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, 1999        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 1, 2000, the Registrant had outstanding  54,538 shares of Common Stock,
par value $1 per share.

DOCUMENTS INCORPORATED BY REFERENCE:  None



                                  Page 1 of 87
<PAGE>

                         FIRST COMMONWEALTH CORPORATION
                                    FORM 10-K
                          YEAR ENDED DECEMBER 31, 1999


                                TABLE OF CONTENTS



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


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


      ITEM 2.  PROPERTIES.....................................................17


      ITEM 3.  LEGAL PROCEEDINGS..............................................17


      ITEM 4.  SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS............17


PART II.......................................................................18


      ITEM 5.  MARKET FOR COMPANY'S COMMON STOCK AND RELATED SECURITY
                  HOLDERS MATTERS.............................................18


      ITEM 6.  SELECTED FINANCIAL DATA........................................19


      ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS.........................20


      ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................32


      ITEM 9.  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                  FINANCIAL DISCLOSURE........................................61


PART III......................................................................61


      ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............61


      ITEM 11.  EXECUTIVE COMPENSATION........................................64


      ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER
                   AND MANAGEMENT.............................................69


      ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................71


PART IV.......................................................................74


      ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
                   ON FORM 8-K................................................74






                                       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, 1999, significant majority-owned  subsidiaries and affiliates of
the Registrant were as depicted on the following organizational chart:

United Trust Group, Inc. ("UTG") is the ultimate  controlling  company. UTG owns
80%  of  First  Commonwealth  Corporation  ("FCC"),  100%  of  Roosevelt  Equity
Corporation (REC) and 100% of North Plaza of Somerset,  Inc ("North Plaza"). FCC
owns 100% of Universal  Guaranty Life Insurance  Company ("UG").  UG owns 86% of
Appalachian  Life  Insurance  Company  ("APPL")  and APPL owns  100% of  Abraham
Lincoln Insurance Company ("ABE").


                                       3
<PAGE>

During 1999,  the Company made several  significant  changes to  streamline  and
simplify its corporate structure.  Throughout this document,  references will be
made to these changes in the corporate structure.  Prior to these changes, there
were four holding  companies,  which  controlled four life insurance  companies.
However,  in 1999 there were two mergers and a liquidation,  reducing the number
of holding companies to two and the number of life insurance  companies to three
(refer to the  organizational  chart on page 3). The first  merger  and  Company
liquidation  took place in July of 1999.  Prior to July  1999,  UTG was known as
United Trust,  Inc. ("UTI").  UTI and United Income,  Inc. ("UII") owned 100% of
the former United Trust Group,  Inc.,  (which was formed in February of 1992 and
liquidated  in July of 1999 - referred to as  "UTGL99").  Through a  shareholder
vote  and  special   meeting  on  July  26,  1999,  UII  merged  into  UTI,  and
simultaneously  with the  merger,  UTGL99 was  liquidated  and UTI  changed  its
corporate name to United Trust Group, Inc.  ("UTG").  The second merger occurred
on December 29,  1999,  when UG was the survivor to a merger with its 100% owned
subsidiary United Security Assurance Company ("USA").

This document at times will refer to the Company's  largest  shareholder,  First
Southern Funding LLC, a Kentucky  corporation,  ("FSF"). Mr. Jesse T. Correll is
the  majority  shareholder  of FSF,  which is an  affiliate  of  First  Southern
Bancorp,  Inc.,  a bank  holding  company  that  operates out of 14 locations in
central  Kentucky.  Mr. Correll is a member of the Board of Directors of UTG and
is currently UTG's largest  shareholder through his ownership control of FSF and
its affiliates.  At December 31, 1999 Mr. Correll owns or controls  directly and
indirectly  approximately  46% of UTG, and has stock options granted which would
facilitate ultimate ownership of over 51% of UTG.

The holding  companies within the group, UTG and FCC, are 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,  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.

REC is a wholly owned subsidiary of UTG, which was  incorporated  under the laws
of the State of  Delaware  on June 1,  1971,  for the  purpose  of  dealing  and
brokering  in  securities.  REC acts as an agent for its  customers  by  placing
orders of mutual funds and variable  annuity  contracts  which are placed in the
customers' names, the mutual fund shares and variable annuity accumulation units
are held by the respective custodians, and the only financial involvement of REC
is through  receipt of commission  (load).  REC was  originally  established  to
enhance  the life  insurance  sales by  providing  an  additional  option to the
prospective  client.  The objective was to provide an insurance  sale and mutual
fund sale in tandem. REC functions at a minimum broker-dealer level. It does not
maintain any of its customer  accounts nor  receives  customer  funds  directly.
Operating  activity  of REC  accounts  for  approximately  $100,000  of earnings
annually.

North Plaza is a wholly owned  subsidiary  of UTG,  which owns,  for  investment
purposes, a shopping center in Somerset, Kentucky and approximately 23,000 acres
of timberland in Kentucky.  North Plaza was acquired by UTG on December 31, 1999
in exchange for authorized but unissued common stock of UTG.


HISTORY

FCC was  incorporated  in August  1967,  as a  Virginia  corporation.  FCC is an
intermediate holding company,  (See organizational  chart) ultimately controlled
by UTG.

UTG was  incorporated  December  14,  1984,  as an  Illinois  corporation.  It's
original  name was United  Trust,  Inc.  ("UTI").  The name was  changed in 1999
following a merger with United  Income Inc.  ("UII").  During the next two and a
half years, UTG was engaged in an intrastate  public offering of its securities,
raising  over  $12,000,000  net of offering  costs.  In 1986,  UTG formed a life
insurance subsidiary and by 1987 began selling life insurance products.

                                       4
<PAGE>

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 July 1999, UII was merged into UTG.

In December 1989, FCC acquired 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, UTG and UII,  formed a joint venture,  United Trust Group,
Inc., ("UTGL99" - this refers to a former subsidiary of UTG which was liquidated
in July of 1999 when the corporate  name of UTI was changed to UTG). On June 16,
1992, UTG contributed $2.7 million in cash, an $840,000 promissory note and 100%
of the common stock of its wholly owned life insurance subsidiary,  United Trust
Assurance Company ("UTAC"). UII contributed $7.6 million in cash and 100% of its
life insurance  subsidiary,  United Security Assurance ("USA"), to UTGL99. After
the  contributions  of cash,  subsidiaries,  and the note, UII owned 47% and UTG
owned 53% of UTGL99.

On June 16, 1992, UTGL99 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  UTG  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,  UG was the surviving  company of a merger with  Roosevelt
National Life Insurance Company ("RNLIC"), UTAC, Cimarron Life Insurance Company
("CIM") and Home Security Life Insurance  Company  ("HSLIC").  On June 30, 1993,
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 UTG 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 UTG from UTG
and certain UTG  shareholders.  As  consideration  for the shares,  FSF paid UTG
$10,999,995 and certain shareholders of UTG $999,990 in cash.

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

Following  the above  transactions,  and together with shares of UTG acquired in
the market,  FSF and affiliates  became the largest  shareholder of UTG. Through
the shares acquired and options owned, FSF can ultimately own over 51% of UTG.

In July 1999, UTGL99 was liquidated and UII was merged into UTG.  Simultaneously
with the merger,  and facilitated by the  liquidation of the former UTGL99,  the
corporate name of UTG was changed from United Trust, Inc. to United Trust Group,
Inc. ("UTG"). The merger transaction,  and an anterior corresponding proposal to
increase the number of authorized  shares of UTG common stock from  3,500,000 to
7,000,000,  received  necessary  shareholder  approvals at a special meeting and
vote held on July 26, 1999. The Board of Directors of the  respective  companies
concluded  that the merger will benefit the business  operations  of UTG and UII
and  their  respective  shareholders  by  creating  a larger  more  viable  life
insurance holding group with lower administrative  costs, a simplified corporate
structure, and more readily marketable securities.

                                       5
<PAGE>

On  December  29,  1999,  UG was the  survivor  to a merger  with its 100% owned
subsidiary,  USA. The merger was completed as a part of management's  efforts to
reduce costs and simplify the corporate structure.

On December 31, 1999, UTG and Jesse T. Correll entered a transaction whereby Mr.
Correll,  in combination with other  individuals,  made an equity  investment in
UTG.  Under the terms of the Stock  Acquisition  Agreement,  the  Correll  group
contributed  their 100%  ownership  of North Plaza of  Somerset,  Inc. to UTG in
exchange for 681,818  authorized  but unissued  shares of UTG common stock.  The
Board of Directors of UTG approved the  transaction  at their regular  quarterly
board  meeting held on December 7, 1999.  North Plaza of Somerset,  Inc.  owns a
shopping  center  in  Somerset,  Kentucky  and  approximately  23,000  acres  of
timberland in Kentucky. North Plaza has no debt. The net assets have been valued
at $7,500,000, which equates to $11.00 per share for the new shares issued.

Mr.  Correll is a member of the Board of  Directors of UTG and  currently  UTG's
largest shareholder through his ownership control of FSF and its affiliates. Mr.
Correll is the  majority  shareholder  of FSF,  which is an  affiliate  of First
Southern Bancorp, Inc., a bank holding company that operates out of 14 locations
in central Kentucky.  Prior to the above  transaction,  and following the UTGL99
liquidation and subsequent  merger of UII into UTG, FSF owned  approximately 34%
of UTG. Following the above  transaction,  Mr. Correll owns or controls directly
and indirectly approximately 46% of UTG.

The affiliation with FSF provides the Company with increased opportunities.  The
additional  capitalization  has enabled UTG 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 FSF and its affiliates.  The potential for cross selling of services to each
customer base is currently being explored.  Legislation was recently passed that
eliminates many of the barriers  currently  existing between banks and insurance
companies.  Such  alliances are already being formed within the two  industries.
Management believes the affiliation with FSF 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 5.0%  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 5.0% 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.

                                       6
<PAGE>

The Company's actual  experience for earned interest,  persistency and mortality
varies 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.

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 53% of the
insurance in force. Approximately 29% 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 1999 and 1998 has been 89.4% and
89.9%,  respectively.  The Company does not anticipate any material fluctuations
in 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
1999. 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 UTG.  Recruiting of sales agents is also based on the same referral  network.
New  sales  are  marketed  by  UG  through  its  agency  force  using   prepared
presentation  materials and personal  computer  illustrations  when appropriate.
Current marketing efforts are primarily focused on the Midwest region.

ABE is licensed in Alabama, Arizona, Illinois,  Indiana, Louisiana and Missouri.
During 1999,  Illinois and Indiana  accounted for 44% and 31%,  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  1999,  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,

                                       7
<PAGE>

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 1999, Illinois
accounted for 28%, and Ohio accounted for 14% of direct premiums  collected.  No
other state accounted for more than 7% of direct premiums collected in 1999.

In 1999,  $29,428,605  of total direct  premium was  collected by the  insurance
subsidiaries.  Ohio  accounted  for 31%,  Illinois  accounted  for 18%, and West
Virginia accounted for 12% of total direct premiums collected.

New business  production  has been  declining the past several  years  including
declines  of 39% from  1997 to 1998 and 33% from 1998 to 1999.  Several  factors
have contributed to the impact on new business production. 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.  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. The Company has
tried  a  variety  of  solutions  to  bolster  new  sales  production  including
additional  training,  home office  assistance in providing leads on prospective
clients and a review of current product offerings.

With a continued  decline in new business,  costs associated with supporting new
business,  primarily  salary  costs,  as a percentage  of new business  received
continued to grow. In March of 1999,  the Company  determined it could no longer
continue to support these fixed costs in light of the new business  trend and no
indication it would reverse any time soon. It was  determined  these fixed costs
should be  reduced  to be  commensurate  with the level of new sales  production
activity currently being experienced.  As such, in March 1999 seven employees of
the Company (approximately 8% of the total staff) were terminated due to lack of
business activity.

The Company is currently  reviewing the  feasibility of a marketing  opportunity
with First Southern  National  Bank, an affiliate of UTG's largest  shareholder.
The  Company  is  looking  at  different  types of  products,  including  credit
insurance, as a potential to sell to credit customers of First Southern National
Bank.  Other products are also being explored,  including  annuity type products
and  existing  insurance  products,  as a  possibility  to market to all banking
customers.


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

                                       8
<PAGE>

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.

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 1999 and 1998 and
5.0% to 6.0% in 1997.


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  reinsurance  company  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, 1999, the
Company had  insurance in force of $3.144  billion of which  approximately  $831
million was ceded to unaffiliated reinsurance companies.

The Company's reinsured business is ceded to numerous reinsurance companies. 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 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 64% of
the reinsurance receivables as of December 31, 1999.

                                       9
<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 1999,
1998 and 1997 was as follows:

                                       Shown in thousands
                     --------------------------------------------------------
                          1999                1998                1997
                        Premiums            Premiums            Premiums
                         Earned              Earned              Earned
                     ----------------    ----------------    ----------------
Direct           $            25,539 $            30,919 $            33,374
Assumed                           20                  20                   0
Ceded                         (3,978)             (4,543)             (4,735)
                     ----------------    ----------------    ----------------
Net premiums     $            21,581 $            26,396 $            28,639
                     ================    ================    ================


INVESTMENTS

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,
                                              ----------------------------------------------------------
                                                    1999               1998               1997
                                               ---------------    ----------------   ----------------
<S>                                          <C>                <C>                <C>
Fixed maturities and fixed maturities
  held for sale                              $     11,886,968   $     12,035,619   $   12,736,865
Equity securities                                      91,429             92,196           87,211
Mortgage loans                                      1,078,028            859,543          802,123
Real estate                                           389,181            842,724          745,502
Policy loans                                          991,812            984,761          976,064
Other long-term investments                            63,528             62,477           63,530
Short-term investments                                147,726             29,907           70,624
Cash                                                  811,103          1,209,046          594,478
                                               ---------------    ----------------   ----------------
Total consolidated investment income               15,459,775         16,116,273       16,076,397
Investment expenses                                  (961,275)        (1,046,869)      (1,198,061)
                                              ----------------    ---------------    ----------------
Consolidated net investment income           $     14,498,500   $     15,069,404   $   14,878,336
                                               ===============    ================   ================

</TABLE>

At December  31, 1999,  the Company had a total of  $4,311,000  of  investments,
comprised of $3,197,000  in real estate,  $1,048,000  in equity  securities  and
$66,000 in other  long-term  investments,  which did not produce  income  during
1999.

                                       10
<PAGE>

The following table  summarizes the Company's fixed  maturities  distribution at
December 31, 1999 and 1998 by ratings category as issued by Standard and Poor's,
a leading ratings analyst.




                   Fixed Maturities
      Rating                       % of Portfolio
                                ----------------------
                                  1999        1998
                                ----------  ----------
Investment Grade
   AAA                              38%         38%
   AA                               19%         18%
   A                                35%         36%
   BBB                               7%          7%
Below investment grade               1%          1%
                                ----------  ----------
                                   100%        100%
                                ==========  ==========

The  following  table  summarizes  the  Company's  fixed  maturities  and  fixed
maturities held for sale by major classification.

<TABLE>
<CAPTION>

                                                                          Carrying Value
                                                        -------------------------------------------------
                                                                 1999                      1998
                                                          --------------------      --------------------
<S>                                                    <C>                      <C>
U.S. government and government agencies                $           53,484,481   $            39,685,041
States, municipalities and political subdivisions                  17,634,547                23,919,754
Collateralized mortgage obligations                                10,471,546                 9,406,895
Public utilities                                                   35,812,281                41,724,208
Corporate                                                          57,539,613                62,515,762
                                                          --------------------      --------------------
                                                       $          174,942,468   $           175,746,254
                                                          ====================      ====================

</TABLE>

The following table shows the composition and average  maturity of the Company's
investment portfolio at December 31, 1999.

<TABLE>
<CAPTION>
                                                      Average
                                                     Carrying                 Average              Average
        Investments                                    Value                 Maturity               Yield
        -----------------------------------       ----------------       ------------------      ------------
        <S>                                 <C>                          <C>                           <C>

        Fixed maturities and fixed
           maturities held for sale         $         175,344,361        3 years                       6.78%
        Equity securities                               2,072,736        Not applicable                4.41%
        Mortgage Loans                                 13,212,693        9 years                       8.16%
        Investment real estate                          9,167,376        Not applicable                4.25%
        Policy loans                                   14,142,577        Not applicable                7.01%
        Other long-term investments                       906,278        4 years                       7.01%
        Short-term investments                          1,618,126        190 days                      7.75%
        Cash and cash equivalents                      22,760,152        On demand                     4.50%
                                                  ----------------
        Total Investments and Cash          $         239,224,299                                      6.46%
                                                  ================
</TABLE>

At December 31, 1999, fixed maturities and fixed maturities held for sale have a
combined market value of $172,866,376. 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.

                                       11
<PAGE>

The Company holds $2,200,000 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  $19,204,261  mature  in one year and
$96,496,824 mature in two to five years.

The Company holds  $15,483,772  in mortgage  loans,  which  represents 5% 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  $46,681,  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
---------------------------------------------   ----------------  -------------
Commercial - insured or guaranteed           $        7,035,569           45%
Commercial - all other                                1,503,156           10%
Residential - insured or guaranteed                     341,736            2%
Residential - all other                               6,603,311           43%


                                       12
<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
                        ------------        ----------
Alabama                         3%                0%
Illinois                        3%               76%
Kansas                          4%                0%
Kentucky                       17%                0%
Louisiana                      12%               20%
Mississippi                    32%                0%
North Carolina                  4%                0%
Oklahoma                        3%                0%
West Virginia                  17%                3%
Other                           5%                1%
                        ------------        ----------
Total                         100%              100%
                        ============        ==========

The following table summarizes delinquent mortgage loan holdings.

<TABLE>
<CAPTION>

Delinquent
90 days or More                                1999               1998               1997
-----------------------------------        -------------      -------------      -------------
<S>                                   <C>                 <C>                <C>
Non-accrual status                    $             0     $            0     $            0
Other                                          58,074            278,000            203,000
Reserve on delinquent
Loans                                         (10,000)           (30,000)           (10,000)
                                           -------------      -------------      -------------
Total Delinquent                      $        48,074     $      248,000     $      193,000
                                           =============      =============      =============
Interest income past due
(Delinquent loans)                    $         1,296     $        9,000     $        5,000
                                           =============      =============      =============

In Process of Restructuring           $             0     $            0     $            0
Restructuring on other
than market terms                                   0                  0                  0
Other potential problem
loans                                         124,883             84,244                  0
                                           -------------      -------------      -------------
Total Problem Loans                   $       124,883     $       84,244     $            0
                                           =============      =============      =============
Interest income foregone
(Restructured loans)                  $             0     $            0     $            0
                                           =============      =============      =============
</TABLE>

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

                                       13
<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.

Congress recently passed legislation  reducing or eliminating  certain barriers,
which  existed  between  insurance  companies,  banks and  brokerages.  This new
legislation  opens markets for  financial  institutions  to compete  against one
another and to acquire one another across previously established barriers.  This
creates a whole new arena in which the Company must  compete.  Exactly what this
change will mean to the financial  industries is yet to be seen, but the Company
will continue to watch these changes and look for new opportunities within them.


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. In addition,  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,  UG,  APPL and ABE are  domiciled  in the  states  of  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.

                                       14
<PAGE>

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  1999,  the  insurance  companies  had one ratio  outside the normal
range. The ratio is related to the decrease in premium income.  The results fell
outside the normal range because of the permanent  premium  reduction on certain
of the Company's  participating  products in force  commonly  referred to as the
initial  contract and the  presidents  plan. The premium  reduction,  which took
effect with the 1999 premium payment, was generally 20% with 35% used on initial
contract  plans of UG with  original  issue  ages  less than 56 years  old.  The
dividends  were  also  reduced,  and the net  effect to the  policyholder  was a
slightly lower net premium. This action was taken by the Boards of UG and USA 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.

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, 1999, 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 because of these changes.

                                       15
<PAGE>

Congress recently passed legislation  reducing or eliminating  certain barriers,
which  existed  between  insurance  companies,  banks and  brokerages.  This new
legislation  opens markets for  financial  institutions  to compete  against one
another and to acquire one another across previously established barriers.  This
creates a whole new arena in which the Company must  compete.  Exactly what this
change will mean to the financial  industries is yet to be seen, but the Company
will continue to watch these changes and look for new opportunities within them.

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
UTG 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  75 persons  who are  employed  by the  Company and its
affiliates.

                                       16
<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                         $ 2,367,935                 23%

     Investment real estate
     Commercial                          $ 2,294,687                 23%
     Residential development             $ 3,960,882                 39%
     Foreclosed real estate              $ 1,550,000                 15%
                                         -----------                 ---
                                         $ 7,805,569                 77%
                                         -----------

     Grand total                         $10,173,504                100%
                                         ===========                ====

Total  investment real estate holdings  represent  approximately 2% of the total
assets  of the  Company  net  of  accumulated  depreciation  of  $1,824,484  and
$1,696,428  at year-end 1999 and 1998  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 $2,211,718.  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 $156,217.  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

                                       17
<PAGE>

                                     PART II


ITEM 5.  MARKET FOR COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS



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. Such quotations represent inter-dealer quotations and
do not include  retail  markup,  markdown,  or commission  nor do they represent
actual sales. Trading in this stock is very limited.


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

               1999
               First quarter            150               155
               Second quarter           155               155
               Third quarter            110               155
               Fourth quarter           110               135

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

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


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 1, 2000 is 3,551.

                                       18
<PAGE>

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

                              FINANCIAL HIGHLIGHTS
                     (000's omitted, except per share data)
                                             1999               1998                1997                1996              1995
                                        ---------------    ----------------    ---------------     ---------------    --------------
      <S>                           <C>                 <C>                 <C>                <C>                 <C>

      Premium income
        net of reinsurance          $           21,581  $           26,396  $          28,639  $          30,944   $         33,099
      Total revenues                $           35,759  $           40,632  $          43,354  $          46,538   $         48,365
      Net loss                      $            (378)  $          (1,950)  $         (1,845)  $          (3,032)  $         (1,452)
      Net loss per share            $           (6.93)  $          (35.74)  $         (32.65)  $          (50.60)  $         (24.00)
      Total assets                  $          320,875  $          328,737  $         332,572  $         336,639   $        334,058
      Total long term debt          $           14,864  $           17,370  $          18,242  $          19,000   $         20,623
      Dividends paid per share                    NONE                NONE              NONE                NONE              NONE

</TABLE>

                                       19
<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,
1999.

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

(a)  Revenues

Premiums and policy fee revenues,  net of reinsurance  premiums and policy fees,
decreased 18% when  comparing 1999 to 1998 and 8% from 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.  The Companies'  average  persistency rate for
all policies in force for 1999 and 1998 has been approximately  89.4% and 89.9%,
respectively.  Persistency  is a  measure  of  insurance  in force  retained  in
relation to the previous year.

During 1998, the Boards of UG and USA approved a permanent  premium reduction on
certain of its  participating  products  in force  commonly  referred  to as the
initial  contract and the presidents  plan. The premium  reduction was generally
20% with 35% used on initial  contract plans of UG with original issue ages less
than 56 years old. The dividends  were also  reduced,  and the net effect to the
policyholder was a slightly lower net premium. This change became effective with
the 1999 policy anniversary. This action was taken by the Boards 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.  This premium  reduction
accounted for  approximately  8% of the total premium revenue decline in 1999. A
corresponding decline is reflected in the policy benefits line item dividends to
policyholders.

                                       20
<PAGE>

New business  production  decreased  significantly  over the last two years. New
business  production  decreased 33% or  approximately  $1,079,000 when comparing
1999 to 1998 and 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 the companies,  and the resulting limitations,  have made it challenging
to compete in this area. In late 1999,  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 unknown.

With a continued  decline in new business,  costs associated with supporting new
business,  primarily  salary  costs,  as a percentage  of new business  received
continued to grow. In March of 1999,  the Company  determined it could no longer
continue to support these fixed costs in light of the new business  trend and no
indication it would reverse any time soon. It was  determined  these fixed costs
should be  reduced  to be  commensurate  with the level of new sales  production
activity currently being experienced.  As such, in March 1999 seven employees of
the Company (approximately 8% of the total staff) were terminated due to lack of
business activity.

The Company is currently  reviewing the  feasibility of a marketing  opportunity
with First Southern  National  Bank, an affiliate of UTG's largest  shareholder.
The  Company  is  looking  at  different  types of  products,  including  credit
insurance, as a potential to sell to credit customers of First Southern National
Bank.  Other products are also being explored,  including  annuity type products
and  existing  insurance  products,  as a  possibility  to market to all banking
customers.

Net investment  income decreased 4% when comparing 1999 to 1998 and increased 1%
when comparing  1998 to 1997.  The decrease in net investment  income in 1999 is
due to the decline of the national  prime rate during  September  and October of
1998.  During  September and October of 1998,  the national  prime rate declined
three  quarters  of one  percent  (.75%).  This  decline  reduced  the yields on
investments  available in the marketplace in which the Company invests primarily
fixed  maturities.  The interest rate  environment  improved  later in 1999. The
national prime rate rose a total of  three-quarters of one percent (.75%) in the
second  half of  1999.  Changes  in the  national  prime  rate  may  impact  net
investment  income in the future.  Approximately 13% of the total fixed maturity
portfolio  will mature  within the next year,  with  another 53% maturing in the
next two to five years.  The Company has recently  begun looking at the mortgage
loan market for possible investments, due to the affiliation with First Southern
Funding and its affiliates  ("FSF").  FSF is the largest shareholder of UTG. The
affiliation with FSF provides additional  resources in the mortgage loan market.
FSF is in the banking  industry and has experience and expertise in underwriting
commercial and residential  mortgage loans. The Company believes it can issue or
acquire  loans,  which will provide  attractive  yields while  maintaining  high
quality and low risk.

The  increase in  investment  income in 1998 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 an
immediate  impact  on  the  earnings  rates  of  the  Company's  cash  and  cash
equivalents balances.

The overall  investment  yields for 1999,  1998 and 1997,  are 6.46%,  6.72% and
6.70%,  respectively.  Cash generated from the sales of universal life insurance
products, has been invested primarily in fixed maturities.

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

                                       21
<PAGE>

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  Boards of the  insurance  subsidiaries
lowered crediting rates one half percent on all products crediting 5.5% or more.
The change affected approximately $60,000,000 of policy reserves and will result
in interest  crediting  reductions of $300,000 per year. At the March 1999 Board
of Directors  meeting,  the Boards of the insurance  subsidiaries  again lowered
crediting  rates one half  percent on all  products  that could be lowered.  The
change will result in interest  crediting  reductions of approximately  $600,000
per year. These  adjustments were in response to continued  declines in interest
rates  in  the  marketplace.  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.

Realized  investment losses, net of realized gains, were $530,894,  $851,822 and
$268,982  in 1999,  1998 and 1997,  respectively.  During the last two years 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.  Approximately  99% of the realized loss in 1999 is from
two parcels of real estate.  In June 1999, the Company sold its shopping  center
in  Gulfport,  MS  realizing  a loss on  sale of  $401,000.  This  property  was
originally acquired through the foreclosure of a mortgage loan. The property was
income producing,  but due to the distance from the Company's headquarters,  was
difficult to manage and required the use of an outside property  manager.  Given
this  circumstance  and the  eventual  need for  updates and  improvements,  the
Company  determined it was in its best long-term  interest to sell the property.
At year-end the Company wrote down another  parcel of real estate  $178,000 that
it determined  to attempt to sell during 2000.  The write down was the result of
Management's  determination  of the amount it would be willing to accept for the
property.  Approximately  $440,000 of realized losses in 1998 is due to the sale
of real  estate.  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 periods that
comprised the remaining  amounts  reported but were  immaterial on an individual
basis.


(b)  Expenses

Benefits, claims and settlement expenses net of reinsurance benefits and claims,
decreased  16% in 1999 as compared to 1998 and  decreased 7%  comparing  1998 to
1997.  Two events  occurred  in 1999,  which  differ from 1998  experience.  The
decrease in premium revenues from normal policy  terminations  resulted in lower
benefit  reserve  increases  in each of the  periods  presented  compared to the
previous  period.  Approximately  8% of the  current  year  decrease is from the
premium  reduction  on  certain  participating  policies  resulting  in a  lower
dividend to  policyholders  expense than in the previous  year.  See  discussion
above in premiums  and policy fee revenues for a more  detailed  explanation  of
this event.  Policyholder  benefits were further  impacted due to an increase in
death benefit  claims of $202,000 from 1998 results.  The 1998 death claims were
$1,036,000  less than 1997 and  accounted for  approximately  4% of the decrease
from 1997. There is no single event that caused the mortality variances.  Policy
claims vary from year to year and therefore, fluctuations in mortality are to be
expected and are not  considered  unusual by  management.  At the September 1998
Board of Directors  meeting,  the Boards of the insurance  subsidiaries  lowered
crediting  rates one half percent on all products  crediting  5.5% or more.  The
change affected approximately  $60,000,000 of policy reserves and will result in
interest  crediting  reductions of $300,000 per year. At the March 1999 Board of
Directors  meeting,  the  Boards of the  insurance  subsidiaries  again  lowered
crediting rates

                                       22
<PAGE>

one half percent on all products  that could be lowered.  The change will result
in interest  crediting  reductions  of  approximately  $600,000 per year.  These
adjustments  were in response  to  continued  declines in interest  rates in the
marketplace.  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 decreased 47%
in 1999 compared to 1998 and 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 Company performs 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 impairment in
1998 was the result of declines in interest  rates in the  marketplace  combined
with lower than  expected new policy  writings left the Company with greater per
policy costs as a result of fixed costs being spread over fewer policies.

Amortization of cost of insurance acquired increased 5% in 1999 compared to 1998
and  decreased  18% 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.
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  1999,  1998 and  1997  has  been  approximately  89.4%,  89.9%  and  89.4%,
respectively.

Operating  expenses  decreased 31% in 1999 compared to 1998 and 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% in 1998  compared to 1997  attributable
primarily to reduced  salary and employee  benefit costs in 1998, as a result of
natural attrition. The decrease in operating expenses in 1999 is due in part, to
a decrease in salaries from staff reduction. In most instances, the workload was
absorbed into the remaining  workforce.  First year sales production has shown a
declining  trend in the last three  years.  The  Company  has tried a variety of
solutions to bolster new sales production including  additional  training,  home
office  assistance  in providing  leads on  prospective  clients and a review of
current  product  offerings.  First year production in the first quarter of 1999
resulted in cash  received  from new sales of only 54% of that received in first
quarter 1998, or $560,000  less.  With continued  declining new business,  costs
associated with supporting new business, primarily salary costs, as a percentage
of new  business  received  continued  to grow.  In March of 1999,  the  Company
determined it could no longer  continue to support these fixed costs in light of
the new business  trend and no indication it would reverse any time soon. It was
determined these fixed costs should be reduced to be commensurate with the level
of new sales production activity currently being experienced.  As such, in March
1999 seven employees of the Company  (approximately 8% of the total staff), were
terminated  due to lack of business  activity.  This action  resulted in expense
savings of approximately $275,000 per year.

                                       23
<PAGE>

During  the  fourth  quarter  of  1999,  the  Company   transferred  the  policy
administration functions of its insurance subsidiary APPL from Huntington, WV to
its  Springfield,  IL location.  The transfer was completed to reduce  operating
costs. APPL policy administration was then converted to the same computer system
used to administer the other insurance subsidiaries.  Following the transfer and
system conversion,  all insurance  administration is located at the Springfield,
IL office and  administered  on the same  computer  system.  This action did not
result  in any cost  savings  in 1999,  but is  expected  to save  approximately
$250,000 per year in administrative costs in future periods.

Interest  expense  declined 17% from 1998 to 1999 and remained  consistent  when
comparing 1998 to 1997. In November 1998, the Company's  ultimate  parent,  UTG,
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  principal  payment on
its  senior  debt,  and  paid a  $2,608,099  principal  payment  on its 10  year
subordinated debt through intercompany borrowings from UTG. 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, 1999,  FCC had  $14,864,193 in notes
payable, of which only $25,000 is debt owed to outside parties.  During 1999 FCC
repaid  $2,505,800  of its debt through  dividends  received  from its insurance
subsidiary, UG.

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 1999 and
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  for the  1997  loss as a  corresponding
allowance was established against the deferred tax asset attributable to the tax
loss  carryforward.  The Company did not establish an allowance against the 1999
tax loss as the Company's recent history  demonstrates the loss will most likely
be fully utilized before expiration. 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  in 1998 from the deferred  policy
acquisition costs impairment and the notes payable discounts write-offs.

(c)  Net loss

The Company had a net loss of $377,957,  $1,949,825 and $1,845,062 in 1999, 1998
and 1997  respectively.  The Company continues to show steady improvement in its
results.  The 1998  results  included  one time  charges  for a deferred  policy
acquisition  costs  impairment  write  down and the write  off of the  remaining
discounts  associated with notes payable.  The Company  continues to monitor and
adjust those items within its control to continue  the trend and  anticipates  a
return to profitability.


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,   corporate   securities   rated  investment  grade  by  established
nationally  recognized  rating  organizations  and other high  quality  low risk
investments.

                                       24
<PAGE>

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, 1999, 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.  To
provide additional flexibility and liquidity, the Company has categorized almost
all fixed  maturity  investments  acquired in 1999 as available for sale. It was
determined  it would be in the  Company's  best  financial  interest to classify
these new purchases as available for sale to provide additional  liquidity.  All
of the fixed maturity  acquisitions in 1999 were U.S.  government and government
agency securities.

The following table  summarizes the Company's fixed  maturities  distribution at
December 31, 1999 and 1998 by ratings category as issued by Standard and Poor's,
a leading ratings analyst.


                   Fixed Maturities
      Rating                       % of Portfolio
                                ----------------------
                                  1999        1998
                                ----------  ----------
Investment Grade
   AAA                              38%         38%
   AA                               19%         18%
   A                                35%         36%
   BBB                               7%          7%
Below investment grade               1%          1%
                                ----------  ----------
                                   100%        100%
                                ==========  ==========

The Company has recently  begun looking at the mortgage loan market for possible
investments,  due to  the  affiliation  with  First  Southern  Funding  and  its
affiliates ("FSF").  FSF is the largest shareholder of UTG. The affiliation with
FSF provides  additional  resources in the mortgage  loan market.  FSF is in the
banking industry and has experience and expertise in underwriting commercial and
residential  mortgage loans. The Company believes it can issue or acquire loans,
which will  provide  attractive  yields while  maintaining  high quality and low
risk.  All  mortgage  loans held by the Company are first  position  loans.  The
Company has no loans that are in default and in the  process of  foreclosure  at
December 31, 1999.

Investment  real  estate  and  real  estate  acquired  in  satisfaction  of debt
decreased 26% in 1999 compared to 1998. During 1999 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 2% of the total
assets of the Company.  Total  investment  real estate is  separated  into three
categories:   Commercial  29%,   Residential   Development  51%  and  Foreclosed
Properties  20%.  In early  2000,  the  Company  sold the parcel of real  estate
representing foreclosed properties realizing a small gain.

Policy loans remained consistent for the periods presented.  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.

                                       25
<PAGE>

Deferred  policy  acquisition  costs  decreased  17% in 1999  compared  to 1998.
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 $720,000 in policy acquisition costs deferred,  $436,000
in interest accretion and $3,219,012 in amortization in 1999.

Cost of insurance  acquired  decreased 6% in 1999  compared to 1998. At December
31, 1999, cost of insurance  acquired was $16,555,596 and  amortization  totaled
$1,072,773  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 2% in 1999 compared to 1998. Policy liabilities and
accruals,  which represents  approximately  93% of total  liabilities  decreased
slightly from the prior year. The decline is attributable to a shrinking  policy
base and declining new business production.

Notes payable  decreased 14% in 1999  compared to 1998.  In November  1998,  the
Company's  ultimate parent,  UTG,  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 principal 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, 1999,  FCC had  $14,269,574  in
notes payable, of which only $25,000 is debt owed to outside parties.

(c)  Shareholders' Equity

Total shareholders'  equity decreased 5% in 1999 compared to 1998. This decrease
is  primarily   attributable   to  the  loss  included  in   accumulated   other
comprehensive income, which for the Company represents unrealized holding losses
on securities which are carried at market value,  decreasing shareholders equity
$1,283,991 in 1999 compared to 1998.  The Company's net loss of $377,957 in 1999
also contributed to the decline.


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 6% and 8% as of December  31, 1999 and 1998,  respectively.
Fixed maturities as a percentage of total invested assets were 80% and 82% as of
December 31, 1999 and 1998, respectively.

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,  a significant  portion of the Company's  investment in
long-term  fixed  maturities  is reported in the  financial  statements at their
amortized cost.

                                       26
<PAGE>

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 (used in) operating activities was $(1,381,527), $1,865,417 and
$(199,230) in 1999, 1998 and 1997,  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  $1,571,847  in  1999,  $4,943,632  in  1998  and
$3,190,440 in 1997.  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 $(4,974,503), $5,556,955 and
$(2,994,652), for 1999, 1998 and 1997, respectively. The most significant aspect
of cash  provided  by (used in)  investing  activities  are the  fixed  maturity
transactions. Fixed maturities account for 68%, 84% and 72% of the total cost of
investments acquired in 1999, 1998 and 1997,  respectively.  The Company has not
directed  its  investable   funds  to  so-called   "junk  bonds"  or  derivative
investments.

Net  cash  provided  by  financing  activities  was  $370,651,   $2,625,897  and
$2,097,167 for 1999, 1998 and 1997,  respectively.  The Company continues to pay
down on its outstanding debt. Such payments are included within this category.

Policyholder  contract  deposits  decreased  8% in 1999  compared  to 1998,  and
decreased  14% in 1998 when  compared  to 1997.  The  decrease  in  policyholder
contract deposits relates to the decline in new business production  experienced
in the last few years by the  Company.  Policyholder  contract  withdrawals  has
decreased  10% in 1999  compared to 1998,  and decreased 15% in 1998 compared to
1997. 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,  1999,  FCC had  $14,864,193  in notes  payable,  of which only
$25,000  is debt owed to  outside  parties.  In  November  1998,  the  Company's
ultimate parent,  UTG, 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
principal payment on its senior debt, and paid a $2,608,099 principal payment on
its 10 year  subordinated  debt  through  intercompany  borrowings  from UTG. 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.  During  1999,  the Company  repaid an  additional
$2,505,800 of its debt.

As of December  31, 1999 the  Company has a total  $54,324,376  of cash and cash
equivalents,  short-term investments and investments held for sale in comparison
to  $14,864,193  of notes  payable.  FCC is 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, 1999,  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 below.

                                       27
<PAGE>

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, 1999, UG
had a statutory gain from  operations of $3,535,018.  At December 31, 1999, UG's
statutory capital and surplus amounted to $15,022,000.  Extraordinary  dividends
(amounts in excess of ordinary dividend  limitations)  require prior approval of
the insurance commissioner and are not restricted to a specific calculation.  UG
paid ordinary dividends of $3,266,000 to FCC during 1999.

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, 1999, 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.

                                       28
<PAGE>

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.

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,  UG,  APPL and ABE are  domiciled  in the  states  of  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  1999,  the  insurance  companies  had one ratio  outside the normal
range. The ratio is related to the decrease in premium income.  The results fell
outside the normal range because of the permanent  premium  reduction on certain
of the Company's  participating  products in force  commonly  referred to as the
initial  contract and the  presidents  plan. The premium  reduction,  which took
effect with the 1999 premium payment, was generally 20% with 35% used on initial
contract  plans of UG with  original  issue  ages  less than 56 years  old.  The
dividends  were  also  reduced,  and the net  effect to the  policyholder  was a
slightly lower net premium. This action was taken by the Boards

                                       29
<PAGE>

of UG and USA 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.

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 because of these changes.

Congress recently passed legislation  reducing or eliminating  certain barriers,
which  existed  between  insurance  companies,  banks and  brokerages.  This new
legislation  opens markets for  financial  institutions  to compete  against one
another and to acquire one another across previously established barriers.  This
creates a whole new arena in which the Company must  compete.  Exactly what this
change will mean to the financial  industries is yet to be seen, but the Company
will continue to watch these changes and look for new opportunities within them.

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 because
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

SFAS 133 entitled, Accounting for Derivative Instruments and Hedging Activities,
was to be effective for all fiscal quarters of fiscal years beginning after June
15, 1999. SFAS 137 was subsequently  issued to defer the effective date, of SFAS
133, to be effective  for all fiscal  quarters of fiscal years  beginning  after
June 15, 2000.  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.  SFAS 133 did not affect the Company's
financial position or results of operations, since the Company has no derivative
or hedging type investments.

                                       30
<PAGE>

Additional  Statements of Financial  Accounting Standards have been issued; none
of which has direct applicability to the Company.

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.

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  was  performed  using dates from  December of 1999 to
January  of 2001,  to ensure  all year 2000  processing  errors  are  corrected.
Testing was completed by the end of the first quarter of 1998. After testing was
completed,  periodic  regression  testing was  performed  to monitor  continuing
compliance.  By addressing year 2000  compliance in a timely manner,  compliance
was achieved using existing staff and without  significant impact on the Company
operationally  or  financially.  To date, no material  "Year 2000" problems have
occurred.

                                       31
<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, 1999, 1998, 1997.............................33



     Consolidated Balance Sheets..............................................34



     Consolidated Statements of Operations....................................35



     Consolidated Statements of Shareholders' Equity..........................36



     Consolidated Statements of Cash Flows....................................37



     Notes to Consolidated Financial Statements........................... 38-60

                                       32
<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,  1999  and  1998,  and  the  related  consolidated  statements  of
operations,  shareholders' equity, and cash flows for each of the three years in
the  period  ended  December  31,  1999.  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, 1999 and 1998, and
the consolidated  results of their operations and their  consolidated cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles.

         We have also audited  Schedule I as of December 31, 1999, and Schedules
II, IV and V as of December 31, 1999 and 1998, 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 24, 2000

                                       33
<PAGE>

                         FIRST COMMONWEALTH CORPORATION
                         CONSOLIDATED BALANCE SHEETS
                      As of December 31, 1999 and 1998


<TABLE>
<CAPTION>
                                            ASSETS
                                                                                    1999            1998
                                                                                --------------  --------------
<S>                                                                           <C>             <C>
Investments:
   Fixed maturities held to maturity, at amortized cost
     (market $142,675,019 and $179,885,379)                                   $   144,751,111 $   174,240,848
   Investments held for sale:
     Fixed maturities, at market (cost $31,415,026 and $1,494,636)                 30,191,357       1,505,406
     Equity securities, at market (cost $2,886,315 and $2,725,061)                  2,165,556       2,087,416
   Mortgage loans on real estate at amortized cost                                 15,483,772      10,941,614
   Investment real estate, at cost, net of accumulated depreciation                 6,255,569       8,979,183
   Real estate acquired in satisfaction of debt                                     1,550,000       1,550,000
   Policy loans                                                                    14,151,113      14,134,041
   Other long-term investments                                                        906,278         906,278
   Short-term investments                                                           2,200,000       1,036,251
                                                                                --------------  --------------
                                                                                  217,654,756     215,381,037

Cash and cash equivalents                                                          19,767,463      25,752,842
Investment in parent                                                                  350,000         350,000
Receivable from (payable to) affiliate                                                154,618         (43,494)
Accrued investment income                                                           3,418,299       3,521,081
Reinsurance receivables:
   Future policy benefits                                                          36,117,010      36,965,938
   Policy claims and other benefits                                                 3,806,382       3,563,963
Cost of insurance acquired                                                         16,555,596      17,628,369
Deferred policy acquisition costs                                                   9,777,536      11,840,548
Cost in excess of net assets purchased,
  net of accumulated amortization                                                   8,152,229       8,736,807
Income taxes receivable:
   Current                                                                            422,816               0
   Deferred                                                                         1,029,986       1,200,002
Property and equipment, net of accumulated depreciation                             2,814,601       2,932,261
Other assets                                                                          853,731         907,483
                                                                                --------------  --------------
        Total assets                                                          $   320,875,023 $   328,736,837
                                                                                ==============  ==============

                     LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
   Future policy benefits                                                     $   252,490,695 $   254,386,798
   Policy claims and benefits payable                                               2,773,309       2,183,434
   Other policyholder funds                                                         1,627,341       2,150,632
   Dividend and endowment accumulations                                            14,269,574      15,137,048
Income taxes payable, current                                                               0          99,003
Notes payable                                                                      14,864,193      17,369,993
Other liabilities                                                                   4,204,410       4,877,007
                                                                                --------------  --------------
        Total liabilities                                                         290,229,522     296,203,915
                                                                                --------------  --------------
Minority interests in consolidated subsidiaries                                     1,485,165       1,710,538
                                                                                --------------  --------------

Shareholders' equity: Common stock - $1 par value per share.
   Authorized 62,500 shares - 54,538 and 54,539 shares
   issued after deducting treasury shares of  947 and 946                              54,538          54,539
Additional paid-in capital                                                         51,875,721      51,875,820
Accumulated deficit                                                               (20,854,588)    (20,476,631)
Accumulated other comprehensive income                                             (1,915,335)       (631,344)
                                                                                --------------  --------------
        Total shareholders' equity                                                 29,160,336      30,822,384
                                                                                --------------  --------------
        Total liabilities and shareholders' equity                            $   320,875,023 $   328,736,837
                                                                                ==============  ==============
</TABLE>
                            See accompanying notes.
                                       34
<PAGE>

                         FIRST COMMONWEALTH CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                       Three Years Ended December 31, 1999


<TABLE>
<CAPTION>

                                                                   1999              1998             1997
                                                               --------------   ---------------   --------------
<S>                                                          <C>              <C>               <C>
Revenues:

    Premiums and policy fees                                 $    25,559,708  $     30,938,609  $    33,373,950
    Reinsurance premiums and policy fees                          (3,978,565)       (4,542,532)      (4,734,705)
    Net investment income                                         14,498,500        15,069,404       14,878,336
    Realized investment gains and (losses), net                     (530,894)         (851,822)        (268,982)
    Other income                                                     210,422            17,937          105,679
                                                               --------------   ---------------   --------------
                                                                  35,759,171        40,631,596       43,354,278


Benefits and other expenses:

    Benefits, claims and settlement expenses:
       Life                                                       23,301,541        23,947,110       25,021,845
       Reinsurance benefits and claims                            (3,610,459)       (2,498,945)      (2,078,982)
       Annuity                                                     1,390,592         1,463,002        1,543,258
       Dividends to policyholders                                  1,170,710         3,431,238        3,929,073
    Commissions and amortization of deferred
       policy acquisition costs                                    3,759,898         7,079,529        4,308,365
    Amortization of cost of insurance acquired                     1,072,773         1,026,137        1,231,988
    Operating expenses                                             7,499,188        10,898,004        9,265,181
    Interest expense                                               1,344,888         1,618,498        1,612,438
                                                               --------------   ---------------   --------------
                                                                 35,929,131        46,964,573       44,833,166
                                                               --------------   ---------------   --------------


Loss before income taxes and minority interest                      (169,960)       (6,332,977)      (1,478,888)
Income tax credit (expense)                                         (170,957)        4,466,691         (321,955)
Minority interest in gain
    of consolidated subsidiaries                                     (37,040)          (83,539)         (44,219)
                                                               --------------   ---------------   --------------
Net loss                                                     $      (377,957) $     (1,949,825) $    (1,845,062)
                                                               ==============   ===============   ==============


Basic loss per share from continuing operations
   and net loss                                              $         (6.93) $         (35.74) $        (32.65)
                                                               ==============   ===============   ==============


Basic weighted average shares outstanding                             54,539            54,550           56,512
                                                               ==============   ===============   ==============
</TABLE>

                            See accompanying notes.
                                       35
<PAGE>

<TABLE>
<CAPTION>

                         FIRST COMMONWEALTH CORPORATION
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                       Three Years Ended December 31, 1999

                                                        1999                             1998                           1997
                                                    -----------------------------    ----------------------------   ----------------
<S>                                  <C>             <C>              <C>             <C>            <C>               <C>
Common stock
    Balance, beginning of year       $       54,539                   $       54,616                 $       59,919
    Issued during year                            0                              (61)                             0
    Stock retired from purchase
      of fractional shares of
      reverse stock split                         0                                0                         (5,303)
    Treasury shares acquired                     (1)                             (16)                             0
                                       -------------                    -------------                  -------------

    Balance, end of year             $       54,538                   $       54,539                 $       54,616
                                       =============                    =============                  =============


Additional paid-in capital
    Balance, beginning of year       $   51,875,820                   $   51,877,243                 $   52,406,191
    Issued during year                            0                               61                              0
    Stock retired from purchase
       of fractional shares of
       reverse stock split                        0                                0                       (528,948)
    Treasury shares acquired                    (99)                          (1,484)                             0
                                       -------------                    -------------                  -------------
    Balance, end of year             $   51,875,721                   $   51,875,820                 $   51,877,243
                                       =============                    =============                  =============


Accumulated deficit
    Balance, beginning of year       $  (20,476,631)                  $  (18,526,806)                $  (16,681,744)
    Net loss                               (377,957) $     (377,957)      (1,949,825) $  (1,949,825)     (1,845,062) $   (1,845,062)
                                       -------------                    -------------                  -------------
    Balance, end of year             $  (20,854,588)                  $  (20,476,631)                $  (18,526,806)
                                       =============                    =============                  =============

Accumulated other comprehensive
  loss
    Balance, beginning of year       $     (631,344)                  $     (198,630)                $     (305,715)
    Other comprehensive income
     (loss)
      Unrealized holding gain
       (loss) on securities              (1,317,553)     (1,317,553)        (440,592)      (440,592)        111,497         111,497
      Minority interest in
        unrealized holding
         gain (loss) on securities           33,562          33,562            7,878          7,878          (4,412)         (4,412)
                                       -------------   -------------    -------------   ------------   -------------   -------------
    Comprehensive loss                               $   (1,661,948)                  $  (2,382,539)                 $   (1,737,977)
                                                       =============                    ============                   =============
    Balance, end of year                 (1,915,335)                        (631,344)                      (198,630)
                                       -------------                    -------------                  -------------

Total shareholders' equity,
   end of year                       $   29,160,336                   $   30,822,384                 $   33,206,423
                                       =============                    =============                  =============
</TABLE>

                            See accompanying notes.
                                       36

<PAGE>


<TABLE>
<CAPTION>
                         FIRST COMMONWEALTH CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                       Three Years Ended December 31, 1999

                                                                        1999           1998           1997
                                                                    -------------  -------------  -------------
<S>                                                               <C>            <C>            <C>
Increase (decrease) in cash and cash equivalents
 Cash flows from operating activities:
   Net loss                                                       $     (377,957)$   (1,949,825)$   (1,845,062)
   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                           489,491        603,904        610,668
    Realized investment (gains) losses, net                              530,894        851,822        268,982
    Policy acquisition costs deferred                                   (720,000)      (892,000)    (1,272,000)
    Amortization of deferred policy acquisition costs                  2,783,012      5,797,172      2,688,636
    Amortization of cost of insurance acquired                         1,072,773      1,026,137      1,231,988
    Amortization of costs in excess of net assets purchased              432,550        443,664        443,664
    Depreciation                                                         480,505        480,532        468,831
    Minority interest                                                     37,040         83,539         44,219
    Charges for mortality and administration of
      universal life and annuity products                            (10,696,014)   (10,771,795)   (10,588,874)
    Interest credited to account balances                              6,300,667      7,014,683      7,212,406
    Change in accrued investment income                                  102,782        109,692       (206,227)
    Change in reinsurance receivables                                    606,509        813,283      1,258,033
    Change in policy liabilities and accruals                         (1,255,020)       945,118        812,862
    Change in income taxes payable                                      (351,803)    (4,477,246)       272,428
    Change in indebtedness (to) from affiliates, net                    (198,112)        16,344         (9,783)
    Change in other assets and liabilities, net                         (618,844)     1,770,393     (1,590,001)
                                                                    -------------  -------------  -------------
Net cash provided by (used in) operating activities                   (1,381,527)     1,865,417       (199,230)
                                                                    -------------  -------------  -------------

Cash  flows  from  investing  activities:
  Proceeds  from  investments  sold and  matured:
    Fixed maturities held for sale matured                             1,430,000        164,520        290,660
    Fixed maturities sold                                                      0              0              0
    Fixed maturities matured                                          31,032,290     54,642,223     21,488,265
    Equity securities                                                          0        450,000         76,302
    Mortgage loans                                                     4,715,678      1,785,859      1,794,518
    Real estate                                                        2,705,093      1,716,124      1,136,995
    Policy loans                                                       3,169,753      3,661,834      4,785,222
    Short-term                                                         1,336,251      1,593,749        400,000
                                                                    -------------  -------------  -------------
   Total proceeds from investments sold and matured                   44,389,065     64,014,309     29,971,962
   Cost of investments acquired:
    Fixed maturities held for sale                                   (31,366,755)             0              0
    Fixed maturities                                                  (2,020,803)   (48,745,594)   (23,220,172)
    Equity securities                                                   (161,255)       (79,053)    (1,248,738)
    Mortgage loans                                                    (9,257,836)    (3,667,061)      (245,234)
    Real estate                                                         (635,303)    (1,346,299)    (1,444,980)
    Policy loans                                                      (3,186,825)    (3,588,686)    (4,554,291)
    Other long-term investments                                                0        (66,212)             0
    Short-term                                                        (2,500,000)      (850,000)    (1,721,671)
                                                                    -------------  -------------  -------------
   Total cost of investments acquired                                (49,128,777)   (58,342,905)   (32,435,086)
   Purchase of property and equipment                                   (234,791)      (114,449)      (531,528)
                                                                    -------------  -------------  -------------
Net cash provided by (used in) investing activities                   (4,974,503)     5,556,955     (2,994,652)
                                                                    -------------  -------------  -------------

Cash flows from financing activities:
    Policyholder contract deposits                                    14,176,188     15,480,745     17,905,246
    Policyholder contract withdrawals                                (11,222,814)   (12,402,530)   (14,515,576)
    Net cash transferred from coinsurance assumed                              0        420,790              0
    Proceeds from notes payable                                                0      9,408,099      1,000,000
    Payments of principal on notes payable                            (2,505,800)   (10,279,707)    (1,758,252)
    Purchase of stock of affiliates                                      (76,823)             0              0
    Purchase of treasury shares                                             (100)        (1,500)             0
    Payment for fractional shares from reverse stock split                     0              0       (534,251)
                                                                    -------------  -------------  -------------
Net cash provided by financing activities                                370,651      2,625,897      2,097,167
                                                                    -------------  -------------  -------------

Net increase (decrease) in cash and cash equivalents                  (5,985,379)    10,048,269     (1,096,715)
Cash and cash equivalents at beginning of year                        25,752,842     15,704,573     16,801,288
                                                                    -------------  -------------  -------------
Cash and cash equivalents at end of year                          $   19,767,463 $   25,752,842 $   15,704,573
                                                                    =============  =============  =============
</TABLE>

                            See accompanying notes.
                                       37
<PAGE>

FIRST COMMONWEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A.   ORGANIZATION  -  At  December  31,  1999,   the  parent,   significant
          majority-owned  subsidiaries  and  affiliates  of  First  Commonwealth
          Corporation were as depicted on the following organizational chart.

United Trust Group, Inc. ("UTG") is the ultimate  controlling  company. UTG owns
80% of  First  Commonwealth  Corporation  ("FCC")  and  100% of  North  Plaza of
Somerset Inc. ("North Plaza") and 100% of Roosevelt Equity Corporation  ("REC").
FCC owns 100% of Universal  Guaranty Life Insurance  Company ("UG"). UG owns 86%
of  Appalachian  Life Insurance  Company  ("APPL") and APPL owns 100% of Abraham
Lincoln Insurance Company ("ABE").

                                       38
<PAGE>

During 1999,  the Company made several  significant  changes to  streamline  and
simplify  its  corporate  structure.  Throughout  the Notes to the  Consolidated
Financial  Statements  references will be made to these changes.  Prior to these
changes there were four holding  companies which  controlled four life insurance
companies.  However, in 1999 there were two mergers and a liquidation,  reducing
the  number  of  holding  companies  to two and  the  number  of life  insurance
companies  to three  (refer to the  organizational  chart in note 1A). The first
merger and Company  liquidation  took place in July of 1999. Prior to July 1999,
UTG was known as United Trust, Inc. ("UTI"). UTI and United Income, Inc. ("UII")
owned 100% of the former United Trust Group, Inc., (which was formed in February
of 1992 and  liquidated  in July of 1999 - referred to as  "UTGL99").  Through a
shareholder  vote and special meeting on July 26, 1999, UII merged into UTI, and
simultaneously  with the  merger,  UTGL99 was  liquidated  and UTI  changed  its
corporate name to United Trust Group, Inc.  ("UTG").  The second merger occurred
on December 29,  1999,  when UG was the survivor to a merger with its 100% owned
subsidiary United Security Assurance Company ("USA").

This document at times will refer to the Company's  largest  shareholder,  First
Southern Funding LLC, a Kentucky  corporation,  ("FSF"). Mr. Jesse T. Correll is
the  majority  shareholder  of FSF,  which is an  affiliate  of  First  Southern
Bancorp,  Inc.,  a bank  holding  company  that  operates out of 14 locations in
central  Kentucky.  Mr. Correll is a member of the Board of Directors of UTG and
is currently UTG's largest  shareholder through his ownership control of FSF and
its affiliates.  At December 31, 1999 Mr. Correll owns or controls  directly and
indirectly  approximately  46% of UTG, and has stock options granted which would
facilitate ultimate ownership of over 51% of UTG.

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 Registrant 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:

     Fixedmaturities  -- 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.

                                       39
<PAGE>

     Real  estate  -  Investment   real  estate  at  cost  less   allowance  for
     depreciation  and, as  appropriate,  provisions  for  possible  losses.  At
     year-end 1999,  the Company wrote down a parcel of real estate  $178,000 it
     determined to attempt to sell during 2000. The write down was the result of
     Management's  determination of the amount it would be willing to accept for
     the property.  Foreclosed real estate is adjusted for any impairment at the
     foreclosure  date.  Accumulated  depreciation on investment real estate was
     $1,824,484 and $1,696,428 as of December 31, 1999 and 1998, 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.

     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.  Future
     policy  benefits for  individual  life  insurance and annuity  policies are
     computed  using interest rates ranging from 2% to 6% for life insurance and
     2.5%  to  9.25%  for  annuities.  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 1999 and 1998 and 5.0% to 6.0% in 1997.

                                       40
<PAGE>

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  75% of the business and
     15% discount rate on approximately  25% 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 75% 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 current or future gross profits to be realized from a group of
     products are revised.

<TABLE>
<CAPTION>
                                                          1999                 1998                1997
                                                     ----------------     ----------------    ----------------
        <S>                                        <C>                  <C>                 <C>
        Cost of insurance acquired,
        Beginning of year                          $     17,628,369     $     18,654,506    $      19,886,494
           Interest accretion                             1,495,074            1,555,706            1,630,058
           Amortization                                  (2,567,847)          (2,581,843)          (2,862,046)
                                                     ----------------     ----------------    ----------------
           Net amortization                              (1,072,773)          (1,026,137)          (1,231,988)
                                                     ----------------     ----------------    ----------------

        Cost of insurance acquired,
          end of year                              $     16,555,596     $     17,628,369    $      18,654,506
                                                     ================     ================    ================
</TABLE>

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

                   Interest                            Net
                  Accretion      Amortization      Amortization
                  ---------      ------------      ------------
     2000       $ 1,423,000       $ 2,608,000        $1,185,000
     2001         1,334,000         2,450,000         1,116,000
     2002         1,243,000         2,202,000           959,000
     2003         1,162,000         1,976,000           814,000
     2004         1,092,000         1,774,000           682,000


L.   DEFERRED POLICY  ACQUISITION  COSTS - Commissions and other costs (salaries
     of  certain  employees  involved  in  the  underwriting  and  policy  issue
     functions,  and medical and  inspection  fees) 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

                                       41
<PAGE>

     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>
                                                         1999                 1998                  1997
                                                   -----------------    -----------------     -----------------
      <S>                                      <C>                  <C>                   <C>
      Deferred, beginning of year              $     11,840,548     $     16,745,720      $     18,162,356

      Acquisition costs deferred:
        Commissions                                     566,000              690,000               998,000
        Other expenses                                  154,000              202,000               274,000
                                                 -----------------    -----------------     -----------------
        Total                                           720,000

      Interest accretion                                436,000              758,000               827,000
      Amortization charged to income                 (3,219,012)          (3,572,172)           (3,515,636)
                                                 -----------------    -----------------     -----------------
        Net amortization                             (2,783,012)          (2,814,172)           (2,688,636)
      Amortization due to impairment                          0           (2,983,000)                    0
                                                 -----------------    -----------------     -----------------
        Change for the year                          (2,063,012)          (4,905,172)            (1,416,636)
                                                 -----------------    -----------------     -----------------
      Deferred, end of year                    $      9,777,536     $     11,840,548      $      16,745,720
                                                 =================    =================     =================

     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.

     The following table reflects the components of the income statement for the
     line item  commissions  and  amortization  of deferred  policy  acquisition
     costs.
</TABLE>

<TABLE>
<CAPTION>

                                              1999              1998          1997
                                        -------------     -------------    ---------
<S>                                      <C>               <C>               <C>
     Net amortization of deferred
       policy acquisition costs          $ 2,783,012       $ 5,797,172       $ 2,688,636
     Commissions                             976,886         1,282,357         1,619,729
                                          -----------        ----------        ----------
       Total                             $ 3,759,898       $ 7,079,529       $ 4,308,365
                                           ==========        ==========        ==========
</TABLE>


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

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

           2000       $  374,000      $  2,425,000      $  2,051,000
           2001          334,000         2,121,000         1,787,000
           2002          297,000         1,841,000         1,544,000
           2003          265,000         1,585,000         1,320,000
           2004          237,000         1,352,000         1,115,000


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

                                       42
<PAGE>

     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  $6,848,192  and  $6,415,642  as of
     December 31, 1999 and 1998, respectively.

N.   PROPERTY  AND  EQUIPMENT  -  Company-occupied   property,  data  processing
     equipment  and  furniture  and  office  equipment  are  stated at cost less
     accumulated  depreciation of $4,688,815 and $4,336,366 at December 31, 1999
     and 1998,  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  $352,449  and  $334,372 for the years
     ended December 31, 1999 and 1998, 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.   TREASURY  SHARES - The Company  holds 947 and 946 shares of common stock as
     treasury  shares with a cost basis of $3,464,100 and $3,464,000 at December
     31, 1999 and 1998, respectively.

R.   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,  and certain  annuities  with life  contingencies  are
     recognized as revenues when due.  Limited  payment life insurance  policies
     defer  gross  premiums  received in excess of net  premiums,  which is then
     recognized in income in a constant  relationship  with  insurance in force.
     Accident and health  insurance  premiums are recognized as revenue pro rata
     over the terms of the policies.  Benefits and related  expenses  associated
     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  and  policy  administration  fees  assessed  during the
     period.  Expenses include interest  credited to policy account balances and
     benefit claims incurred in excess of policy account balances.

S.   PARTICIPATING  INSURANCE - Participating business represents 31% and 34% of
     the  ordinary  life  insurance  in force at  December  31,  1999 and  1998,
     respectively.  Premium income from participating  business  represents 29%,
     39%, and 50% of total premiums for the years ended December 31, 1999,  1998
     and 1997,  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.

T.   RECLASSIFICATIONS  - Certain prior year amounts have been  reclassified  to
     conform to the 1999 presentation.  Such  reclassifications had no effect on
     previously reported net loss, total assets, or shareholders' equity.

                                       43
<PAGE>

U.   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, 1999,  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, 1999, UG
had a statutory gain from  operations of $3,535,018.  At December 31, 1999, UG's
statutory capital and surplus amounted to $15,022,234.  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".

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           $          5,006,121  $      1,149,693
        APPL                      6,555,209         1,525,367
         UG                      34,165,563         4,363,821


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.

                                       44
<PAGE>

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:

<TABLE>
<CAPTION>

                                              1999                 1998                1997
                                         ----------------    -----------------    ----------------
<S>                                  <C>                  <C>                  <C>
Current tax expense                  $               941  $           99,003   $               38
Deferred tax expense (credit)                    170,016          (4,565,694)             321,917
                                         ----------------    -----------------    ----------------
                                     $           170,957  $       (4,466,691)  $          321,955
                                         ================    =================    ================
</TABLE>

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

                              UG                FCC
                         -------------     ---------------
       2007          $              0  $          184,343
       2008                         0               4,595
       2009                         0             168,800
       2010                         0              19,112
       2012                   397,317                   0
       2019                 3,869,664                   0
                         -------------     ---------------
       TOTAL         $      4,266,981  $          376,850
                         =============     ===============


The Company has established a deferred tax asset of $1,625,341 for its operating
loss carryforwards and has established an allowance of $270,958. UG must average
approximately  $200,000  of  taxable  income per year to fully  realize  the net
operating loss  carryforward  for which no allowance is established.  Management
believes  future  earnings of UG will be  sufficient  to fully  utilize this net
operating loss carryforward.

The  Company has  established  a deferred  tax asset of  $670,367  for its total
unrealized losses on investments of $1,915,335, and has established an allowance
of $670,367.

The total allowances  established on deferred tax assets  increased  $470,023 in
1999.

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>

                                                             1999               1998               1997
                                                        ----------------   ----------------   ----------------

<S>                                                  <C>                <C>                <C>
Tax computed at statutory rate                       $     (59,486)     $    (2,216,542)   $      (517,611)
Changes in taxes due to:
  Cost in excess of net assets purchased                   151,393             155,282             155,282
  Current year loss for which no benefit realized                   0                0           1,039,742
  Benefit of prior losses                                    (6,309)        (2,587,353)           (324,705)
  Other                                                      85,359            181,922           52(30,753)
                                                        ----------------   ----------------   ----------------
Income tax expense (credit)                          $      170,957     $   (4,466,691)    $       321,955
                                                        ================   ================   ================
</TABLE>

                                       45
<PAGE>

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

                                             1999                  1998
                                        ----------------      ---------------
Investments                         $        (269,500)    $        (182,000)
Deferred policy acquisition costs           3,422,138             4,144,192
Cost of insurance acquired                  5,794,459             6,169,929
Agent balances                                (20,381)              (22,257)
Property and equipment                        (75,250)              (82,250)
Due premiums                                 (982,451)           (1,047,735)
Future policy benefits                     (4,840,859)           (7,194,930)
Net operating loss carryforward            (1,354,382)                    0
Other liabilities                            (839,045)             (902,734)
Federal tax DAC                            (1,864,715)           (2,082,217)
                                        ----------------      ---------------
Deferred tax liability (asset)      $      (1,029,986)    $      (1,200,002)
                                        ================      ===============


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,
                                            ----------------------------------------------------------
                                                     1999               1998               1997
                                                ---------------    ----------------   ----------------
<S>                                           <C>                <C>                <C>
Fixed maturities held to maturity and fixed
  maturities held for sale                    $     11,886,968   $     12,035,619   $     12,736,865
Equity securities                                       91,429             92,196             87,211
Mortgage loans                                       1,078,028            859,543            802,123
Real estate                                            389,181            842,724            745,502
Policy loans                                           991,812            984,761            976,064
Other long-term investments                             63,528             62,477             63,530
Short-term investments                                 147,726             29,907             70,624
Cash                                                   811,103          1,209,046            594,478
                                                ---------------    ----------------   ----------------
Total consolidated investment income                15,459,775         16,116,273         16,076,397
Investment expenses                                   (961,275)        (1,046,869)        (1,198,061)
                                               ----------------    ---------------    ----------------
Consolidated net investment income            $     14,498,500   $     15,069,404   $     14,878,336
                                                ===============    ================   ================
</TABLE>

At December  31, 1999,  the Company had a total of  $4,311,000  of  investments,
comprised of $3,197,000  in real estate,  $1,048,000  in equity  securities  and
$66,000 in other  long-term  investments,  which did not produce  income  during
1999.

                                       46
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                 Carrying Value
                                                                    -----------------------------------------
                                                                              1999                 1998
                                                                         ---------------      ---------------
<S>                                                                    <C>                  <C>
Investments held for sale:
    Fixed maturities
        U.S. Government, government agencies and authorities           $     22,928,178     $      1,437,901
        State, municipalities and political subdivisions                        194,166               42,224
        Collateralized mortgage obligations                                   5,578,853                    0
        Public utilities                                                              0                    0
        All other corporate bonds                                             1,490,160               25,281
                                                                         ---------------      ---------------
                                                                       $     30,191,357     $      1,505,406
                                                                         ===============      ===============

    Equity securities
        Banks, trust and insurance companies                           $      1,308,453     $      1,607,798
        Industrial and miscellaneous                                            857,103              479,618
                                                                         ---------------      ---------------
                                                                       $      2,165,556     $      2,087,416
                                                                         ===============      ===============

Fixed maturities held to maturity:
    U.S. Government, government agencies and authorities               $     30,556,303     $     36,809,239
    State, municipalities and political subdivisions                         17,440,381           23,835,306
    Collateralized mortgage obligations                                       4,892,693            9,406,895
    Public utilities                                                         35,812,281           41,724,208
    All other corporate bonds                                                56,049,453           62,465,200
                                                                         ---------------      ---------------
                                                                       $    144,751,111     $    174,240,848
                                                                         ===============      ===============
</TABLE>

By insurance  statute,  the majority of the  Company's  investment  portfolio is
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                1999             1998           1997
------------------------------     --------------    ------------   ------------
Public Utilities                 $      251,878    $     970,311 $       80,497
Corporate                               276,649           47,281        656,784
                                   -------------     ------------  -------------
Total                            $      528,527    $   1,017,592 $      737,281
                                   =============     ============  =============

                                       47
<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
1999                                           Cost              Gains            Losses             Value
-------------------------------------      --------------    --------------    --------------    ---------------
<S>                                      <C>               <C>               <C>               <C>
Investments Held for Sale:
  U.S. Government and govt.
    agencies and authorities             $    23,791,634   $             0   $      (863,456)  $     22,928,178
  States, municipalities and
    political subdivisions                       189,212             4,954                 0            194,166
  Collateralized mortgage
    obligations                                5,910,505                 0          (331,652)         5,578,853
  Public utilities                                     0                 0                 0                  0
  All other corporate bonds                    1,523,675                 0           (33,515)         1,490,160
                                           --------------    --------------    --------------    ---------------
                                              31,415,026             4,954        (1,228,623)        30,191,357
  Equity securities                            2,886,315            16,412          (737,171)         2,165,556
                                           --------------    --------------    --------------    ---------------
  Total                                  $    34,301,341   $        21,366   $    (1,965,794)  $     32,356,913
                                           ==============    ==============    ==============    ===============

Fixed maturities held to maturity:
  U.S. Government and govt.
    agencies and authorities             $    30,556,303   $       105,814   $    (1,490,965)  $     29,171,152
  States, municipalities and
    political subdivisions                    17,440,381            85,098          (442,417)        17,083,062
  Collateralized mortgage
    obligations                                4,892,693            78,972           (47,329)         4,924,336
  Public utilities                            35,812,281           268,532          (251,317)        35,829,496
  All other corporate bonds                   56,049,453           228,223          (610,703)        55,666,973
                                           --------------    --------------    --------------    ---------------
  Total                                  $   144,751,111   $       766,639   $    (2,842,731)  $    142,675,019
                                           ==============    ==============    ==============    ===============
</TABLE>

                                       48
<PAGE>

<TABLE>
<CAPTION>
                                              Cost or            Gross             Gross           Estimated
                                             Amortized        Unrealized        Unrealized           Market
1998                                           Cost              Gains            Losses             Value
-------------------------------------      --------------    --------------    --------------    ---------------
<S>                                      <C>               <C>               <C>               <C>
Investments Held for Sale:
  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
                                           ==============    ==============    ==============    ===============

Fixed maturities held to maturity:
  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>

The amortized cost and estimated market value of debt securities at December 31,
1999, by contractual  maturity,  is 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.

                                                                       Estimated
       Fixed Maturities Held for Sale         Amortized            Market
             December 31, 1999                  Cost                Value
----------------------------------------    --------------      --------------
Due in one year or less                   $             0     $             0
Due after one year through five years          19,335,930          18,842,204
Due after five years through ten years          6,014,378           5,615,804
Due after ten years                               154,212             154,496
Collateralized mortgage obligations             5,910,506           5,578,853
                                            --------------      --------------
Total                                     $    31,415,026     $    30,191,357
                                            ==============      ==============

                                       49
<PAGE>

                                                                       Estimated
     Fixed Maturities Held to Maturity        Amortized            Market
             December 31, 1999                  Cost                Value
----------------------------------------    --------------      --------------
Due in one year or less                   $    19,204,261     $    19,248,545
Due after one year through five years          77,160,894          76,756,898
Due after five years through ten years         37,642,780          36,063,606
Due after ten years                             5,850,482           5,681,633
Collateralized mortgage obligations             4,892,694           4,924,337
                                            --------------      --------------
Total                                     $   144,751,111     $   142,675,019
                                            ==============      ==============

An analysis of sales, maturities and principal repayments of the Company's fixed
maturities portfolio for the years ended December 31, 1999, 1998 and 1997, is as
follows:

<TABLE>
<CAPTION>
                                            Cost or            Gross             Gross             Proceeds
                                           Amortized          Realized          Realized             from
Year ended December 31, 1999                  Cost             Gains             Losses              Sale
-------------------------------------    ---------------    -------------    ---------------    ---------------
<S>                                    <C>                <C>              <C>                <C>
Scheduled principal repayments,
 calls and tenders:
     Held for sale                     $      1,430,000   $            0   $             0    $      1,430,000
     Held to maturity                        31,037,532           16,480           (21,722)         31,032,290
Sales:
      Held for sale                                   0                0                 0                   0
      Held to maturity                                0                0                 0                   0
                                         ---------------    -------------    ---------------    ---------------
  Total                                $     32,467,532   $       16,480   $       (21,722)   $     32,462,290
                                         ===============    =============    ===============    ===============
</TABLE>

<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>

                                       50
<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
                                         ===============    =============    ===============    ===============
</TABLE>

C.   INVESTMENTS  ON DEPOSIT - At  December  31,  1999,  investments  carried at
     approximately  $14,791,000  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, 1999 and 1998,  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 time period between the  origination of the instruments
and their expected realization.

(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.

                                       51
<PAGE>

(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.

(g)  Short-term investments

For short-term instruments, the carrying amount is a reasonable estimate of fair
value.  Short-term  instruments  represent  collateral notes 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.

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>
                                                  1999                              1998
                                   ---------------------------------------------------------------------
                                                         Estimated                          Estimated
                                        Carrying            Fair           Carrying           Fair
Assets                                   Amount            Value            Amount            Value
------
                                     ---------------   ---------------  ---------------   --------------
<S>                                <C>               <C>              <C>               <C>
Fixed maturities                   $    144,751,111  $    142,675,019 $    174,240,848  $   179,885,379
Fixed maturities held for sale           30,191,357        30,191,357        1,505,406        1,505,406
Equity securities                         2,165,556         2,165,556        2,087,416        2,087,416
Mortgage loans on real estate            15,483,772        14,633,879       10,941,614       10,979,378
Investment in real estate                 6,255,569         6,255,569        8,979,183        8,979,183
Real estate acquired in
  Satisfaction of debt                    1,550,000         1,550,000        1,550,000        1,550,000
Policy loans                             14,151,113        14,151,113       14,134,041       14,134,041
Other long-term investments                 906,278           873,089          906,278          879,037
Short-term investments                    2,200,000         2,200,000        1,036,251        1,036,251

Liabilities
Notes payable                            14,864,193        14,332,751       17,369,993       17,033,501
</TABLE>

                                       52
<PAGE>

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  becomes
effective  for most  states  January  1, 2001,  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.  The Company 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.  UG's  total  statutory  shareholders'  equity was  $15,022,234  and
$15,280,577  at December 31, 1999 and 1998,  respectively.  The  Company's  life
insurance subsidiaries reported combined statutory operating income before taxes
(exclusive of intercompany  dividends) of $3,843,000,  $5,485,000 and $2,067,000
for 1999, 1998 and 1997, respectively.


7.  REINSURANCE

Reinsurance  contracts  do not  relieve  the  Company  from its  obligations  to
policyholders. Failure of reinsurance companies 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
reinsurance company 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.

The Company has reinsured  approximately  $831 million,  $924 million and $1.022
billion in face amount of life  insurance  risks with other  insurers  for 1999,
1998 and 1997, respectively.  Reinsurance receivables for future policy benefits
were  $36,117,010 and  $36,965,938 at December 31, 1999 and 1998,  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 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 64% of
the reinsurance receivables as of December 31, 1999.

                                       53
<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 1999,
1998 and 1997 was as follows:

                                       Shown in thousands
                     --------------------------------------------------------
                          1999                1998                1997
                        Premiums            Premiums            Premiums
                         Earned              Earned              Earned
                     ----------------    ----------------    ----------------
Direct            $           25,539  $           30,919  $           33,374
Assumed                           20                  20                   0
Ceded                         (3,978)             (4,543)             (4,735)
                     ----------------    ----------------    ----------------
Net premiums      $           21,581  $           26,396       $      28,639
                     ================    ================    ================


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.

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.

United  Income,  Inc.  ("UII")  had a service  agreement  with  United  Security
Assurance  Company  ("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  remained in place  without  modification.  USA paid 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 had a subcontract
agreement with UTG to perform services and provide personnel and facilities. The
services  included  in  the  agreement  were  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 UTG states that UII pay UTG
monthly  fees equal to 60% of collected  service fees from USA as stated  above.
The service fees received from UII were recorded in UTG's  financial  statements
as other income.  With the merger of UII into UTG in July 1999, the sub-contract
agreement ended and UTG assumed the direct contract with USA. This agreement was
terminated upon the merger of USA into UG in December 1999.

                                       54
<PAGE>

USA paid  $677,807,  $835,345 and $989,295  under their  agreement  with UII for
1999,  1998 and 1997,  respectively.  UII paid  $223,753,  $501,207 and $593,577
under  their  agreement  with  UTG  for  1999,  1998  and  1997,   respectively.
Additionally,  UII paid FCC  $30,000,  $0 and  $150,000 in 1999,  1998 and 1997,
respectively  for  reimbursement  of  costs  attributed  to UII.  UTG  paid  FCC
$600,000, $0 and $575,000 in 1999, 1998 and 1997, respectively for reimbursement
of costs  attributed to UTG. These  reimbursements  are reflected as a credit to
general expenses.

On January 1, 1993,  FCC  entered an  agreement  with UG  pursuant  to which FCC
provides management services necessary for UG to carry on its business.  UG paid
$6,251,340,   $8,018,141  and  $8,660,481  to  FCC  in  1999,   1998  and  1997,
respectively.

ABE pays fees to FCC pursuant to a cost sharing and  management  fee  agreement.
FCC provides management services for ABE to carry on its business. The agreement
requires ABE to pay a percentage of the actual expenses incurred by FCC based on
certain activity indicators of ABE business to the business of all the insurance
company  subsidiaries  plus a management fee based on a percentage of the actual
expenses  allocated to ABE. ABE paid fees of $392,005,  $399,325 and $443,726 in
1999, 1998 and 1997, respectively under this agreement.

APPL has a  management  fee  agreement  with FCC  whereby FCC  provides  certain
administrative  duties,  primarily data processing and investment  advice.  APPL
paid fees of $300,000 in 1999, 1998 and 1997, under this agreement.

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 the  Company  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 December 31, 1999, UTG and Jesse T. Correll entered a transaction whereby Mr.
Correll,  in combination with other  individuals,  made an equity  investment in
UTG.  Under the terms of the Stock  Acquisition  Agreement,  the  Correll  group
contributed  their 100%  ownership  of North Plaza of  Somerset,  Inc. to UTG in
exchange for 681,818  authorized  but unissued  shares of UTG common stock.  The
Board of Directors of UTG approved the  transaction  at their regular  quarterly
board  meeting held on December 7, 1999.  North Plaza of Somerset,  Inc.  owns a
shopping  center  in  Somerset,  Kentucky  and  approximately  23,000  acres  of
timberland in Kentucky. North Plaza has no debt. The net assets have been valued
at $7,500,000, which equates to $11.00 per share for the new shares issued.

Mr.  Correll is a member of the Board of  Directors of UTG and  currently  UTG's
largest shareholder through his ownership control of FSF and its affiliates. Mr.
Correll is the  majority  shareholder  of FSF,  which is an  affiliate  of First
Southern Bancorp, Inc., a bank holding company that operates out of 14 locations
in central Kentucky.  Following the above transaction,  as of December 31, 1999,
Mr. Correll owns or controls directly and indirectly approximately 46% of UTG.

Following  necessary  regulatory  approval,  on December  29,  1999,  UG was the
survivor  to a merger  with its 100%  owned  subsidiary,  USA.  The  merger  was
completed  as a part of  management's  efforts to reduce  costs and simplify the
corporate structure.

On July 26, 1999, the shareholders of UTG and UII approved a merger  transaction
of the two  companies.  Prior to the merger,  UTG owned 53% of UTGL99 (refers to
the former  United Trust Group,  Inc.,  which was formed in February of 1992 and
liquidated in July of 1999) an insurance  holding company,  and UII owned 47% of
UTGL99.  Additionally,  UTG held an equity  investment  in UII.  At the time the
decision  to merge  was  made,  neither  UTG nor UII had 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 by creating a larger more viable life insurance

                                       55
<PAGE>

holding group with lower administrative costs, a simplified corporate structure,
and more readily  marketable  securities.  Following  the merger  approval,  UTG
issued 817,517 shares of its authorized but unissued  common stock to former UII
shareholders,  net of any  dissenter  shareholders  in the  merger.  Immediately
following the merger,  UTGL99,  which was then 100% owned by UTG, was liquidated
and UTG changed its name to United Trust Group, Inc. ("UTG").

On January 16,  1998,  UTG  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 was paid in full on November
23, 1998.

On September 23, 1997, UTG acquired  10,056 shares of its common stock from Paul
Lovell,  a director,  for $35,000  and a  promissory  note valued at $61,000 due
September 23, 2004. The note was paid in full on November 23, 1998. Simultaneous
with the stock purchase, Mr. Lovell resigned his position on the UTG board.

On July 31,  1997,  UTG  issued  convertible  notes for cash  received  totaling
$2,560,000  to seven  individuals,  all  officers or employees of UTG. 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 UTG of a portion of the holdings of UTG
owned by Larry E. Ryherd and his family and the  acquisition  of common stock of
UTG 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 UTG and United Income,
Inc.  of Mr.  Morrow and to acquire a portion  of the UTG  holdings  of Larry E.
Ryherd  and his  family.  The  remaining  cash  received  will be used by UTG to
provide  additional  operating  liquidity  and for future  acquisitions  of life
insurance companies. On July 31, 1997, UTG acquired a total of 126,921 shares of
its 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.  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, UTG acquired a total
of 97,499  shares of its 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 UTG 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 UTG.
The market price of UTG 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
UTG stock.  There were no  additional  stated or  unstated  items or  agreements
relating  to the stock  purchase.  The  promissory  notes to Mr.  Morrow and his
family and Mr. Ryherd and his family were paid in full on November 23, 1998.

On  July  31,1997,   the  Company  entered  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.

                                       56
<PAGE>

10.  NOTES PAYABLE

At December 31, 1999 and 1998, the Company has  $14,864,193  and  $17,369,993 in
long term debt outstanding, respectively. The debt is comprised of the following
components:

                                                   1999            1998
                                               -------------   -------------
Nonaffiliated senior debt                    $       25,000 $       100,000
Affiliated subordinated 10 yr. Notes                      0       1,427,067
Affiliated subordinated 20 yr. Notes              3,431,094       4,034,827
Other affiliated notes payable                   11,408,099      11,808,099
                                               -------------   -------------
                                             $   14,864,193 $    17,369,993
                                               =============   =============

A.  Nonaffiliated 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, 1999 was 8.50%. Interest is paid quarterly. During
second  quarter  1999,  the Company  prepaid a $75,000  principal  payment.  The
remaining balance of $25,000 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.  Affiliated subordinated debt

The  subordinated  debt was incurred June 16, 1992 as a part of the  acquisition
transactions of the now dissolved Commonwealth Industries Corporation, (CIC) and
is payable to UTG.  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. During second quarter 1999,
the Company prepaid all of the outstanding 10-year notes.

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.  During second quarter,  1999, the Company
prepaid  subordinated  debt  consisting  of all of the 20-year  notes with 8.75%
interest rates and $98,771 of the 8.5% 20-year notes.


C.  Other affiliated notes payable

All affiliated notes payable of FCC are due to its parent, UTG.

FCC has  borrowings of $700,000 and  $300,000.  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

                                       57
<PAGE>

quarterly  with  principal due at maturity on May 8, 2006. In February 1996, FCC
borrowed an  additional  $150,000  and $250,000 to provide  additional  cash for
liquidity. These two notes totaling $400,000, which bear 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 notes on June 30, 2002,
were prepaid by FCC in the fourth quarter of 1999.

In November 1997, FCC borrowed  $1,000,000 to facilitate the prepayment of a 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.

In November  1998,  FCC borrowed  $2,608,099  to  facilitate  the  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 December  31,  2005.  In addition,  FCC  borrowed  $6,300,000  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 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 notes, on March 31, 2004.

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

                           Year                        Amount
                  -----------------------       ---------------------
                  2000                       $                     0
                  2001                                             0
                  2002                                             0
                  2003                                             0
                  2004                                       500,000


11.  DEFERRED COMPENSATION PLAN

UTG and FCC  established  a deferred  compensation  plan during 1993 pursuant to
which an officer or agent of FCC or affiliates of UTG,  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 UTG.  At the
beginning of the  deferral  period an officer or agent  received an  immediately
exercisable  option to purchase  2,300  shares of UTG 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,  1999,  no
options were exercised.  At December 31, 1999 and December 31, 1998, the Company
held a liability of $1,283,399 and  $1,494,520,  respectively,  relating to this
plan.  At December 31,  1999,  UTG 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, 1999:

              Number outstanding                                    105,000
      Exercise price                                                 $17.50
      Remaining contractual life                                     1 year

                                       58
<PAGE>

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  based on $.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.


13.  OTHER CASH FLOW DISCLOSURE

On a cash basis,  the Company paid  $1,353,653,  $1,655,297  and  $1,595,699  in
interest  expense for the years 1999, 1998 and 1997,  respectively.  The Company
paid  $516,200,  $10,630 and  $49,520 in federal  income tax for the years 1999,
1998 and 1997 respectively.


14.  CONCENTRATION OF CREDIT RISK

The Company maintains cash balances in financial  institutions that at times may
exceed federally  insured limits.  The Company  maintains its primary  operating
cash accounts with First Southern  National Bank, an affiliate of First Southern
Funding,  LLC,  the largest  shareholder  of UTG.  One of these  accounts  holds
approximately  $5,000,000  for which there are no pledges or guarantees  outside
FDIC  insurance  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

SFAS 133 entitled, Accounting for Derivative Instruments and Hedging Activities,
was to be effective for all fiscal quarters of fiscal years beginning after June
15, 1999. SFAS 137 was subsequently  issued to defer the effective date, of SFAS
133, to be effective  for all fiscal  quarters of fiscal years  beginning  after
June 15, 2000.  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.  SFAS 133 did not affect the Company's
financial position or results of operations, since the Company has no derivative
or hedging type investments.

Additional  Statements of Financial  Accounting Standards have been issued; none
of which has direct applicability to the Company.

                                       59
<PAGE>

16.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  1999
                                        --------------------- ---------------------- --------------------- ----------------------
                                                1st                    2nd                   3rd                    4th
                                            -----------------      -----------------      ----------------       ----------------
<S>                                      <C>                            <C>                    <C>                    <C>
Premium and policy fees, net             $       6,007,511              5,705,270              5,337,120              4,531,242
Net investment income                            3,633,479              3,592,440              3,615,934              3,656,647
Total revenues                                   9,686,009              9,029,285              8,936,918              8,106,959
Policy benefits including dividends              6,193,473              5,970,833              5,107,765              4,980,313
Commissions and
  amortization of DAC and COI                    1,376,551              1,064,328              1,063,435              1,328,357
Operating expenses                               2,039,613              1,837,828              1,784,267              1,837,480
Operating  gain (loss)                            (280,350)              (168,450)               652,209               (373,369)
Net income (loss)                                 (148,594)              (355,116)               670,460               (544,707)
Basic earnings (loss) per share                      (2.72)                 (6.51)                 12.29                  (9.99)

                                                                                  1998
                                        --------------------- ---------------------- --------------------- ----------------------
                                                1st                    2nd                   3rd                    4th
                                            -----------------      -----------------      ----------------       ----------------
Premiums 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 income (loss)                           (560,422)              (174,918)               (63,688)            (5,533,949)
Net income (loss)                                 (323,149)              (115,432)               653,733             (2,164,977)
Basic 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 earnings (loss) per share                      (3.23)                 (3.54)                (13.97)                (11.91)
</TABLE>

                                       60
<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
----------------------

                             THE BOARD OF DIRECTORS

In accordance with the laws of Virginia and the Certificate of Incorporation and
Bylaws of FCC, as amended,  FCC 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, 1999, the Board met four times. All directors attended at least 75%
of all meetings of the board except for Mr. Oakley.

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 FCC, the nature of services performed for FCC and the fees to be paid
to the independent  auditors,  the performance of FCC's independent and internal
auditors  and  the  accounting  practices  of  FCC.  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 1999.

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

Under  FCC'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 twelve. Shareholders elect Directors to serve for a
period of one year at FCC'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 FCC.


DIRECTORS

Name,Age

               Position  with  the  Company,   Business   Experience  and  Other
               Directorships

John S. Albin 71

               Director of FCC since 1992; Director of UTG 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.


                                       61
<PAGE>

Randall L. Attkisson 54

               Director of FCC since 1999; 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. 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 65

               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  73

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

Jesse T. Correll  43

               Director  of FCC since  1999;  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 56

               Executive  Vice President  since July 1997;  Secretary of FCC and
               certain  affiliate  companies  since  1993;  Director  of FCC 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.

James E. Melville 54

               President  and Chief  Operating  Officer  since July 1997;  Chief
               Financial Officer of FCC since 1993, Chief Operating Officer from
               1989 to 1991 and Senior Executive Vice President of FCC from 1984
               until 1989; President of FCC and certain affiliate companies from
               1984 until  1991;  Senior  Executive  Vice  President  of certain
               affiliate companies from 1984 until 1989;  consultant to 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.

Luther C. Miller  69

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

Millard V. Oakley  69

               Director  of  FCC  since  1999;  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.

                                       62
<PAGE>

Robert V. O'Keefe 78

               Director of FCC since 1993;  Director  and  Treasurer of UTG 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 Ryherd 59

               CEO and Director of FCC since 1992;  UTG Chairman of the Board of
               Directors and a Director since 1984,  CEO since 1991;  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 72

               Director of FCC since 1992; Director of UTG and certain affiliate
               companies since 1987;  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 Company are set forth below:

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


Theodore C.  Miller  37

               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.

Joseph H.  Metzger  61

               Director  of FCC from 1992 - 1999,  Senior Vice  President,  Real
               Estate since 1989; Senior Vice President,  Real Estate of certain
               affiliate companies since 1983

Brad M. Wilson 48

               Senior Vice President and Chief Information Officer since 1992.

                                       63
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

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

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

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                                     Annual Compensation (1)
<S>                                 <C>              <C>                    <C>              <C>
                                                                                               Other Annual
Name and                                                                                     Compensation (2)
Principal Position                                   Salary($)              Bonus ($)                $

Larry E. Ryherd                     1999               400,000                 -                    21,230
Chairman of the Board               1998               400,000                 -                    20,373
Chief Executive Officer             1997               400,000                 -                    18,863

James E. Melville                   1999               238,200                 -                    33,084
President, Chief                    1998               238,200                 -                    31,956
Operating Officer                   1997               238,200                 -                    29,538

George E. Francis                   1999               126,200                 -                     9,077
Executive Vice                      1998               126,200                 -                     8,791
President, Secretary                1997               123,200                 -                     8,187

Joseph H. Metzger                   1999               126,200            49,800                    12,657
Senior Vice President               1998               126,200            20,123                    11,644
Director of Real Estate             1997               121,000                 -                    10,817

Brad M. Wilson                      1999               147,700             3,000                     6,815
Senior Vice President               1998               139,000             2,900                     6,506
Chief Information Officer           1997               131,000             2,700                     6,222
</TABLE>

(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 FCC'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, 1999, the
number of shares  subject to  unexercised  options and the value of  unexercised
options of the Common  Stock of UTG 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, 1999 and the  applicable  per share  exercise  price.  There were no options
granted to the named executive officers for the past three fiscal years.

                                       64
<PAGE>

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

Name                                                       Exercisable      Unexercisable     Exercisable     Unexercisable
<S>                               <C>            <C>              <C>             <C>              <C>              <C>
Larry E. Ryherd                   -              -                13,800          -                -                -
James E. Melville                 -              -                30,000          -                -                -
George E. Francis                 -              -                 4,600          -                -                -
Joseph H. Metzger                 -              -                 6,900          -                -                -
Brad M. Wilson                    -              -                 2,800          -                -                -
</TABLE>

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

FCC'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.  FCC's  director
compensation  policy also  provides  that  directors who are employees of FCC 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
--------------------

FCC  entered  into an  employment  agreement  dated July 31,  1997 with Larry E.
Ryherd.  Formerly,  Mr.  Ryherd  had served as  Chairman  of the Board and Chief
Executive  Officer of FCC and its  affiliates.  Pursuant to the  agreement,  Mr.
Ryherd agreed to serve as Chairman of the Board and Chief  Executive  Officer of
FCC 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 UTG at  $17.50  per  share.  The  option  is  immediately
exercisable and transferable. The option will expire December 31, 2000.

FCC  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 UTG at $17.50  per  share.  The option is
immediately  exercisable and  transferable.  The option will expire December 31,
2000.

FCC 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 FCC 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 UTG
at $17.50 per share.  The option is immediately  exercisable  and  transferable.
This option will expire on December 31, 2000.

                                       65
<PAGE>

FCC 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 at an annual salary of $126,200.  The agreement provides
that Mr.  Metzger  receives  cash  bonuses  if  certain  real  estate  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 UTG Common Stock at $17.50 per share.  The option is immediately  exercisable
and transferable. This option will expire on December 31, 2000.

FCC entered into an employment  agreement  with Brad M. Wilson on July 31, 1997.
Under  the  terms of the  agreement,  Mr.  Wilson is  employed  as  Senior  Vice
President and Chief Information  Officer at a minimum annual salary of $133,000.
The term of the agreement expires July 31, 2000. Mr. Wilson also agreed to serve
in other positions if appointed or elected to such positions without  additional
compensation.  Mr.  Wilson has  deferred  portions  of his  income  under a plan
entitling him to a deferred compensation payment on May 1, 2000 of $48,000 which
includes interest at the rate of approximately 8.5% annually.  Additionally, Mr.
Wilson was granted an option to purchase up to 2,800  shares of UTG Common Stock
at $17.50 per share. The option will expire on December 31, 2000.


REPORT ON EXECUTIVE COMPENSATION

Introduction
------------

The compensation of FCC's executive  officers is determined by the full Board of
Directors.  The  Board of  Directors  strongly  believes  that  FCC's  executive
officers  directly impact the short-term and long-term  performance of FCC. With
this belief and the corresponding  objective of making decisions that are in the
best interest of FCC's  shareholders,  the Board of Directors places significant
emphasis on the design and administration of FCC'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 FCC'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 FCC's other  shareholders.  The Board of Directors
believes  that this  strategy  motivates  executives  to remain  focused  on the
overall  long-term  performance  of  FCC.  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 UTG'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.

                                       66
<PAGE>

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 FCC's  parent,  UTG,  since 1984.  The
Board of Directors used the same compensation plan elements  described above for
all executive officers to determine Mr. Ryherd's 1999 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 FCC's long-term strategic and business goals.

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

FCC surveys total cash  compensation  for chief  executive  officers at the same
group of companies  described under "Base Salary" above.  Based upon its survey,
FCC 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 FCC.

The Board of Directors  considered FCC's financial  results as compared to other
companies within the industry, financial performance for fiscal 1999 as compared
to  fiscal  1998,   FCC's  progress  as  it  relates  to  FCC's  growth  through
acquisitions and  simplification  of the  organization,  the fact that since FCC
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 1999,  Mr.  Ryherd's  annual salary was $400,000,  the amount the
Board of Directors set in January 1998. 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  FCC  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                         James E. Melville
               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

                                       67
<PAGE>

PERFORMANCE GRAPH

The following graph compares the cumulative  total  shareholder  return on FCC's
Common  Stock during the five fiscal  years ended  December  31, 1999,  with the
cumulative total return on the NASDAQ Composite Index Performance and the NASDAQ
Insurance  Stock Index (1). The graph assumes that $100 was invested on December
31, 1994 in each of the Company's  common stock, the NASDAQ Composite Index, and
the NASDAQ Insurance Stock Index, and that any dividends were reinvested.

                    1994 1995 1996 1997 1998 1999
FCC                 100  100  100  224  310  220
NASDAQ              100  142  174  214  301  543
NASDAQ Insurance    100  142  162  237  212  165


(1)    FCC selected the NASDAQ  Composite  Index  Performance  as an appropriate
       comparison  because  FCC's Common Stock is not listed on any exchange but
       FCC's Common Stock is traded in the over-the-counter market. Furthermore,
       FCC 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 FCC's Common Stock is limited, which may
       be in part a result of FCC's  low  profile  from not being  listed on any
       exchange,  and its  reported  operating  losses.  The Return Chart is not
       intended to forecast or be indicative of possible  future  performance of
       FCC's stock.

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


Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

The following  persons  served as directors of the Company  during 1999 and were
officers or employees of the Company or its subsidiaries  during 1999: 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 1999, Larry E. Ryherd,  James E. Melville and George E. Francis executive
officers of the  Company,  were also  members of the Board of  Directors of UTG,
three of whose  executive  officers  served  on the  Board of  Directors  of the
Company: Messrs. Francis, Melville, and Ryherd.

                                       68
<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 FCC's Common Stock and shows:  (i)
the total number of shares of Common Stock  beneficially owned by such person as
of December 31, 1999 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.               43,850            80.4%
 Stock $1.00    5250 South Sixth Street
 par value      Springfield, Illinois  62703


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

The  following  tabulation  shows  with  respect  to each of the  directors  and
nominees of FCC, with respect to FCC's chief executive officer and each of FCC's
executive  officers whose salary plus bonus  exceeded  $100,000 for fiscal 1999,
and with respect to all executive  officers and directors of FCC as a group: (i)
the total  number of shares of all classes of stock of FCC or any of its parents
or  subsidiaries,  beneficially  owned as of December 31, 1999 and the nature of
such ownership;  and (ii) ) the percent of the issued and outstanding  shares of
stock so owned, and granted stock options available 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
  -----    -----------------------------             ---------           -----

UTG's      John S. Albin                               10,503     (1)      *
Common     Randall L. Attkisson                             0              *
Stock, no  William F. Cellini                           1,000              *
par value  John W. Collins                                  0              *
           Jesse T. Correll                         2,042,724     (2)    46.5%
           George E. Francis                            4,600     (3)      *
           James E. Melville                           52,500     (4)       1.2%
           Joseph H. Metzger                            6,900     (5)      *
           Luther C. Miller                                 0              *
           Millard V. Oakley                           16,471              *
           Robert V. O'Keefe                              300     (6)      *
           Larry E. Ryherd                            548,989     (7)      12.5%
           Robert W. Teater                             7,380     (8)      *
           Brad M. Wilson                               2,800     (9)      *
           All directors and executive officers
           as a group (fourteen in number)          2,694,167            61.3%

                                       69
<PAGE>


FCC'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                             1,217     (2)      2.2%
           George E. Francis                                0               *
           James E. Melville                              544     (10)     1.0%
           Joseph H. Metzger                                0                0
           Luther C. Miller                                 0               *
           Millard V. Oakley                                0               *
           Robert V. O'Keefe                                0               *
           Larry E. Ryherd                                  0               *
           Robert W. Teater                                 0               *
           Brad M. Wilson                                   0               *
           All directors and executive officers         1,761               3.2%
           as a group (fourteen in number)

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

(2)  Jesse  T.  Correll  owns  112,704  shares  of UTG  stock  individually.  In
     addition,  Mr. Correll is a director and officer of First Southern Funding,
     LLC &  Affiliates  which owns  1,930,020  shares of UTG and 1,217 shares of
     FCC's common stock. (See Principal Holders of Securities).

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

(4)  James E. Melville owns 2,500 shares  individually and 14,000 shares jointly
     with his spouse. Includes: (i) 3,000 shares of UTG's Common Stock which are
     held  beneficially  in trust for his daughter,  namely Bonnie J.  Melville;
     (ii) 3,000  shares of UTG'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.

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

(6)  300 shares owned directly by Mr. O'Keefe's spouse.

(7)  Larry E. Ryherd owns 181,091  shares of UTG's Common Stock in his own name.
     Includes:  (i) 150,050  shares of UTG's Common Stock in the name of Dorothy
     LouVae  Ryherd,  his wife;  (ii) 150,000 shares of UTG'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) 4,638 shares of UTG'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 and 38 shares  which are in the
     name of Derek  Scott  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; (v) 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 and
     (vi) 13,800  shares which may be acquired by Larry E. Ryherd upon  exercise
     of outstanding stock options.

(8)  Includes 210 shares owned directly by Mr. Teater' s spouse.

(9)  Includes  2,800 shares which may be acquired upon  exercise of  outstanding
     stock options.

(10) James E. Melville owns 168 shares  individually and 376 shares jointly with
     his spouse.
 * Less than 1%.

                                       70
<PAGE>

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

Directors  and  officers of FCC 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.

United  Income,  Inc.  ("UII")  had a service  agreement  with  United  Security
Assurance  Company  ("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  remained in place  without  modification.  USA paid 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 had a subcontract
agreement with UTG to perform services and provide personnel and facilities. The
services  included  in  the  agreement  were  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 UTG states that UII pay UTG
monthly  fees equal to 60% of collected  service fees from USA as stated  above.
The service fees received from UII were recorded in UTG's  financial  statements
as other income.  With the merger of UII into UTG in July 1999, the sub-contract
agreement ended and UTG assumed the direct contract with USA. This agreement was
terminated upon the merger of USA into UG in December 1999.

USA paid  $677,807,  $835,345 and $989,295  under their  agreement  with UII for
1999,  1998 and 1997,  respectively.  UII paid  $223,753,  $501,207 and $593,577
under  their  agreement  with  UTG  for  1999,  1998  and  1997,   respectively.
Additionally,  UII paid FCC  $30,000,  $0 and  $150,000 in 1999,  1998 and 1997,
respectively  for  reimbursement  of  costs  attributed  to UII.  UTG  paid  FCC
$600,000, $0 and $575,000 in 1999, 1998 and 1997, respectively for reimbursement
of costs  attributed to UTG. These  reimbursements  are reflected as a credit to
general expenses.

On January 1, 1993,  FCC  entered an  agreement  with UG  pursuant  to which FCC
provides management services necessary for UG to carry on its business.  UG paid
$6,251,340,   $8,018,141  and  $8,660,481  to  FCC  in  1999,   1998  and  1997,
respectively.

ABE pays fees to FCC pursuant to a cost sharing and  management  fee  agreement.
FCC provides management services for ABE to carry on its business. The agreement
requires ABE to pay a percentage of the actual expenses incurred by FCC based on
certain activity indicators of ABE business to the business of all the insurance
company  subsidiaries  plus a management fee based on a percentage of the actual
expenses  allocated to ABE. ABE paid fees of $392,005,  $399,325 and $443,726 in
1999, 1998 and 1997, respectively under this agreement.

 APPL has a  management  fee  agreement  with FCC whereby FCC  provides  certain
administrative  duties,  primarily data processing and investment  advice.  APPL
paid fees of $300,000 in 1999, 1998 and 1997, under this agreement.

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 the  Company  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

                                       71
<PAGE>

included are costs associated with the maintenance of existing policies that are
charged as current period costs and included in "general expenses".

On December 31, 1999, UTG and Jesse T. Correll entered a transaction whereby Mr.
Correll,  in combination with other  individuals,  made an equity  investment in
UTG.  Under the terms of the Stock  Acquisition  Agreement,  the  Correll  group
contributed  their 100%  ownership  of North Plaza of  Somerset,  Inc. to UTG in
exchange for 681,818  authorized  but unissued  shares of UTG common stock.  The
Board of Directors of UTG approved the  transaction  at their regular  quarterly
board  meeting held on December 7, 1999.  North Plaza of Somerset,  Inc.  owns a
shopping  center  in  Somerset,  Kentucky  and  approximately  23,000  acres  of
timberland in Kentucky. North Plaza has no debt. The net assets have been valued
at $7,500,000, which equates to $11.00 per share for the new shares issued.

Mr.  Correll is a member of the Board of  Directors of UTG and  currently  UTG's
largest shareholder through his ownership control of FSF and its affiliates. Mr.
Correll is the  majority  shareholder  of FSF,  which is an  affiliate  of First
Southern Bancorp, Inc., a bank holding company that operates out of 14 locations
in central Kentucky.  Following the above transaction,  as of December 31, 1999,
Mr. Correll owns or controls  directly and indirectly  approximately 46% of UTG.
The 46% referenced  includes 171,273 shares owned by Mr. Correll's father,  Ward
F. Correll,  who is on the Board of Directors of UTG, and does not include stock
options  granted  totaling  370,904  shares,  which  would  facilitate  ultimate
ownership of over 51% of UTG.

Following  necessary  regulatory  approval,  on December  29,  1999,  UG was the
survivor  to a merger  with its 100%  owned  subsidiary,  USA.  The  merger  was
completed  as a part of  management's  efforts to reduce  costs and simplify the
corporate structure.

On July 26, 1999, the shareholders of UTG and UII approved a merger  transaction
of the two  companies.  Prior to the merger,  UTG owned 53% of UTGL99 (refers to
the former  United Trust Group,  Inc.,  which was formed in February of 1992 and
liquidated in July of 1999) an insurance  holding company,  and UII owned 47% of
UTGL99.  Additionally,  UTG held an equity  investment  in UII.  At the time the
decision  to merge  was  made,  neither  UTG nor UII had 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 by creating a larger more viable life insurance  holding group with
lower administrative  costs, a simplified corporate structure,  and more readily
marketable securities.  Following the merger approval, UTG issued 817,517 shares
of its authorized but unissued common stock to former UII  shareholders,  net of
any  dissenter  shareholders  in the merger.  Immediately  following the merger,
UTGL99,  which was then 100% owned by UTG,  was  liquidated  and UTG changed its
name to United Trust Group, Inc. ("UTG").

On January 16,  1998,  UTG  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 was paid in full on November
23, 1998.

On September 23, 1997, UTG acquired  10,056 shares of its common stock from Paul
Lovell,  a director,  for $35,000  and a  promissory  note valued at $61,000 due
September 23, 2004. The note was paid in full on November 23, 1998. Simultaneous
with the stock purchase, Mr. Lovell resigned his position on the UTG board.

On July 31,  1997,  UTG  issued  convertible  notes for cash  received  totaling
$2,560,000  to seven  individuals,  all  officers or employees of UTG. 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 UTG of a portion of the holdings of UTG
owned by Larry E. Ryherd and his family and the  acquisition  of common stock of
UTG 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.

                                       72
<PAGE>

Approximately  $1,048,000  of  the  cash  received  from  the  issuance  of  the
convertible  notes was used to acquire stock  holdings of UTG and United Income,
Inc.  of Mr.  Morrow and to acquire a portion  of the UTG  holdings  of Larry E.
Ryherd  and his  family.  The  remaining  cash  received  will be used by UTG to
provide  additional  operating  liquidity  and for future  acquisitions  of life
insurance companies. On July 31, 1997, UTG acquired a total of 126,921 shares of
its 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.  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, UTG acquired a total
of 97,499  shares of its 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 UTG 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 UTG.
The market price of UTG 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
UTG stock.  There were no  additional  stated or  unstated  items or  agreements
relating  to the stock  purchase.  The  promissory  notes to Mr.  Morrow and his
family and Mr. Ryherd and his family were paid in full on November 23, 1998.

On  July  31,1997,   the  Company  entered  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.


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

Kerber,  Eck and  Braeckel  LLP  served as FCC's  independent  certified  public
accounting  firm for the fiscal  year ended  December  31,  1999 and fiscal year
ended December 31, 1998. In serving its primary  function as outside auditor for
FCC,  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. FCC
does not expect  that a  representative  of  Kerber,  Eck and  Braeckel  will be
present at the Annual Meeting of Shareholders  of FCC. No accountants  have been
selected for fiscal year 2000 because FCC generally chooses  accountants shortly
before the commencement of the annual audit work.

                                       73
<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.

               None


(c)   Exhibits:

      Index to Exhibits (See Pages 75 and 76).

                                       74
<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

                                       75
<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)(3) Employment   Agreement  dated as of July 31, 1997 between Larry E.
              Ryherd and First Commonwealth Corporation

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

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

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

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

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

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

     10(q)(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.

                                       76
<PAGE>

                         FIRST COMMONWEALTH CORPORATION
                       SUMMARY OF INVESTMENTS - OTHER THAN
                         INVESTMENTS IN RELATED PARTIES
                             As of December 31, 1999
<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           $      30,556,303  $      29,171,152  $      30,556,303
      State, municipalities, and political
         subdivisions                                         17,440,381         17,083,062         17,440,381
      Collateralized mortgage obligations                      4,892,693          4,924,336          4,892,693
      Public utilities                                        35,812,281         35,829,496         35,812,281
      All other corporate bonds                               56,049,453         55,666,973         56,049,453
                                                         ----------------   ----------------   ----------------
    Total fixed maturities                                   144,751,111  $     142,675,019        144,751,111
                                                                            ================

Investments held for sale:
    Fixed maturities:
      United States Goverment and
         government agencies and authorities                  23,791,634  $      22,928,178         22,928,178
      State, municipalities, and political
         subdivisions                                            189,212            194,166            194,166
      Collateralized mortgage obligations                      5,910,505          5,578,853          5,910,505
      Public utilities                                                 0                  0                  0
      All other corporate bonds                                1,523,675          1,490,160          1,490,160
                                                         ----------------   ----------------   ----------------
                                                              31,415,026  $      30,191,357         30,523,009
                                                                            ================

    Equity securities:
      Banks, trusts and insurance companies                    1,935,619  $       1,308,453          1,308,453
      All other corporate securities                             950,696            857,103            857,103
                                                         ----------------   ----------------   ----------------
                                                               2,886,315  $       2,165,556          2,165,556
                                                                            ================


Mortgage loans on real estate                                 15,483,772                            15,483,772
Investment real estate                                         6,225,569                             6,225,569
Real estate acquired in satisfaction of debt                   1,550,000                             1,550,000
Policy loans                                                  14,151,113                            14,151,113
Other long-term investments                                      906,278                               906,278
Short-term investments                                         2,200,000                             2,200,000
                                                         ----------------                      ----------------
    Total investments                                  $     219,569,184                     $     217,956,408
                                                         ================                      ================
</TABLE>

                                       77
<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.

                                       78
<PAGE>

<TABLE>
<CAPTION>
                        FIRST COMMONWEALTH CORPORATION
                       CONDENSED FINANCIAL INFORMATION OF
                      REGISTRANT PARENT ONLY BALANCE SHEETS
                        As of December 31, 1999 and 1998

                                                                     Schedule II


                                                             1999              1998
                                                        ---------------   ---------------

ASSETS
<S>                                                   <C>               <C>
    Investment in affiliates                          $     44,835,565  $     49,919,765
    Cash and cash equivalents                                2,268,698         1,251,676
    Income taxes recoverable                                    22,817                 0
    Deferred income taxes                                      825,745           899,934
    Other assets                                                27,351            17,418
                                                        ---------------   ---------------
         Total assets                                 $     47,980,176  $     52,088,793
                                                        ===============   ===============


LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
    Notes payable                                     $     14,864,193  $     17,369,993
    Indebtedness to subsidiaries and affiliates, net         1,469,615           971,866
    Income taxes payable                                             0            16,474
    Other liabilities                                        2,486,032         2,908,076
                                                        ---------------   ---------------
         Total liabilities                                  18,819,840        21,266,409
                                                        ---------------   ---------------

Shareholders' equity:
    Common stock, net of treasury shares                        54,538            54,539
    Additional paid-in capital, net of treasury             51,875,721        51,875,820
    Accumulated deficit                                    (20,854,588)      (20,476,631)
    Accumulated other comprehensive income                  (1,915,335)         (631,344)
                                                        ---------------   ---------------
         Total shareholders' equity                         29,160,336        30,822,384
                                                        ---------------   ---------------
         Total liabilities and shareholders' equity   $     47,980,176  $     52,088,793
                                                        ===============   ===============
</TABLE>

                                       79
<PAGE>

<TABLE>
<CAPTION>
                         FIRST COMMONWEALTH CORPORATION
                       CONDENSED FINANCIAL INFORMATION OF
                 REGISTRANT PARENT ONLY STATEMENTS OF OPERATIONS
                       Three Years Ended December 31, 1999


                                                                     Schedule II



                                                                1999            1998             1997
                                                            -------------   --------------   --------------

<S>                                                       <C>             <C>              <C>
Revenues:

    Management fees from affiliates                       $    6,633,876  $     8,394,580  $     9,099,595
    Interest income                                               94,057           85,072           71,147
    Other income                                                 116,748            5,485            9,708
                                                            -------------   --------------   --------------
                                                               6,844,681        8,485,137        9,180,450


Expenses:

    Interest expense                                           1,344,888        1,618,498        1,612,438
    Operating expenses                                         5,277,169        8,106,901        5,153,625
                                                            -------------   --------------   --------------
                                                               6,622,057        9,725,399        6,766,063
                                                            -------------   --------------   --------------

    Operating income (loss)                                      222,624       (1,240,262)       2,414,387

    Income tax credit (expense)                                  (66,372)         724,656         (555,408)
    Equity in loss of subsidiaries                              (534,209)      (1,434,219)      (3,704,041)
                                                            -------------   --------------   --------------
         Net loss                                         $     (377,957) $    (1,949,825) $    (1,845,062)
                                                            =============   ==============   ==============

Basic loss per share from continuing operations
   and net loss                                           $        (6.93) $        (35.74) $        (32.65)
                                                            =============   ==============   ==============

Basic weighted average shares outstanding                         54,539           54,550           56,512
                                                            =============   ==============   ==============
</TABLE>
                                       80
<PAGE>


<TABLE>
<CAPTION>
                         FIRST COMMONWEALTH CORPORATION
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                      PARENT ONLY STATEMENTS OF CASH FLOWS
                       Three Years Ended December 31, 1999

                                                                     Schedule II

                                                                       1999               1998              1997
                                                                  ----------------   ---------------   ---------------

Increase  (decrease)  in cash and cash  equivalents
Cash flows  from  operating activities:
<S>                                                             <C>                <C>               <C>
   Net loss                                                     $        (377,957) $     (1,949,825) $     (1,845,062)
   Adjustments to reconcile net loss to net
     cash provided by operating activities:
    Equity in loss of subsidiaries                                        534,209         1,434,219         3,704,041
    Change in income taxes payable                                        (39,291)            5,919            (2,351)
    Change in deferred income taxes                                        74,189          (741,130)          544,779
    Change in indebtedness (to) from affiliates, net                      497,749          (434,530)          611,004
    Change in other assets and liabilities                               (431,977)        2,062,351        (1,456,678)
                                                                  ----------------   ---------------   ---------------
Net cash provided by operating activities                                 256,922           377,004         1,555,733
                                                                  ----------------   ---------------   ---------------

Cash flows from financing activities:
    Proceeds from notes payable                                                 0         9,408,099         1,000,000
    Payments of principal on notes payable                             (2,505,800)      (10,279,708)       (1,758,251)
    Dividend received from subsidiary                                   3,266,000                 0                 0
    Payment for fractional shares from reverse stock split                      0                 0          (534,251)
    Purchase of treasury stock                                               (100)           (1,500)                0
                                                                  ----------------   ---------------   ---------------
Net cash provided by (used in) financing activities                       760,100          (873,109)       (1,292,502)
                                                                  ----------------   ---------------   ---------------

Net increase (decrease) in cash and cash equivalents                    1,017,022          (496,105)          263,231
Cash and cash equivalents at beginning of year                          1,251,676         1,747,781         1,484,550
                                                                  ----------------   ---------------   ---------------
Cash and cash equivalents at end of year                        $       2,268,698  $      1,251,676  $      1,747,781
                                                                  ================   ===============   ===============
</TABLE>

                                       81
<PAGE>

<TABLE>
<CAPTION>
                         FIRST COMMONWEALTH CORPORATION
                                   REINSURANCE
          As of December 31, 1999 and the year ended December 31, 1999

                                                                     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                     $  3,143,747,000 $    831,024,000 $  1,007,431,000  $  3,320,154,000          30.3%
                                  ===============  ===============  ===============   ===============


Premiums and policy fees:

   Life insurance               $     25,345,843 $      3,929,888 $         20,324  $     21,436,279           0.1%

   Accident and health
     insurance                           193,541           48,677                0           144,864           0.0%
                                  ---------------  ---------------  ---------------   ---------------
                                $     25,539,384 $      3,978,565 $         20,324  $     21,581,143           0.1%
                                  ===============  ===============  ===============   ===============
</TABLE>

                                       82
<PAGE>

<TABLE>
<CAPTION>
                         FIRST COMMONWEALTH CORPORATION
                                   REINSURANCE
          As of December 31, 1998 and the year ended December 31, 1998

                                                                     Schedule IV


<S>                             <C>              <C>              <C>               <C>                     <C>
------------------------------------------------------------------------------------------------------------------


            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

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

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>

                                       83
<PAGE>

<TABLE>
<CAPTION>
                         FIRST COMMONWEALTH CORPORATION
                                   REINSURANCE
           As of December 31, 1997 and the year ended December 31, 1997

                                                                     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                    $  3,691,867,000  $  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
   Servicemen's Group Life Insurance Program (SGLI).

                                       84
<PAGE>

<TABLE>
<CAPTION>

                         FIRST COMMONWEALTH CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
              For the years ended December 31, 1999, 1998 and 1997

                                                                      Schedule V


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


December 31, 1999

<S>                                <C>          <C>    <C>   <C>       <C>
Allowance for doubtful accounts -
     mortgage loans                70,000            0 $         0      $     70,000




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
</TABLE>

                                       85
<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


     John S. Albin                                       Date:  March 27, 2000
---------------------------------------
John S. Albin, Director


/s/  Randall L. Attkisson                                Date:  March 27, 2000
----------------------------------------------
Randall L. Attkisson, Director


     William F. Cellini                                  Date:  March 27, 2000
---------------------------------------
William F. Cellini, Director


/s/  John W. Collins                                     Date:  March 27, 2000
--------------------------------------
John W. Collins, Director


/s/  Jesse T. Correll                                    Date:  March 27, 2000
---------------------------------------
Jesse T. Correll, Director


/s/  George E. Francis                                   Date:  March 27, 2000
------------------------------------
George E. Francis, Executive Vice
    President, Secretary, Chief
    Administrative Officer and Director


/s/  James E. Melville                                   Date:  March 27, 2000
-------------------------------------
James E. Melville, President,
    Chief Operating Officer and
    Director

                                       86
<PAGE>


/s/  Luther C. Miller                                    Date:  March 27, 2000
---------------------------------------
Luther C. Miller, Director


/s/  Millard V. Oakley                                   Date:  March 27, 2000
----------------------------------------
Millard V. Oakley, Director


/s/  Robert V. O'Keefe                                   Date:  March 27, 2000
-----------------------------------
Robert V. O'Keefe, Director


     Larry E. Ryherd                                     Date:  March 27, 2000
-------------------------------------
Larry E. Ryherd, Chairman, Chief
    Executive Officer and Director


/s/  Robert W. Teater                                    Date:  March 27, 2000
------------------------------------
Robert W. Teater, Director


/s/  Theodore C. Miller                                  Date:  March 27, 2000
-------------------------------------
Theodore C. Miller, Chief Financial
    Officer

                                       87
<PAGE>