.01 and $.07 per
share, respectively. The impact of SFAS No. 128 on the calculation of fully
diluted earnings per share for these quarters is not expected to be material.
 
     Safe Harbor Provisions. Forward-looking statements in this Quarterly Report
on Form 10-Q are made pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. There are certain important factors
that could cause results to differ materially from those anticipated by some of
the statements made above. Investors are cautioned that all forward-looking
statements involve risks and uncertainty. In addition to the factors discussed
above, among the other factors that could cause actual results to differ
materially are the following: economic environment, interest rate changes,
product development, regulatory changes, the results of financing efforts, the
Company's accounting policies, competition, the reinsurance agreement with GIAC
and the acquisitions of Shelby Life and Savers Life.
 
                                       18
<PAGE>   19
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
 
(a) Exhibits
 
     Exhibit 11 Statement regarding computation of per share earnings.
 
     Exhibit 27 Financial Data Schedule, which is submitted electronically
                pursuant to Regulation S-K to the Securities and Exchange
                Commission (the "Commission") for information only and not
                filed.
 
(b) Reports on Form 8-K
 
     A report on Form 8-K dated January 22, 1997 was filed with the Commission
to report under Item 5, the signing of a merger agreement with Savers Life.
 
     A report on Form 8-K dated January 24, 1997, as amended February 19, 1997,
was filed with the Commission to report under Item 7, the financial statements
of Shelby Life for the two years ended December 31, 1995 and the pro forma
condensed consolidated financial statements as of September 30, 1996.
 
     A report on Form 8-K dated February 19, 1997 was filed with the Commission
to report under Item 5, the signing of the amendment to the merger agreement
with Savers Life.
 
                                       19
<PAGE>   20
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
Dated: May 15, 1997
 
                                          STANDARD MANAGEMENT CORPORATION
                                                      (Registrant)
 
                                          By:          RONALD D. HUNTER
 
                                            ------------------------------------
                                                      Ronald D. Hunter
                                            Chairman of the Board, President and
                                                   Chief Executive Officer
                                               (Principal Executive Officer)
 
                                          By:        GERALD R. HOCHGESANG
 
                                            ------------------------------------
                                                    Gerald R. Hochgesang
                                                   Senior Vice President
                                                 (Chief Accounting Officer)
 
                                       20
<PAGE>   21
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                      DESCRIPTION OF DOCUMENT
-------                     -----------------------
<C>       <S>                                                             <C>
   11     Statement regarding computation of per share earnings.
   27     Financial Data Schedule
</TABLE>
 
                                       21