<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(Mark One)
    
[X]      ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
         For the fiscal year ended December 31, 1998

                                          OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                     For the transition period from       to
                                                   -------  -------

                          (Commission File No. 1-7255)

                        AMERICAN HERITAGE LIFE INVESTMENT
                                   CORPORATION
             (Exact name of registrant as specified in its charter)

                 FLORIDA                               59-1219710
     (State or other jurisdiction of     (I.R.S. employer identification number)
     incorporation or organization)

  AMERICAN HERITAGE LIFE BUILDING
 1776 AMERICAN HERITAGE LIFE DRIVE
       JACKSONVILLE, FLORIDA                              32224
 (Address of principal executive offices)               (Zip Code)

             Registrant's telephone number - Area Code 904-992-1776
          Securities registered pursuant to Section 12(b) of the Act:

COMMON STOCK, PAR VALUE $1.00 PER SHARE             NEW YORK STOCK EXCHANGE
           (Title of Class)                            (Name of Exchange)

          Securities registered pursuant to Section 12(g) of the Act:

                                      NONE
                                (Title of Class)

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant on February 28, 1999 was approximately $295,656,042.

     As of February 28, 1999, there were 27,906,217 shares of Common Stock, par
value $1.00 per share, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated herein by reference:

    PROXY STATEMENT DATED MARCH 23, 1999                 PART III
               (Document)                          (Where Incorporated)

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                          TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM                                                                                                        PAGE
 NO.                                   DESCRIPTION                                                           NO.
----                                   -----------                                                          ----
<S>                                                                                                         <C>

 1.  BUSINESS ......................................................................................          3

 2.  PROPERTIES ....................................................................................         14

 3.  LEGAL PROCEEDINGS .............................................................................         15

 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...........................................         15

 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
     STOCKHOLDER MATTERS ...........................................................................         15

 6.  SELECTED FINANCIAL DATA .......................................................................         16

 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
     CONDITION AND RESULTS OF OPERATIONS ...........................................................         17

 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK......................................         22

 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................................................         23

 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
     ACCOUNTING AND FINANCIAL DISCLOSURE ...........................................................         47

10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............................................         47

11.  EXECUTIVE COMPENSATION ........................................................................         49

12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
     AND MANAGEMENT ................................................................................         49

13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................................         49

14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
     ON FORM 8-K ...................................................................................         50

     SIGNATURES ....................................................................................         52
</TABLE>

                                       2
<PAGE>   3

ITEM 1.  BUSINESS

         American Heritage Life Investment Corporation is a holding company
whose principal subsidiaries are American Heritage Life Insurance Company
("AHL") and Columbia Universal Life Insurance Company ("CUL"). (Collectively,
American Heritage Life Investment Corporation and its subsidiaries are the
"Company".) AHL was organized on September 11, 1956 and is presently authorized
to do business as a life insurance company in all states, other than New York,
and in the District of Columbia, U.S. Virgin Islands and Puerto Rico. AHL is
engaged in the business of underwriting life and accident and health insurance
on an individual, group and credit basis. AHL is a leading marketer of life and
supplemental health insurance products sold through workplace marketing, a
specialized distribution method on which it has focused since its inception.
Workplace marketing is an efficient way to distribute most products to employees
on the job by conveniently deducting the premium from their paychecks. CUL, a
subsidiary of AHL, markets annuity and individual life insurance products and is
currently licensed in 41 states, the District of Columbia and Puerto Rico.

         The Company has reported increased operating earnings for 23
consecutive years and has increased dividends to shareholders for 29 consecutive
years. The following chart presents the Company's consolidated operating
earnings for the last ten years. Operating earnings are defined as net earnings
excluding realized investment gains and losses, net of income taxes, and
non-recurring gains related to the sale of home office property.

                                   OPERATING EARNINGS HISTORY

<TABLE>
<CAPTION>
         YEAR ENDED                                                                    % INCREASE
         DECEMBER 31                                             OPERATING EARNINGS  FROM PRIOR YEAR
         -----------                                             ------------------  ---------------
                                                                   (IN THOUSANDS)  

         <S>                                                     <C>                 <C>
          1989..............................................          $11,920            11.9%
          1990..............................................           13,409            12.5
          1991..............................................           15,019            12.0
          1992..............................................           16,739            11.5
          1993..............................................           18,945            13.2
          1994..............................................           22,334            17.9
          1995..............................................           24,174             8.2
          1996..............................................           26,759            10.7
          1997..............................................           31,058            16.1
          1998..............................................           36,388            17.2
</TABLE>

-----------
         The Company's principal subsidiary, AHL, is rated "A+ (Superior)" by
A.M. Best, an independent nationally recognized insurance publishing and rating
service and has an insurer claims paying ability rating of "AA" from Standard &
Poor's Insurance Rating Services. A.M. Best ratings for solvent insurance
companies range from "A++ (Superior)" to "D (Very Vulnerable)". An A.M. Best
rating is intended to provide an independent opinion of an insurer's ability to
meet its obligations to policyholders and should not be considered an investment
recommendation. A Standard & Poor's insurance claims paying ability rating is an
assessment of an operating insurance company's financial capacity to meet
obligations under an insurance policy in accordance with its terms. Standard &
Poor's ratings range from "AAA (Extremely strong capacity to meet contractual
policy obligations)" to "D (Default, terms of the obligation will not be met)."
AHL's AA rating, the second highest major rating category, indicates a very
strong capacity to meet contractual policy obligations. At December 31, 1998,
the Company had $2.1 billion of total assets, $278.1 million of stockholders'
equity, and $27.6 billion of gross life insurance volume in force. Also,
approximately 96% of the $984.3 million of debt securities held by the company
had an investment grade ratings.

         The executive offices of the Company are located at the American
Heritage Life Building, 1776 American Heritage Life Drive, Jacksonville, Florida
32224, and the Company's telephone number is (904) 992-1776.

                                       3
<PAGE>   4

BUSINESS STRATEGIES

         The Company's objective is to continue its record of increased
operating earnings by following the strategies set forth below:

                  COMMITMENT TO CORE BUSINESS. The Company's primary focus will
         continue to be on its core businesses. Additionally, the Company will
         continue to evaluate opportunities to grow from expansion through
         strategic alliances and acquisitions of blocks of business and/or
         companies that are compatible with the Company's core businesses.

                  CONCENTRATION ON MARKET NICHE. The Company believes it has a
         competitive advantage in workplace marketing based upon its commitment
         to provide quality service, its offering of an expanding portfolio of
         products, and its development of processes and technology that are
         unique to servicing and administering that marketplace.

                  SYNERGISTIC MARKETING AND STRATEGIC ALLIANCES. The Company's
         three marketing areas -- ordinary, group and credit -- and acquisition
         companies provide opportunities for cross-selling the Company's
         products, particularly to provide the Company's ordinary operations
         access to sell workplace marketing products. The Company also has and
         is continuing to develop strategic alliances with other insurers to
         cross-sell such entities' products and to allow each entity access to
         the other's distribution channels.

                  FOCUS ON EXPENSE CONTROL. The Company believes that its record
         of profitable growth has resulted from a combination of revenue growth
         and focus on expense control. The Company's ratio of general insurance
         expenses to total revenue (defined for this purpose as including
         premiums, premium equivalents and investment income and excluding
         realized investment gains and losses) has been recognized as being low
         as compared to industry norms. General insurance expenses as a
         percentage of total revenues for the years ended December 31, 1988
         through 1998, ranged from a high of 6.2% to a low of 4.9% with a
         current level of 6.0% for the year ended December 31, 1998.

ACQUISITIONS

         The Company acquired Columbia Universal Life Insurance Company
effective January 1, 1997. Effective December 31, 1996, the Company acquired a
block of business from Kentucky Home Mutual Life Insurance Company with
approximately $1.8 million of premiums and premium equivalents and $3.3 million
of assets. On June 30, 1997, the Company closed on the acquisition of Concord
General Life Insurance Company, now Concord Heritage Life Insurance Company
(Concord). Effective July 31, 1997, AHLIC acquired ERJ Insurance Group, Inc., a
credit insurance marketing organization. Effective September 30, 1997, the
Company acquired a block of business from Security Life of Denver, a member of
the ING Group, with approximately $14.0 million of premiums. On June 30, 1998,
the Company closed on the acquisition of Keystone State Life Insurance Company
(Keystone) of Philadelphia, Pennsylvania. Each of these acquisitions has been
accounted for as a purchase and the operating results from the respective
acquisition effective dates are included in the consolidated statement of
earnings.

                                       4
<PAGE>   5

MARKETING AREAS

         The Company has three primary marketing areas: ordinary, group and
credit. The following table sets forth the insurance revenues and pre-tax
operating earnings of the three marketing areas for each of the years in the
five year period ended December 31, 1998.

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                            ------------------------------------------------------------------------
                                                              1998            1997            1996            1995            1994
                                                            --------        --------        --------        --------        --------
                                                                                        ($ IN THOUSANDS)
     <S>                                                    <C>             <C>             <C>             <C>             <C>
     INSURANCE REVENUES (1):
       Ordinary
         Life                                               $ 73,456        $ 60,957        $ 42,998        $ 40,173        $ 38,405
         Accident and health                                 123,979         107,261          94,423          83,545          75,588
                                                            --------        --------        --------        --------        --------
           Total ordinary                                   $197,435        $168,218        $137,421        $123,718        $113,993
                                                            --------        --------        --------        --------        --------
       Group
         Life                                               $ 14,249        $  9,906        $ 10,482        $  8,604        $  7,719
         Accident and health                                  25,715          21,128          24,998          31,321          35,503
                                                            --------        --------        --------        --------        --------
           Total group                                      $ 39,964        $ 31,034        $ 35,480        $ 39,925        $ 43,222
                                                            --------        --------        --------        --------        --------
       Credit
         Life                                               $ 28,373        $ 32,753        $ 36,650        $ 35,380        $ 29,516
         Accident and health                                  43,085          47,826          48,968          48,228          43,858
                                                            --------        --------        --------        --------        --------
           Total credit                                     $ 71,458        $ 80,579        $ 85,618        $ 83,608        $ 73,374
                                                            --------        --------        --------        --------        --------
           Total                                            $308,857        $279,831        $258,519        $247,251        $230,589
                                                            ========        ========        ========        ========        ========

     INSURANCE REVENUES AND PREMIUM EQUIVALENTS (1):
         Ordinary                                           $285,219        $241,080        $181,469        $167,325        $161,612
         Group                                               221,787         223,596         214,933         206,354         167,520
         Credit                                              144,582         173,784         171,209         138,134         116,318
                                                            --------        --------        --------        --------        --------
           Total                                            $651,588        $638,460        $567,611        $511,816        $445,450
                                                            ========        ========        ========        ========        ========
     PRE-TAX OPERATING EARNINGS (2):
         Ordinary                                           $ 49,768        $ 40,314        $ 35,070        $ 28,935        $ 26,049
         Group                                                 4,882           4,608           4,513           7,470           7,323
         Credit                                                6,678           5,604           3,750           2,739           1,754
                                                            --------        --------        --------        --------        --------
           Total                                            $ 61,328        $ 50,526        $ 43,333        $ 39,144        $ 35,126
                                                            ========        ========        ========        ========        ========
</TABLE>

(1)      Pursuant to generally accepted accounting principles insurance revenues
         include only the fees charged for interest-sensitive and administrative
         services only business and do not include group and credit premium
         equivalents and reinsured premiums, and cash deposits from
         interest-sensitive products. Thus it is necessary to evaluate insurance
         revenues including premium equivalents. Ordinary insurance revenues for
         reporting purposes pursuant to generally accepted accounting principles
         include only the cost of insurance, expense and surrender charges for
         interest-sensitive products. Insurance revenues do not include cash
         deposits from interest-sensitive products. Group and credit insurance
         revenues for GAAP reporting purposes do not include premium equivalents
         for the periods presented. Group premium equivalents represent the
         claim costs paid for split funded or self funded plans which are paid
         with policyholder funds as opposed to being paid by the Company. Under
         indemnity type plans offered by the Company, claims are considered in
         determining the premiums to be paid by the policyholder. Credit premium
         equivalents represent reinsured premiums and earned premium equivalents
         related to administrative services only business.

(2)      Pre-tax operating earnings represent the pre-tax operating earnings of
         the respective marketing areas excluding non-insurance related income
         and expense and realized investment gains and losses.

                                       5
<PAGE>   6

ORDINARY DEPARTMENT

         GENERAL. Ordinary operations provide interest-sensitive products
(universal life, single and flexible premium deferred annuities, single premium
immediate annuities), level and decreasing term products and supplemental
accident and health insurance products to individuals. The largest portion (86%
for the year ended December 31, 1998) of new annualized sales was produced
through workplace marketing with the remainder produced by a variety of direct
billing methods through individual agents. The Company's strategy in its
ordinary operations is to offer a broader product mix than its competitors
through workplace marketing and to solicit all of the employee base by targeting
direct sales of insurance products to higher income employees in addition to
payroll deduction sales. Recent life insurance studies published by LIMRA
International, a prominent industry market research organization, indicate that
AHL is one of only four life insurance companies that sell in excess of $40
million of voluntary payroll life and payroll health insurance premiums per
year. To describe the Company's differentiation in the marketplace, the Company
has coined the following descriptive phrase: "AHL -- The Workplace Marketer(R)--
the company that serves the life and supplemental health insurance needs of the
American worker -- from the lunchroom to the board room."

         Sales opportunities through workplace marketing continue to be very
promising. Employers are receptive to the concept of offering voluntary employee
payroll insurance products because it is seen as one of the solutions to contain
the cost of employee benefits. In 1998, AHL introduced WorkplaceChoice, a core
benefit electronic enrollment system. WorkplaceChoice integrates AHL products
with other employee benefits an employer might provide. It is one of the most
sophisticated electronic enrollment systems available in the industry today. It
enhances sales within a case, because for it to be beneficial to the employer,
all employees must be seen individually. Business owners endorse this approach
because, without Human Resource Department intervention, it creates an awareness
among employees of some of the non-salaried benefits the employer provides, it
documents employer communication of benefits to employees for Human Resources
audits, and it can also help an employer update personnel records.

         The Ordinary Department has been a key component of the strategy and
profit-making ability of the Company since its founding. For the year ended
December 31, 1998, the Ordinary Department accounted for approximately 81% of
the Company's pre-tax operating earnings, which excludes non-operating items not
allocated to the marketing areas.

         MARKETS. Many ordinary life insurance companies focus on the upscale
market consisting of those individuals earning $80,000 or more. However, this
target market constitutes a small percentage of the buyer population. By
targeting the entire workplace, including the lower income worker earning under
$40,000 per year and the middle income worker earning $40,000-$80,000 per year,
the Company has increased its market to a majority of the buyer population.
Furthermore, the Company offers a multiple product line of life and supplemental
health products, rather than the more narrow product mix offered by some other
companies, thereby increasing its marketing opportunities.

         The Company believes that by targeting a much larger market and
offering the workplace market a full range of life and supplemental health
products results in a stronger marketing strategy.

         PRODUCTS. The Company's strategy is to price its products at levels
competitive with those of comparable products in the market, so long as they
will provide an acceptable profit margin. Set forth below are the primary
products offered:

              COMPREHENSIVE PRODUCT PORTFOLIO

              Universal Life                    Group Voluntary Term
              Term Life                         Group Voluntary Disability
              Annuities                         Limited Benefit Medical Plan
              Cancer                            Heart/Stroke
              Accident                          Long Term Care
              Disability Income                 Home Health Care
              Hospital Indemnity

                                       6
<PAGE>   7

         New product development is underway to add to the payroll portfolio. A
group voluntary disability income product, a group voluntary term product and a
sickness rider attached to the Company's accident product were introduced. In
1999, the Company is introducing a Limited Benefit Medical Plan which is
marketed through Group and Ordinary agents. This innovative approach to
satisfying employer needs provides access to medical benefits for part-time or
otherwise under- benefitted employees.

         It is the general policy of the Company to declare the interest rate to
be credited on funds received from interest-sensitive products monthly with such
rates being guaranteed for one year for both first year and renewal funds during
a particular month. All interest-sensitive products are subject to surrender
charge provisions which vary depending upon the particular type of policy. For
universal life-type policies, the surrender charges generally range over a
period of 5-20 years at varying rates, depending upon the plan of insurance.
For annuities, the surrender charges generally range over a period of 7-10 years
with charges varying from 1% to 10% of the accumulated fund value over the
surrender charge period.

         All ordinary accident and health products are guaranteed renewable,
with periodic rate increases permitted due to adverse claims experience with the
approval of the respective state insurance department. Major health products
include cancer, accident, disability income, long-term care, home health care,
heart/stroke and hospital income. Premiums on ordinary policies are payable on a
monthly, quarterly, semi-annual, annual, single or flexible premium basis.

         The Company's current practice dictates that unless the need for a
medical examination is indicated by the age and amount applied for or by an
investigation, the majority of ordinary life insurance is written without
requiring a medical examination in amounts up to $250,000 on applicants aged
0-35; up to $150,000 on applicants aged 36-40; up to $99,999 on applicants aged
41-50; up to $49,999 on applicants up to age 60. Somewhat higher limits are
permitted for certain agents with home office approval. A blood chemistry
profile is generally required for insurance amounts of $100,000 and greater.

         DISTRIBUTION SYSTEM/STRATEGIC ALLIANCES. The Company's products are
marketed through the personal producing general agent ("PPGA") system in 49
states. The Company has found the PPGA system to be an efficient distribution
system. These agents are not exclusively AHL producers but may write business
for several insurance companies. Each PPGA's compensation is based only upon
production. Additionally, AHL's strategic alliance initiative targets life
insurance companies to offer AHL's workplace marketing products through their
existing distribution systems. The interest level expressed by the targeted
companies is high due to several factors, including the promising potential of
workplace marketing, the targeted companies' lack of one or more of the major
components necessary for success in workplace marketing, and the targeted
companies' recognition of AHL as a successful, quality company dedicated and
committed to workplace marketing. The Company presently has strategic alliance
partnerships in place with several life insurance companies which are expected
to provide access to additional untapped distribution systems.

         The Ordinary Department's distribution system operates with efficiency
and effectiveness that are consistent with the Company's philosophy as a service
oriented, results driven organization. In addition to the Home Office, the
Company maintains 16 regional offices located throughout the United States. The
Company expanded its national presence in 1998 by establishing additional
regional offices in Philadelphia, Pennsylvania and Salt Lake City, Utah. In
1999, new regional offices have been opened in San Antonio, Texas and Overland
Park, Kansas. The decision to expand the number of regional offices was
influenced by the Company's desire to fully support the evolving opportunities
developing with strategic alliances and national accounts. To further support
our sales commitment, a Sales Technology Services Department was formed. In
addition to providing sales support service and training on AHL's
WorkplaceChoice electronic enrollment system, the department is responsible for
researching, evaluating and implementing a variety of technically supported
sales opportunities.

         SUBSIDIARIES. The acquisition of CUL, Concord and Keystone have
provided the company with enhanced distribution and product packaging
opportunities. During 1998, a foundation was laid to facilitate trans-marketing
opportunities between AHL's ordinary PPGA distribution system and the
distribution of these subsidiary companies.

                                       7
<PAGE>   8

Complementary products were developed to increase the breadth of the combined
product line. A simple and easy to use application for insurance was developed
that could accept applications for multiple products underwritten by two or more
of the affiliated companies. In 1999, a marketing strategy will be implemented
to maximize this favorable combination of payroll products available at the
workplace. Expanded marketing services capabilities and continuing commitment to
efficiencies created by technology and economies of scale will further support
this implementation.

         In addition to new products under development for the AHL Ordinary
Division, subsidiary product introductions throughout the year will include a
tax sheltered annuity and an interest sensitive whole life plan.

GROUP DEPARTMENT

         GENERAL. Group operations distribute insurance products and related
services to employers for their employee benefit plans. The Company provides
life, disability, medical and dental insurance programs, which are the
foundation of any employer's package of group benefits. The Company furnishes
all components necessary to effectively manage program costs for the client
companies including a provider network, managed care program and benefits
determination. Group products include group term life insurance, accidental
death and dismemberment, short-term disability, long-term disability, dental and
major medical coverage. In offering these product lines, the Company provides a
wide range of funding vehicles from fully insured to employer funded products,
which the Company tailors to the particular needs of its employer clients.

         MARKETS. Although the Company's Group Department focuses its efforts in
the southeastern United States, it has clients of national scope. The Company
markets group life and health insurance to corporate employers who have 51 or
more employees located in the southeast. The Company has focused on an
integrated approach to manage benefits. With health care being a locally
delivered product, it is important to establish close relations with providers
and client companies.

         The Company's target market will continue to be corporate employers
with 100 or more lives. Particular emphasis has been placed on direct marketing
to those employers having a home office or regional presence within the
southeastern United States employing between 500 and 5,000 employees. With
many multi-thousand life groups, AHL is proficient in the management of large
groups. The products offered by the Company's Group Department complement the
individual life and health products sold through workplace marketing and provide
the Company's agents and brokers and the Company's client companies with a
complete portfolio of products and services.

         PRODUCTS. The Company's group products include group term life
insurance, accidental death and dismemberment, short-term disability, long-term
disability, dental, and major medical coverage. A wide range of funding
vehicles, including fully insured, split funding and self-funded products, are
sold within these product lines. For the years ended December 31, 1998 and 1997,
approximately 82% and 86%, respectively, of group business (based on premiums
and premiums equivalents) was written on a self-funded or split funded basis.

         The Company has developed innovative new products and approaches to
controlling and reducing health care costs for its client companies.
Specifically, two areas that continue to enhance the products and services
offered by the Group Department are the AHL Select Provider Network and its
managed care activities. Through the AHL Select Provider Network, the Company's
customers receive preferential pricing from hospitals, physicians, and other
providers of medical services and supplies. At year end 1998, there were 2,196
hospitals and 141,385 physicians included in the AHL Select Provider Network.
The Company's managed care activities, which utilize a professional staff with
diverse medical and clinical backgrounds to assist the Company's insureds in
obtaining quality medical care, include preadmission certification, prenatal,
cancer, psychiatric, substance abuse, and large case management programs.

                                       8
<PAGE>   9

         The Company will continue to develop products and services to meet
employer/employee needs. As managed care has gained growing acceptance within
the Company's market, the Company has complemented its product line with the
introduction of health maintenance organizations ("HMO") products. The HMO
product offering is limited to the North Florida area to capitalize on the
strong relationships the Company enjoys with the provider community in the
region. During 1998, the Group Department developed medical products to address
the needs of employers and their part-time employees by developing a limited 
medical benefit plan. Early market reaction has been very favorable.

         DISTRIBUTION SYSTEM. The Company's group life and health products are
distributed through its regional group managers working with agents,
consultants, brokers and directly with policyholders.

         The Company's strategy of focusing its marketing efforts on the
brokerage and consulting community has resulted in a significant portion of
sales coming from this important business segment. The Company has been
successful in demonstrating the value of its products and services to leading
brokerage firms.

CREDIT DEPARTMENT

         GENERAL. Credit operations consist of life and accident and health and
property coverages offered to consumer debtors, primarily through banks,
automobiles dealers, finance companies, credit unions and retailers. The Company
currently offers credit insurance products in 44 states and ranks among the top
10 credit life providers in the country, according to 1997 information compiled
by the NAIC. Typically, credit insurance will pay outstanding loan obligations
in the event of an insured loss. This coverage is issued on either the
single-premium or outstanding loan balance basis.

         MARKETS AND PRODUCTS. The AHL Credit Department is a full service
credit insurance operation (credit life, credit accident and health insurance)
providing direct and reinsured programs to a broad spectrum of the marketplace
including the bank, automobile dealer, finance company, credit union and retail
markets. The Company also offers credit property insurance through its
wholly-owned subsidiary, First Colonial Insurance Company. In addition, the
Company provides training and additional products that generate fee income
through ERJ Insurance Group, Inc. ("ERJ") its wholly-owned subsidiary based in
Miami Springs, Florida.

         The distribution channels used by AHL to market credit insurance
products include direct marketing by regional sales managers, home office based
marketing staff, ERJ-based marketing, and the general agency system. As
a result, the opportunity for growth is excellent and the Company anticipates
continuing to grow and expand its credit operations.

         TECHNOLOGY. The Credit Division's operations are enhanced by
state-of-the art technology. The XYCOR system is an on-line system that allows
all areas of the Credit Department to interact in the administration of the
Credit insurance business. The system allows for simultaneous processing of new
premiums and refunds, agent commissions, reinsurance reporting, account
experience reporting and claims. The system creates processing efficiencies by
minimizing input redundancy, improving access to data and the generation of
error and control reports. It provides marketing support by generating
information that can be used for profitability, trend and exposure analysis. The
system has greatly assisted the Credit Department in attracting and maintaining
accounts and assisting others to manage their blocks of business.

         COMPETITION. The credit industry is well established, and is closely
controlled by state regulation. Competition and consolidation activity were very
strong in recent years. Several companies have restricted their marketing and
several competitors have withdrawn completely from the market place. These
changes have created opportunities for both new account sales and the
administration of run-off business for companies that have ceased writing credit
insurance. The Company has successfully administered the run-off business for
companies that had terminated their credit operations. The Company also has
increased its sales of reinsured business which currently accounts for 64% of
its total credit insurance business. The Company currently administers 169
reinsurance companies compared to 10 in 1990 which, along with its tight expense
controls, allows it to be very competitive in this market.

                                       9
<PAGE>   10

          FUTURE PLANS. New credit sales continue to increase as a result of
opening new accounts, expansion of existing accounts and expansion into new
markets. Also, the Company will continue to increase the sale of reinsured
business, which generally provides less risk at an acceptable profit margin. The
Company has been successful in achieving a balance in its sources of business
from banks, credit unions, automobile dealers, consumer finance companies and
retailers. The Credit Department and ERJ will focus on increasing the Company's
market share through geographic expansion, increased product offerings and
services in existing accounts and new product development.

INVESTMENTS

         The Company's investment objective is to earn a favorable return on
invested assets in excess of contractual obligations through a diversified
portfolio of high-quality, income-producing assets including primarily bonds,
preferred stocks, common stocks and mortgages (residential and commercial). The
Company carefully matches the investment portfolio's assets with its policy
liabilities. A positive investment spread has been attained for all products.
The maturity of the investment portfolio is monitored so that the Company will
be able to fund its future expected cash obligations.

         At December 31, 1998 and 1997, the Company had consolidated invested
assets of $1,598.0 million and $1,471.4 million, respectively. The following
tabulation sets forth the categories, amounts and percentages of these
investments.

<TABLE>
<CAPTION>
                                                 DECEMBER 31,                   DECEMBER 31,
                                                    1998         % OF TOTAL         1997         % OF TOTAL
                                                 -----------     ----------     ------------     ----------
                                                                      ($ IN THOUSANDS)
     <S>                                         <C>             <C>            <C>              <C>
     Debt securities available-for-sale          $  984,333         61.6%        $  923,287         62.8%
     Equity securities available-for-sale            35,795          2.2             36,817          2.5
     Mortgage loans on real estate                   88,922          5.6             70,697          4.8
     Investment real estate                             532           --                 --          482
     Policy loans                                   481,970         30.2            407,482         27.7
     Short term investments                           6,420           .4             32,635          2.2
                                                 ----------        -----         ----------        -----
                Total                            $1,597,972        100.0%        $1,471,400        100.0%
                                                 ==========        =====         ==========        =====
</TABLE>

         At December 31, 1998, the Company had consolidated debt securities
available-for-sale at an amortized cost of $945.7 million and a fair value of
$984.3 million. The following tabulation sets forth these investments by
Standard and Poor's rating categories.

<TABLE>
<CAPTION>
                                                            DECEMBER 31, 1998
                                                      ----------------------------
RATING                                                AMORTIZED COST    FAIR VALUE
------                                                --------------    ----------
                                                              ($ IN THOUSANDS)
<S>                                                   <C>               <C>
     AAA                                                 $222,047        $229,403
     AA                                                    58,729          61,969
     A,A-                                                 238,322         253,358
     BBB+, BBB, BBB-                                      318,600         331,080
     BB+ and lower                                         42,411          41,022
     Private placements                                    14,288          16,650
                                                         --------        --------
     Total bonds                                          894,397         933,482
     Redeemable preferred stocks                           51,278          50,851
                                                         --------        --------      
   Total debt securities available-for-sale              $945,675        $984,333
                                                         ========        ========
</TABLE>

                                       10
<PAGE>   11

         The amortized cost and estimated fair value of debt securities at
December 31, 1998, by contractual maturity, were as follows.

<TABLE>
<CAPTION>
                                                      DECEMBER 31, 1998
                                                 ---------------------------
                                                 AMORTIZED COST   FAIR VALUE
                                                 --------------   ----------
                                                        ($ IN THOUSANDS)
     <S>                                         <C>              <C>
     Due in one year or less                       $ 16,088        $ 16,278
     Due after one year through five years          129,144         136,814
     Due after five years through ten years         114,519         119,372
     Due after ten years                            479,930         500,879
     Mortgage backed securities                     154,716         160,139
     Redeemable preferred stocks                     51,278          50,851
                                                   --------        --------
          Total                                    $945,675        $984,333
                                                   ========        ========
</TABLE>

     Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without
penalties.The following tabulation provides information with respect to the
investment results of the Company for the years ended December 31, 1998, 1997
and 1996:

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                           -----------------------------------------------
                                                              1998               1997               1996
                                                           ----------         ----------         ---------
                                                                           ($ IN THOUSANDS)
     <S>                                                   <C>                <C>                <C>
     Average invested assets, weighted(1)                  $1,536,366         $1,395,566         $ 997,599
     Net investment income                                    110,897            105,392            77,035
     Realized investment gains                                    552                466               420
     Change in unrealized investment gains (losses)
      on equity and debt securities(2)                            902             13,454            (4,614)
     Ratio of net investment income to weighted
      average invested assets(3)                                 7.22%              7.55%             7.72%
</TABLE>

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

(1)      Average invested assets are calculated using fair values for all
         securities as required by Financial Accounting Standard No. 115 (FAS
         115), "Accounting for Certain Investments in Debt and Equity
         Securities."
(2)      Unrealized gains and losses are calculated on both equity and debt
         securities as prescribed by FAS 115. Amounts are net of tax effect and
         adjustment to deferred acquisition costs.
(3)      Since all securities are carried at fair values for all years
         presented, all increases (decreases) in fair value result in a
         reduction (increase) of the ratio calculated above.

         The amortized cost of non-investment grade bonds (rated below BBB- by
Standard & Poor's Corporation and excluding private placements and non-rated
securities) at December 31, 1998 was $42.4 million with a fair value of $41.0
million. At fair value, these investments represented 2.0% of total consolidated
assets, or 2.6% of invested assets. The Company's holdings of non-investment
grade securities has been limited and will continue to be minimal in the future.

         The Company's mortgage loan portfolio aggregated $88.9 million at
December 31, 1998. There were no non-performing mortgage loans at December 31,
1998.

                                       11

<PAGE>   12

ADDITIONAL INFORMATION REGARDING INSURANCE OPERATIONS

         The following table sets forth the cash premiums and deposits received
by geographic region in the United States for the Company's insurance
subsidiaries for the three years ended December 31, 1998:

<TABLE>
<CAPTION>
                                YEAR ENDED DECEMBER 31,
                       ----------------------------------------
                         1998            1997            1996
                       --------        --------        --------
                                   ($ IN THOUSANDS)
     <S>               <C>             <C>             <C>
     Southeast         $262,457        $261,610        $265,784
     Southwest           98,839          85,952          45,307
     Midwest             27,201          22,440          16,204
     Northeast           24,266          19,303          12,920
     Northwest           16,153          15,596          14,699
                       --------        --------        --------
          Total        $428,916        $404,901        $354,914
                       ========        ========        ========
</TABLE>


         The following tabulation sets forth the amount of gross life insurance
volume in force by industry segment at December 31, 1998, 1997, and 1996:

<TABLE>
<CAPTION>
                                       YEAR ENDED DECEMBER 31,
                               -------------------------------------
                                1998            1997           1996
                               -------        -------        -------
                                          ($ IN THOUSANDS)
     <S>                       <C>            <C>            <C>
     Type of Insurance:
     Ordinary                  $15,594        $13,973        $ 9,759
     Group                       7,719          7,163          6,174
     Credit                      4,293          4,549          4,590
                               -------        -------        -------
          Total                $27,606        $25,685        $20,523
                               =======        =======        =======
</TABLE>


REINSURANCE

         It is the general practice of the life insurance industry to reinsure
portions of life and accident and health insurance risks with other companies.
The maximum amount of ordinary insurance which AHL generally retains on any one
life currently insured under ordinary policies ranges from $100,000 to $200,000.
The major portion of reinsurance ceded on a GAAP basis is under agreements with
American United Life Insurance Company, NationsBanc Insurance Co. Inc., Cigna
Re, General Financial Life Insurance Company, Life Reassurance Corporation of
America, Lincoln National Life Insurance Company, The Phoenix Home Life Mutual
Insurance Company, Reinsurance Group of America, Inc., Southwestern Dealers
Insurance Company, Swiss Re Life & Health America, Inc. and Transamerica
Occidental Life Insurance Company. At December 31, 1998, the aggregate amount of
life insurance volume in force ceded under reinsurance agreements totaled $5.1
billion (18.4% of the total in force at that date). For the year ended December
31, 1998, $39.2 million, or 17.1% of the total accident and health insurance
premiums written, were reinsured.

         Pursuant to GAAP and the terms and conditions of the reinsurance
agreements with the reinsurers, the Company has reflected reinsurance
receivables in its consolidated financial statements for the portion ceded to
the respective reinsurer.

         Management reviews the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. All receivables due
from the reinsurers have been settled in a timely manner.

                                       12
<PAGE>   13

GOVERNMENT REGULATION

         The Company and its insurance subsidiaries are subject to regulation
and supervision by the states in which the insurance subsidiaries transact
business. The laws of the various states establish regulatory agencies with
broad administrative powers to grant and revoke licenses to transact business,
regulate rates on certain business prior to use, establish reserve requirements,
determine the form and content of required statutory financial statements,
determine the reasonableness and adequacy of statutory capital and surplus and
prescribe the types of permitted investments and the maximum concentrations of
certain classes of investments. As part of their routine regulatory oversight
process, approximately once every three years state insurance departments
conduct periodic detailed examinations of the books, records and accounts of
insurance companies domiciled in their states. Further, insurance companies are
subject to market conduct examinations by state insurance regulators. Such
examinations are not conducted according to any fixed schedule.

         Insurance companies are required to file detailed annual and quarterly
statements with the state insurance regulators in each of the states in which
they do business, and their business and accounts are subject to examination by
such agencies at any time. State insurance receivership laws, rather than
federal bankruptcy laws, govern the liquidation or rehabilitation of insurance
companies.

         This insurance regulation and supervision is designed primarily to
ensure the financial stability of insurance companies and to protect
policyholders rather than shareholders or general creditors.

FINANCIAL REGULATION

         Risk-Based Capital is a tool for insurance regulators to evaluate the
capital of insurers with respect to the risks assumed by them and determine
whether there is a need for possible corrective action.

         Regulators require the computation of a risk-based capital amount which
is then compared to a carrier's actual total adjusted capital. The computation
involves applying factors to various financial factors to address four primary
risks: asset risk, insurance underwriting risk, credit risk and off-balance
sheet risk. These standards provide for regulatory intervention when the
percentage of total adjusted capital to authorized control level risk-based
capital is below certain levels.

         Based on calculations using the appropriate formulas as of December 31,
1998, all of the Company's insurance subsidiaries exceeded the required level
for RBC.

DIVIDEND REGULATION

         The Company is a legal entity separate and distinct from its
subsidiaries. As a holding company with no other significant business
operations, its primary sources of cash to meet its obligations are borrowings,
dividends and other payments from its insurance subsidiaries.

         The Company's insurance subsidiaries are subject to various regulatory
restrictions on the maximum amount of payments, including dividends and other
distributions, that they may make to the Company without obtaining prior
regulatory approval. As a Florida domiciled insurance company, AHL is subject to
Florida law, to the effect that life and health insurance company dividends may
be made without prior approval of the Florida Insurance Commissioner if the
dividend is equal to or less than the greater of: (a) 10% of AHL's surplus as to
policyholders derived from realized net operating profits on its business and
net realized capital gains; or (b) AHL's entire net operating profits and
realized net capital gains derived during the immediately preceding calendar
year, if AHL will have surplus as to policyholders equal to or exceeding 115% of
the minimum required statutory surplus as to policyholders after the dividend is
paid.

         If insurance regulators determine that payment of a dividend or any
other payment to an affiliate (such as a payment under a tax allocation
agreement or for employee or other services or pursuant to a surplus debenture)
would,

                                       13
<PAGE>   14

because of the financial condition of the paying insurance company or otherwise,
be hazardous to such insurance company's policyholders or creditors or to
certain other parties, the regulators may block payment of such dividends or
such other payment to the affiliates that would otherwise be permitted without
prior approval.

CHANGE OF CONTROL REGULATION

         The states in which the Company's insurance subsidiaries are domiciled
have enacted legislation or adopted administrative regulations affecting the
acquisition of control of insurance companies as well as transactions between
insurance companies and persons controlling them. Most states require
administrative approval of the acquisition of control of an insurance company
incorporated in the state or the acquisition of control of an insurance holding
company whose insurance subsidiary is incorporated in the state. In Florida, the
acquisition of 5% of such shares is generally deemed to be the acquisition of
"control" for the purpose of the holding company statutes and requires not only
filing of detailed information concerning the acquiring parties and the plan of
acquisition, but also administrative approval prior to the acquisition.

COMPETITION

         The life insurance industry is highly competitive. The competitors of
the Company consist of both stock and mutual companies, and in many instances
they have been in business for longer periods of time and may have greater
financial resources than the Company. However, management of the Company
believes that its policies are generally competitive with similar types of
policies being offered by other insurers doing business in the jurisdictions in
which they operate.

OTHER BUSINESS

         The non-life insurance operations, excluding AHL, CUL, Concord,
Keystone and FCIC, consisted primarily of intercompany operations which are
eliminated in consolidation and accordingly did not contribute materially to
consolidated operating earnings.

ITEM 2.     PROPERTIES

         AHL and its subsidiaries own 29.77 acres in a suburban area of
Jacksonville, Florida, upon which it completed construction in August, 1994 of
an eight story home office building containing approximately 140,000 square feet
and a two story annex building of approximately 20,000 square feet.

         AHL also owns a 92 space parking lot in downtown Jacksonville, Florida
and one parcel of vacant land located in suburban Jacksonville, consisting of
approximately 32 acres.

ITEM 3.     LEGAL PROCEEDINGS

         The Company's insurance subsidiaries, like other insurance companies,
are currently defendants in lawsuits that involve claims for punitive, exemplary
or other extracontractual damages, which are for amounts substantially in excess
of the actual damages sought. Management considers such litigation regrettably
to be of the type to which insurance companies are usually and customarily
subjected in the ordinary course of business and to date the settlements of such
claims of this nature have not been material to the financial position of the
Company. In the opinion of management, based on the currently ascertained facts
of the pending litigation, which the Company intends to vigorously defend, the
ultimate resolution of such litigation should not be material to the financial
position of the Company.

                                       14
<PAGE>   15

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
quarter ended December 31, 1998.

                                     PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     The high and low sales prices of the Common Stock of the Company, as
reported on the NYSE Composite Tape (ticker symbol: "AHL"), and the cash
dividends paid on the Common Stock during the fiscal years ended December 31,
1997 and 1998 are set out below:

<TABLE>
<CAPTION>
                                                      CASH DIVIDENDS
                              HIGH           LOW      PAID PER SHARE
                             ------        ------     --------------
     <S>                     <C>           <C>        <C>
     1997:
       First Quarter         $13.75        $11.75        $.0950
       Second Quarter         16.50         11.94         .0950
       Third Quarter          20.25         16.50         .1000
       Fourth Quarter         20.00         17.31         .1000

     1998:
       First Quarter         $21.94        $17.06        $.1000
       Second Quarter         25.00         20.38         .1050
       Third Quarter          26.06         18.63         .1050
       Fourth Quarter         26.69         19.00         .1050
</TABLE>

         As of February 28, 1999, the approximate number of holders of record of
Common Stock was 9,200.

                                       15
<PAGE>   16

ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share amounts)

<TABLE>
<CAPTION>
Years Ended December 31                                 1998          1997          1996           1995         1994
                                                        ----          ----          ----           ----         ----
<S>                                                 <C>             <C>           <C>           <C>          <C>       
Operating earnings                                  $    36,388        31,058        26,759        24,174       22,334
Net earnings                                             36,746        31,360        27,032        28,075       23,641
----------------------------------------------------------------------------------------------------------------------
Diluted operating earnings per share
  of common stock                                   $      1.28          1.12           .97           .87          .80
Diluted net earnings per share of common stock             1.29          1.13           .98          1.01          .85
----------------------------------------------------------------------------------------------------------------------
Diluted weighted average number
  of shares outstanding                                  28,500        27,831        27,711        27,819       27,749
----------------------------------------------------------------------------------------------------------------------
Cash dividends paid per share                       $       .42           .39           .37           .35          .32
----------------------------------------------------------------------------------------------------------------------
Insurance revenues                                  $   308,857       279,831       258,519       247,251      230,589
Premium equivalents                                     342,731       358,629       309,092       264,565      214,861
Insurance revenues including
  premium equivalents                                   651,588       638,460       567,611       511,816      445,450
----------------------------------------------------------------------------------------------------------------------
At December 31:
Total assets                                        $ 2,055,687     1,915,259     1,370,117     1,317,896    1,179,257
AHLIC-obligated mandatorily redeemable
  preferred securities                                  103,500       103,500             -             -            -
Stockholders' equity                                    278,058       252,223       228,943       219,329      173,360
Life insurance volume in force                       27,606,322    25,685,297    20,523,032    18,384,006   16,815,666
Year-end closing stock price                              24.44         18.00         13.13         11.44         9.56
Operating return on equity                                15.29%        14.05%        12.83%        12.43%       12.63%
Debt to total debt and capital ratio                      15.19         10.61         28.27         31.93        31.37
Price to operating earnings ratio                         19.09         16.07         13.53         13.15        11.95
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       16
<PAGE>   17


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

                              RESULTS OF OPERATIONS

         American Heritage Life Investment Corporation (AHLIC) and subsidiaries
(the "Company") are engaged primarily in the life insurance business. The
Company's consolidated earnings are primarily attributable to its principal
subsidiaries, American Heritage Life Insurance Company (AHL) and Columbia
Universal Life Insurance Company (CUL). Following is a discussion of the
significant components of the consolidated results of operations for the years
ended December 31, 1998, 1997 and 1996.

INSURANCE OPERATIONS

         Insurance revenues pursuant to generally accepted accounting principles
(GAAP) include only the mortality, expense and surrender charges for
interest-sensitive products. Insurance revenues do not include group and credit
premium equivalents and cash deposits from interest-sensitive products.

         Because increasing amounts of the ordinary life business are
interest-sensitive, the group business being sold predominately on a self-funded
or split-funded basis and the credit business being written on a reinsured or an
administrative services only basis, in which only the fees charged are included
in insurance revenues for GAAP purposes, it is important to evaluate insurance
revenues including premium equivalents. As demonstrated in the table on page 1,
for 1998, 1997 and 1996, insurance revenues were $308.9 million, $279.8 million
and $258.5 million, respectively, while total insurance revenues including
premium equivalents were $651.6 million, $638.5 million and $567.6 million,
respectively. Since so much of the Company's business is interest-sensitive and
administrative services only, insurance revenues including premium equivalents
are a better measure of growth in revenues.

INSURANCE OPERATIONS-ORDINARY

         ORDINARY PRE-TAX OPERATING EARNINGS WERE $49.8 MILLION, $40.3 MILLION
AND $35.1 MILLION IN 1998, 1997 AND 1996, RESPECTIVELY. The increase each year
was primarily due to growth in insurance revenues and investment income, less
normal growth in benefits and claims, and expenses and for 1998 and 1997 CUL's
pre-tax operating earnings of $3.9 million and $2.4 million, respectively, with
no comparable amount in 1996.

         Ordinary insurance revenues amounted to $197.4 million, $168.2 million
and $137.4 million in 1998, 1997 and 1996, respectively. Premiums including
equivalents were $285.2 million, $241.1 million and $181.5 million for the years
ended December 31, 1998, 1997 and 1996, respectively. The increases in insurance
revenues and premiums and premium equivalents in 1998 over 1997 and 1997 over
1996 were due primarily to increased sales of interest-sensitive products
resulting in increased policy charges and increased sales of individual accident
and health and cancer plans. Also, 1998 and 1997 included $14.6 million and
$14.1 million of insurance revenues and $48.6 million and $31.5 million of
premium equivalents for CUL, respectively, without a corresponding amount in
1996.

         Ordinary benefits and claims in 1998, 1997 and 1996 were $158.9
million, $144.3 million and $111.0 million, respectively. 1998 and 1997 included
$25.6 million and $25.4 million, respectively, of benefits and claims from CUL
operations. The increase each year was also the result of growth in first year
and renewal business, and increased interest credited to policyholder account
balances.

         Ordinary taxes, commissions and general expenses were $49.5 million,
$45.4 million and $33.1 million for 1998, 1997 and 1996, respectively. The
increase in 1997 was primarily due to CUL expenses of $7.9 million with no
comparable amount in 1996. The increase each year was also the result of growth
in ordinary business and expansion of regional offices.

                                       17
<PAGE>   18

         Amortization of deferred acquisition costs and cost of business
acquired was $38.9 million in 1998, $32.4 million in 1997 and $25.6 million in
1996. These increases were primarily due to CUL amortization of $4.5 million and
$4.1 million in 1998 and 1997, respectively, with no comparable amount in 1996,
growth in blocks of business acquired and in business in force, and an increase
in lapses of individual health business resulting from the implementation of
rate increases, which increased the write-off of the policies' deferred
acquisition costs.

INSURANCE OPERATIONS-GROUP

         GROUP PRE-TAX EARNINGS WERE $4.9 MILLION, $4.6 MILLION AND $4.5 MILLION
IN 1998, 1997 AND 1996, RESPECTIVELY. Group pre-tax operating earnings have
remained stable in a competitive and volatile marketplace.

         Group insurance revenues in 1998, 1997 and 1996 totaled $40.0 million,
$31.0 million and $35.5 million, respectively. Premiums and premium equivalents
were $221.8 million, $223.6 million and $214.9 million for 1998, 1997 and 1996,
respectively. The increase in insurance revenues from 1997 to 1998 was due
primarily to additional sales of insured business. The decrease in premiums and
premium equivalents from 1997 to 1998 was due to reduced claim costs as a result
of managed care activities. The decrease in insurance revenues from 1996 to 1997
was due to reduced sales of insured business in 1997. The increase in premiums
and premium equivalents from 1996 to 1997 was due to increased sales on a
self-funded or split-funded basis.

         Group benefits and claims in 1998, 1997 and 1996 totaled $26.5 million,
$18.3 million and $24.0 million, respectively. Group benefits increased in 1998
as a result of growth in the insured business. Group benefits were reduced in
1997, compared to 1996, as a result of the managed care program, the AHL Select
Provider Network and new cases written on a self-funded or split-funded basis
where claims are not included in the Company's benefits and claims expenses for
financial statement purposes.

         Group taxes, commissions and general expenses in 1998, 1997 and 1996
were $14.3 million, $13.6 million and $12.3 million, respectively. These
expenses have remained relatively flat due to a decrease in taxes and
commissions offset by an increase in general expenses. The increases in group
general expenses in 1998 and 1997 were due to growth in business, administration
of larger group cases and the implementation of a new local area network group
claims processing system.

INSURANCE OPERATIONS-CREDIT

         CREDIT PRE-TAX OPERATING EARNINGS WERE $6.7 MILLION, $5.6 MILLION AND
$3.8 MILLION IN 1998, 1997 AND 1996, RESPECTIVELY. The increase in credit
pre-tax operating earnings in 1998 over 1997 and 1997 over 1996 was primarily
the result of terminating certain unprofitable accounts and reducing the
commissions paid on accounts with unsatisfactory margins.

         Credit insurance revenues for 1998, 1997 and 1996 were $71.5 million,
$80.6 million and $85.6 million, respectively. Credit premiums and premium
equivalents amounted to $144.6 million, $173.8 million and $171.2 million for
the years ended December 31, 1998, 1997 and 1996, respectively. The decrease in
insurance revenues and credit premiums and premium equivalents in 1998 was a
result of a reduction in reinsured and administrative services only business and
the termination of certain unprofitable accounts. The increase in credit
premiums and premium equivalents in 1997 was a result of geographic expansion,
increased sales of reinsured business and additional premium equivalents
generated from administering the run-off of a block of credit life and health
insurance for another insurance company, effective in June 1996. The decrease in
credit insurance revenues from 1996 to 1997 was due to a reduction in sales of
retained insured business.

         Credit benefits and claims amounted to $9.7 million, $12.6 million and
$13.9 million in 1998, 1997 and 1996, respectively. These decreases were due, in
part, to a reduction in the change in unearned premiums which is included in
credit benefits and claims. These reductions were also the result of terminating
unprofitable accounts and certain previously fully insured accounts converting
to reinsured accounts. As a result of these actions, the Company reduced the
combined commission and loss ratio by 6% in 1998 versus 1997.

                                       18
<PAGE>   19

         Credit taxes, commissions and general expenses were $60.9 million,
$67.5 million and $72.3 million in 1998, 1997 and 1996, respectively. The
decreases were primarily attributable to a decrease in earned commissions due to
decreased insurance revenues.

CONSOLIDATED OPERATIONS
NET INVESTMENT INCOME

         Net investment income was $110.9 million, $105.4 million and $77.0
million for the years ended December 31, 1998, 1997 and 1996, respectively.
These increases were due primarily to CUL net investment income of $27.6 million
and $25.6 million in 1998 and 1997, respectively, without a comparable amount in
1996 and an increase in invested assets and changes made in the investment
portfolio to enhance the yield. The effective yield on invested assets for the
years ended December 31, 1998, 1997 and 1996 were 7.22%, 7.55% and 7.72%,
respectively. The decrease in yield from 1997 to 1998 and 1996 to 1997 was due
primarily to market conditions offset partially by changes made to the
investment portfolio to improve the yield.

OPERATING EXPENSES

         The Company's major operating costs consist of commissions, payroll,
premium taxes and administrative-related expenditures. General insurance
expenses as a percentage of total income, excluding realized investment gains
(losses) and including premium equivalents, was 6.0% for the year ended December
31, 1998, 5.4% for the year ended December 31, 1997 and 4.9% for the year ended
December 31, 1996. The increase each year was due to recent acquisitions where
the acquired company had higher expense levels than the Company and additional
expenses associated with new production, regional expansion, and technology.

         Other operating expenses in 1998, 1997 and 1996 were $12.8 million,
$9.5 million and $4.2 million, respectively. These expenses primarily relate to
non-life insurance operations, including interest expense. Interest expense is a
function of the average debt outstanding and interest rate charged. Interest
expense included in non-segmented operating expenses was $10.0 million, $7.7
million and $3.7 million for 1998, 1997 and 1996, respectively. These increases
were due primarily to bank debt outstanding and the inclusion of interest on the
FELINE PRIDES in 1998 and 1997.

OTHER ITEMS

         Prescribed or permitted Statutory Accounting Principles (SAP) may vary
between states and between companies. The National Association of Insurance
Commissioners (NAIC) is in the process of codifying SAP to promote
standardization of methods, which may result in changes in statutory accounting
practices for the Company's insurance subsidiaries. Such changes are not
expected to significantly impact the Company's statutory financial statements.
Management is not aware of any other additional pending regulation from the
various state insurance departments that would have a significant impact on the
Company's operations.

         The Company's legal department includes a compliance area headed by an
officer who is a lawyer with regulatory experience. The compliance area reviews
and approves marketing material, policy filings and other areas that are the
subject of market conduct compliance requirements of the various state insurance
departments.

                         LIQUIDITY AND CAPITAL RESOURCES

         The Company is engaged primarily in the life insurance business. The
principal subsidiaries, AHL and CUL, generate major sources of cash flow from
premiums collected for traditional insurance products, deposits and policy
charges for interest-sensitive products, and investment income attributable to
its life insurance operations and associated investment portfolio. This results
in a significant portion of the Company's assets being liquid.

         As an insurer, the Company is required to maintain substantial
liabilities for future policy benefits and policyholders' account balances.
Since premiums and deposits received in anticipation of such benefits are
investable funds, it is expected that the Company will continue to increase its
investment portfolio using cash flow from operations.

                                       19
<PAGE>   20

OPERATING ACTIVITIES

         The net cash provided by operating activities for the years ended
December 31, 1998, 1997 and 1996 aggregated $88.7 million, $96.7 million and
$66.5 million, respectively. The decrease in 1998 from 1997 was due primarily to
the funding of surrenders of certain ordinary life policies. The increase in
1997 from 1996 was due primarily to an increase in policyholder account balances
as a result of a reduction in surrenders in 1997.

         The Company's policy loans are a higher percentage of invested and
total assets than industry norm as a result of a significant block of Management
Security Plan (MSP) business. The MSP product is an interest-sensitive, deferred
compensation/executive benefit-type product with the policy loan feature being
an integral part of the product. A market rate of interest is charged on the
policy loans and a predetermined built-in spread is achieved between the
interest rate charged on the policy loans and the interest rate credited on the
loaned funds. Accordingly, all MSP policy loans are completely collateralized by
the underlying policyholders' account balances. Policy loans are generally
funded out of cash provided by operating activities and do not represent a
significant restriction on the Company's liquidity.

Investments

         The Company's balance sheet contains a high ratio of liquid assets.
Such assets are made up of cash, short-term investments and readily marketable
securities.

         The amortized cost of high yield bonds at December 31, 1998 aggregated
$42.4 million with a market value of $41.0 million. At December 31, 1998 these
investments represented only 2.0% of total assets or 2.6% of invested assets.

         Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," requires that securities classified
as available-for-sale be reported at fair value and the related unrealized gain
or loss net of deferred income taxes be reported as a separate component of
stockholders' equity. Additionally, pursuant to GAAP, deferred acquisition costs
for interest-sensitive products decreased $10.5 million at December 31, 1998 and
decreased $9.4 million at December 31, 1997 for the effect that would have been
recognized had the unrealized gain at December 31, 1998 and 1997 on debt
securities actually been realized.

         The mortgage loan portfolio at December 31, 1998, which aggregated
$88.9 million, consisted of residential mortgages of $1.5 million and commercial
mortgages of $87.4 million , all of which were first mortgages on properties
(with no concentration in any particular industry). There were no non-performing
mortgage loans in the portfolio at December 31, 1998.

         Policy loans totaled $482.0 million at December 31, 1998. The
significant amount of policy loans was attributable to the policy loans
associated with the MSP executive deferred compensation plan offered by the
Company which aggregated $431.2 million at December 31,1998. As discussed
earlier, the policy loan feature is an integral part of the product. MSP policy
loans increased by $73.6 million in 1998 over 1997.

         The Company's investment strategy is to earn a favorable return on its
investments in excess of rates for which the Company is contractually obligated
to its policyholders. To achieve this strategy, the Company maintains an
asset/liability matching program, monitoring the investment spread achieved on
each product. Targeted investment spreads have been maintained for all products
despite fluctuations in interest rates and an overall compression of market
rates.

         The Company employs various methodologies to manage its exposure to
interest rate risks. Investments are maintained in accordance with the Company's
investment policy which is designed to match policyholder obligations to
relative maturities of the related investment assets. The Company is exposed to
interest rate risk on these investments. The following data shows the estimated
effect of changes in interest rates in basis points ("bp") on the fair values of
the Company's debt security investments (in millions of dollars): -100bp =
+$50.9 million; -50bp = +$26.1 million; +50bp = -$25.0 million and +100bp =
-$52.2 million. Since the Company has the ability to modify crediting rates, the
effect on net earnings of these changes in market rates should not be material.

                                       20
<PAGE>   21

SOURCES OF FINANCING

         Notes payable to banks at December 31, 1998 were $63.6 million compared
to a balance of $39.2 million at December 31, 1997. The increase in bank debt at
December 31, 1998 compared to the amount at December 31, 1997 reflected the
funding of interest payments, dividends and Federal income taxes. The 1998
balance also included $16 million of AHL debt, used to fund policy loans, which
was subsequently paid off out of cash flow in the first quarter of 1999. The
weighted average interest rate on the bank debt at December 31, 1998 was 5.54%.

         The Company completed a FELINES PRIDES convertible security offering in
June 1997, resulting in net proceeds of $98.4 million which was used to retire
bank debt of the Company.

YEAR 2000

         The Company has in place a Year 2000 compliance plan that includes
updates and revisions to existing software, as well as the installation of new
or replacement software. The Company's Year 2000 compliance plan began with a
detailed assessment of systems starting in the fall of 1996. It followed with a
disciplined plan of remediation, replacement and upgrading that will result in
Year 2000 compliant software being in place in all areas of the business
enterprise by the end of the second quarter of 1999, and full Year 2000
compliance well before the end of the year. Included in the plan are several
system projects not specifically undertaken to remediate Year 2000 issues, but
which, as a result, will ensure Year 2000 compliance in those areas. As of the
first quarter of 1999, the Company has installed or upgraded Year 2000 compliant
systems supporting approximately 90% of the Company's business.

         The plan also called for a complete and ongoing assessment of the
status and progress of customers, vendors and corporate service partners in
achieving Year 2000 compliance. For the most part, failure of any one or a group
of customers or vendors to be Year 2000 compliant will have little or no effect
on the ability of the Company to process business and serve its customers. In
the unlikely event the Company fails to complete those portions of its Year 2000
compliance plan not already substantially done, its ability to electronically
adjudicate claims would be negatively impacted. However, the Company has in
place a proven manual claims adjudication system that would be utilized in such
an unlikely event, and the incremental cost incurred would not be material.

         The direct and indirect cost of achieving Year 2000 compliance,
including all remediation, replacement and upgrading of non-compliant systems
over the three years preceeding the turn of the century is expected to be
approximately $8.3 million. Most of such cost will be capitalized and amortized
over the reasonable useful lives of the new software systems put in place, as
they relate primarily to upgrading or replacing systems for business reasons
other than year 2000 remediation. Costs expensed in 1997, 1998 and to be
expensed in 1999 are immaterial to the overall financial statements of the
Company.

OTHER

         American Heritage Life Investment Corporation is a holding company; and
its liquidity is largely dependent on the ability of its subsidiaries, primarily
AHL, to pay dividends and on external financing. In addition, AHLIC charges its
subsidiaries a management fee to cover its basic operating expenses.

         The amount of dividends that AHL can pay to AHLIC is limited by
regulatory restriction to an annual amount equal to the greater of 10% of AHL's
statutory surplus, or its prior year's statutory gain from operations plus net
realized capital gains on a noncumulative basis, provided AHL will have surplus
as to policyholders equal to or exceeding 115% of the minimum required statutory
surplus as to policyholders after the dividend is paid. The amount of dividends
that CUL can pay to AHL is limited to the greater of the statutory net gain from
operations for the preceding year or 10% of net surplus at the end of the
preceding year and is further restricted by the balance of unassigned surplus
from which dividends are paid. A dividend of $13.0 million, related to AHL's
earnings in 1997, was paid to AHLIC in 1998. AHL chose not to pay any dividends
to AHLIC during 1997 and 1996. None of the other subsidiaries paid any ordinary
dividends to AHLIC or AHL during 1998, 1997 or 1996. Approximately $26.0
million, related to AHL's 1998 earnings, is available to dividend to the Company
during 1999 without regulatory approval. The

                                       21
<PAGE>   22

outstanding bank debt of the Company is serviced through either dividends from
AHL in excess of the amount required to pay stockholder dividends or by
replacement borrowing.

         Risk-Based Capital is a tool for insurance regulators to evaluate the
capital of insurers. Based on calculations using the appropriate NAIC formula,
AHL, CUL, Concord Heritage, Keystone State and First Colonial exceeded the
Risk-Based Capital requirements at December 31, 1998 and 1997.

FORWARD - LOOKING INFORMATION

         The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their businesses without fear of
litigation so long as those statements are identified as forward-looking and are
accompanied by meaningful cautionary statements identifying factors that could
cause actual results to differ materially from those projected in such
statements. The Company desires to take advantage of the "safe Harbor"
provisions of the Act.

         The Annual Report on Form 10-K contains forward-looking statements,
together with related data and projections, about the Company's projected
financial results and it s future plans and strategies. However, actual results
and needs of the Company may vary materially from forward-looking statements and
projections made from time to time by the Company on the basis of management's
then-current expectations, The Business in which the Company is engaged involves
changing and competitive markets, which may involve a high degree of risk, and
there can be no assurance that forward-looking statements and projections will
prove accurate.

         Factors that may cause the Company's actual results to differ
materially from those contemplated or projected, forecast, estimated or budgeted
in such forward-looking statements include among others, the following
possibilities: (i) heightened competition, including the intensification of
price competition, the entry of new competitors, and the introduction of new
products by new and existing competitors;(ii) adverse state and federal
legislation or regulation, including decreases in rates, limitations on premium
levels, increases in minimum capital and reserve requirements, benefit mandates,
limitation on the ability to manage care and utilization, and tax treatment of
insurance products;(iii) fluctuations in the interest rates causing a reduction
of investment income or increase in interest expense and in the market value of
interest rate sensitive investments;(iv) failure to obtain new customers, retain
existing customers or reduction in policies in force by existing customers; (v)
higher service, administrative, or general expense due to the need for
additional advertising, marketing, administrative or management information
systems expenditures; (vi) loss or retirement of key executives; (vii)
termination of provider contracts or renegotiation at less cost-effective rates
or terms of payment; (ix) changes in the Company's liquidity due to changes in
asset and liability matching; (x) restrictions on insurance underwriting based
on genetic testing and other criteria; (xi) adverse changes in the ratings
obtained from independent rating agencies; (xii) failure to maintain adequate
reinsurance; (xiii) possible claims relating to sales practices for insurance
products and claim denials and (xiv) adverse trends in mortality and morbidity.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         See the section entitled "Management's Discussion and Analysis of 
Financial Condition and Results of Operations -- Liquidity and Capital 
Resources -- Investments" which is incorporated herein by reference.


                                       22
<PAGE>   23

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                     INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                               NUMBER
                                                                                                               ------
<S>                                                                                                            <C>
(1) FINANCIAL STATEMENTS

     Independent Accountants' Reports, Years ended December 31, 1998, 1997 and 1996 .........................   24
     Consolidated Statements of Earnings, Years ended December 31, 1998, 1997, and 1996 .....................   25
     Consolidated Balance Sheets, December 31, 1998 and 1997.................................................   26
     Consolidated Statements of Stockholders' Equity, Years ended December 31, 1998, 1997,
        and 1996.............................................................................................   27
     Consolidated Statements of Cash Flows, Years ended December 31, 1998, 1997 and 1996.....................   28
     Notes to Consolidated Financial Statements, Years ended December 31, 1998, 1997 and 1996................   29
     Quarterly Financial Data................................................................................   39

(2) FINANCIAL STATEMENT SCHEDULES:

I.-   Summary of Investments - Other than Investments in Related Parties, December 31, 1998..................   40
II.-  Condensed Financial Information of Registrant, December 31, 1998 and 1997 and
      Years ended December 31, 1998, 1997 and 1996 ..........................................................   41
III.- Supplementary Insurance Information, Years ended December 31, 1998, 1997 and 1996......................   45
IV.-  Reinsurance, Years ended December 31, 1998, 1997 and 1996..............................................   46
</TABLE>

         All other schedules are omitted as the required information is
inapplicable or presented in the consolidated financial statements or related
notes.

                                       23
<PAGE>   24

                        INDEPENDENT ACCOUNTANTS' REPORTS

The Stockholders and Board of Directors
American Heritage Life Investment Corporation

         We have audited the 1998 and 1997 consolidated financial statements of
American Heritage Life Investment Corporation and subsidiaries as listed in the
accompanying index under Item 8. In connection with our audits of the
consolidated financial statements, we have also audited the 1998 and 1997
financial statement schedules as listed in the accompanying index under Item 8.
These consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statements
schedules based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 1998 and 1997 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of American Heritage Life Investment Corporation and subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flow for the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles. Also in our opinion, the related 1998
and 1997 financial statement schedules when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.

                                                              Ernst & Young LLP
February 4, 1999

                          INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
American Heritage Life Investment Corporation

         We have audited the accompanying consolidated statements of earnings,
stockholders' equity, and cash flows of American Heritage Life Investment
Corporation and subsidiaries for the year ended December 31, 1996. In 
connection with our audit of the consolidated financial statements, we have 
also audited the amounts included in financial statement schedules II, III and 
IV for the year ended December 31, 1996. These consolidated financial 
statements are the responsibility  of the Company's management. Our 
responsibility is to express an opinion on these consolidated financial 
statements based on our audit.

         We conducted our audit 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 audit provides a reasonable basis 
for our opinion.

         In our opinion, the consolidated financial statements referred to 
above present fairly, in all material respects, the results of operations and 
the cash flows of American Heritage Life Investment Corporation and 
subsidiaries for the year ended December 31, 1996, in conformity with generally 
accepted accounting principles. Also in our opinion, the financial statement 
schedules referred to above, when considered in conjunction with the basic 
financial statements taken as a whole, present fairly, in all material 
respects, the information set forth therein.

                                                          KPMG LLP

January 29, 1997

                                       24
<PAGE>   25

                AMERICAN HERITAGE LIFE INVESTMENT CORPORATION

                       CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
(In thousands except per share amounts)
YEARS ENDED DECEMBER 31                                           1998           1997           1996
                                                                 ------         ------         ------
<S>                                                             <C>             <C>            <C>
     Income:
       Insurance revenues                                       $308,857        279,831        258,519
       Net investment income                                     110,897        105,392         77,035
       Other income                                                2,325          1,098              -
       Realized investment gains, net                                552            466            420
------------------------------------------------------------------------------------------------------
               Total income                                      422,631        386,787        335,974
------------------------------------------------------------------------------------------------------
     Benefits, claims and expenses:
       Benefits and claims                                       195,033        175,170        148,887
       Underwriting, acquisition and insurance expenses:
          Taxes, commissions and general expenses                121,193        123,008        117,414
          Amortization of deferred acquisition costs
            and cost of business acquired                         38,929         32,425         25,628
       Other operating expenses                                   12,830          9,454          4,186
------------------------------------------------------------------------------------------------------
               Total benefits, claims and expenses               367,985        340,057        296,115
------------------------------------------------------------------------------------------------------
               Earnings before income taxes                       54,646         46,730         39,859
     Income taxes                                                 17,900         15,370         12,827
------------------------------------------------------------------------------------------------------
               Net earnings                                     $ 36,746         31,360         27,032
------------------------------------------------------------------------------------------------------
     Basic net earnings per share of common stock               $   1.33           1.14            .98
     Diluted net earnings per share of common stock             $   1.29           1.13            .98
------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       25
<PAGE>   26

                AMERICAN HERITAGE LIFE INVESTMENT CORPORATION

                            CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
(In thousands except share and per share amounts)
DECEMBER 31                                                                                1998                 1997
                                                                                          ------               ------
<S>                                                                                     <C>                  <C>
ASSETS
Investments:
  Debt securities, available-for-sale, at fair value
    (amortized cost of $945,675 in 1998 and $889,811 in 1997)                           $   984,333            923,287
  Equity securities, available-for-sale, at fair value (cost of
    $21,473 in 1998 and $20,329 in 1997)                                                     35,795             36,817
  Mortgage loans on real estate                                                              88,922             70,697
  Investment real estate, at cost                                                               532                482
  Policy loans                                                                              481,970            407,482
  Short-term investments                                                                      6,420             32,635
----------------------------------------------------------------------------------------------------------------------
          Total investments                                                               1,597,972          1,471,400
----------------------------------------------------------------------------------------------------------------------
Cash                                                                                         10,351             23,261
Agents' balances and prepaid commissions                                                     33,337             35,268
Premiums receivable                                                                          44,091             43,196
Accrued investment income                                                                    33,889             30,519
Deferred acquisition costs and cost of business acquired                                    240,554            223,651
Property and equipment, at cost, less accumulated
   depreciation of $17,516 in 1998 and $15,308 in 1997                                       36,345             31,898
Reinsurance receivables                                                                      11,210             11,004
Other assets                                                                                 47,938             45,062
----------------------------------------------------------------------------------------------------------------------
          Total assets                                                                  $ 2,055,687          1,915,259
----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities:
  Future policy benefits                                                                $   315,866            289,765
  Policyholders' account balances                                                         1,097,066          1,013,602
  Unearned premiums                                                                          45,054             52,666
  Policy and contract claims                                                                 65,057             58,484
----------------------------------------------------------------------------------------------------------------------
          Total policy liabilities                                                        1,523,043          1,414,517
----------------------------------------------------------------------------------------------------------------------
Notes payable to banks                                                                       63,571             39,192
Deferred income taxes                                                                        47,855             46,820
Other liabilities                                                                            39,660             59,007
----------------------------------------------------------------------------------------------------------------------
          Total liabilities                                                               1,674,129          1,559,536
----------------------------------------------------------------------------------------------------------------------
AHLIC-obligated mandatorily redeemable preferred securities of subsidiaries
  holding solely subordinated debentures of AHLIC                                           103,500            103,500
----------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
  Common stock of $1.00 par value:
     Authorized 75,000,000 shares in 1998 and 35,000,000 in 1997;
     issued 28,138,886 in 1998 and 14,020,861 in 1997                                        28,139             14,021
  Preferred stock:
     Convertible of $10.00 par value: Authorized 500,000 shares; none issued                    -                  -
     Non-convertible of $10.00 par value: Authorized 500,000 shares; none issued                -                  -
  Additional paid-in capital                                                                 42,161             42,528
  Retained earnings                                                                         194,854            183,852
  Yield enhancement, contract and issuance costs of mandatorily
     redeemable preferred securities                                                         (9,561)            (9,561)
  Net unrealized investment gains                                                            26,514             25,612
----------------------------------------------------------------------------------------------------------------------
                                                                                            282,107            256,452
Less cost of 272,715 in 1998 and 142,589 in 1997 common shares in treasury                    4,049              4,229
----------------------------------------------------------------------------------------------------------------------
          Total stockholders' equity                                                        278,058            252,223
----------------------------------------------------------------------------------------------------------------------
          Total liabilities and stockholders' equity                                    $ 2,055,687          1,915,259
----------------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.

                                       26
<PAGE>   27

                  AMERICAN HERITAGE LIFE INVESTMENT CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
(In thousands except share and per share amounts)

YEARS ENDED DECEMBER 31                                                                   1998             1997             1996
                                                                                         ------           ------           ------
<S>                                                                                   <C>                <C>              <C>
Common stock:
  Balance at beginning of year                                                        $  14,021           13,967           13,933
  Add par value of shares issued pursuant to stock split
     in the form of stock dividends                                                      14,056              -                -
  Add shares issued on exercise of stock options                                             45               32               20
  Other shares issued (surrendered), net                                                     17               22               14
---------------------------------------------------------------------------------------------------------------------------------
  Balance at end of year                                                                 28,139           14,021           13,967
---------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
  Balance at beginning of year                                                           42,528           42,644           42,215
  Addition (deduction) related to exercise of stock options                                (982)            (658)             112
  Excess over par value on other shares issued                                              615              542              317
---------------------------------------------------------------------------------------------------------------------------------
  Balance at end of year                                                                 42,161           42,528           42,644
---------------------------------------------------------------------------------------------------------------------------------

Retained earnings:
  Balance at beginning of year                                                          183,852          163,460          148,454
  Add net earnings                                                                       36,746           31,360           27,032
  Deduct cash dividends declared on common stock ($.42 per share in 1998, $.40
     per share in 1997
     and $.44 per share in 1996)                                                        (11,686)         (10,968)         (12,026)
  Deduct par value of shares, issued pursuant to stock
    split in the form of stock dividends                                                (14,056)             -                -
  Deduct cash dividend in lieu of issuance of fractional
     shares related to stock split                                                           (2)             -                -
---------------------------------------------------------------------------------------------------------------------------------
  Balance at end of year                                                                194,854          183,852          163,460
---------------------------------------------------------------------------------------------------------------------------------

Yield enhancement, contract and issuance costs of mandatorily redeemable
  preferred securities:
  Balance at beginning of year                                                           (9,561)             -                -
   Issuance of mandatorily redeemable preferred securities                                  -             (9,561)             -
---------------------------------------------------------------------------------------------------------------------------------
  Balance at end of year                                                                 (9,561)          (9,561)             -
---------------------------------------------------------------------------------------------------------------------------------

Accumulated other comprehensive income:
Net unrealized investment gains (losses):
  Balance at beginning of year                                                           25,612           12,158           16,772
  Change during the year                                                                    902           13,454           (4,614)
---------------------------------------------------------------------------------------------------------------------------------
  Balance at end of year                                                                 26,514           25,612           12,158
---------------------------------------------------------------------------------------------------------------------------------
Treasury stock:
  Balance at beginning of year                                                            4,229            3,286            2,045
  Add treasury shares purchased (3,207 shares in 1998,
     93,213 shares in 1997 and 56,451 shares in 1996)                                        54            3,228            1,241
  Less treasury shares issued (15,668 shares in 1998 and
     104,352 shares in 1997)                                                               (234)          (2,285)             -
---------------------------------------------------------------------------------------------------------------------------------
  Balance at end of year                                                                  4,049            4,229            3,286
---------------------------------------------------------------------------------------------------------------------------------
          Total stockholders' equity                                                  $ 278,058          252,223          228,943
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       27
<PAGE>   28

                AMERICAN HERITAGE LIFE INVESTMENT CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(In thousands)

YEARS ENDED DECEMBER 31                                                               1998               1997            1996
                                                                                     ------             ------          ------
<S>                                                                                 <C>                 <C>             <C>
Operating activities:
  Net earnings                                                                      $  36,746           31,360          27,032
  Adjustments to reconcile net earnings to net cash provided by
     operating activities:
       Provision for depreciation and amortization                                      3,379            2,375           2,613
       Amortization of deferred acquisition costs
          and cost of business acquired                                                38,929           32,425          25,628
       Acquisition costs deferred                                                     (53,783)         (43,114)        (36,018)
       Change in agents' balances and prepaid commissions                               1,985              462           3,346
       Change in premiums receivable                                                     (895)          (1,963)            878
       Change in accrued investment income                                             (2,893)            (115)           (683)
       Change in reinsurance receivables                                                 (152)           4,366          (4,192)
       Change in future policy benefits                                                23,909           14,039          (4,833)
       Change in policyholders' account balances                                       53,753           64,037          45,410
       Change in unearned premiums                                                     (7,612)              72          (1,039)
       Change in policy and contract claims liability                                   5,523            3,922             885
       Change in income taxes                                                            (337)           2,416           5,846
       Change in unearned investment income                                              (294)             221            (301)
       Other, net                                                                      (9,572)         (13,817)          1,974
-------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by operating activities                                       88,686           96,686          66,546
-------------------------------------------------------------------------------------------------------------------------------
Investing activities:
  Sales of debt securities                                                             14,169           49,655          14,718
  Maturities of debt securities                                                       127,240           62,718          46,109
  Sales of equity securities                                                            5,398            3,572           5,968
  Maturities of mortgage loans on real estate                                           5,262            3,927           3,479
  Policy loans paid                                                                    31,132           78,669          25,372
  Sales of property and equipment and investment real estate                              103               90              17
  Acquisitions, net of cash acquired                                                    1,957          (45,791)          1,561
  Purchases of debt securities                                                       (172,309)        (174,674)        (80,010)
  Purchases of equity securities                                                       (6,569)            (537)         (5,239)
  Origination of mortgage loans on real estate                                        (23,469)         (18,534)        (27,709)
  Sales (purchases) of short-term investments, net                                     26,316          (27,931)         21,669
  Policy loans made                                                                  (104,545)         (67,323)        (48,129)
  Purchases of property and equipment and investment real estate                       (6,873)          (4,431)         (2,789)
  Other, net                                                                          (12,107)          12,057             (26)
-------------------------------------------------------------------------------------------------------------------------------
       Net cash used by investing activities                                         (114,295)        (128,533)        (45,009)
-------------------------------------------------------------------------------------------------------------------------------
Financing activities:
  Net proceeds (paydowns) on borrowings                                                24,379          (53,237)         (9,535)
  Net proceeds from securities offering                                                   -             98,478             -
  Dividends to stockholders                                                           (11,686)         (10,968)        (12,026)
  Purchase of treasury stock                                                              (54)          (3,228)         (1,241)
  Other, net                                                                               60            2,391           2,255
-------------------------------------------------------------------------------------------------------------------------------
       Net cash provided (used) by financing activities                                12,699           33,436         (20,547)
-------------------------------------------------------------------------------------------------------------------------------
       Increase (decrease) in cash                                                    (12,910)           1,589             990
Cash at beginning of year                                                              23,261           21,672          20,682
-------------------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                                 $  10,351           23,261          21,672
-------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: 
Cash paid during the year for:
  Interest                                                                          $   9,594            8,292           6,325
  Federal income taxes                                                                 14,492            9,806           6,550
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       28
<PAGE>   29

                 AMERICAN HERITAGE LIFE INVESTMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)      CONSOLIDATION POLICY

         The accompanying consolidated financial statements include the accounts
of American Heritage Life Investment Corporation (AHLIC) and its subsidiaries.
All significant intercompany accounts have been eliminated in consolidation. The
term "Company" as used herein includes AHLIC and its subsidiaries.

         AHLIC is a holding company whose principal subsidiaries are American
Heritage Life Insurance Company (AHL) and Columbia Universal Life Insurance
Company (Columbia). AHL is licensed to do business as a life insurance company
in 49 states, Puerto Rico, the District of Columbia and the U.S. Virgin Islands.
It markets life and accident and health insurance on an individual, group and
credit basis through licensed agents and brokers. Columbia, a subsidiary of AHL,
markets annuity and individual life insurance products and is currently licensed
in 41 states, the District of Columbia and Puerto Rico. First Colonial Insurance
Company, a subsidiary of AHL, markets credit property insurance and is currently
licensed in 18 states. Concord Heritage Life Insurance Company, a subsidiary of
AHL, markets supplemental life and health products through worksite marketing
and is licensed in 15 states. Keystone State Life Insurance Company, a
subsidiary of AHL, markets individual life products and is currently licensed in
12 states, the District of Columbia and the U.S. Virgin Islands. ERJ Insurance
Group, Inc., a subsidiary of AHLIC, is an insurance agency that markets a broad
portfolio of credit insurance products.

(b)      BASIS OF PRESENTATION

         The accompanying consolidated financial statements are presented on the
basis of generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP 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 periods. Actual results could differ from those estimates.

         Such principles differ in some respects from those followed in
preparing statutory reports filed with various insurance departments. Under
GAAP:

         (1) Insurance Revenue and Expense Recognition: For traditional
         insurance products, premiums, benefits and expenses are reported in a
         manner which results in the recognition of profits over the life of the
         policies in proportion to gross premiums. For interest-sensitive
         products, premiums received are recognized as deposits; revenues
         consist of surrender, mortality and expense charges; and profits are
         recognized in relation to the incidence of expected gross profits.

         (2) Investments: Bonds and redeemable preferred stocks, which are
         classified as debt securities available-for-sale, are stated at fair
         value.

         (3) Deferred Acquisition Costs: The costs (principally commissions) of
         acquiring traditional life, interest-sensitive products and accident
         and health contracts, certain expenses of the policy issue and
         underwriting department, and certain agency expenses, all of which vary
         with and are primarily related to the production of new business, have
         been deferred. Deferred acquisition costs of traditional life and
         accident and health contracts are amortized over the premium payment
         period of the related policies using the same assumptions as were used
         for computing liabilities for future policy benefits, together with
         appropriate expense assumptions. For interest-sensitive life products,
         deferred acquisition costs are amortized over the lives of the policies
         in relation to the present value of estimated gross profits from
         surrender charges and investment, mortality and expense margins.
         Assumptions used for estimating the related gross profits are evaluated
         regularly (at least annually) and amortization is modified as
         necessary.

         (4) Cost of Business Acquired: The value assigned to the insurance in
         force of acquired insurance companies at the date of acquisition is
         amortized using methods similar to those used for deferred acquisition
         costs.

         (5) Insurance Liabilities: The liabilities for future policy benefits
         for traditional life and accident and health contracts (which represent
         the excess of the present value of future benefits to be paid on behalf
         of or to policyholders over the present value of future net premiums)
         are computed by a net level premium method using assumptions deemed
         appropriate at the date of issue (or as of the date of acquisition for
         acquired blocks of business). Estimated future investment yield
         assumptions range from 3.75% to 8.00%; withdrawals are based on Company
         experience; mortality and morbidity from recognized morbidity and
         mortality tables are modified for anticipated company experience, with
         reasonable provisions for

                                       29
<PAGE>   30

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         possible future adverse experience deviations. Policyholders' account
         balances for interest-sensitive products represent premiums received
         plus interest credited during the contract accumulation period, less
         contract charges for mortality and expenses. For the years ended
         December 31, 1998 and 1997, the weighted average interest rates
         credited to the policyholders' account balances were 5.08% and 5.46%,
         respectively; and the related interest credited to the policyholders'
         account balances was $54.0 million and $52.3 million. The surrender
         charge provisions for interest-sensitive policies vary depending upon
         the type of policy. For universal life-type policies, the surrender
         charges generally range over a period of 5-20 years at varying rates
         depending upon the plan of insurance. For annuities, the surrender
         charges generally range over a period of 7-10 years with charges
         varying from 1% to 10% of the accumulated fund value over the surrender
         charge period.

(c)      VALUATION OF CERTAIN INVESTMENTS

         Debt securities are investments which mature at a specified future date
more than one year after they were issued. Equity securities include common
stocks and non-redeemable preferred stocks. Investments are categorized as (1)
held to maturity, (2) available-for-sale, or (3) trading. All debt and equity
securities have been classified by the Company as available-for-sale and are
stated at fair value. Unrealized gains or losses on debt and equity securities
available-for-sale resulting from fluctuations in fair values were recorded, net
of deferred income taxes and adjustments to the deferred acquisition costs for
interest-sensitive insurance products, directly to a separate component of
stockholders' equity. Realized investment gains or losses are calculated on the
basis of specific identification and include writedowns on those investments
where the decline in value below its cost or amortized cost is considered to be
other than temporary.

         Policy loans are carried at the actual amount loaned to the
policyholder. No policy loans are made for amounts in excess of the cash
surrender value of the related policy. Accordingly, in all instances, the policy
loans are fully collateralized by the related liability for future policy
benefits for traditional insurance policies and by the policyholders' account
balance for interest-sensitive policies.

         Mortgage loans are reported at amortized cost, less an allowance for
possible losses.

(d)      PROPERTY AND EQUIPMENT

         Depreciation of property and equipment is computed on the straight-line
method over the estimated useful lives of the respective assets.

(e)      POLICY AND CONTRACT CLAIMS

         Accruals are provided to cover the cost of reported claims not paid and
for claims incurred but not reported to the Company. The accruals are computed
based on historical claims experience modified for variations in expected future
benefits.

(f)      OTHER OPERATING EXPENSES

         Other operating expenses include primarily interest expense related to
bank borrowings and mandatorily redeemable preferred securities, other general
corporate expenses of AHLIC and insurance agency expenses.

(g)      INCOME TAXES

         Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income tax expense in the period that includes the enactment date.

(h) EARNINGS PER SHARE

         In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods presented are
restated to conform to the Statement 128 requirements.

(i)      RECLASSIFICATIONS

         Certain amounts for 1997 and 1996 have been reclassified to conform
with the presentation adopted in 1998.



                                       30
<PAGE>   31

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(2)      INCOME TAXES

     The effective Federal income tax rates on earnings before income taxes
(amounts in thousands) were lower than the maximum statutory rates as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                 1998                   1997                   1996
                                            Amt.        %         Amt.         %         Amt.         %
---------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>     <C>            <C>     <C>            <C>
Computed "expected" tax expense          $ 19,126       35      $ 16,356       35      $ 13,951       35
Tax exempt interest & dividends               (92)       -          (323)      (1)         (329)      (1)
Credits from oil and gas investments         (636)      (1)         (680)      (1)         (788)      (2)
Other, net                                   (498)      (1)           17        -            (7)       -
---------------------------------------------------------------------------------------------------------
Effective income
   tax expense                           $ 17,900       33      $ 15,370       33      $ 12,827       32
---------------------------------------------------------------------------------------------------------
</TABLE>

         The components of income tax expense (in thousands) for each of the
three years ended December 31 were as follows:

<TABLE>
<CAPTION>
------------------------------------------
              1998         1997      1996
------------------------------------------
<S>          <C>         <C>        <C>
Current      $14,678      9,627      9,823
Deferred       3,222      5,743      3,004
------------------------------------------
   Total     $17,900     15,370     12,827
------------------------------------------
</TABLE>

         The tax effects of temporary differences that gave rise to significant
portions of the deferred tax liabilities and deferred tax assets at December 31,
1998 and December 31, 1997 (in thousands) were as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------
                                          1998        1997
-----------------------------------------------------------
<S>                                      <C>         <C>
Deferred tax assets:
   Insurance reserves                    $29,920     27,033
   Unearned investment income                124        217
   Other                                     127        131
-----------------------------------------------------------
   Total deferred tax assets              30,171     27,381
-----------------------------------------------------------
Deferred tax liabilities:
   Deferred acquisition costs             58,586     56,356
   Unrealized investment gains on
    securities available-for-sale         15,920     14,992
   Other                                   3,520      2,853
-----------------------------------------------------------
   Total deferred tax liabilities         78,026     74,201
-----------------------------------------------------------
   Net deferred tax liability             47,855     46,820
   Current tax liability                     400        683
-----------------------------------------------------------
   Accrued and deferred income taxes     $48,255     47,503
-----------------------------------------------------------
</TABLE>

         No valuation allowance was recorded at December 31, 1998 or 1997.

         Prior to 1985, certain life insurance company income was not subject to
Federal income tax until distributed. For tax purposes such income was
accumulated in a memorandum "policyholders' surplus account" and is not taxable
unless it is distributed, unless certain limitations under the Internal Revenue
Code are exceeded or, unless the income tax deferral status of the account is
modified by future tax legislation. At December 31, 1998, the policyholders'
surplus account was $10.9 million.

(3)      INVESTMENTS

         For the years ended December 31, 1998, 1997 and 1996, net investment
income (in thousands) was as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------
                                         1998         1997       1996
----------------------------------------------------------------------
<S>                                    <C>           <C>        <C>
Investment income:
  Debt securities                      $ 72,350      65,366     41,573
  Equity securities                       1,014       1,407        809
  Mortgage loans on real estate           7,084       5,797      3,657
  Investment real estate                     50          50         54
  Policy loans                           30,543      33,341     33,496
  Short-term investments                  1,475       1,282      2,928
  Other                                   1,301       1,716          4
----------------------------------------------------------------------
    Gross investment income             113,817     108,959     82,521
Investment expenses and investment
  related interest expense                2,920       3,567      5,486
----------------------------------------------------------------------
    Net investment income              $110,897     105,392     77,035
----------------------------------------------------------------------
</TABLE>

         Proceeds from sales and maturities of investments in debt securities
during 1998, 1997 and 1996 were $139.7 million, $115.8 million and $59.1 
million, respectively.

         Gross gains and losses on those sales, and net gains and losses on
sales of other investments (in thousands), were as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------
                                     1998         1997        1996
--------------------------------------------------------------------
<S>                                 <C>          <C>         <C>    
Debt securities - gains             $ 1,643       1,124         794
Debt securities - losses             (4,411)     (2,620)     (2,683)
--------------------------------------------------------------------
Debt securities, net                 (2,768)     (1,496)     (1,889)
Equity securities, net                3,408       2,046       2,309
Other, net                              (88)        (84)        -
--------------------------------------------------------------------
 Realized investment gains, net     $   552         466         420
--------------------------------------------------------------------
</TABLE>


                                       31
<PAGE>   32

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         Stockholders' equity included the following unrealized investment gains
(losses) (in thousands) at December 31:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
                                            1998          1997         1996
----------------------------------------------------------------------------
<S>                                       <C>            <C>         <C>
Equity securities available-for-sale:
 Gross unrealized investment
    gains                                 $ 15,054       16,839       13,434
 Gross unrealized investment
    losses                                    (732)        (351)        (379)
----------------------------------------------------------------------------
                                            14,322       16,488       13,055
----------------------------------------------------------------------------
Debt securities available-for-sale:
 Gross unrealized investment
    gains                                   45,154       36,276       12,583
 Gross unrealized investment
    losses                                  (6,496)      (2,800)      (3,567)
----------------------------------------------------------------------------
                                            38,658       33,476        9,016
----------------------------------------------------------------------------
   Gross unrealized investment
    gains                                   52,980       49,964       22,071
Decrease in deferred
  acquisition costs for interest-
  sensitive insurance products             (10,546)      (9,360)      (3,367)
Deferred federal income tax
    benefit                                (15,920)     (14,992)      (6,546)
----------------------------------------------------------------------------
   Net unrealized investment
    gains                                 $ 26,514       25,612       12,158
----------------------------------------------------------------------------
</TABLE>

         The amortized cost and fair values of debt securities
available-for-sale by category of securities (in thousands) were as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------
                                            Gross     Gross
                               Amortized Unrealized Unrealized    Fair
                                 Cost       Gain       Loss       Value
-----------------------------------------------------------------------
<S>                            <C>       <C>        <C>          <C>
December 31, 1998:
U.S. government and
  government agencies
  and authorities              $ 47,969      2,112        15      50,066
States, municipalities and
  political subdivisions          3,008        334         7       3,335
Foreign governments                 775         59         -         834
Public utilities                140,049      7,768        81     147,736
Corporate securities            599,158     28,620     5,555     622,223
Mortgage backed securities      154,716      6,261       838     160,139
-----------------------------------------------------------------------
  Total                        $945,675     45,154     6,496     984,333
-----------------------------------------------------------------------
December 31, 1997:
U.S. government and
  government agencies
  and authorities              $ 61,771      1,321       175      62,917
States, municipalities and
  political subdivisions          3,549        254         8       3,795
Foreign governments               2,333         65         -       2,398
Public utilities                148,556      5,474        60     153,970
Corporate securities            461,416     24,884       915     485,385
Mortgage backed securities      212,186      4,278     1,642     214,822
-----------------------------------------------------------------------
  Total                        $889,811     36,276     2,800     923,287
-----------------------------------------------------------------------
</TABLE>

         The amortized cost and fair value of debt securities available-for-sale
(in thousands) at December 31, 1998, by contractual maturity, were as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------
                                           At December 31, 1998
----------------------------------------------------------------
                                           Amortized      Fair
                                             Cost         Value
----------------------------------------------------------------
<S>                                        <C>          <C>
Due in one year or less                    $ 16,088      16,278
Due after one year through five years       129,144     136,814
Due after five years through ten years      114,519     119,372
Due after ten years                         479,930     500,879
Mortgage backed securities                  154,716     160,139
Redeemable preferred stocks                  51,278      50,851
----------------------------------------------------------------
   Total                                   $945,675     984,333
----------------------------------------------------------------
</TABLE>

         Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without
penalties.

         The amortized cost of high yield bonds included in debt securities
available-for-sale was $42.4 million with a market value of $41.0 million, which
represented 2.6% of invested assets.

         There were no individual investments at December 31, 1998, other than
U.S. government securities, which exceeded 10% of the Company's stockholders'
equity.

                                       32
<PAGE>   33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(4) FAIR VALUE OF FINANCIAL INSTRUMENTS 

The estimated fair values (in thousands) of the Company's financial instruments
are summarized as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------
                                             AT DECEMBER 31, 1998
--------------------------------------------------------------------
                                           CARRYING        ESTIMATED
                                            AMOUNT        FAIR VALUE
--------------------------------------------------------------------
<S>                                      <C>             <C> 
Debt securities                          $  984,333        984,333
Equity securities                            35,795         35,795
Mortgage loans on real estate                88,922        105,808
Investment real estate                          532          2,400
Policy loans                                481,970        481,970
Cash and short-term investments               6,420          6,420
-------------------------------------------------------------------
   Total cash and investments            $1,597,972      1,616,726
-------------------------------------------------------------------
Investment type insurance contracts      $  211,189        212,007
Notes payable to banks                       63,571         63,571
Mandatorily redeemable
 preferred securities                       103,500        103,500
-------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------
                                           At December 31, 1997
-------------------------------------------------------------------
                                          Carrying     Estimated
                                            Amount     Fair Value
-------------------------------------------------------------------
<S>                                      <C>               <C>    
Debt securities                          $  923,287        923,287
Equity securities                            36,817         36,817
Mortgage loans on real estate                70,697         82,160
Investment real estate                          482          2,400
Policy loans                                407,482        407,482
Cash and short-term investments              55,896         55,896
-------------------------------------------------------------------
   Total cash and investments            $1,494,661      1,508,042
-------------------------------------------------------------------
Investment type insurance contracts      $  179,489        179,489
Notes payable to banks                       39,192         39,192
Mandatorily redeemable
 preferred securities                       103,500        103,500
-------------------------------------------------------------------
</TABLE>

         These fair values were determined as follows:

Debt securities
         The fair value and carrying value of debt securities were estimated
based on bid prices published in financial newspapers or bid quotations received
from securities dealers.

Equity securities
         The fair value and carrying value of equity securities, other than
private placements, were based on bid prices published in financial newspapers.
For private placements, cost has been determined to approximate fair value.

Mortgage loans on real estate
         For residential mortgage loans, fair value was estimated using quoted
market prices for securities backed by similar loans. The fair value of
commercial loans was estimated by discounting expected future cash flows using
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.

Investment in real estate
         The fair value of real estate was calculated using estimated market
values.

Policy loans
         The fair value of policy loans approximates the book value, as interest
rates charged for a majority of the policy loans are updated to current market
rates on an annual basis.

Cash and short-term investments
         The carrying amount approximates fair value because of the short
maturity of these instruments.

Investment type insurance contracts
         The carrying amount approximates fair value.

Notes payable to banks
         The carrying amount approximates fair value because the interest rates
charged represent current market rates.

Mandatorily redeemable preferred securities
         The carrying amount approximates fair value.

(5) COST OF BUSINESS ACQUIRED

         Under current assumptions, amortization of cost of business acquired,
including accrued interest implicit in the calculation of the amortization, for
the next five years is expected to be as follows (amounts in thousands):

<TABLE>
==================================================
         <S>               <C>
         1999              $ 4,973
         2000                4,393
         2001                3,814
         2002                3,298
         2003                2,914
==================================================
</TABLE>


(6) NOTES PAYABLE TO BANKS

         At December 31, 1998, all of the notes payable to banks were
short-term, unsecured and related to advances under $137.0 million lines of
credit ($73.4 million available to be drawn at December 31, 1998) bearing
interest at rates ranging from 5.48% to 5.66%. The arrangements under the terms
of the lines of credit are reviewed annually for renewal. The Company also has a
$75.0 million line of credit (the entire $75.0 million available to be drawn at
December 31, 1998) which is specifically to be used for acquisitions. The loan
has a term of five years and contains certain financial covenants and commitment
fees. The Company was in compliance with the covenants at December 31, 1998.


                                       33
<PAGE>   34
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

         Interest expense to banks for the years ended December 31, 1998, 1997
and 1996 totaled $3.2 million, $4.4 million and $6.1 million, respectively.

(7)MANDATORILY REDEEMABLE PREFERRED SECURITIES

         On June 27, 1997, the Company completed the offering of 2.07 million
shares of FELINE PRIDES. Proceeds from the offering of $98.4 million (after
underwriting and other associated costs) were used for the repayment of debt of
the Company. Each unit of FELINE PRIDES pays quarterly interest and yield
enhancement payments of $1.0625 per share, or 8.50% annually. Interest expense
on these securities for the years ended December 31, 1998 and 1997 totaled $7.0
million and $3.6 million, respectively. The Company recorded the yield
enhancement payments initially of 1.75% totaling $5.4 million, as a liability
and a reduction to stockholders' equity on the Company's Consolidated Balance
Sheets. The liability is reduced when the yield enhancement payments are paid.

         Each FELINE PRIDES consists of a unit with a stated amount of $50
comprised of (a) a stock purchase contract under which (i) the holder will
purchase from the Company on August 16, 2000, a number of shares of common stock
of the Company equal to a specified rate and (ii) the Company will pay 1.75%
yield enhancement payments to the holder and (b) beneficial ownership of a 6.75%
trust preferred security representing a preferred undivided interest in the
assets of a Trust. The sole assets of the Trust are a 6.75% subordinated
debenture of the Company due August 16, 2002 with a principal amount of $106.7
million.

(8)REINSURANCE

         In the normal course of business, the Company seeks to limit its
exposure to loss on any single insured and to recover a portion of benefits paid
by ceding insurance to other insurance companies or reinsurers under excess
coverage and co-insurance contracts. The maximum risk generally retained on
ordinary life insurance on any one insured ranges from $100,000 to $200,000. The
amount retained on group and credit life insurance is generally $50,000.
Generally, income from reinsurance arrangements is recognized in a manner
similar to the income recognition on the underlying policy contracts. 

         The reinsurance contracts do not relieve the Company from its
obligations to its policyholders, and it remains liable should any reinsurer be
unable to meet its obligations. The Company evaluates the financial condition of
its reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies. In the
accompanying financial statements, insurance revenues, benefits and claims and
deferred acquisition costs are reported net of reinsurance ceded.

         The amount of insurance premiums assumed under reinsurance agreements
for the years ended December 31, 1998, 1997 and 1996 were $8.6 million, $4.5
million and $5.8 million, respectively. The amount of insurance premiums ceded
under reinsurance agreements for the years ended December 31, 1998, 1997 and
1996 were $90.3 million, $126.6 million and $111.7 million, respectively. The
amounts of recoveries for benefits paid under reinsurance agreements for the
years ended December 31, 1998, 1997 and 1996 were $97.6 million, $108.8 million
and $104.0 million, respectively.

(9) EARNINGS PER SHARE

         The following table sets forth the computation of basic and diluted net
earnings per share (amounts in thousands): 

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                           1998         1997        1996
-----------------------------------------------------------------------------
<S>                                       <C>          <C>         <C>   
Numerator for basic and diluted
  earnings per share:
    Net earnings                          $36,746      31,360      27,032
-----------------------------------------------------------------------------
Denominator:
  Denominator for basic earnings
    per share-weighted average
    shares                                 27,552      27,561      27,567
  Effect of dilutive securities:
    Mandatorily redeemable,
     preferred securities                     709          --          --
    Employee stock options                    144         178          60
    Restricted stock                           95          92          84

Dilutive potential common shares              948         270         144
-----------------------------------------------------------------------------
Denominator for diluted earnings
   per share-weighted average shares
   and assumed conversions                 28,500      27,831      27,711
-----------------------------------------------------------------------------
Basic net earnings per share              $  1.33        1.14        0.98
-----------------------------------------------------------------------------
Diluted net earnings per share            $  1.29        1.13        0.98
-----------------------------------------------------------------------------
</TABLE>

                                       34
<PAGE>   35

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(10) STOCK COMPENSATION PLANS

         At December 31, 1998, the Company had six stock-based compensation
plans, which are described below. The Company applies Accounting Principles
Board Opinion No. 25 "Accounting for Stock issued to Employees" and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed option plans. The compensation that has been
charged against income for the long-term incentive plan stock, employee stock
purchase and agents stock purchase plans (in thousands) was as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------
                                    1998     1997     1996
----------------------------------------------------------------
<S>                                 <C>       <C>      <C>
Long-term incentive plan stock      $707      547      487
Employee stock purchase plan         100       78       70
Agents stock investment plan          15       13       13
----------------------------------------------------------------
</TABLE>

         Compensation cost determined pursuant to Financial Accounting Standard
No. 123 "Accounting for Stock-Based Compensation" would not have had a material
effect on the Company's net earnings and earnings per share for 1998, 1997 and
1996.

(A) FIXED STOCK OPTION PLANS 

         The Company has three fixed stock option plans primarily for its
employees. Under the 1980 Stock Option Plan, the Company may grant options to
its employees for up to 600,000 shares of common stock. Under the 1996 Stock
Option Plan, the Company may grant options to its employees for up to 700,000
shares of common stock. The 1988 Stock Option Plan expired July 27, 1998 and
therefore no new options may be granted under this plan. Under all plans, the
exercise price of each option equals the market price of the Company's stock on
the date of grant. Under the 1980 and 1996 Plans, the option's maximum term is
ten years. Under the 1980 and 1996 Plans, options are granted during the year
and vest in increments of 20% or 33% per year over a five or three year period
beginning no less than six months after the grant. 

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield
of 1.7%, 2.2% and 3.1%; expected volatility of 22% for 1998 and 20% for 1997 and
1996. The weighted-average fair value of options granted for the three years
ended December 31, 1998, 1997 and 1996, respectively, was $7.51, $5.23 and
$3.26.

         A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996, and changes during the years ended on those
dates is presented below:

<TABLE>
<CAPTION>
-----------------------------------------------------------------
                                          Weighted
                                          Average
                            Number        Exercise     Options
                          of Shares        Price     Exercisable
-----------------------------------------------------------------
<S>                      <C>              <C>        <C>
Outstanding 1/1/96           543,894       $ 9.05      188,888
  Granted                     46,600        11.32
  Exercised                  (54,672)        5.57
  Forfeited                        -            -
-----------------------------------------------------------------
Outstanding 12/31/96         535,822         9.60      275,278
  Granted                    590,424        17.13
  Exercised                 (248,596)        9.58
  Forfeited                  (14,200)        9.71
-----------------------------------------------------------------
Outstanding 12/31/97         863,450        14.51      149,606
  Granted                    357,080        22.33
  Exercised                 (192,482)        9.72
  Forfeited                        -            -
-----------------------------------------------------------------
Outstanding 12/31/98       1,028,048       $18.12      159,454
-----------------------------------------------------------------
</TABLE>

         The following table summarizes information about fixed stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                      Options Outstanding           Options Exercisable
-------------------------------------------------------------------------------
                         Number       Weighted-Avg     Number     Weighted-Avg
            Exercise   Outstanding      Remaining     Exercisable    Exercise
             Prices    at 12-31-98  Contractual Life  at 12-31-98      Price
-------------------------------------------------------------------------------
<S>                    <C>          <C>               <C>         <C>   
1980 Plan     
             $ 9.25      19,240       6 yr  1 mo        19,240      $   9.25
               9.38       4,516       5 yr  1 mo         4,516          9.38
              10.75       3,956       4 yr  1 mo         3,956         10.75
              11.31      27,318       7 yr  1 mo        12,512         11.31
              11.44      53,938       8 yr  1 mo         9,230         11.44
              18.81      57,080       9 yr  1 mo            --            --
              23.00     100,000       9 yr 11 mo            --            --
-------------------------------------------------------------------------------
                        266,048                         49,454      $  10.31
-------------------------------------------------------------------------------
1988 Plan   $  8.75      42,000            10 mo         6,000      $   8.75
              17.50      30,000       8 yr  7 mo         6,000         17.50
-------------------------------------------------------------------------------
                         72,000                         12,000      $  13.13
-------------------------------------------------------------------------------
1996 Plan   $ 17.50     490,000       8 yr  7 mo        98,000      $  17.50
-------------------------------------------------------------------------------
              23.00     200,000       9 yr 11 mo           --             --
------------------------------------------------------------------------------- 
                        690,000                         98,000     $   17.50
------------------------------------------------------------------------------- 
</TABLE>

(B) LONG-TERM INCENTIVE PLAN

         Under the Company's Long-Term Incentive Plan, the restricted stock
feature provides for the grant of common stock to a participating employee. The
number of shares of restricted stock available to be issued in the name of


                                       35
<PAGE>   36

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

each participating employee is determined at the beginning of each fiscal year
and is based on the prior year's operating results. Such shares are restricted
for three years and held by the Company in the name of the participating
employee, who has the right to vote and to receive dividends paid on all such
shares. Such shares are subject to forfeiture to the Company if the
participating employee does not remain in the Company's employ for three years
after the date of grant. 

         During the years ended December 31, 1998, 1997 and 1996, the Company
granted 28,028, 34,432 and 21,940 shares of restricted stock, respectively.

         Under the Company's Long-Term Incentive Plan, the performance units
feature provides for the grant to a participating employee of shares of common
stock based on targeted performance levels established for each participating
employee at the beginning of each fiscal year in accordance with a formula
relating to individual levels of performance.

         During the years ended December 31, 1998, 1997 and 1996, the Company
granted 7,892, 11,734 and 8,428 shares of common stock related to the
performance units feature, respectively.

(C) EMPLOYEE STOCK PURCHASE PLAN 

         The Company maintains a stock purchase plan under which its employees
and directors and those of its subsidiaries can purchase shares of its common
stock in the open market through an unaffiliated plan administrator. Pursuant to
the plan, 743,351 shares had been purchased as of December 31, 1998. During the
years ended December 31, 1998 and 1997, 40,947 shares and 45,336 shares,
respectively, were purchased pursuant to the plan. This plan provides for
monthly payroll and directors' fees purchases up to $1,500, with the employer
making a monthly percentage contribution for the account of each participant,
based upon their purchases, as follows: (a) 25% of amounts from $5 through $25,
(b) 20% of amounts in excess of $25 through $50, and (c) 15% of amounts in
excess of $50 through $1,500.

(D) AGENTS STOCK INVESTMENT PLAN 

         The Company maintains a stock purchase plan under which its agents can
purchase shares of its common stock in the open market through an unaffiliated
plan administrator. Pursuant to the plan, 101,353 shares had been purchased as
of December 31, 1998. During the years ended December 31, 1998 and 1997, 15,307
shares and 18,930 shares, respectively, were purchased pursuant to the plan. The
plan provides for monthly deductions from commissions payable by participating
subsidiaries of the Company to their participating agents with a minimum monthly
deduction of $500 and maximum of $2,000. The participating subsidiary
contributes, at the time of each purchase, an amount equal to five percent (5%)
of its agent's deduction for purchases from commissions payable.

(11) PROFIT SHARING PLAN

         The Company has a trusteed profit sharing plan for the exclusive
benefit of eligible employees. The Company's annual contribution to the plan is
equal to the lesser of 10% of consolidated earnings as defined or 10% of
qualifying compensation paid to participants. The annual contributions amounted
to $1.5 million in 1998, $1.3 million in 1997 and $1.2 million in 1996.

(12) POLICY AND CONTRACT CLAIMS

         Activity in the liability for policy and contract claims (in thousands)
at December 31, 1998, 1997 and 1996 is summarized as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                         1998            1997            1996
-------------------------------------------------------------------------------
<S>                                   <C>               <C>            <C>   
Balance at beginning of year          $  58,484         51,261         50,375
   Less reinsurance recoverables          3,744          5,486          3,592
-------------------------------------------------------------------------------
Net balance at beginning of year         54,740         45,775         46,783
-------------------------------------------------------------------------------
Incurred related to:
   Current year                         128,340        148,114        144,248
   Prior years                             (183)          (655)          (953)
-------------------------------------------------------------------------------
Total incurred                          128,157        147,459        143,295
-------------------------------------------------------------------------------
Paid related to:
   Current year                          99,873        122,198        128,137
   Prior years                           21,604         16,296         16,166
-------------------------------------------------------------------------------
Total paid                              121,477        138,494        144,303
-------------------------------------------------------------------------------
Net balance at end of year               61,420         54,740         45,775
   Plus reinsurance recoverables          3,637          3,744          5,486
-------------------------------------------------------------------------------
Balance at end of year                $  65,057         58,484         51,261
-------------------------------------------------------------------------------
</TABLE>


                                       36
<PAGE>   37

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(13)INDUSTRY SEGMENT INFORMATION

         The Company has three reportable segments: ordinary, group and credit
insurance. The Company's Ordinary Insurance Department provides
interest-sensitive products (universal life, single and flexible premium
deferred annuities, single premium immediate annuities), level and decreasing
term products and supplemental accident and health insurance products to
individuals. The Group Insurance Department distributes insurance products and
related services to large employers for their employee benefit plans. The group
products provide life, disability, medical and dental insurance. The Credit
Insurance Department offers life, accident and health and property insurance
coverages to consumer debtors, primarily through banks, automobile dealers,
finance companies, credit unions and retailers. This coverage is issued on
either the single-premium or outstanding loan balance basis. 

         The Company evaluates performance and allocates resources based on the
earnings from operations before income taxes (excluding realized investment
gains and losses). Performance is also evaluated based on premium equivalents.
Premium equivalents for ordinary insurance include cash deposits from
interest-sensitive products. Group premium equivalents include business sold on
a self-funded or split-funded basis, and credit premium equivalents include
business written on an administrative services only basis. The accounting
policies of the reportable segments are the same as those described in Footnote
(1), Summary of Significant Accounting Policies.

         The following table details the industry segment information for the
three years ended December 31, 1998:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
(in thousands)                       1998          1997         1996
-------------------------------------------------------------------------------
INSURANCE REVENUES:
<S>                                <C>           <C>          <C>
  Ordinary                         $197,435      168,218      137,421
  Group                              39,964       31,034       35,480
  Credit                             71,458       80,579       85,618
-------------------------------------------------------------------------------
   Total                           $308,857      279,831      258,519
-------------------------------------------------------------------------------
PREMIUM EQUIVALENTS:
  Ordinary                         $ 87,784       72,862       44,048
  Group                             181,823      192,562      179,453
  Credit                             73,124       93,205       85,591
-------------------------------------------------------------------------------
   Total                           $342,731      358,629      309,092
-------------------------------------------------------------------------------
TOTAL PREMIUMS AND
 PREMIUM EQUIVALENTS:
  Ordinary                         $285,219      241,080      181,469
  Group                             221,787      223,596      214,933
  Credit                            144,582      173,784      171,209
-------------------------------------------------------------------------------
   Total                           $651,588      638,460      567,611
-------------------------------------------------------------------------------
TOTAL PREMIUMS, PREMIUM
 EQUIVALENTS, NET INVESTMENT
 INCOME AND OTHER INCOME:
  Ordinary                         $385,310      335,297      248,797
  Group                             227,457      229,026      220,254
  Credit                            152,227      179,771      175,574
-------------------------------------------------------------------------------
   Total                           $764,994      744,094      644,625
-------------------------------------------------------------------------------
ORDINARY DEPARTMENT:
   Insurance revenues              $197,435      168,218      137,421
   Net investment income            100,091       94,217       67,328
   Total income                     297,526      262,435      204,749
   Benefits and claims              158,894      144,323      110,959
   Taxes, commissions and
    general expenses                 49,528       45,358       33,092
   Amortization of deferred
    acquisition costs                38,929       32,425       25,628
   Other operating expenses             407           15           --
   Total benefits & expenses        247,758      222,121      169,679
-------------------------------------------------------------------------------
   Pre-tax operating earnings      $ 49,768       40,314       35,070
-------------------------------------------------------------------------------
GROUP DEPARTMENT:
   Insurance revenues              $ 39,964       31,034       35,480
   Net investment income              5,670        5,430        5,321
   Total income                      45,634       36,464       40,801
   Benefits and claims               26,467       18,255       24,013
   Taxes, commissions and
    general expenses                 14,285       13,601       12,275
   Total benefits & expenses         40,752       31,856       36,288
-------------------------------------------------------------------------------
   Pre-tax operating earnings      $  4,882        4,608        4,513
-------------------------------------------------------------------------------
CREDIT DEPARTMENT:
   Insurance revenues              $ 71,458       80,579       85,618
   Net investment income              5,319        4,889        4,365
   Other income                       2,326        1,098           --
   Total income                      79,103       86,566       89,983
   Benefits and claims                9,661       12,559       13,901
   Taxes, commissions and
    general expenses                 60,856       67,537       72,332
   Other operating expenses           1,908          866           --
   Total benefits & expenses         72,425       80,962       86,233
-------------------------------------------------------------------------------
   Pre-tax operating earnings      $  6,678        5,604        3,750
-------------------------------------------------------------------------------
</TABLE>


                                       37
<PAGE>   38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         Reconciliations of total income and pre-tax operating earnings for the
three years ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
(in thousands)                         1998            1997           1996
-------------------------------------------------------------------------------
<S>                                 <C>          <C>               <C>
TOTAL INCOME:
  Ordinary                          $ 297,526        262,435        204,749
  Group                                45,634         36,464         40,801
  Credit                               79,103         86,566         89,983
  Other non-segmented income           18,485          2,811            763
  Realized investment gains               552            466            420
  Intercompany eliminations           (18,669)        (1,955)          (742)
-------------------------------------------------------------------------------
   Total income                     $ 422,631        386,787        335,974
-------------------------------------------------------------------------------
PRE-TAX OPERATING EARNINGS:
  Ordinary                             49,768         40,314         35,070
  Group                                 4,882          4,608          4,513
  Credit                                6,678          5,604          3,750
  Other non-segmented earnings          7,108         (6,685)        (3,877)
  Intercompany eliminations           (14,341)         2,424            (17)
-------------------------------------------------------------------------------
   Pre-tax operating earnings       $  54,095         46,265         39,439
-------------------------------------------------------------------------------
</TABLE>

         The following table presents assets specifically related to each
industry segment. Assets not able to be separately identified with an industry
segment have not been allocated. Total assets of subsidiaries are included in
industry segments without regard to that portion related to equity.

<TABLE>
<CAPTION>
--------------------------------------------------------
(in thousands)                    1998           1997
--------------------------------------------------------
Industry-segment assets:
<S>                           <C>             <C>      
  Ordinary                    $1,779,848      1,638,454
  Group                           67,561         63,921
  Credit                         108,178        125,938
--------------------------------------------------------
                               1,955,587      1,828,313
Non-segmented assets             100,100         86,946
--------------------------------------------------------
Total assets                  $2,055,687      1,915,259
--------------------------------------------------------
</TABLE>

(14) STOCKHOLDER'S EQUITY AND NET EARNINGS 

         The payment of dividends to AHLIC by AHL is subject to the regulation
of the State of Florida Department of Insurance. A dividend may be made without
prior Florida Insurance Commissioner's approval if the dividend is equal to or
less than the greater of: (a) 10% of AHL's surplus as to policyholders derived
from realized net operating profits on its business and net realized capital
gains; or (b) AHL's entire net operating profits and realized net capital gains
derived during the immediately preceding calendar year, if AHL will have surplus
as to policyholders equal to or exceeding 115% of the minimum required statutory
surplus as to policyholders after the dividend is paid. As a result of such
restrictions, the maximum dividend which could be paid to AHLIC by its insurance
subsidiaries during 1999 without prior approval is $26.0 million.

         AHLIC's insurance subsidiaries had statutory net operating earnings of
$27.7 million, $24.5 million and $20.6 million and statutory net earnings of
$31.3 million, $27.8 million and $22.1 million for the years ended December 31,
1998, 1997 and 1996, respectively. Total statutory stockholder's equity of the
separate subsidiaries was $204.4 million at December 31, 1998 and $196.8 million
at December 31, 1997. At December 31, 1998, pursuant to the insurance laws of
the State of Florida, the minimum capital and surplus required to be maintained
by AHL was approximately $51.8 million.

(15)NEW PRONOUNCEMENTS BY THE FINANCIAL
    ACCOUNTING STANDARDS BOARD

         No pronouncements, otherwise not disclosed, which have been issued by
the Financial Accounting Standards Board will have a significant impact on the
consolidated financial statements of the Company.

(16) CONTINGENT LIABILITIES

         AHL, like other insurance companies, is currently a defendant in
lawsuits that involve claims for punitive, exemplary or other extracontractual
damages, which are for amounts substantially in excess of the actual damages
sought. Management considers such litigation regrettably to be of the type to
which insurance companies are usually and customarily subjected in the ordinary
course of business; and to date the settlements of such claims of this nature
have not been material to the financial position of the Company. In the opinion
of management, based on the currently ascertained facts of the pending
litigation, which the Company intends to vigorously defend, the ultimate
resolution of such litigation should not be material to the financial position
of the Company.

(17) OTHER COMPREHENSIVE INCOME 

         Other comprehensive income, as reflected in the Consolidated Statements
of Stockholders' Equity, consisted of net unrealized investment gains of $.9
million for the year ended December 31, 1998. Total comprehensive income, which
was $37.6 million for the year ended December 31, 1998, included net earnings of
$36.7 million and other comprehensive income.


                                       38
<PAGE>   39

                  AMERICAN HERITAGE LIFE INVESTMENT CORPORATION

                            QUARTERLY FINANCIAL DATA

(In thousands except per share amounts)
(Unaudited)

<TABLE>
<CAPTION>
========================================================================================================
                                                                        1998
========================================================================================================
                                                  March            June       September         December
                                                  -----            ----       ---------         --------
<S>                                           <C>                <C>          <C>               <C>
Total income                                  $   99,406         106,212         110,416         106,597
Operating earnings                                 8,601           9,117           9,181           9,489
Net earnings                                       8,674           9,162           9,287           9,624
Operating earnings per share-diluted                 .31             .32             .32             .33
Net earnings per share-basic                         .32             .33             .34             .35
Net earnings per share-diluted                       .31             .32             .32             .34
========================================================================================================
                                                                         1997
========================================================================================================
                                                  March            June        September        December
                                                  -----            ----        ---------        --------
Total income                                  $   90,374          92,827         102,487         101,099
Operating earnings                                 7,678           7,761           7,589           8,030
Net earnings                                       7,745           7,801           7,684           8,131
Operating earnings per share-diluted                 .28             .28             .27             .29
Net earnings per share-basic                         .28             .28             .28             .30
Net earnings per share-diluted                       .28             .28             .28             .29
========================================================================================================
</TABLE>


                                       39
<PAGE>   40
                                                                      SCHEDULE I

                  AMERICAN HERITAGE LIFE INVESTMENT CORPORATION

       SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
                                December 31, 1998
                             (amounts in thousands)
<TABLE>
<CAPTION>
                                                                                           Amount at
                                                                                          which shown
                                                                                             in the
         Type of Investment                                    Cost        Fair Value     balance sheet
         ------------------                                    ----        ----------     -------------
<S>                                                        <C>             <C>            <C> 
Debt securities available-for sale:
  Bonds:
    United States Government and government agencies
       and authorities                                     $  202,685      $  210,205      $210,205
    States, municipalities and political subdivisions           3,008           3,335         3,335
    Foreign governments                                           775             834           834
    Public utilities                                          140,049         147,736       147,736
    Convertibles and bonds with warrants attached                 713             736           736
    All other corporate                                       547,167         570,636       570,636
  Redeemable preferred stock                                   51,278          50,851        50,851
                                                           ----------      ----------    ----------

       Total debt securities                                  945,675         984,333       984,333
                                                           ----------      ==========    ----------
Equity securities available-for-sale:
  Common stocks:
    Public utilities                                            1,041           1,146         1,146
    Banks, trust and insurance companies                        1,486           6,700         6,700
    Industrial, miscellaneous and all other                    18,946          27,949        27,949
                                                           ----------      ----------    ----------

       Total equity securities                                 21,473          35,795        35,795
                                                           ----------      ==========    ----------
Mortgage loans on real estate                                  88,922                        88,922
Real estate                                                       532                           532
Policy loans                                                  481,970                       481,970
Short-term investments                                          6,420                         6,420
                                                           ----------                    ----------
       Total investments                                   $1,544,992                    $1,597,972
                                                           ==========                    ==========
</TABLE>

See Footnote 1(c) on page 30 which sets forth the accounting policies related to
investments.


                                       40
<PAGE>   41

                                                                     SCHEDULE II

                   AMERICAN HERITAGE LIFE INVESTMENT CORPORATION

                   CONDENSED FINANCIAL INFORMATION OR REGISTRANT

         The following condensed balance sheets of American Heritage Life
Investment Corporation ("Registrant") as of December 31, 1998 and 1997 and its
condensed statements of earnings and cash flows for the years ended December 31,
1998, 1997 and 1996 should be read in conjunction with the notes to consolidated
financial statements included elsewhere in this report. Since the Registrant's
condensed statements of changes in stockholders' equity for the years ended
December 31, 1998, 1997 and 1996 are identical to the consolidated statements of
changes in stockholders' equity included elsewhere in this report, such
statements are not repeated in this schedule.

         On December 30, 1998, a dividend of $13,000,000 related to American
Heritage Life Insurance Company's (AHL's) earnings in 1997, was paid from AHL to
the Registrant. In the years 1997 and 1996, no dividend was paid to the
Registrant by AHL.


                                       41
<PAGE>   42

                                                          SCHEDULE II, Continued

                  AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
                                  (REGISTRANT)
                            CONDENSED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997
                                ($ IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                   1998           1997
                                                                ---------       ---------
<S>                                                             <C>             <C>      
                                      ASSETS
Cash                                                            $      60       $      16
Investment in life insurance subsidiaries, at equity              395,423         364,403
Investment in non-life insurance subsidiaries, at equity           13,682          13,351
Accounts receivable                                                 3,170           4,272
Intercompany accounts                                               6,911           7,550
Other assets                                                       19,531          16,216
                                                                ---------       ---------

                                                                $ 438,777       $ 405,808
                                                                =========       =========
                    LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Notes payable to banks                                        $  47,571       $  39,192
  Other liabilities                                                 6,447           7,692
                                                                ---------       ---------
       Total liabilities                                           54,018          46,884
                                                                ---------       ---------

AHLIC Junior Subordinated Debentures                              106,701         106,701
                                                                ---------       ---------
Stockholders' equity:
   Common stock of $1.00 par value.  Authorized 75,000,000
    shares in 1998 and 35,000,000 shares in 1997;
    issued 28,138,886 in 1998 and 14,020,861 in 1997               28,139          14,021
Preferred stock:
   Convertible of $10.00 par value. Authorized 500,000
    shares; none issued                                                --              --
   Non-Convertible of $10.00 par value. Authorized 500,000
    shares; none issued                                                --              --
   Additional paid-in capital                                      42,161          42,528
   Retained earnings                                              194,854         183,852
   Yield enhancement, contract and issuance costs of
     mandatorily redeemable preferred securities                   (9,561)         (9,561)
   Unrealized investment gains                                     26,514          25,612
                                                                ---------       ---------
                                                                  282,107         256,452

   Less cost of 272,715 in 1998 and 142,589 in 1997 common
     shares in treasury                                             4,049           4,229
                                                                ---------       ---------
     Total stockholders' equity                                   278,058         252,223
                                                                ---------       ---------
                                                                $ 438,777       $ 405,808
                                                                =========       =========
</TABLE>


                                       42

<PAGE>   43

                                                          SCHEDULE II, Continued

                  AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
                                  (REGISTRANT)
                        CONDENSED STATEMENTS OF EARNINGS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                ($ IN THOUSANDS)

<TABLE>
<CAPTION>
                                            1998           1997           1996
                                          --------       --------       --------
<S>                                       <C>            <C>            <C>     
Income:
  Investment income                       $    583       $    849       $    364
  Other income                                 404            389            304
  Realized investment losses                    --            (39)            --
                                          --------       --------       --------
       Total income                            987          1,199            668
Operating expenses                          10,555          8,207          4,226
                                          --------       --------       --------
     Loss before income tax benefits        (9,568)        (7,008)        (3,558)
Income tax benefits                         (3,227)        (2,396)        (1,260)
                                          --------       --------       --------
Loss before equity in earnings
     (loss) of subsidiaries                 (6,341)        (4,612)        (2,298)
Equity in net earnings of life
      insurance subsidiaries                42,823         36,138         29,670
Equity in net earnings (losses) of 
non-life insurance subsidiaries                264           (166)          (340)
                                          --------       --------       --------
      Net earnings                        $ 36,746       $ 31,360       $ 27,032
                                          ========       ========       ========
</TABLE>


                                       43
<PAGE>   44

                                                          SCHEDULE II, CONTINUED

                       CONDENSED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                ($ IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                  1998            1997          1996
                                                                --------       --------       --------
<S>                                                             <C>            <C>            <C>     
Operating activities:
Net earnings                                                    $ 36,746       $ 31,360       $ 27,032
  Adjustments to reconcile net earnings to net cash
     provided by operating activities:
     Change in accounts receivable                                 1,102            851          6,326
     Change in other assets                                       (3,315)        (4,315)        (2,416)
     Change in other liabilities                                  (1,378)          (504)         2,150
     Equity in net earnings of life insurance subsidiaries       (42,823)       (36,138)       (29,670)
     Equity in net loss of non-life insurance subsidiaries          (264)           166            341
                                                                --------       --------       --------
        Net cash provided by (used) operating activities          (9,932)        (8,580)         3,763
                                                                --------       --------       --------
Investing activities:
  Decrease in certificate of deposit                                   0            100              0
                                                                --------       --------       --------
      Net cash provided by investing activities                        0            100              0
                                                                --------       --------       --------
Financing activities:
  Dividends from subsidiaries                                     13,000              0              0
  Capital contribution to subsidiaries                                 0        (45,764)           (99)
  Increase (decrease) in notes payable to banks                    8,379        (26,267)        10,465
  Net proceeds from securities offering                                0         98,478              0
  Change in intercompany accounts                                    639         (5,798)          (996)
  Dividends to stockholders                                      (12,048)       (10,800)       (12,388)
  Purchase of treasury stock                                         (54)        (3,228)        (1,241)
  Excess over par value on shares issued                            (367)           542            317
  Other, net                                                         427          1,319            147
                                                                --------       --------       --------
      Net cash provided by (used) financing activities             9,976          8,482         (3,795)
                                                                --------       --------       --------
      Increase (decrease) in cash                                     44              2            (32)
                                                                --------       --------       --------
Cash at beginning of year                                             16             14             46
                                                                --------       --------       --------
Cash at end of year                                             $     60       $     16       $     14
                                                                ========       ========       ========
</TABLE>


                                       44
<PAGE>   45

                                                                   SCHEDULE III
                  AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
                       SUPPLEMENTARY INSURANCE INFORMATION
                                ($ IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                              
                                  DEFERRED        FUTURE       POLICYHOLDERS'             POLICY AND          
                                ACQUISITION       POLICY          ACCOUNT      UNEARNED    CONTRACT           
  INDUSTRY SEGMENT                 COSTS         BENEFITS        BALANCES      PREMIUMS     CLAIMS            
-----------------------------   -----------     ---------      -------------   --------   ----------
<S>                             <C>             <C>            <C>             <C>        <C>              
YEAR ENDED DECEMBER 31, 1998                                                                                  
     Ordinary                     $240,554      $  308,202      $1,094,316      $ 8,524      $ 23,221         
     Group                               0           7,664           2,750           83        34,098         
     Credit                              0               0               0       36,447         7,738         
     Other                               0               0               0            0             0         
                                  --------      ----------      ----------      -------      --------       
                                  $240,554      $  315,866      $1,097,066      $45,054      $ 65,057         
                                  ========      ==========      ==========      =======      ========
YEAR ENDED DECEMBER 31, 1997                                                                                  
     Ordinary                     $223,651      $  282,568      $1,009,790      $ 7,776      $ 16,866         
     Group                               0           7,197           3,812            0        31,148         
     Credit                              0               0               0       44,890        10,470         
     Other                               0               0               0            0             0         
                                  --------      ----------      ----------      -------      --------        
                                  $223,651      $  289,765      $1,013,602      $52,666      $ 58,484 
                                  ========      ==========      ==========      =======      ========
YEAR ENDED DECEMBER 31, 1996                                                                                 
     Ordinary                     $173,699      $  196,895      $  676,744      $ 5,375      $ 10,213        
     Group                               0           6,501           4,354            0        29,229        
     Credit                              0               0               0       46,904        11,819        
     Other                               0               0               0            0             0        
                                  --------      ----------      ----------      -------      --------        
                                  $173,699      $  203,396      $  681,098      $52,279      $ 51,261 
                                  ========      ==========      ==========      =======      ========   
                                                                                                              
<CAPTION>
                                                                             AMORTIZATION      TAXES,    
                                                    NET          BENEFITS    OF DEFERRED     COMMISSIONS  
                                   INSURANCE     INVESTMENT        AND       ACQUISITION     AND GENERAL  
    INDUSTRY SEGMENT              REVENUES (C)    INCOME (A)      CLAIMS        COSTS        EXPENSES (B)
---------------------------      --------------  -----------    ----------   -------------   ------------
<S>                              <C>             <C>            <C>          <C>             <C>
YEAR ENDED DECEMBER 31, 1998                                                                             
     Ordinary                      $197,435      $ 100,091       $158,894      $ 38,929      $  49,528
     Group                           39,964          5,670         26,467             0         14,285
     Credit                          71,458          5,319          9,661             0         60,856
     Other                                0           (183)            11             0         (3,476)
                                   --------      ---------       --------      --------      ---------
                                   $308,857      $ 110,897       $195,033      $ 38,929      $ 121,193
                                   ========      =========       ========      ========      =========
YEAR ENDED DECEMBER 31, 1997
     Ordinary                      $168,218      $  94,216       $144,323      $ 32,425      $  45,358
     Group                           31,034          5,430         18,255             0         13,601
     Credit                          80,579          4,890         12,559             0         67,537
     Other                                0            856             33             0         (3,488)
                                   --------      ---------       --------      --------      ---------
                                   $279,831      $ 105,392       $175,170      $ 32,425      $ 123,008
                                   ========      =========       ========      ========      =========
YEAR ENDED DECEMBER 31, 1996
     Ordinary                      $137,421      $  67,328       $110,959      $ 25,628      $  33,092
     Group                           35,480          5,321         24,013             0         12,275
     Credit                          85,618          4,365         13,901             0         72,332
     Other                                0             21             14             0           (285)
                                   --------      ---------       --------      --------      ---------
                                   $258,519      $  77,035       $148,887      $ 25,628      $ 117,414
                                   ========      =========       ========      ========      =========

</TABLE>

(a)      Allocated to the industry segment based on required liabilities for 
         future policy benefits. 
(b)      Allocated on functional cost basis unless specifically identifiable 
         with industry segment.
(c)      Includes only cost of insurance, expense and surrender charges for
         interest-sensitive products. Insurance revenues do not include group
         and credit premium equivalents and cash deposits from
         interest-sensitive products.


                                       45
<PAGE>   46

                                                                     SCHEDULE IV

                  AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
                                   REINSURANCE
                            (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                     CEDED TO      ASSUMED                         PERCENTAGE
                                      GROSS           OTHER       FROM OTHER           NET         OF AMOUNT
                                      AMOUNT        COMPANIES      COMPANIES         AMOUNTS     ASSUMED TO NET
                                    -----------     ----------    -----------      ----------    --------------
<S>                                 <C>              <C>           <C>             <C>           <C>  
YEAR ENDED DECEMBER 31, 1998
Life insurance volume in force      $21,957,820      5,068,470      5,648,502      22,537,852        25.1%
                                    ===========      =========      =========      ==========        ====
Insurance revenues(a):
   Ordinary                         $   207,112         12,419          2,742         197,435         1.4%
   Group                                 38,954          4,852          5,862          39,964        14.7%
   Credit                               144,449         72,991              0          71,458          - %
                                    -----------      ---------      ---------      ----------        ----
         Total                      $   390,515         90,262          8,604         308,857         2.8%
                                    ===========      =========      =========      ==========        ====
YEAR ENDED DECEMBER 31, 1997
Life insurance volume in force      $20,132,475      5,316,974      5,552,822      20,368,323        27.3%
                                    ===========      =========      =========      ==========        ====
Insurance revenues(a):
   Ordinary                         $   176,351         10,306          2,173         168,218         1.3%
   Group                                 34,263          5,509          2,280          31,034         7.3%
   Credit                               191,391        110,812              0          80,579          - %
                                    -----------      ---------      ---------      ----------        ----
         Total                      $   402,005        126,627          4,453         279,831         1.6%
                                    ===========      =========      =========      ==========        ====
YEAR ENDED DECEMBER 31, 1996
Life insurance volume in force      $16,208,820      4,599,978      4,314,210      15,923,052        27.1%
                                    ===========      =========      =========      ==========        ====
Insurance revenues(a):
   Ordinary                         $   142,397          6,963          1,987         137,421         1.4%
   Group                                 38,294          6,583          3,769          35,480        10.6%
   Credit                               183,787         98,169              0          85,618          - %
                                    -----------      ---------      ---------      ----------        ----
         Total                      $   364,478        111,715          5,756         258,519         2.2%
                                    ===========      =========      =========      ==========        ====
</TABLE>

(a)      Includes both life and accident and health premiums and commission and
         expense allowances on reinsurance ceded.


                                       46
<PAGE>   47

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         American Heritage Life Investment Corporation (the "Company") retained
Ernst and Young LLP as its independent auditors and replaced KPMG Peat Marwick
LLP effective July 25, 1997. No report of KPMG Peat Marwick LLP on the financial
statements of the Company contained an adverse opinion, or disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope, or
accounting principles. Since the engagement of KPMG Peat Marwick LLP through the
date of replacement, there were no disagreements between the Company and KPMG
Peat Marwick LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. The change in independent
accountants was approved by the board of Directors of the Company. Reference is
made to current reports on Forms 8-K and 8-K/A dated July 25, 1997. 

                                    PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 

         Information about directors of the Company who are not executive
officers, is contained in the Company's 1999 Proxy Statement, dated March 19,
1999 (the "Proxy Statement") under the sections entitled "Election of Directors"
and "Executive Compensation and Other Transactions with Management -- Other
Transactions and Relationships" which sections are incorporated herein by
reference. 

                                   MANAGEMENT

         The following tabulation is a list of the names and ages as well as the
position held for the past five years by each executive officer and director of
the Company and certain executive officers of AHL, none of whom is related to
each other either by blood or marriage, except W. Ashley Verlander and Chris A.
Verlander, who are father and son, respectively, and A. Dano Davis and Robert D.
Davis, who are first cousins. 

<TABLE>
<CAPTION>
Name                                                          Age                        Position 
----                                                          ---                        --------
<S>                                                           <C>          <C>                           
T. O'Neal Douglas . . . . . . . . . . . . . . . . . . . . . . 63           AHL and AHLIC - Chairman of the Board
                                                                                 and Chief Executive Officer, Director 
Chris A. Verlander . . . . . . . . . . . . . . . . . . . . .  51           AHL and AHLIC - Vice Chairman and Corporate
                                                                                 Secretary 
C. Richard Morehead . . . . . . . . . . . . . . . . . . . .   52           AHL and AHLIC - President 
                                                                                 and Chief Operating Officer, Director 
John K. Anderson, Jr. . . . . . . . . . . . . . . . . . . . . 50           AHL and AHLIC - Executive Vice-President, 
                                                                                 Treasurer and Chief Financial Officer 
David A. Bird . . . . . . . . . . . . . . . . . . . . . . . . 42           AHL and AHLIC - Executive Vice-President
                                                                                 and Chief Marketing Officer 
Charles C. Baggs . . . . . . . . . . . . . . . . . . . . . .  48           AHL - Senior Vice-President, Administration 

James H. Baum . . . . . . . . . . . . . . . . . . . . . . . . 47           AHL - Senior Vice-President, Group Department 

Robert E. Poland . . . . . . . . . . . . . . . . . . . . . .  57           AHL - Senior Vice-President, Agency

Elizabeth A. Mahin . . . . . . . . . . . . . . . . . . . . .  38           AHL - Senior Vice-President and Chief Accounting Officer 

Mike Pinkham . . . . . . . . . . . . . . . . . . . . . . . .  60           CUL - President and Chief Executive Officer 

William J Thomas . . . . . . . . . . . . . . . . . . . . . .  54           AHL - Senior Vice-President, Credit Department 
                                                              
Curtiss S. Sheldon . . . . . . . . . . . . . . . . . . . . .  57           AHL - Senior Vice-President and Chief Actuary 
                                                              
Edward L. Baker . . . . . . . . . . . . . . . . . . . . . .   63           Director 
                                                              
A. Dano Davis . . . . . . . . . . . . . . . . . . . . . . .   53           Director 
                                                              
Robert D. Davis . . . . . . . . . . . . . . . . . . . . . .   67           Director 
                                                              
H. Corbin Day . . . . . . . . . . . . . . . . . . . . . . .   61           Director 
                                                              
Radford D. Lovett . . . . . . . . . . . . . . . . . . . . .   65           Director 
                                                              
W. Ashley Verlander . . . . . . . . . . . . . . . . . . . .   79           Director
</TABLE>


                                       47
<PAGE>   48

         T. O'NEAL DOUGLAS' principal positions are those of: Chairman of the
Board of Directors of the Company, a position he has held since April, 1994;
Chief Executive Officer of the Company, a position he has held since February,
1990; Director of the Company, a position he has held since July, 1987; Director
of AHL, a position he has held since January, 1984; Chief Executive Officer of
AHL, a position he has held since February, 1990; and Chairman of AHL, a
position he has held since April, 1994. From February, 1990 to April, 1996, he
was President of the Company. From July, 1986 to April, 1994, he was President
of AHL. Mr. Douglas is also a Director of PSS/World Medical Inc.

         CHRIS A. VERLANDER's principal positions are those of: Vice-chairman
and Corporate Secretary of the Company and AHL, which he has held since August,
1997; Director of the Company, a position he has held since July, 1987; Director
of AHL, which he has held since April, 1985. Prior to August, 1997, and since
April, 1996 he was President and Chief Operating Officer. Prior to April, 1996,
and since April, 1990, he was Executive Vice President of the Company. Prior to
April, 1994, and since April, 1990, he was Executive Vice President of AHL.

         C. RICHARD MOREHEAD's principal positions are those of President and
Chief Operating Officer of the Company and AHL, which he has held since August,
1997; Director of AHL, which he has held since July, 1990; and Director of the
Company which he has held since July, 1998. Prior to August, 1997 and since
April, 1994, he was Executive Vice President, Treasurer, Chief Financial Officer
and Chief Accounting Officer of the Company and AHL. Prior to April, 1994 and
since July, 1986, he was Senior Vice President and Chief Financial Officer of
the Company and AHL.

         JOHN K. ANDERSON, JR.'S principal position is that of Executive Vice
President and Chief Financial Officer of the Company and AHL, a position he has
held since August, 1997. Prior to August, 1997 and since December, 1995 he was
Director of the Cancer Insurance Division of AHL. Prior to December, 1995 and
since September, 1993 he was Chief Executive Officer of E.G. Baldwin and
Associates, Inc. in Cleveland, Ohio.

         DAVID A. BIRD'S principal position is that of Executive Vice President
and Chief Marketing Officer of the Company and AHL, a position he has held since
August, 1997. Prior to August, 1997 and since May, 1994 he was Senior Vice
President, Agency of AHL. Prior to May, 1994 and since January, 1994 he was Vice
President of AHL.

         CHARLES C. BAGGS' principal position is that of Senior Vice President
of AHL, a position he has held since December, 1990.

         JAMES H. BAUM'S principal position is that of Senior Vice President of
AHL, a position he has held since December, 1990.

         ROBERT E. POLAND'S principal position is that of Senior Vice President,
Agency Department of AHL, a position he has held since February, 1998. Prior to
February, 1998 and since April, 1992 he was Vice President of AHL.

         ELIZABETH A. MAHIN'S principal positions are those of Senior Vice
President and Chief Accounting Officer of AHL, which she has held since April,
1994, and Senior Vice President and Chief Accounting Officer of the Company,
which she has held since April, 1998. Prior to April, 1994 and since August,
1990, she was Vice President and Controller of AHL.

         MIKE PINKHAM'S principal position is that of President, Chief Executive
Officer and Director of CUL, which he has held since May, 1997. Prior to May,
1997 and since 1993 he was President, Chief Operating Officer, Chief Marketing
Officer and Director of CUL. . William J Thomas' principal position is that of
Senior Vice President of AHL, a position he has held since July, 1995. Prior to
July, 1995 and since April, 1990, he was Vice President of AHL.

         CURTISS S. SHELDON'S principal position is that of Senior Vice
President and Chief Actuary of AHL, which he has held since August, 1993.


                                       48
<PAGE>   49

         EDWARD L. BAKER has served as a Director since 1994. Mr. Baker has been
Chairman of the Board of Florida Rock Industries, Inc., a construction products
company since February, 1989. Mr. Baker is also a Director of FRP Properties,
Inc. and Flowers Industries, Inc.

         A. DANO DAVIS has served as a Director since June, 1993. Mr. Davis has
been Chairman of the Board and Principal Executive Officer of Winn-Dixie Stores,
Inc., a retail grocery chain, since 1988. Mr. Davis is also a Director of First
Union Corporation, a bank holding company.

         ROBERT D. DAVIS has served as a Director since 1968. Mr. Davis has been
Chairman of the Board of D.D.I., Inc., a private investment company, since 1984.
Prior to June, 1990 and since 1988, he was Vice Chairman of the Board of
Winn-Dixie Stores, Inc. Mr. Davis is also a Director of Winn-Dixie Stores, Inc.

         H. CORBIN DAY has served as a Director since June, 1993 and has served
on the board of AHL since 1989. Mr. Day has been Chairman of the Board of
Jemison Investment Co., Inc., an investment banking firm since May, 1988. Mr.
Day is also a Director of Blount International, Inc., a construction and
manufacturing company, Hughes Supply, Inc. and Champion International
Corporation.

         RADFORD D. LOVETT has served as a Director since 1989. Mr. Lovett has
been Chairman of the Board of Commodores Point Terminal Corp., which operates a
marine terminal, since 1982. Mr. Lovett is also a Director of First Union
Corporation, Winn-Dixie Stores, Inc., Florida Rock Industries, Inc., a
construction products company and FRP Properties, Inc., a trucking and real
estate company.

         W. ASHLEY VERLANDER has served as a Director of the Company since its
organization in 1968. He served as Chairman of the Board of the Company from
February, 1990 to April, 1994. He was Chairman of the Board of AHL from July,
1986 to April, 1994.

ITEM 11.    EXECUTIVE COMPENSATION

         See the section entitled "Executive Compensation and Other Transactions
with Management" of the Proxy Statement which section, except for the
subsections "Compensation Committee Report on Executive Compensation" and
"Shareholder Return Performance Presentation" is incorporated herein by
reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         See the sections entitled "Election of Directors" and "Principal
Shareholders" of the Proxy Statement which sections are incorporated herein by
reference.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         See the section entitled "Executive Compensation and Other Transactions
with Management - Other Transactions and Relationships" of the Proxy Statement
which section is incorporated herein by reference.


                                       49
<PAGE>   50

                                          PART IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a) Documents incorporated by reference or filed with this report

        (1) Financial Statement - See "Index to Financial Statements and
            Schedules" on page 22, Part II of this report.

        (2) Schedules - See "Index to Financial Statements and Schedules" on
            page 22, Part II of this report.

        (3) Exhibits required by Item 601.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER            DESCRIPTION
-------           -----------
<S>               <C> 
3(a)       --     Amended and Restated Articles of Incorporation of American
                  Heritage Life Investment Corporation effective May 5, 1998.
                  Incorporated by reference to Exhibit 3(I) of the Form 8-K,
                  dated May 18, 1998 (File No. 1-7255).
 (b)       --     By-Laws of American Heritage Life Investment Corporation as
                  amended and restated, dated July 30, 1998. Incorporated by
                  reference to Exhibit 3 of a Form 8-K, dated July 30, 1998
                  (File No. 1-7255).
4(a)       --     Common Stock Certificate of American Heritage Life Investment
                  Corporation. Incorporated by reference to Exhibit 4 of the
                  Form 10-K filed by Registrant for the period ended 
                  December 31, 1994 (File No. 1-7255).
4(b)       --     Form of Indenture between the Company and The First National
                  Bank of Chicago, as Trustee. Incorporated by reference to
                  Exhibit 4(b) of the Registrant's Amendment No. 2 to Form S-3
                  dated June 23, 1997. (File No. 1-7255).
4(c)       --     Form of Preferred Security. Incorporated by reference to
                  Exhibit 4(c) of the Registrant's Amendment No. 1 to Form S-3
                  dated June 3, 1997. (File No. 1-7255).
 (d)       --     Form of Junior Subordinated Debenture. Incorporated by
                  reference to Exhibit 4(d) of the Registrant's Amendment No. 1
                  to Form S-3 dated June 3, 1997. (File No. 1-7255).
4(e)       --     Form of Guarantee Agreement with respect to Trust Preferred
                  Securities. Incorporated by reference to Exhibit 4(e) of the
                  Registrant's Amendment No. 1 to Form S-3 dated June 3, 1997.
                  (File No. 1-7255).
4(f)       --     Form of Purchase Contract Agreement, between the Company and
                  The First National Bank of Chicago as Purchase Contract Agent.
                  Incorporated by reference to Exhibit 4(f) of the Registrant's
                  Amendment No. 1 to Form S-3 dated June 3, 1997. (File No.
                  1-7255).
4(g)       --     Form of Pledge Agreement, among the Company, The Chase
                  Manhattan Bank, as Collateral Agent and The First National
                  Bank of Chicago, as Purchase Contract Agent. Incorporated by
                  reference to Exhibit 4(g) of the Registrant's Amendment No. 1
                  to Form S-3 dated June 3, 1997. (File No. 1-7255).
4(h)       --     Certificate of Trust of AHL Financing. Incorporated by
                  reference to Exhibit 4(h) of the Registrant's Form S-3 dated
                  March 28, 1997. (File No. 1-7255).
4(i)       --     Declaration of Trust of AHL Financing. Incorporated by
                  reference to Exhibit 4(I) of the Registrant's Form S-3 dated
                  March 28, 1997. (File No. 1-7255).
4(j)       --     Form of Supplemental Indenture to Indenture to be used in
                  connection with issuance of Junior Subordinated Debentures
                  related to Income PRIDES. Incorporated by reference to Exhibit
                  4(j) of the Registrant's Amendment No. 2 to Form S-3 dated
                  June 23, 1997. (File No. 1-7255).
</TABLE>

                                       50
<PAGE>   51


<TABLE>
<CAPTION>
EXHIBIT
NUMBER            DESCRIPTION
-------           -----------
<S>               <C>    
4(k)       --     Form of Amended and Restated Declaration of Trust of AHL
                  Financing. Incorporated by reference to Exhibit 4(k) of the
                  Registrant's Form S-3 dated March 28, 1997. (File No. 1-7255).
10(a)(1)   --     American Heritage Life Investment Corporation 1988 Stock
                  Option Plan, as Amended and Restated. Incorporated by
                  reference to Exhibit 3(a) of the Form 10-K filed by Registrant
                  for the period ended December 31, 1994 (File No. 1-7255).
   (a)(2)  --     American Heritage Life Investment Corporation 1980 Stock
                  Option Plan, as Amended and Restated. Incorporated by
                  reference to Exhibit 3(a) of the Form 10-K filed by Registrant
                  for the period ended December 31, 1994 (File No. 1-7255).
   (a)(3)  --     American Heritage Life Investment Corporation 1996 Stock
                  Option Plan. Incorporated by reference to Exhibit II of
                  Registrant's Proxy Statement dated March 22, 1996. (File No.
                  1-7255).
10(b)(1)   --     American Heritage Life Investment Corporation Amended and
                  Restated Annual Incentive Plan. Incorporated by reference to
                  Exhibit 10(b)(1) of Form 10-K filed by Registrant for the
                  period ended December 31, 1995 (File No. 1-7255).
     (2)   --     American Heritage Life Investment Corporation Long-Term
                  Incentive Plan. Incorporated by reference to Exhibit I of
                  Registrant's Proxy Statement dated March 22, 1996 (File No.
                  1-7255).
10(c)(1)   --     Senior Corporate Officers Management Security Plan of American
                  Heritage Life Investment Corporation and Subsidiaries.
                  Incorporated by reference to Exhibit 10(c)(1) of Form 10-K
                  filed by Registrant for the period ended December 31, 1993
                  (File No. 1-7255). Incorporated by reference to Exhibit
                  10(b)(1) of Form 10-K filed by Registrant for period ended
                  December 31, 1995 (File No. 1- 7255).
     (2)   --     Officers Management Security Plan of American Heritage Life
                  Investment Corporation and Subsidiaries. Incorporated by
                  reference to Exhibit 10(c)(2) of Form 10-K filed by Registrant
                  for the period ended December 31, 1993 (File No. 1-7255).
10(d)      --     Loan agreement dated February 21, 1997 among and between
                  American Heritage Life Investment Corporation and Barnett Bank
                  N.A., SunTrust Bank of North Florida, N.A. and SouthTrust Bank
                  of Alabama, National Association and related documents.
                  Incorporated by reference to Exhibit 99(c) of Form 8-K dated
                  March 3, 1997 (File No. 1-7255).
16(a)      --     Letter dated July 28, 1997, from KPMG Peat Marwick LLP to
                  Securities and Exchange Commission. Incorporation by reference
                  to Exhibit 16 of the Registrant's Form 8-K dated July 25,
                  1997, filed with the Commission on July 29, 1997.
16(b)      --     Letter dated August 28, 1997, from KPMG Peat Marwick LLP to
                  Securities and Exchange Commission. Incorporation by reference
                  to Exhibit 16(b) of the Registrant's Form 8-K/A dated July 25,
                  1997, filed with the Commission on August 29, 1997.
21         --     Significant Subsidiaries of the Registrant.
27         --     Financial Data Schedule (for SEC purposes only)

      (b)         Reports on Form 8-K
</TABLE>

           No reports were filed on Form 8-K during the quarter ended December 
31, 1998.

                                       51
<PAGE>   52

                                   SIGNATURES

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

                             AMERICAN HERITAGE LIFE INVESTMENT CORPORATION

March 29, 1999               By:         /s/ T. O'NEAL DOUGLAS
                                --------------------------------------------
                                             T. O'Neal Douglas
                                               Its Chairman

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

<TABLE>
<CAPTION>
      Signatures                                    Title                         Date
      ----------                                    -----                         ----
<S>                                         <C>                                  <C> 
 /s/ T. O'NEAL DOUGLAS                      Chairman and Director                March 29, 1999
--------------------------------            (Principal Executive Officer)
           T. O'Neal Douglas                

/s/ CHRIS A. VERLANDER
--------------------------------            Vice Chairman, Director              March 29, 1999
           Chris A. Verlander               

 /s/ C. RICHARD MOREHEAD                    President, Chief Operating           March 29, 1999
--------------------------------            Officer and Director
          C. Richard Morehead               

 /s/ JOHN K. ANDERSON, JR                   Executive Vice President and         March 29, 1999
--------------------------------            Treasurer (Principal Financial
           John K. Anderson,Jr              Officer)
                                            

 /s/ ELIZABETH A. MAHIN                     Senior Vice President and Chief      March 29, 1999
--------------------------------            Accounting Officer (Principal
           Elizabeth A Mahin                Accounting Officer)
                                            

 /s/ EDWARD L. BAKER                        Director                             March 29, 1999
--------------------------------
           Edward L. Baker

 /s/ A. DANO DAVIS                          Director                             March 29, 1999
--------------------------------
             A. Dano Davis

 /s/ ROBERT D. DAVIS                        Director                             March 29, 1999
--------------------------------
             Robert D. Davis

 /s/ H. CORBIN DAY                          Director                             March 29, 1999
--------------------------------
             H. Corbin Day

 /s/ RADFORD D. LOVETT                      Director                             March 29, 1999
--------------------------------
            Radford D. Lovett

 /s/ W.A. VERLANDER                         Director                             March 29, 1999
--------------------------------
            W. A. Verlander
</TABLE>


                                       52