FIRST COMMONWEALTH CORP, 10-K, 2000-03-29

FIRST COMMONWEALTH CORP
10-K, 2000-03-29
LIFE INSURANCE

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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
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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.

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<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.

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.

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.

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>

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.

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.

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<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.

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.

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<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.

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.

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<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.

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.

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<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.

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<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 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.

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<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.

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.

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<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 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.

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.

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

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.

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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

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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

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>

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").

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>

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:

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:

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>

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.

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.

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:

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.

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".

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.

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

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).

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.

71
<PAGE>

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

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.

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").

72
<PAGE>

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

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>
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<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>

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>

<ARTICLE> 7

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<DEBT-HELD-FOR-SALE> 30,191,357 1,505,406
<DEBT-CARRYING-VALUE> 144,751,111 174,240,848
<DEBT-MARKET-VALUE> 142,675,019 179,885,379
<EQUITIES> 2,165,556 2,087,416
<MORTGAGE> 15,483,772 10,941,614
<REAL-ESTATE> 7,805,569 10,529,183
<TOTAL-INVEST> 217,654,756 215,381,037
<CASH> 19,767,463 25,752,842
<RECOVER-REINSURE> 39,923,392 40,529,901
<DEFERRED-ACQUISITION> 9,777,536 11,840,548
<TOTAL-ASSETS> 320,875,023 328,736,837
<POLICY-LOSSES> 0 0
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 252,490,695 254,386,798
<POLICY-HOLDER-FUNDS> 18,670,224 19,471,114
<NOTES-PAYABLE> 14,864,193 17,369,993
0 0
0 0
<COMMON> 54,538 54,539
<OTHER-SE> 29,105,798 30,767,845
<TOTAL-LIABILITY-AND-EQUITY> 320,875,023 328,736,837
21,581,143 26,396,077
<INVESTMENT-INCOME> 14,498,500 15,069,404
<INVESTMENT-GAINS> (530,894) (851,822)
<OTHER-INCOME> 210,422 17,937
<BENEFITS> 22,252,384 26,342,405
<UNDERWRITING-AMORTIZATION> 3,759,898 7,079,529
<UNDERWRITING-OTHER> 9,916,849 13,542,639
<INCOME-PRETAX> (169,960) (6,332,977)
<INCOME-TAX> (170,957) 4,466,691
<INCOME-CONTINUING> (377,957) (1,949,825)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (377,957) (1,949,825)
<EPS-BASIC> (6.93) (35.74)
<EPS-DILUTED> (6.93) (35.74)
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0

</TABLE>