SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998        Commission File Number 0-5392

                         FIRST COMMONWEALTH CORPORATION
                         ------------------------------
             (Exact Name of Registrant as specified in its charter)

                             5250 South Sixth Street
                                  P.O. Box 5147
                              Springfield, IL 62705
                              ---------------------
          (Address of principal executive offices, including zip code)

           VIRGINIA                                                54-0832816   
           --------                                                ----------
(State or other jurisdiction                                   (I.R.S. Employer
incorporation or organization)                              Identification No.)

Registrant's telephone number, including area code:  (217) 241-6300

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

                                                          Name of each exchange
Title of each class                                         on which registered 
-------------------                                         ------------------- 
     None                                                             None

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

                               Title of each class
                               -------------------

                      Common Stock, par value $1 per share

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (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 (229.405 of this chapter) is not contained  herein,  and will
not be contained,  to the best of 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. [X].

At March 12, 1999, the Registrant had outstanding 54,539 shares of Common Stock,
par value $1 per share.

DOCUMENTS INCORPORATED BY REFERENCE:  None

                                  Page 1 of 92

<PAGE>


                         FIRST COMMONWEALTH CORPORATION
                                    FORM 10-K
                          YEAR ENDED DECEMBER 31, 1998


                                TABLE OF CONTENTS



PART I.........................................................................3


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


   ITEM 2.  PROPERTIES........................................................16


   ITEM 3.  LEGAL PROCEEDINGS.................................................16


   ITEM 4.  SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS...............16


PART II.......................................................................17


   ITEM 5.  MARKET FOR COMPANY'S COMMON STOCK AND RELATED SECURITY
            HOLDERS MATTERS...................................................17


   ITEM 6.  SELECTED FINANCIAL DATA...........................................18


   ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS.........................................19


   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................35


   ITEM 9.  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
            DISCLOSURE........................................................65


PART III......................................................................65


   ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............65


   ITEM 11.  EXECUTIVE COMPENSATION...........................................67


   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...73


   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................75


PART IV.......................................................................79


   ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS 
             ON FORM 8-K......................................................79


                                       2
<PAGE>


                                     PART I

ITEM 1.  BUSINESS


FORWARD-LOOKING INFORMATION

Any  forward-looking  statement contained herein or in any other oral or written
statement  by the company or any of its  officers,  directors  or  employees  is
qualified by the fact that actual  results of the company may differ  materially
from those  projected  in  forward-looking  statements.  Additional  information
concerning  factors that could cause actual  results to differ from those in the
forward-looking statements is contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations."


OVERVIEW

First  Commonwealth  Corporation  (the  "Registrant")  was incorporated in 1967,
under  the laws of the  State of  Virginia  to  serve  as an  insurance  holding
company.  The  Registrant and its  subsidiaries  (the  "Company")  have only one
significant  industry  segment  insurance.  The Company's  dominant  business is
individual  life insurance  which  includes the servicing of existing  insurance
business in force,  the  solicitation of new individual life insurance,  and the
acquisition of other companies in the insurance business.

At December 31, 1998, significant majority-owned  subsidiaries and affiliates of
the Registrant were as depicted on the following organizational chart:


                                       3
<PAGE>


The holding  companies  within the group,  UTI,  UII,  UTG and FCC, are all life
insurance  holding  companies.  These  companies  became  members  of  the  same
affiliated  group  through a history of  acquisitions  in which  life  insurance
companies were involved.  The focus of the holding  companies is the acquisition
of other  companies in similar lines of business and management of the insurance
subsidiaries. The companies have no activities outside the life insurance focus.

The insurance  companies of the group, UG, USA, APPL and ABE, all operate in the
individual  life insurance  business.  The primary focus of these  companies has
been the servicing of existing  insurance business in force and the solicitation
of new insurance business.


HISTORY

First  Commonwealth  Corporation,  ("FCC") was incorporated in August 1967, as a
Virginia   corporation.   FCC  is  an   intermediate   holding   company,   (See
organizational chart) ultimately controlled by United Trust, Inc., ("UTI").

UTI was incorporated December 14, 1984, as an Illinois  corporation.  During the
next two and a half years,  UTI was engaged in an intrastate  public offering of
its  securities,  raising over  $12,000,000  net of offering costs. In 1986, UTI
formed a life  insurance  subsidiary  and by 1987 began  selling life  insurance
products.

United Income, Inc. ("UII"), an affiliated company, was incorporated on November
2, 1987, as an Ohio corporation.  Between March 1988 and August 1990, UII raised
a total of approximately  $15,000,000 in an intrastate  public offering in Ohio.
During  1990,  UII formed a life  insurance  subsidiary  and began  selling life
insurance products.

In December 1989, FCC acquired  Universal Guaranty Life Insurance Company ("UG")
and Alliance Life Insurance  Company  ("ALLI").  At the time of this acquisition
the  Company  effectively  doubled  in size to $230  million  in  assets.  These
companies also had marketing forces that had  successfully  written new business
for the last few years prior to the acquisition.

On February 20, 1992, UTI and UII,  formed a joint venture,  United Trust Group,
Inc.,  ("UTG").  On June 16, 1992,  UTI  contributed  $2.7  million in cash,  an
$840,000  promissory  note and 100% of the common stock of its wholly owned life
insurance  subsidiary,  (UTAC). UII contributed $7.6 million in cash and 100% of
its life insurance  subsidiary,  (USA), to UTG. After the contributions of cash,
subsidiaries, and the note, UII owns 47% and UTI owns 53% of UTG.

On June 16, 1992,  UTG acquired 67% of the  outstanding  common stock of the now
dissolved Commonwealth Industries  Corporation,  ("CIC") for a purchase price of
$15,567,000.  Following the  acquisition  UTI  controlled  eleven life insurance
subsidiaries. The Company has taken several steps to streamline and simplify the
corporate structure following the acquisitions.

On December 28, 1992,  Universal  Guaranty Life Insurance Company ("UG") was the
surviving  company of a merger with Roosevelt  National Life  Insurance  Company
("RNLIC"),  United Trust  Assurance  Company  ("UTAC"),  Cimarron Life Insurance
Company ("CIM") and Home Security Life Insurance Company ("HSLIC").  On June 30,
1993,  Alliance Life Insurance Company ("ALLI"),  a subsidiary of UG, was merged
into UG.

On August 15, 1995, the shareholders of CIC, Investors Trust, Inc., ("ITI"), and
Universal  Guaranty  Investment  Company,  ("UGIC"),  all  intermediate  holding
companies  within  the UTI group,  voted to  voluntarily  liquidate  each of the
companies and distribute the assets to the  shareholders  (consisting  solely of
common stock of their  respective  subsidiary).  As a result the shareholders of
the liquidated companies became shareholders of FCC.

On November 20, 1998,  First  Southern  Funding,  LLC., a Kentucky  corporation,
("FSF") and affiliates  acquired 929,904 shares of common stock of United Trust,
Inc., an Illinois corporation, ("UTI") from UTI and certain UTI shareholders. As
consideration for the shares, FSF paid UTI $10,999,995 and certain  shareholders
of UTI $999,990 in cash.

                                       4
<PAGE>


UTI has granted, for nominal consideration, an irrevocable,  exclusive option to
FSF to purchase up to 1,450,000  shares of UTI common stock for a purchase price
in cash equal to $15.00 per share,  with such  option to expire on July 1, 2001.
UTI has also caused three persons designated by FSF to be appointed,  as part of
the maximum of 11, to the Board of Directors of UTI.

Following  the above  transactions,  and together with shares of UTI acquired in
the market,  FSF and affiliates own 1,073,577 shares of UTI common stock (43.1%)
becoming the largest shareholder of UTI. Through the shares acquired and options
owned,  FSF can  ultimately  own over 51% of UTI.  Mr.  Jesse T.  Correll is the
majority  shareholder of FSF,  which is an affiliate of First Southern  Bancorp,
Inc., a bank holding  company that owns a bank that operates out of 14 locations
in central Kentucky.

This  transaction  provides  the  Company  with  increased  opportunities.   The
additional  capitalization  has enabled UTI to significantly  reduce its outside
debt and has enhanced its ability to make future acquisitions  through increased
borrowing power and financial strength. Many synergies exist between the Company
and First Southern  Funding and its affiliates.  The potential for cross selling
of services to each customer base is currently  being  explored.  Legislation is
currently pending that would eliminate many of the barriers  currently  existing
between banks and insurance  companies.  Such alliances are already being formed
within the two industries.  Management  believes this transaction  positions the
Company  for  continued  growth  and  competitiveness  into  the  future  as the
financial industry changes.


PRODUCTS

The Company's  portfolio  consists of two  universal  life  insurance  products.
Universal  life  insurance  is a  form  of  permanent  life  insurance  that  is
characterized  by its flexible  premiums,  flexible face amounts,  and unbundled
pricing factors.  The primary universal life insurance product is referred to as
the "Century  2000".  This product was introduced to the marketing force in 1993
and has become the cornerstone of current marketing.  This product has a minimum
face amount of $25,000 and  currently  credits 5.5%  interest  with a guaranteed
rate of 4.5% in the first 20 years and 3% in years 21 and  greater.  The  policy
values are subject to a $4.50 monthly policy fee, an  administrative  load and a
premium load of 6.5% in all years.  The premium and  administrative  loads are a
general  expense  charge,  which is added to a policy's net premium to cover the
insurer's cost of doing business. A premium load is assessed upon the receipt of
a premium payment.  An administrative  load is a monthly maintenance charge. The
administrative  load and  surrender  charge are based on the issue age,  sex and
rating class of the policy.  A surrender  charge is  effective  for the first 14
policy years. In general,  the surrender  charge is very high in the early years
and then declines to zero at the end of 14 years.  Policy loans are available at
7% interest in  advance.  The  policy's  accumulated  fund will be credited  the
guaranteed interest rate in relation to the amount of the policy loan.

The second universal life product referred to as the "UL90A", has a minimum face
amount of $25,000.  The  administrative  load is based on the issue age, sex and
rating class of the policy. Policy fees vary from $1 per month in the first year
to $4 per  month in the  second  and  third  years  and $3 per  month  each year
thereafter.  The UL90A  currently  credits 5%  interest  with a 4.5%  guaranteed
interest rate.  Partial  withdrawals,  subject to a remaining  minimum $500 cash
surrender value and a $25 fee, are allowed once a year after the first duration.
Policy loans are available at 7% interest in advance.  The policy's  accumulated
fund will be credited the guaranteed  interest rate in relation to the amount of
the policy loan.  Surrender  charges are based on a percentage of target premium
starting  at 120% for years 1-5 then  grading  downward to zero in year 15. This
policy   contains  a  guaranteed   interest   credit  bonus  for  the  long-term
policyholder.  From years 10 through 20, additional  interest bonuses are earned
with a total in the  twentieth  year of 1.375%.  The bonus is credited  from the
policy issue date and is contractually guaranteed.

The Company's actual  experience for earned interest,  persistency and mortality
vary from the  assumptions  applied to  pricing  and for  determining  premiums.
Accordingly,  differences  between the  Company's  actual  experience  and those
assumptions  applied may impact the  profitability  of the Company.  The minimum
interest  spread  between  earned and credited rates is 1% on the "Century 2000"
universal life insurance  product.  The Company monitors  investment yields, and
when necessary  adjusts  credited  interest  rates on its insurance  products to
preserve targeted interest spreads.  Credited rates are reviewed and established
by the Board of Directors of the respective life insurance subsidiaries.


                                       5
<PAGE>


The premium rates are  competitive  with other  insurers  doing  business in the
states in which the Company is marketing its products.

The Company markets other products,  none of which is significant to operations.
The Company has a variety of  policies in force  different  from those which are
currently being marketed.  Interest sensitive products including  universal life
and excess  interest  whole life  ("fixed  premium  UL")  account for 50% of the
insurance in force. Approximately 34% of the insurance in force is participating
business,  which represents  policies under which the policyowner  shares in the
insurance  companies   statutory   divisible  surplus.   The  Company's  average
persistency  rate for its policies in force for 1998 and 1997 has been 89.9% and
89.4%,  respectively.  The Company does not anticipate any material fluctuations
in these rates in the future that may result from competition.

Interest-sensitive  life  insurance  products  have  characteristics  similar to
annuities  with  respect to the  crediting  of a current  rate of interest at or
above a guaranteed  minimum rate and the use of surrender  charges to discourage
premature  withdrawal of cash values.  Universal  life  insurance  policies also
involve variable premium charges against the policyholder's  account balance for
the cost of insurance and administrative expenses. Interest-sensitive whole life
products  generally  have  fixed  premiums.  Interest-sensitive  life  insurance
products are designed with a combination of front-end loads,  periodic  variable
charges, and back-end loads or surrender charges.

Traditional life insurance products have premiums and benefits  predetermined at
issue;  the  premiums  are set at levels that are  designed  to exceed  expected
policyholder   benefits  and  Company   expenses.   Participating   business  is
traditional  life  insurance  with the added  feature  of an annual  return of a
portion of the premium paid by the policyholder through a policyholder dividend.
This  dividend  is set  annually  by the Board of  Directors  of each  insurance
company and is completely discretionary.


MARKETING

The Company  markets its products  through  separate and distinct agency forces.
The Company has approximately 45 captive agents who actively write new business,
and 15 independent  agents who primarily  service their existing  customers.  No
individual sales agent accounted for over 10% of the Company's premium volume in
1998. The Company's sales agents do not have the power to bind the Company.

Marketing is based on a referral  network of community  leaders and shareholders
of UII and UTI.  Recruiting  of sales agents is also based on the same  referral
network.  New sales are marketed by UG and USA through their agency forces using
prepared  presentation   materials  and  personal  computer  illustrations  when
appropriate.  Current  marketing  efforts are  primarily  focused on the Midwest
region.

USA is licensed in Illinois,  Indiana and Ohio.  During 1998, Ohio accounted for
96% of USA's direct premiums collected.

ABE is licensed in Alabama, Arizona, Illinois,  Indiana, Louisiana and Missouri.
During 1998,  Illinois and Indiana  accounted for 45% and 33%,  respectively  of
ABE's direct premiums collected.

APPL is licensed in Alabama, Arizona,  Arkansas,  Colorado,  Georgia,  Illinois,
Indiana,  Kansas,  Kentucky,  Louisiana,   Missouri,  Montana,  Nebraska,  Ohio,
Oklahoma,  Pennsylvania,  Tennessee,  Utah, Virginia, West Virginia and Wyoming.
During  1998,  West  Virginia  accounted  for  96%  of  APPL's  direct  premiums
collected.

UG is licensed in  Alabama,  Arizona,  Arkansas,  Colorado,  Delaware,  Florida,
Georgia,   Idaho,  Illinois,   Indiana,  Iowa,  Kansas,   Kentucky,   Louisiana,
Massachusetts,  Michigan, Minnesota,  Mississippi,  Missouri, Montana, Nebraska,
Nevada,  New Mexico,  North  Carolina,  North Dakota,  Ohio,  Oklahoma,  Oregon,
Pennsylvania,  Rhode Island,  South Carolina,  South Dakota,  Tennessee,  Texas,
Utah, Virginia,  Washington,  West Virginia and Wisconsin. During 1998, Illinois
accounted for 32%, and Ohio accounted for 12% of direct premiums  collected.  No
other state accounted for more than 7% of direct premiums collected in 1998.

                                       6
<PAGE>


In 1998  $35,899,905 of total direct premium was collected by USA, ABE, APPL and
UG. Ohio  accounted  for 32%,  Illinois  accounted  for 21%,  and West  Virginia
accounted for 10% of total direct premiums collected.

New business production has decreased 43% from 1996 to 1997 and 39% from 1997 to
1998. Several factors have had a significant impact on new business  production.
Over the last two years there has been the possibility of a change in control of
UTI. In  September  of 1996,  an  agreement  was  reached  effecting a change in
control of UTI to an unrelated party.  The transaction did not  materialize.  On
November 20, 1998, UTI closed on a transaction with First Southern Funding,  LLC
in which First Southern became the largest shareholder of UTI. These events, and
the  uncertainty  surrounding  each event,  have hurt the  insurance  companies'
ability to attract and maintain sales agents. In addition, increased competition
for consumer  dollars from other financial  institutions,  product  Illustration
guideline  changes by State Insurance  Departments,  and a decrease in the total
number of insurance sales agents in the industry,  have all had an impact, given
the relatively small size of the Company.

The Company is currently in a position  where it must  increase its new business
writings  or look at  measures  to reduce  costs  associated  with new  business
production to a level more in line with the current level of production. In late
1998, A.M. Best Company, a leading insurance  industry rating agency,  increased
its rating assigned to UG, the Company's  largest insurance  subsidiary,  from a
C++ to a B. This rating change should aid in the agents selling ability although
to what extent is currently unknown.


UNDERWRITING

The  underwriting  procedures of the insurance  subsidiaries  are established by
management. Insurance policies are issued by the Company based upon underwriting
practices  established  for each  market in which  the  Company  operates.  Most
policies are individually underwritten.  Applications for insurance are reviewed
to determine additional  information required to make an underwriting  decision,
which depends on the amount of insurance applied for and the applicant's age and
medical history.  Additional information may include inspection reports, medical
examinations,  and statements from doctors who have treated the applicant in the
past  and,  where  indicated,   special  medical  tests.   After  reviewing  the
information  collected,  the Company  either issues the policy as applied for or
with an extra  premium  charge  because of  unfavorable  factors or rejects  the
application. Substandard risks may be referred to reinsurers for full or partial
reinsurance of the substandard risk.

The  Company's  insurance  subsidiaries  require  blood samples to be drawn with
individual  insurance  applications for coverage over $45,000 (age 46 and above)
or $95,000 (ages  16-45).  Blood samples are tested for a wide range of chemical
values and are  screened  for  antibodies  to the HIV virus.  Applications  also
contain  questions  permitted  by law  regarding  the HIV  virus  which  must be
answered by the proposed insureds.


RESERVES

The  applicable  insurance laws under which the insurance  subsidiaries  operate
require that each  insurance  company  report policy  reserves as liabilities to
meet future obligations on the policies in force. These reserves are the amounts
which,  with  the  additional  premiums  to be  received  and  interest  thereon
compounded  annually at certain assumed rates, are calculated in accordance with
applicable  law to be  sufficient  to  meet  the  various  policy  and  contract
obligations  as they mature.  These laws specify that the reserves  shall not be
less than reserves calculated using certain mortality tables and interest rates.


                                       7
<PAGE>


The liabilities for traditional life insurance and accident and health insurance
policy benefits are computed using a net level method. These liabilities include
assumptions  as  to  investment  yields,  mortality,   withdrawals,   and  other
assumptions  based on the life insurance  subsidiaries'  experience  adjusted to
reflect  anticipated trends and to include  provisions for possible  unfavorable
deviations.  The Company  makes these  assumptions  at the time the  contract is
issued or, in the case of contracts acquired by purchase,  at the purchase date.
Benefit  reserves  for  traditional  life  insurance  policies  include  certain
deferred profits on limited-payment policies that are being recognized in income
over the policy term. Policy benefit claims are charged to expense in the period
that the claims are incurred.  Current  mortality rate  assumptions are based on
1975-80 select and ultimate  tables.  Withdrawal rate assumptions are based upon
Linton  B or  Linton  C,  which  are  industry  standard  actuarial  tables  for
forecasting assumed policy lapse rates.

Benefit  reserves for  universal  life  insurance  and interest  sensitive  life
insurance  products  are  computed  under a  retrospective  deposit  method  and
represent policy account balances before applicable  surrender  charges.  Policy
benefits and claims that are charged to expense include benefit claims in excess
of related policy account balances.  Interest crediting rates for universal life
and interest sensitive products range from 4.5% to 5.5% in 1998 and 5.0% to 6.0%
in 1997 and 1996.


REINSURANCE

As is  customary  in the  insurance  industry,  the  insurance  affiliates  cede
insurance to other insurance companies under reinsurance agreements. Reinsurance
agreements  are  intended to limit a life  insurer's  maximum loss on a large or
unusually  hazardous  risk or to obtain a greater  diversification  of risk. The
ceding  insurance  company  remains  primarily  liable  with  respect  to  ceded
insurance should any reinsurer be unable to meet the obligations  assumed by it.
However,  it is the practice of insurers to reduce their exposure to loss to the
extent that they have been reinsured with other insurance companies. The Company
sets a limit on the amount of insurance  retained on the life of any one person.
The  Company  will not retain more than  $125,000,  including  accidental  death
benefits,  on any one life.  At December 31, 1998,  the Company had insurance in
force of  $3.536  billion  of which  approximately  $924  million  was  ceded to
reinsurers.

The Company's  reinsured business is ceded to numerous  reinsurers.  The Company
believes the assuming  companies are able to honor all contractual  commitments,
based on the Company's periodic reviews of their financial statements, insurance
industry reports and reports filed with state insurance departments.

Currently,  the Company is utilizing reinsurance  agreements with Business Men's
Assurance Company, ("BMA") and Life Reassurance Corporation, ("LIFE RE") for new
business. BMA and LIFE RE each hold an "A+" (Superior) rating from A.M. Best, an
industry rating company.  The reinsurance  agreements were effective December 1,
1993,  and cover all new business of the Company.  The  agreements  are a yearly
renewable  term  ("YRT")  treaty  where  the  Company  cedes  amounts  above its
retention limit of $100,000 with a minimum cession of $25,000.

One of the  Company's  insurance  subsidiaries  (UG) entered into a  coinsurance
agreement  with First  International  Life  Insurance  Company  ("FILIC")  as of
September  30,  1996.  Under  the  terms  of the  agreement,  UG  ceded to FILIC
substantially all of its paid-up life insurance policies. Paid-up life insurance
generally  refers to  non-premium  paying life  insurance  policies.  A.M.  Best
assigned FILIC a Financial  Performance Rating (FPR) of 7 (Strong) on a scale of
1 to 9. A.M.  Best  assigned a Best's  Rating of A++  (Superior) to The Guardian
Life Insurance Company of America  ("Guardian"),  parent of FILIC,  based on the
consolidated  financial  condition and operating  performance of the company and
its life/health subsidiaries. During 1997, FILIC changed its name to Park Avenue
Life  Insurance  Company  ("PALIC").  The  agreement  with  PALIC  accounts  for
approximately 65% of the reinsurance receivables as of December 31, 1998.

                                       8
<PAGE>


The Company does not have any short-duration  reinsurance contracts.  The effect
of the Company's long-duration reinsurance contracts on premiums earned in 1998,
1997 and 1996 was as follows:

<TABLE>
<CAPTION>

                                            Shown in thousands
                          --------------------------------------------------------
                               1998                1997                1996
                             Premiums            Premiums            Premiums
                              Earned              Earned              Earned
                          ----------------    ----------------    ----------------
<S>                   <C>                 <C>                 <C>    
Direct                $            30,919 $            33,374 $            35,891
Assumed                                20                   0                   0
Ceded                              (4,543)             (4,735)             (4,947)
                          ----------------    ----------------    ----------------
Net premiums          $            26,396 $            28,639 $            30,944
                          ================    ================    ================
</TABLE>


INVESTMENTS

The Company  retains the services of a registered  investment  advisor to assist
the Company in managing  its  investment  portfolio.  The Company may modify its
present investment  strategy at any time,  provided its strategy continues to be
in compliance with the limitations of state insurance department regulations.

Investment  income  represents  a  significant  portion of the  Company's  total
income.   Investments  are  subject  to  applicable  state  insurance  laws  and
regulations  which limit the concentration of investments in any one category or
class and  further  limit the  investment  in any one issuer.  Generally,  these
limitations  are imposed as a percentage  of statutory  assets or  percentage of
statutory capital and surplus of each company.

The following table reflects net investment income by type of investment.

<TABLE>
<CAPTION>
  
                                                        December 31,
                                        ---------------------------------------------------------
                                               1998               1997               1996
                                          ---------------    ----------------   ----------------
<S>                                     <C>                <C>                <C>    
Fixed maturities and fixed maturities
  held for sale                         $     12,035,619   $     12,736,865   $      13,396,431
Equity securities                                 92,196             87,211             88,661
Mortgage loans                                   859,543            802,123          1,047,461
Real estate                                      842,724            745,502            794,844
Policy loans                                     984,761            976,064          1,121,538
Other long-term investments                       62,477             63,530             63,005
Short-term investments                            29,907             70,624             17,664
Cash                                           1,209,046            594,478            602,525
                                          ---------------    ----------------   ----------------
Total consolidated investment income          16,116,273         16,076,397         17,132,129
Investment expenses                           (1,046,869)        (1,198,061)        (1,222,903)
                                         ----------------    ---------------    ----------------
Consolidated net investment income      $     15,069,404    $    14,878,336    $    15,909,226 
                                          ===============    ================   ================

</TABLE>

At December  31, 1998,  the Company had a total of  $4,187,000  of  investments,
comprised  of  $3,152,000  in real  estate,  $968,000 in equity  securities  and
$66,000 in other  long-term  investments,  which did not produce  income  during
1998.


                                       9
<PAGE>


The following table  summarizes the Company's fixed  maturities  distribution at
December 31, 1998 and 1997 by ratings category as issued by Standard and Poor's,
a leading ratings analyst.

                   Fixed Maturities
      Rating                       % of Portfolio
                                ----------------------
                                  1998        1997
                                ----------  ----------
Investment Grade
   AAA                              38%         31%
   AA                               18%         14%
   A                                36%         46%
   BBB                               7%          9%
Below investment grade               1%          0%
                                ----------  ----------
                                   100%        100%
                                ==========  ==========


The  following  table   summarizes  the  Company's  fixed  maturities  by  major
classification.

<TABLE>
<CAPTION>

                                                                       Carrying Value
                                                      -------------------------------------------------
                                                                 1998                      1997
                                                          --------------------      --------------------
<S>                                                     <C>                       <C>                   
U.S. government and government agencies                 $          36,809,239     $          28,032,927
States, municipalities and political subdivisions                  23,835,306                22,739,944
Collateralized mortgage obligations                                 9,406,895                11,093,926
Public utilities                                                   41,724,208                47,971,152
Corporate                                                          62,465,200                70,811,091
                                                          --------------------      --------------------
                                                        $         174,240,848     $         180,649,040           
                                                          ====================      ====================
</TABLE>

The following table shows the composition and average  maturity of the Company's
investment portfolio at December 31, 1998.

                                Carrying       Average         Average
Investments                      Value        Maturity          Yield   

Fixed maturities and fixed
  maturities held for sale    $175,746,254   4 years              6.72%
Equity securities                2,087,416   not applicable       3.62%
Mortgage loans                  10,941,614   10 years             8.42%
Investment real estate          10,529,183   not applicable       7.66%
Policy loans                    14,134,041   not applicable       6.95%
Other long-term investments        906,278   5 years              7.16%
Short-term investments           1,036,251   190 days             5.57%
Cash and Cash equivalents       25,752,842   on demand            5.83%
                              ------------
Total Investments and Cash    $241,133,879                       6.72%
                               ===========


At December 31, 1998, fixed maturities and fixed maturities held for sale have a
combined market value of $181,390,785. Fixed maturities are carried at amortized
cost.  Management  has the  ability  and intent to hold these  securities  until
maturity. Fixed maturities held for sale are carried at market.

                                       10
<PAGE>


The Company holds $1,036,251 in short-term investments.  Management monitors its
investment  maturities  and in their opinion is sufficient to meet the Company's
cash  requirements.  Fixed  maturities  of  $16,997,000  mature  in one year and
$82,960,000 mature in two to five years.

The Company holds $10,941,614 in mortgage loans which represents 3% of the total
assets.  All  mortgage  loans are  first  position  loans.  Before a new loan is
issued,  the  applicant  is  subject to  certain  criteria  set forth by Company
management  to ensure  quality  control.  These  criteria  include,  but are not
limited to, a credit report,  personal financial information such as outstanding
debt,  sources of income,  and personal  equity.  Loans issued are limited to no
more than 80% of the appraised  value of the property and must be first position
against the collateral.

The  Company  has no  mortgage  loans which are in default and in the process of
foreclosure.  The  Company  has one loan of $42,116  which is under a  repayment
plan.  Letters are sent to each  mortgagee when the loan becomes 30 days or more
delinquent.  Loans 90 days or more  delinquent  are  placed on a  non-performing
status  and  classified  as  delinquent  loans.  Reserves  for loan  losses  are
established based on management's  analysis of the loan balances compared to the
expected  realizable value should  foreclosure take place. Loans are placed on a
non-accrual status based on a quarterly analysis of the likelihood of repayment.
All  delinquent and troubled loans held by the Company are loans which were held
in  portfolios  by acquired  companies  at the time of  acquisition.  Management
believes the current internal  controls  surrounding the mortgage loan selection
process  provide a quality  portfolio  with minimal risk of  foreclosure  and/or
negative financial impact.

The  Company  has in  place a  monitoring  system  to  provide  management  with
information  regarding  potential troubled loans.  Management is provided with a
monthly  listing  of loans  that are 30 days or more past due along with a brief
description of what steps are being taken to resolve the delinquency. Quarterly,
coinciding with external  financial  reporting,  the Company determines how each
delinquent  loan  should be  classified.  All loans 90 days or more past due are
classified  as  delinquent.  Each  delinquent  loan is reviewed to determine the
classification  and  status  the loan  should be given.  Interest  accruals  are
analyzed  based  on the  likelihood  of  repayment.  In no event  will  interest
continue to accrue when accrued  interest along with the  outstanding  principal
exceeds the net realizable value of the property. The Company does not utilize a
specified number of days delinquent to cause an automatic non-accrual status.

A mortgage  loan  reserve is  established  and  adjusted  based on  management's
quarterly  analysis  of the  portfolio  and any  deterioration  in  value of the
underlying  property which would reduce the net realizable value of the property
below its current carrying value.

In addition,  the Company also makes sure that current and adequate insurance on
the properties is being  maintained.  The Company requires proof of insurance on
each loan and further requires to be shown as a lienholder on the policy so that
any change in coverage  status is reported to the  Company.  Proof of payment of
real estate  taxes is another  monitoring  technique  utilized  by the  Company.
Management  believes a change in insurance  status or non-payment of real estate
taxes is an indicator that a loan is potentially  troubled.  Correspondence with
the  mortgagee is performed to determine  the reasons for either of these events
occurring.

The following table shows a distribution of mortgage loans by type.

Mortgage Loans             Amount          % of Total
---------------------  ----------------   -------------
FHA/VA               $         424,229             4%
Commercial                   4,572,395            42%
Residential                  5,944,990            54%


                                       11
<PAGE>


The  following  table  shows a  geographic  distribution  of the  mortgage  loan
portfolio and investment real estate and real estate acquired in satisfaction of
debt.


                         Mortgage             Real
                           Loans             Estate
                        ------------        ----------
Illinois                       22%               62%
Kansas                          7%                0%
Louisiana                      24%               15%
Mississippi                     0%               20%
Missouri                        2%                1%
New Mexico                      2%                0%
North Carolina                  6%                0%
Oklahoma                        4%                0%
Virginia                        3%                0%
West Virginia                  28%                2%
Other                           2%                0%
                        ------------        ----------
Total                         100%              100%
                        ============        ==========


The following table summarizes delinquent mortgage loan holdings.

Delinquent
90 days or More                     1998             1997              1996
-----------------------------   -------------    -------------     -------------
Non-accrual status           $           0     $          0     $           0
Other                              278,000          203,000           282,000
Reserve on delinquent
loans                              (30,000)         (10,000)          (10,000)
                                -------------    -------------     -------------
Total Delinquent             $     248,000     $    193,000     $     272,000
                                =============    =============     =============
Interest income past due
(Delinquent loans)           $       9,000     $      5,000     $       9,000
                                =============    =============     =============

In Process of Restructuring  $           0     $          0     $           0
Restructuring on other
than market terms                        0                0                 0
Other potential problem
loans                                    0                0                 0
                                -------------    -------------     -------------
Total Problem Loans          $           0     $          0     $           0
                                =============    =============     =============
Interest income foregone
(Restructured loans)         $           0     $          0     $           0
                                =============    =============     =============

See Item 2, Properties, for description of real estate holdings.

                                       12
<PAGE>


Competition
-----------

The insurance business is a highly  competitive  industry and there are a number
of other  companies,  both stock and mutual,  doing  business in areas where the
Company  operates.  Many of these  competing  insurers  are  larger,  have  more
diversified lines of insurance  coverage,  have substantially  greater financial
resources and have a greater  number of agents.  Other  significant  competitive
factors include  policyholder  benefits,  service to policyholders,  and premium
rates.

The insurance  industry is a mature industry.  In recent years, the industry has
experienced  virtually  no  growth in life  insurance  sales,  though  the aging
population  has  increased  the  demand for  retirement  savings  products.  The
products  offered  (see  Products)  are similar to those  offered by other major
companies.  The product  features are regulated by the states and are subject to
extensive competition among major insurance organizations.  The Company believes
a strong service  commitment to  policyholders,  efficiency  and  flexibility of
operations,  timely  service to the agency  force and the  expertise  of its key
executives help minimize the competitive pressures of the insurance industry.


GOVERNMENT REGULATION

The Company's  insurance  subsidiaries  are assessed  contributions  by life and
health guaranty associations in almost all states to indemnify  policyholders of
failed companies. In several states the company may reduce premium taxes paid to
recover a portion of assessments paid to the states' guaranty fund  association.
This right of  "offset"  may come under  review by the various  states,  and the
company cannot predict  whether and to what extent  legislative  initiatives may
affect  this  right to  offset.  Also,  some state  guaranty  associations  have
adjusted the basis by which they assess the cost of  insolvencies  to individual
companies.  The  Company  believes  that its reserve  for future  guaranty  fund
assessments  is  sufficient  to  provide  for   assessments   related  to  known
insolvencies. This reserve is based upon management's current expectation of the
availability of this right of offset, known insolvencies and state guaranty fund
assessment bases. However,  changes in the basis whereby assessments are charged
to individual  companies and changes in the  availability of the right to offset
assessments  against premium tax payments could materially  affect the company's
results.

Currently,  the  Company's  insurance  subsidiaries  are  subject to  government
regulation in each of the states in which they conduct business. Such regulation
is vested in state agencies having broad  administrative  power dealing with all
aspects of the insurance business,  including the power to: (i) grant and revoke
licenses to transact  business;  (ii) regulate and supervise trade practices and
market conduct; (iii) establish guaranty associations;  (iv) license agents; (v)
approve  policy  forms;  (vi) approve  premium rates for some lines of business;
(vii) establish reserve  requirements;  (viii) prescribe the form and content of
required financial statements and reports; (ix) determine the reasonableness and
adequacy of statutory capital and surplus;  and (x) regulate the type and amount
of permitted  investments.  Insurance regulation is concerned primarily with the
protection of policyholders. The Company cannot predict the impact of any future
proposals, regulations or market conduct investigations. The Company's insurance
subsidiaries,  USA, UG, APPL and ABE are domiciled in the states of Ohio,  Ohio,
West Virginia and Illinois, respectively.

The  insurance  regulatory  framework  continues  to be  scrutinized  by various
states,  the  federal  government  and the  National  Association  of  Insurance
Commissioners  ("NAIC"). The NAIC is an association whose membership consists of
the insurance  commissioners or their designees of the various states.  The NAIC
has no direct  regulatory  authority  over  insurance  companies.  However,  its
primary  purpose  is to  provide  a more  consistent  method of  regulation  and
reporting  from state to state.  This is  accomplished  through the  issuance of
model  regulations,  which  can be  adopted  by  individual  states  unmodified,
modified to meet the state's own needs or requirements,  or dismissed  entirely.
Most  states  also  have  insurance   holding  company  statutes  which  require
registration and periodic reporting by insurance  companies  controlled by other
corporations   licensed   to   transact   business   within   their   respective
jurisdictions.  The insurance  subsidiaries  are subject to such legislation and
registered  as  controlled   insurers  in  those  jurisdictions  in  which  such
registration  is  required.  Statutes  vary from  state to state  but  typically
require  periodic  disclosure,  concerning  the  corporation,  that controls the
registered insurers and all subsidiaries of such corporation. In addition, prior
notice  to,  or  approval  by,  the  state  insurance   commission  of  material
intercorporate   transfers  of

                                       13
<PAGE>


assets,  reinsurance agreements,  management agreements (see Note 9 in the notes
to the consolidated financial statements),  and payment of dividends (see note 2
in the notes to the  consolidated  financial  statements) in excess of specified
amounts by the insurance  subsidiary,  within the holding  company  system,  are
required.

Each year the NAIC calculates  financial ratio results (commonly  referred to as
IRIS  ratios)  for  each  company.   These  ratios  compare  various   financial
information pertaining to the statutory balance sheet and income statement.  The
results are then compared to  pre-established  normal  ranges  determined by the
NAIC. Results outside the range typically require explanation to the domiciliary
insurance department.

At year-end  1998,  the  insurance  companies  had one ratio  outside the normal
range.  The ratio is related to the decrease in premium  income.  The ratio fell
outside the normal range the last three years.  A primary cause for the decrease
in premium  revenues is related to the  potential  change in control of UTI over
the last two years to two different  parties.  During  September of 1996, it was
announced  that  control  of UTI  would  pass  to an  unrelated  party,  but the
transaction  did not  materialize.  In February 1998, an  announcement  was made
regarding  negotiations with a different unrelated party, First Southern Funding
LLC, for the change in control of UTI. In November  1998,  the change in control
with  this  second  party  was  completed.  Please  refer  to the  Notes  to the
Consolidated  Financial  Statements  for  additional  information.  The possible
changes and resulting  uncertainties have hurt the insurance  companies' ability
to recruit and maintain  sales agents.  The industry has  experienced a downward
trend in the total number of agents who sell insurance products, and competition
for the top sales producers has intensified.

The NAIC's  risk-based  capital  requirements  require  insurance  companies  to
calculate  and  report  information  under a  risk-based  capital  formula.  The
risk-based  capital  formula  measures  the  adequacy of  statutory  capital and
surplus in relation to  investment  and insurance  risks such as asset  quality,
mortality  and  morbidity,  asset and  liability  matching  and  other  business
factors.  The RBC  formula  is used by state  insurance  regulators  as an early
warning  tool to  identify,  for the purpose of  initiating  regulatory  action,
insurance companies that potentially are inadequately capitalized.  In addition,
the formula  defines new minimum  capital  standards  that will  supplement  the
current  system of low fixed  minimum  capital  and  surplus  requirements  on a
state-by-state  basis.  Regulatory  compliance  is  determined by a ratio of the
insurance  company's  regulatory total adjusted capital, as defined by the NAIC,
to its authorized control level RBC, as defined by the NAIC. Insurance companies
below specific  trigger points or ratios are classified  within certain  levels,
each of which requires specific  corrective action. The levels and ratios are as
follows:

                                    Ratio of Total Adjusted Capital to
                                       Authorized Control Level RBC
              Regulatory Event            (Less Than or Equal to)    
              ----------------            -----------------------    

     Company action level                          2*
     Regulatory action level                       1.5
     Authorized control level                      1
     Mandatory control level                       0.7

     * Or, 2.5 with negative trend.

At December 31, 1998, each of the insurance  subsidiaries has a Ratio that is in
excess of 4, which is 400% of the  authorized  control level;  accordingly,  the
insurance subsidiaries meet the RBC requirements.

The NAIC, in conjunction  with state  regulators,  has been  reviewing  existing
insurance laws and regulations.  A committee of the NAIC proposed changes in the
regulations   governing   insurance  company  investments  and  holding  company
investments in  subsidiaries  and  affiliates  which were adopted by the NAIC as
model laws in 1996.  The Company  does not  presently  anticipate  any  material
adverse change in its business as a result of these changes.

Legislative and regulatory  initiatives  regarding  changes in the regulation of
banks and other financial  services  businesses and restructuring of the federal
income tax system could, if adopted and depending on the form they take, have an
adverse impact on the Company by altering the  competitive  environment  for its
products.  The

                                       14
<PAGE>


outcome and timing of any such changes  cannot be  anticipated at this time, but
the Company  will  continue to monitor  developments  in order to respond to any
opportunities or increased competition that may occur.

The Clinton  Administration  has recently proposed tax changes that would affect
the insurance industry.  One proposal is to require recapture of untaxed profits
on policyholder  surplus  accounts.  Between 1959 and 1983, stock life insurance
companies deferred tax on a portion of their profits. These untaxed profits were
added to a policyholders  surplus account ("PSA").  In 1984,  Congress precluded
life insurance  companies from  continuing to defer taxes on any future profits.
The Clinton Administration argues that there is no continuing  justification for
permitting  stock life  insurance  companies  to defer tax on profits  that were
earned between 1959 and 1983.  Accordingly,  the stock life  companies  would be
required to include in their gross income over ten years their PSA balances. The
second proposal modifies rules for capitalizing  policy acquisition costs on the
grounds that life insurance  companies  generally only  capitalize a fraction of
their actual policy  acquisition  costs.  This  modification  would increase the
current capitalization percentages.  Either of these changes would be onerous to
UTI and to the  insurance  industry as a whole.  The outcome and timing of these
proposals cannot be anticipated at this time.

The NAIC  adopted  the Life  Illustration  Model  Regulation.  Many  states have
adopted the  regulation  effective  January 1, 1997.  This  regulation  requires
products  which  contain  non-guaranteed  elements,  such as universal  life and
interest sensitive life, to comply with certain  actuarially  established tests.
These tests are intended to target future  performance  and  profitability  of a
product under various scenarios.  The regulation does not prevent a company from
selling a product that does not meet the various tests.  The only implication is
the way in which the product is marketed to the  consumer.  A product  that does
not pass the tests uses guaranteed  assumptions rather than current  assumptions
in presenting future product  performance to the consumer.  The Company conducts
an ongoing  thorough review of its sales and marketing  process and continues to
emphasize its compliance efforts.

A task  force  of the  NAIC is  currently  undertaking  a  project  to  codify a
comprehensive  set of  statutory  insurance  accounting  rules and  regulations.
Project results were recently approved by the NAIC with an  implementation  date
of January 1, 2001.  Individual  states in which the Company does  business must
implement these new rules for them to become effective. Specific recommendations
have been set forth in papers issued by the NAIC.  The NAIC  continues to modify
and amend these papers. The Company is monitoring the process,  and is not aware
of any new requirements that would result in a material  financial impact on the
Company's financial position or results of operations. The Company will continue
to monitor this issue as changes and new proposals are made.


EMPLOYEES

There are  approximately  90 persons  who are  employed  by the  Company and its
affiliates.


                                       15
<PAGE>



ITEM 2.  PROPERTIES

The  following   table  shows  a  breakout  of  property,   net  of  accumulated
depreciation,  owned and  occupied by the Company and the  distribution  of real
estate by type.

     Property owned                Amount               % of Total 
     --------------                ------               ---------- 
     Home Office                $ 2,432,325                 19%

     Investment real estate
     ----------------------
     Commercial                 $ 4,571,312                 35%
     Residential development    $ 4,407,871                 34%
     Foreclosed real estate     $ 1,550,000                 12%
                                -----------                 ---
                                $10,529,183                 81%
                                -----------

     Grand total                $12,961,508                100%
                                ===========                ====

Total  investment real estate holdings  represent  approximately 3% of the total
assets  of the  Company  net  of  accumulated  depreciation  of  $1,696,428  and
$1,550,268  at year end 1998 and 1997  respectively.  The Company owns an office
complex in Springfield, Illinois, which houses the primary insurance operations.
The office  buildings  contain 57,000 square feet of office and warehouse space.
The properties are carried at $2,287,898.  In addition,  an insurance subsidiary
owns a home office  building in  Huntington,  West  Virginia.  The  building has
15,000 square feet and is carried at $144,427.  The  facilities  occupied by the
Company are adequate relative to the Company's present operations.

Commercial  property  consists  primarily  of former  home office  buildings  of
acquired  companies  no longer  used in the  operations  of the  Company.  These
properties  are  leased to various  unaffiliated  companies  and  organizations.
Residential development property is primarily located in Springfield,  Illinois,
and entails several  developments,  each targeted for a different segment of the
population.  These targets  include a  development  primarily for the first time
home buyer, an upscale  development for existing homeowners looking for a larger
home, and duplex  condominiums  for those who desire  maintenance free exteriors
and surroundings.  The Company's primary focus is on the development and sale of
lots, with an occasional home construction to help stimulate interest.

Springfield  is the State  Capital of  Illinois.  The City's  economy is service
oriented  with the main  employers  being the State of Illinois,  two major area
hospitals  and two large  insurance  companies.  This provides for a very stable
economy not as  dramatically  affected by economic  conditions in other parts of
the United States.

Foreclosed property is carried at the unpaid loan principal balance plus accrued
interest on the loan and other costs  associated with the  foreclosure  process.
The carrying value of foreclosed property does not exceed management's  estimate
of net realizable value.  Management's estimate of net realizable value is based
on  significant  internal  real  estate  experience,  local  market  experience,
independent appraisals and evaluation of existing comparable property sales.


ITEM 3.  LEGAL PROCEEDINGS

The Company and its  subsidiaries  are named as  defendants in a number of legal
actions  arising  primarily  from claims made under  insurance  policies.  Those
actions  have  been  considered  in  establishing  the  Company's   liabilities.
Management and its legal counsel are of the opinion that the settlement of those
actions  will not have a  material  adverse  effect on the  Company's  financial
position or results of operations.


ITEM 4.  SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS
              None

                                       16
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDERS MATTERS


                              FCC STOCK INFORMATION


The  Company's  common  stock is  traded  in the  over-the-counter  market.  The
following table shows the high and low bid quotations for each quarterly  period
during the past two years as reported by Dean Witter  Reynolds,  Inc.,  a market
maker in such stock. Such quotations  represent  inter-dealer  quotations and do
not include retail markup or markdown or commission nor do they represent actual
sales. Trading in this stock is very limited.


                                                      BID
                                                      ---
     PERIOD                                    LOW              HIGH
     ------                                    ---              ----

     1998
     ----
     First quarter                         115               135
     Second quarter                        150               155
     Third quarter                         155               160
     Fourth quarter                        155               160

                                                      BID
                                                      ---
     PERIOD                                   LOW              HIGH
     ------                                   ---              ----

     1997
     ----
     First quarter                          40 13/32          40 13/32
     Second quarter                         29 11/16          60
     Third quarter                          60               110
     Fourth quarter                        110               112


The  Company  has no current  plans to pay  dividends  on its  common  stock and
intends to retain all earnings  for  investment  in and growth of the  Company's
business.  The payment of future  dividends,  if any,  will be determined by the
Board of  Directors in light of existing  conditions,  including  the  Company's
earnings,  financial  condition,  business  conditions  and other factors deemed
relevant by the Board of Directors. See Note 2 in the accompanying  consolidated
financial statements for information regarding dividend restrictions.


          Number of Common Shareholders as of March 11, 1999 is 3,662.


                                       17
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                               FINANCIAL HIGHLIGHTS
                                      (000's omitted, except per share data)
                                    1998               1997                1996               1995                1994
                               ---------------    ----------------    ---------------     --------------     ---------------
<S>                        <C>                 <C>                 <C>                <C>                <C>    

Premium income
  net of reinsurance       $           26,396  $           28,639  $         30,944   $          33,099  $         35,024
Total revenues             $           40,632  $           43,354  $         46,538   $          48,365  $         49,261
Net loss                   $          (1,950)  $          (1,845)  $         (3,032)  $          (1,452) $         (1,775)
Net loss per share         $          (35.74)  $          (32.65)  $         (50.60)  $          (24.00) $         (29.17)
Total assets               $          327,580  $          332,572  $        336,639   $         334,058  $        331,410
Total long term debt       $           17,370  $           18,242  $         19,000   $          20,623  $         21,529
Dividends paid per share                 NONE              NONE                NONE               NONE                NONE
</TABLE>



                                       18
<PAGE>


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

The purpose of this section is to discuss and analyze the Company's consolidated
results of operations,  financial condition and liquidity and capital resources.
This analysis  should be read in  conjunction  with the  consolidated  financial
statements and related notes which appear elsewhere in this report.  The Company
reports  financial results on a consolidated  basis. The consolidated  financial
statements  include the  accounts of FCC and its  subsidiaries  at December  31,
1998.

CAUTIONARY STATEMENT REGARDING-FORWARD-LOOKING STATEMENTS

Any  forward-looking  statement contained herein or in any other oral or written
statement  by the company or any of its  officers,  directors  or  employees  is
qualified by the fact that actual  results of the company may differ  materially
from any such  statement due to the  following  important  factors,  among other
risks and uncertainties inherent in the company's business:

1.       Prevailing  interest  rate levels,  which may affect the ability of the
         company  to sell  its  products,  the  market  value  of the  company's
         investments   and  the   lapse   ratio  of  the   company's   policies,
         notwithstanding product design features intended to enhance persistency
         of the company's products.

2.       Changes in the federal income tax laws and regulations which may affect
         the relative tax advantages of the company's products.

3.       Changes in the regulation of financial  services,  including bank sales
         and   underwriting  of  insurance   products,   which  may  affect  the
         competitive environment for the company's products.

4.       Other factors affecting the performance of the company,  including, but
         not limited to, market conduct claims, insurance industry insolvencies,
         stock market performance, and investment performance.


RESULTS OF OPERATIONS

1998 COMPARED TO 1997

(a)  Revenues

Premiums and policy fee revenues,  net of reinsurance  premiums and policy fees,
decreased 8% when comparing 1998 to 1997.  The Company  currently  writes little
new traditional  business,  consequently,  traditional premiums will decrease as
the amount of traditional  business in-force  decreases.  Collected  premiums on
universal life and interest  sensitive products is not reflected in premiums and
policy  revenues  because  Generally  Accepted  Accounting  Principles  ("GAAP")
requires  that  premiums  collected  on these  types of  products  be treated as
deposit liabilities rather than revenue.  Unless the Company acquires a block of
in-force  business  or  marketing  changes  its focus to  traditional  business,
premium  revenue  will  continue  to  decline  at a rate  consistent  with prior
experience.

Another  cause  for  the  decrease  in  premium   revenues  is  related  to  the
uncertainties  regarding the pending  change in control of UTI over the last two
years to two different parties.  During September of 1996, it was announced that
control of UTI would pass to an unrelated  party,  but the change in control did
not   materialize.   In  February  1998,  an  announcement  was  made  regarding
negotiations with a different  unrelated party,  First Southern Funding LLC, for
the change in control of UTI. In November  1998, the change in control with this
second  party  was  completed.  Please  refer to the  Notes to the  Consolidated
Financial  Statements  for  additional  information.  The  possible  changes and
resulting  uncertainties  have hurt the insurance  companies' ability to recruit
and maintain sales agents.  Although the  transaction has resulted in some short
term negative impacts,  management believes the long term potential to be gained
from the increased  capitalization and alliance with a banking group will result
in a stronger and more competitive position in the future.


                                       19
<PAGE>


New business  production  decreased  significantly  over the last two years. New
business  production  decreased 39% or  approximately  $2,063,000 when comparing
1998 to 1997. In recent years, the insurance industry as a whole has experienced
a decline in the total number of agents who sell insurance  products,  therefore
competition has intensified for top producing sales agents. The relatively small
size of our companies,  and the resulting limitations,  have made it challenging
to compete in this area.  The Company is currently  in a position  where it must
increase  its new  business  writings  or  look  at  measures  to  reduce  costs
associated with new business production to a level more in line with the current
level of  production.  In late 1998,  A.M.  Best  Company,  a leading  insurance
industry  rating  agency,  increased  its rating  assigned to UG, the  Company's
largest insurance  subsidiary,  from a C++ to a B. This rating change should aid
in the agents selling ability although to what extent is currently unknown.

A  positive  impact  on  premium  income  is  the  improvement  of  persistency.
Persistency  is a measure of  insurance  in force  retained  in  relation to the
previous year. The Companies' average persistency rate for all policies in force
for 1998 and 1997 has been approximately 89.9% and 89.4%, respectively.

At the March 1998 Board of  Directors  meeting,  the Board  approved a permanent
premium  reduction on certain of its  participating  products in force  commonly
referred  to as the initial  contract  and the  presidents  plan of. The premium
reduction was generally 20% with 35% used on initial  contract  plans of UG with
original  issue ages greater than 56 years old. The dividends were also reduced,
and the net effect to the  policyholder  was a slightly lower net premium.  This
change  becomes  effective with the 1999 policy  anniversary  and is expected to
result in a  $2,000,000  decline  in  premiums  and a  comparable  reduction  in
dividends to policyholders in 1999 as compared to 1998. This action was taken by
the Board to ensure these policyholders will be protected in future periods from
potential  dividend  reductions at least to the extent of the permanent  premium
reduction amount. By reducing the required premium payment, it makes replacement
activity by other insurance companies more difficult as ongoing premium payments
are compared from the current policy to a potential replacement policy.

Net investment  income increased 1% when comparing 1998 to 1997. The increase in
investment income is the result of a combination of factors. The Company changed
banks during 1997,  which provided an improvement in yield on cash balances.  In
late 1998,  the Company again  transferred  most of its cash balances to another
bank, First Southern National Bank, an affiliate of First Southern Funding, LLC.
This  transfer  resulted  in an increase  in earning  rates on cash  balances of
approximately one quarter of one percent (.25%) over those previously  received.
During 1998, the Company directed a greater percentage of its investing activity
to mortgage loans. These new loans provide an investment yield  approximately 3%
higher or  $110,000  more than can be obtained  from  quality  fixed  maturities
currently  available.  During  September and October of 1998, the national prime
rate declined three quarters of one percent (.75%).  This decline reduced yields
on  investments  available  in the  marketplace  in which the  Company  invests,
primarily  fixed  maturities.  The  decline had a more  immediate  impact on the
earnings rates of the Company's cash and cash equivalents balances.

The overall  investment  yields for 1998,  1997 and 1996,  are 6.72%,  6.70% and
6.88%,  respectively.  Cash generated from the sales of universal life insurance
products, has been invested primarily in our fixed maturity portfolio.

The Company's  investments are generally  managed to match related insurance and
policyholder liabilities.  The comparison of investment return with insurance or
investment  product crediting rates establishes an interest spread.  The minimum
interest  spread  between  earned and credited rates is 1% on the "Century 2000"
universal life insurance product, which currently is the Company's primary sales
product.  The Company monitors  investment  yields,  and when necessary  adjusts
credited interest rates on its insurance  products to preserve targeted interest
spreads.  It is expected that  monitoring of the interest  spreads by management
will provide the necessary margin to adequately  provide for associated costs on
the insurance  policies the Company currently has in force and will write in the
future.  At the  September  1998 Board of Directors  meeting,  the Board lowered
crediting  rates one half percent on all products  crediting 5.5% or more.  This
adjustment was in response to continued declines in interest rates in the market
place. The change affected approximately $60,000,000 of policy reserves and will
result in interest  crediting  reductions of $300,000 per year.  Policy interest
crediting  rate changes  become  effective on an individual  policy basis on the
next policy anniversary.  Therefore,  it will take a full year from the time the
change is determined for the full impact of such change to be realized.


                                       20
<PAGE>


Realized investment losses, net of realized gains, were $851,822 and $268,982 in
1998 and 1997,  respectively.  Approximately $440,000 of realized losses in 1998
is due to the sale of real estate. During 1998 the Company re-evaluated its real
estate holdings,  especially those properties  acquired through  acquisitions of
other  companies and mortgage loan  foreclosures,  and determined it would be in
the long term  interest of the  Company to dispose of certain of these  parcels.
Parcels targeted for sale were generally  non-income or low income producing and
located in parts of the country  where  management  has little  other  reason to
travel to. The  disposal of these  properties  will free up  management  time to
focus  on the  properties  that  have a more  viable  long-term  benefit  to the
Company. The Company reduced its non-income producing investments  approximately
$1,610,000  during  1998,  as a result of these  actions.  The Company  incurred
losses of  approximately  $339,000 on the  foreclosure  of three  mortgage loans
during the second quarter of 1998. The  foreclosed  properties  were sold before
the end of 1998. As a result of these  foreclosures,  management  reassessed its
remaining  mortgage loan  portfolio  and  determined an allowance of $70,000 was
appropriate  to cover  potential  future  losses in the  portfolio.  The Company
realized  a loss of  approximately  $88,000  on the  investment  in  John  Alden
Financial  Corporation common stock. Under the terms of an acquisition agreement
beween Fortis,  Inc. and John Alden all outstanding  common shares of John Alden
were  acquired.  The Company  had other gains and losses  during the period that
comprised the  remaining  amount  reported but were  immaterial on an individual
basis.


(b)  Expenses

Life benefits,  net of reinsurance benefits and claims,  decreased 7% in 1998 as
compared  to 1997.  The  most  significant  influence  on the  decrease  in life
benefits was from a decline of $1,036,000 in death benefit claims.  There was no
specific  incident or event in 1998 or 1997 that  caused  this to occur.  At the
September 1998 Board of Directors meeting, the Board lowered crediting rates one
half percent on all products  crediting  5.5% or more.  This  adjustment  was in
response to continued declines in interest rates in the market place. The change
affected  approximately  $60,000,000  of  policy  reserves  and will  result  in
interest  crediting  reductions  of  $300,000  per year.  This change had little
effect on the 1998 results,  but will influence future periods.  Policy interest
crediting  rate changes  become  effective on an individual  policy basis on the
next policy anniversary.  Therefore,  it will take a full year from the time the
change is determined for the full impact of such change to be realized.

Commissions and amortization of deferred policy  acquisition costs increased 64%
in 1998 compared to 1997. At year-end 1998,  the Company  recorded an impairment
write off of deferred policy acquisition costs of $2,983,000. The impairment was
the result of the actuarial analysis of the recoverability of the asset based on
current  trends  and  known  events   compared  to   assumptions   used  in  the
establishment of the original asset. The recent decline in interest rates in the
marketplace  combined with lower than expected new policy  writings  leaving the
Company  with  greater per policy  costs as a result of fixed costs being spread
over fewer policies  caused the  impairment.  Exclusive of the impairment  write
down,  commissions and  amortization of deferred policy  acquisition  costs were
comparable to 1997 results. The write down will result in lower amortizations in
future periods, as there is now a smaller asset to amortize.

Amortization  of cost of insurance  acquired  decreased  17% in 1998 compared to
1997.  Cost of insurance  acquired is established  when an insurance  company is
acquired.  The  Company  assigns a portion  of its cost to the right to  receive
future  cash  flows  from  insurance  contracts  existing  at  the  date  of the
acquisition.   The  cost  of  policies  purchased   represents  the  actuarially
determined  present value of the  projected  future cash flows from the acquired
policies.  Cost of insurance  acquired is comprised of individual life insurance
products including whole life,  interest sensitive whole life and universal life
insurance  products.  Cost of insurance  acquired is amortized  with interest in
relation to expected future profits, including direct charge-offs for any excess
of the unamortized  asset over the projected future profits.  The interest rates
utilized in the  amortization  calculation  are 9% on  approximately  74% of the
balance and 15% on the remaining  balance.  The interest  rates vary due to risk
analysis  performed at the time of  acquisition  on the business  acquired.  The
amortization  is adjusted  retrospectively  when  estimates of current or future
gross profits to be realized  from a group of products are revised.  The Company
did not  have  any  charge-offs  during  the  periods  covered  by this  report.
Amortization of cost of insurance acquired is particularly  sensitive to changes
in  persistency  of certain  blocks of insurance  in-force.  The  improvement of
persistency  during the year had a positive  impact on  amortization  of cost of
insurance  acquired.  Persistency is a

                                       21
<PAGE>

measure of insurance in force  retained in relation to the  previous  year.  The
Company's  average  persistency rate for all policies in force for 1998 and 1997
has been approximately  89.9% and 89.4%,  respectively.  Persistency has shown a
steady improvement over the past several years.

Operating expenses increased 18% in 1998 compared to 1997. Included in operating
expenses in 1998 is $2,367,474 from the release of discounts associated with the
Company's  notes payable.  The Company's  subordinated  debt was issued at rates
considered  favorable to the Company at time of issue,  therefore the notes were
discounted  to reflect an effective  interest  rate of 15%.  With the payment of
part of this debt in November  1998, the  unamortized  discount was written off.
Management's  plan to repay the remaining  debt in a much shorter period of time
from required  repayment  resulted in the  determination to write off the entire
remaining note discount.  See information  contained  below in interest  expense
analysis for further  details  regarding  debt  retirement.  Excluding  the note
discount write off, operating  expenses  decreased 8% attributable  primarily to
reduced  salary  and  employee  benefit  costs in 1998,  as a result of  natural
attrition.

Interest  expense  remained  consistent when comparing 1998 to 1997. In November
1998, the Company's  ultimate parent,  UTI, received  approximately  $11,000,000
from the issuance of common stock to First Southern  Funding and its affiliates.
These funds were used to retire  outside debt. On November 23, 1998, the Company
paid a $6,300,000  principle  payment on its senior debt,  and paid a $2,608,099
principal  payment  on  its  10  year  subordinated  debt  through  intercompany
borrowings  from UTI.  On  December  16,  1998 the  Company  paid an  additional
$500,000  principal  payment  on  its  10  year  subordinated  debt  through  an
intercompany  borrowing from UII. In total these transactions retired $9,408,099
of outside  debt and  replaced it with  intercompany  debt,  which  provides the
Company with increased  flexibility when it comes to repayment options. With the
new capital and expectations of future growth,  management has formulated a plan
to repay the remaining  outside debt within the next two years.  At December 31,
1998, FCC had $17,369,993 in notes payable,  of which $5,561,894 is debt owed to
outside  parties.  The Company believes this can be accomplished in the next two
years through dividends from the  subsidiaries,  namely dividends to FCC from UG
and from expected operating cashflows.

The  provision  for income taxes  reflected a  significant  change from the same
period  one  year  ago.  This is the  result  of  changes  in the  deferred  tax
liability.  Deferred  taxes are  established  to  recognize  future tax  effects
attributable to temporary  differences between the financial  statements and the
tax return. As these differences are realized in the financial  statement or tax
return,  the deferred  income tax established on the difference is recognized in
the financial  statements as an income tax expense or credit.  During 1997,  the
insurance  subsidiaries  incurred a loss on their federal income tax return that
was carried  forward to future  periods.  A tax benefit was not  incurred in the
financial  statements as a corresponding  allowance was established  against the
deferred  tax asset  attributable  to the tax loss  carryforward.  In 1998,  the
insurance  company  subsidiaries  incurred taxable income for federal income tax
purposes which was offset through utilization of federal tax loss carryforwards.
Since these carryforwards had an allowance established against them for deferred
tax purposes, no corresponding expense was incurred in the financial statements.
Additionally,  the Company incurred  deferred tax credits of $1,872,666 from the
deferred policy  acquisition  costs  impairment and the notes payable  discounts
write-offs.


(c)  Net loss

The  Company  had a net loss of  $1,949,825  in 1998  compared  to a net loss of
$1,845,062  in  1997.  During  1998,  the  deferred  policy   acquisition  costs
impairment  resulted in a net loss of $1,938,950  and the notes  discount  write
offs resulted in a net loss of  $1,538,858.  Exclusive of these two events,  the
Company would have reported net income of $1,527,983. Lower death benefit claims
and reduced  operating  expenses from 1997 results provided  improvements to the
1998 results.


                                       22
<PAGE>


1997 COMPARED TO 1996

(a)  Revenues

Premiums and policy fee revenues,  net of reinsurance  premiums and policy fees,
decreased 7% when comparing 1997 to 1996.  The Company  currently  writes little
new traditional  business,  consequently,  traditional premiums will decrease as
the amount of traditional  business in-force  decreases.  Collected  premiums on
universal life and interest  sensitive products is not reflected in premiums and
policy  revenues  because  Generally  Accepted  Accounting  Principles  ("GAAP")
requires  that  premiums  collected  on these  types of  products  be treated as
deposit liabilities rather than revenue.  Unless the Company acquires a block of
in-force  business  or  marketing  changes  its focus to  traditional  business,
premium  revenue  will  continue  to  decline  at a rate  consistent  with prior
experience.

Another  cause for the decrease in premium  revenues is related to the potential
change  in  control  of UTI over the last two  years to two  different  parties.
During  September of 1996, it was announced that control of UTI would pass to an
unrelated  party,  but the change in control  did not  materialize.  In February
1998, an announcement was made regarding negotiations with a different unrelated
party, First Southern Funding LLC, for the change in control of UTI. In November
1998, the change in control with this second party was  completed.  Please refer
to  the  Notes  to  the   Consolidated   Financial   Statements  for  additional
information.  The possible  changes and  resulting  uncertainties  have hurt the
insurance companies' ability to recruit and maintain sales agents.

New business  production  decreased  significantly  over the last two years. New
business production decreased 43% or approximately 3,973,000 when comparing 1997
to 1996. In recent years,  the insurance  industry as a whole has  experienced a
decline in the total  number of agents who sell  insurance  products,  therefore
competition has intensified for top producing sales agents. The relatively small
size of our companies,  and the resulting limitations,  have made it challenging
to compete in this area.

A  positive  impact  on  premium  income  is  the  improvement  of  persistency.
Persistency  is a measure of  insurance  in force  retained  in  relation to the
previous year. The Companies' average persistency rate for all policies in force
for 1997 and 1996 has been approximately 89.4% and 87.9%, respectively.

Net  investment  income  decreased 6% when  comparing 1997 to 1996. The decrease
relates to the decrease in invested  assets from a  coinsurance  agreement.  The
Company's  insurance  subsidiary  UG entered into a coinsurance  agreement  with
First International Life Insurance Company ("FILIC"),  an unrelated party, as of
September  30,  1996.  During 1997,  FILIC  changed its name to Park Avenue Life
Insurance Company ("PALIC"). Under the terms of the agreement, UG ceded to FILIC
substantially all of its paid-up life insurance policies. Paid-up life insurance
generally refers to non-premium  paying life insurance  policies.  At closing of
the  transaction,  UG received a coinsurance  credit of  $28,318,000  for policy
liabilities  covered under the  agreement.  UG  transferred  assets equal to the
credit received.  This transfer  included policy loans of $2,855,000  associated
with policies under the agreement and a net cash transfer of $19,088,000,  after
deducting  the ceding  commission  due UG of  $6,375,000.  To  provide  the cash
required to be transferred under the agreement,  the Company sold $18,737,000 of
fixed maturity investments.

The overall  investment  yields for 1997,  1996 and 1995,  are 6.70%,  6.88% and
6.37%  respectively.  Since 1995,  investment  yield  improved  due to the fixed
maturity investments.  Cash generated from the sales of universal life insurance
products, has been invested primarily in our fixed maturity portfolio.

The Company's  investments are generally  managed to match related insurance and
policyholder liabilities.  The comparison of investment return with insurance or
investment  product crediting rates establishes an interest spread.  The minimum
interest  spread  between  earned and credited rates is 1% on the "Century 2000"
universal life insurance product, which currently is the Company's primary sales
product.  The Company monitors  investment  yields,  and when necessary  adjusts
credited interest rates on its insurance  products to preserve targeted interest
spreads.  It is expected that  monitoring of the interest  spreads by management
will provide the necessary margin to adequately  provide for associated costs on
the insurance  policies the Company currently has in force and will write in the
future.


                                       23
<PAGE>


Realized  investment  losses  were  $268,982  and  $411,053  in 1997  and  1996,
respectively.  The  Company  sold two  foreclosed  real estate  properties  that
resulted in  approximately  $357,000 in realized losses in 1996. The Company had
other gains and losses during the period that  comprised  the  remaining  amount
reported but were immaterial on an individual basis.


(b)  Expenses

Life benefits,  net of reinsurance  benefits and claims decreased 20% in 1997 as
compared to 1996.  The decrease in premium  revenues  resulted in lower  benefit
reserve increases in 1997. In addition, policyholder benefits decreased due to a
decrease in death benefit claims of $162,000.

In 1994, UG became aware that certain new insurance business was being solicited
by certain  agents and issued to  individuals  considered to be not insurable by
Company standards.  These non-standard policies had a face amount of $22,700,000
and  represented  1/2 of 1% of the  insurance  in-force  in  1994.  Management's
initial analysis  indicated that expected death claims on the business  in-force
was adequate in relation to mortality assumptions inherent in the calculation of
statutory  reserves.  Nevertheless,  management  determined  it was in the  best
interest of the Company to  repurchase as many of the  non-standard  policies as
possible.  Through December 31, 1996, the Company spent approximately $7,099,000
for the settlement of non-standard policies and for the legal defense of related
litigation.  In relation to  settlement  of  non-standard  policies  the Company
incurred  life  benefit  costs of  $3,307,000,  and  $720,000  in 1996 and 1995,
respectively.  The Company incurred legal costs of $906,000 and $687,000 in 1996
and 1995,  respectively.  All  policies  associated  with this  issue  have been
settled as of December 31, 1996.  Therefore,  expense  reductions for 1997 would
follow.

Commissions and amortization of deferred policy  acquisition costs decreased 14%
in 1997  compared to 1996.  The  decrease  is due  primarily  to a reduction  in
commissions  paid.  Commissions  decreased  19% in 1997  compared  to 1996.  The
decrease in commissions was due to the decline in new business production. There
is a direct relationship between premium revenues and commission expense.  First
year premium production  decreased 43% and first year commissions  decreased 33%
when comparing 1997 to 1996.  Amortization of deferred policy  acquisition costs
decreased 7% in 1997 compared to 1996.  Management would expect  commissions and
amortization of deferred policy  acquisition  costs to decrease in the future if
premium revenues continue to decline.

Amortization  of cost of insurance  acquired  decreased  28% in 1997 compared to
1996.  Cost of insurance  acquired is  amortized in relation to expected  future
profits,  including direct  charge-offs for any excess of the unamortized  asset
over the  projected  future  profits.  The Company did not have any  charge-offs
during the periods covered by this report.  The decrease in amortization  during
the current period is a normal  fluctuation  due to the expected future profits.
Amortization of cost of insurance acquired is particularly  sensitive to changes
in  persistency  of certain  blocks of insurance  in-force.  The  improvement of
persistency  during the year had a positive  impact on  amortization  of cost of
insurance  acquired.  Persistency is a measure of insurance in force retained in
relation to the previous year. The Company's  average  persistency  rate for all
policies  in force for 1997 and 1996 has been  approximately  89.4%  and  87.9%,
respectively.

Operating  expenses  decreased  20% in 1997  compared to 1996.  The  decrease in
operating  expenses is directly  related to settlement of certain  litigation in
December of 1996. The Company  incurred legal costs of $0, $906,000 and $687,000
in 1997,  1996 and 1995,  respectively  in  relation  to the  settlement  of the
non-standard insurance policies.

Interest expense decreased 5% in 1997 compared to 1996. Since December 31, 1996,
notes payable decreased approximately $758,000. Average outstanding indebtedness
was  $18,621,000  with an  average  cost of 8.66% in 1997  compared  to  average
outstanding  indebtedness of $19,812,000  with an average cost of 8.58% in 1996.
In March 1997, the base interest rate for most of the notes payable  increased a
quarter of a point.  The base rate is defined as the  floating  daily,  variable
rate of interest determined and announced by National City Bank. Please refer to
"Notes Payable" in the Notes to the Consolidated  Financial  Statements for more
information.


                                       24
<PAGE>

(c)  Net loss

The  Company  had a net loss of  $1,845,062  in 1997  compared  to a net loss of
$3,031,649 in 1996. The improvement is directly  related to the decrease in life
benefits and operating  expenses  primarily  associated with the 1996 settlement
and other related costs of the non-standard life insurance policies.


FINANCIAL CONDITION

(a)  Assets

Investments are the largest asset group of the Company.  The Company's insurance
subsidiaries are regulated by insurance  statutes and regulations as to the type
of investments  that they are permitted to make and the amount of funds that may
be used  for any one  type  of  investment.  In  light  of  these  statutes  and
regulations,  and the Company's  business and investment  strategy,  the Company
generally  seeks to invest in United States  government  and  government  agency
securities  and  corporate  securities  rated  investment  grade by  established
nationally recognized rating organizations.

The liabilities are predominantly long-term in nature and therefore, the Company
invests  in  long-term  fixed  maturity  investments  that are  reported  in the
financial  statements at their  amortized  cost. The Company has the ability and
intent to hold these investments to maturity; consequently, the Company does not
expect to realize any significant loss from these investments.  The Company does
not own any derivative investments or "junk bonds". As of December 31, 1998, the
carrying  value of fixed  maturity  securities  in  default as to  principal  or
interest was immaterial in the context of consolidated  assets or  shareholders'
equity. The Company has identified securities it may sell and classified them as
"investments  held for sale".  Investments  held for sale are carried at market,
with changes in market value charged directly to shareholders' equity.

The following table  summarizes the Company's fixed  maturities  distribution at
December 31, 1998 and 1997 by ratings category as issued by Standard and Poor's,
a leading ratings analyst.






                   Fixed Maturities
                   ----------------
      Rating                       % of Portfolio
      ------                       --------------
                                   1998        1997
                                ----------  ----------
Investment Grade
   AAA                              38%         31%
   AA                               18%         14%
   A                                36%         46%
   BBB                               7%          9%
Below investment grade               1%          0%
                                ----------  ----------
                                   100%        100%
                                ==========  ==========


Mortgage  loans  increased  16% in 1998 as compared to 1997.  During  1998,  the
Company issued  approximately  $3,667,000 in new loans. In recent  history,  the
Company did not actively seek new mortgage  loans.  With the decline in interest
rates in the  market  place  and an  affiliation  with a  banking  group,  First
Southern,  the  Company  determined  the  mortgage  loan  market  was  a  strong
alternative  to the  much  lower  yielding  fixed  maturities  available  in the
marketplace.  All mortgage loans held by the Company are first  position  loans.
The Company has $248,000 in mortgage loans, net of a $30,000 reserve  allowance,
which  are in  default  and in  the  process  of  foreclosure,  this  represents
approximately 2% of the total portfolio.


                                       25
<PAGE>


Investment  real  estate  and  real  estate  acquired  in  satisfaction  of debt
decreased 8% in 1998 compared to 1997. During 1998 the Company  re-evaluated its
real estate holdings,  especially those properties acquired through acquisitions
of other companies and mortgage loan foreclosures, and determined it would be in
the long term  interest of the  Company to dispose of certain of these  parcels.
Parcels targeted for sale were generally  non-income or low income producing and
located in parts of the country  where  management  has little  other  reason to
travel to. The  disposal of these  properties  will free up  management  time to
focus  on the  properties  that  have a more  viable  long-term  benefit  to the
Company. Investment real estate holdings represent approximately 3% of the total
assets of the Company.  Total  investment  real estate is  separated  into three
categories:   Commercial  43%,   Residential   Development  42%  and  Foreclosed
Properties 15%.

Policy loans  decreased 1% in 1998  compared to 1997.  Industry  experience  for
policy  loans  indicates  few policy  loans are ever repaid by the  policyholder
other than through  termination of the policy.  Policy loans are  systematically
reviewed to ensure that no individual  policy loan exceeds the  underlying  cash
value of the policy.  Policy loans will generally  increase due to new loans and
interest compounding on existing policy loans.

Deferred  policy  acquisition  costs  decreased  29% in 1998  compared  to 1997.
Deferred policy acquisition costs, which vary with, and are primarily related to
producing new business,  are referred to as ("DAC").  DAC consists  primarily of
commissions and certain costs of policy issuance and  underwriting,  net of fees
charged to the policy in excess of ultimate  fees  charged.  To the extent these
costs are recoverable  from future  profits,  the Company defers these costs and
amortizes  them with interest in relation to the present value of expected gross
profits from the contracts,  discounted  using the interest rate credited by the
policy. The Company had $892,000 in policy acquisition costs deferred,  $758,000
in interest  accretion and $3,572,172 in amortization in 1998. At year end 1998,
the Company  recorded an  impairment  write off of deferred  policy  acquisition
costs of $2,983,000.  The impairment was the result of the actuarial analysis of
the  recoverability  of the asset  based on  current  trends  and  known  events
compared to assumptions  used in the  establishment  of the original asset.  The
recent  decline in interest  rates in the  marketplace  combined with lower than
expected new policy  writings  leaving the Company with greater per policy costs
as a  result  of fixed  costs  being  spread  over  fewer  policies  caused  the
impairment.

Cost of insurance  acquired  decreased 6% in 1998  compared to 1997. At December
31, 1998, cost of insurance  acquired was $17,628,369 and  amortization  totaled
$1,026,137  for the year.  When an insurance  company is  acquired,  the Company
assigns a portion  of its cost to the right to  receive  future  cash flows from
insurance  contracts  existing  at the  date  of the  acquisition.  The  cost of
policies  purchased  represents the actuarially  determined present value of the
projected  future  cash  flows from the  acquired  policies.  Cost of  Insurance
Acquired is  amortized  with  interest in relation to expected  future  profits,
including  direct  charge-offs for any excess of the unamortized  asset over the
projected future profits.


(b)  Liabilities

Total liabilities  decreased 1% in 1998 compared to 1997. Policy liabilities and
accruals,  which  represents  most  of  total  liabilities  remained  relatively
unchanged from the prior year. The significant  change in total  liabilities was
from deferred income taxes.

Income taxes payable and deferred income taxes payable  decreased  significantly
in 1998 compared to 1997. Deferred taxes are established to recognize future tax
effects  attributable to temporary  differences between the financial statements
and the tax return. As these differences are realized in the financial statement
or tax  return,  the  deferred  income  tax  established  on the  difference  is
recognized in the financial  statements as an income tax expense or credit.  The
Company  released   deferred  taxes  of  $1,872,666  from  the  deferred  policy
acquisition costs impairment and the notes payable discounts write-offs. Federal
income taxes are discussed in more detail in Note 3 of the Consolidated Notes to
the Financial Statements.


                                       26
<PAGE>


Notes  payable  decreased 5% in 1998  compared to 1997.  In November  1998,  the
Company's  ultimate parent,  UTI,  received  approximately  $11,000,000 from the
issuance of common stock to First  Southern  Funding and its  affiliates.  These
funds were used to retire outside debt. On November 23, 1998, the Company paid a
$6,300,000 principle payment on its senior debt, and paid a $2,608,099 principal
payment on its 10 year  subordinated debt through  intercompany  borrowings from
UTI. On December  16, 1998 the Company  paid an  additional  $500,000  principal
payment on its 10 year subordinated debt through an intercompany  borrowing from
UII. In total these transactions retired $9,408,099 of outside debt and replaced
it with intercompany debt, which provides the Company with increased flexibility
when it comes to repayment  options.  With the new capital and  expectations  of
future growth,  management has formulated a plan to repay the remaining  outside
debt within the next two years.  At December 31, 1998,  FCC had  $17,369,993  in
notes payable, of which $5,561,894 is debt owed to outside parties.  The Company
believes this can be accomplished  in the next two years through  dividends from
the  subsidiaries,  namely dividends to FCC from UG and from expected  operating
cashflows.


(c)  Shareholders' Equity

Total shareholders'  equity decreased 7% in 1998 compared to 1997. This decrease
is primarily  attributable  to the  Company's  net loss of  $1,949,825  in 1998.
During 1998, the deferred policy acquisition costs impairment  resulted in a net
loss of $1,938,950  and the notes  discount write offs resulted in a net loss of
$1,538,858.  Exclusive of these two events,  the Company would have reported net
income of $1,527,983.  Accumulated  other  comprehensive  income,  which for the
Company   represents   unrealized   holding  losses  on  securities,   decreased
shareholders equity an additional $432,714 in 1998 compared to 1997.


LIQUIDITY AND CAPITAL RESOURCES

The  Company  has  three  principal  needs for cash - the  insurance  companies'
contractual obligations to policyholders,  the payment of operating expenses and
the servicing of its long-term debt.  Cash and cash  equivalents as a percentage
of total assets were 8% and 5% as of December  31, 1998 and 1997,  respectively.
Fixed  maturities  as a  percentage  of  total  invested  assets  were 82% as of
December 31, 1998 and 1997.

Future policy  benefits are  primarily  long-term in nature and  therefore,  the
Company's  investments are predominantly in long-term fixed maturity investments
such as bonds and mortgage loans which provide  sufficient return to cover these
obligations. The Company has the ability and intent to hold these investments to
maturity;  consequently,  the Company's investment in long-term fixed maturities
is reported in the financial statements at their amortized cost.

Many of the Company's  products  contain  surrender  charges and other  features
which  reward  persistency  and  penalize the early  withdrawal  of funds.  With
respect to such products,  surrender  charges are generally  sufficient to cover
the Company's  unamortized deferred policy acquisition costs with respect to the
policy being surrendered.

Cash provided by operating activities was $1,865,417,  $(199,230) and $2,913,976
in 1998, 1997 and 1996, respectively. Reporting regulations require cash inflows
and outflows from  universal  life  insurance  products to be shown as financing
activities  when  reporting  on cash flows.  The net cash  provided by operating
activities  plus  policyholder  contract  deposits  less  policyholder  contract
withdrawals  equaled  $4,943,632 in 1998,  $3,190,440 in 1997 and  $9,725,701 in
1996.  Management utilizes this measurement of cash flows as an indicator of the
performance of the Company's insurance operations.

Cash provided by (used in) investing activities was $5,556,955, ($2,994,652) and
$15,807,796, for 1998, 1997 and 1996, respectively.  The most significant aspect
of cash  provided  by (used in)  investing  activities  are the  fixed  maturity
transactions. Fixed maturities account for 84%, 72% and 82% of the total cost of
investments acquired in 1998, 1997 and 1996, respectively. The net cash provided
by  investing  activities  in  1996,  is due to the  fixed  maturities  sold  in
conjunction  with the  coinsurance  agreement  with  PALIC.  The Company has not
directed  its  investable   funds  to  so-called   "junk  bonds"  or  derivative
investments.


                                       27
<PAGE>


Net cash provided by (used in) financing  activities was $2,625,897,  $2,097,167
and ($13,900,121) for 1998, 1997 and 1996, respectively. The change between 1997
and 1996 is due to a coinsurance  agreement with PALIC as of September 30, 1996.
At closing of the transaction,  UG received a reinsurance  credit of $28,318,000
for policy liabilities covered under the agreement.  UG transferred assets equal
to the credit  received.  This  transfer  included  policy  loans of  $2,855,000
associated  with  policies  under  the  agreement  and a net  cash  transfer  of
$19,088,000 after deducting the ceding commission due UG of $6,375,000.

Policyholder  contract  deposits  decreased  14% in 1998  compared to 1997,  and
decreased 20% in 1997 when compared to 1996.  Policyholder  contract withdrawals
has decreased 15% in 1998 compared to 1997, and decreased 6% in 1997 compared to
1996. The change in policyholder contract withdrawals is not attributable to any
one significant event. Factors that influence  policyholder contract withdrawals
are fluctuation of interest rates, competition and other economic factors.

At December 31, 1998,  the Company had a total of  $17,369,993 in long-term debt
outstanding.  In November 1998, the Company's  ultimate  parent,  UTI,  received
approximately  $11,000,000  from the issuance of common stock to First  Southern
Funding and its  affiliates.  These funds were used to retire  outside  debt. On
November 23, 1998, the Company paid a $6,300,000 principle payment on its senior
debt, and paid a $2,608,099  principal  payment on its 10 year subordinated debt
through intercompany  borrowings from UTI. On December 16, 1998 the Company paid
an  additional  $500,000  principal  payment  on its 10 year  subordinated  debt
through an intercompany  borrowing from UII. In total these transactions retired
$9,408,099  of  outside  debt and  replaced  it with  intercompany  debt,  which
provides  the Company  with  increased  flexibility  when it comes to  repayment
options. With the new capital and expectations of future growth,  management has
formulated a plan to repay the remaining outside debt within the next two years.
At December 31, 1998, FCC had $17,369,993 in notes payable,  of which $5,561,894
is debt owed to outside  parties.  The Company believes this can be accomplished
in the next two years through dividends from the subsidiaries,  namely dividends
to FCC from UG and from expected operating cashflows.

As of December  31, 1998 the  Company has a total  $25,752,842  of cash and cash
equivalents,  short-term investments and investments held for sale in comparison
to  $17,369,993  of notes  payable.  FCC is further  able to  service  this debt
through  existing cash balances and management  fees received from the insurance
subsidiaries.  FCC is further able to service this debt through dividends it may
receive  from  UG.  See  Note  2 in the  notes  to  the  consolidated  financial
statements for additional information regarding dividends.

Since  FCC is a  holding  company,  funds  required  to meet  its  debt  service
requirements and other expenses are primarily provided by its subsidiaries. On a
parent only basis,  FCC's cash flow is dependent on revenues from management and
cost sharing  arrangements  with its subsidiaries  and its earnings  received on
invested assets and cash balances.  At December 31, 1998,  substantially  all of
the consolidated  shareholders equity represents net assets of its subsidiaries.
Cash  requirements of FCC primarily  relate to servicing its long-term debt. The
Company's insurance  subsidiaries have maintained adequate statutory capital and
surplus and have not used surplus  relief or financial  reinsurance,  which have
come under  scrutiny by many state  insurance  departments.  The payment of cash
dividends to shareholders is not legally restricted.  However, insurance company
dividend  payments are  regulated by the state  insurance  department  where the
company is domiciled. UG's dividend limitations are described.

Ohio domiciled  insurance  companies require five days prior notification to the
insurance  commissioner  for  the  payment  of an  ordinary  dividend.  Ordinary
dividends are defined as the greater of: a) prior year statutory  earnings or b)
10% of statutory  capital and surplus.  For the year ended December 31, 1998, UG
had a statutory gain from  operations of $3,266,000.  At December 31, 1998, UG's
statutory capital and surplus amounted to $15,281,000.  Extraordinary  dividends
(amounts in excess of ordinary dividend  limitations)  require prior approval of
the insurance commissioner and are not restricted to a specific calculation.


                                       28
<PAGE>


A life  insurance  company's  statutory  capital is computed  according to rules
prescribed by the National Association of Insurance  Commissioners  ("NAIC"), as
modified by the  insurance  company's  state of domicile.  Statutory  accounting
rules are  different  from  generally  accepted  accounting  principles  and are
intended  to  reflect  a more  conservative  view  by,  for  example,  requiring
immediate  expensing of policy  acquisition  costs. The achievement of long-term
growth will require growth in the statutory  capital of the Company's  insurance
subsidiaries.  The subsidiaries may secure additional  statutory capital through
various  sources,  such as  internally  generated  statutory  earnings or equity
contributions  by the  Company  from  funds  generated  through  debt or  equity
offerings.

The NAIC's  risk-based  capital  requirements  require  insurance  companies  to
calculate  and  report  information  under a  risk-based  capital  formula.  The
risk-based  capital  formula  measures  the  adequacy of  statutory  capital and
surplus in relation to  investment  and insurance  risks such as asset  quality,
mortality  and  morbidity,  asset and  liability  matching  and  other  business
factors.  The RBC  formula  is used by state  insurance  regulators  as an early
warning  tool to  identify,  for the purpose of  initiating  regulatory  action,
insurance companies that potentially are inadequately capitalized.  In addition,
the formula  defines new minimum  capital  standards  that will  supplement  the
current  system of low fixed  minimum  capital  and  surplus  requirements  on a
state-by-state  basis.  Regulatory  compliance  is  determined by a ratio of the
insurance  company's  regulatory total adjusted capital, as defined by the NAIC,
to its authorized control level RBC, as defined by the NAIC. Insurance companies
below specific  trigger points or ratios are classified  within certain  levels,
each of which requires specific  corrective action. The levels and ratios are as
follows:

                                    Ratio of Total Adjusted Capital to
                                      Authorized Control Level RBC
              Regulatory Event           (Less Than or Equal to)    
              ----------------           -----------------------    

     Company action level                               2*
     Regulatory action level                            1.5
     Authorized control level                           1
     Mandatory control level                            0.7
     * Or, 2.5 with negative trend.

At December 31, 1998, each of the insurance  subsidiaries has a Ratio that is in
excess of 4, which is 400% of the  authorized  control  level;  accordingly  the
insurance subsidiaries meet the RBC requirements.

The  Company is not aware of any  litigation  that will have a material  adverse
effect on the financial position of the Company.  In addition,  the Company does
not believe that the regulatory  initiatives  currently under  consideration  by
various regulatory  agencies will have a material adverse impact on the Company.
The Company is not aware of any material pending or threatened regulatory action
with  respect to the Company or any of its  subsidiaries.  The Company  does not
believe  that  any  insurance  guaranty  fund  assessments  will  be  materially
different from amounts already provided for in the financial statements.

Management   believes  the  overall  sources  of  liquidity  available  will  be
sufficient to satisfy its financial obligations.

REGULATORY ENVIRONMENT

The Company's  insurance  subsidiaries  are assessed  contributions  by life and
health guaranty associations in almost all states to indemnify  policyholders of
failed companies. In several states the company may reduce premium taxes paid to
recover a portion of assessments paid to the states' guaranty fund  association.
This right of  "offset"  may come under  review by the various  states,  and the
company cannot predict  whether and to what extent  legislative  initiatives may
affect  this  right to  offset.  Also,  some state  guaranty  associations  have
adjusted the basis by which they assess the cost of  insolvencies  to individual
companies.  The  Company  believes  that its reserve  for future  guaranty  fund
assessments  is  sufficient  to  provide  for   assessments   related  to  known
insolvencies. This reserve is based upon management's current expectation of the
availability of this right of offset, known insolvencies and state guaranty fund
assessment bases. However,  changes in the basis whereby assessments are charged
to individual  companies and changes in the  availability of the right to offset
assessments  against premium tax payments could materially  affect the company's
results.


                                       29
<PAGE>


Currently,  the  Company's  insurance  subsidiaries  are  subject to  government
regulation in each of the states in which they conduct business. Such regulation
is vested in state agencies having broad  administrative  power dealing with all
aspects of the insurance business,  including the power to: (i) grant and revoke
licenses to transact  business;  (ii) regulate and supervise trade practices and
market conduct; (iii) establish guaranty associations;  (iv) license agents; (v)
approve  policy  forms;  (vi) approve  premium rates for some lines of business;
(vii) establish reserve  requirements;  (viii) prescribe the form and content of
required financial statements and reports; (ix) determine the reasonableness and
adequacy of statutory capital and surplus;  and (x) regulate the type and amount
of permitted  investments.  Insurance regulation is concerned primarily with the
protection of policyholders. The Company cannot predict the impact of any future
proposals, regulations or market conduct investigations. The Company's insurance
subsidiaries,  USA, UG, APPL and ABE are domiciled in the states of Ohio,  Ohio,
West Virginia and Illinois, respectively.

The  insurance  regulatory  framework  continues  to be  scrutinized  by various
states,  the  federal  government  and the  National  Association  of  Insurance
Commissioners  ("NAIC"). The NAIC is an association whose membership consists of
the insurance  commissioners or their designees of the various states.  The NAIC
has no direct regulatory authority over insurance companies, however its primary
purpose is to provide a more consistent  method of regulation and reporting from
state to state. This is accomplished  through the issuance of model regulations,
which can be adopted  by  individual  states  unmodified,  modified  to meet the
state's own needs or requirements, or dismissed entirely.

Most  states  also  have  insurance   holding  company  statutes  which  require
registration and periodic reporting by insurance  companies  controlled by other
corporations   licensed   to   transact   business   within   their   respective
jurisdictions.  The insurance  subsidiaries  are subject to such legislation and
registered  as  controlled   insurers  in  those  jurisdictions  in  which  such
registration  is  required.  Statutes  vary from  state to state  but  typically
require  periodic  disclosure,  concerning  the  corporation,  that controls the
registered insurers and all subsidiaries of such corporation. In addition, prior
notice  to,  or  approval  by,  the  state  insurance   commission  of  material
intercorporate   transfers  of  assets,   reinsurance   agreements,   management
agreements (see Note 9 in the Notes to the Consolidated  Financial  Statements),
and payment of dividends (see Note 2 in the Notes to the Consolidated  Financial
Statements) in excess of specified amounts by the insurance  subsidiary,  within
the holding company system, are required.

Each year the NAIC calculates  financial ratio results (commonly  referred to as
IRIS  ratios)  for  each  company.   These  ratios  compare  various   financial
information pertaining to the statutory balance sheet and income statement.  The
results are then compared to  pre-established  normal  ranges  determined by the
NAIC. Results outside the range typically require explanation to the domiciliary
insurance department.

At year-end  1998,  the  insurance  companies  had one ratio  outside the normal
range.  The ratio is related to the decrease in premium  income.  The ratio fell
outside the normal range the last three years.  A primary cause for the decrease
in premium  revenues is related to the  potential  change in control of UTI over
the last two years to two different  parties.  During  September of 1996, it was
announced  that  control  of UTI  would  pass  to an  unrelated  party,  but the
transaction  did not  materialize.  In February 1998, an  announcement  was made
regarding  negotiations with a different unrelated party, First Southern Funding
LLC, for the change in control of UTI. In November  1998,  the change in control
with  this  second  party  was  completed.  Please  refer  to the  Notes  to the
Consolidated  Financial  Statements  for  additional  information.  The possible
changes and resulting  uncertainties have hurt the insurance  companies' ability
to recruit and maintain sales agents.

The NAIC, in conjunction  with state  regulators,  has been  reviewing  existing
insurance laws and regulations.  A committee of the NAIC proposed changes in the
regulations   governing   insurance  company  investments  and  holding  company
investments in  subsidiaries  and  affiliates  which were adopted by the NAIC as
model laws in 1996.  The Company  does not  presently  anticipate  any  material
adverse change in its business as a result of these changes.

Legislative and regulatory  initiatives  regarding  changes in the regulation of
banks and other financial  services  businesses and restructuring of the federal
income tax system could, if adopted and depending on the form they take, have an
adverse impact on the Company by altering the  competitive  environment  for its
products.  The outcome and timing of any such changes  cannot be  anticipated at
this time,  but the Company will  continue to monitor  developments  in order to
respond to any opportunities or increased competition that may occur.


                                       30
<PAGE>


The Clinton  Administration  has recently proposed tax changes that would affect
the insurance industry.  One proposal is to require recapture of untaxed profits
on policyholder  surplus  accounts.  Between 1959 and 1983, stock life insurance
companies deferred tax on a portion of their profits. These untaxed profits were
added to a policyholders  surplus account ("PSA").  In 1984,  Congress precluded
life insurance  companies from  continuing to defer taxes on any future profits.
The Clinton Administration argues that there is no continuing  justification for
permitting  stock life  insurance  companies  to defer tax on profits  that were
earned between 1959 and 1983.  Accordingly,  the stock life  companies  would be
required to include in their gross income over ten years their PSA balances. The
second proposal modifies rules for capitalizing  policy acquisition costs on the
grounds that life insurance  companies  generally only  capitalize a fraction of
their actual policy  acquisition  costs.  This  modification  would increase the
current capitalization percentages.  Either of these changes would be onerous to
the Company and to the insurance  industry as a whole. The outcome and timing of
these proposals cannot be anticipated at this time.

The NAIC  adopted  the Life  Illustration  Model  Regulation.  Many  states have
adopted the  regulation  effective  January 1, 1997.  This  regulation  requires
products  which  contain  non-guaranteed  elements,  such as universal  life and
interest sensitive life, to comply with certain  actuarially  established tests.
These tests are intended to target future  performance  and  profitability  of a
product under various scenarios.  The regulation does not prevent a company from
selling a product that does not meet the various tests.  The only implication is
the way in which the product is marketed to the  consumer.  A product  that does
not pass the tests uses guaranteed  assumptions rather than current  assumptions
in presenting future product  performance to the consumer.  The Company conducts
an ongoing  thorough review of its sales and marketing  process and continues to
emphasize its compliance efforts.

A task  force  of the  NAIC is  currently  undertaking  a  project  to  codify a
comprehensive  set of  statutory  insurance  accounting  rules and  regulations.
Project results were recently approved by the NAIC with an  implementation  date
of January 1, 2001.  Individual  states in which the Company does  business must
implement these new rules for them to become effective. Specific recommendations
have been set forth in papers issued by the NAIC.  The NAIC  continues to modify
and amend these papers. The Company is monitoring the process,  and is not aware
of any new requirements that would result in a material  financial impact on the
Company's financial position or results of operations. The Company will continue
to monitor this issue as changes and new proposals are made.


ACCOUNTING AND LEGAL DEVELOPMENTS

The  Financial  Accounting  Standards  Board  (FASB)  has  issued  Statement  of
Financial  Accounting Standards (SFAS) 128 entitled Earnings per share, which is
effective for financial statements for fiscal years beginning after December 15,
1997.  SFAS  128  specifies  the  computation,   presentation,   and  disclosure
requirements for earnings per share (EPS) for entities with publicly held common
stock or potential  common stock.  The Statement's  objective is to simplify the
computation of earnings per share, and to make the U.S.
standard  for  computing  EPS more  compatible  with the EPS  standards of other
countries.

This  statement was adopted for the 1997 Financial  Statements.  For all periods
presented  the  Company  reported  a  loss  from  continuing  operations  so any
potential  issuance of common shares would have an  antidilutive  effect on EPS.
Consequently,  the adoption of SFAS 128 did not have an impact on the  Company's
financial statement.

                                       31
<PAGE>


The FASB has issued SFAS 130 entitled Reporting  Comprehensive  Income, which is
effective for financial statements for fiscal years beginning after December 15,
1997.  SFAS  130  establishes   standards  for  reporting  and  presentation  of
comprehensive  income and its components in a full set of financial  statements.
Comprehensive income includes all changes in shareholders'  equity, except those
arising from  transactions  with  shareholders,  and includes net income and net
unrealized  gains (losses) on securities.  SFAS 130 was adopted as of January 1,
1998.  Adopting  the new  standard  required  the  Company  to  make  additional
disclosures in the  consolidated  financial  statements,  but did not affect the
Company's financial position or results of operations.

All items of other comprehensive income reflect no related tax effect, since the
Company has an allowance  against the collection of any future tax benefits.  In
addition,   there  was  no  sale  or  liquidation  of  investments  requiring  a
reclassification adjustment for the period presented.

The  FASB has  issued  SFAS  131  entitled,  Disclosures  about  Segments  of an
Enterprise and Related Information,  which is effective for financial statements
for fiscal years  beginning  after  December 15, 1997.  SFAS 131 requires that a
public business  enterprise  report financial and descriptive  information about
its  reportable  operating  segments.  Operating  segments are  components of an
enterprise  about which  separate  financial  information  is available  that is
evaluated  regularly  in deciding  how to allocate  resources  and in  assessing
performance.  SFAS 131 was  adopted  as of January  1,  1998.  Adopting  the new
standard  had no  affect on the  Company's  financial  position  or  results  of
operations, since the Company has no reportable operating segments.

The FASB has issued SFAS 132 entitled, Employers' Disclosures about Pensions and
Other Postretirement  Benefits,  which is effective for financial statements for
fiscal  years  beginning  after  December  15,  1997.  SFAS 132 revises  current
disclosure  requirements for employer  provided  post-retirement  benefits.  The
statement does not change retirement measurement or recognition issues. SFAS 132
was adopted as of January 1, 1998.  Adopting  the new  standard had no affect on
the Company's financial position or results of operations, since the Company has
no pension plan or other obligation for post-retirement benefits.

The FASB has issued SFAS 133 entitled, Accounting for Derivative Instruments and
Hedging  Activities,  which is effective for all fiscal quarters of fiscal years
beginning  after June 15, 1999.  SFAS 133 requires that an entity  recognize all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position and measure those instruments at fair value. If certain  conditions are
met, a derivative may be specifically  designated as a specific type of exposure
hedge.  The accounting for changes in the fair value of a derivative  depends on
the intended use of the derivative and the resulting  designation.  The adoption
of SFAS 133 is not expected to have a material effect on the Company's financial
position  or results of  operations,  since the  Company  has no  derivative  or
hedging type investments.

The  Company is not aware of any  litigation  that will have a material  adverse
effect on the financial position of the Company.  In addition,  the Company does
not believe that the regulatory  initiatives  currently under  consideration  by
various regulatory  agencies will have a material adverse impact on the Company.
The Company is not aware of any material pending or threatened regulatory action
with  respect to the Company or any of its  subsidiaries.  The Company  does not
believe  that  any  insurance  guaranty  fund  assessments  will  be  materially
different from amounts already provided for in the financial statements.


YEAR 2000 ISSUE

The "Year 2000 Issue" is the inability of computers and computing  technology to
recognize  correctly  the Year 2000 date  change.  The  problem  results  from a
long-standing  practice by  programmers  to save memory space by denoting  years
using just two digits  instead of four digits.  Thus,  systems that are not Year
2000 compliant may be unable to read dates correctly after the Year 1999 and can
return incorrect or unpredictable  results. This could have a significant effect
on the Company's business/financial systems as well as products and services, if
not corrected.

                                       32
<PAGE>


The Company  established a project to address year 2000  processing  concerns in
September of 1996.  In 1997 the Company  completed  the review of the  Company's
internally and externally  developed software,  and made corrections to all year
2000 non-compliant processing.  The Company also secured verification of current
and future year 2000 compliance  from all major external  software  vendors.  In
December of 1997, a separate computer operating environment was established with
the system  dates  advanced  to December of 1999.  A parallel  model  office was
established  with all dates in the data  advanced to December of 1999.  Parallel
model office  processing is being performed using dates from December of 1999 to
January of 2001, to insure all year 2000 processing  errors have been corrected.
Testing  was  completed  by the  end of the  first  quarter  of  1998.  Periodic
regression  testing is being  performed  to monitor  continuing  compliance.  By
addressing year 2000 compliance in a timely manner, compliance has been achieved
using existing staff and without significant impact on the Company operationally
or financially.


CHANGE IN CONTROL OF UNITED TRUST, INC.

On November 20, 1998,  First  Southern  Funding,  LLC., a Kentucky  corporation,
("FSF") and affiliates  acquired 929,904 shares of common stock of United Trust,
Inc., an Illinois corporation, ("UTI") from UTI and certain UTI shareholders. As
consideration for the shares, FSF paid UTI $10,999,995 and certain  shareholders
of UTI $999,990 in cash. FSF and  affiliates  employed  working  capital to make
these purchases of common stock, including funds on hand and amounts drawn under
existing lines of credit with Star Bank,  NA. FSF borrowed  $7,082,878 and First
Southern  Bancorp,  Inc., an affiliate of FSF,  borrowed  $495,775 in making the
purchases. FSF and affiliates expect to repay the borrowings through the sale of
assets they currently own.

Details of the  transaction  can be outlined as follows:  FSF  acquired  389,715
shares of UTI common stock at $10.00 per share.  These shares  represented stock
acquired during 1997 by UTI in private transactions.  Additionally, FSF acquired
473,523 shares of authorized but unissued common stock at $15.00 per share.  FSF
acquired  66,666  shares of common  stock  from UTI CEO  Larry  Ryherd,  and his
family,  at $15.00 per share.  FSF has committed to purchase  $2,560,000 of face
amount of UTI convertible notes from certain officers and directors of UTI for a
cash price of $3,072,000 by March 1, 1999.  FSF is required to convert the notes
to  UTI  common  stock  by  July  31,  2000.   UTI  has  granted,   for  nominal
consideration,  an  irrevocable,  exclusive  option  to  FSF to  purchase  up to
1,450,000  shares of UTI  common  stock for a  purchase  price in cash  equal to
$15.00  per  share,  with such  option to expire on July 1,  2001.  UTI has also
caused three persons  designated by FSF to be appointed,  as part of the maximum
of 11, to the Board of Directors of UTI.

Following  the  transactions  described  above,  and together with shares of UTI
acquired on the market, FSF and affiliates currently own 1,073,577 shares of UTI
common stock (43.1%) becoming the largest shareholder of UTI. Through the shares
acquired and options owned, FSF can ultimately own over 51% of UTI. Mr. Jesse T.
Correll is the  majority  shareholder  of FSF,  which is an  affiliate  of First
Southern  Bancorp,  Inc., a bank holding  company that owns a bank that operates
out of 14 locations in central Kentucky.

This  transaction  provides  the  Company  with  increased  opportunities.   The
additional  capitalization  has enabled UTI to significantly  reduce its outside
debt and has enhanced its ability to make future acquisitions  through increased
borrowing power and financial strength. Many synergies exist between the Company
and First Southern  Funding and its affiliates.  The potential for cross selling
of services to each customer base is currently  being  explored.  Legislation is
currently pending that would eliminate many of the barriers  currently  existing
between banks and insurance  companies.  Such alliances are already being formed
within the two industries.  Management  believes this transaction  positions the
Company  for  continued  growth  and  competitiveness  into  the  future  as the
financial industry changes.


                                       33
<PAGE>


PROPOSED MERGER

On March  25,  1997,  the Board of  Directors  of the  Company  and UII voted to
recommend to the  shareholders a merger of the two companies.  Under the Plan of
Merger, the Company would be the surviving entity issuing one share of its stock
for each share held by UII shareholders.

The Company owns 53% of United Trust Group,  Inc., an insurance holding company,
and UII owns 47% of United Trust Group, Inc. Neither the Company nor UII had any
other  significant  holdings  or  business  dealings  at the time the merger was
recommended  by the  respective  Boards of Directors.  The Board of Directors of
each company thus  concluded a merger of the two companies  would be in the best
interests of the  shareholders.  The merger will result in certain cost savings,
primarily  related to costs  associated  with  maintaining a corporation in good
standing in the states in which it transacts business.  Additionally, the merger
will further  simplify the group's  holding  company  system making it easier to
understand for outside parties including current investors,  potential investors
and lenders.

A vote of the  shareholders of the Company and UII regarding the proposed merger
is anticipated to occur sometime during the second quarter of 1999.


                                       34
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Listed below are the  financial  statements  included in this Part of the Annual
Report on SEC Form 10-K:

                                                                        Page No.
                                                                        --------
FIRST COMMONWEALTH CORPORATION AND CONSOLIDATED SUBSIDIARIES


     Independent Auditor's Report for the
        Years ended December 31, 1998, 1997, 1996.............................36



     Consolidated Balance Sheets..............................................37



     Consolidated Statements of Operations....................................38



     Consolidated Statements of Shareholders' Equity..........................39



     Consolidated Statements of Cash Flows....................................40



     Notes to Consolidated Financial Statements........................... 41-64




                                       35
<PAGE>


                          Independent Auditors' Report
                          ----------------------------



Board of Directors and Shareholders
First Commonwealth Corporation


         We have audited the accompanying  consolidated  balance sheets of First
Commonwealth  Corporation  (a  Virginia  corporation)  and  subsidiaries  as  of
December  31,  1998  and  1997,  and  the  related  consolidated  statements  of
operations,  shareholders' equity, and cash flows for each of the three years in
the  period  ended  December  31,  1998.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material respects,  the consolidated  financial position of First
Commonwealth  Corporation and subsidiaries as of December 31, 1998 and 1997, and
the consolidated  results of their operations and their  consolidated cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.

         We have also audited  Schedule I as of December 31, 1998, and Schedules
II, IV and V as of December 31, 1998 and 1997, of First Commonwealth Corporation
and  subsidiaries  and Schedules II, IV and V for each of the three years in the
period then ended.  In our  opinion,  these  schedules  present  fairly,  in all
material respects, the information required to be set forth therein.




                                        KERBER, ECK & BRAECKEL LLP




Springfield, Illinois
March 26, 1999


                                       36
<PAGE>
<TABLE>
<CAPTION>

                                                      
                         FIRST COMMONWEALTH CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                        As of December 31, 1998 and 1997

                                              ASSETS                                                 
                                                                                       1998             1997
                                                                                   --------------   --------------
                                                                                 <S>              <C>                              
Investments:
    Fixed maturities at amortized cost (market $179,885,379 and $184,782,568)    $   174,240,848  $   180,649,040
    Investments held for sale:
      Fixed maturities, at market (cost $1,494,636 and $1,672,298)                     1,505,406        1,668,630
      Equity securities, at market (cost $2,725,061 and $3,184,357)                    2,087,416        3,001,744
    Mortgage loans on real estate at amortized cost                                   10,941,614        9,469,444
    Investment real estate, at cost, net of accumulated depreciation                   8,979,183        9,760,732
    Real estate acquired in satisfaction of debt                                       1,550,000        1,724,544
    Policy loans                                                                      14,134,041       14,207,189
    Other long-term investments                                                          906,278          840,066
    Short-term investments                                                             1,036,251        1,773,531
                                                                                   --------------   --------------
                                                                                     215,381,037      223,094,920

Cash and cash equivalents                                                             25,752,842       15,704,573
Investment in parent                                                                     350,000          350,000
Accrued investment income                                                              3,521,081        3,630,773
Reinsurance receivables:
    Future policy benefits                                                            36,965,938       37,814,106
    Policy claims and other benefits                                                   3,563,963        3,529,078
Cost of insurance acquired                                                            17,628,369       18,654,506
Deferred policy acquisition costs                                                     11,840,548       16,745,720
Cost in excess of net assets purchased,
  net of accumulated amortization                                                      8,736,807        9,180,471
Property and equipment, net of accumulated depreciation                                2,932,261        3,152,182
Other assets                                                                             907,483          715,862
                                                                                   --------------   --------------
Total assets                                                                     $   327,580,329  $   332,572,191
                                                                                   ==============   ==============
                                                                                   

                       LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
    Future policy benefits                                                       $   254,386,798  $   253,964,709
    Policy claims and benefits payable                                                 2,183,434        2,080,907
    Other policyholder funds                                                           2,150,632        2,445,469
    Dividend and endowment accumulations                                              15,137,048       14,679,816
Income taxes payable:
    Current                                                                               99,003           10,555
    Deferred                                                                          (1,200,002)       3,365,692
Notes payable                                                                         17,369,993       18,241,602
Indebtedness to affiliates, net                                                           43,494           27,150
Other liabilities                                                                      4,877,007        2,914,991
                                                                                   --------------   --------------
    Total liabilities                                                                295,047,407      297,730,891
                                                                                   --------------   --------------
Minority interests in consolidated subsidiaries                                        1,710,538        1,634,877
                                                                                   --------------   --------------
                                                                                   

Shareholders' equity:
Common stock - $1 par value per share.                                            
    Authorized 62,500 shares - 54,539 and 54,560 shares
    issued after deducting treasury shares of  946 and 930                                54,539           54,616
Additional paid-in capital                                                            51,875,820       51,877,243
Accumulated deficit                                                                  (20,476,631)     (18,526,806)
Accumulated other comprehensive income                                                  (631,344)        (198,630)
                                                                                   --------------   --------------
        Total shareholders' equity                                                    30,822,384       33,206,423
                                                                                   --------------   --------------
        Total liabilities and shareholders' equity                               $   327,580,329  $   332,572,191
                                                                                   ==============   ==============

</TABLE>

                             See accompanying notes
                                       37
<PAGE>


<TABLE>
<CAPTION>
                                                 
              FIRST COMMONWEALTH CORPORATION
            CONSOLIDATED STATEMENTS OF OPERATIONS
           Three Years Ended December 31, 1998



                                                                   1998              1997             1996
                                                               --------------   ---------------   --------------
<S>                                                          <C>              <C>               <C>
Revenues:

    Premiums and policy fees                                 $    30,938,609  $     33,373,950  $    35,891,609
    Reinsurance premiums and policy fees                          (4,542,532)       (4,734,705)      (4,947,151)
    Net investment income                                         15,069,404        14,878,336       15,909,226
    Realized investment gains and (losses), net                     (851,822)         (268,982)        (411,053)
    Other income                                                      17,937           105,679           95,400
                                                               --------------   ---------------   --------------
                                                                  40,631,596        43,354,278       46,538,031


Benefits and other expenses:

    Benefits, claims and settlement expenses:
       Life                                                       23,947,110        25,021,845       30,800,404
       Reinsurance benefits and claims                            (2,498,945)       (2,078,982)      (2,283,956)
       Annuity                                                     1,463,002         1,543,258        1,826,600
       Dividends to policyholders                                  3,431,238         3,929,073        4,100,552
    Commissions and amortization of deferred
       policy acquisition costs                                    7,079,529         4,308,365        4,992,885
    Amortization of cost of insurance acquired                     1,026,137         1,231,988        1,703,400
    Operating expenses                                            10,898,004         9,265,181       11,631,839
    Interest expense                                               1,618,498         1,612,438        1,700,823
                                                               --------------   ---------------   --------------
                                                                  46,964,573        44,833,166       54,472,547
                                                               --------------   ---------------   --------------


Loss before income taxes and minority interest                    (6,332,977)       (1,478,888)      (7,934,516)
Income tax credit (expense)                                        4,466,691          (321,955)       4,961,506
Minority interest in loss
    of consolidated subsidiaries                                     (83,539)          (44,219)         (58,639)
                                                               --------------   ---------------   --------------
Net loss                                                     $    (1,949,825) $     (1,845,062) $    (3,031,649)
                                                               ==============   ===============   ==============


Basic loss per share from continuing operations
   and net loss                                              $        (35.74) $         (32.65) $        (50.60)
                                                               ==============   ===============   ==============

                                                         

Diluted loss per share from continuing operations
   and net loss                                              $        (35.74) $         (32.65) $        (50.60)
                                                               ==============   ===============   ==============
                                                               


Basic weighted average shares outstanding                             54,550            56,512           59,919
                                                               ==============   ===============   ==============
                                                               

Diluted weighted average shares outstanding                           54,550            56,512           59,919
                                                               ==============   ===============   ==============
</TABLE>

                            See accompanying notes.
                                       38
<PAGE>


<TABLE>
<CAPTION>

                                                      
                         FIRST COMMONWEALTH CORPORATION
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                       Three Years Ended December 31, 1998

                                            1998                                 1997                                1996
                               -----------------------------     ------------------------------     -------------------------------
<S>                           <C>                                  <C>                                 <C>
Common stock
 Balance, beginning of year   $     54,616                      $       59,919                     $        59,919
 Issued during year                    (61)                                  0                                   0
 Stock retired from purchase
  of fractional shares of
   reverse stock split                   0                              (5,303)                                  0
 Treasury stock acquired               (16)                                  0                                   0
                                ------------                       ------------                      --------------
 Balance, end of year          $    54,539                      $       54,616                     $        59,919
                                ============                       ============                      ==============
                             


Additional paid-in capital
 Balance, beginning of year    $51,877,243                      $   52,406,191                     $    52,406,191
 Issued during year                     61                                   0                                   0
 Stock retired from purchase
  of fractional shares of
   reverse stock split                   0                            (528,948)                                  0
 Treasury stock acquired            (1,484)                                  0                                   0
                                ------------                       ------------                      --------------
 Balance, end of year          $51,875,820                      $   51,877,243                     $    52,406,191
                                ============                       ============                      ==============


  Accumulated deficit
  Balance, beginning of year   $(18,526,806)                    $  (16,681,744)                    $   (13,650,095)
  Net loss                       (1,949,825) $   (1,949,825)        (1,845,062)$    (1,845,062)         (3,031,649) $   (3,031,649)
                                ------------                       ------------                      --------------
  Balance, end of year         $(20,476,631)                    $  (18,526,806)                    $   (16,681,744)
                                ============                       ============                      ==============


Accumulated other
 comprehensive income
 Balance, beginning of year        (198,630)                          (305,715)                           (131,215)
 Other comprehensive income
  Unrealized holding gain
  (loss) on securities             (432,714)       (432,714)           107,085         107,085            (174,500)       (174,500)
                                ------------     ----------        ------------  --------------      --------------   -------------
 Comprehensive income                        $   (2,382,539)                    $    (1,737,977)                     $   (3,206,149)
                                                 ===========                      ==============                       =============

 Balance, end of year              (631,344)                          (198,630)                           (305,715)
                                ------------                       ------------                      --------------

 Total shareholders' equity,
  end of year                  $  30,822,384                     $  33,206,423                     $    35,478,651
                                ============                       ============                      ==============
</TABLE>



                            See accompanying notes.
                                       39
<PAGE>

<TABLE>
<CAPTION>

                         FIRST COMMONWEALTH CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                       Three Years Ended December 31, 1998

                                                                 1998            1997           1996
                                                              ------------   -------------  -------------
Increase (decrease) in cash
 and cash equivalents
Cash flows from operating activities:
<S>                                                       <C>            <C>            <C>
 Net loss                                                 $  (1,949,825) $   (1,845,062)$   (3,031,649)
 Adjustments to reconcile net loss
  to net cash provided by (used in)
  operating activities net of
  changes in assets and  liabilities
  resulting from the sales and purchases
  of subsidiaries:
 Amortization/accretion of fixed maturities                    603,904         610,668        829,326
 Realized investment (gains) losses, net                       851,822         268,982        411,053
 Policy acquisition costs deferred                            (892,000)       (586,000)    (1,276,000)
 Amortization of deferred policy acquisition costs           5,797,172       2,002,636      2,155,372
 Amortization of cost of insurance acquired                  1,026,137       1,231,988      1,703,400
 Amortization of costs in excess of net assets purchased       443,664         443,664        447,035
 Depreciation                                                  480,532         468,831        514,507
 Minority interest                                              83,539          44,219         58,639
 Change in accrued investment income                           109,692        (206,227)       195,821
 Change in reinsurance receivables                             813,283       1,258,033         83,742
 Change in policy liabilities and accruals                     945,118         812,862      7,444,348
 Charges for mortality and administration of
   universal life and annuity products                     (10,771,795)    (10,588,874)   (10,239,476)
 Interest credited to account balances                       7,014,683       7,212,406      7,075,921
 Change in income taxes payable                             (4,477,246)        272,428     (4,974,013)
 Change in indebtedness (to) from affiliates, net               16,344          (9,783)       199,321
 Change in other assets and liabilities, net                 1,770,393      (1,590,001)     1,316,629
                                                           ------------   -------------  -------------
Net cash provided by (used in) operating activities          1,865,417        (199,230)     2,913,976
                                                           ------------   -------------  -------------

Cash flows from investing activities:
 Proceeds from investments sold and
   matured:
 Fixed maturities held for sale matured                        164,520         290,660      1,219,036
 Fixed maturities sold                                               0               0     18,736,612
 Fixed maturities matured                                   54,642,223      21,488,265     20,721,482
 Equity securities                                             450,000          76,302          8,990
 Mortgage loans                                              1,785,859       1,794,518      3,364,427
 Real estate                                                 1,716,124       1,136,995      3,219,851
 Policy loans                                                3,661,834       4,785,222      3,937,471
 Short-term                                                  1,593,749         400,000        825,000
                                                           ------------   -------------  -------------
Total proceeds from investments sold and matured            64,014,309      29,971,962     52,032,869
Cost of investments acquired:
 Fixed maturities                                          (48,745,594)    (23,220,172)   (29,365,111)
 Equity securities                                             (79,053)     (1,248,738)             0
 Mortgage loans                                             (3,667,061)       (245,234)      (503,113)
 Real estate                                                (1,346,299)     (1,444,980)      (813,331)
 Policy loans                                               (3,588,686)     (4,554,291)    (4,329,124)
 Other long-term investments                                   (66,212)              0              0
 Short-term                                                   (850,000)     (1,721,671)      (830,983)
                                                            ------------   -------------  -------------
 Total cost of investments acquired                        (58,342,905)    (32,435,086)   (35,841,662)
 Purchase of property and equipment                           (114,449)       (531,528)      (383,411)
                                                            ------------   -------------  -------------
Net cash provided by (used in) investing activities          5,556,955      (2,994,652)    15,807,796
                                                            ------------   -------------  -------------

Cash flows from financing activities:
 Policyholder contract deposits                             15,480,745      17,905,246     22,245,369
 Policyholder contract withdrawals                         (12,402,530)    (14,515,576)   (15,433,644)
 Net cash transferred from coinsurance ceded                         0               0    (19,088,371)
 Net cash transferred from coinsurance assumed                 420,790               0              0
 Proceeds from notes payable                                 9,408,099       1,000,000      9,300,000
 Payments of principal on notes payable                    (10,279,707)     (1,758,252)   (10,923,475)
 Purchase of treasury shares                                    (1,500)              0              0
 Payment for fractional shares from reverse stock split              0        (534,251)             0
                                                           ------------   -------------  -------------
Net cash provided by (used in) financing activities          2,625,897       2,097,167    (13,900,121)
                                                           ------------   -------------  -------------
Net increase (decrease) in cash and cash equivalents        10,048,269      (1,096,715)     4,821,651
Cash and cash equivalents at beginning of year              15,704,573      16,801,288     11,979,637
                                                           ------------   -------------  -------------
Cash and cash equivalents at end of year                 $  25,752,842  $   15,704,573 $   16,801,288
                                                           ============   =============  =============
</TABLE>

                            See accompanying notes.
                                       40
<PAGE>




FIRST COMMONWEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A.   ORGANIZATION  -  At  December  31,  1998,   the  parent,   significant
          majority-owned  subsidiaries  and  affiliates  of  First  Commonwealth
          Corporation were as depicted on the following organizational chart.

                              ORGANIZATIONAL CHART
                             AS OF DECEMBER 31, 1998



          United Trust, Inc. ("UTI") is the ultimate  controlling  company.  UTI
          owns 53% of United Trust Group ("UTG") and 41% of United Income,  Inc.
          ("UII").  UII  owns 47% of UTG.  UTG  owns  79% of First  Commonwealth
          Corporation ("FCC") and 100% of Roosevelt Equity Corporation  ("REC").
          FCC owns 100% of Universal  Guaranty Life Insurance Company ("UG"). UG
          owns 100% of United Security  Assurance Company ("USA").  USA owns 84%
          of Appalachian  Life Insurance  Company ("APPL") and APPL owns 100% of
          Abraham Lincoln Insurance Company ("ABE").


                                       41
<PAGE>


The  Company's  significant  accounting  policies,  consistently  applied in the
preparation  of  the  accompanying   consolidated   financial  statements,   are
summarized as follows.

     B.   NATURE OF OPERATIONS - First Commonwealth  Corporation is an insurance
          holding company,  which sells insurance products through its insurance
          subsidiaries.  The Company's principal market is the Midwestern United
          States.  The Company's  dominant business is individual life insurance
          which includes the servicing of existing  insurance business in force,
          the  solicitation of new individual life insurance and the acquisition
          of other companies in the insurance business.

     C.   BUSINESS  SEGMENTS - The  Company  has only one  significant  business
          segment - insurance.

     D.   BASIS OF PRESENTATION - The financial statements of First Commonwealth
          Corporation's  life  insurance  subsidiaries  have  been  prepared  in
          accordance with generally accepted accounting  principles which differ
          from statutory  accounting practices permitted by insurance regulatory
          authorities.


     E.   PRINCIPLES OF  CONSOLIDATION - The consolidated  financial  statements
          include  the   accounts   of  the   Company  and  its   majority-owned
          subsidiaries. Other investments in affiliates are carried at cost. All
          significant   intercompany   accounts  and   transactions   have  been
          eliminated.

     F.   INVESTMENTS - Investments are shown on the following bases:

          Fixed  maturities -- at cost,  adjusted for amortization of premium or
          discount and other-than-temporary market value declines. The amortized
          cost of such  investments  differs from their market values;  however,
          the Company has the  ability and intent to hold these  investments  to
          maturity,  at which  time  the  full  face  value  is  expected  to be
          realized.

          Investments  held  for sale -- at  current  market  value,  unrealized
          appreciation  or  depreciation  is charged  directly to  shareholders'
          equity.

          Mortgage  loans on real  estate -- at unpaid  balances,  adjusted  for
          amortization  of premium or  discount,  less  allowance  for  possible
          losses.

          Real estate -  Investment  real estate at cost,  less  allowances  for
          depreciation  and, as  appropriate,  provisions  for possible  losses.
          Foreclosed   real  estate  is  adjusted  for  any  impairment  at  the
          foreclosure date.  Accumulated  depreciation on investment real estate
          was   $685,526  and  $539,366  as  of  December  31,  1998  and  1997,
          respectively.

          Policy loans -- at unpaid balances including  accumulated interest but
          not in excess of the cash surrender value.

          Other long-term investments -- at cost.

          Short-term  investments -- at cost, which approximates  current market
          value.

          Realized  gains and losses on sales of  investments  are recognized in
          net income on the specific identification basis.

     G.   CASH EQUIVALENTS - The Company  considers  certificates of deposit and
          other short-term  instruments with an original  purchased  maturity of
          three months or less cash equivalents.

     H.   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  reinsurance  to other  insurance
          enterprises  or  reinsurers  under  excess  coverage  and  coinsurance
          contracts.  The Company  retains a maximum of $125,000 of coverage per
          individual life.

                                       42
<PAGE>

          Amounts paid or deemed to have been paid for reinsurance contracts are
          recorded  as  reinsurance  receivables.  Reinsurance  receivables  are
          recognized in a manner consistent with the liabilities relating to the
          underlying  reinsured  contracts.  The cost of reinsurance  related to
          long-duration  contracts  is  accounted  for  over  the  life  of  the
          underlying reinsured policies using assumptions  consistent with those
          used to account for the underlying policies.

     I.   FUTURE POLICY  BENEFITS AND EXPENSES - The liabilities for traditional
          life insurance and accident and health  insurance  policy benefits are
          computed  using  a  net  level  method.   These  liabilities   include
          assumptions as to investment yields, mortality, withdrawals, and other
          assumptions  based  on the  life  insurance  subsidiaries'  experience
          adjusted to reflect  anticipated  trends and to include provisions for
          possible unfavorable  deviations.  The Company makes these assumptions
          at the  time the  contract  is  issued  or,  in the case of  contracts
          acquired by  purchase,  at the  purchase  date.  Benefit  reserves for
          traditional  life insurance  policies include certain deferred profits
          on  limited-payment  policies that are being recognized in income over
          the policy term.  Policy  benefit claims are charged to expense in the
          period  that  the  claims  are  incurred.   Current   mortality   rate
          assumptions   are  based  on  1975-80  select  and  ultimate   tables.
          Withdrawal rate assumptions are based upon Linton B or Linton C, which
          are industry standard actuarial tables for forecasting  assumed policy
          lapse rates.

          Benefit  reserves for universal life insurance and interest  sensitive
          life  insurance  products are computed under a  retrospective  deposit
          method  and  represent  policy  account  balances  before   applicable
          surrender  charges.  Policy  benefits  and claims  that are charged to
          expense  include  benefit  claims in excess of related  policy account
          balances.  Interest  crediting  rates for universal  life and interest
          sensitive products range from 4.5% to 5.5% in 1998 and 4.5% to 6.0% in
          1997 and 1996.

     J.   POLICY  AND  CONTRACT  CLAIMS - Policy  and  contract  claims  include
          provisions  for reported  claims in process of  settlement,  valued in
          accordance  with the terms of the policies and  contracts,  as well as
          provisions  for  claims   incurred  and  unreported   based  on  prior
          experience of the Company.

     K.   COST OF INSURANCE  ACQUIRED - When an  insurance  company is acquired,
          the  Company  assigns  a portion  of its cost to the right to  receive
          future cash flows from insurance contracts existing at the date of the
          acquisition. The cost of policies purchased represents the actuarially
          determined  present value of the projected  future cash flows from the
          acquired   policies.   The  Company   utilized  9%  discount  rate  on
          approximately   74%  of  the  business   and  15%  discount   rate  on
          approximately  26% of the  business.  Cost of  Insurance  Acquired  is
          amortized  with  interest  in relation  to  expected  future  profits,
          including direct  charge-offs for any excess of the unamortized  asset
          over the projected future profits.  The interest rates utilized in the
          amortization  calculation are 9% on  approximately  74% of the balance
          and 15% on the  remaining  balance.  The  interest  rates  vary due to
          differences in the blocks of business.  The  amortization  is adjusted
          retrospectively when estimates of currentor future gross profits to be
          realized from a group of products are revised.


<TABLE>
<CAPTION>
                                                  1998               1997                1996
                                            ----------------   ----------------    ----------------
     <S>                              <C>                <C>                 <C>

          Cost of insurance acquired,      $                  $                   $
           beginning of year                      18,654,506         19,886,494          27,964,733
              Interest accretion                   1,555,706          1,630,058           2,694,172
              Amortization                        (2,581,843)        (2,862,046)         (4,397,572)
                                            ----------------   ----------------   ----------------
              Net amortization                    (1,026,137)        (1,231,988)         (1,703,400)
              Balance attributable to
                 coinsurance agreement                     0                  0          (6,374,839)
                                            ----------------   ----------------    ----------------

          Cost of insurance acquired,      $                  $                   $
             end of year                          17,628,369         18,654,506          19,886,494
                                            ================   ================    ================

</TABLE>

                                       43
<PAGE>


          Estimated net amortization  expense of cost of insurance  acquired for
          the next five years is as follows:

                                      

                       Interest                              Net
                      Accretion      Amortization      Amortization
                      ---------      ------------      ------------

           1999     $ 1,495,000      $  2,438,000      $    943,000
           2000       1,435,000         2,429,000           994,000
           2001       1,363,000         2,400,000         1,037,000
           2002       1,279,000         2,202,000           923,000
           2003       1,201,000         1,976,000           775,000


     L.   DEFERRED  POLICY  ACQUISITION  COSTS - Commissions  and other costs of
          acquiring  life  insurance  products  that vary with and are primarily
          related  to  the  production  of  new  business  have  been  deferred.
          Traditional life insurance  acquisition costs are being amortized over
          the  premium-paying  period of the related policies using  assumptions
          consistent with those used in computing policy benefit reserves.

          For universal  life  insurance and interest  sensitive  life insurance
          products,   acquisition   costs  are  being  amortized   generally  in
          proportion  to the  present  value  of  expected  gross  profits  from
          surrender  charges and  investment,  mortality,  and expense  margins.
          Under SFAS No. 97, "Accounting and Reporting by Insurance  Enterprises
          for Certain Long-Duration  Contracts and for Realized Gains and Losses
          from the Sale of Investments,"  the Company makes certain  assumptions
          regarding the mortality, persistency,  expenses, and interest rates it
          expects to experience in future periods.  These  assumptions are to be
          best  estimates and are to be  periodically  updated  whenever  actual
          experience  and/or  expectations  for the future  change from  initial
          assumptions.   The  amortization  is  adjusted   retrospectively  when
          estimates  of current or future  gross  profits to be realized  from a
          group of products are revised.

          The following table summarizes  deferred policy  acquisition costs and
          related data for the years shown.

<TABLE>
<CAPTION>
                                                             1998                 1997                1996
                                                      ---------------     ----------------    ----------------
          <S>                                        <C>                  <C>                 <C>              
          
          Deferred, beginning of year                $     16,745,720     $     18,162,356    $     19,041,728

          Acquisition costs deferred:
            Commissions                                       690,000              998,000           1,441,000
            Other expenses                                    202,000              274,000             431,000
                                                     ----------------     ----------------    ----------------
            Total                                             892,000            1,272,000           1,872,000

            Interest accretion                                758,000              827,000             854,000
            Amortization charged to income                 (3,572,172)          (3,515,636)         (3,605,372)
                                                     ----------------     ----------------    ----------------
            Net amortization                               (2,814,172)          (2,688,636)         (2,751,372)                     
            Amortization due to impairment                 (2,983,000)                   0                   0

                                                     ----------------     ----------------    ----------------
            Change for the year                            (4,905,172)          (1,416,636)           (879,372)                     
                                                     ----------------     ----------------    ----------------

          Deferred, end of year                         $  11,840,548      $    16,745,720      $   18,162,356
                                                     ================     ================    ================

</TABLE>

          Traditional life insurance  acquisition costs are being amortized over
          the  premium-paying  period of the related policies using  assumptions
          consistent with those used in computing policy benefit reserves.

                                       44
<PAGE>


          The following  table reflects the  components of the income  statement
          for the line item  Commissions  and  amortization  of deferred  policy
          acquisition costs.

                                          1998          1997          1996     
                                    ------------- ------------- --------------

          Net amortization of
           deferred policy
           acquisition costs         $ 5,797,172   $ 2,688,636    $ 2,751,372
          Commissions                  1,282,357     1,619,729      2,241,513
                                      ----------    ----------     ----------
          Total                      $ 7,079,529   $ 4,308,365    $ 4,992,885
                                      ==========    ==========     ==========
 

          Estimated  net  amortization  expense of deferred  policy  acquisition
          costs for the next five years is as follows:

                      Interest                              Net
                     Accretion      Amortization      Amortization
                     ---------      ------------      ------------

          1999      $  454,000      $  2,265,000      $  1,811,000
          2000         405,000         2,001,000         1,596,000
          2001         362,000         1,772,000         1,410,000
          2002         322,000         1,560,000         1,238,000
          2003         287,000         1,367,000         1,080,000

     M.   COST IN EXCESS OF NET ASSETS  PURCHASED - Cost in excess of net assets
          purchased  is the excess of the amount paid to acquire a company  over
          the  fair  value of its net  assets.  Costs in  excess  of net  assets
          purchased  are  amortized  on the  straight-line  basis over a 40-year
          period.  Management continually reviews the value of goodwill based on
          estimates  of  future  earnings.  As part of this  review,  management
          determines  whether  goodwill  is  fully  recoverable  from  projected
          undiscounted net cash flows from earnings of the subsidiaries over the
          remaining  amortization  period.  If management were to determine that
          changes  in  such  projected  cash  flows  no  longer   supported  the
          recoverability of goodwill over the remaining amortization period, the
          carrying  value of  goodwill  would be  reduced  with a  corresponding
          charge  to  expense(no  such  changes  have   occurred).   Accumulated
          amortization of cost in excess of net assets  purchased was $6,415,642
          and $5,971,978 as of December 31, 1998 and 1997, respectively.

     N.   PROPERTY AND EQUIPMENT -  Company-occupied  property,  data processing
          equipment and  furniture and office  equipment are stated at cost less
          accumulated  depreciation of $4,336,366 and $5,167,938 at December 31,
          1998  and  1997,   respectively.   Depreciation   is   computed  on  a
          straight-line  basis for financial  reporting purposes using estimated
          useful lives of three to 30 years.  Depreciation  expense was $334,372
          and  $371,838  for  the  years  ended  December  31,  1998  and  1997,
          respectively.

     O.   INCOME TAXES - Income taxes are reported under  Statement of Financial
          Accounting Standards Number 109. Deferred income taxes are recorded to
          reflect the tax consequences on future periods of differences  between
          the tax bases of assets and liabilities and their financial  reporting
          amounts at the end of each such period.

     P.   EARNINGS  PER SHARE -  Earnings  per  share are based on the  weighted
          average  number  of  common  shares   outstanding  during  each  year,
          retroactively  adjusted  to  give  effect  to  all  stock  splits,  in
          accordance with Statement of Financial  Accounting  Standards No. 128.
          The  computation  of diluted  earnings  per share is the same as basic
          earnings  per share  since the  Company  has no  dilutive  instruments
          outstanding.

     Q.   RECOGNITION   OF  REVENUES   AND  RELATED   EXPENSES  -  Premiums  for
          traditional life insurance products, which include those products with
          fixed and  guaranteed  premiums and benefits,  consist  principally of
          whole  life  insurance   policies,   limited-payment   life  insurance
          policies, and certain annuities with life contingencies are recognized
          as revenues  when due.  Accident  and health  insurance  premiums  are
          recognized  as  revenue  pro-rata  over  the  terms  of the  policies.
          Benefits and related expenses associated

                                       45
<PAGE>


          with the premiums earned are charged to expense  proportionately  over
          the  lives of the  policies  through a  provision  for  future  policy
          benefit  liabilities and through deferral and amortization of deferred
          policy acquisition costs. For universal life and investment  products,
          generally there is no requirement for payment of premium other than to
          maintain  account  values at a level  sufficient  to pay mortality and
          expense  charges.  Consequently,  premiums for universal life policies
          and investment products are not reported as revenue,  but as deposits.
          Policy fee revenue for universal life policies and investment products
          consists of charges for the cost of insurance,  policy administration,
          and surrenders  assessed during the period.  Expenses include interest
          credited to policy  account  balances and benefit  claims  incurred in
          excess of policy balances.

     R.   PARTICIPATING  INSURANCE - Participating  business  represents 34% and
          39% of the ordinary  life  insurance in force at December 31, 1998 and
          1997,   respectively.   Premium  income  from  participating  business
          represents  39%,  50%,  and 52% of total  premiums for the years ended
          December  31,  1998,  1997  and  1996,  respectively.  The  amount  of
          dividends  to  be  paid  is  determined  annually  by  the  respective
          insurance  subsidiary's  Board of  Directors.  Earnings  allocable  to
          participating policyholders are based on legal requirements which vary
          by state.

     S.   RECLASSIFICATIONS  - Certain prior year amounts have been reclassified
          to conform with the 1998 presentation.  Such  reclassifications had no
          effect on previously reported net loss, total assets, or shareholders'
          equity.

     T.   USE OF ESTIMATES - In preparing  financial  statements  in  conformity
          with generally accepted accounting principles,  management is required
          to make estimates and assumptions  that affect the reported amounts of
          assets  and  liabilities,  the  disclosure  of  contingent  assets and
          liabilities at the date of the financial statements,  and the reported
          amounts of revenues and expenses during the reporting  period.  Actual
          results could differ from those estimates.


2.  SHAREHOLDER DIVIDEND RESTRICTION

At December 31, 1998,  substantially  all of consolidated  shareholders'  equity
represents  net assets of FCC's  subsidiaries.  The payment of cash dividends to
shareholders  by FCC is  not  legally  restricted.  However,  insurance  company
dividend  payments are  regulated by the state  insurance  department  where the
company is domiciled. UG's dividend limitations are described below.

Ohio domiciled  insurance  companies require five days prior notification to the
insurance  commissioner  for  the  payment  of an  ordinary  dividend.  Ordinary
dividends are defined as the greater of: a) prior year statutory  earnings or b)
10% of statutory  capital and surplus.  For the year ended December 31, 1998, UG
had a statutory gain from  operations of $3,266,364.  At December 31, 1998, UG's
statutory capital and surplus amounted to $15,280,577.  Extraordinary  dividends
(amounts in excess of ordinary dividend  limitations)  require prior approval of
the insurance commissioner and are not restricted to a specific calculation.


3.  INCOME TAXES

Until 1984, the insurance  companies were taxed under the provisions of the Life
Insurance Company Income Tax Act of 1959 as amended by the Tax Equity and Fiscal
Responsibility  Act of 1982. These laws were superseded by the Deficit Reduction
Act of 1984. All of these laws are based  primarily upon statutory  results with
certain  special  deductions  and other items  available  only to life insurance
companies. Under the provision of the pre-1984 life insurance company income tax
regulations, a portion of "gain from operations" of a life insurance company was
not subject to current  taxation but was  accumulated,  for tax  purposes,  in a
special tax memorandum account  designated as "policyholders'  surplus account".
Federal income taxes will become payable on this account at the then current tax
rate when and if distributions  to shareholders,  other than stock dividends and
other limited exceptions, are made in excess of the accumulated previously taxed
income maintained in the "shareholders surplus account".

                                       46
<PAGE>

The following table summarizes the companies with this situation and the maximum
amount of income which has not been taxed in each.

                            Shareholders'          Untaxed
       Company                 Surplus             Balance
----------------------     -----------------    --------------
         ABE           $          5,180,494  $      1,149,693
        APPL                      6,137,321         1,525,367
         UG                      30,998,215         4,363,821
         USA                              0                 0

The payment of taxes on this income is not  anticipated;  and,  accordingly,  no
deferred taxes have been established.

The life insurance company  subsidiaries file a consolidated  federal income tax
return. The holding companies of the group file separate returns.

Life insurance  company taxation is based primarily upon statutory  results with
certain  special  deductions  and other items  available  only to life insurance
companies. Income tax expense consists of the following components:


                                           1998           1997           1996
                                      -----------    -----------    -----------
Current tax expense (credit) ......   $    99,003    $        38    $  (152,812)
Deferred tax expense (credit) .....    (4,565,694)       321,917     (4,808,694)
                                      -----------    -----------    -----------
                                      $(4,466,691)   $   321,955    $(4,961,506)
                                      ===========    ===========    ===========

The  Companies  have net operating  loss  carryforwards  for federal  income tax
purposes expiring as follows:

                              UG                FCC
                         -------------     ---------------
       2007                         0             136,058
       2008                         0               4,595
       2009                         0             168,800
       2010                         0              19,112
       2012                   386,669                   0
                         -------------     ---------------
       TOTAL         $        386,669  $          328,565
                         =============     ===============

The Company has  established  a deferred tax asset of $250,332 for its operating
loss carryforwards and has established an allowance of $250,332.

The provision or (credit) for income taxes differed from the amounts computed by
applying the applicable  United States  statutory rate of 35% to the loss before
taxes as a result of the following differences:

<TABLE>
<CAPTION>

                                                            1998            1997            1996
                                                    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>
Tax computed at statutory rate ..................   $ (2,216,542)   $   (517,611)   $ (2,777,081)
Changes in taxes due to:
  Cost in excess of net assets purchased ........        155,282         155,282         156,462
  Current year loss for which no benefit realized              0       1,039,742               0
  Benefit of prior losses .......................     (2,587,353)       (324,705)     (2,393,300)
  Other .........................................        181,922         (30,753)     52,452,413
                                                    ------------    ------------    ------------
Income tax expense (credit) .....................   $ (4,466,691)   $    321,955    $ (4,961,506)
                                                    ============    ============    ============
</TABLE>

                                       47
<PAGE>

The following table  summarizes the major components which comprise the deferred
tax liability as reflected in the balance sheets:

                                          1998                  1997
                                     ----------------      ---------------
Investments                      $        (182,000)    $        (340,479)
Deferred policy acquisition
  costs                                  4,144,192             5,861,002
Cost of insurance acquired               6,169,929             6,529,077
Agent balances                             (22,257)              (23,954)
Property and equipment                     (82,250)             (104,071)
Due premiums                            (1,047,735)           (1,082,960)
Discount of notes                                0               896,113
Future policy benefits                  (7,194,930)           (5,143,733)
Other liabilities                         (902,734)           (1,045,816)
Federal tax DAC                         (2,082,217)           (2,179,487)
                                     ----------------      ---------------
Deferred tax liability (asset)   $      (1,200,002)    $       3,365,692
                                     ================      ===============


4.  ANALYSIS OF INVESTMENTS, INVESTMENT INCOME AND INVESTMENT GAIN

A. NET INVESTMENT INCOME - The following table reflects net investment income by
type of investment:

<TABLE>
<CAPTION>

                                                              December 31,
                                         ----------------------------------------------------------
                                              1998               1997               1996
                                         ---------------    ----------------   ----------------
<S>                                     <C>              <C>                 <C>
Fixed maturities and fixed maturities
held for sale                           $    12,035,619  $      12,736,865   $     13,396,431
Equity securities                                92,196             87,211             88,661
Mortgage loans                                  859,543            802,123          1,047,461
Real estate                                     842,724            745,502            794,844
Policy loans                                    984,761            976,064          1,121,538
Other long-term investments                      62,477             63,530             63,005
Short-term investments                           29,907             70,624             17,664
Cash                                          1,209,046            594,478            602,525
                                         ---------------    ----------------   ----------------
Total consolidated investment income         16,116,273         16,076,397         17,132,129
Investment expenses                          (1,046,869)        (1,198,061)        (1,222,903)
                                        ----------------    ---------------    ----------------
Consolidated net investment income     $     15,069,404  $      14,878,336   $     15,909,226
                                         ===============    ================   ================

</TABLE>

At December  31, 1998,  the Company had a total of  $4,187,000  of  investments,
comprised  of  $3,152,000  in real  estate,  $968,000 in equity  securities  and
$66,000 in other  long-term  investments,  which did not produce  income  during
1998.

                                       48
<PAGE>

The  following  table  summarizes  the  Company's  fixed  maturity  holdings and
investments held for sale by major classifications:

                                               Carrying Value
                                     ----------------------------------------
                                             1998                 1997
                                        ---------------      ---------------
Investments held for sale:
     Fixed maturities                 $      1,505,406     $      1,668,630
     Equity securities                       2,087,416            3,001,744
Fixed maturities:
     U.S. Government, government
       agencies and authorities             36,809,239           28,032,927
     State, municipalities and
       political subdivisions               23,835,306           22,739,944
     Collateralized mortgage 
       obligations                           9,406,895           11,093,926
     Public utilities                       41,724,208           47,971,152
     All other corporate bonds              62,465,200           70,811,091
                                        ---------------      ---------------
                                      $    177,833,670     $    185,319,414
                                        ===============      ===============


By insurance  statute,  the majority of the  Company's  investment  portfolio is
required  to be  invested  in  investment  grade  securities  to  provide  ample
protection  for  policyholders.  The Company does not invest in so-called  "junk
bonds" or derivative investments.

Below  investment  grade debt  securities  generally  provide  higher yields and
involve  greater  risks than  investment  grade debt  securities  because  their
issuers  typically  are more highly  leveraged  and more  vulnerable  to adverse
economic  conditions than  investment  grade issuers.  In addition,  the trading
market for these  securities is usually more limited than for  investment  grade
debt securities.  Debt securities classified as below-investment grade are those
that receive a Standard & Poor's rating of BB or below.


The  following  table  summarizes  by  category  securities  held that are below
investment grade at amortized cost:

      Below Investment
      Grade Investments                1998             1997           1996
------------------------------     --------------    ------------   ------------
State, Municipalities and
  political Subdivisions         $            0    $           0 $       10,042
Public Utilities                        970,311           80,497        117,609
Corporate                                47,281          656,784        813,717
                                   -------------     ------------  -------------
Total                            $    1,017,592    $     737,281 $      941,368
                                   =============     ============  =============


                                       49
<PAGE>


B.   INVESTMENT SECURITIES

     The amortized cost and estimated market values of investments in securities
     including investments held for sale are as follows:

<TABLE>
<CAPTION>

                                          Cost or            Gross             Gross            Estimated
                                         Amortized        Unrealized        Unrealized           Market
1998                                       Cost              Gains            Losses              Value
---------------------------------      --------------    --------------    --------------     --------------
Investments Held for Sale:
<S>                                  <C>               <C>               <C>                <C>
  U.S. Government and govt.
    agencies and authorities         $     1,434,636   $         3,265   $             0    $     1,437,901
  States, municipalities and
    political subdivisions                    35,000             7,224                 0             42,224
  Collateralized mortgage
    obligations                                    0                 0                 0                  0
  Public utilities                                 0                 0                 0                  0
  All other corporate bonds                   25,000               281                 0             25,281
                                       --------------    --------------    --------------     --------------
                                           1,494,636            10,770                 0          1,505,406
  Equity securities                        2,725,061            42,520          (680,165)         2,087,416
                                       --------------    --------------    --------------     --------------
  Total                              $     4,219,697   $        53,290  $       (680,165)   $     3,592,822
                                       ==============    ==============    ==============     ==============

Held to Maturity Securities:
  U.S. Government and govt.
    agencies and authorities         $    36,809,239   $       378,136   $       (53,868)   $    37,133,507
  States, municipalities and
    political subdivisions                23,835,306         1,042,876                 0         24,878,182
  Collateralized mortgage
    obligations                            9,406,895           182,805           (64,769)         9,524,931
  Public utilities                        41,724,208         1,810,290            (8,585)        43,525,913
  All other corporate bonds               62,465,200         2,358,259              (613)        64,822,846
                                       --------------    --------------    --------------     --------------
  Total                              $   174,240,848   $     5,772,366   $      (127,835)   $   179,885,379
                                       ==============    ==============    ==============     ==============
</TABLE>



                                       50
<PAGE>


<TABLE>
<CAPTION>

                                          Cost or            Gross             Gross            Estimated
                                         Amortized        Unrealized        Unrealized           Market
1997                                       Cost              Gains            Losses              Value
---------------------------------      --------------    --------------    --------------     --------------
<S>                                  <C>               <C>               <C>                <C>
Investments Held for Sale:
  U.S. Government and govt.
    agencies and authorities         $     1,448,202   $             0   $        (5,645)   $     1,442,557
  States, municipalities and
    political subdivisions                    35,000               485                 0             35,485
  Collateralized mortgage
    obligations                                    0                 0                 0                  0
  Public utilities                            80,169               328                 0             80,497
  All other corporate bonds                  108,927             1,164                 0            110,091
                                       --------------    --------------    --------------     --------------
                                           1,672,298             1,977            (5,645)         1,668,630
  Equity securities                        3,184,357           176,508          (359,121)         3,001,744
                                       --------------    --------------    --------------     --------------
  Total                              $     4,856,655  $        178,485   $      (364,766)   $     4,670,374
                                       ==============    ==============    ==============     ==============

Held to Maturity Securities:
  U.S. Government and govt.
    agencies and authorities         $    28,032,927   $       641,814   $       (51,771)   $    28,622,970
  States, municipalities and
    political subdivisions                22,739,944           711,548            (1,891)        23,449,601
  Collateralized mortgage
    obligations                           11,093,926           210,435           (96,714)        11,207,647
  Public utilities                        47,971,152         1,251,180           (80,795)        49,141,537
  All other corporate bonds               70,811,091         1,649,940          (100,218)        72,360,813
                                       --------------    --------------    --------------     --------------
  Total                              $   180,649,040   $     4,464,917   $      (331,389)   $   184,782,568
                                       ==============    ==============    ==============     ==============
</TABLE>


                                       51
<PAGE>


The  amortized  cost of debt  securities  at December 31, 1998,  by  contractual
maturity,  are shown below.  Expected  maturities  will differ from  contractual
maturities  because  borrowers may have the right to call or prepay  obligations
with or without call or prepayment penalties.

 
<TABLE>
<CAPTION>
                                                                        Estimated
       Fixed Maturities Held for Sale                Amortized            Market
             December 31, 1998                         Cost                Value
---------------------------------------------      --------------      --------------
<S>                                              <C>                 <C>
Due in one year or less                          $     1,434,636     $     1,437,901
Due after one year through five years                     35,000              42,224
Due after five years through ten years                    25,000              25,281
Due after ten years                                            0                   0
Collateralized mortgage obligations                            0                   0
                                                   --------------      --------------
Total                                            $     1,494,636     $     1,505,406
                                                   ==============      ==============


                                                                         Estimated
     Fixed Maturities Held to Maturity               Amortized            Market
             December 31, 1998                         Cost                Value
---------------------------------------------      --------------      --------------
Due in one year or less                          $    16,996,673     $    17,079,985
Due after one year through five years                 82,960,251          85,927,556
Due after five years through ten years                58,630,433          60,814,932
Due after ten years                                    6,246,596           6,537,975
Collateralized mortgage obligations                    9,406,895           9,524,931
                                                   --------------      --------------
Total                                            $   174,240,848     $   179,885,379
                                                   ==============      ==============

</TABLE>

An analysis of sales, maturities and principal repayments of the Company's fixed
maturities  portfolio for the years ended December 31, 1998, 1997 and 1996 is as
follows:

<TABLE>
<CAPTION>


                                     Cost or            Gross             Gross             Proceeds
                                     Amortized          Realized          Realized             from
Year ended December 31, 1998            Cost             Gains             Losses              Sale
--------------------------------   ---------------    -------------    ---------------    ---------------
<S>                              <C>                <C>              <C>                <C>
Scheduled principal repayments,
   calls and tenders:
     Held for sale               $        164,161   $          359   $             0    $        164,520
     Held to maturity                  54,556,915          315,965          (230,657)         54,642,223
Sales:
      Held for sale                             0                0                 0                   0
      Held to maturity                          0                0                 0                   0
                                   ---------------    -------------    ---------------    ---------------
  Total                          $     54,721,076   $      316,324   $      (230,657)   $     54,806,743
                                   ===============    =============    ===============    ===============
</TABLE>


                                       52
<PAGE>

<TABLE>
<CAPTION>

                                            Cost or            Gross             Gross             Proceeds
                                           Amortized          Realized          Realized             from
Year ended December 31, 1997                  Cost             Gains             Losses              Sale
-------------------------------------    ---------------    -------------    ---------------    ---------------
<S>                                    <C>                <C>              <C>                <C>
Scheduled principal repayments,
 calls and tenders:
     Held for sale                     $        299,390   $          931   $        (9,661)   $        290,660
     Held to maturity                        21,457,436           31,551              (722)         21,488,265
Sales:
      Held for sale                                   0                0                 0                   0
      Held to maturity                                0                0                 0                   0
                                         ---------------    -------------    ---------------    ---------------
  Total                                $     21,756,826   $       32,482   $       (10,383)   $     21,778,925
                                         ===============    =============    ===============    ===============



                                            Cost or            Gross             Gross             Proceeds
                                           Amortized          Realized          Realized             from
Year ended December 31, 1996                  Cost             Gains             Losses              Sale
-------------------------------------    ---------------    -------------    ---------------    ---------------
Scheduled principal repayments,
 calls and tenders:
     Held for sale                     $        699,361   $        6,035   $          (813)   $        704,583
     Held to maturity                        20,845,333           13,469          (137,320)         20,721,482
Sales:                                                                        
      Held for sale                             517,111                0            (2,658)            514,453
      Held to maturity                       18,735,848           81,283           (80,519)         18,736,612
                                         ---------------    -------------    ---------------    ---------------
  Total                                $     40,797,653   $      100,787   $      (221,310)   $     40,677,130
                                         ===============    =============    ===============    ===============
</TABLE>


C.   INVESTMENTS  ON DEPOSIT - At  December  31,  1998,  investments  carried at
     approximately  $15,854,000  were on deposit  with various  state  insurance
     departments.


5.   DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

The financial  statements  include various  estimated fair value  information at
December 31, 1998 and 1997,  as required by  Statement  of Financial  Accounting
Standards  107,  Disclosure  about Fair Value of  Financial  Instruments  ("SFAS
107"). Such information,  which pertains to the Company's financial instruments,
is based on the requirements set forth in that Statement and does not purport to
represent the aggregate net fair value of the Company.

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial  instrument  required to be valued by SFAS 107 for which
it is practicable to estimate that value:

(a)  Cash and Cash equivalents

The carrying amount in the financial statements  approximates fair value because
of  the  relatively  short  period  of  time  between  the  origination  of  the
instruments and their expected realization.

                                       53
<PAGE>


(b) Fixed maturities and investments held for sale

Quoted market  prices,  if available,  are used to determine the fair value.  If
quoted  market  prices are not  available,  management  estimates the fair value
based  on the  quoted  market  price  of a  financial  instrument  with  similar
characteristics.

(c)      Mortgage loans on real estate

The fair values of  mortgage  loans are  estimated  using  discounted  cash flow
analysis and interest  rates being offered for similar  loans to borrowers  with
similar credit ratings.

(d) Investment real estate and real estate acquired in satisfaction of debt

An estimate of fair value is based on management's review of the individual real
estate holdings.  Management utilizes sales of surrounding  properties,  current
market  conditions  and  geographic  considerations.  Management  conservatively
estimates the fair value of the portfolio is equal to the carrying value.

(e)  Policy loans

It is not practicable to estimate the fair value of policy loans as they have no
stated  maturity  and their  rates are set at a fixed  spread to related  policy
liability  rates.  Policy loans are carried at the  aggregate  unpaid  principal
balances in the consolidated  balance sheets, and earn interest at rates ranging
from 4% to 8%.  Individual  policy  liabilities  in all  cases  equal or  exceed
outstanding policy loan balances.

(f)  Other long-term investments

The Company holds a $840,066 note receivable for which the determination of fair
value is estimated by discounting  the future cash flows using the current rates
at which similar loans would be made to borrowers  with similar  credit  ratings
and for the same  remaining  maturities.  In addition,  the Company has invested
$66,212 in a joint real estate  venture.  The cost of the  aforementioned  joint
venture in the  financial  statements  approximates  fair  value  because of the
relatively  short period of time between the  origination  of the investment and
the end of the Company's current reporting period.

(g)  Short-term investments

For short-term instruments, the carrying amount is a reasonable estimate of fair
value.  Short-term instruments represent United States Government Treasury Bills
and certificates of deposit with various banks that are protected under FDIC.

(h)  Notes payable

For  borrowings  subject to  floating  rates of  interest,  carrying  value is a
reasonable estimate of fair value. For fixed interest rate borrowings fair value
was determined  based on the borrowing rates currently  available to the Company
for loans with similar terms and maturities.

                                       54
<PAGE>


The estimated fair values of the Company's financial  instruments required to be
valued by SFAS 107 are as follows as of December 31:

<TABLE>
<CAPTION>
                                                  1998                              1997
                                   ---------------------------------------------------------------------
                                                         Estimated                          Estimated
                                        Carrying            Fair           Carrying           Fair
Assets                                   Amount            Value            Amount            Value
-------                             ---------------   ---------------  ---------------   --------------
<S>                                <C>               <C>              <C>               <C>              
Fixed maturities                   $    174,240,848  $    179,885,379 $    180,649,040  $   184,782,568
Fixed maturities held for sale            1,505,406         1,505,406        1,668,630        1,668,630
Equity securities                         2,087,416         2,087,416        3,001,744        3,001,744
Mortgage loans on real estate            10,941,614        10,979,378        9,469,444        9,837,530
Investment in real estate                 8,979,183         8,979,183        9,760,732        9,760,732
Real estate acquired in
  satisfaction of debt                    1,550,000         1,550,000        1,724,544        1,724,544
Policy loans                             14,134,041        14,134,041       14,207,189       14,207,189
Other long-term investments                 906,278           879,037          840,066          784,831
Short-term investments                    1,036,251         1,036,251        1,773,531        1,773,531

Liabilities
-----------
Notes payable                            17,369,993        17,033,501       18,241,601       17,754,529
</TABLE>


6.  STATUTORY EQUITY AND GAIN FROM OPERATIONS

The Company's  insurance  subsidiaries are domiciled in Ohio,  Illinois and West
Virginia and prepare their  statutory-based  financial  statements in accordance
with accounting  practices  prescribed or permitted by the respective  insurance
department.  These  principles  differ  significantly  from  generally  accepted
accounting principles. "Prescribed" statutory accounting practices include state
laws,  regulations,  and general  administrative  rules, as well as a variety of
publications of the National  Association of Insurance  Commissioners  ("NAIC").
"Permitted"  statutory  accounting  practices encompass all accounting practices
that are not  prescribed;  such  practices may differ from state to state,  from
company  to  company  within a state,  and may  change in the  future.  The NAIC
currently is in the process of codifying  statutory  accounting  practices,  the
result of which is  expected  to  constitute  the only  source  of  "prescribed"
statutory accounting  practices.  Accordingly,  that project,  which has not yet
been completed, will likely change prescribed statutory accounting practices and
may result in changes to the accounting practices that insurance enterprises use
to  prepare  their  statutory   financial   statements.   UG's  total  statutory
shareholders'  equity was  $15,280,577  and $10,997,365 at December 31, 1998 and
1997,  respectively.  The Company's  four life insurance  subsidiaries  reported
combined  statutory  operating  income before taxes  (exclusive of  intercompany
dividends) of $5,485,000,  $2,067,000  and  $2,134,000 for 1998,  1997 and 1996,
respectively.


7.  REINSURANCE

Reinsurance  contracts  do not  relieve  the  Company  from its  obligations  to
policyholders.  Failure of reinsurers to honor their obligations could result in
losses to the Company.  The Company  evaluates  the  financial  condition of its
reinsurers  to minimize  its  exposure  to  significant  losses  from  reinsurer
insolvencies.

The Company  assumes risks from,  and reinsures  certain parts of its risks with
other insurers under yearly  renewable term and coinsurance  agreements that are
accounted for by passing a portion of the risk to the reinsurer.  Generally, the
reinsurer  receives a proportionate part of the premiums less commissions and is
liable  for a  corresponding  part of all  benefit  payments.  While the  amount
retained on an individual life will vary based upon age and mortality  prospects
of the risk, the Company generally will not carry more than $125,000  individual
life insurance on a single risk.

                                       55
<PAGE>


The Company has reinsured  approximately $924 million, $1.022 billion and $1.109
billion in face amount of life  insurance  risks with other  insurers  for 1998,
1997 and 1996, respectively.  Reinsurance receivables for future policy benefits
were  $36,965,938 and  $37,814,106 at December 31, 1998 and 1997,  respectively,
for estimated  recoveries under  reinsurance  treaties.  Should any reinsurer be
unable to meet its  obligation  at the time of a claim,  obligation  to pay such
claim would remain with the Company.

Currently,  the Company is utilizing reinsurance  agreements with Business Men's
Assurance Company, ("BMA") and Life Reassurance Corporation, ("LIFE RE") for new
business. BMA and LIFE RE each hold an "A+" (Superior) rating from A.M. Best, an
industry rating company.  The reinsurance  agreements were effective December 1,
1993,  and cover all new business of the Company.  The  agreements  are a yearly
renewable  term  ("YRT")  treaty  where  the  Company  cedes  amounts  above its
retention limit of $100,000 with a minimum cession of $25,000.

One of the  Company's  insurance  subsidiaries  (UG) entered into a  coinsurance
agreement  with First  International  Life  Insurance  Company  ("FILIC")  as of
September  30,  1996.  Under  the  terms  of the  agreement,  UG  ceded to FILIC
substantially all of its paid-up life insurance policies. Paid-up life insurance
generally  refers to  non-premium  paying life  insurance  policies.  A.M.  Best
assigned FILIC a Financial  Performance Rating (FPR) of 7 (Strong) on a scale of
1 to 9. A.M.  Best  assigned a Best's  Rating of A++  (Superior) to The Guardian
Life Insurance Company of America  ("Guardian"),  parent of FILIC,  based on the
consolidated  financial  condition and operating  performance of the company and
its life/health subsidiaries. During 1997, FILIC changed its name to Park Avenue
Life  Insurance  Company  ("PALIC").  The  agreement  with  PALIC  accounts  for
approximately 65% of the reinsurance receivables as of December 31, 1998.


The Company does not have any short-duration  reinsurance contracts.  The effect
of the Company's long-duration reinsurance contracts on premiums earned in 1998,
1997 and 1996 was as follows:

                                    Shown in thousands
                  --------------------------------------------------------
                       1998                1997                1996
                     Premiums            Premiums            Premiums
                      Earned              Earned              Earned
                  ----------------    ----------------    ----------------
Direct         $           30,919  $           33,374  $           35,891
Assumed                        20                   0                   0
Ceded                      (4,543)             (4,735)             (4,947)
                  ----------------    ----------------    ----------------
Net premiums   $           26,396  $           28,639  $           30,944
                  ================    ================    ================


8.  COMMITMENTS AND CONTINGENCIES

The insurance  industry has  experienced  a number of civil jury verdicts  which
have been  returned  against life and health  insurers in the  jurisdictions  in
which the Company does business involving the insurers' sales practices, alleged
agent misconduct,  failure to properly supervise agents, and other matters. Some
of the lawsuits have resulted in the award of substantial  judgments against the
insurer,  including material amounts of punitive damages. In some states, juries
have substantial discretion in awarding punitive damages in these circumstances.

Under the insurance guaranty fund laws in most states, insurance companies doing
business in a  participating  state can be assessed up to prescribed  limits for
policyholder  losses  incurred  by  insolvent  or  failed  insurance  companies.
Although the Company cannot predict the amount of any future  assessments,  most
insurance guaranty fund laws currently provide that an assessment may be excused
or deferred if it would  threaten an  insurer's  financial  strength.  Mandatory
assessments may be partially recovered through a reduction in future premium tax
in some states. The Company does not believe such assessments will be materially
different from amounts already provided for in the financial statements.


                                       56
<PAGE>


The Company and its  subsidiaries  are named as  defendants in a number of legal
actions  arising  primarily  from claims made under  insurance  policies.  Those
actions  have  been  considered  in  establishing  the  Company's   liabilities.
Management and its legal counsel are of the opinion that the settlement of those
actions  will not have a  material  adverse  effect on the  Company's  financial
position or results of operations.


9.  RELATED PARTY TRANSACTIONS

Under the  current  structure,  FCC pays a  majority  of the  general  operating
expenses of the affiliated group. FCC then receives management, service fees and
reimbursements from the various affiliates.

UII has a service  agreement with USA. The agreement was originally  established
upon the formation of USA which was a 100% owned  subsidiary of UII.  Changes in
the affiliate structure have resulted in USA no longer being a direct subsidiary
of UII, though still a member of the same affiliated group. The original service
agreement has remained in place without modification.  USA is to pay UII monthly
fees equal to 22% of the amount of collected first year premiums,  20% in second
year  and 6% of the  renewal  premiums  in  years  three  and  after.  UII has a
subcontract  agreement  with UTI to perform  services and provide  personnel and
facilities.  The  services  included  in the  agreement  are  claim  processing,
underwriting,  processing and servicing of policies, accounting services, agency
services,  data  processing  and all other  expenses  necessary  to carry on the
business of a life  insurance  company.  UII's  subcontract  agreement  with UTI
states that UII is to pay UTI  monthly  fees equal to 60% of  collected  service
fees from USA as stated  above.  The service fees received from UII are recorded
in UTI's financial statements as other income.

On January 1, 1993,  FCC entered into an agreement with UG pursuant to which FCC
provides  management  services  necessary  for UG to carry on its  business.  In
addition to the UG agreement,  FCC and its  affiliates  have either  directly or
indirectly  entered into management and/or  cost-sharing  arrangements for FCC's
management services. FCC received net management fees of $8,793,905,  $9,893,321
and $9,927,000 under these arrangements in 1998, 1997 and 1996, respectively. UG
paid  $8,018,141,  $8,660,481  and  $9,626,559  to FCC in 1998,  1997 and  1996,
respectively.

USA paid $835,345,  $989,295 and $1,567,891  under their  agreement with UII for
1998,  1997 and 1996,  respectively.  UII paid  $501,207,  $593,577 and $940,734
under  their  agreement  with  UTI  for  1998,  1997  and  1996,   respectively.
Additionally,  UII paid FCC $0,  $150,000 and  $300,000 in 1998,  1997 and 1996,
respectively for reimbursement of costs attributed to UII. These  reimbursements
are reflected as a credit to general expenses.

Respective domiciliary insurance departments have approved the agreements of the
insurance companies and it is Management's opinion that where applicable,  costs
have  been  allocated  fairly  and such  allocations  are based  upon  generally
accepted accounting principles. The costs paid by UTI for services include costs
related  to the  production  of new  business,  which  are  deferred  as  policy
acquisition costs and charged off to the income statement through  "Amortization
of  deferred  policy  acquisition  costs".  Amounts  recorded by USA as deferred
acquisition costs are no greater than what would have been recorded had all such
expenses been directly  incurred by USA. Also included are costs associated with
the  maintenance  of existing  policies that are charged as current period costs
and included in "general expenses".

On January 16,  1998,  UTI  acquired  7,579  shares of its common stock from the
estate of Robert Webb,  a former  director,  for $26,527 and a  promissory  note
valued at $41,819 due January 16, 2005.  The note bears interest at a rate of 1%
over prime, with interest due quarterly and principal due on maturity.

On September 23, 1997,  the Company  acquired  10,056 shares of UTI common stock
from Paul  Lovell,  a  director,  for $35,000  and a  promissory  note valued at
$61,000 due  September  23, 2004.  The note bears  interest at a rate of 1% over
prime, with interest due quarterly and principal  reductions of $10,000 annually
until maturity.  Simultaneous  with the stock purchase,  Mr. Lovell resigned his
position on the UTI board.


                                       57
<PAGE>


On July 31, 1997,  United Trust Inc. issued  convertible notes for cash received
totaling  $2,560,000 to seven  individuals,  all officers or employees of United
Trust Inc.  The notes bear  interest at a rate of 1% over prime,  with  interest
payments due quarterly  and  principal  due upon maturity of July 31, 2004.  The
conversion  price of the notes are  graded  from  $12.50 per share for the first
three  years,  increasing  to  $15.00  per  share  for the  next two  years  and
increasing  to $20.00  per share for the last two  years.  Conditional  upon the
seven individuals placing the funds with the Company were the acquisition by UTI
of a portion of the  holdings of UTI owned by Larry E. Ryherd and his family and
the  acquisition of common stock of UTI and UII held by Thomas F. Morrow and his
family and the simultaneous retirement of Mr. Morrow. Neither Mr. Morrow nor Mr.
Ryherd was a party to the  convertible  notes. On March 1, 1999, the individuals
holding  the  convertible  notes  sold  their  interests  in said notes to First
Southern Bancorp, Inc. in private transactions.

Approximately  $1,048,000  of  the  cash  received  from  the  issuance  of  the
convertible  notes was used to acquire  stock  holdings of United Trust Inc. and
United  Income,  Inc. of Mr. Morrow and to acquire a portion of the United Trust
Inc.  holdings of Larry E. Ryherd and his family.  The  remaining  cash received
will be used by the Company to provide  additional  operating  liquidity and for
future acquisitions of life insurance  companies.  On July 31, 1997, the Company
acquired a total of 126,921 shares of United Trust Inc.  common stock and 47,250
shares of United Income, Inc. common stock from Thomas F. Morrow and his family.
Mr. Morrow  simultaneously  retired as an executive officer of the Company.  Mr.
Morrow will remain as a member of the Board of  Directors.  In exchange  for his
stock,  Mr.  Morrow  and his family  received  approximately  $348,000  in cash,
promissory notes valued at $140,000 due in eighteen months, and promissory notes
valued at $1,030,000  due January 31, 2005.  These notes bear interest at a rate
of 1% over prime,  with interest due quarterly and principal due upon  maturity.
The notes do not contain any conversion  privileges.  Additionally,  on July 31,
1997, the Company  acquired a total of 97,499 shares of United Trust Inc. common
stock from Larry E. Ryherd and his family.  Mr.  Ryherd and his family  received
approximately  $700,000 in cash and a  promissory  note  valued at $251,000  due
January 31, 2005. The  acquisition of  approximately  16% of Mr.  Ryherd's stock
holdings in United Trust Inc. was completed as a prerequisite to the convertible
notes placed by other  management  personnel to reduce the total holdings of Mr.
Ryherd and his family in the  Company to make the stock more  attractive  to the
investment community. Following the transaction, Mr. Ryherd and his family owned
approximately  31% of the  outstanding  common  stock of United  Trust Inc.  The
market price of UTI common stock on July 31, 1997 was $6.00 per share. The stock
acquired in the above  transaction was from the largest two  shareholders of UTI
stock. There were no additional stated or unstated items or agreements  relating
to the stock purchase.

On July  31,1997,  the Company  entered into  employment  agreements  with eight
individuals,  all officers or employees of the Company.  The  agreements  have a
term of three years,  excepting the agreements with Mr. Ryherd and Mr. Melville,
which have  five-year  terms.  The  agreements  secure the services of these key
individuals,   providing  the  Company  a  stable  management   environment  and
positioning for future growth.


10.  NOTES PAYABLE

At December 31, 1998 and 1997, the Company has  $17,369,993  and  $18,241,602 in
long term debt outstanding, respectively. The debt is comprised of the following
components:

                                           1998           1997
                                       -------------  -------------
Senior debt                         $       100,000 $    6,900,000
Subordinated 10 yr. notes                 1,427,067      4,906,775
Subordinated 20 yr. notes                 4,034,827      4,034,827
Affiliated notes payable                 11,808,099      2,400,000
                                       -------------  -------------
                                    $    17,369,993 $   18,241,602
                                       =============  =============


                                       58
<PAGE>


A.  Senior debt

The senior debt is through  National City Bank (formerly First of America Bank -
Illinois NA) and is subject to a credit agreement.  The debt bears interest at a
rate equal to the "base rate" plus nine-sixteenths of one percent. The Base rate
is defined as the  floating  daily,  variable  rate of interest  determined  and
announced by National  City Bank from time to time as its "base  lending  rate."
The base rate at  December  31,  1998 was  7.75%.  Interest  is paid  quarterly.
Principal  payments of $1,000,000 are due in May of each year beginning in 1997,
with a final payment due May 8, 2005. On November 8, 1998,  the Company  prepaid
$500,000 of the May 1999  principal  payment,  and on  November  23,  1998,  the
Company paid a $6,300,000  principal  payment.  The November 23, 1998  principal
payment was facilitated through a borrowing from United Trust, Inc., which is an
affiliate,  and ultimate parent to the Company.  The remaining principal balance
of $100,000  will be payable on or before the debt maturity date of May 8, 2005,
and is being maintained to keep the Company's credit  relationship with National
City Bank in place.

The credit  agreement  contains  certain  covenants  with which the Company must
comply.  These covenants  contain  provisions  common to a loan of this type and
include  such  items as; a minimum  consolidated  net worth of FCC to be no less
than 400% of the outstanding balance of the debt;  Statutory capital and surplus
of Universal  Guaranty  Life  Insurance  Company be  maintained  at no less than
$6,500,000;  an earnings  covenant  requiring the sum of the pre-tax earnings of
Universal  Guaranty  Life  Insurance  Company  and its  subsidiaries  (based  on
Statutory Accounting Practices) and the after-tax earnings plus non-cash charges
of FCC (based on parent only GAAP practices)  shall not be less than two hundred
percent (200%) of the Company's interest expense on all of its debt service. The
Company is in compliance with all of the covenants of the agreement.

B.  Subordinated debt

The subordinated debt was incurred June 16, 1992 as a part of the acquisition of
the now dissolved Commonwealth Industries Corporation,  (CIC). The 10-year notes
bear interest at the rate of 7 1/2% per annum, payable  semi-annually  beginning
December 16, 1992. These notes provide for principal payments equal to 1/20th of
the principal balance due with each interest installment  beginning December 16,
1997, with a final payment due June 16, 2002. In addition to regularly scheduled
semi-annual  principal  payments,  the Company made principal reduction payments
totaling  $2,608,099 on November 23, 1998, and $500,000 on December 16, 1998, on
its  10  year  subordinated   debt.  The  additional   principal  payments  were
facilitated through borrowings from affiliated party and ultimate parent, United
Trust,  Inc.. The original 20-year notes bear interest at the rate of 8 1/2% per
annum on $3,529,865 and 8.75% per annum on $504,962 payable semi-annually with a
lump sum principal payment due June 16, 2012.

C.  Affiliated notes payable

United Income, Inc. (UII) through assignment from United Trust, Inc. (UTI) owned
a  participating  interest of $700,000 and $300,000  respectively  of the senior
debt.  At the date of the  refinance,  these  obligations  were  converted  from
participations of senior debt to promissory notes.  These notes bear interest at
the rate of 1% above the  variable  per annum  rate of  interest  most  recently
published  by the Wall  Street  Journal as the prime  rate.  Interest is payable
quarterly  with  principal due at maturity on May 8, 2006. In February 1996, FCC
borrowed  an  additional  $150,000  from UII and  $250,000  from UTI to  provide
additional  cash for  liquidity.  The note bears interest at the rate of 1% over
prime as  published  in the Wall Street  Journal,  with  interest  payments  due
quarterly and principal due upon maturity of the note on June 1, 1999.

In November 1997 FCC borrowed  $1,000,000  from UTI to facilitate the prepayment
of the May 1998  principal  payment  due on the  senior  debt.  . The note bears
interest at the rate of 1% over the prime rate of interest as  published  in the
Wall Street Journal, with interest payments due quarterly and principal due upon
maturity of the note on November 8, 2006.


                                       59
<PAGE>


In November 1998 FCC borrowed  $2,608,099  from UTI to facilitate the prepayment
of principal on its 10 year  subordinated  10-year debt. The note bears interest
at the rate of 7.50%,  with  interest  payments due  quarterly and principal due
upon  maturity of the note on December  31,  2005.  In  addition,  FCC  borrowed
$6,300,000  from UTI to  facilitate  the  prepayment  of principal on the senior
debt.  This note  bears  interest  at the rate of 9/16%  over the prime  rate of
interest as published in the Wall Street  Journal,  with  interest  payments due
quarterly and principal due upon maturity of the note on December 31, 2006.

In December  1998 FCC borrowed  $500,000  from UII to  facilitate  an additional
prepayment  of  principal  on its  subordinated  10-year  debt.  The note  bears
interest  at the  rate of  7.50%,  with  interest  payments  due  quarterly  and
principal due upon maturity of the note on March 31, 2004.

Scheduled principal  reductions on the Company's debt for the next five years is
as follows:

                              Year          Amount  
                              ----          ------

                              1999       $  626,714
                              2000          226,714
                              2001          226,714
                              2002          746,925
                              2003                0


11.  DEFERRED COMPENSATION PLAN

UTI and FCC  established  a deferred  compensation  plan during 1993 pursuant to
which an  officer  or agent of FCC,  UTI or  affiliates  of UTI,  could  defer a
portion of their  income  over the next two and  one-half  years in return for a
deferred  compensation  payment  payable at the end of seven years in the amount
equal to the total income deferred plus interest at a rate of approximately 8.5%
per annum and a stock  option to purchase  shares of common stock of UTI. At the
beginning of the  deferral  period an officer or agent  received an  immediately
exercisable  option to purchase  2,300  shares of UTI common stock at $17.50 per
share for each $25,000  ($10,000  per year for two and one-half  years) of total
income  deferred.  The option  expires on December  31, 2000. A total of 105,000
options were granted in 1993 under this plan. As of December 31, 1998 no options
were  exercised.  At December 31, 1998 and 1997, the Company held a liability of
$1,494,520 and $1,376,384,  respectively, relating to this plan. At December 31,
1998, UTI common stock had a market price of $8.125 per share.

The following  information  applies to deferred  compensation plan stock options
outstanding at December 31, 1998:

      Number outstanding               105,000
      Exercise price                    $17.50
      Remaining contractual life       2 years


12.  REVERSE STOCK SPLIT OF FCC

On May 13, 1997, FCC effected a 1 for 400 reverse stock split. Fractional shares
received a cash payment on the basis of $.25 for each old share.  FCC maintained
a significant number of shareholder accounts with less than $100 of market value
of stock. The reverse stock split enabled these smaller  shareholders to receive
cash for their shares without  incurring  broker costs and will save the Company
administrative costs associated with maintaining these small accounts.


                                       60
<PAGE>


13.  OTHER CASH FLOW DISCLOSURE

On a cash basis,  the Company paid  $1,655,297,  $1,595,699  and  $1,657,246  in
interest  expense for the years 1998, 1997 and 1996,  respectively.  The Company
paid $10,630, $49,520 and $12,149 in federal income tax for the years 1998, 1997
and 1996 respectively.

One of the Company's  insurance  subsidiaries  ("UG") entered into a coinsurance
agreement  with Park Avenue Life  Insurance  Company  ("PALIC") at September 30,
1996.  At closing  of the  transaction,  UG  received  a  coinsurance  credit of
$28,318,000 for policy liabilities  covered under the agreement.  UG transferred
assets equal to the credit  received.  This  transfer  included  policy loans of
$2,855,000  associated with policies under the agreement and a net cash transfer
of $19,088,000 after deducting the ceding  commission due UG of $6,375,000.  The
transaction  resulted in no gain or loss in the GAAP financial  statements.  The
transaction was entered into to increase the statutory  surplus  position of UG.
The ceding commission received was equal to the value reflected on this block of
business in the Cost of Insurance  Acquired asset. The ceding commission reduced
this asset. To provide the cash required to be transferred  under the agreement,
the Company sold $18,737,000 of fixed maturity investments held to maturity.


14.  CONCENTRATION OF CREDIT RISK

The Company maintains cash balances in financial institutions which at times may
exceed federally  insured limits.  The Company has not experienced any losses in
such accounts and believes it is not exposed to any  significant  credit risk on
cash and cash equivalents.


15.  NEW ACCOUNTING STANDARDS

The  Financial  Accounting  Standards  Board  (FASB)  has  issued  Statement  of
Financial  Accounting Standards (SFAS) 128 entitled Earnings per share, which is
effective for financial statements for fiscal years beginning after December 15,
1997.  SFAS  128  specifies  the  computation,   presentation,   and  disclosure
requirements for earnings per share (EPS) for entities with publicly held common
stock or potential  common stock.  The Statement's  objective is to simplify the
computation of earnings per share, and to make the U.S.
standard  for  computing  EPS more  compatible  with the EPS  standards of other
countries.

This  statement was adopted for the 1997 Financial  Statements.  For all periods
presented  the  Company  reported  a  loss  from  continuing  operations  so any
potential  issuance of common shares would have an  antidilutive  effect on EPS.
Consequently,  the adoption of SFAS 128 did not have an impact on the  Company's
financial statement.

The FASB has issued SFAS 130 entitled Reporting  Comprehensive  Income, which is
effective for financial statements for fiscal years beginning after December 15,
1997.  SFAS  130  establishes   standards  for  reporting  and  presentation  of
comprehensive  income and its components in a full set of financial  statements.
Comprehensive income includes all changes in shareholders'  equity, except those
arising from  transactions  with  shareholders,  and includes net income and net
unrealized  gains (losses) on securities.  SFAS 130 was adopted as of January 1,
1998.  Adopting  the new  standard  required  the  Company  to  make  additional
disclosures in the  consolidated  financial  statements,  but did not affect the
Company's financial position or results of operations.

All items of other comprehensive income reflect no related tax effect, since the
Company has an allowance  against the collection of any future tax benefits.  In
addition,   there  was  no  sale  or  liquidation  of  investments  requiring  a
reclassification adjustment for the period presented.


                                       61
<PAGE>


The  FASB has  issued  SFAS  131  entitled,  Disclosures  about  Segments  of an
Enterprise and Related Information,  which is effective for financial statements
for fiscal years  beginning  after  December 15, 1997.  SFAS 131 requires that a
public business  enterprise  report financial and descriptive  information about
its  reportable  operating  segments.  Operating  segments are  components of an
enterprise  about which  separate  financial  information  is available  that is
evaluated  regularly  in deciding  how to allocate  resources  and in  assessing
performance.  SFAS 131 was  adopted  as of January  1,  1998.  Adopting  the new
standard  had no  affect on the  Company's  financial  position  or  results  of
operations, since the Company has no reportable operating segments.

The FASB has issued SFAS 132 entitled, Employers' Disclosures about Pensions and
Other Postretirement  Benefits,  which is effective for financial statements for
fiscal  years  beginning  after  December  15,  1997.  SFAS 132 revises  current
disclosure  requirements for employer  provided  post-retirement  benefits.  The
statement does not change retirement measurement or recognition issues. SFAS 132
was adopted as of January 1, 1998.  Adopting  the new  standard had no affect on
the Company's financial position or results of operations, since the Company has
no pension plan or other obligation for post-retirement benefits.

The FASB has issued SFAS 133 entitled, Accounting for Derivative Instruments and
Hedging  Activities,  which is effective for all fiscal quarters of fiscal years
beginning  after June 15, 1999.  SFAS 133 requires that an entity  recognize all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position and measure those instruments at fair value. If certain  conditions are
met, a derivative may be specifically  designated as a specific type of exposure
hedge.  The accounting for changes in the fair value of a derivative  depends on
the intended use of the derivative and the resulting  designation.  The adoption
of SFAS 133 is not expected to have a material effect on the Company's financial
position  or results of  operations,  since the  Company  has no  derivative  or
hedging type investments.


16. CHANGE IN CONTROL OF UNITED TRUST, INC.

On November 20, 1998,  First  Southern  Funding,  Inc., a Kentucky  corporation,
("FSF") and affiliates  acquired 929,904 shares of common stock of United Trust,
Inc., an Illinois corporation, ("UTI") from UTI and certain UTI shareholders. As
consideration for the shares, FSF paid UTI $10,999,995 and certain  shareholders
of UTI $999,990 in cash. FSF and  affiliates  employed  working  capital to make
these purchases of common stock, including funds on hand and amounts drawn under
existing lines of credit with Star Bank,  NA. FSF borrowed  $7,082,878 and First
Southern  Bancorp,  Inc., an affiliate of FSF,  borrowed  $495,775 in making the
purchases. FSF and affiliates expect to repay the borrowings through the sale of
assets they currently own.

Details of the  transaction  can be outlined as follows:  FSF  acquired  389,715
shares of UTI common stock at $10.00 per share.  These shares  represented stock
acquired during 1997 by UTI in private transactions.  Additionally, FSF acquired
473,523 shares of authorized but unissued common stock at $15.00 per share.  FSF
acquired  66,666  shares of common  stock  from UTI CEO  Larry  Ryherd,  and his
family,  at $15.00 per share.  FSF has committed to purchase  $2,560,000 of face
amount of UTI convertible notes from certain officers and directors of UTI for a
cash price of $3,072,000 by March 1, 1999.  FSF is required to convert the notes
to  UTI  common  stock  by  July  31,  2000.   UTI  has  granted,   for  nominal
consideration,  an  irrevocable,  exclusive  option  to  FSF to  purchase  up to
1,450,000  shares of UTI  common  stock for a  purchase  price in cash  equal to
$15.00  per  share,  with such  option to expire on July 1,  2001.  UTI has also
caused three persons  designated by FSF to be appointed,  as part of the maximum
of 11, to the Board of Directors of UTI.

Following  the  transactions  described  above,  and together with shares of UTI
acquired on the market, FSF and affiliates currently own 1,073,577 shares of UTI
common stock (43.1%) becoming the largest shareholder of UTI. Through the shares
acquired and options owned, FSF can ultimately own over 51% of UTI. Mr. Jesse T.
Correll is the  majority  shareholder  of FSF,  which is an  affiliate  of First
Southern  Bancorp,  Inc., a bank holding  company that owns a bank that operates
out of 14 locations in central Kentucky.

                                       62
<PAGE>


17.  PROPOSED MERGER

On March 25,  1997,  the Board of Directors of UTI and UII voted to recommend to
the  shareholders a merger of the two companies.  Under the Plan of Merger,  UTI
would be the  surviving  entity with UTI issuing one share of its stock for each
share held by UII shareholders.

UTI owns 53% of United Trust Group, Inc., an insurance holding company,  and UII
owns 47% of  United  Trust  Group,  Inc.  Neither  UTI nor UII  have  any  other
significant  holdings  or  business  dealings.  The Board of  Directors  of each
company  thus  concluded  a  merger  of the two  companies  would be in the best
interests of the  shareholders.  The merger will result in certain cost savings,
primarily  related to costs  associated  with  maintaining a corporation in good
standing in the states in which it transacts business.

A vote of the  shareholders  of UTI and UII  regarding  the  proposed  merger is
anticipated to occur sometime during the second quarter of 1999.

                                       63
<PAGE>


18.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                    1998
                                           -------------------- ---------------------- ---------------------- ---------------------
                                                   1st                   2nd                    3rd                   4th
                                               ----------------       ----------------       ----------------       ---------------
<S>                                         <C>                    <C>                    <C>                    <C>         
Premium and policy fees, net                $       7,231,481      $       7,111,079      $       6,243,869      $       5,809,648
Net investment income                               3,731,737              3,796,112              3,802,812              3,738,743
Total revenues                                     11,071,525             10,435,696              9,637,548              9,486,827
Policy benefits including dividends                 7,237,203              6,919,892              6,077,867              6,107,443
Commissions and
  amortization of DAC and COI                       1,617,762              1,102,892              1,200,752              4,184,260
Operating expenses                                  2,380,342              2,192,484              2,023,484              4,301,694
Operating loss                                       (560,422)              (174,918)               (63,688)            (5,533,949)
Net income (loss)                                    (323,149)              (115,432)               653,733             (2,164,977)
Basic and diluted earnings (loss)
   per share                                           (5.92)                 (2.12)                  11.99                 (39.69)

                                                                                    1997
                                           -------------------- ---------------------- ---------------------- ---------------------
                                                   1st                   2nd                    3rd                   4th
                                               ----------------       ----------------       ----------------       ---------------
Premiums and policy fees, net               $       7,926,386      $       7,808,782      $      6,639,394       $       6,264,683
Net investment income                               3,859,617              3,839,187             3,689,445               3,490,087
Total revenues                                     11,782,828             11,687,571            10,219,574               9,664,305
Policy benefits including dividends                 7,942,359              7,360,575             6,742,317               6,369,943
Commissions and
  amortization of DAC and COI                       1,610,729                995,540             1,528,216               1,405,868
Operating expenses                                  2,556,656              2,747,749             2,432,709               1,528,067
Operating income (loss)                              (732,231)               183,417              (887,921)                (42,153)
Net income (loss)                                    (193,275)              (202,275)             (762,374)               (687,138)
Basic and diluted earnings (loss)
  per share                                            (3.23)                 (3.54)                 (13.97)                (11.91)

                                                                                    1996
                                           -------------------- ---------------------- ---------------------- ---------------------
                                                   1st                   2nd                    3rd                   4th
                                               ----------------       ----------------       ----------------       ---------------
Premiums and policy fees, net                       8,481,511        3,890,8,514,175             7,348,199              6,600,573
                                           $                                            $                      $
Net investment income                               3,982,268              3,919,715             4,000,172              4,007,071
Total revenues                                     12,554,619             12,178,359            11,329,201             10,475,852
Policy benefits including dividends                 7,141,235              7,805,748             8,786,608             10,710,009
Commissions and
  amortization of DAC and COI                       1,942,777              1,482,101             1,263,969              2,007,438
Operating expenses                                  3,281,560              2,719,974             3,326,744              2,303,561
Operating income (loss)                              (250,496)              (252,231)           (2,473,828)            (4,957,961)
Net income (loss)                                     329,576               (122,482)           (2,162,608)            (1,076,135)
Basic and diluted earnings (loss)
   per share                                            5.50                  (2.01)                 (36.09)               (18.00)
</TABLE>


                                       64
<PAGE>


ITEM 9.  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

              None

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

THE BOARD OF DIRECTORS
----------------------


In accordance with the laws of Virginia and the Certificate of Incorporation and
Bylaws of the  Company,  as  amended,  the  Company is managed by its  executive
officers  under the  direction  of the  Board of  Directors.  The  Board  elects
executive  officers,  evaluates  their  performance,  works with  management  in
establishing  business  objectives  and considers  other  fundamental  corporate
matters, such as the issuance of stock or other securities, the purchase or sale
of a business and other  significant  corporate  business  transactions.  In the
fiscal year ended  December 31, 1998,  the Board met five times.  All  directors
attended at least 75% of all meetings of the board except for Mr. Cellini.

The Board of  Directors  has an Audit  Committee  consisting  of Messrs.  Albin,
Collins and  Melville.  The Audit  Committee  reviews and acts or reports to the
Board with respect to various auditing and accounting matters,  the scope of the
audit  procedures and the results thereof,  the internal  accounting and control
systems of the Company, the nature of services performed for the Company and the
fees to be paid to the  independent  auditors,  the performance of the Company's
independent and internal  auditors and the accounting  practices of the Company.
The Audit  Committee also recommends to the full Board of Directors the auditors
to be appointed by the Board. The Audit Committee met once in 1998.

The compensation of the Company's  executive  officers is determined by the full
Board of Directors (see report on Executive Compensation).

Under the Company's Certificate of Incorporation,  the Board of Directors may be
comprised of between five and twenty-one  directors.  The Board  currently has a
fixed number of directors at fourteen. Shareholders elect Directors to serve for
a period of one year at the Company's Annual Shareholders' meeting.

The following  information  with respect to business  experience of the Board of
Directors has been  furnished by the  respective  directors or obtained from the
records of the Company.

DIRECTORS

     Name,  Age  Position  with  the  Company,  Business  Experience  and  Other
     Directorships

John S. Albin 70   

     Director of the Company since 1992;  Director of United Trust,  Inc.  since
     1984; farmer in Douglas and Edgar counties,  Illinois, since 1951; Chairman
     of the Board of Longview  State Bank since 1978;  President of the Longview
     Capitol Corporation,  a bank holding company, since 1978; Chairman of First
     National Bank of Ogden, Illinois, since 1987; Chairman of the State Bank of
     Chrisman since 1988; Director and Secretary of Illini Community Development
     Corporation  since 1990;  Chairman of  Parkland  College  Board of Trustees
     since 1990;  board member of the Fisher  National Bank,  Fisher,  Illinois,
     since 1993.

Randall L. Attkisson 53

     Chief Financial  Officer,  Treasurer,  Director of First Southern  Bancorp,
     Inc.  since 1986;  Director of The Galilean Home,  Liberty,  KY since 1996;
     Treasurer, Director of First Southern Funding, Inc. since 1992; Director of
     The River  Foundation,  Inc.  since 1990;  Treasurer,  Director of Somerset
     Holdings,  Inc. since 1987;  President of Randall L.


                                       65
<PAGE>


     Attkisson  &  Associates  from  1982  to  1986;  Commissioner  of  Kentucky
     Department of Banking & Securities from 1980 to 1982; Self-employed Banking
     Consultant in Miami, FL from 1978 to 1980.

William F.  Cellini 64 

     Director of FCC and certain affiliate companies since 1984; Chairman of the
     Board of New Frontier  Development Group,  Chicago,  Illinois for more than
     the past five  years;  Executive  Director  of  Illinois  Asphalt  Pavement
     Association.

John W. Collins  72

     Consultant and past  President of  Collins-Winston  Group since 1976;  past
     Director of the Company and certain affiliate companies from 1982 to 1992.

Jesse T. Correll   42

     Chairman,  President,  Director of First Southern Bancorp, Inc. since 1983;
     President,  Director of First Southern Funding, Inc. since 1992; President,
     Director of Somerset Holdings,  Inc. and Lancaster Life Reinsurance Company
     and First Southern Insurance Agency since 1987; President,  Director of The
     River  Foundation  since  1990;  President,  Director  of  Dyscim  Holdings
     Company,  Inc.  since 1990;  Director or Adamas Diamond  Corporation  since
     1980;  Secretary,  Director Lovemore Holding Company since 1987; President,
     Director  of North Plaza of Somerset  since  1990;  Director of St.  Joseph
     Hospital, Lexington, KY since 1997; Managing Partner of World Wide Minerals
     from 1978 to 1983.

George E. Francis 55

     Executive Vice President and Chief Administrative  Officer since July 1997;
     Secretary  of the  Company  and  certain  affiliate  companies  since 1993;
     Director  of the  Company  and  certain  affiliate  companies  since  1992;
     Treasurer and Chief Financial Officer of certain  affiliate  companies from
     1984 until 1992; Senior Vice President and Chief Administrative  Officer of
     certain affiliate companies since 1989.

Donald G. Geary 75

     Director  of the  Company  and  certain  affiliate  companies  since  1984;
     industrial  warehousing developer and founder of Regal 8 Inns for more than
     the past five years.

James E. Melville 53

     President  and Chief  Operating  Officer since July 1997;  Chief  Financial
     Officer of the Company  since 1993,  Chief  Operating  Officer from 1989 to
     1991 and Senior  Executive  Vice  President  of the Company from 1984 until
     1989;  President of the Company and certain  affiliate  companies from 1984
     until 1991; Senior Executive Vice President of certain affiliate  companies
     from 1984 until 1989;  consultant  to UTI and UTG from March to  September,
     1992;  President  and Chief  Operating  Officer of certain  affiliate  life
     insurance  companies and Senior  Executive Vice President of  non-insurance
     affiliate companies since 1992.

Joseph H. Metzger 60

     Director of the  Company  since 1992,  Senior Vice  President,  Real Estate
     since  1989;  Senior  Vice  President,  Real  Estate of  certain  affiliate
     companies since 1983.

Luther C. Miller  68

     Director of the Company since 1984;  Executive Vice President and Secretary
     of the  Company  from 1984 until  1992;  officer  and  director  of certain
     affiliate companies for more than the past five years.

Millard V. Oakley  68

     Presently  serves on Board of Directors and  Executive  Committee of Thomas
     Nelson, a publicly held publishing company based in Nashville, TN; Director
     of  First  National  Bank of the  Cumberlands,  Livingston-Cooksville,  TN;
     Lawyer with limited law practice since 1980;  State Insurance  Commissioner
     for State of Tennessee from 1975 to 1979; Served as General Counsel, United
     States House of Representatives,  Washington, D.C., Congressional Committee
     on Small  Business from  1971-1973;  Served four  elective  terms as County
     Attorney  for  Overton  County,  Tennessee;  Elected  delegate  to National
     Democratic  Convention in 1964; Served four elective terms in the Tennessee
     General Assembly from 1956 to 1964;  Lawyer in Livingston,  TN from 1953 to
     1971; Elected to the Tennessee Constitutional Convention in 1952.


                                       66
<PAGE>


Robert V. O'Keefe 77       

     Director of the Company since 1993; Director and Treasurer of UTI from 1988
     to 1992;  Director of Cilcorp,  Inc. from 1982 to 1994; Director of Cilcorp
     Ventures,  Inc. from 1985 to 1994;  Director of  Environmental  Science and
     Engineering Co. since 1990.

Larry E. Ryherd  58

     President,  CEO and Director of the company since 1992; UTI Chairman of the
     Board of Directors and a Director since 1984,  CEO since 1991;  Chairman of
     the Board of UII since  1987,  CEO since  1992 and  President  since  1993;
     Chairman,  CEO and Director of UTG since 1992; President,  CEO and Director
     of certain  affiliate  companies  since 1992;  Chairman of the Board,  CEO,
     President and COO of certain affiliate life insurance  companies since 1992
     and 1993;  Director of the National  Alliance of Life Companies since 1992;
     1994 NALC Membership Committee Chairman;  Member of the American Council of
     Life Companies and Advisory Board Member of its Forum 500 since 1992.

Robert W. Teater 71

     Director of the Company since 1992;  Director of UTG and certain  affiliate
     companies  since  1992;  Director  of UII since  1987;  Director of certain
     affiliate  companies since 1992; member of Columbus School Board since 1991
     and President since 1992;  President of Robert W. Teater and Associates,  a
     comprehensive   consulting  firm  in  natural  resources   development  and
     organization management since 1983.


EXECUTIVE OFFICERS OF THE COMPANY

More detailed information on the following officers of the Company appears under
"The Board of Directors":

     Larry E. Ryherd     Chairman of the Board and Chief Executive Officer
     James E. Melville   President and Chief Operating Officer
     George E. Francis   Executive  Vice   President,   Secretary   and    Chief
                         Administrative Officer

Other officers of the company are set forth below:

Name, Age

     Position with the Company, Business Experience and Other Directorships


Theodore C. Miller 36

     Senior Vice  President and Chief  Financial  Officer since July 1997;  Vice
     President and Treasurer  since October 1992;  Vice President and Controller
     of certain Affiliate Companies from 1984 to 1992.


Others not completing the current term:

Howard A. Young

     Formerly Director of the Company since 1984;  Director of certain affiliate
     companies for more than the past five years; passed away in September 1998.

ITEM 11.  EXECUTIVE COMPENSATION

Executive Compensation Table
----------------------------

The following table sets forth certain information  regarding  compensation paid
to or earned by the Company's Chief Executive  Officer and each of the Executive
Officers of the Company whose salary plus bonus exceeded $100,000 during each of
the Company's last three fiscal years: Compensation for services provided by the
named  executive  officers  to the  Company  and its  affiliates  is paid by the
Company as set forth in their employment agreements. (See Employment Contracts).


                                       67
<PAGE>


                           SUMMARY COMPENSATION TABLE

                             Annual Compensation (1)

                                                              Other Annual
Name and                                                    Compensation (2)
Principal Position                Salary($)  Bonus ($)                $

Larry E. Ryherd           1998     400,000                         20,373
Chairman of the Board     1997     400,000                         18,863
Chief Executive Officer   1996     400,000                         17,681

James E. Melville         1998     238,200                         31,956
President, Chief          1997     238,200                         29,538
Operating Officer         1996     238,200                         27,537

George E. Francis         1998     126,200                          8,791
Executive Vice            1997     123,200                          8,187
President, Secretary      1996     120,200                          7,348

Joseph H. Metzger         1998     126,200    20,123               11,644
Sr. Vice President,       1997     121,000                         10,817
Real Estate, Director     1996      87,000    70,633               10,290



(1) Compensation  deferred at the election of named officers is included in this
section.

(2)  Other  annual   compensation   consists  of  interest  earned  on  deferred
compensation  amounts pursuant to their employment  agreements and the Company's
matching  contribution to the First  Commonwealth  Corporation  Employee Savings
Trust 401(k) Plan.


Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

The following  table  summarizes for fiscal year ending,  December 31, 1998, the
number of shares  subject to  unexercised  options and the value of  unexercised
options of the Common  Stock of UTI held by the named  executive  officers.  The
values shown were determined by multiplying the applicable number of unexercised
share options by the  difference  between the per share market price on December
31, 1998 and the  applicable  per share  exercise  price.  There were no options
granted to the named executive officers for the past three fiscal years.

<TABLE>
<CAPTION>

                  Number of Shares                       Number of Securities Underlying   Value of Unexercised In the
                     Acquired on     Value               Unexercised Options/SARs             Money Options/SARs at
                    Exercise (#)    Realized ($)               at FY-End(#)                        FY-End ($)

<S>                          <C>          <C>       <C>                  <C>              <C>               <C>
Name                                                Exercisable          Unexercisable    Exercisable       Unexercisable


Larry E. Ryherd              -            -             13,800                  -                -                 -
James E. Melville            -            -             30,000                  -                -                 -
Joseph H. Metzger            -            -              6,900                  -                -                 -
George E. Francis            -            -              4,600                  -                -                 -
</TABLE>


                                       68
<PAGE>


Compensation of Directors
-------------------------

The Company's  standard  arrangement for the  compensation of directors  provide
that each  director  shall receive an annual  retainer of $2,400,  plus $300 for
each meeting attended and  reimbursement  for reasonable  travel  expenses.  The
Company's  director  compensation  policy also provides  that  directors who are
employees of the Company or directors or officers of First Southern Funding, LLC
and affiliates do not receive any  compensation  for their services as directors
except for  reimbursement  for  reasonable  travel  expenses for attending  each
meeting.


Employment Contracts
--------------------

On July 31, 1997, Larry E. Ryherd entered into an employment  agreement with the
Company.  Formerly,  Mr.  Ryherd had served as  Chairman  of the Board and Chief
Executive Officer of the Company and its affiliates.  Pursuant to the agreement,
Mr. Ryherd agreed to serve as Chairman of the Board and Chief Executive  Officer
of the Company and in addition,  to serve in other  positions of the  affiliated
companies if appointed or elected.  The agreement  provides for an annual salary
of $400,000 as determined  by the Board of Directors.  The term of the agreement
is for a period of five years.  Mr.  Ryherd has deferred  portions of his income
under a plan entitling him to a deferred compensation payment on January 2, 2000
in the amount of $240,000 which includes  interest at the rate of  approximately
8.5% per year. Additionally,  Mr. Ryherd was granted an option to purchase up to
13,800 of the Common Stock of UTI at $17.50 per share. The option is immediately
exercisable and transferable. The option will expire December 31, 2000.

The Company entered into an employment  agreement dated July 31, 1997 with James
E.  Melville  pursuant to which Mr.  Melville is employed as President and Chief
Operating Officer and in addition, to serve in other positions of the affiliated
companies if appointed or elected at an annual  salary of $238,200.  The term of
the agreement  expires July 31, 2002. Mr. Melville has deferred  portions of his
income under a plan entitling him to a deferred  compensation payment on January
2, 2000 of $400,000 which includes  interest at the rate of  approximately  8.5%
annually.  Additionally,  Mr.  Melville  was granted an option to purchase up to
30,000  shares of the Common  Stock of UTI at $17.50  per  share.  The option is
immediately  exercisable and  transferable.  The option will expire December 31,
2000.

The Company entered into an employment  agreement with George E. Francis on July
31, 1997. Under the terms of the agreement, Mr. Francis is employed as Executive
Vice President of the Company at an annual salary of $126,200.  Mr. Francis also
agreed to serve in other  positions if  appointed  or elected to such  positions
without  additional  compensation.  The term of the  agreement  expires July 31,
2000. Mr. Francis has deferred portions of his income under a plan entitling him
to a deferred  compensation payment on January 2, 2000 of $80,000 which includes
interest at the rate of approximately 8.5% per year.  Additionally,  Mr. Francis
was granted an option to purchase up to 4,600  shares of the Common Stock of UTI
at $17.50 per share.  The option is immediately  exercisable  and  transferable.
This option will expire on December 31, 2000.

The Company entered into an employment  agreement with Joseph H. Metzger on July
31, 1997.  Under the terms of the  agreement,  Mr. Metzger is employed as Senior
Vice President - Real Estate of the Company at an annual salary of $126,200. The
agreement provides that Mr. Metzger receives cash bonuses if certain real estate
sales goals are attained.  The term of the agreement  expires July 31, 2000. Mr.
Metzger also agreed to serve in other  positions if appointed or elected to such
positions without additional compensation.  Mr. Metzger has deferred portions of
his income  under a plan  entitling  him to a deferred  compensation  payment on
January 2, 2000 of $120,000 which includes interest at the rate of approximately
8.5% annually. Additionally, Mr. Metzger was granted an option to purchase up to
6,900 shares of UTI Common Stock at $17.50 per share.  The option is immediately
exercisable and transferable. This option will expire on December 31, 2000.


                                       69
<PAGE>


REPORT ON EXECUTIVE COMPENSATION

Introduction

The compensation of the Company's  executive  officers is determined by the full
Board of Directors.  The Board of Directors strongly believes that the Company's
executive  officers directly impact the short-term and long-term  performance of
the  Company.  With  this  belief  and the  corresponding  objective  of  making
decisions that are in the best interest of the Company's shareholders, the Board
of Directors places significant emphasis on the design and administration of the
Company's executive compensation plans.


Executive Compensation Plan Elements

Base Salary.  The Board of Directors  establishes  base  salaries each year at a
level  intended  to  be  within  the  competitive  market  range  of  comparable
companies.  In  addition  to the  competitive  market  range,  many  factors are
considered in determining base salaries,  including the responsibilities assumed
by the executive, the scope of the executive's position,  experience,  length of
service,  individual performance and internal equity considerations.  During the
last three fiscal years,  there were no material changes in the base salaries of
the named executive officers.

Stock Options.  One of the Company's priorities is for the executive officers to
be significant  shareholders  so that the interest of the executives are closely
aligned with the interests of the  Company's  other  shareholders.  The Board of
Directors believes that this strategy motivates  executives to remain focused on
the overall long-term  performance of the Company.  Stock options are granted at
the  discretion  of the Board of  Directors  and are  intended  to be granted at
levels within the competitive market range of comparable companies. During 1993,
each of the named executive officers were granted options under their employment
agreements for the UTI's Common Stock as described in the  Employment  Contracts
section.  There were no options granted to the named  executive  officers during
the last three fiscal years.

Deferred  Compensation.  A  very  significant  component  of  overall  Executive
Compensation  Plans  is  found  in the  flexibility  afforded  to  participating
officers in the receipt of their compensation.  The availability, on a voluntary
basis, of the deferred compensation  arrangements as described in the Employment
Contracts section may prove to be critical to certain  officers,  depending upon
their particular financial circumstance.


Chief Executive Officer

Larry E. Ryherd has been Chairman of the Board and Chief Executive Officer since
June of 1991 and Chairman of the Board of the Company's parent, UTI, since 1984.
The Board of Directors used the same compensation plan elements  described above
for all executive officers to determine Mr. Ryherd's 1998 compensation.

In  setting  both the  cash-based  and  equity-based  elements  of Mr.  Ryherd's
compensation,  the Board of Directors made an overall assessment of Mr. Ryherd's
leadership in achieving the Company's long-term strategic and business goals.

Mr. Ryherd's base salary reflects a consideration of both competitive forces and
the  Company's  performance.  The Board of  Directors  does not assign  specific
weights to these categories.

The Company surveys total cash compensation for chief executive  officers at the
same group of companies  described  under "Base  Salary"  above.  Based upon its
survey,  the  Company  then  determines  a  median  around  which  it  builds  a
competitive  range of compensation for the CEO. As a result of this review,  the
Board of Directors concluded that Mr. Ryherd's base salary was in the low end of
the  competitive  market,  and his total direct  compensation  (including  stock
incentives) was competitive  for CEOs running  companies  comparable in size and
complexity to the Company.


                                       70


<PAGE>


The Board of Directors considered the Company's financial results as compared to
other companies  within the industry,  financial  performance for fiscal 1998 as
compared to fiscal 1997,  the Company's  progress as it relates to the Company's
growth through  acquisitions and  simplification of the  organization,  the fact
that since the  Company  does not have a Chief  Marketing  Officer,  Mr.  Ryherd
assumes  additional  responsibilities  of the Chief Marketing  Officer,  and Mr.
Ryherd's salary history, performance ranking and total compensation history.

Through fiscal 1998,  Mr.  Ryherd's  annual salary was $400,000,  the amount the
Board of Directors  set in January  1997.  In July 1998,  the Board of Directors
reviewed Mr. Ryherd's salary. Following a review of the above factors, the Board
of Directors decided to recognize Mr. Ryherd's  performance by placing a greater
emphasis on long-term incentive awards, and therefore retained Mr. Ryherd's base
salary at $400,000.

Conclusion.

The Board of Directors believes the mix of structured employment agreements with
certain key executives,  conservative  market based salaries,  competitive  cash
incentives for short-term performance and the potential for equity-based rewards
for long term  performance  represents  an  appropriate  balance.  This balanced
Executive Compensation Plan provides a competitive and motivational compensation
package to the  executive  officer  team  necessary  to  continue to produce the
results the Company strives to achieve. The Board of Directors also believes the
Executive Compensation Plan addresses both the interests of the shareholders and
the executive team.



                               BOARD OF DIRECTORS

         John S. Albin                               Joseph H. Metzger
         Randall L. Attkisson                        Luther C. Miller
         William F. Cellini                          Millard V. Oakley
         John W. Collins                             Robert V. O'Keefe
         Jesse T. Correll                            Larry E. Ryherd
         George E. Francis                           Robert W. Teater
         Donald G. Geary
         James E. Melville


                                       71
<PAGE>


                                PERFORMANCE GRAPH
     The following graph compares the cumulative total shareholder return on the
Company's  Common Stock  during the five fiscal  years ended  December 31, 1998,
with the cumulative total return on the NASDAQ  Composite Index  Performance and
the NASDAQ Insurance Stock Index (1):

                                              1993 1994 1995 1996 1997 1998
FCC .........................................  100   50   50   50  112  155
NASDAQ ......................................  100   98  138  170  209  293
NASDAQ Insurance ............................  100   94  134  153  223  199


(1)    The  Company  selected  the  NASDAQ  Composite  Index  Performance  as an
       appropriate  comparison  because the Company's Common Stock is not listed
       on  any  exchange  but  the  Company's  Common  Stock  is  traded  in the
       over-the-counter  market.  Furthermore,  the Company  selected the NASDAQ
       Insurance  Stock  Index  as the  second  comparison  because  there is no
       similar  single "peer company" in the NASDAQ system with which to compare
       stock performance and the closest additional line-of-business index which
       could be found was the NASDAQ Insurance Stock Index.  Trading activity in
       the Company's  Common Stock is limited,  which may be in part a result of
       the Company's low profile from not being listed on any exchange,  and its
       reported  operating  losses.  The Company has  experienced  a  tremendous
       growth rate over the period shown in the Return Chart with assets growing
       from  approximately $233 million in 1991 to approximately $328 million in
       1998.  The  growth  rate has been the  result  of  acquisitions  of other
       companies and new insurance  writings.  The Company has incurred costs of
       conversions  and  administrative   consolidations   associated  with  the
       acquisitions,  which has contributed to the operating losses.  The Return
       Chart is not  intended to forecast or be  indicative  of possible  future
       performance of the Company's stock.

The foregoing graph shall not be deemed to be incorporated by reference into any
filing  of the  Company  under  the  Securities  Act of 1933  or the  Securities
Exchange  Act of  1934,  except  to the  extent  that the  Company  specifically
incorporates such information by reference.

Compensation Committee Interlocks and Insider Participation

The following  persons  served as directors of the Company  during 1998 and were
officers or employees of the Company or its subsidiaries  during 1998: George E.
Francis, James E. Melville, Joseph H. Metzger, and Larry E. Ryherd. Accordingly,
these  individuals  have  participated  in decisions  related to compensation of
executive officers of the Company and its subsidiaries.

During 1998, the following  executive  officers of the Company were also members
of the Board of Directors of UII, two of whose executive  officers served on the
Board of Directors of the Company: Messrs. Melville and Ryherd.

During 1998,  Larry E. Ryherd and James E. Melville,  executive  officers of the
Company,  were also  members of the Board of  Directors  of UTI,  three of whose
executive  officers  served on the Board of Directors  of the  Company:  Messrs.
Francis, Melville, and Ryherd.


                                       72
<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPLE HOLDERS OF SECURITIES
-------------------------------

The following  tabulation sets forth the name and address of the entity known to
be the  beneficial  owners of more  than 5% of the  Company's  Common  Stock and
shows: (i) the total number of shares of Common Stock beneficially owned by such
person as of December  31, 1998 and the nature of such  ownership;  and (ii) the
percent of the issued and outstanding  shares of Common Stock so owned as of the
same date.

   Title                                     Number of Shares     Percent
    Of         Name and Address                and Nature of        of
   Class       of Beneficial Owner         Beneficial Ownership    Class
   -----       -------------------         --------------------    -----

Common         United Trust Group, Inc              43,303             79%
Stock $1.00,   5250 South Sixth Street
par value      Springfield, IL 62703

SECURITY OWNERSHIP OF MANAGEMENT
--------------------------------

The  following  tabulation  shows  with  respect  to each of the  directors  and
nominees of the Company,  with respect to the Company's chief executive  officer
and each of the Company's  executive  officers  whose salary plus bonus exceeded
$100,000  for fiscal  1998,  and with  respect  to all  executive  officers  and
directors  of the  Company  as a group:  (i) the  total  number of shares of all
classes  of  stock  of  the  Company  or any of  its  parents  or  subsidiaries,
beneficially owned as of December 31, 1998 and the nature of such ownership; and
(ii) the  percent of the issued and  outstanding  shares of stock so owned as of
the same date.


Title       Directors, Named Executive      Number of Shares          Percent
   of       Officers, & All Directors &       and Nature of             of
Class      Executive Officers as a Group        Ownership              Class
-----        -----------------------------      ---------              -----

UII's        John S. Albin                               0                 *
Common       Randall L. Attkisson                        0                 *
Stock, no    William F. Cellini                          0                 *
Par value    John W. Collins                             0                 *
             Jesse T. Correll                            0                 *
             George E. Francis                           0                 *
             Donald G. Geary                             0                 *
             James E. Melville                           0                 *
             Joseph H. Metzger                           0                 *
             Luther C. Miller                            0                 *
             Millard V. Oakley                           0                 *
             Robert V. O'Keefe                           0                 *
             Larry E. Ryherd                        47,250     (1)          3.4%
             Robert W. Teater                        7,380     (2)         *
             All directors and
              executive officers
             as a group (fourteen in number)        54,630                  3.9%


                                       73
<PAGE>


UTI's       John S. Albin                           10,503     (3)         *
Common      Randall L. Attkisson                         0                 *
Stock, no   William F. Cellini                       1,000                 *
par value   John W. Collins                              0                 *
            Jesse T. Correll                             0                 *
            George E. Francis                        4,600     (4)         *
            Donald G. Geary                          1,200                 *
            James E. Melville                       52,500     (5)          2.1%
            Joseph H. Metzger                        6,900     (6)         *
            Luther C. Miller                             0                 *
            Millard V. Oakley                        9,000                 *
            Robert V. O'Keefe                          300     (7)         *
            Larry E. Ryherd                        501,701     (8)         19.6%
            Robert W. Teater                             0                 *
            All directors and executive officers
            as a group (fourteen in number)        587,704                 22.3%


Company's   John S. Albin                                0                 *
Common      Randall L. Attkisson                         0                 *
Stock,      William F. Cellini                           0                 *
$1.00 par   John W. Collins                              0                 *
value       Jesse T. Correll                             0                 *
            George E. Francis                            0                 *
            Donald G. Geary                            225                 *
            James E. Melville                          544     (9)         *
            Joseph H. Metzger                            0                 *
            Luther C. Miller                             0                 *
            Millard V. Oakley                            0                 *
            Robert V. O'Keefe                            0                 *
            Larry E. Ryherd                              0                 *
            Robert W. Teater                             0                 *
            All directors and executive officers
            as a group (fourteen in number)            769                  1.4%


(1)  Includes  47,250  shares  beneficially  in trust for the three  children of
     Larry E. Ryherd and Dorothy LouVae Ryherd, namely Shari Lynette Serr, Derek
     Scott Ryherd and Jarad John Ryherd.

(2)  Includes 201 shares owned directly by Mr. Teater' s spouse.

(3)  Includes 392 shares owned directly by Mr. Albin's spouse.

(4)  Includes  4,600 shares which may be acquired upon  exercise of  outstanding
     stock options.

(5)  James E. Melville owns 2,500 shares  individually and 14,000 shares jointly
     with his spouse. Includes: (i) 3,000 shares of UTI's Common Stock which are
     held  beneficially  in trust for his daughter,  namely Bonnie J.  Melville;
     (ii) 3,000  shares of UTI's  Common  Stock,  750 shares of which are in the
     name of Matthew C. Hartman, his nephew; 750 shares of which are in the name
     of Zachary T. Hartman,  his nephew;  750 shares of which are in the name of
     Elizabeth A. Hartman, his niece; and 750 shares of which are in the name of
     Margaret  M.  Hartman,  his niece;  and (iii)  30,000  shares  which may be
     acquired by James E. Melville upon exercise of outstanding stock options.

(6)  Includes  6,900 shares which may be acquired upon  exercise of  outstanding
     stock options.


                                       74
<PAGE>


(7)  300 shares owned directly by Mr. O'Keefe's spouse.

(8)  Larry E. Ryherd owns 181,091  shares of UTI's Common Stock in his own name.
     Includes:  (i) 150,050  shares of UTI's Common Stock in the name of Dorothy
     LouVae  Ryherd,  his wife;  (ii) 150,000 shares of UTI's Common Stock which
     are held  beneficially  in trust for the three  children of Larry E. Ryherd
     and Dorothy  LouVae Ryherd,  namely Shari Lynette Serr,  Derek Scott Ryherd
     and Jarad John  Ryherd;  (iii) 4,600 shares of UTI's  Common  Stock,  2,700
     shares  of which are in the name of Shari  Lynette  Serr,  1,900  shares of
     which are in the name of Jarad  John  Ryherd;  (iv)  2,000  shares  held by
     Dorothy LouVae Ryherd, his wife as custodian for granddaughter,  160 shares
     held by Larry E.  Ryherd as  custodian  for  granddaughter;  and (v) 13,800
     shares  which  may  be  acquired  by  Larry  E.  Ryherd  upon  exercise  of
     outstanding stock options.

(9)  James E. Melville owns 168 shares  individually and 376 shares jointly with
     his spouse.

*  Less than 1%.

Except as indicated above, the foregoing persons hold sole voting and investment
power.

Directors and officers of the Company file periodic reports regarding  ownership
of Company  securities with the Securities and Exchange  Commission  pursuant to
Section 16(a) of the Securities  Exchange Act of 1934 as amended,  and the rules
promulgated thereunder.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATED PARTY TRANSACTIONS
--------------------------

Under the  current  structure,  FCC pays a  majority  of the  general  operating
expenses of the affiliated group. FCC then receives management, service fees and
reimbursements from the various affiliates.

UII has a service  agreement with USA. The agreement was originally  established
upon the formation of USA which was a 100% owned  subsidiary of UII.  Changes in
the affiliate structure have resulted in USA no longer being a direct subsidiary
of UII, though still a member of the same affiliated group. The original service
agreement has remained in place without modification.  USA is to pay UII monthly
fees equal to 22% of the amount of collected first year premiums,  20% in second
year  and 6% of the  renewal  premiums  in  years  three  and  after.  UII has a
subcontract  agreement  with UTI to perform  services and provide  personnel and
facilities.  The  services  included  in the  agreement  are  claim  processing,
underwriting,  processing and servicing of policies, accounting services, agency
services,  data  processing  and all other  expenses  necessary  to carry on the
business of a life  insurance  company.  UII's  subcontract  agreement  with UTI
states that UII is to pay UTI  monthly  fees equal to 60% of  collected  service
fees from USA as stated  above.  The service fees received from UII are recorded
in UTI's financial statements as other income.

On January 1, 1993,  FCC entered into an agreement with UG pursuant to which FCC
provides  management  services  necessary  for UG to carry on its  business.  In
addition to the UG agreement,  FCC and its  affiliates  have either  directly or
indirectly  entered into management and/or  cost-sharing  arrangements for FCC's
management services. FCC received net management fees of $8,793,905,  $9,893,321
and $9,927,000 under these arrangements in 1998, 1997 and 1996, respectively. UG
paid  $8,018,141,  $8,660,481  and  $9,626,559  to FCC in 1998,  1997 and  1996,
respectively.

USA paid $835,345,  $989,295 and $1,567,891  under their  agreement with UII for
1998,  1997 and 1996,  respectively.  UII paid  $501,207,  $593,577 and $940,734
under  their  agreement  with  UTI  for  1998,  1997  and  1996,   respectively.
Additionally,  UII paid FCC $0,  $150,000 and  $300,000 in 1998,  1997 and 1996,
respectively for reimbursement of costs attributed to UII. These  reimbursements
are reflected as a credit to general expenses.


                                       75
<PAGE>


Respective domiciliary insurance departments have approved the agreements of the
insurance companies and it is Management's opinion that where applicable,  costs
have  been  allocated  fairly  and such  allocations  are based  upon  generally
accepted accounting principles. The costs paid by UTI for services include costs
related  to the  production  of new  business,  which  are  deferred  as  policy
acquisition costs and charged off to the income statement through  "Amortization
of  deferred  policy  acquisition  costs".  Amounts  recorded by USA as deferred
acquisition costs are no greater than what would have been recorded had all such
expenses been directly  incurred by USA. Also included are costs associated with
the  maintenance  of existing  policies that are charged as current period costs
and included in "general expenses".

On January 16,  1998,  UTI  acquired  7,579  shares of its common stock from the
estate of Robert Webb,  a former  director,  for $26,527 and a  promissory  note
valued at $41,819 due January 16, 2005.  The note bears interest at a rate of 1%
over prime, with interest due quarterly and principal due on maturity.

On September 23, 1997, UTI acquired  10,056 shares of UTI common stock from Paul
Lovell,  a director,  for $35,000  and a  promissory  note valued at $61,000 due
September  23, 2004.  The note bears  interest at a rate of 1% over prime,  with
interest due  quarterly  and  principal  reductions  of $10,000  annually  until
maturity. Simultaneous with the stock purchase, Mr. Lovell resigned his position
on the UTI board.

On July 31, 1997,  United Trust Inc. issued  convertible notes for cash received
totaling  $2,560,000 to seven  individuals,  all officers or employees of United
Trust Inc.  The notes bear  interest at a rate of 1% over prime,  with  interest
payments due quarterly  and  principal  due upon maturity of July 31, 2004.  The
conversion  price of the notes are  graded  from  $12.50 per share for the first
three  years,  increasing  to  $15.00  per  share  for the  next two  years  and
increasing  to $20.00  per share for the last two  years.  Conditional  upon the
seven individuals placing the funds with the Company were the acquisition by UTI
of a portion of the  holdings of UTI owned by Larry E. Ryherd and his family and
the  acquisition of common stock of UTI and UII held by Thomas F. Morrow and his
family and the simultaneous retirement of Mr. Morrow. Neither Mr. Morrow nor Mr.
Ryherd was a party to the  convertible  notes. On March 1, 1999, the individuals
holding  the  convertible  notes  sold  their  interests  in said notes to First
Southern Bancorp, Inc. in private transactions.

Approximately  $1,048,000  of  the  cash  received  from  the  issuance  of  the
convertible  notes was used to acquire  stock  holdings of United Trust Inc. and
United  Income,  Inc. of Mr. Morrow and to acquire a portion of the United Trust
Inc.  holdings of Larry E. Ryherd and his family.  The  remaining  cash received
will be used by the Company to provide  additional  operating  liquidity and for
future acquisitions of life insurance  companies.  On July 31, 1997, the Company
acquired a total of 126,921 shares of United Trust Inc.  common stock and 47,250
shares of United Income, Inc. common stock from Thomas F. Morrow and his family.
Mr. Morrow  simultaneously  retired as an executive officer of the Company.  Mr.
Morrow will remain as a member of the Board of  Directors.  In exchange  for his
stock,  Mr.  Morrow  and his family  received  approximately  $348,000  in cash,
promissory notes valued at $140,000 due in eighteen months, and promissory notes
valued at $1,030,000  due January 31, 2005.  These notes bear interest at a rate
of 1% over prime,  with interest due quarterly and principal due upon  maturity.
The notes do not contain any conversion  privileges.  Additionally,  on July 31,
1997, the Company  acquired a total of 97,499 shares of United Trust Inc. common
stock from Larry E. Ryherd and his family.  Mr.  Ryherd and his family  received
approximately  $700,000 in cash and a  promissory  note  valued at $251,000  due
January 31, 2005. The  acquisition of  approximately  16% of Mr.  Ryherd's stock
holdings in United Trust Inc. was completed as a prerequisite to the convertible
notes placed by other  management  personnel to reduce the total holdings of Mr.
Ryherd and his family in the  Company to make the stock more  attractive  to the
investment community. Following the transaction, Mr. Ryherd and his family owned
approximately  31% of the  outstanding  common  stock of United  Trust Inc.  The
market price of UTI common stock on July 31, 1997 was $6.00 per share. The stock
acquired in the above  transaction was from the largest two  shareholders of UTI
stock. There were no additional stated or unstated items or agreements  relating
to the stock purchase.

On July  31,1997,  the Company  entered into  employment  agreements  with eight
individuals,  all officers or employees of the Company.  The  agreements  have a
term of three years,  excepting the agreements with Mr. Ryherd and Mr. Melville,
which have  five-year  terms.  The  agreements  secure the services of these key
individuals,   providing  the  Company  a  stable  management   environment  and
positioning for future growth.


                                       76
<PAGE>


CHANGE IN CONTROL OF UNITED TRUST, INC. 
--------------------------------------- 

On November 20, 1998,  First  Southern  Funding,  LLC., a Kentucky  corporation,
("FSF") and affiliates  acquired 929,904 shares of common stock of United Trust,
Inc., an Illinois corporation, ("UTI") from UTI and certain UTI shareholders. As
consideration for the shares, FSF paid UTI $10,999,995 and certain  shareholders
of UTI $999,990 in cash. FSF and  affiliates  employed  working  capital to make
these purchases of common stock, including funds on hand and amounts drawn under
existing lines of credit with Star Bank,  NA. FSF borrowed  $7,082,878 and First
Southern  Bancorp,  Inc., an affiliate of FSF,  borrowed  $495,775 in making the
purchases. FSF and affiliates expect to repay the borrowings through the sale of
assets they currently own.

Details of the  transaction  can be outlined as follows:  FSF  acquired  389,715
shares of UTI common stock at $10.00 per share.  These shares  represented stock
acquired during 1997 by UTI in private transactions.  Additionally, FSF acquired
473,523 shares of authorized but unissued common stock at $15.00 per share.  FSF
acquired  66,666  shares of common  stock  from UTI CEO  Larry  Ryherd,  and his
family,  at $15.00 per share.  FSF has committed to purchase  $2,560,000 of face
amount of UTI convertible notes from certain officers and directors of UTI for a
cash price of $3,072,000 by March 1, 1999.  FSF is required to convert the notes
to  UTI  common  stock  by  July  31,  2000.   UTI  has  granted,   for  nominal
consideration,  an  irrevocable,  exclusive  option  to  FSF to  purchase  up to
1,450,000  shares of UTI  common  stock for a  purchase  price in cash  equal to
$15.00  per  share,  with such  option to expire on July 1,  2001.  UTI has also
caused three persons  designated by FSF to be appointed,  as part of the maximum
of 11, to the Board of Directors of UTI.

Following  the  transactions  described  above,  and together with shares of UTI
acquired on the market, FSF and affiliates currently own 1,073,577 shares of UTI
common stock (43.1%) becoming the largest shareholder of UTI. Through the shares
acquired and options owned, FSF can ultimately own over 51% of UTI. Mr. Jesse T.
Correll is the  majority  shareholder  of FSF,  which is an  affiliate  of First
Southern  Bancorp,  Inc., a bank holding  company that owns a bank that operates
out of 14 locations in central Kentucky.

This  transaction  provides  the  Company  with  increased  opportunities.   The
additional  capitalization  has enabled UTI to significantly  reduce its outside
debt and has enhanced its ability to make future acquisitions  through increased
borrowing power and financial strength. Many synergies exist between the Company
and First Southern  Funding and its affiliates.  The potential for cross selling
of services to each customer base is currently  being  explored.  Legislation is
currently pending that would eliminate many of the barriers  currently  existing
between banks and insurance  companies.  Such alliances are already being formed
within the two industries.  Management  believes this transaction  positions the
Company  for  continued  growth  and  competitiveness  into  the  future  as the
financial industry as a whole experiences change.


PROPOSED MERGER
---------------

On March 25,  1997,  the Board of Directors of UTI and UII voted to recommend to
the  shareholders a merger of the two companies.  Under the Plan of Merger,  UTI
would be the surviving entity issuing one share of its stock for each share held
by UII shareholders.

UTI owns 53% of United Trust Group, Inc., an insurance holding company,  and UII
owns  47% of  United  Trust  Group,  Inc.  Neither  UTI nor  UII  had any  other
significant holdings or business dealings at the time the merger was recommended
by the  respective  Boards of Directors.  The Board of Directors of each company
thus  concluded a merger of the two companies  would be in the best interests of
the  shareholders.  The merger will result in certain  cost  savings,  primarily
related to costs  associated with  maintaining a corporation in good standing in
the states in which it transacts business. Additionally, the merger will further
simplify the group's  holding  company system making it easier to understand for
outside parties, including current investors, potential investors and lenders.

A vote of the  shareholders  of UTI and UII  regarding  the  proposed  merger is
anticipated to occur sometime during the second quarter of 1999.


                                       77
<PAGE>

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------------

Kerber,  Eck and  Braeckel  LLP served as the  Company's  independent  certified
public  accounting  firm for the fiscal  year ended  December  31,  1998 and for
fiscal year ended December 31, 1997. In serving its primary  function as outside
auditor for the Company,  Kerber,  Eck and Braeckel LLP  performed the following
audit  services:   examination  of  annual  consolidated  financial  statements;
assistance  and  consultation  on reports filed with the Securities and Exchange
Commission and;  assistance and consultation on separate financial reports filed
with the State insurance  regulatory  authorities  pursuant to certain statutory
requirements.


                                       78
<PAGE>



                                     PART IV

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

(a)  The following documents are filed as a part of the report:

     (1)  Financial Statements: See Item 8, Index to Financial Statements

     (2)  Financial Statement Schedules

          Schedule I - Summary of  Investments  - other than invested in related
          parties.

          Schedule II - Condensed financial information of registrant

          Schedule IV - Reinsurance

          Schedule V - Valuation and Qualifying Accounts

          NOTE:Schedules  other than those listed above are omitted because they
          are not required or the  information  is  disclosed  in the  financial
          statements or footnotes.


(b) Reports on Form 8-K filed during fourth quarter.

          On December 2, 1998, the Company filed a form 8-K regarding  change in
          control.


(c)   Exhibits:

      Index to Exhibits (See Pages 77 and 78).


                                       79
<PAGE>


                                INDEX TO EXHIBITS


Exhibit
Number
------


3(a) (1) Articles of Incorporation for the Company dated August 25, 1967.

3(b) (1) Amended  Articles of  Incorporation  for the Company  dated January 27,
         1988.
 
3(c) (1) Charter Agreement for the Company dated May 22, 1991.

3(d) (1) Amended Articles of Incorporation for the Company dated March 12, 1993.

3(e) (1) Code of By-Laws for the Company dated September 30, 1992.

10(a)(2) Credit  Agreement  dated May 8, 1996  between  First of America  Bank -
         Illinois,   N.A., as  lender   and   First Commonwealth Corporation, as
         borrower.

10(b)(2) $8,900,000  Term Note of First  Commonwealth  Corporation  to First of
         America Bank - Illinois, N.A. dated May 8, 1996.

10(c)(2) Coinsurance  Agreement  dated  September  30, 1996   between  Universal
         Guaranty Life Insurance Company and First International Life  Insurance
         Company,  including   assumption  reinsurance   agreement   exhibit and
         amendments.

10(d)(1) Subcontract   Agreement  dated  September 1, 1990 between United Trust,
         Inc. and United Income, Inc.

10(e)(1) Service  Agreement  dated  November  8, 1989  between  United  Security
         Assurance Company and United Income, Inc.

10(f)(1) Management  and   Consultant  Agreement  dated as of  January  1,  1993
         between First Commonwealth  Corporation  and  Universal  Guaranty  Life
         Insurance Company

10(g)(1) Management  Agreement   dated  December 20, 1981  between  Commonwealth
         Industries Corporation, and Abraham Lincoln Insurance Company

10(h)(1) Reinsurance  Agreement dated January 1, 1991 between Universal Guaranty
         Life Insurance Company and Republic Vanguard Life Insurance Company


                                       80
<PAGE>


                                INDEX TO EXHIBITS

Exhibit
Number
------

10(i)(1) Reinsurance   Agreement  dated  July 1, 1992  between  United  Security
         Assurance Company and Life Reassurance Corporation of America

10(j)(1) United Trust, Inc. Stock Option Plan

10(k)(1) Board Resolution adopting United Trust, Inc.'s Officer Incentive Fund

10(l)(3) Employment  Agreement dated as of July 31, 1997 between Larry E. Ryherd
         and First Commonwealth Corporation

10(m)(3) Employment  Agreement  dated   as of July  31,  1997  between  James E.
         Melville and First Commonwealth Corporation

10(n)(3) Employment  Agreement  dated  as of July 31,  1997  between  George  E.
         Francis and First Commonwealth Corporation

10(o)(1) Agreement  dated  June 16,  1992  between  John K.  Cantrell  and First
         Commonwealth Corporation

10(p)(1) Stock Purchase  Agreement  dated February 20, 1992 between United Trust
         Group, Inc. and Sellers

10(q)(1) Amendment No. One dated April 20, 1992 to the Stock Purchase  Agreement
         between the Sellers and United Trust Group, Inc.

10(r)(1) Security  Agreement  dated June 16, 1992  between  United Trust Group,
         Inc. and the Sellers

10(s)(1) Stock  Purchase  Agreement  dated June 16, 1992  between  United  Trust
         Group, Inc. and First Commonwealth Corporation


     Footnote

     (1)  Incorporated  by reference  from the  Company's  Annual Report on Form
          10-K, File No. 0-5392, as of December 31, 1993.

     (2)  Incorporated  by reference  from the  Company's  Annual Report on Form
          10-K, File No. 0-5392, as of December 31, 1996.

     (3)  Incorporated  by reference  from the  Company's  Annual Report on Form
          10-K, File No. 0-5392, as of December 31, 1997.


                                       81
<PAGE>


                                                        
                         FIRST COMMONWEALTH CORPORATION
                       SUMMARY OF INVESTMENTS - OTHER THAN
                         INVESTMENTS IN RELATED PARTIES
                             As of December 31, 1998
<TABLE>
<CAPTION>

                                                                                                    Schedule I




                         Column A                           Column B           Column C           Column D
-------------------------------------------------------------------------   ----------------   ----------------

                                                                                                  Amount at
                                                                                                 Which Shown
                                                                                                 in Balance
                                                              Cost               Value              Sheet
                                                         ----------------   ----------------   ----------------
<S>                                                    <C>                <C>                <C>
Fixed maturities:
    Bonds:
      United States Goverment and
         government agencies and authorities           $      36,809,239  $      37,133,507  $      36,809,239
      State, municipalities, and political
         subdivisions                                         23,835,306         24,878,182         23,835,306
      Collateralized mortgage obligations                      9,406,895          9,524,931          9,406,895
      Public utilities                                        41,724,208         43,525,913         41,724,208
      All other corporate bonds                               62,465,200         64,822,846         62,465,200
                                                         ----------------   ----------------   ----------------
    Total fixed maturities                                   174,240,848  $     179,885,379        174,240,848
                                                                            ================

Investments held for sale:
    Fixed maturities:
      United States Goverment and
         government agencies and authorities                   1,434,636  $       1,437,901          1,437,901
      State, municipalities, and political
         subdivisions                                             35,000             42,224             42,224
      Public utilities                                                 0                  0                  0
      All other corporate bonds                                   25,000             25,281             25,281
                                                         ----------------   ----------------   ----------------
                                                               1,494,636  $       1,505,406          1,505,406
                                                                            ================

    Equity securities:
      Banks, trusts and insurance companies                    1,935,619  $       1,607,798          1,607,798
      All other corporate securities                             789,442            479,618            479,618
                                                         ----------------   ----------------   ----------------
                                                               2,725,061  $       2,087,416          2,087,416
                                                                            ================


Mortgage loans on real estate                                 10,941,614                            10,941,614
Investment real estate                                         8,979,183                             8,979,183
Real estate acquired in satisfaction of debt                   1,550,000                             1,550,000
Policy loans                                                  14,134,041                            14,134,041
Other long-term investments                                      906,278                               906,278
Short-term investments                                         1,036,251                             1,036,251
                                                         ----------------                      ----------------
    Total investments                                  $     216,007,912                     $     215,381,037
                                                         ================                      ================
</TABLE>



                                       82
<PAGE>


FIRST COMMONWEALTH CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT                       Schedule II
NOTES TO CONDENSED FINANCIAL INFORMATION



(a)   The condensed financial information should be read in conjunction with the
      consolidated   financial   statements  and  notes  of  First  Commonwealth
      Corporation and Consolidated Subsidiaries.


                                       83
<PAGE>


    

                         FIRST COMMONWEALTH CORPORATION
                       CONDENSED FINANCIAL INFORMATION OF
                      REGISTRANT PARENT ONLY BALANCE SHEETS
                        As of December 31, 1998 and 1997

                                                                   Schedule II


                                                  1998              1997
                                             ---------------   ---------------

ASSETS

    Investment in affiliates               $     49,919,765  $     51,786,698
    Cash and cash equivalents                     1,251,676         1,747,781
    Deferred income taxes                           899,934           158,804
    Other assets                                     17,418            70,125
                                             ---------------   ---------------
         Total assets                      $     52,088,793  $     53,763,408
                                             ===============   ===============


LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
    Notes payable                          $     17,369,993  $     18,241,602
    Indebtedness to subsidiaries
     and affiliates, net                            971,866         1,406,396
    Income taxes payable                             16,474            10,555
    Other liabilities                             2,908,076           898,432
                                             ---------------   ---------------
         Total liabilities                       21,266,409        20,556,985
                                             ---------------   ---------------


Shareholders' equity:
    Common stock                                     54,539            54,616
    Additional paid-in capital                   51,875,820        51,877,243
    Accumulated deficit                         (20,476,631)      (18,526,806)
    Accumulated other comprehensive income         (631,344)         (198,630)
                                             ---------------   ---------------
         Total shareholders' equity              30,822,384        33,206,423
                                             ---------------   ---------------
         Total liabilities and
          shareholders' equity             $     52,088,793  $     53,763,408
                                             ===============   ===============



                                       84
<PAGE>
                       

                         FIRST COMMONWEALTH CORPORATION
                       CONDENSED FINANCIAL INFORMATION OF
                 REGISTRANT PARENT ONLY STATEMENTS OF OPERATIONS
                       Three Years Ended December 31, 1998


                                                                                
                                                                     Schedule II



                                             1998        1997            1996
                                      -------------- -----------  --------------

Revenues:

    Management fees from affiliates   $   8,394,580 $ 9,099,595 $     9,988,960
    Interest income ...............          85,072      71,147          54,028
    Other income ..................           5,485       9,708          12,071
                                      -------------- -----------  --------------
                                          8,485,137   9,180,450      10,055,059


Expenses:

    Interest expense ..............       1,618,498   1,612,438       1,700,426
    Operating expenses ............       8,106,901   5,153,625       8,477,037
                                      -------------- -----------  --------------
                                          9,725,399   6,766,063      10,177,463
                                      -------------- -----------  --------------

    Operating income (loss) .......      (1,240,262)  2,414,387        (122,404)

    Income tax credit (expense) ...         724,656    (555,408)        395,031
    Equity in loss of subsidiaries       (1,434,219) (3,704,041)     (3,304,276)
                                      -------------- -----------  --------------
         Net loss ................. $    (1,949,825)$(1,845,062) $   (3,031,649)
                                      ============== ===========  ==============


Basic loss per share from
   continuing operations
   and net loss ................... $        (35.74)$    (32.65) $       (50.60)
                                      ============== ===========  ==============

Diluted loss per share from
   continuing operations
   and net loss ................... $        (35.74)$    (32.65) $       (50.60)
                                      ============== ===========  ==============

Basic weighted average
   shares outstanding .............          54,550      56,512          59,919
                                      ============== ===========  ==============


Diluted weighted average
   shares outstanding .............          54,550      56,512          59,919
                                      ============== ===========  ==============


                                       85
<PAGE>



                         FIRST COMMONWEALTH CORPORATION
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                      PARENT ONLY STATEMENTS OF CASH FLOWS
                       Three Years Ended December 31, 1998
                                                                                
                                                                     Schedule II

<TABLE>
<CAPTION>
                                                                       1998              1997              1996
                                                                  ----------------   --------------   ----------------

<S>                                                             <C>                <C>              <C>             
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
   Net loss                                                     $      (1,949,825) $    (1,845,062) $      (3,031,649)
   Adjustments to reconcile net loss to net
     cash provided by operating activities:
    Equity in loss of subsidiaries                                      1,434,219        3,704,041          3,304,276
    Change in income taxes payable                                          5,919           (2,351)               877
    Change in deferred income taxes                                      (741,130)         544,779           (408,415)
    Change in indebtedness (to) from affiliates, net                     (434,530)         611,004            331,036
    Change in other assets and liabilities                              2,062,351       (1,456,678)         1,141,738
                                                                  ----------------   --------------   ----------------
Net cash provided by operating activities                                 377,004        1,555,733          1,337,863
                                                                  ----------------   --------------   ----------------

Cash flows from investing activities:
    Proceeds from mortgage loan payments                                        0                0             11,023
                                                                  ----------------   --------------   ----------------
Net cash provided by investing activities                                       0                0             11,023
                                                                  ----------------   --------------   ----------------

Cash flows from financing activities:
    Proceeds from notes payable                                         9,408,099        1,000,000          9,300,000
    Payments of principal on notes payable                            (10,279,708)      (1,758,251)       (10,900,000)
    Payment for fractional shares from reverse stock split                      0         (534,251)                 0
    Purchase of treasury stock                                             (1,500)               0                  0
                                                                  ----------------   --------------   ----------------
Net cash used in financing activities                                    (873,109)      (1,292,502)        (1,600,000)
                                                                  ----------------   --------------   ----------------

Net increase (decrease) in cash and cash equivalents                     (496,105)         263,231           (251,114)
Cash and cash equivalents at beginning of year                          1,747,781        1,484,550          1,735,664
                                                                  ----------------   --------------   ----------------
Cash and cash equivalents at end of year                        $       1,251,676  $     1,747,781  $       1,484,550
                                                                  ================   ==============   ================

</TABLE>


                                       86
<PAGE>

                     
                         FIRST COMMONWEALTH CORPORATION
                                   REINSURANCE
          As of December 31, 1998 and the year ended December 31, 1998

<TABLE>
<CAPTION>
                                                                                                       Schedule IV



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


            Column A                 Column B         Column C         Column D          Column E       Column F
                                  ---------------  ---------------  ---------------   ---------------  -----------

                                                                                                       Percentage
                                                      Ceded to         Assumed                         of amount
                                                       other          from other                       assumed to
                                    Gross amount     companies        companies*        Net amount        net

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





<S>                             <C>              <C>              <C>               <C>                     <C>    
Life insurance                                                                         
   in force                     $  3,424,677,000 $    924,404,000 $  1,036,005,000  $  3,536,278,000        29.3%
                                  ===============  ===============  ===============   ===============



Premiums and policy fees:

   Life insurance               $     30,685,493 $      4,492,304 $         20,091  $     26,213,280         0.1%

   Accident and health
     insurance                           233,025           50,228                0           182,797         0.0%
                                  ---------------  ---------------  ---------------   ---------------

                                $     30,918,518 $      4,542,532 $         20,091  $     26,396,077         0.1%
                                  ===============  ===============  ===============   ===============
</TABLE>


                                       87
<PAGE>


               

                         FIRST COMMONWEALTH CORPORATION
                                   REINSURANCE
          As of December 31, 1997 and the year ended December 31, 1997

                                                                                
                                                                     Schedule IV
<TABLE>
<CAPTION>



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


            Column A                Column B          Column C         Column D         Column E       Column F
                                 ---------------   ---------------  ---------------   --------------   ----------

                                                                                                       Percentage
                                                      Ceded to         Assumed                         of amount
                                                       other          from other                       assumed to
                                   Gross amount      companies        companies*       Net amount         net

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





<S>                            <C>               <C>              <C>               <C>                    <C>    
Life insurance                                                                         
   in force                    $  3,691,867,000  $  1,022,458,000 $  1,079,885,000  $ 3,749,294,000        28.8%
                                 ===============   ===============  ===============   ==============



Premiums and policy fees:

   Life insurance              $     33,133,414  $      4,681,928 $              0  $    28,451,486         0.0%

   Accident and health
     insurance                          240,536            52,777                0          187,759         0.0%
                                 ---------------   ---------------  ---------------   --------------

                               $     33,373,950  $      4,734,705 $              0  $    28,639,245         0.0%
                                 ===============   ===============  ===============   ==============

</TABLE>


* All assumed business represents the Company's  participation  in the  Service-
men's Group Life Insurance Program (SGLI).



                                       88
<PAGE>



                         FIRST COMMONWEALTH CORPORATION
                                   REINSURANCE
              As of December 31, 1996 and the year ended December 31, 1996
<TABLE>
<CAPTION>

                                                                                                                Schedule IV



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


             Column A                  Column B           Column C           Column D           Column E         Column F
                                    ----------------   ----------------   ----------------   ----------------   ------------

                                                                                                                Percentage
                                                          Ceded to            Assumed                            of amount
                                                            other           from other                          assumed to
                                     Gross amount         companies         companies*         Net amount           net

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




                                  <S>                <C>                <C>                <C>                        <C>       <C>
Life insurance                                                                                
   in force                       $   3,952,958,000  $   1,108,534,000  $   1,271,766,000  $   4,116,190,000          30.9%
                                    ================   ================   ================   ================

Premiums and policy fees:

   Life insurance                 $      35,633,232  $       4,896,896  $               0  $      30,736,336           0.0%

   Accident and health
     insurance                              258,377             50,255                  0            208,122           0.0%
                                    ----------------   ----------------   ----------------   ----------------

                                  $      35,891,609  $       4,947,151  $               0  $      30,944,458           0.0%
                                    ================   ================   ================   ================

</TABLE>


*  All  assumed   business   represents  the  Company's   participation  in  the
Servicemen's Group Life Insurance Program (SGLI).



                                       89
<PAGE>




                         FIRST COMMONWEALTH CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
              For the years ended December 31, 1998, 1997 and 1996



                                                                      Schedule V

                                               Additions
                                  Balance at   Charges                     
             Description          Begining     and                 Balances at
                                  Of Period    Expenses Deductions End of Period
--------------------------------------------------------------------------------

December 31, 1998

Allowance for doubtful accounts -
     mortgage loans                   10,000    70,000     10,000     70,000    


December 31, 1997

Allowance for doubtful accounts -
    mortgage loans                    10,000         0          0     10,000    


December 31, 1996

Allowance for doubtful accounts -
    mortgage loans                    10,000         0          0     10,000    


                                       90
<PAGE>



                                   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.



                         FIRST COMMONWEALTH CORPORATION
                         ------------------------------
                                   Registrant


/s/  John S. Albin                                      Date:  March 23, 1999
---------------------------------------
John S. Albin, Director


/s/  Randall L. Attkisson                               Date:  March 23, 1999
----------------------------------------------
Randall L. Attkisson, Director


/s/  William F. Cellini                                 Date:  March 23, 1999
---------------------------------------
William F. Cellini, Director


/s/  John W. Collins                                    Date:  March 23, 1999
--------------------------------------
John W. Collins, Director


/s/  Jesse T. Correll                                   Date:  March 23, 1999
---------------------------------------
Jesse T. Correll, Director


/s/  George E. Francis                                  Date:  March 23, 1999
------------------------------------
George E. Francis, Executive Vice
    President, Secretary, Chief
    Administrative Officer and Director


/s/  Donald G. Geary                                    Date:  March 23, 1999
------------------------------------
Donald G. Geary, Director


/s/  James E. Melville                                  Date:  March 23, 1999
James E. Melville, President,
    Chief Operating Officer and
    Director


                                       91
<PAGE>




/s/  Joseph H. Metzger                                  Date:  March 23, 1999
-----------------------------------
Joseph H. Metzger, Senior Vice
    President and Director


/s/  Luther C. Miller                                   Date:  March 23, 1999
---------------------------------------
Luther C. Miller, Director


/s/  Millard V. Oakley                                  Date:  March 23, 1999
----------------------------------------
Millard V. Oakley, Director


/s/  Robert V. O'Keefe                                  Date:  March 23, 1999
-----------------------------------
Robert V. O'Keefe, Director


/s/  Larry E. Ryherd                                    Date:  March 23, 1999
-------------------------------------
Larry E. Ryherd, Chairman, Chief
    Executive Officer and Director


/s/  Robert W. Teater                                   Date:  March 23, 1999
------------------------------------
Robert W. Teater, Director


/s/  Theodore C. Miller                                 Date:  March 23, 1999
-------------------------------------
Theodore C. Miller, Chief Financial
    Officer


                                       92
<PAGE>